Welcome everyone to CTBC Financial Holding Company's 2020 fourth quarter earnings conference call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question- and- answer session. Please follow the instructions given at that time if you would like to ask a question. Today's host will be Ms. Yaling Chiu, the CFO and Spokesperson of CTBC Financial Holding Company, and Mr. Pai-Hung Yeh Executive Vice President of Taiwan Life Insurance Company. The presentation will begin now.
Thank you everyone for joining CTBC's 4Q 2020 earnings call. Please turn to page three on financial highlights. CTBC Holding deliver a resilient operating performance amid the COVID-19 pandemic. At a holding level, after-tax profits came in at TWD 42.9 billion. ROE and ROA reached 11.5% and 0.67% respectively. EPS was TWD 2.15. Holding remain well capitalized with CAR at 125.2% and double leverage ratio at 115.2%.
CTBC Bank maintain solid domestic loan growth, especially in mortgage and consumer loan, mitigating impact from rate cuts to net interest income. Fee income remains steady as higher wealth management, retail, and lottery fees offset lower credit card and corporate fees. For asset quality, NPL ratio was 0.49%, with better-than-expected credit costs of 36 basis points. Capitalization remains sound, with CAR at 14.6% and CET1 ratio at 11.95%. Taiwan Life continue to adopt a value-focused approach and a diversified investment strategy.
Life reported strong after-tax profit growth of 26% YoY due to decent investment income and lower cost of liability. RBC ratio remains sound at 310%. Page four on 2021 business focuses. In 2021, the holding has the following business focuses. First, to fortify prevailing business. The company will capture opportunities arising from post-pandemic recovery and supply chain relocation, and continue to develop corporate and retail fee-based products.
In overseas markets, we adopt a selective strategy focusing on high growth potential, enhancing non-interest income, and improving operating efficiency. Taiwan Life aims to strengthen earnings stability and will maintain its value-focused approach and diversified investment strategy. Second, to advance digital approach. We continue to digitalize operating processes to optimize customer experience and launch big data-based implementation within the group to explore new business opportunities. We further adopt AI and blockchain technology to enhance product and service innovation and improve operating efficiency.
In addition, we will expedite the transition to the cloud and adopt plans to upgrade core banking system. Third, to enhance asset quality. We aim to strengthen risk culture within the company by conducting credit training and case studies with both front and back office employees. In addition, we will promote proactive risk management practice and enhance post-lending management by concurrently disseminating information on early default warnings to all Taiwan and overseas operation units.
Page five on ESG updates. On environmental issues, CTBC Holding has adopted the Carbon Disclosure Project and Climate-related Financial Disclosures, while CTBC Bank has adopted the Equator Principles and Principles for Responsible Banking, and Taiwan Life has adopted Principles for Responsible Investment. CTBC Holding is the first financial institution to receive Award of Excellence in Energy Management from the UN Clean Energy Ministerial.
It's also the first in Taiwan to join the Partnership for Carbon Accounting Financials and the network. CTBC Bank is the first in Taiwan to issue a green bond and sustainability bond. CTBC Bank and Taiwan Life lead the industry in investments in solar and wind power generation projects, and actively participate in other green investments. On social issues, CTBC Bank was named as one of the top performing financial institutions in the fair treatment of customers and COVID-19 relief program by the Financial Supervisory Commission.
The bank provides micro loans to disadvantaged individuals both in Taiwan and six overseas markets, and leads in digital and automatic financial services for easy and friendly access to finance. Taiwan Life has adopted the Principles for Sustainable Insurance to develop financially inclusive insurance products. CTBC Financial Holding excels in gender equality, with 56% of management positions filled by women. It's a constituent stock of Taiwan High Compensation 100 Index for seven consecutive years. On governance, the holding is the first financial institution in Taiwan with Independent Directors filling majority of Board.
It established a sustainability committee comprised of Independent Directors. It also established a corporate sustainability office directly under the president to coordinate the sustainability related strategies and practice of the holding and the subsidiaries. The holding is drafting sustainability reports with reference to the Global Reporting Initiative, the Integrated Reporting, and Sustainability Accounting Standards Board frameworks.
CTBC Holdings ESG rating is recently upgraded by MSCI to A A, and it's a constituent stock of the MSCI Taiwan ESG Leaders Index, DJSI World and Emerging Markets Index, and FTSE4Good Index Series. Page six and seven on profitability. Holdings 2020 net income was TWD 42.9 billion, flat YoY. EPS was TWD 2.15. Group ROE was 11.5%, and ROA was 0.67%. Page eight on capital ratio. We remain well capitalized with group CAR at 125.2%, Life RBC ratio at 310%, bank CAR at 14.6%, and tier one ratio at 13.1%.
Page nine on profit breakdown by entity. In the chart below, for the full year, bank net profits reached TWD 27.3 billion, down 12% YoY. Life profits were TWD 16.5 billion, up 26% YoY. Holdings consolidated net profits were TWD 42.9 billion flat YoY. From the table on the right, Bank and Life contributed 64% and 39% of 2020 earnings respectively. Page 10 on net profit movements. In the chart above, operating revenue was down 8% QoQ as the company booked property disposal gains in 3Q. Provisions increased mostly due to specific provisions at TSB. As for Life, Q4 pre-tax profits declined due to seasonal stock dividend income in 3Q.
Holdings net income reached TWD 6.7 billion. On the bottom, operating revenue was down 4% YoY as the growth in NT dollar loans, wealth management, retail, and lottery fee income was offset by declines in foreign currency loans, credit card fees, and trading gains. Provisions were up 65%, and full-year credit costs were 36 basis points. Expense was down 5%. Life pre-tax profits were up 3%, supported by increased investment income and declining cost of liability.
Overall Holdings pre-tax profits reached TWD 51.6 billion, and net income reached TWD 42.9 billion. Page 11 on revenue breakdown excluding Life. Total revenue was down 8% QoQ and 4% YoY. Net interest income was up 1% QoQ, supported by NT dollar loan growth. Net interest income was flat YoY as solid NT dollar loan growth mitigated impact from rate cuts. Fee income was down 5% QoQ due to higher wealth management and lottery fees in 3Q.
Full year fee income was up 3% YoY, attributing to growth in wealth management, retail, lottery, securities, and investment businesses. Despite that fee income from credit card, corporate and overseas subsidiary was impacted by the pandemic. Combined derivative FX and trading gains was down 33% QoQ due to seasonal stock dividend income in 3Q, and was also down 33% YoY impacted by rate cuts and market volatility.
Long-term investment and others were down 129% QoQ due to property disposal gains in 3Q, and down 138% YoY as income from LHFG declined due to the pandemic. Page 12 on bank's loan breakdown. Total lending with credit card revolving was up 1% QoQ and 2% YoY. NT dollar corporate loan was up 5% QoQ, driven by growth in government-related and commerce and service sectors. NT dollar corporate loan growth was flat YoY.
Excluding government-related loans, NT dollar corporate loan was up 4% YoY, mainly from manufacturing, construction, and real estates and other sectors. Foreign currency loan was down 3% QoQ and 6% YoY. Excluding FX, foreign currency loan was down 4% YoY. Mortgage continued to grow 3% QoQ and 10% YoY amidst stable property market. Unsecured lending was up 3% QoQ, attributing to our strategy that expands customer base, and up 36% YoY due to increased customer base and the participation in labor relief program led by the government.
Credit card revolving was slightly up 0.5% QoQ and down 9% YoY as consumption weakened due to the pandemic. Page 13 on foreign currency loan breakdown. Foreign currency loan was TWD 969 billion, which accounted for 38% of total loans. Overseas subsidiaries accounted for 59% of total foreign currency loans, with TSB being the majority. Overseas branches accounted for 30%. OBU+ DBU was 11%. The pandemic has affected the loan demand in overseas market. Overseas subsidiaries loan was down 6% YoY.
Excluding FX, overseas subsidiary loan was down 4% YoY, despite that Indonesia subs still show single digit growth. Overseas branch loan was down 11% YoY. Excluding FX, overseas branch loan was down 8% YoY, despite double-digit growth from China, India, and Vietnam branches. OBU+ DBU was up 4% YoY. Excluding FX, OBU+ DBU loan was up 10% due to higher funding demands for trade finance and M&A activities. Page 14 on bank deposit mix. Total deposit reached TWD 3.7 trillion, up 3% QoQ and 10% YoY.
On the left, total NT dollar deposits were up 2% QoQ and 14% YoY. NT dollar savings accounted for 61%. On the right, total foreign currency deposits were up 6% QoQ and 8% YoY. Foreign currency savings accounted for 56%. Page 15 on loan-to-deposit ratio. Overall LDR was 70.4%. NT dollar LDR was 76.5%. Foreign currency LDR was 62.7%. Page 16 on NIM and spread. 4Q NIM remained flat QoQ, and full year NIM was down seven basis points YoY to 1.43%.
Foreign currency spreads were up 5 basis points QoQ to 2.13% due to increased savings deposit mix. NT dollar spreads were up 3 basis points QoQ to 1.54%. Overall spreads were up 3 basis points QoQ to 1.77%. Page 17 on fee breakdown. Total fees were down 6% QoQ and up 1% YoY. Wealth management fee was down 2% QoQ as growth in mutual fund fees was offset by declines in bank assurance fees. Full year wealth management fee was up 9% YoY, driven by 24% growth of mutual fund fees.
Credit card fee was up 14% QoQ due to recovered domestic consumption and down 12% YoY due to decreased consumption momentum amid the pandemic. Retail business was down 2% QoQ due to higher ATM fees in 3Q. It was up 4% YoY, driven by ATM fees due to the revamp of mobile and online banking apps, as well as other transaction business. Corporate business was down 20% QoQ and 7% YoY, mainly due to shrinkage of syndicated loan fees. Overseas subsidiary fee was down 1% QoQ and 25% YoY due to a decline in corporate business and wealth management fees from TSB.
Lottery fee was down 27% QoQ as higher accumulated jackpots driving the sales in 3Q. It was up 5% YoY. Page 18 on wealth management fee. For wealth management fee breakdown, bancassurance contributed 56%, mutual funds 34%, custodian and trust 3%, and others 7% of total wealth management fees.
Page 19 on cost income ratio. Bank operating revenue was down 4% QoQ, and operating expense was up 7% QoQ, leading to cost income ratio at 62.7% in 4Q. For the full year, operating expense was down 4% YoY. Cost income ratio was 58.1%. Page 20 on asset quality. NPL ratio was 0.49%, and NPL coverage ratio was 272%. Page 21 on credit cost. 4Q credit cost was 33 basis points, mostly due to specific provisions at TSB.
Full year credit cost was 36 basis points, reflecting increased specific provisions. Moving on to life business. Page 22 on total premium. Total premiums were TWD 58.1 billion in Q4, up 18% QoQ. Full year total premiums were TWD 209 billion, down 10% YoY. Market share was 6.6%, ranked number six in the industry. Page 23 on first year premium. FYPs reached TWD 27.7 billion in Q4, up 21% QoQ. Full year FYPs were TWD 89.6 billion, up 8% YoY, driven by strong sales of investment-linked products. Market share was 9.8%.
Ranked number four in the industry. Page 24 on FYP breakdown by types of payment and products. On the left, mix of single-pay products accounted for 28%, and regular pay products accounted for 25% of FYPs. On the right is the product breakdown. Investment-linked products accounted for 47%, and interest-sensitive policies accounted for 46% of FYPs. Page 25 on FYP breakdown by channels and currencies. In terms of channels, 56% of FYPs came from CTBC Bank, 25% from external banks, 11% from tied agents, and 7% from insurance brokers.
On the right, investment-linked products accounted for 47%, foreign currency policy 37%, and NT dollar policies 16% of FYPs. Page 26 on FYPE. FYPE reached TWD 23.6 billion. Market share was 7.6%, ranked number five in the industry. On the right is the FYPE mix for your reference. Page 27 on investment asset mix. Total investment assets reached TWD 1.9 trillion. In terms of portfolio breakdown, cash accounted for 5%, domestic fixed income 10.9%, overseas fixed income 59.9%, equities 7.9%, real estate 4.4%, mutual funds 9.2%, mortgage 1.4%, and policy loan 1.3%.
Page 28 on investment yield and cost of liability. 2020 investment yield after hedge was 3.79%. Recurring yield before hedge was 3.57%. Cost of liability was down 35 basis points YoY to 3.1%. In the chart on the right, since the consolidation of CTBC Life and Taiwan Life, Taiwan Life benefits from continued declines in cost of liability and maintains a diversified investment portfolio, allowing it to sustain positive spreads.
Page 29, on hedging mix. On the left, in terms of hedging, 60% of overseas investment assets were NT dollar policy, of which 64% were fully hedged, 14% were OCI position, and 22% were unhedged. 2020 hedging cost was 1.39%. On the right, Taiwan Life adopts a dynamic hedging strategy. Taiwan Life set aside an additional TWD 3 billion into FX reserve while slightly adjusted the hedge position to 64% in 2020. This is the end of the presentation. We are now open for Q&A.
Good afternoon, this is Yaling Chiu. Before the Q&A section, I would like to brief you about the outlook guidance for 2021. For loan growth, we anticipate loan growth has high single-digit growth. For NT dollar loan, we expect NT dollar loan remains high single-digit growth as 2020 momentum, mainly from mortgages, unsecured loans, and corporate loans, which will be driven by Taiwanese corporate coming home, 5G, green power, and better export trading.
As for foreign currency loan book, we expect a high single-digit growth as the vaccine roll out, which will reduce the uncertainty of pandemic and clients might start their investment to grow their businesses, and also the recovery of global economy and demand. The third driver is the low base in 2020. In terms of NIM, starting from Q3 in 2020, NIM has been staying at 1.4%. As we expect the growth of foreign currency loan book, which have a higher NIM, we expect NIM could have upside opportunity to improve by 1 basis points-2 basis points, meaning that we expect NIM will be between 1.4%-1.42%.
In terms of fee, we expect a high single-digit growth. As wealth management fee has been quite strong, we had 9.3% YoY in 2020, and we had 16% growth year-to-date in 2021, in January and February. As the interest rate is still low, we expect the strong momentum of wealth management to continue. For credit card fees, we expect mid to high single-digit growth, as 2020 was a low base, and also Taiwanese government is going to open a travel bubble for selected countries pretty soon. So overseas spending will be growing in 2020 gradually.
For corporate fees, we will start the corporate wealth management business, and also we will develop cash management and payment services for B2C clients such as e-commerce and games. Therefore, we also expect corporate fees has high single-digit growth. Overall, total fee growth will be high single digit.
For credit cost, we expect credit cost back to normal at the historical level, which is around 20 basis points- 25 basis points. For cost income ratio, we will target at around 58%, which is the same as previous year, 2020. On life side, key drivers are as follows. For recurring yield, we expect to be 3.26% in 2021, and cost of liability will be 3.06%, and hedging cost will be 1.11%. That is all for my update on the outlook guidance. Now we are open to Q&A.
Yes. Thank you, Ms. Chiu. Ladies and gentlemen, we will now begin our question- and- answer session. If you wish to ask the question, please press zero one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. Should you wish to cancel your question, you may press zero two. Thank you. Now please press zero one to ask the question. Thank you. Now, if you would like to ask the question, please press zero one on your telephone keypad. Thank you. Our first question is coming from Brooksley Kang , Bank of America Securities. Go ahead, please.
Hi. Good afternoon, management. Thank you for giving me the opportunity to ask questions. I have three questions, all on banks. First, on cost income ratio guidance, 58%, that means no improvement in 2021. Are we still following our mid-term guidance of 1 percentage point improvement on cost income ratio in the coming years? That's the first question. Secondly, on Tokyo Star Bank, because the provision in fourth quarter is way bigger than previous quarters.
Are these provisions still related to the one that we mentioned in previous presentation, that it's still about some logistics and tourism sector, or some other sectors or concerns that we may have for the Japan market? Finally, on LDR, because the deposit growth was relatively fast in 2020, I don't know if the growth will continue into 2021. What's the driver of the fast growth of deposit back in 2020? I was just wondering that when we guide a high single-digit growth of loan growth, if LDR will improve into 2021. Thank you.
Let me answer the first question about cost-income ratio. Actually, we would like to follow the mid-term guidance of 1% improvement every year. The market changed. Our NIM decreased. In 2021, NIM decreased by 7 basis points. The interest rate cut was starting from March last year. 7 basis points has not been fully reflected yet. Actually, the full impact of rate cut is 10 basis points. From 2019, NIM was 1.5%, and in 2021, when we fully reflected, the impact will be 1.4%. That will impact a lot of our top line, in NII, net interest income.
Actually, if we strip out the rate cut impact, actually, cost-income ratio should be around 57%, which still follows the same mid-term guidance if we assume the same interest rate environment. The second question is Tokyo Star Bank. The provision in fourth quarter was driven by the tourism industry as well as other industry like leverage buyout products, because in fourth quarter, Tokyo Star Bank could have their financial report in Japan. Based on the updated financial report, they reevaluate all the clients' situation. In fourth quarter, we provided higher provision for Tokyo Star Bank.
The third question is LDR. Yes, the deposit in 2020 increased a lot, which was driven by the thriving stock market, equity market in Taiwan because almost everybody was going into the equity market to invest. Our security savings account increased a lot in 2020. This is one of the main reasons. The second reason is amid the pandemic, our clients' activities slowed down. They were pending their investment, so they parked their money into the savings account.
That's the main reasons for the increase of deposit in 2020. In 2021, we foresee if the economy has been recovering recently, but will be more volatile than last year because the bond yield has been increasing. That will impact the equity market and stock market activities. Therefore, the deposit balance could remain at the same level or increase generally, which would be a slight lower the increased amount or the percentage could be smaller than that in last year. We expect the LDR will improve in 2021.
Okay. That's very clear. Thank you.
We're now in question- and- answer session. Please press zero one on your telephone keypad if you would like to ask a question. Thank you. The next question is coming from Gurpreet Sahi of Goldman Sachs, Hong Kong. Go ahead, please, Gurpreet.
Hi. Thanks for letting me ask the question. I just have a simple one around your overseas fixed income portfolio and Taiwan Life. That is nearly 60% of total assets. Given the volatility we saw in the bond market with yields rising and all, tell us how the team has changed either duration or the quality of the book. Thank you very much.
For the bond portfolio, there is no limitations from regulation. It means you can own 100% bond portfolio. For the quality of bond portfolio, all of bonds belong to investment grade are only 0.5% in terms of total asset. I mean the 0.5% belong to BB+ . The BB+ came from the downgrade of since we bought the portfolio. We don't have an intention to buy BB+ portfolio. That's all.
Thank you.
Next we have Jemmy Huang of JP Morgan for questions. Go ahead, please, Jemmy.
Yeah. Thanks. Just two questions from me. I think on the banking side, you provide pretty much all the guidance for 2021. Just looking at your trading and derivative income, if we take into account the impact on the swap revenue and also the trading gain altogether, how should we expect the revenue momentum this year, based on your base case scenario, after over 30% decline last year? The second question is, I think the dividend this year probably won't have big change, but if we look into the next two to three years or so, should investors expect a stable payout ratio or a stable DPS on that basis? Thank you.
In terms of trading revenues, yes, last year trading revenue declined a lot. The main reason was the swap spread narrowed down. We have achieved the bottom of the interest rate, so the spread of swap point will stay at this level, will not decline. It would not have further decline. Also, based on the first two months of this year, we have some trading gain from fixed income on banking side also.
We expect trading revenue will have slight growth in 2021. For the dividend policy in the midterm, yeah, we have done the five-year forecast based on the P&L and the capital adequacy requirement of this year. Yes, we believe we still can remain our dividend policy, which is around 50% payout ratio and 4%-5% dividend yield.
Okay. Thank you.
We're now in question- and- answer session. Please press zero one on your telephone keypad if you would like to ask a question. Thank you. Now please press zero one on your telephone keypad if you would like to ask a question. Thank you. If you would like to ask a question, please press zero one on your telephone keypad. Thank you. There appears to be no further questions at this point. We thank you very much for all your questions, and that will be the end of the conference. We thank you for your participation in CTBC Financial Holding Company's conference call. You may now disconnect. Goodbye