CTBC forecasts moderate growth on rate increases

WINDFALL::As nearly half of the firm’s total loan book is denominated in the US dollar, every 25 basis-point increase would increase profit by about NT$300 million

By Ted Chen  /  Staff reporter

Fri, Mar 09, 2018 - Page 11

CTBC Financial Holding Co (中信金控) said it expects to maintain moderate growth this year, but warned of uncertainties stemming from widening foreign exchange volatility for the New Taiwan dollar.

Net interest and fee income are expected to see moderate growth this year, due to anticipated interest rate hikes in Taiwan and the US prompted by improving economic growth prospects across the globe, CTBC Financial head of financial management Chiu Ya-ling (邱雅玲) said on Wednesday.

About 45 percent, or NT$975 billion (US$33.32 billion), of the company’s total loan book is currently denominated in the US dollar, and each 25 basis-point interest rate increase would generate additional profit of about NT$300 million, Chiu said at an investors’ conference in Taipei.

A windfall from interest rate hikes would not be reflected immediately, Chiu said, adding that actual gains would depend on the US Federal Reserve’s pace and timing of increases.

“If the Fed raises rates three times this year, this could generate an extra 2.5 percent in profit for CTBC, which would be greater than [local] peers due to its larger foreign exchange loan position and strong development in the North America, Singapore and Hong Kong markets,” Yuanta Securities Investment Consulting Co (元大投顧) analyst Peggy Shih (施姵帆) said in a note yesterday.

CTBC Bank Co (中國信託銀行), the company’s major banking arm, expects to see about half of the anticipated gains from the rate increase materialize, Chiu said.

Overall net interest margin is expected to expand by 3 to 5 basis points this year as the lender takes advantage of interest rate swaps amid a widening spread between the US and Taiwan, she said.

The lender also expects a 7 percent to 8 percent growth in overall lending, she added.

While prospects of a stronger US dollar — propelled by an influx of funds seeking higher interest rates in the US — would dampen the strengthening of the NT dollar, the local currency could still appreciate if triggered by market reactions to rising trade protectionism in the US, Chiu said, adding that the NT dollar is expected to trade between NT$29 and NT$29.5 against the greenback in the first half of this year.

With Taiwan’s GDP growth shaping to hit 3 percent this year, CTBC Financial said it does not rule out an interest rate hike by the central bank as domestic inflation creeps toward 2 percent.

Taiwan Life Insurance Co (台灣人壽保險), which CTBC Financial acquired in 2015, reported that net income last year surged 106.8 percent to NT$10.21 billion.

Foreign exchange hedging costs are expected to be 0.3 percentage points greater than last year’s 1.02 percent, the insurer said.

CTBC Financial reported that overall net income last year rose 33 percent annually to NT$37.22 billion, with earnings per share of NT$1.91.