Shin Kong Financial Holding Co (新光金控) yesterday said it expects earnings to improve beginning this quarter, as it increases its foreign bond holdings ahead of an anticipated interest rate hike cycle in the US.
The expanding foreign bond holdings should drive up the interest income of its main unit, Shin Kong Life Insurance Co (新光人壽), by NT$2 billion (US$62.8 million), Shin Kong Financial chief financial officer Hsu Shun-yun (徐順鋆) told an investors’ conference in Taipei.
“We plan to increase our holdings of US dollar-denominated emerging market bonds by US$1.1 billion, bringing our total international bonds portfolio from NT$317.4 billion at the end of the third quarter to NT$350 billion,” Hsu said.
Hsu added that in the last quarter, the life insurer had increased its holdings of Saudi Arabian government bonds, while reducing its Chinese corporate debt and dim sum bond holdings.
Ahead of the bond holdings increase, Shin Kong Life’s cash position at the end of the first nine months had jumped to 6.2 percent of total investments, compared with 2.3 percent a year earlier, Hsu said.
Shin Kong Financial said that earnings should also improve this quarter, as the company’s recurring yields could receive a boost from potential Fed rate hikes.
“Following the conclusion of the US presidential race, the yield on US dollar-denominated foreign bonds with longer durations have risen by 50 to 60 basis points,” Hsu said.
The company favors emerging market debt as yields on AAA-rated US government debt remains low, despite its recent rally, he said.
Thanks to its stock portfolio adjustment, the company’s investment performance improved at the end of the third quarter, with Shin Kong Life posting an unrealized gain of NT$8.91 billion from available-for-sale financial assets, compared with unrealized losses of NT$13.59 billion during the same period last year.
Shin Kong Financial’s net income in the first nine months fell 53.9 percent year-on-year to NT$2.06 billion, or earnings per share of NT$0.15.
Shin Kong Life also saw its losses widen from NT$40 million to NT$2.01 billion during the same period.
Shin Kong Commercial Bank (新光銀行), the conglomerate’s most profitable unit, saw earnings dip 11.5 percent annually to NT$3.36 billion, led by a 59.3 percent annual dip in investment income to NT$559 million in the first nine months, company data showed.
In the third quarter, Shin Kong Bank’s non-performing loans increased by NT$558 million to NT$851 million from the previous quarter’s NT$292.7 million, mainly due to a NT$318 million default by Pacific Andes and a NT$102 million default by Tingsing Trading Co (鼎興貿易), company data showed.
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