Welcome everyone to CTBC Financial Holding Company's 2020 third 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 Chief Financial Officer 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 third quarter earnings call. Please turn to page three on third quarter earnings highlights. Overall, CTBC Holding continued to deliver stable earnings amid COVID-19's impact on global economy. At holding level, ROE reached 13.6%, ROA at 0.76%, EPS at TWD 1.8. CTBC Holding maintained a balanced, diversified business model, ensuring resilient earnings, with the highest Q1- Q3 earnings of all local bank holding companies.
Holding also maintained well-capitalized risk cover ratio at 115.77% and maintained decent double leverage ratio at 116.5%. CTBC Bank observed stable momentum in its core businesses, despite the negative impact from rate cuts and COVID-19 pandemic. It maintained sound domestic loan growth, led by strong mortgages and consumer loans. Fee income from wealth management, retail business, and lottery grew, though credit card spending was lower due to the pandemic.
Asset quality, NPL ratio rose to 0.48% due to individual default cases, though credit costs lowered to a normalized level of 23 basis points in the third quarter. Capitalization remains strong, with CAR ratio at 13.51% and CET1 ratio was at 10.97%. Taiwan Life, its after-tax net profit increased by 14.4% YoY, due to strong investment gains and lower cost of liabilities.
Life continues to adopt a value-focused strategy, and it also leads the industry with highest portion of interest-sensitive policy and foreign currency policy among peers. It also pursued a balanced, diversified investment policy aimed at improving recurring investment income. RBC ratio remains superior at 310%. Please turn to page four on ESG progress and updates. CTBC Holding established a new functional committee, Sustainability Committee, under the Board in June 2020, with all Independent Board Directors serving as the committee's members.
Holding also became first in Taiwan to join the PCAF Global Carbon Accounting Partnership in October 2020, and signed on to the TCFD recommendations in April 2020. It is also the first financial institution to receive the Award of Excellence in Energy Management from the UN Clean Energy Ministerial, and it is the constituent stock of the MSCI Taiwan ESG Leaders Index, DJSI World and Emerging Markets Index, FTSE4Good Index Series, and Taiwan SE Corporate Governance 100 Index.
CTBC Bank, CTBC Bank became an Equator Principles signatory in January 2019 and adopted the Principles for Responsible Banking in December 2019. Moreover, it is the first in Taiwan to issue a green bond in 2017 and a sustainability bond in November 2020, also supporting green energy development by serving as a lead arranger for Taiwan offshore wind power project financing.
In addition, it 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 in July 2020. Taiwan Life adopted the Principles for Responsible Investment and incorporated ESG considerations into investment analysis and decision-making, also published the PRI report in July. In addition, Life adopted the Principles for Sustainable Insurance and continues to develop financially inclusive insurance products and services, and published the PSI report in November.
Life also leads Taiwan industry in investment in domestic solar and offshore wind power generation projects, and continuously participates in green investments. Page five and six on profitability. CTBC Holding's first nine months net profit was TWD 36.13 billion, decreased by 5.4% YoY. EPS was TWD 1.8. Group ROE was 13.6%, and ROA was 0.76%. Page seven on capital ratio. We remain well capitalized with group CAR at 115.8%, Life RBC ratio at 310%, Bank CAR at 13.5%, tier one ratio at 12%. Page eight on profit breakdown by legal entities.
In the chart above, in the third quarter, bank profits were TWD 7.98 billion, grew 57.1% QoQ, while profits were TWD 7.76 billion, grew 98.4% QoQ. Holding's consolidated net profit reached TWD 16.95 billion, grew 141.5% QoQ. In the below chart, year to September, bank net profits reached TWD 21.46 billion, down 14.9% YoY. Bank's profits were TWD 15.91 billion, up 14.4% YoY. Holding's consolidated net profits were TWD 36.13 billion, down 5.4% YoY.
On the chart on the right, bank and Life contributed for 59% and 44% of first nine months earnings respectively. Page nine, on net profit movements. In the above chart, operating revenue was up 3.8% QoQ with a growth in fee income. Provisions were down 56.4% QoQ, and expense was down 7.4% QoQ, mostly reflecting lower ESOP valuation expense. As for Life, benefited from increased dividend income and continuously improved cost of liability. Life's pre-tax income increased by 65.4% QoQ.
Holding's pre-tax income was TWD 18.6 billion, and holding net profit was TWD 17 billion, up 141.5% YoY. On the bottom, operating revenue was down 4.3% with the growth in NT dollar loan and wealth management, retail, and lottery fee income, offset by decreased credit card fee, foreign currency loan, and trading gain. Provision was up 162.9%, and expense was down 6.1% YoY, reflecting the decrease in ESOP valuation. Insurance pre-tax profit was up 13.4%, benefited from investment income and decreasing cost of liability.
Overall, holding pre-tax income was TWD 44 billion, slightly down 6.2%. Holding's after-tax net income was TWD 36.1 billion, down 5.4% YoY. Page 10 on revenue breakdown excluding Life. Total revenue was up 3.8% QoQ, down 4.3% YoY. Net interest income was down 0.4% QoQ due to rate cut, up 0.5% YoY as NT dollar loans grew 6.5% YoY. Fee income was up 25.7% QoQ, benefited from wealth management, lottery, overseas subsidiaries, corporate and retail fees.
First nine months fee income grew 2.1% YoY as bank fee grew 0.2%, attributing to the growth in wealth management, lottery, and retail fees. While fee income from credit cards, corporate business, and overseas subsidiaries dropped due to the pandemic. Securities and investment subsidiaries observe growth in fee income as business grew. Combined derivatives, FX, and trading gains were down 28.3% QoQ, and it was down 33.4% YoY due to higher base last year and lower investment gains due to the pandemic.
Long-term investment and others were up 7.7% QoQ, and they were down 93.7% YoY as long-term investment gains from LHFG increased and lottery-related rebates increased YoY. Please see profit mix on the right, where NII accounts for 35%, fee 35%, trade-in derivatives and FX 10%. Page 11 on bank loan breakdown. Total lending with credit card revolving at the end of September was TWD 2.5 trillion, reflecting 0.4% QoQ decline and 0.7% YoY growth. NT dollar corporate loan was down 2.7% QoQ due to repayment from public enterprises, and the growth was mainly from manufacturing industry.
It was down 4.1% YoY despite repayment from public enterprises. Excluding loans from public enterprises, NT dollar corporate loan was up 0.9% YoY, mainly from construction and real estate industry. Foreign currency loan was down 2.5% QoQ and 6.6% YoY. Excluding FX, foreign currency loan was down 1.8% YoY, which will be further explained in page 12. Mortgage continued to grow 3% QoQ and up 9.5% YoY on the stable market. Unsecured lending was up 4.8% QoQ, attributing to the sustainable strategy that increased customer base, and up 38.8% YoY due to increased customer base and the participation in labor relief program led by the government.
Credit card revolving was flat QoQ and down 9.7% YoY as consumptions weakened due to pandemic. Please refer to the graph on the right for our lending portfolio mix, where foreign currency loan accounted for 40%, NT dollar corporate loan accounted for 22%, mortgage 30%, unsecured lending 7%, and credit card revolving and others together accounted for 2% of the total lending. Page 12 on foreign currency loan breakdown. Foreign currency loan at the end of September was TWD 1 trillion, which constituted 40% of total lending. Overseas subsidiaries accounted for 57.5% of total foreign currency loans, with TSB accounting for 43.7%.
Overseas branches accounted for 30.8%, OBU+ DBU was 11.7%. On the right, overseas subsidiaries loan was down 6.9% YoY. Excluding FX, overseas subsidiaries loan was down 2.3% YoY, as loan of TSB decreased due to repayment despite seeing double-digit growth in Indonesia. Overseas branches loan was down 6.4% YoY. Excluding FX, overseas branches loan was down 1.5% YoY, despite double-digit growth from China, India, and Vietnam branches. OBU+ DBU was down 7.3% YoY. Excluding FX, OBU+ DBU loan was down 1.2% due to some clients postponing expansion plans under the pandemic. Page 13, on bank deposit mix. Total deposits as of September reached TWD 3.6 trillion, up 3.9% QoQ and 5.1% YoY.
On the left, total TWD deposits were up 4.3% QoQ and up 10.4% YoY. NT dollar savings deposits accounted for 59.9%. On the right, total foreign currency deposits were up 2.5% QoQ and down 1.1% YoY. Foreign currency savings deposits accounted for 54%. Page 14 on loan-to-deposit ratio. Overall, LDR was 72.77%. NT dollar LDR was 77.64%. Foreign currency LDR was 66.57%. Page 15 on NIM and spread. In the third quarter, foreign currency spreads were down 4 basis points QoQ to 2.08%. NT dollar spreads were 1.51%. Overall spreads were 1.74%, down one bit from last quarter.
Third quarter NIM was down 4 basis points QoQ to 1.4%, and year to September, NIM was down 7 basis points YoY to 1.44%. Page 16 on fee breakdown. Total fees were up 25.9% QoQ and up 0.2% YoY. Wealth management fee was up 33.5% QoQ under a mid-year impact on investment market from the pandemic, driving the sales of mutual fund and investment-linked policies. Mutual fund fee income was up 28% QoQ and bancassurance fee income was up 24.7% QoQ.
First nine months, wealth management fee was up 7.7% YoY as mutual fund fee grew 28.5% YoY, despite bancassurance fee was down 10.5% YoY due to the increase in premium. Credit card fees was up 3.6% QoQ due to the rebound in domestic consumption and down 13% YoY due to decreased consumption momentum after the pandemic. Retail business was up 12.3% QoQ as ATM and loan-related fees increased. It was up 13.8% YoY, driven by ATM fees due to the revamp of mobile and online banking apps, as well as other transaction business.
Corporate business was up 21.2% QoQ due to the growth from loan syndication and trust fees. It was down 11% YoY, mainly due to decreased fee income from syndication due to less large cases amid the pandemic. Overseas subsidiaries fee was up 34.1% QoQ, mainly due to growth in corporate business fee from TSB. It was down 25.6% YoY due to decreased corporate business fee and wealth management fees from TSB. Loan fee was up 36.6% QoQ and up 5.8% YoY due to high reward in the first nine months.
Page 17 on wealth management fees. For wealth management fee breakdown, bancassurance contributed to 56%, mutual funds 31%, custodian and trust 3%, structured and others 11% of total wealth management fees. Page 18 on cost income ratio. On cost income ratio, overall operating revenue was up 2.7% QoQ and operating expense was down 5.6%. Cost income ratio was at 56.21% in the third quarter. For the first nine months, cost income ratio improved to 56.62% from 56.94%. Page 19 on asset quality. NPL ratio was at 0.48%, and NPL coverage ratio increased to 293.6%. Excluding Hin Leong case , NPL ratio was 0.37%. Page 20 on credit cost.
Third quarter credit cost was 23 basis points. First nine months credit cost was 36 basis points, reflecting increasing provision in specific cases. Moving on to life business. Page 21 on total premium. Total premiums were TWD 49.5 billion in the third quarter, up 19.5% QoQ. First nine months, total premiums were TWD 150.8 billion, down 10.5% YoY. Market share was 6.4%, ranked number six in the industry. Page 22 on first-year premium. FYP reached TWD 22.9 billion in the third quarter, up to 46.8% QoQ, reflecting increased sales of investment-linked products.
First nine months FYP was TWD 61.8 billion, down 1.6% YoY, with higher base last year as we stopped selling NT dollar single-pay products and short-term regular-based NTD policies. Market share was 8.8%, ranked number four in the industry. Page 23 on FYP breakdown by types of payment and products. On the left, mix of single-pay products has increased to 35.4% of FYPs, and regular pay products accounted for 28.9% of FYPs. On the right is a product breakdown. Interest-sensitive policy accounted for 56.8%, and investment-linked accounted for 35.8% of FYPs.
Traditional for 3.1%, and health and PA increased to 4.4% of FYPs. Page 24 on FYP breakdown by channels and currencies. In terms of channels, contribution was mainly from bancassurance , with 50.6% from CTBC banks and 26.8% from external banks. Trade agents contributed 12.8% of FYPs, while insurance brokers accounted for 8.8%, and others 0.9%. On the right, investment-linked product accounted for 35.8%. Foreign currency policy accounted for 44.9%, NT dollar policy accounted for 19.3% of FYP. Page 25 on FYPE. First nine months FYPE was TWD 17.8 billion. Market share was 7%, ranked number five in the industry.
On the right is the FYPE mix for reference. Page 26 on investment asset mix. Total investment assets reached TWD 1.9 trillion. In terms of portfolio breakdown, cash accounted for 5.4%, domestic fixed income 10.9%, overseas fixed income 15%, equities 7.8%, real assets 4.4%, mutual funds 8.9%, mortgage 1.3%, and policy loans 1.3%. Page 27 on investment yield, cost of liability, and hedging mix. First nine months cost of liability was 3.2%, down 34 basis points YoY. Investment yield after hedging was 4.15%. Returning yield before hedging was 3.71%.
In terms of hedging, 40% of overseas investment assets were foreign currency policies, while 50% of overseas investment assets were NT dollar policies, of which 59% were fully hedged, 14% were OCI positions, and 28% were unhedged. Third quarter hedging cost was up to 1.53% because of appreciated NT dollar. Annualized hedging cost was 1.3% for the first nine months. The presentation will stop here. Thank you.
Thank you, Sophia, for the presentation. This is Yaling Chiu. Before we start our Q&A session, I would like to talk about the outlook guidance. Our third quarter results were pretty much on track, the outlook guidance will be pretty much the same as Q2 guidance we provided before. CI ratio, credit costs, and wealth management fees were better than what we expected, since there are still uncertainty in third quarter, especially for the pandemic, it's still not very good in other countries. We would like to maintain the same guidance for CI ratio at 59% and credit costs at 40 basis points for the whole year.
We think our wealth management momentum might be able to maintain at third quarter's level, the outlook for wealth management fee will revise from flat in Q2 to low to mid-single digit growth this time. On the liability side, liability recurring yield and cost of liability are revised down, the spread, recurring spread, maintains the same. Outlook for recurring yield is down from 3.65% we provided last time to 3.57% this time. Cost of liability is also down from 3.23%- 3.12% this time. Hedging cost will revise up in accordance with NT dollar appreciation trend from 115 basis points in Q2 to 128 basis points in Q3. Now we can start our Q&A session. Thank you.
Yes. Thank you, Ms. Chiu. Ladies and gentlemen, we will now begin our question-and-answer session. If you wish to ask a 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 if you would like to ask a question. Thank you. Please press zero one on your keypad if you would like to ask the question. Thank you. Our first question is coming from Jemmy Huang of JP Morgan. Go ahead, please.
Yeah. Hi. Thanks for the presentation. Just two questions from me. The first one, I think you previously mentioned that revenue at Tokyo Star Bank was also dragged by the weak TMU operation. Just trying to figure out, relatively small bank like Tokyo Star Bank, what kind of TMU operation they involve in, or it's just pure investment mark-to-market losses? Whether we can see some improvement in the coming quarters? The second question is for Taiwan Life. The FYP is only down 1%-2% in the first nine months, but given the product mix is largely on the low margin ones, could we get some idea how the VNB year-on-year momentum look like in the first nine months? Thanks.
Thank you for the question. Regarding T SB TMU sales, that's the FX derivatives we sell to our clients. The FX derivatives are for about 7- 10 years, and the long-term derivatives contains a high risk from our point of view. At this volatile market, we temporarily stop the products for now and for risk control. Going forward, when the market is stabilized, we will relaunch the product and add some risk control, maybe limit the duration or the tenure then to relaunch the product to boost revenue of TMU in TSB.
For the VNB decrease 6.6% YoY. We know that for the third quarter was increased 9% than the second quarter. Yeah. That's all.
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 the question. Thank you. As a reminder, please press zero one on your keypad if you would like to ask the question. Thank you. The next question is coming from Edwin Liu of HSBC. Go ahead, please.
Hi. Thanks for taking my question. I have two questions here. First one is on your NPL ratio. May I just confirm that the increase in third quarter in your NPL ratio is partly driven by the Hin Leong case? Meaning that the Hin Leong case was not part of the NPL in second quarter. The next question is on wealth management fee. I saw that the increase in third quarter was partly from insurance and partly from mutual funds. Just wondering, in terms of mutual funds, what kind of products have you been seeing from customer demand, and do you think that's sustainable going into fourth quarter and the first quarter next year? Thank you.
For the NPL in third quarter, yes, that's for Hin Leong case case. If taking out Hin Leong case case, either in NPL or in provision, actually, we think the asset quality is under control. For the second question, the wealth management fee in third quarter, mutual fund side, we actually provide the product linked with the industry for new trends like health and care and cloud and 5G, also ESG sustainability related investment for mutual funds. For the momentum in fourth quarter, actually in October and November as of now, we see the momentum is quite the same as the momentum in third quarter. That's why we rise up the growth for wealth management fee in the next quarter.
Okay, thank you.
Next we'll have Gurpreet Sahi of Goldman Sachs, Hong Kong for questions. Go ahead, please.
Thank you very much. I have two questions. First, just checking on margins. Do you think that the rate cuts by central banks, the impact is fully now reflected in the margin? This 1.40% margin at the group level can now be sustained over the next couple of quarters so that we can expect NII to start growing again?
My second question is regards to cost/income ratio, the full year guidance of around 59%. For the first nine months, cost/income ratio is slightly better than last year. Last year, cost/income ratio was just under 58%. Why this very bearish guidance as to what cost can come in in the fourth quarter? Are you more worried about the revenues? You can throw some light on it. Thank you very much.
Yes. NIM, net interest margin, has been stabilized. For August, September, and October, we see the NIM was at 1.39%-1.4% base level. We believe NIM has been stabilized in third quarter and fourth quarter. For CI ratio, it's slightly better than what we expected in the first nine months. In fourth months, like I just mentioned, because the pandemic, COVID-19 situation is getting worse in other countries, probably the revenue will not as good as what we expected in fourth quarter. Traditionally, we will have some accrual of expenses in our books in fourth quarter. That's why we remain the same outlook for CI ratio.
Thank you.
There appears to be no further questions at this point. Ladies and gentlemen, we thank you for all your questions. 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.