Good afternoon, ladies and gentlemen. Welcome to join us for First Financial Holding full year 2023 Webcast Investor Conference. We will start with our presentation, including the full year snapshot, financial highlights, and operating results. Then we will invite Ms. Annie Lee, our EVP and IR Head to proceed the Q&A session. You can raise your questions by typing at the bottom window of the webcast, either in English or Chinese. The presentation material is on our IR website, www.ffhc.com.tw. Also, we will provide one-year reply service of the webcast meeting for your convenience. Before we begin today's conference, I'd like to introduce you our new IR team member, Ms. Yating Chang. Some of you might get know her before because she has been around the financial area for quite a while. Okay. Now I would like to turn over to Ms. Yating to start the presentation.
Thank you, Keith. Let's get started. Please turn to slide five. This slide shows First Financial's net income over past years. In 2023, we reported a record, hitting TWD 22.5 billion. That was up by 9% on a year ago. In the following slide, we wrap up the group's performance last year. First, earnings grew across key subsidiaries. Bank reported a net income of TWD 21.5 billion. That was an annual growth of 6%. Securities, First Life, among others, together earned about TWD 1.79 billion. That was an annual growth over 130%. Overall, in 2023, we reported earnings per share of TWD 1.65. Second, last year was highlighted by strong earnings in bank. Net revenue from bank grew to a new high of TWD 58.7 billion. That was mainly due to gain on Forex swap. It surged by 82%, boosting total treasury gain to about TWD 20 billion. Net fee income was another bright spot.
It grew by 10% annually because of wealth management momentum. Third, reflecting lower demand on US dollars, net interest income decreased. Still, total loan book grew by 4% year-on-year in 2023. Thanks to mortgage lending, it grew by 8%, making up sluggish SME loans, a business hit by weak exports. Stepping into 2024, Taiwan economy is projected to expand, for exports and private consumer consumption are expected to rebound. We, however, remain cautious about the outlook for lending as macro uncertainties linger, including geopolitical tensions and intensifying U.S. presidential election. Ultimately, credit risk control, asset quality, and provision buffers are our key to lending profit. This year, we continue to be optimistic about wealth management momentum, given that the U.S. Fed indicates rate cuts in 2024 and AI spending boom could send stock markets higher. Let's discuss more in details.
In slide eight, we show First's key financials. We just mentioned net income and earnings per share. Here to bring to your attention that the group's ROE increased to 9.51%. ROA kept at 0.52%. The soundness indicators maintained good. CAR reached 130.05%. Double leverage ratio stood at 110.73%. In next slide, we show key items of the group's consolidated income. Consolidated net revenue was about flat. With less charge and less reserve in insurance, consolidated net income ended at TWD 22.5 billion. Coming to slide 10, we provide net income numbers of key group companies. As shown in the graph, bank remains the profit engine. All right. Starting from slide 12 on, we discuss bank's operating results in 2023. This graph shows that since 2021, the profitability at the group and at bank both inched up. By 2023 year-end, bank's ROE was 8.89%.
Coming to slide 13, we discuss components of bank's pre-tax profits. We touched upon top-line items earlier. To add on why interest income decreased by 16%, we consider excessive US dollars balance used in swap had a negative impact on it. As to expense side, provisioning was higher than expected. It was driven by concerns over potential loss in CRE. Recovery was good. Credit cost was managed at 24 basis points last year. Operating expense rose by 8.8% in 2023. It was because back to normal business activities after the pandemic, plus more value-added tax to pay. Let's move on to discuss bank's lending assets. Slide 14 shows bank's total loan book and its mix. Total loan was TWD 2.4 trillion at last year-end. Mortgage lending was the key driver. Mortgage underwriting was buoyant since last summer, when the government's new sponsored housing program for the young kicked in.
SME lending was about flat. FX loan dropped by 7.5%. This is a segment that high USD borrowing rates largely deter corporate demand. Next slide. We provide loan data on quarterly basis. Last quarter, we had a moderate loan growth at 0.04%. Loan to deposit ratios were available in slide 16. Overall, loan to deposit ratio contracted to 69% in the end of 2023. NT dollar loan to deposit ratio was at 78%. FX loan to deposit ratio was at 43%. Bank spread kept at 1.34%. NIM was at 0.76%. If taking gain on Forex swap into consideration, bank's adjusted NIM was 1.15%. Coming to slide 17. We provide quarterly spread data on NT dollar pool and foreign currency pool for your reference. In slide 18, we show deposit info. Bank deposit grew by 6% annually to TWD 3.5 trillion. CASA ratios lagged.
This was because money moving into time deposit accounts, which offer attractive interest rates. Next, slide 19, we provide data on loan concentration of some industry sectors for your reference. In slide 20, we show mortgage business in more details. The bottom graph displays monthly new mortgage volumes, and it shows an upward trend. This echoes what we discussed earlier. The first time home buyers were behind the trend. The upper left graph shows mortgage yield and the loan to value ratio. Mortgage loan to value ratio for new lending was about 65%. The average was a bit above 47%. We move on to discuss bank fee business in slide 21. This slide shows net income breakdown. The main contributor was fee from wealth management, as said earlier, contributing nearly 60% of net fee revenue. It grew by 20% year-on-year from TWD 4.3 billion- TWD 5 billion.
The second contributor was loan-related fee. It contributed about 24% of net fee revenue, and it generated TWD 2.1 billion last year. Next slide. We show quarterly net fee income data. It also identifies fee from bancassurance and fund sales, which we aggregate under wealth management in previous slide. Bancassurance had a good year. In 2023, total net fee from bancassurance grew by 26%. It closed at TWD 2.5 billion, mainly driven by the sales of mortgage life insurance. Turning to slide 23. Bank's quarterly operating expense and cumulative cost -to -income ratio are given in this slide with yearly operating expense of TWD 26.3 billion and net revenue of TWD 58.7 billion. Cumulative cost -to -income ratio was 44.8% in the end of 2023. Next, we show bank's asset quality in slide 24. NPL ratio was 0.17% in 2023 versus 0.18% in 2022. Coverage ratio rose again to 827%.
NPL ratios in different businesses display in bottom for your reference. These ratios were kept at healthy levels. In slide 25 is an overview of bank's profits from overseas operations. In 2023, pre-tax profits from overseas operations was above TWD 5 billion. It contributed about 19% of bank's total pre-tax profits. Take a look at upper left graph. OBU and Greater China looked contributing over 90% of our overseas profits. We'd like to say that this was not a general case, though, it was an outcome after we strategically charged off delinquent loans in other countries. Finally, slide 26 shows our capital strength. Bank's CAR increased to 14.56% by year ended 2023. Tier 1 was up 12.61%. CET1 was at 10.91%. As a designated bank, we have met additional capital requirement for CAR and the Tier 1.
We are a step away from the requirement for CET1, which is at 11%.
I'm ending my presentation here and give the microphone back to Keith.
Okay. Thanks, Yating. Now, we have several questions raised in our screen. First of all, Peggy from Morgan Stanley had several questions. First one is, can Annie address again for our 2024 target for each effect? First, we start from our loan growth.
All right. When we move on to our loan target this year, it pretty much stays at a slightly higher level from a year earlier. We target our loan growth at around 5.5%-6%, which was mainly driven by still booming mortgage sectors and the low base FX loan book. In terms of our niche markets like SME sectors, we have witnessed a recovery in the exporting sectors. Therefore, we also set a moderate growth target for SME loans by growing around 4%. All of this can compose as a health growth around 5.5%-6%, after the government agency actually just revised up its GDP growth up to about 3.4% just about one day ago.
Okay.
Next one.
Next one, she wants to know about our original NIM and adjusted NIM target. Before that, because Jimmy and Tina both have questions related to NIM, but they want to know the NIM about 2023, last year. We start from 2023, maybe we will move on to 2024. 2023, Tina wants to know why in the fourth quarter, the loan-to-deposit spread and the loan-to-deposit ratio, both slid a little bit.
The NIM can stay stable.
Actually last year, the NIM expansion mainly boosted by a very prosperous swap transaction. In terms of our lending spread, I guess investors would understand that the deposit cost for attracting U.S. dollars actually increased due to the supply of the deposit shifting from TWD to convert to USD. Our lending spread actually should be stable. The major help would still come from our swap gain. Last year, the original NIM stayed stable around 0.76% throughout the whole year. However, the actual NIM was significantly boosted by a very buoyant swap transaction, which we ended the swap gains in total around nearly TWD 15.15 billion for the whole year last year, which pretty much translates into the adjusted NIM up to 1.15%. That would be the conclusion for last year.
It means that even though the lending spread remained flattish, the adjusted NIM was boosted by the swap gains up from 1.12% for the first nine months to end up with 1.15%. As we move on to this year's projection, frankly speaking, as market would expect, the U.S. rate would gradually fall going into the second half of this year. The market would definitely be factoring a falling swap gains this year. That is why we would set a target which would not be so aggressive this year. Normally, we would see that the swap gains will gradually ease. As the timing for the rate cut may be rolled out into the second half of this year. We would project for the whole year that our adjusted NIM may drop a bit.
That would still stabilize around 1.1%, and that would still help us to generate some decent gains from the swap transaction. For this year's NIM expansion, the expansion for NIM may no longer exist. We should see some contraction on our NIM perspective. It would fall from 1.15% to around 1.1% this year. That will be our expectation for this year's adjusted NIM. The lending spread should stay still flattish due to, we do expect the central bank in Taiwan would remain our rates unchanged.
I think Annie had already answered both the 2023 NIM questions and the forecast of our 2024 NIM. I think that is already finished both either Peggy, Tina, and Jimmy's question. Tina also had one more question related to NIM, which is because Annie had said that 2023, the adjusted NIM was about 1.15%. Tina wants to know, comparing to 2022, that is the year of previous. What is the adjusted NIM of 2022?
Right. Actually, the adjusted NIM in 2022, two years ago, was not that evident. It stayed pretty much in line with this year's projection, around 1.09%, because at that year, the swap gains only amounted to less than TWD 4 billion. This year, we still project our swap gains would reach up to, let's say, TWD 10 billion-TWD 11 billion. It is pretty much subject to how fast the rate cut in U.S. and also how far the Fed would move on. Would it be an aggressive cut or just a very mild cut? That would impact the whole projection for the swap gains. For us, we normally would maintain around TWD 1 billion swap gains per month based on our existing portfolio. In that sense, if we project around TWD 10 billion-TWD 11 billion swap gains for this year, it might be quite meaningful.
Okay. I think it is very clear that Annie has answered the NIM related questions. Let's move to next 2024 target for our fee income.
All right. Last year, thanks to very booming capital markets, especially for the overseas fixed income investments and also the bancassurance products, we concluded the year with fee revenue up by around 10%. This year, we will continue to move on the momentum to further drive up our fee revenue to grow by 15% as the demand for the overseas fixed income products still remain quite popular. Investors tend to lock in the higher -yield and good rating targets to actually fix up their further yield that would safeguard their return in the coming years when the rates start to fall. The foreign bond or fixed income products still remain quite hot.
On another side for the bancassurance products that the so-called savings product with some leverage protection that will help the high net worth to finalize their inheritance purpose, which was also maintain a hot spot for these special clients. These two sectors would still maintain their momentum to record a double-digit growth like it was last year. We would see our wealth management fee revenue can maintain its momentum to grow our target at around 20%, which is higher than last year's level. In terms of the FX lending related or FX transaction fee revenue, we would also target a 7% growth rate due to the low base period, which the sluggish exporting sectors actually recover from the trough, and we would capture the opportunities to translate into our FX transaction fee revenue to grow by 7%.
As a whole, the total fee revenue would target a 15% growth, which is still highlighted and outperform than what we had last year at around just 10% growth in 2023.
Okay. Thanks, Annie. Let's move to next topic. Several investors or analysts, they'd like to know more about our asset quality for last year and also the coming year. For Morgan Stanley, Peggy Shih , she'd like to know what are our CRE and office-related CRE exposures and the delinquency amounts.
Well, for the total CRE exposure, which is amounted to around 4% of our total loan portfolio. In terms of the office related CRE, which stands at around USD 500 million. Given that we had already taken preemptive move to provide excessive provision against these exposures. Actually, last year, the total influx of the overseas NPL was amounted to around TWD 5.3 billion last year. We have already set aside up to TWD 5.5 billion, which was excessive to the total influx last year. We did provide sufficient provision against all these potential delinquent cases. Not to mention that actually for those CRE, we do have some decent write- back, which will be more than half of the exposure. This can help us to further weather the potential downside when we provided excessive reserve against this exposure.
Going into this year, we reckon that after we have disposed most of this troubled exposure, we would see as the rates turn to not so burdensome for those CRE borrower. We would see our CRE influx would be gradually improved. We project our credit cost for 2024 dropped from the high of 24 basis point last year to as low as 15, one five, basis point this year, which is pretty much thanks to what we have provided the excessive provision against this CRE exposure. We do see that the recovery from the disposed exposure will help us to recover from these losses and help us to weather the potential CRE losses.
Okay. Thanks, Annie. Annie also has answered Peggy's another question that our prediction of our credit cost of 2024, which will be around 15 basis points. Annie has answered the questions as well. Also, Annie has answered Jimmy Huang's questions about CRE related questions. Jimmy Huang also want to know why Since Annie has mentioned about our recovery was optimism, but why the loan loss recovery up so much in 2023?
Well, the thing is that due to the nature of the CRE lending, which are, let's say, over-collateralized, as we did the charge of more than the haircut that we actually suffered. For instance, in the past, when we had some exposure into the syndication lending in overseas market, we normally charge of 50%, half of the exposure, and then the recovery rate will be less. Now, the CRE are all guaranteed by collateral, and we actually charge of more than 80%. We provided 80%. That's why the recovery rate will be higher because this collateral can be recovered from the disposition of this collateral. That will be the main difference between our past legacy without sufficient collateral. Now all the CRE are collateralized. As long as their valuation rebound, or they can have decent refinancing chances, this recovery could be much more expected.
I'll take one example. The legacy pool of this CRE lending, it takes time to recover because we have to wait for the new investor to get involved with the investments of this CRE. It normally takes years. We actually recovered one single case in China, which was related to an automakers, that we nearly recover 90% of the exposure. That will be part of the reason that last year's recovery rates move up so dramatically. I would like to highlight that the recovery rate can be much more significant than we can imagine, because we charge of more than what we had before, from 50%- 80%. That's why the recovery rate will be higher than the past.
Okay. Thanks, Annie. Let's move to another topic about our dividend payout ratio. Both Peggy Shih and Jimmy Huang, they like to know for the 2023- 2024 this year, will we maintain a lower cash dividend payout to meet D-SIB's requirement?
Yes. Yes, we would follow our D-SIB criteria to meet the regulator's requirements. We would manage to maintain a similar payout ratio for last year's earnings, and hopefully we can achieve the D-SIB requirements. That would imply that our cash payout ratio will be around 51%-55%. It's still subject to the final approval for the boards.
Okay. There is one more question coming in, which was from the Morgan Stanley's Lucas. He wants to know why the tax rate was so high in 2023.
All right. Actually, that was mainly because the You mean the income tax, right? Income tax.
He doesn't mention the tax, maybe.
There are two parts. The VAT actually incorporated into our SG&A, which was mainly attributed to we have received more net revenue, so we pay more for VAT. In terms of the income tax, which was impacted by the falling OBU earning last year. I guess most people know that our LDR for foreign currency lending dropped quite substantially due to the higher rates that our net interest income, NII booked in OBU actually dropped substantially. The OBU lending did not provide the so-called tax-free income that helped us to reduce our income tax last year. That is why we pay more on our income tax last year, mainly impacted by a falling OBU lending and earnings last year. OBU can be a very good tax shield for our business model.
Last year, unfortunately, because the higher yields deterred the client to borrow more US dollars, that their US dollars lending dropped substantially.
Thanks, Annie. No matter is the VAT tax or the income tax, Annie has answered all the questions.
Yeah, we contribute a lot to the government.
Okay. So far, there is no more questions on the board. If you want to have some questions, you can raise your questions by typing at the bottom windows of the webcast. We just wait maybe one minute. Anybody has some more questions?
Maybe I can also talk about some prospects for this year. Many analysts do project this year the growth or the economy would recover gradually. We would see our lending book continue to expand. However, the spread or the margin would remain stable. We would see the major growth momentum would come from the still booming mortgage lending or the fee related income. As long as the economy continue to recover, we would expect our bottom line can also gradually recover after we have cleaned up our balance sheet in the overseas book. For this year's growth momentum will mainly come from a falling credit cost. For top line, will remain slightly growing model. Not so aggressive like we had booked in the FX transaction or FX swap.
Okay, thanks, Annie. There is still no more question coming in. Maybe we just finish our conference call here, or Annie still have some conclusion or just stop here?
All right. Maybe let's stop here. If anyone's figure out any more question, you can just contact our team. We are more than happy to reply. All right.
Okay. Thank you everybody's coming. We'll see you next season.
Okay. See you next quarter. Have a nice weekend. Bye.
Bye-bye.