Welcome everyone to Cathay Financial Holding Company's Q3 2023 Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a Q&A session. Please follow the instructions given at that time if you would like to ask questions. Now I would like to introduce Ms. Sophia Cheng, CIO of Cathay Financial Holding Company. Ms. Cheng, please begin. Thank you. Good afternoon and good morning to investors in Europe. Welcome to Cathay Financial Holdings 2023, the Q3 analyst meeting. I am Sophia Cheng, the Chief Investment Officer of Cathay Financial Holdings. 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 with us on the line. Today, we have Ms. Grace Chen, Chief Financial Officer of Cathay Financial Holdings, Mr. Abel Lin, Managing Senior EVP of Cathay Life, and Mr. Kevin Hu, Senior EVP of Cathay United Bank. For today's conference call, Yajou Chang, the IR Head, will present the Q3 results, and after the presentation, we are open for Q&A session in which senior management will answer your questions. Without further ado, let me pass the call over to Yajou Chang for the briefing of the Q3 results. Thank you, Sophia. Let's start with the business overview on page three, which provides a quick highlight on each subsidiary. Cathay United Bank deliver a record high earnings for the first nine-month period with 22% year-on-year growth. Loan and deposits showed double-digit growth. Asset quality remained benign. Both net interest income and fee income showed double-digit growth. Cathay Life adhere to its value-driven strategy. First year premium for health and accident policies grew 12% year-on-year. Hedging costs contained well. Recurring yields continued to increase. Interest income showed double-digit year-on-year growth. Cathay Century, the general insurance subsidiary, premium income rose 12% year-on-year. Market share was 13%. Net income recovered due to the fading impact of pandemic insurance and continued business quality control. Asset management subsidiary, Cathay SITE, delivered record high earnings for the first nine-month periods. AUM was TWD 1.5 trillion, ranked number one in the industry. Cathay Securities remained its number one market share position in sub-brokerage business. We would also like to share with you our progress in sustainability. Please turn to page four. Cathay Life was recognized by the Investor Agenda Investor Climate Action Plans for its best practice case studies in investment and investor disclosure. Cathay is the only asset owner in Asia to be featured in ICAP. Biodiversity is essential for the process that support all life on earth, including human beings. Nature Action 100 is the first nature-focused global investor engagement. Cathay Life is one of the initial participants and the only financial institution in Taiwan. Please look at page five, Cathay Financial Holdings net income and EPS. Cathay Financial Holdings net income was TWD 59.7 billion, increased 10% year-on-year, driven by solid core subsidiary businesses. EPS was TWD 3.81. Page six shows the subsidiaries' net income and ROE. Cathay United Bank set the record high first nine months earnings of TWD 25.4 billion, up 22% year-on-year, driven by strong core earnings. Cathay SITE and Securities respectively deliver their highest and second-highest historical first nine months of records. Cathay Life's earnings recovered year-to-date. Recurring income continued to grow, and underwriting profits remained steady. Cathay Century's net income also recovered year-to-date, with pandemic insurance fading out. Please turn to page seven to see the book value of Cathay Financial Holdings. The continued book value of holding comp... The consolidated book value of holding company rebounded year-to-date to TWD 685 billion. Book value per share increased to TWD 39.5. Pages 10 and 11 show our overseas expansion. Cathay Financial Holdings continued to expand overseas business, cultivated local and cross-border corporate banking businesses, and leveraged digital platform to expand retail customers. Premium income for Cathay Life Vietnam and Cathay Century continued to show steady growth. As for the subsidiaries operation in China, Cathay United Bank China subsidiary actively delivered green finance services, promoting green deposit and loans. For Cathay Life's joint venture in China, the total premium grew 69% year-on-year. Please turn to page 12 for more details about our banking business. Cathay United Bank delivered robust loan growth with both mortgage and corporate loans showing double-digit growth. The total loan balance increased 12% year-on-year to TWD 2.2 trillion as of the end of September. Deposits grew 11% year-on-year to TWD 3.5 trillion, maintaining advantage of high demand deposit ratio over 60%. Interest yield is shown on page 13. Net interest margin for the first nine months increased 4 basis points year-on-year to 1.37%. The bottom table show the quarterly numbers. The Q3 net interest margin declined slightly by 1 basis point as the treasury investment yield increased, largely offset the increased funding costs due to the influx of FX deposits with higher interest rates. We expect the net interest margin for the full year will still be better than the figure of last year. Page 14 shows the asset quality. Cathay United Bank maintained low NPL ratios at 9 basis points and coverage ratio at 171.6%. Gross provision was TWD 4.8 billion. Recovery was TWD 2.5 billion. Please turn to page 15 for SME and foreign currency loans. SME loans showed solid growth to TWD 320 billion, accounted for 15% of total loan. Foreign currency loan balance was TWD 233 billion, increased 7% year to date and 2% year to date if excluding the impact from Taiwan dollar depreciation. Page 16 shows offshore earnings. The offshore earnings were down due to lower year-on-year investment income. Please turn to page 17 for net fee income. Net fee income increased 14% year-on-year to TWD 15.6 billion, driven by the growth in credit cards and wealth management fees. Page 18 shows the breakdown of wealth management fee. Wealth management fee income was TWD 8.9 billion, increased 5.5% year-on-year, attributable to significant growth in securities fees and recovery growth momentum in mutual funds. Please move to page 20 and 21 for Cathay Life Insurance's premium performance. Total premium was TWD 337 billion for the first nine months of 2023, showing a modest 4% year-on-year decline, while premium for high CSM protection products continued to grow. On page 22, first year premium, FYP, and the annualized premium, APE, was TWD 106 billion and TWD 35 billion respectively. Both increased year-on-year attributable to increase in sales volume of investment-linked policies and traditional long-term regular premium products. FYP for health and accident policies, the highest CSM contribution products, showed 12% year-on-year growth. Page 22 shows the value of new business. Value of new business for the first nine months was TWD 20.6 billion, increased 3% year-on-year, driven by higher sales volume from traditional long-term regular premium products. Page 23 shows the cost of liability and break-even asset yield. The cost of liability increased slightly quarter-over-quarter due to the declared rate increase of interest-sensitive policies. The break-even asset yield improved year-to-date. Please look at page 24 for the investment portfolio. Cathay Life's total investment reached TWD 7.6 trillion as of September end. Overseas investment accounted for around 70%. We continue to increase the overseas bond position to enhance recurring income, which is quite beneficial to our earnings quality. Overall investment yields are shown on page 25 and 26. After hedging, investment yield was 3.72%. The year-on-year decline reflected higher hedging costs comparing to hedging gains due to the nearly 13% Taiwan dollar depreciation in the same period of last year. The pre-hedging recurring yield increased eight basis points to 3.47%, with interest income showing double-digit growth. The annualized hedging cost improved quarter-over-quarter to 0.49%, owing to Taiwan dollar depreciation in the Q3 and effective proxy hedging. Please turn to page 27 for cash dividend income and regional breakdown of overseas fixed income. Cathay Life recognized cash dividend income of TWD 18.1 billion in the first nine months of 2023, lower than the same period of last year as Cathay Life dynamically adjusted its stock portfolio year to date. On the right-hand side, the proportion of fixed income in North America increased to 51%. Page 28 shows the book value and unrealized gains of financial assets. Both increased year to date. The book value increased to TWD 528 billion, supported by earnings contribution and rebounding unrealized gains and losses, which was driven by rebounding equity markets year to date. 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 24.8 billion. Market share was 13%. Page 34, the gross combined ratio and retained combined ratio each declined due to the further impact of pandemic insurance year to date. This is the end of presentation. Now let's open to Q&A. Thank you, Yajou Chang. Now we are open for Q&A. Thank you. Yes. Thank you, Sophia. Ladies and gentlemen, we will begin our Q&A session. If you wish to ask questions, please press star key and number one on your telephone keypad to enter the queue. After your name is announced, please ask your question. Should you wish to cancel your questions, please press star key and number two. Now, please press star key and number one if you would like to ask questions. Thank you. Okay. Before the Q&A, I'd like to give a key summary from the Chinese session in this afternoon. There were many questions asked by the audience surrounding couple areas. First one is the question related to life insurance operation, the progress of the improvement in break-even asset yield. So far through September, it's 3.05%. It will give the guidance that the whole year we should be seeing further improvement for lower break-even asset yields. The hedging cost in the first nine months it's actually below 0.5%. This is better than originally expected. Despite the recent strong Taiwan dollar appreciation due to quite dynamic hedging and our basket hedge, the Asian currency has performed quite well. That's also offset some of the impact, the negative impact. Overall, our FOREX smoothing reserve remains at the ceiling. The cap at TWD 42 billion, quite sufficient buffer for volatility. We still think the annual long-term expectation for hedging costs between 1%-1.5% remains intact, and this year should be at very low end of that. The recurring yield has improved. As you can see on slide page 26, the first nine months recurring yield already improved by about 9 basis points year-on-year. Because we do have quite strong interest income growth of 12%, which is higher than roughly 10% for the industry average. We do not try to hold the equity just simply for the dividend income. Therefore, this year the dividend yield is lower, but the overall equity total return on equity is actually quite strong. Domestic equity is 8.7%, international equity over 6%. Analyst also asked question about the regulator, the past two days has announced measures which allowing, 15 years buffer for life insurance insurers to make up the ICS capital gap. Also in IFRS 17 allow a 50 basis point additional equity premium for mark-to-market for the legacy high guarantee policies, which naturally you will match with more illiquid asset, with longer duration and higher yield. This together will lead to much lower pressure, immediate stress, and offer a better buffer for life insurance company to focus on, to build a more intact asset-liability management. Overall it's positive. For Cathay United Bank, the year-to-date loan growth, deposit growth and slight increase in foreign currency loans, these are all quite positive. We are seeing quarter-over-quarter roughly 1 basis point decline in net interest margin, but we think this will be quite close to the chart for quarterly net interest margin basis. Kevin was guiding full year net interest margin around somewhere 1.37%- 1.38%. We're looking at 2024. This should remain similar level. We are doing the budget right now. It will be more clear in about two months time. We are seeing good momentum in deposit inflow for U.S. dollars that do boost the cost of funds from foreign currency. That's why it leads to some slight decline in quarterly net interest margin. This U.S. dollar deposit will bring very good foundation for wealth management momentum into 2024. After a 5.5% year-on-year growth in wealth management fee for the first nine months, we remain positive for 2024 fee income growth from the wealth management. The credit card. So far we remain number two in total spending. Despite some cost structure changes, the spending remain very strong. We are also quite positive by proper design into the business strategy, 2024 credit card should also remain stable to some growth. Overall for the bank, we're expecting decent net interest income growth, fee income growth and asset quality remains stable. Overall it's also positive. These are some of the key highlights. On the line, are there anyone who want to ask questions? Yes. The first one to ask question is Jemmy Huang from JPMorgan. Hi, Jemmy. Hi, Sophia. Thanks for the presentation. Two questions from me. I think the first one, if you look at your quarter-on-quarter changes on your swap revenue, actually third quarter swap revenue increased compared to second quarter. Are you allocating more excess capital to the swap activities during the quarter? I recall you also mentioned you are trying to put excess liquidity into the investment into the U.S. dollar-denominated bonds. How should we look at maybe in the next couple of months how your asset allocation for your U.S. dollar deposit would look like if we break down into maybe roughly lending, investment and also the swap activities how that will be changed compared to Q3 or first half of the year? The second question is back to the dividend from the Chinese subsidiary, can I confirm that based on your understanding or your interpretation for the under-reserved part in 2022 you don't really need to set aside additional special surplus? Therefore, any special surplus to be set aside or to be reversed this year will be purely based on the mark-to-market impacts happened year-to-date or happened in 2023, disregard any under-reserved portion in 2022. Thanks. This is Kevin. I think our first question regarding the swap, the quarter three is actually based on the volatility and more, I would say, more trading opportunity for us to have the swap to create the swap revenue side. Also because the currency volatility, they were quite strong, swap demand on customers. This will be more market-driven rather than structurally. Yes. Yeah. It's a market-driven opportunity right here. Regarding the foreign currency deposit, I think for a lending part, we still cautiously evaluate the loan case by case, I would say, number one. Number two is we definitely will put those deposit to the foreign currency loan, foreign currency bond, I would say. The third piece is definitely a good foundation for us to build a wealth management momentum for the next year. I cannot give you the precise allocation between the placement and versus vis-a-vis the wealth management split because the whole financial plan is not yet finalized. Can I follow up, what kind of funds you are currently investing by Cathay United Bank? I mean, in terms of the yields, the duration, that kind of breakdown. Thanks. I don't have such data on hand. Probably we can share with you offline. Sure. No problem. Regarding, of course, Jemmy, as you know, this is the second year we implement our financial assets reclassification to AC for our Cathay Life subsidiaries, you know. Based on the regulation, also our interpretation, we think this year we only need to measure, you know, two parts, including the other assets and AC revaluation put together. So far, we explain in the Chinese media first meeting that is still positive impact to date. We don't need to have a special reserve for the second year. Are you able to provide some guidance what's the outstanding unrealized losses for the reclassify portion as of Q3? The third quarter, I don't have the figure on hand, but for the, you know, the figures to yesterday, the year-to-date is, as you know, for the equity part, both Taiwan stock market and U.S. equity market recovered. We have a better revaluation in the equity side. But for the fixed income part, as you know, now the, like U.S. Treasury yield now is higher compared with year-end of 2022. For the AC part. That's true. You know, we need to have more revaluation, but the revaluation loss. But the surplus of the equity valuation is larger than the loss of the AC part revaluation. That's why our impairment up to date, now we don't need to have a special reserve for the first nine months earnings. Got it. Thank you. Ladies and gentlemen, we are now in Q&A session. If you would like to ask questions, please press star key and number one. Thank you. Next one to ask questions, Michael Zhang from Citi. Go ahead, please. Michael. Hi. Thank you management for the presentation. I just have one question on the bank. Just wanted to get a sense of your cost goals going forward. Obviously, this year, we are seeing quite fast cost growth, but how should we think about cost growth into next year? Do we have a target growth or any CI ratio to share? Thanks. Last year our cost-to-income ratio is around 53%. This year so far we are at 48%, but we expect to, by end of the year, the ratio will become close to 53%, I think. Regarding the next year outlook, we haven't finalized our budget, so roughly, if you look at our history trend, roughly around 52%-53%, that kind of range. Got it. Thanks. Last year is 51%. Sorry. To correct the numbers. Roughly 51%-53%. Yeah. Is planned to remain stable. Yeah. Okay. Thank you. Okay. Please press zero. Please press star key and number one if you would like to ask questions. Thank you. We're on Q&A session. Please press star key and number one if you would like to ask questions. Thank you. Next one we have Peggy Shih from Morgan Stanley. Please ask your question. Hi, Peggy. Hi, Sophia. Thanks for the presentation. I have one question for the bank. I noted that Cathay United Bank's wealth management fee growth was a little bit weaker than peers in the first nine months of this year. May I know the reason? I know you have mentioned that we are going to leverage our FX deposit to grow wealth management fee next year. Which kind of product are we focused for next year? That's my question for the bank. The second question is about the dividend policy. I think a lot of investor would like to know when will our dividend policy return back to the historical level around like TWD 1.5-TWD 2 per year? Thanks. For the wealth management part, looking at the next year, I would say, insurance still play a key role to support our growth. Second product, the focus for us is, focusing on products, given the high level of the interest rate, still, customers still appreciate the opportunity to enjoy the high rate environment. Those two will be our key focus. Okay. I see. Peggy, regarding the dividend policy, it's too early to expect whether the dividend level will, you know, compare with the previous year. Of course, there are still one month ahead and, you know, capital market is volatile. We need to, you know, wait for the whole year's financial figures and then to discuss the dividend policy. That's our wish, you know, to maintain a stable dividend policy for all investors. Well noted. Thank you. Thank you, Peggy. Ladies and gentlemen, as a reminder, please press star key and one if you would like to ask questions. Thank you. Please press star key and one if you would like to ask questions. Thank you. Okay. Well, if no further question, I think we have quite fruitful discussion in the Chinese session already. If no further question, I think we can conclude the call today. Thank you very much for joining the call today for our quarterly results. The IR team will stand by here if you have further questions. Yes. Thank you, Sophia. Thank you, ladies and gentlemen. We thank you for your participation in Cathay Financial Holdings' conference call. You may now disconnect. Thank you and goodbye. Thanks. Bye-bye.