Welcome everyone to Cathay Financial Holding Company's Third Quarter 2024 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 the time if you would like to ask the question. Now I would like to introduce Mr. C.K. Lee, CEO of Cathay Financial Holding Company. Mr. Lee, please begin. Thank you. Good afternoon, good morning to those in Europe. Welcome to Cathay Financial Holding 2024 third quarter analyst meeting. I am C.K. Lee, CEO of Cathay Financial Holding. Today, I will host the meeting. Thank you for joining us. In the beginning, I would like to introduce the senior managers who are with us today. We have Ms. Grace Chen, Chief Financial Officer of Cathay Financial Holding. Ms. Sophia Cheng, Chief Investment Officer of Cathay Financial Holding. Mr. Abel Lin, Managing Senior EVP of Cathay Life. Mr. Kevin Hu, Senior EVP of Cathay United Bank. Before we begin the presentation, I would like to share some key highlights. First, the nine months earnings reach TWD 103 billion, which is the second highest in our history. Driven by strong and resilient performance across all subsidiaries, Cathay United Bank and Cathay Securities reach all-time highs, surpassing their full year earnings from last year. Our P&C insurance and asset management business deliver record-breaking results for the first nine months, while Cathay Life posts the second-highest earnings to date. Cathay United Bank performed very well, driven by strong loan growth, expanding net interest margin, and a 34% year-over-year surge in fee income. Cathay Life's value-driven product strategy continued to drive strong CSM growth, while investment performance remains solid and capital position stay robust. Cathay Century, our P&C insurance subsidiary, maintains steady underwriting profitability, while Cathay Securities Investment Trust, our asset management subsidiary, reach record AUM. Meanwhile, Cathay Securities expands its market share in local brokerage business. We will share some more details during the course. Now I will hand over the call to Ya-Jou Chang from our IR team. Thank you. Thank you, C.K. Let's start with the business overview on page 4, which provides a quick highlight on each subsidiary. Cathay United Bank first nine months earnings have already surpassed 2024-year figures, delivering a new record high with 23% growth year-over-year. Loan growth was robust, asset quality remains benign, net interest income and fee income grew 17% and 34% year-over-year respectively. Cathay Life annualized premium and value of new business grew 14% and 20% year-over-year respectively. After hedging investment yield reached 4.15%. RBC ratio was above 350%, and equity to asset ratio reached 9.6%. Cathay Century, the general insurance subsidiary, premium income grew 15% year-over-year, with market share of 13%. Asset management subsidiary, Cathay Securities Investment Trust, delivered record high earnings for the first nine months. AUM reached TWD 2.1 trillion. Lastly, Cathay Securities deliver another record high earnings. Domestic brokerage market share continue to grow. Please look at page five, Cathay Financial Holding net income and earnings per share. Cathay Financial Holding net income reached TWD 103 billion, the second-highest record for the first nine months, driven by strong core business momentum across all subsidiaries. EPS was TWD 6.78. Page six shows the subsidiaries' net income and ROE. Cathay United Bank and Cathay Securities net income surpassed 2023 full-year figures, setting all-time highs. Cathay Century and Cathay Securities Investment Trust deliver record high year-to-date earnings. Cathay Life achieved second-highest first nine months record, driven by solid investment performance and steady underwriting gains. On a consolidated basis, the holding company ROE reached 15.8%, with all subsidiaries achieving double-digit ROEs. Please turn to page seven to see the book value of Cathay Financial Holding. The consolidated book value of holding company reached a record high of TWD 939 billion, driven by earnings contribution and the rebound in equity and bond markets. Book value per share increased to TWD 56.7. Pages nine and 10 show our overseas expansion. Cathay Financial Holding continues to expand overseas business, cultivate local and cross-border corporate banking clients, and leverage digital platform to develop consumer banking business. Premium income for Cathay Life Vietnam increased 10% year-over-year. As for the subsidiaries operation in China, Cathay United Bank, China subsidiary continues to broaden operations, enhancing online banking products and features, and promoting digital transformation. For Cathay Life joint venture in China, the total premium grew 19% year-on-year. Please turn to page 12 for more details about the banking subsidiaries. Cathay United Bank deliver robust loan growth, with mortgage and consumer loans showing double-digit growth. The total loan balance increased 16% year-on-year to TWD 2.6 trillion. Deposits show steady growth to TWD 3.5 trillion. The bank continued to optimize its foreign currency deposit structure and increase proportion of Taiwan dollar deposits, effectively controlling funding costs. Interest yield is shown on page 13. Net interest margin for the first nine months increased 18 basis points year-on-year to 1.55%, while the quarterly net interest margin rose 6 basis points quarter-on-quarter to 1.61%. This expansion was driven by strong loan growth, increased positions and higher yield in foreign currency financial assets, as well as the continued, well-contained funding costs. Page 14 shows the asset quality. Cathay United Bank maintained low NPL ratio at 12 basis points and coverage ratio at 1,294%. Gross provision was TWD 6.5 billion, with more than half as the general provision against new loan growth. Recovery was around TWD 900 million. Please turn to page 15 for SME and foreign currency loans. SME loan balance increased to TWD 338 billion, accounted for 13% of the total loans. Foreign currency loans returned to growth this year, achieving double digits year-on-year growth to TWD 259 billion. Page 16 shows offshore earnings. The offshore earnings rebounded to TWD 5.9 billion due to the recovery in deposits, loans, and investment income. Please turn to page 17 for the net fee income. Net fee income reached TWD 20.9 billion, up 34% year-over-year, attributable to strong sales across wealth management products, and a 32% year-over-year increase in credit card fees due to changes in the spending mix. Page 18 shows the breakdown of wealth management fees. Wealth management fees rose 39% to TWD 12.4 billion. All products show strong growth. Fees for mutual funds, securities products and bank insurance grew by 41%, 71% and 32% year-over-year respectively. Continued growth in both the number of customers and AUM provides a solid foundation for future business expansion. Please move to page 20 and 21 for Cathay Life's premium performance. Total premium was TWD 327 billion, a slight decrease of 3% year-over-year. Premiums from high CSM protection products rose 11% year-over-year, partially offsetting the decline in premiums for investment-linked policies due to regulatory changes in July 2023. On page 22, first year premium, FYP, was TWD 89 billion, declining year-over-year, reflecting the high base of investment-linked policies due to regulatory change in July last year. However, annualized premium, APE, grew 14% year-over-year, driven by the robust sales in health and accident policies, as well as the foreign currency denominated traditional long-term regular premium products. Notably, APE for high CSM health and accident products increased 46% year-over-year. Page 22 shows the value of new business. Value of new business was TWD 24 billion, up 20% year-over-year. This growth aligns with the same drivers seen in our APE performance. Page 23 shows the cost of liability and breakeven SA yield. The cost of liability remains stable quarter-over-quarter at 3.78%, while breakeven SA yield continued to improve. Please look at page 24 for the investment portfolio. Cathay Life's total investment reached TWD 8 trillion. Overseas investment accounted for around 70%. On the right-hand side, the investment yields for domestic equity and international equity was 17% and 13% respectively. Overall investment yields are shown on page 25 and 26. After hedging, investment yield was 4.15%, supported by capital gains from equity portfolio adjustment during the market rally. Page 26. The pre-hedging recurring yield was 3.45%, down slightly by 2 basis points, reflecting lower cash dividend income due to capital gains realization, partially offset by continued growth in interest income. The annualized hedging cost was 1.28%. Despite a 2.5% appreciation of the Taiwan dollar in the third quarter, the strengthening of the major Asian currencies enhanced the effectiveness of proxy hedging, keeping hedging costs well-contained. Please turn to page 27 for cash dividend income and regional breakdown of overseas fixed income. Cathay Life recognized cash dividend income of TWD 15.3 billion in the first nine months, lower than the same period of last year as Cathay Life dynamically adjusted its portfolio in favorable equity markets. On the right-hand side, Cathay Life took the higher interest rate opportunity to increase its holdings in U.S. bonds, raising the proportion of fixed income investment in North America to 52%. Page 28 shows the book value and unrealized gain of financial assets. Both increased year-to-date. The book value rose to TWD 756 billion, supported by earnings contribution and the rebound in unrealized gains and losses of financial assets. The equity to asset ratio increased to 9.6%. Next, please turn to page 22 to 32 to 34 for the performance of Cathay Century's premium income grew 15% year-over-year to TWD 28.4 billion. Market share was 13%. Page 34. The combined ratio increased due to slightly higher year-over-year loss ratio from April 3rd earthquake claim payments, while retained loss ratio and retained claim payments were both lower year-over-year, as such claim payments were covered by catastrophe insurance contract. Lastly, as we approach the implementation of IFRS 17 and the new solvency regime in 2026, I would like to provide an update on our progress and anticipated impacts. Since 2012, we have transitioned to a value-driven product strategy that accumulate CSM, which represent the insurance profit under IFRS 17. In recent years, we have also built a strong capital buffer to ensure resilience, and this, in fact, position us well for the upcoming adoption. Following the transition, we expect a largely reduced cost of liability, positive interest spread, increased insurance profit contribution to PNL, and a robust capital buffer. You can also refer to page 36 to 39 for the IFRS 17 and new solvency regime related information. Number one, the positive spread. While IFRS 17 does not change our economic value, it provides us an opportunity to address loss-making legacy book upfront and started to enjoy positive interest spread thereafter. While this may result in some erosion of our book value upon adoption, the impact is quite manageable and the CSM balance will remain robust. The equity to asset ratio may slightly decline on adoption, but when equity is combined with the after-tax CSM, the adjusted equity to asset ratio will be well above the current level of 9%-9.5%. In post-implementation, our cost of liability will be largely reduced at the same level as peers below our after-hedging recurring yield and enjoy positive interest spreads. Number two, the increased insurance profit contribution to the net income. Accumulating CSM is our top priority in preparation for IFRS 17. Our annual target is to generate at least TWD 70 billion in new CSMs, and we exceeded this goal last year and this year. Strong CSM generation capabilities will drive 10%-15% growth in CSM released into the net income annually for the next several years after adoption, steadily increasing insurance profit contributions. Number three, strong capital buffer. Based on our current market rates and announced transition and localization measures, our new solvency ratio is around 160%, well above the regulatory requirement of 100%. Upcoming localization measures will further boost this ratio. This strong capital position ensures our resilience against the future market volatility and provide us with the flexibility to buying on dips when market corrections. In summary, our early preparation and strategic actions, early transition to value-driven product strategy with strong CSM generation capabilities and building a strong capital buffer, has positioned us well for IFRS 17 and new solvency regime. These efforts ensure our financial resilience, improve profitability structure, and the ability to seize opportunities in a dynamic market environment. This is the end of presentation. Now let's open for 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 star one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. Should you wish to cancel your question, you may press star two. Thank you. Now, please press star one on your keypad if you would like to ask the question. Thank you. Please press star one on your keypad if you would like to ask the question. Thank you. Our first question will be coming from Jemmy Huang, JP Morgan. Go ahead, please, Jemmy. Yeah. Hi. Thanks for the presentation. Two questions from me. First one is, if I look at your bank net interest margin, over the past four to five quarters, one key driver is actually coming from your funding cost management. We can see the deposit only grew by 1% compared to WDG loan growth. I think that helps your LDR, but also your funding mix, as well. How sustainable this kind of adjustment you could do? Should we see similar trend into 2025? Second question is, for Cathay Life. If we look at it from a more top-down, longer term perspective, I think life earnings average over the past one decade is somewhere around TWD 40 billion-TWD 50 billion operating profit. Obviously, under IFRS 17, we have the addition from CSM amortization, but at the same time, equity trading gain should be largely gone. So in terms of the absolute operating profit, is there any, like, a ballpark or top-down estimate how should investors looking at the absolute operating profit levels under IFRS 17 for Cathay Life? Thanks. This is Kevin. I will first answer the NIM questions. The full year for 2024 is around 1.56% for the full year this year. If you ask me about outlook for next year, I will say kind of early to tell you the actual guidance because given that Trump hasn't released all his policy to. The market hasn't. I would say if you looked at the recent market performance, you would see the market consensus for the interest rate for the next year is still very volatile. Our goal is to maintain our NIM at the same level, at least, with same as this year aside from all the volatility in the market. I would say, pretty much, if there is a good trend for the NIM, definitely we can update you in the next investor meetings. Jemmy, it's Sophia. Let me also add a few points to that. You are right that we didn't grow another deposit. If you look on page 13, for the overall rate, the funding cost, if I look at from beginning of last year, 1.26% to 1.52% in the recent quarter, the increase in funding cost was 26 basis points. On the other hand, if we look at the return on interest earning assets, it increased from 2.66% up to 3.07%. The increase was 41 basis points. While the spread, quite stable and slightly down, we do benefit from a higher interest rate. And also, a better loan deposit ratio also helped that. I wouldn't say it's only purely on the deposit mix. The second point is if we look at the loan mix, especially foreign currency loan, we start to see some growth improvement. It really depends on the overall economy in other Asian countries, where we have seen some momentum in Southeast Asia, and also China current level is still not very healthy yet. Longer term, the improvement in SME loan and also if we see better timing for the foreign currency loan to continue to increase, and I think they will still bode quite well for the net interest margin to maintain at current level. I hope that adds some point. Thank you. Basically, my question is, are you going to maintain a relatively low deposit growth in the next 12 months, and we will continue to see further increase in LDR? Is that the way to look at into 2025? Next year we actually think the deposit will grow. The past year we don't think we need to compete on foreign currency deposits. There was a mix adjustment 'cause our loan deposit ratio was relatively low. It's overall GDP growth, and because of retail branching, I think when the overall deposit competition in the market is better, we do think the deposit will return to its normal growth. If we look at every year, this year is maybe the only year the deposit grows 1%. The past decade grows at mid-high single-digit growth each year. I see. Thanks. Thank you. Yeah. I think, Jemmy, you look at your question is that Cathay Life, for example, past five years, that normally. Yeah, actually, our investment team did a good job. Actually, we have a lot of the capital gain come from the equity. Generally speaking, you say that our net income is around like TWD 40 billion-TWD 50 billion. You wonder that in IFRS 17, how about our net profit from the IFRS 17 perspective? Okay. I know another investor wants to know this kind of numbers. But I want to say first one, because all the equity we will classify for IFRS 17 as FVOCI, not FVTPL, because that we don't allow the overlay methodology. So, we Most of the equity we will classify as FVOCI. Once we classify the FVOCI, the capital gain from equity side won't come into net income. Instead, in OCI perspective, it means that it will in our retained earnings, but it still can be distributed. Actually, the basis is quite different. I know you want to see some comparison. At this moment, I don't want to really disclose this kind of number, although we have this kind of number. I will tell, we are quite positive on that. I cannot give you very specific number. I will say, yes, after IFRS 17, we are positive in net income and also more predictable, no matter the equity capital gain is large or not. This is one thing. The actual number actually is not proper at this moment that we can disclose, like, this kind of TWD 40 billion-TWD 50 billion. I will say we are positive on that. Okay. That's helpful. Thank you. Thank you. Next question, Michael Zhang, Citi. Go ahead, please. Hi, management. Thanks for taking my question. Just two questions, please. The first one on life, you mentioned that the life earnings will be more predictable starting in 2026, and you are also positive on the earnings outlook and CSM growth. Just wanted to understand from a dividend perspective, because recent years it could be a bit difficult for life to upstream dividends. If I look at your historical record life, during years that upstream dividends, they upstream about 20%-30% of earnings as dividends. Just wondering under IFRS 17, with earnings becoming more predictable, does that change the way we think about dividend upstream from the life subsidiary? The second question is on the bank side. I think many bank peers are also reporting a very strong growth in other consumer loans. Just wanted to understand what type of loans is driving. Like, can we get more specific details on what kind of loans that is? Is it more unsecured consumer loans? How do we think about the asset quality risk arising from such rapid growth of these consumer loans? Thank you. Hi, Michael, I think that I also because before we adopt IFRS 17 and ICS, yes, we are not allowed to dividend upstream to Cathay Financial Holding. This is because we need to make sure our whole life industry has sufficient capital to adopt this international standard. We are positive that after we adoption, because this uncertainty actually is gone, and we are clearly and positive. After that, our no matter in our solvency ratio or our net income is more predictable. We expect we can have cash dividend and upstream to Cathay Financial Holding. I'm positive on that. The number calculations still have some detail need to be determined by our regulator. For example, some special reserve aspect. This kind of calculation will impact the number we can upstream. Also, because the dividend upstream, we also need to get some approval from our regulator, and we have some internally detailed calculation, the amount which we can apply to submit our application to regulator. This kind of some calculation details need to be determined. This kind of calculation actually at this moment is not the priority for our regulator. At this moment, our regulator most priority is that the fourth stage localization measure. That right now is the most emergency. I think the more detailed result should wait till that maybe in 2026. That year, I think that will be clearer. At this moment, we're thinking about that our regulator knowing that after we adopt the life subsidiary needs to have some cash dividend upstream. They know about this. This is quite important, especially for this financial holding company. We know that they recognize this issue. We are positive on that. At this stage, it's still not to talk about how many or what percentage our net income can be upstream. We are positive on this issue. Michael, I think for the bank side, the growth of the personal loan actually coming from those secured loan. More than 60% of the loan growth under the personal loan growth actually are securitized. There is this underlying security here. In terms of the risk management, I think it is more manageable. Thank you. Got it. Thank you. Thank you. Now, as a reminder, please press star one on your keypad if you would like to ask the question. Thank you. We are now in question-and-answer session. If you would like to ask the question, please press star one on your keypad. Thank you. If you would like to ask the question, please press star one- Someone to summarize. Thank you. Good afternoon, this is Grace Chen. In the earlier Chinese session, a lot of the participants are interested in our dividend policy. Given our strong earnings performance year-to-date, the second-highest, and as we have communicated with investors, our dividend policy each year will take into consideration multiple factors, including our earnings, our peers' dividend yields, payout ratio, investor expectations, and our financial resilience. We aim to deliver a favorable dividend yield. As strong earnings year-to-date, we remain optimistic about our dividend payments. Although as we know, Trump is the U.S. president-elect, and our CEO said if there is no big surprise until the end of this year, we are for sure that our dividend policy will be a more favorable one compared with this year. Thank you. Okay, there appears to be no further questions at the point. Mr. Lee, can we close the conference call now? Okay, thank you. Well, thank you for participation in today's conference call. If you have any further question, please feel free to contact our IR team. Thank you. Thank you, Mr. Lee. Ladies and gentlemen, we thank you for your participation in Cathay Financial Holding Company's conference call. You may now disconnect. Thank you and goodbye.