Taipei Times (TT): Would you give some guidance on the business outlook for this quarter and beyond?
Jason Liao (廖燦昌): We expect net profit to rise 9 percent to a record high this year from NT$14.1 billion [US$465.8 million] last year. Earnings have advanced at about the same pace this quarter as the past three quarters. For next year, we aim to pursue growth that is faster than the nation’s GDP growth forecast of 2.27 percent.
Taiwan Cooperative Bank (合庫銀行), the nation’s largest lender by number of branches, will be the main growth driver, accounting for 90 percent of all profit this year. Its earnings contribution is expected to drop below that mark next year, as we want other subsidiaries to achieve better showings.
Photo: Crystal Hsu, Taipei Times
Our life insurance arm, BNP Paribas Assurance TCB Life Insurance Co (合作金庫人壽), ranks No. 2 in terms of profitability, but we own only a 51 percent stake in the firm, while BNP Paribas Group controls the remaining 49 percent stake.
The securities, bills and asset management wings are also expected to show more active earnings momentum.
Overseas operations drive 35 percent of overall profit this year and we are seeking to raise the contribution by 5 percent next year.
TT: How do you plan to achieve that goal given that interest rate increases in the US and other nations are driving up funding costs?
Liao: We have to better control funding costs by adjusting the loan book. We aim to increase demand deposits and hold loans to government agencies steady. The funding costs have declined from 0.81 percent in 2014 to 0.56 percent this year, significantly easing our cost burdens because we have gained corporate customers, wealth management, securities settlement and payroll transfers accounts.
We also intend to increase fee income by growing our number of customers. We can expand our customer base by reaching out to spouses, children, parents and other family members of existing clients who might need life insurance, savings, funds, wealth management and other products.
While interested in artificial intelligence, Taiwan Cooperative Financial Holding Co (TCFH, 合庫金控) does not plan to launch financial services featuring the technology anytime soon. It is easy to introduce the technology, but I do not think Taiwanese are ready to have robots manage their wealth. They need more time to embrace technology migration. We will adopt a slow approach.
TT: Would you share the company’s investment plans?
Liao: We would like to raise general returns on assets from modestly higher than 1 percent at present. We plan to do so by adjusting our portfolio.
We aim to increase bond holdings, especially in emerging market debts, to take advantage of the fast-growing economy in Southeast Asia. US bond values might prove volatile due to interest rate increases, while European bonds offer low yields.
We will also strengthen stakes in financial derivatives, such as currency swaps. Bond holdings account for up to 30 percent of our total investment. We will raise the position slowly depending on interest rate movements. We will decide later this year whether to raise equity positions, as they failed to generate satisfactory returns last year.
TT: Would you explain why TCFH plans to hold an investors’ conference for the first time next month?
Liao: We plan to hold an online investors’ conference in the first half of next month to make our operations more transparent and accountable to foreign investors, mainly government retirement and sovereign wealth funds.
They have increased their stakes in TCFH in the past few years, with holdings rising above the 20 percent mark in August. We will organize roadshows in Hong Kong and Singapore next year to allow institutional investors to better understand the company’s business direction.
TT: Why did the company make Changan E Road the new site of its headquarters?
Liao: The firm acquired the 4,161 ping [13,755m2] plot of land from Taiwan Provincial in 1991 for more than NT$8 billion, or NT$2 million per ping, and decided to develop a commercial complex.
The project cost more than NT$10 billion in total. The land value has soared over the years.
We plan to lease one of the three buildings to generate more than NT$100 million in annual rental income if it is full occupied. The building that would be rented out has 12 floors.
We have inked a five-year contract with electric scooter maker Gogoro Inc (睿能創意), which will occupy five floors at about NT$2,000 per ping a month.
Gogoro plans to move its headquarters to the complex next year and is decorating the office space.
We are turning the old head office into a branch and have leased extra space to the Council of Labor Affairs for NT$1,700 per ping a month, on a par with market rates.
TT: Will THCF expand in Southeast Asia to support the government’s New Southbound Policy?
Liao: We will open a new branch in Cambodia next month after setting up a new branch in Changsha, China, and Melbourne, Australia, earlier this year. We aim to establish a second branch in Cambodia next year.
Apart from that, nothing is in the pipeline, although we have been assessing investment opportunity across the region.
ASEAN members, such as Thailand, Malaysia, Indonesia and Vietnam, have closed their banking market to foreign investors. Foreign investors can only buy stakes in existing banks and buy more than 51 percent stakes only in some instances.
Those banks for sale tend to be expensive and have poor financial performance with likely hidden debts, so we prefer to stay away. We have had a representative office in Vietnam for a long time and have been unable to upgrade it into a branch.
TT: Taiwan Cooperative Bank has 272 branches. Do you plan to cut the number due to the growing trend of digitalization?
Liao: We aim to cut branches, but it is difficult to downsize due to resistance from workers and landlords. We plan to move a branch in New Taipei City’s Sindian District (新店) to Linkou (林口) and turn it into a “smart” branch. We might open another smart branch in Taipei after that.
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