Welcome everyone to Cathay Financial Holding Company's first half 2022 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. Now, I would like to introduce Ms. Sophia Cheng, the CIO of Cathay Financial Holding Company. Ms. Cheng, please begin. Thank you, Jackson. Good afternoon and good morning to investors in the U.S. Welcome to Cathay Financial Holding's 2022 second quarter analyst meeting. I am Sophia Cheng, the Chief Investment Officer of Cathay Financial Holding. Today, I will host the conference call. Thank you for joining us today. In the beginning, I would like to introduce the senior managers who are on the line. Today we have Mr. Daniel Teng, Senior EVP of Cathay Financial Holding, Ms. Grace Chen, Chief Financial Officer of Cathay Financial Holding, Mr. Abel Lin, Managing Senior EVP of Cathay Life, and Mr. Chia-Yuan Hsu, Senior EVP of Cathay Century Insurance. Our IR team is also here as well. For today's conference call, Shane from our IR team will present the second quarter results. After the presentation, we are open for a Q&A session, in which senior management will be honored to answer your questions. Without further ado, let me pass the call over to Shane for the briefing of second quarter results. Please. Thank you, Sophia. Let's start with the business overview on page four, which provides a quick highlight on each subsidiary. Cathay United Bank delivered robust growth in deposits and loans. Asset quality remained in line. Net interest margin expanded, and net interest income grew 13% year-on-year, owing to rate hike. Fee income shows steady growth, driven by robust growth in credit cards and syndication loans. Cathay Life continued a value-driven strategy. Positioned high first-year premium continued to grow, delivered strong investment performance with after-hedging investment yield of 4.5%, benefiting from substantially improved hedging costs and enhanced recurring yield, and a solid capital position with RBC ratio of 337% as of the end of second quarter. Cathay Century, the general insurance subsidiary, first half net loss reflected the impact of pandemic insurance losses. Excluding such impacts, Cathay Century continued to deliver double-digit growth in premiums and maintain stable profit. Completed TWD 10 billion capital injection from Cathay Financial Holding in June, with RBC ratio of 450%. Asset Management subsidiary, Cathay Asset, AUM was TWD 1.15 trillion, ranked number one in the industry. Lastly, Cathay Securities maintained number one market share in stock brokerage business. Please look at page five, Cathay Financial Holding net income and EPS. Cathay Financial Holding net income for the first half reached its second highest record of TWD 49.3 billion. The year-on-year earnings decline was mainly due to higher base period for investment and the favorable financial market last year. EPS was TWD 3.45. Page six shows the subsidiaries' net income and ROE. Cathay United Bank's net income grew 10% year-on-year, driven by robust net interest income and fee income. Cathay Asset set the record high first half earnings. Cathay Life delivered its second highest historical first half earnings. The year-on-year decline was due to the higher base period for capital gains in the same period for last year. Cathay Century net loss is attributable to pandemic insurance losses. On a consolidated basis, the holding company's ROE was 14.5% in the first half of 2022. Please turn to page seven to see the book value of Cathay Financial Holding. The consolidated book value of holding company was TWD 451 billion as of the end of second quarter. The book value declined, reflecting the sharp rise in bond yields and a decline in equity market. Book value per share was TWD 26.4. Page nine and 10 show our overseas expansion. Cathay United Bank Hong Kong branch launched its TMU business for corporate clients in July. Cathay Life Vietnam's total premium increased 19% year-on-year. As for the operation in China subsidiary completed a sovereign-based cross-currency swap transaction in May, the first among Taiwanese banks. Hong Kong branch signed a memorandum with Hong Kong Quality Assurance Agency to promote and deepen cooperation in green finance. Recently, it also signed a HKD 500 million sustainability-linked loan with Wheelock, a well-known real estate group in Hong Kong. For Cathay Life's joint venture in China, the total premium grew 12% year-on-year. Please turn to page 12 for more details about the banking subsidiary. Cathay United Bank delivered robust loan growth across consumer mortgage and corporate loans. The total loan balance increased 8% year-on-year to TWD 1.9 trillion as of the end of first half year. Deposit grew 11% year-on-year to TWD 3 trillion. The demand deposit ratio was 72%. Interest yield is shown on page 13. Benefiting from rising rates, net interest margin and interest spreads showed significant increase. The accumulated net interest margin and interest spread increased to 1.27% and 1.87% respectively. Page 14 shows the asset quality. Cathay United Bank maintains low NPL ratio at eight basis points and coverage ratio at 1,896%. Gross provision was TWD 2.1 billion. Most was the general provision for the regulation requirement, and the recovery was TWD 0.7 billion. Please turn to page 15 for SME and foreign currency loans. SME loan balance grew to TWD 287 billion, accounted for 15% of the total loan. Foreign currency loan balance was TWD 231 billion as we aim to grow foreign currency loan while ensuring the asset quality. Page 16 shows the offshore earnings. Offshore earnings were TWD 4.9 billion, up 9% year-on-year. The core earnings increased, the loan recovery supported the overall offshore earnings growth. Please turn to page 17 for fee income. Fee income grew 3% to TWD 8.8 billion in the first half of 2022, driven by the robust growth in credit card and syndication loans, offsetting a decline in wealth management fees. Page 18 shows the breakdown of wealth management fee. Wealth management fees declined 3.8% year-on-year, while bancassurance fee grew 8% year-on-year, partially offsetting decline in mutual fund and securities products due to volatile capital market this year. Please move to page 20 and 21 for Cathay Life's premium performance. Total premium was TWD 243 billion in the first half of 2022. The decline was due to lower renewal premium, reflecting the end of regular premium payment terms for some top-selling products, as well as the lower first-year premium resulting from higher base period for investment-linked products last year. On page 21, first-year premium, FYP, and the annualized premium, APE, was TWD 72 billion and TWD 23 billion respectively. Both declined year-on-year due to high base period for investment-linked policy, unfavorable capital market last year. In addition to reduced sales momentum in second quarter 2022 due to the local pandemic. However, protection-type policy, FYP, continued to grow, supporting the contractual service margin. Page 22 shows the value of new business. Based on the 2021 embedded value assumptions, value of new business for the first half year was TWD 13.6 billion. The decline was due to the same reason as we mentioned earlier, the high base period for sales following investment-linked policy last year, as well as the pandemic-induced slowdown in sales momentum in second quarter 2022. However, with our continued efforts in growing the high CSM protection-type policy, VNB margin increased year-on-year. Page 23 shows the cost of liability and break-even SA yield. The reserve-base liability cost was 3.74% as of the end of first half 2022, improving three basis points year-to-date. The break-even SA yield was 3.09%. Please see page 24 for the investment portfolio. Cathay Life's total investment was over TWD 7 trillion as of the end of first half of 2022. Overseas investment accounted for 69%. The investment return of each asset class are as follows: cash and cash equivalent, 0.3%; domestic equity, 10%; international equity, 9.1% pre-hedged; domestic bond, 2.6%; international bond, 3.9% pre-hedge; mortgage and secured loans, 1.9%; policy loans, 5.4%; real estate, 3.1%. Overall investment yield are shown on page 25 and 26. After hedging, investment yield remained benign at 4.48%. The year-on-year decline was mainly due to the higher base period for investment-linked and favorable financial market last year. On page 26, left-hand side, the presentation recurring yield increased 32 basis points to 3.16% as new money yield from overseas bond surged year-to-date with increasing positioning, and cash dividend income increased year-on-year. The overall hedging result was net gain of 21 basis points in the first half, owing to TWD depreciation and effective proxy hedging. The foreign currency reserve reached TWD 33 billion as of the end of first half. Please look at page 27 for the cash dividend income and regional breakdown of overseas fixed income. Cathay Life recognized dividend income of TWD 11.3 billion and TWD 17.6 billion in the first seven months of 2022, respectively, higher than the same period of last year. Some cash dividend payment was delayed in the same period of last year as annual general meeting postponed due to local COVID outbreaks last year. In addition, corporate dividend payments are higher than last year. We expect the cash dividend income for this year will be higher than last year. For overseas fixed income investment, Cathay Life allocated 49% in North America, 18% in Europe, and the rest are in Asia Pacific and other countries. Page 28 shows the book value and unrealized gain of financial asset. Both was down year to date, reflecting a sharp rise in bond yield and a decline in equity markets. However, if we base on IFRS 17 standard to mark to market both asset liability, as the decline in liabilities exceeded less in asset, the book value increased between September 2021 to the end of this first half 2022. Next, please turn to page 32 to 34 for the performance of Cathay Century. Cathay Century's premium income grew 12% year on year to TWD 15 billion. Market share was 12%. On page 34, the gross combined ratio and retained combined ratio each increased due to the higher loss ratio resulting from the impact of pandemic insurance losses. Following on the update on pandemic-related policies, the number of total effective COVID policy was down to 705,000 as of the end of July, showing meaningful decline comparing to 1.3 million as of the end of April, as we mentioned in our previous analyst meeting. In the first half, the cumulative direct loss, including claims and reserve, was about TWD 8 billion, and the retention loss was TWD 5.2 billion based on 3.8 million confirmed cases. For the first seven months, the cumulative direct loss was about TWD 11 billion, and the retention loss was about TWD 8 billion based on 4.6 million confirmed cases. Going forward, the reinsurance portion will go down while the retention portion will increase. However, the financial impact from pandemic policies will reduce as the policy gradually expire. We will continue monitoring the developments in the pandemic and reflect the provisioning in the monthly result. In regard to the special reserve, in June, we have released TWD 1 billion special reserve from risk fluctuation under liability to offset the impact of P&L and TWD 1.8 billion Taiwan dollar from catastrophic events under equity to supplement the capital position. We have also completed the capital injection of TWD 10 billion from the holding company in June. Cathay Century's RBC ratio increased to 450% from 284% as of the end of last year. So far, the RBC ratio is sufficient. Lastly, we would like to provide information regarding the impact of recent interest rate hike on our book value, as some investor concerned about recent volatility of our book value. Please turn to page 36. On the left-hand side, you can see that under the current IFRS 4 accounting standard, we need to mark to market FVOCI asset. However, currently liability is not mark to market until IFRS 17 is implemented in the future. At current stage, the book value will be distorted because we only mark to market asset but no liabilities. This will lead to greater significant volatility in book value as interest rates fluctuate. This explains why the book value has shrunk rather significantly during recent rate hike. However, if we were to apply IFRS 17, such interest rate hike should be beneficial to book value. Under IFRS 17, the liability will also be evaluated based on market rate and accordingly. By then we should have also reclassified the asset from amortized cost into FVOCI. Since both asset liability will be mark to market, they can partially offset each other and lead to much low fluctuation in book value compared with current situation. Under IFRS scenario, the year-to-date interest rate movement should lead to net positive impact to book value as the reduction in liability should outweigh the reduction in asset once we mark to market both asset and liabilities. On the right-hand side of the slide, it shows the range of fluctuation in equity to asset ratio during last September to the end of this June. Under the existing accounting standard, the highest equity to asset ratio was 10.5% in last December, and the lowest equity to asset ratio was 4.6% in June. If we were to apply IFRS 17, the scenario suggests that the highest equity to asset ratio, 7.7%, in last December, and this match the lowest will be 5.2% in last September instead. As you can see, under IFRS 17, in the rising rate environment for TWD and USD, the volatility in equity to asset ratio will be much more smooth as the volatility of asset will offset by that of liabilities. This is the end of the presentation. Now let's open to Q&A. Yes. Thank you. Ladies and gentlemen, we will now begin our question-and-answer session. If you wish to ask the question, please press 01 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 02. Thank you. Now, please press 01 on your telephone keypad to ask a question. While we're waiting for questions, I will probably provide a quick summary of the Chinese section, which I should have said quite a long time today. Today in the Chinese section, the questions surrounded with the impact from rising interest rates, including the impact to net interest margin of Cathay United Bank, the impact on investment return of Cathay Life, and overall capital buffer. Analysts also asked about update on hedging cost and update of the COVID-19 insurance policies, the progress. For Cathay United Bank, the overall net interest margin in second quarter already surpassed 1.3%. At beginning of the year, we have guided that we are looking for end of this year, the net interest margin could reach 1.3%, that we already reached that in second quarter. Analysts was asking whether we will be raising the net interest margin. Because the central bank will prefer banks can also reflect the rising rate into the deposit rate. We are expecting when the deposit roll over, part of the margin expansion will be eroded back as your deposit cost also come up. Overall, what we can say is the 1.3% net interest margin has achieved earlier than expected. That will be more beneficial for 2022 net interest margin. Even if we are still quite stable through the rest of the year, it will be quite positive for 2023 net interest income. The overall fee income was supported by strong credit card fee, despite there were some mild decline in wealth management fee. Overseas foreign currency loan has started to regain some momentum, and we saw some growth already, compared with end of last year. For Cathay Life, the company continued to focus on protection type policy as this has been a KPI for the time management for the sales force to maintain pursuing CSM improvements. Investments yield in first half hit second highest in the past five years, right below last year where there were quite high abnormal return. The recurring yield is expected to increase again rate hike and especially for FX hedging cost has remained very low. Year to date, we still have FX gain instead of FX loss. Recently we have saw that CS hedging cost is already fall below currency swap. Cathay Life, more dynamic hedging mechanism should start to perform good. We will also work hard to capture current rising rate environment to lock into our long-term bond assets. You can see that international bond has grown year to date. The current liability duration is about 14, asset duration is about 12, and therefore we benefit from the rate hike. Of course, in rising rate, because currently the accounting structure on financial statement is still quite odd, as we do mark to market asset, but not mark to market liability. If we were to look at based on IFRS 17, then actually the net worth, if we do the scenario calculation, net worth actually benefit rather than the sharp decline you see on the book value. Of course, for the rest of the year, we still have four months to go. For current level, there were some question related to the dividend payout capability. We think that we still have a few months to go, we'll take a close look on the developments. Lastly, on P&C Insurance. As of now, the outstanding insurance policy has already reduced down to 700,000 policies compared with the peak of 1.3 million policies. Toward end of this year, we are expecting the 750,000 will continue to reduce to 650,000 policies. Toward about April next year, it will down to only 200,000 policies, and then amortize to zero in the following very few months. These are the highlight of the Q&A in the Chinese section. I hope it will be useful to you. Thank you, Ms. Jin. Ladies and gentlemen, we are now in question and answer session. If you would like to ask the question, please press zero one on your telephone keypad. Thank you. Our first question is coming from Jimmy Huang of JP Morgan. Go ahead, please. Hi, Jimmy. Hi, Sophia. Thanks for taking my question. I think just two questions from me. First one is, on the banking side, I think you do have the China subsidiaries and given the recent concerns on the property related segment, and also exposure, is there any color you can provide, in terms of any exposure for your Hong Kong branches and also China subsidiary, to the China property developer names? Then, any risk management mechanism that you have been taken this year? The second question is on the life insurance. I think that we do see regulators trying to put stricter scrutiny on the declare rates for the interest-sensitive policies. Should we be concerned about the attractiveness of the insurance policies versus, let's say, the US dollar deposits in the future, that if policyholders can basically get similar deposit rates from deposit, what's the angle for them to really buy these interest-sensitive policies if the declared rates or the returns become less attractive? Thanks. Thank you, Jimmy. These two are very good questions. First one is related to our exposure in China, especially recent correction in real estate market, and what is our risk management mechanism. Second is related to the rising rate that may make insurance savings type policy less attractive if the policyholder can also earn the return from the deposit rate. Daniel, you're on the line. Would you like to take. Can we get back to you later? I don't have that kind of data on site. Jimmy, I'd like to highlight, I remember back in the past seven, eight years, we have been taking rather cautious risk management on China. We mainly if it's construction-related loan or real estate collateralized loan, we tend to focus on the four major cities only. It has been our policy for quite a long time. Daniel will follow up with you on the details. Edward, you want to talk about that? I think the first one, I want to clarify that the regulator didn't restrict our declared interest rate. It's just that I think all the mechanism, they want to more prudent. Actually, right now our segment get this interest-sensitive account, their earning rate, I mean, the bond portfolio yield, actually is higher than what we declared. It means that in the future, we think still have the room to increase, but you need to more prudent comparison before. I don't think that they will be less attractive for in the future even though the US dollar savings rate is high. We still have growth, but we need to more prudent. Actually, the main reason they want us that too competitive. This is the real reason that the regulator concern. If the year we earn actually is higher, we still have room to declare the interest rate. They will make our least high product is more I don't like to use the attractive or not. You need to, because they are not actually the same type. If you buy in the interest-sensitive, actually they are much, much longer you need to put it the money into this account. It's not like the one-year or two-year savings like. Actually they still have the differentiate, but I don't think that we're less attractive. This is what I answer. It's more on pricing discipline. If you can ensure good asset yields, your entry rate can declare, it can be matching to the investment yields. Jimmy, for your first question on China real estate, I just have some numbers to provide you first, and we will follow with more details. Currently, our China subsidiary has zero mortgage loan book. There's no mortgage loan book. Also the loan to real estate, direct lending is less than 1% of the loan book of the China subsidiary. Daniel will follow up more detail with you. Thank you. That's very clear. Thank you. Thank you. Next we'll have Chong of Credit Suisse for questions. Go ahead please. Hi, Chong. Hi, Sophia. Yeah, just two questions. One is on the bank. I think in earlier session, David mentioned that the bank will not pursue a high foreign currency loan growth, will obviously put asset quality as the first consideration. Where are you parking your excess U.S. dollar deposit? If you look at the bank's deposit growth, the foreign currency deposit growth, your deposit growth is very, very strong. Why are you parking those excess deposits? Second question is on the life side. Say, if in the next few months, we continue to see more capital market volatility and there's some pressure on equity to asset ratio, is there any contingency measure Cathay Life can take before consider capital raising? Is there a possibility of revolving the asset? Is there anything Cathay Life can do in case market volatility persist, and you don't have to resort to capital raising? Thank you. Okay. We do invest in some of the commercial financial papers, like short-term financial paper or mid-term or short-term fixed income. We do some currency swap. Just thinking of this, part of this, most of this will reflect in net interest income, correct? Or is there some of that will go into non-interest income? Sorry, it is not clear, please repeat again. Yeah. This income will primarily be shown in your net interest income or a good part of it will be in non-interest income? Okay. Apart the financial market is further volatility much more than current. I think at this moment our RBC ratio is still quite high, about 330% above. Market volatility will affect RBC ratio? I think that if the interest rate going up, actually it didn't affect RBC too much, only the equity. I think that we still have a lot of buffer. I think we can meet the more volatility. It means that our RBC, if considering the RBC, we didn't need to capital raising even though the volatility is more downtrend, much serious downtrend. We still have a lot of buffer compared to the other major competitors in this market. Equity to asset ratio, it could be down to below 3% if the stock market is further going down quite significantly. In Taiwan regulation, it need to twice touch this 3% threshold. It means maybe at the end of this year and next second half, then you need to considering this kind of issue. If you can explain some of them, it come from the interest rate, then it will be fine. I mean that we don't have this kind of issue for Cathay Life as a short-term. On page 36, you can see the capital adequacy ratio, Cathay Life RBC. After the market volatility at end of June, it still stand at 337%. Okay. I'm primarily concerned about equity assets. As you mentioned, it's still quite high and just to clarify the two, it's semiannual, the number is like semiannual? This is semiannual number. If you touch the below 3%, you need to considering to explain to our regulator. This is a semiannual. Two semiannual. Yeah. It means one year. Yeah, it means one year. Okay. All right. Thank you. Thank you. Thank you. Thank you. If you would like to ask the question, please press zero one on your telephone keypad. Thank you. We are now in question and answer session. If you would like to ask the question, please press zero one on your telephone keypad. Thank you. Okay, there appears to be no further questions at this point. Ms. Chang, can we close the conference call now? Okay, great. I think compared with 2017, I remember at that time our Cathay Life portfolio on equity was almost 15%. We have been keeping somehow more neutral position. As of end of June, we have about 12.6%. The rising rates interest rate and the market volatility did create some challenge, but they also give some buy and keep opportunity. We are very glad that in the first quarter we have trimmed position as we were expecting some volatility at that time. Hopefully the current rate hike, it does bring some cost on the short term as a mark to market pressure, but it also offer us very good timing that we can lock into long-term for fixed income at good yields. This will allow us to prepare for IFRS 17. That's a final note for today's analyst meeting. Thank you very much for joining us today. If you have further question, please do contact us and our team will stand by for you. Thank you. Thank you, Ms. Chang. Ladies and gentlemen, we thank you for your participation in Cathay Financial Holding Company's conference call. You may now disconnect. Goodbye.