Shin Kong Financial Holding Co (新光金控) president Lee Jih-chu (李紀珠) yesterday said that the company’s performance is heading in a positive direction, despite foreign-exchange headwinds encountered by Taiwanese financial firms.
“Like many of our peers, the company has sustained heavy impacts from a strengthening New Taiwan dollar throughout the last quarter, but our main subsidiaries have met intermediate goals,” Lee said at an earnings conference in Taipei.
Shin Kong Financial was the only company in Taiwan’s financial industry to see earnings dip into the red last quarter, with losses rising 10.2 percent annually to NT$2.83 billion (US$93.63 million), or losses per share of NT$0.29.
The company’s life insurance unit, Shin Kong Life Insurance Co (新光人壽), remained the key drag in the quarter with a net loss of NT$3.93 billion due to poor investment performance and foreign exchange losses.
Shin Kong Life Insurance’s net loss expanded by 7.3 percent annually, while its return on equity and return on assets were minus-5.26 percent and minus-0.17 percent respectively.
Its return on investment fell to 2.55 percent, down from 3.8 percent a year earlier, due to mounting hedging costs as a result of sharp exchange-rate fluctuations amid the NT dollar’s appreciation. Its annualized hedging costs rose 213 basis points from a year earlier to 2.86 percent in the first quartet, the insurer said.
The higher hedging cost also partly came from yuan-related exchange losses of NT$3 billion in the past quarter.
Lee said the insurer reduced investments in yuan-denominated Formosa bonds to NT$60.8 billion at the end of last quarter, down from NT$130 billion at the end of last year.
The insurer expects an improvement in foreign exchange losses to emerge in the third quarter, adding that it is aimed to control its hedging cost at 1.2 percent or lower for this year.
As the cost of achieving long-term hedging against yuan-related exposures are prohibitive, the company would employ other measures such as currency proxy baskets, Lee said.
In addition, the insurer has been stepping up sales of foreign currency-denominated policies, which are naturally hedged, Lee said, adding that such products generated revenue of NT$8.48 billion and accounted for 30 percent of first-year premiums in the quarter.
Other challenges Shin Kong Financial faces include an additional NT$1 billion in provisions against doubtful account receivables for Shin Kong Commercial Bank (新光銀行) as the company transitions to International Financial Reporting Standards 9, Shin Kong Financial chief financial officer Hsu Shun-yun (徐順鋆) said.
The bank saw its provisional expenses rise 77.4 percent annually to NT$515 million last quarter as it sought regulatory compliance, offsetting modest gains in wealth management and fees income.
Overall, Shin Kong Bank reported a year-on-year decline in net income of 9.3 percent to NT$969 million last quarter.
Hsu also gave a gloomy report of Shin Kong Financial’s real-estate holdings.
The value of the company’s commercial properties in Taipei’s Xinyi District (信義) dropped 2 percent last quarter, Hsu said.
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