Cathay Financial Holding Co (國泰金控) yesterday outlined plans to take advantage of the US Federal Reserve’s interest rate hike cycle by increasing its exposure to the country’s debt market.
The company is prepared to raise its exposure to the US debt market by 2 percentage points, which translates to NT$100 billion (US$3.43 billion) in additional holdings at its biggest unit, Cathay Life Insurance Co (國泰人壽).
Despite a stronger New Taiwan dollar, the insurer has contained foreign exchange hedging costs at 0.89 percent of exposures while generating an after-hedging investment yield of 4 percent and maintaining a resilient risk-based capital ratio of 309 percent.
At the same time, Cathay United Bank (國泰世華銀行), would continue to adjust its loan book to increase its foreign-currency denominated lending to take advantage of the hike.
At the end of last year, the lender saw its foreign-currency-denominated loans rise by 29 percent annually to NT$224 billion, representing 15.8 percent of its total loan book, up from 12.2 percent a year ago, company data showed.
Cathay United Bank’s offshore earnings rose 17 percent annually to NT$10 billion, representing 45.6 percent of total earnings, compared with 44.5 percent from a year ago.
In the domestic market, the bank would focus on higher-quality loans for small and medium-sized enterprises, which had grown 16 percent annually to NT$151.9 billion at the end of last year.
An improved loan mix helped push the lender’s net interest margin from 1.07 percent to 1.17 percent at the end of last year. Cathay Financial saw its net income last year rise 18 percent annually to NT$56.7 billion. Earnings per share were NT$4.47.
The US central bank’s latest rate hike had been anticipated by the market and the focus has shifted to when the US’ 10-year treasury yield would reach 3 percent, Cathay Financial president Lee Chang-ken (李長庚) told an earnings conference in Taipei.
Regarding the government’s push to build Taiwan’s green energy sector, Lee said that the financial sector is expected to accelerate investments in two to three years.
Pension funds and life insurers typically get involved with equity investments in wind energy projects when systems developers have completed construction and begun operations, Lee said.
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