Good afternoon, everyone. I'm Kate. Welcome to join us for First Financial Holding third quarter 2023 webcast investor conference. Before we proceed the presentation, we'd like to disclose the following information. Starting from December 2015, in order to improve corporate governance code, First Financial Holding has set out ethical corporate management best practice principles and conducting procedures and guidelines.
For more information, please refer to our website. Okay, let's start with our performance presentation. Materials can be downloaded from our website, and one-year replay will be available after today's conference. After the presentation, we will invite Ms. Annie Lee, our Investor Relations head, to proceed the QA session and talk about 2024 outlook as well. You can raise your questions by typing at the bottom of the webcast right corner window. They're in English or Chinese is fine with us. I'd like to turn over to Mr. Keith Ke to begin today's presentation. Keith.
Okay. Please turn to slide five. This slide summarize the group's performance of first three quarters 2023, and also the outlook of 2024. Later, Annie would also provide some predictions for each sector on our QA session. Okay. First Financial Holding posted a TWD 19 billion earnings result in first three quarters 2023, which presented 15.8% growth YOY.
Bank also reported a TWD 18 billion earnings in first three quarters with 12.4% growth. Among other subsidiaries, securities, insurance, and trust all had a tremendous improvement comparing with the results the same period last year. Overall to say, the group's earning was in line so far at the end of third quarter. As of the bank's performance breakdown, loan book grew by 6% YOY. Fee income grew by 9.6%. Both results were better than our expectation.
Treasury gains improved over 150%, which was mainly contributed by swap gains performance. The earnings in first three quarters has already met our original full year prediction. Noises from macro never stopped this year. Inflation atmospheres remained high. Consumption was relatively weak and the geographical political conflicts continued still.
All these issues turned the market more sensitive and promoted the risk-averse atmosphere. Global capital markets would be quite uncertainty for coming quarters. Let's take a look of the outlook of 2024. Group's top concerns for 2024 would be asset quality and also portfolio reallocation, which will be for capital efficiency, especially that First Bank was selected as one of the D-SIBs banks, and the capital requirement due date was getting closer. Okay, let's move to financial highlights. Please turn to slide seven. This slide shows group's key figures.
As we mentioned, consolidated net income was over TWD 19 billion with 15.8% growth year-over-year. EPS increased 15.7% year-over-year. ROE and ROA had 9.8% and 7.1% growth respectively. Okay, please take other figures as reference, please turn to slide eight. This slide presents the breakdown of group's net income.
Net revenue was at similar level comparing with prior year, which was dragged by insurance premium. It would show on the slide later that the bank's revenue still improved quite a lot year-over-year. However, with far less insurance reserves, the bottom line was still up 15.8% year-over-year. Please turn to slide nine. This slide provides the picture of major subsidiaries earnings. All major subsidiaries made a contribution and had better performance comparing with the same period last year.
Please move to slide 11 for the operating result. On slide 11, it shows groups and banks' net incomes and ROAE. Again, group's net income was TWD 19 billion with 10.9% ROAE. Bank's net income was TWD 18 billion with 10% ROAE. Please turn to slide 12. This slide provides a breakdown of bank's earning structure.
As we mentioned, bank's cumulative net revenue of first three quarters 2023 still performed well, reached TWD 44.8 billion, with 13.2% growth year-over-year. As of the breakdown, net interest income dropped 18.3% due to the funding shift. Fee income continued to escalate in second half. The year-on-year growth in first three quarters was 9.6%. Swap gains was better than our expectation, which had earned over TWD 10 billion in first three quarters and already reached TWD 11.5 billion at the end of October.
It helped the total gains on investment to increase 150% year-over-year. Among the cost part, better recovery of 55% growth helped to offset the 15% growth credit charge. Most of the credit charge was from overseas case. Okay, please turn to slide 13. This slide shows loan book mix. Total loan book reached TWD 2.4 trillion, with 6% growth year-over-year.
Mortgage loan book was better than expectation with 7.7% growth. Large corp loan book increased 31.6%. SME loan book had 2.8% growth. Impacted by the U.S. NT dollar rate cap, FX loan dropped 7.3% year-over-year. However, the overseas loan book still had 1.8% growth. The next slide shows the quarter-over-quarter trend of loan book mix. All categories present the growing trend. Please take it as reference. Okay, let's move to slide 15. This slide displays the trends of LDR spread and NIM.
LDR was back to 70.2%, which was mainly driven by FX LDR's 47.6%. Even though it's still low, but got a little bit improvement. NT dollar LDR kept at 78.2%. Loan-to-deposit spread rose up to 1.36%, while NIM stayed at 0.76%. The adjusted NIM of first three quarters was down a little bit to 1.12%. Okay, please turn to slide 16.
This slide shows the quarter-over-quarter trend of the NT dollar and FX spread. NT dollar spread was slightly down to 1.34%. FX spread increased to 2.9%. Please turn to slide 17. This slide shows deposit mix. Total deposits ranked to TWD 3.43 trillion comparing with the amount at the end of first half. It still had 10% growth year-over-year. NT dollar deposit increased 18%. However, FX deposit was down 7.1% year-over-year. On the right-hand side, CASA rate further dropped to 62.2%. Please turn to slide 18.
This slide shows the loan book concentration of major exposures. Please take it as reference. Slide 19 shows the mortgage yield, LTV ratios, and the new mortgage lending trend. Mortgage yield finally dropped 1 basis points to 2.19% after five consecutive quarters trending up. It would take time to observe the future trend. LTV ratio stayed pretty the same with the ratios of last quarter. New mortgage LTV ratio was 64.4%.
Average mortgage LTV ratio was up a little bit to 46.8%. At the bottom bar chart, the amount of new mortgage lending this quarter was up 7.7% comparing with the amount last quarter. Let's move to slide 20 for fee revenue. Cumulative net fee income of first three quarters 2023 came to TWD 6.7 billion with 9.6% growth YoY. As of the breakdown, wealth management fee income was the key with 17.6% growth YoY.
Loan-related fee income also increased 5% YoY. Slide 21 shows the QoQ trend. Even though fee income in the third quarter dropped 5.2% QoQ, however, we think the momentum was still strong. Please take this slide as reference. Please move to slide 22. Total operating expense of the first three quarters 2023 was TWD 19.4 billion with 11.8% growth YoY.
It made the cost-to-income ratio rise up to 43.2%. Please turn to slide 23 for asset quality. Coverage ratio continued to improve to 797% at the end of the third quarter. NPL ratio also dipped 1 basis point to 0.17%. Bottom charts show the breakdown of NPL ratios. Individual NPL ratio dropped to 0.1%. Mortgage NPL ratio stayed the same at 0.07%. SME NPL ratio was down to 0.17%. Large corporate NPL ratio cleaned up to 0%. Please turn to slide 24.
The pre-tax profits of overseas branches over total profits further dropped to 19.5%, we think it would be back up gradually in coming quarters. Top left pie chart was still distorted, please just take it as reference. Please turn to slide 25. Group CAR was 128.7%. Bank's CAR and Tier 1 were 14.3% and 12.4% respectively at the end of the third quarter 2023. That's the presentation. I will turn back the microphone to Annie for the QA session.
Thank you, Keith. Now I'd like to host the QA session. The first question is from investor. In terms of loan growth, fee income revenue, and swap gains, could company give us some pictures about 2024's business outlook?
I'll first start with our conclusion for this year. We would manage to reach a loan growth around 5% towards the end of 2023. Going forward, next year, for the whole year, following the recovery of the exporting markets, that we would see that the loan demand may gradually recover from those exporting sector, particularly the so-called AI related and the new tech sectors.
Next year loan growth, we would target around 5.5%-6%, mainly driven from corporate and also the still booming mortgage market and the low base period of FX lending. We also target a 10% growth next year. As a whole, loan growth next year for 2024, we hope to reach around 5.5%.
In terms of our fee income, this year, following the higher US dollars rates and also some inheritance demand from the bank insurance business, we actually recorded a quite optimistic result that the wealth management fee grew quite substantially. Next year as the higher rates would last for around half a year and the retail clients or the high net worth customers would flock in to lock in the higher return products, including the fixed income products and the leverage insurance savings products, that would help to boost the the fee revenue next year.
We would predict 15% or more aggressive targets for next year's fee revenue from this year's more than 10% up to 15% next year, mainly driven by the still quite popular overseas fixed income investments and the highly leveraged bank insurance products for the inheritance purpose. Going back to the swap business this year, most of the market analysts would see that the Federal Reserve may become more dovish next year following the slowdown in the economy.
The interest rate spread between Taiwan and U.S. may gradually narrow after Federal Reserve starting its rate easing cycle as early as second quarter next year. We would project after we may record a historical high swap gains this year around $12 billion-$13 billion this year. We may have a 20% haircut at around just $9 billion-$10 billion next year.
Hopefully, we will compensate that gap by dispose some of our investment portfolio from the fixed income parts to subsidize the swap falling up. We would see the swap gains may able to sustain its momentum in the first half prior to the Federal Reserve easing cycle. Going into the second half, the swap gains will gradually up a bit, and that the swap gains may not repeat the high end that we have this year, that we conclude at around more than $10 billion this year. Next year will be less than $10 billion, not as high as we did this year. This will be the three major top line projection next year.
Okay. Thank you, Annie. We have a follow-up question about swap revenue, which is from Amanda Chang of JPMorgan. Amanda wants to know that since we just highlight that we may book TWD 12 billion to TWD 13 billion swap gains this year. How about the first quarter and the second quarter and the third quarter swap gains respectively? Thank you.
For the first quarter this year, we recorded TWD 4 billion. In the second quarter, that would be TWD 3 billion. Move on to the third quarter, it went up a bit to TWD 3 billion, TWD 3.2 billion.
3.2.
Average per month, we can record up to TWD 1 billion. Up to end of September, we have booked TWD 10.3 billion swap gains. Until the end of October, for the first 10 months this year, we have already concluded up to TWD 11.5 billion swap gains. We would project for every month, we would be able to record up to TWD 1 billion till the end of this year, as long as the rate gap sustain. Next year, as we project the rate cycle may no longer repeat the similar pattern, the swap gains projection will not so aggressive. Up to the first 10 months this year, we would be able to book around TWD 1 billion per month.
Okay. Thank you, Annie. Second question comes from Mr. Eric Shih of KGI. Eric Shih hopes to know the credit cost outlook and our NIM outlook in 2024. Actually, we have answered the loan outlook and the fee income outlook. We still have NIM outlook and credit cost outlook here for his answer. He's got four questions, I think we just step by step. First one is NIM outlook and credit cost outlook.
All right. In terms of NIM projection, just like I just talked about that our major top line contribution from swap next year would not so exciting like we did this year. The NIM projection for next year will be quite flattish after we may conclude the NIM for the whole year around 1.12%, which is slightly above last year's level, around 1.09%-1.1%. Next year's NIM projection will be not so proactive because the swap gains will no longer Play the centers, the major star to contribute to the top line next year. NIM projection for 2024 should be flattish, like what we have this year.
Talking about the credit cost, actually, this year, we had to suffer quite losses from our overseas lending, especially from some U.S. or European markets that some of the lending to the major CRE or other sectors like healthcare, which was significantly impacted by the higher borrowing cost and the slowdown of the real estate market.
We had charged off more than TWD 2.5 billion for this year, and that pretty much helped us to clean up our overseas balance sheet. This year, we would conclude the net credit cost at around 20 basis points. Next year, we would see the net credit cost would significantly lower to just 15 basis points, which is quite a good prospect that we will no longer be dragged by the delinquent problems that we suffered this year. Next year, credit cost will be much lower than that we had this year, from 20 basis points 2023 down to 15 basis points 2024.
Okay. The second question is about our CET1 ratio. Eric hopes to know what's the impact of CET1 ratio on new Basel III regulation adopted in 2025? That's the first question.
After our calculation, the impact will be around 12, one, five basis points, because we had not a very huge credit card portfolio. The main drag may come from the, let's say, the commitment fee, commitment credit line to the corporate sector. The impact will be, let's say, quite manageable, just 12 basis points lower than current level.
Okay. The next question is about the IRB model, which is also asked by Peggy Shi. Assuming that we apply the IRB model, how much can CET1 ratio increase? Which means that, how much risk-weighted assets can we decrease?
Based on current portfolio, the total risk-weighted assets can be incorporated into the Basel III. The reduction will be as high as 200 billion RWA if you apply.
200 billion.
IRB model. That would translate to around 110 to 140 basis points of risk CAR ratio. That would be a huge lift. 110 to 140. 110 to 140 lift.
Okay. This is the benefit.
Yeah.
-of our CAR and CET1 ratio or even the Tier 1 ratio.
Yeah. To strengthen the capital base.
Okay. We have a follow-up question, which is the 2023 forecast dividend policy. I think it's talking about the 2023 dividend policy, which is also a similar question asked by Ms. Peggy Shi. The dividend policy. Let me elaborate more. Okay. Will management lift cash dividend payout ratio for 2023 on better earnings performance and less mark-to-market impact on appropriated earnings?
Well, the fact is, yes, we do record a good result this year. Still, I have to highlight that when we talked about our dividend policy, we have to come back to have a look at how much asset we're going to grow, also how far that we can comply with the D-SIB requirements.
In fact, based on our projection up to the end of next year, 2024, we're just merely fit the target of this D-SIB. In that sense, we have to look for balance that should we retain more earnings for future growth if the recovery did come in. Another thing is that if we can get the approval for the IRB model as soon as possible, as early as end of next year, 2024, maybe the dividend payout ratio can be more optimistic.
Based on current announcement by the regulators, it seems that it takes time to get the approval for the IRB model. In that sense, we would see that next year's, for 2023, dividend payout ratio, we cannot commit a very generous payout policy due to it still takes time or efforts to convey our message and communicate with the regulators as we are just slightly fit the D-SIB compliance. For next year, the dividend policy should be pretty much similar to what we had this year.
Okay. Thank you, Annie . We have another follow-up question, which is about our NPL issue. A similar question from Mr. Jimmy Huang from JPMorgan, I'd like to read their question. How comfortable you are that overseas asset quality could be stable in 2024 instead of further new delinquent cases? Also a similar question is from Eric Shih. He's asking, do you see any new NPL in the fourth quarter of this year? This quarter and next year.
Well, I guess that because we still heard about the new Chapter 11 announcement from one Austrian developer just early today. I must say that we actually had provided quite a amount provision against this exposure in the overseas market, and a major parts of this lending will be collateralized.
Up to the fourth quarter, coming into the November and December, yes, we do see some, let's say, substandard assets, but it looks that we can still have sufficient provision to charge off this delinquent assets. Going into next year, we have already provided quite a provision against the exposure there. That's why we project next year's net credit cost to be significantly lower than what we have this year, as we have charged off most of this delinquent asset.
Up to now, we are still continue to recover from the collateral that we seized at the write-back. We still continue to become the influx of our compensation for this charge off. That's why we are not that pessimistic about the ongoing asset quality in the overseas market, particularly when the higher rates environment may ease or will not sustain for quite some time. We would see that this credit cycle may see some bottom out at current moment. That's why we rather become more optimistic about this asset quality for next year. I hope to highlight that we have charged most of these delinquent assets up to now.
We have another question, which is from Miss Peggy Shi. She focuses on the CRE exposure. Let me read her question. Can we know U.S. CRE exposure in the third quarter 2023, and how much provision have we made in the third quarter? Any further provision plan in U.S. CRE loan book?
I think her question is about our CRE, U.S. CRE exposure and issue.
Right. The total CRE exposure in our book is up to about 4%, which is around $3 billion in total, I mean, total CRE in the overseas markets. In the U.S. alone, it accounts for around 25%, one-fourth. Up to now, those delinquent CRE has already provided up to more than 80% of provision against this troubled lending. It implies that we're still closely monitor this overseas or delinquent CRE. Up to now, we have set aside a significant provision against all this CRE exposure, up to 80% now. Eight, zero.
Okay. Let's go back to domestic provisioning. Here's a question from Mr. Eric of KGI. Eric hopes to know, can you give us more color on new NPL influx of TWD 1 billion in Taiwan, domestically, I think. New NPL influx.
For the first three quarters, we have seen Let's see. Sorry. Around TWD 4.2 billion new influx in total for the first three quarters. Domestic NPL only represents around 30%-40%. You can refer to our slides at page 33. We have highlighted the asset quality of First Bank. Domestic NPL influx was around TWD 1.6 billion, and the overseas NPL was TWD 2.5 billion, which as a total, generated about TWD 4.2 billion new NPL influx, which is almost the level that we had last year, total influx around TWD 4.4 billion.
Okay.
The main influx from overseas, not domestic.
Okay. Thank you, Annie. We have another question, it's about our adjusted NIM. It's a question from Ms. Peggy Shi. She hopes to know that do we still maintain 2023 adjusted NIM targeting at 1.14%?
Well, I just highlight that we would revise down the projection for this year down to, let's say, 1.12%.
Okay.
1.12.
Her follow-up question is, can we know the reason why the adjusted NIM of the third quarter down to 1.12%?
Mainly is dragged by higher funding cost, deposit cost.
Yeah. Okay.
You know that the customer rate has dropped quite substantially, as low to 62%, and also the higher US dollars funding cost. That dragged down the whole spread and the NIM.
Which means that given we have booked more.
Swap gains.
Swap gains.
Yeah.
-on the book. The adjusted NIM actually down to two basis points.
Yeah.
From the second quarter to third quarter, which means we have.
Yeah. Rising deposit costs.
Right. Also, her next question is about, can we know the reason for stronger mortgage growth in the third quarter?
Well, this is really a surprise for us as well because as the crackdown measures adopted by the government this summer, that it may be the reason that prior to this mortgage cycle, our bank had engaged in some, let's say, construction loan, the lending to the developer. After the completion of these construction projects, it actually generated a so-called new home sales that has led to what we call it a wholesale mortgage lending, and which was also helped by the lower mortgage rate provided by the government. We call it the new youth mortgage lending. That helped to boost the mortgage loan.
This would be the main reason that mortgage lending has really beat our expectation, we still see the mortgage lending growth would sustain through our next year that we project our mortgage lending will continue its momentum at around 7%-8% growth next year.
Okay. Another coming year for mortgage lending will grow like 7%-8%. We have another follow-up question is about our corporate lending outlook. How do you see that the corporate lending outlook in the next coming year?
Next year, we project our lending to corporate, including large corp and SMEs, will be around mid-single digit, around 4%-5%, which is in line with the whole loan book expansion next year. After we booked a low base this year that the SME lending book did not grow that much. Next year, around 4%-5% for corporate lending.
We have another question is from investor. He hopes to know that how much sales revenue in wealth management, I think he is talking about the fee revenue, how much fee revenue in wealth management is for fixed-income sales and for structural sales?
I think the main source of our fund sales will be for those high yield overseas fixed income products. For the first nine months this year, the mutual fund sales grew by more than 17%. Supposedly, it would all generated from the fixed income, but nothing much from the other products like equity or something. Traditionally those are higher yields. Next, fixed income products can provide more juicy commission rate than the quite popular ETF fund. The ETF fund commission will be much lower than most of the active fund, like a fixed-income product.
Another source would be the bank insurance products that I just mentioned, that for some high-net-worth customers, when they would like to engage in some inheritance projects, then they would pass on their huge money via the highly leveraged bank insurance savings products to help to transfer their assets to the second generation. That help us to book a 20% growth for this bank insurance sales this year. Next year should proceed on this trend.
Okay. We have another question is for our life subsidiary. Question from investor is, I wonder how would the recent beneficial treatment of ICS 2.0 announced would help on life capital?
Well, currently the ICS project is still ongoing, actually most life players still continue to negotiate or discuss with the regulators. Based on our internal statistics, we will have to put in some more capitals to boost or safeguard the capital base of the life business. The grace period is still not confirmed yet, so the benefits is still not certain yet because it is not yet finalized. We would first announce it after all these criteria or these requirements are confirmed. Nothing much is for this.
Okay.
Not confirmed yet.
Okay. Thank you. We'd like to just fill in some question that we haven't answered. The first one is about our operating expense forecast, how about the growth rate on operating expense and the CI ratio?
For cost side, apart from the credit cost, will be down to 15 basis points next year. We would have a pay hike next year up to 4%-5% for the headcount cost. The SG&A would grow by around 7%-8% next year. The CI ratio may further hike to around 45%-46% next year due to the higher operating cost next year.
Okay. We have another combined question that how do we see that the wealth management fee income revenue next year?
We actually set a very aggressive target to grow by another 15% next year, which with the view on the market trend that the retail clients would quite keen to locking the higher yield returns before the U.S. rates start to fall. It will pretty much repeat the pattern that we have this year that both overseas fixed income products and bank insurance products will continue to be very popular among both retail and high-net-worth customers next year. Next year, 14%-15%.
Of total fee revenue?
Yeah.
How about in terms of wealth management related product?
More than 20% something.
Okay. More than 20% on wealth management related revenue. Okay, I think we have had all of the question here. I'd like to wrap up here. We are happy that you joined for today's conference, and we'll see you next quarter, next year.
Next year.
Yeah.
We'll see.
Okay.
Let's meet next year so we can have a more clear picture on how the market would move on. Hopefully, we can continue this momentum and continue to book satisfactory results next year. Thank you.
Bye-bye