CTBC Financial Holding Co., Ltd. ($2891)

Welcome to CTBC Holding 2025 Q4 Earnings Call. Today's meeting will be chaired by Rachael Kao, President of CTBC Holding. Also present are Megan Hsu, CFO of CTBC Holding; Huang, CSO of Taiwan Life; and Justine Shen, Head of IR of CTBC Holding. [indiscernible]. Thank you for your cooperation. Now I'd like to hand over the floor to the President.

Good afternoon, dear investors and media guests. Thank you for taking the time to attend CTBC Holdings earnings call for 2025. Today, I'd like to first talk about our performance last year and then share our outlook for 2026 and also our latest progress in sustainable development. In 2025, CTBC Holding delivered a very impressive performance. After-tax net profit, TWD 80.6 billion, a record high, and it grew by 12% Y-o-Y. EPS reached TWD 4.08, also a new record high. Last year, our ROE was 16.9%, ranking the highest among all the holding companies in Taiwan. These demonstrate that CTBC Holding not only maintains a sound foundation, but also continues to demonstrate a strong growth momentum. Now I'd like to talk about our subsidiaries. CTBC Bank performed exceptionally well in 2025. After-tax net profit for the year, TWD 57.3 billion, up 16% Y-o-Y, also a new record. In terms of core business momentum, the deposit and loan base is quite robust. Loan in Q4 grew by 10% Y-o-Y. And thanks to widening spread, NII overall grew by nearly 22% Y-o-Y. As for fee income, the 3 main segments: Wealth Management, Corporate Finance and credit cards all performed strongly. Overall fee income grew by nearly 11%. It's worth noting that overseas business maintained a very good momentum. Full year pretax profit was TWD 23.7 billion, up 16% Y-o-Y, accounting for more than 30% of the bank's profit. This once again shows CTBC Bank's advantages as Taiwan's most international financial institution. As for our second largest subsidiary, Taiwan Life, its after-tax net profit for the full year was TWD 20.8 billion, although it went down by 3% Y-o-Y. This was mainly due to the 30% of its pretax profit allocated in December to strengthen the FX reserves. If we exclude this one-off impact, which is about TWD 8.5 billion, then Taiwan Life's profit actually increased by 20% Y-o-Y. In terms of investment, Taiwan Life seized the opportunity of the market to dispose stocks and private equity funds, bringing considerable capital gains. Sales of both traditional and investment-linked policies grew significantly. This resulted in a more than 50% annual growth in FYP, indicating that our life insurance business has returned to steady growth. Now let's look at the outlook for 2026. Overall, we are cautiously optimistic about this year. First, the macro economy, Taiwan benefits from the continued expansion of global AI applications and better-than-expected export momentum. So the government has recently revised Taiwan's growth rate this year to more than 7.7%. And in Taiwan, inflation seems to slow down. And we expect the policy interest rate this year to maintain at the same level, which is helpful for stabilizing the overall financial environment. Since last September, the Fed has been cutting rates. The market generally expects further rate cuts this year. But despite the uncertainties in the international political and economic situation and also the U.S.-Iran conflict, we will continue to monitor the situation. If we look at CTBC Bank's current asset and liability structure, even if the U.S. continues rate cuts, the impact on bank's overall NII is still neutral. We will continue to adjust our asset allocation flexibly based on market changes in order to maintain a stable profit performance. In terms of U.S. tariff policies, there seems to have been some certainties, but in the future, there might be further adjustments and uncertainties. CTBC Bank already has a comprehensive presence in Southeast Asia, Japan and the U.S. This gives us greater flexibility and resilience in helping clients with adjustments to multinational supply chains. We believe that we can reduce to the minimum the impact of U.S. tariff policies, and we will continue to support the diverse financial needs of our corporate clients overseas. As for the Life business, IFRS 17 and TIS have been officially adopted. And we have also adopted the new FX reserve scheme and the AC FX amortization accounting approach. Taiwan Life will continue to strengthen its asset and liability management and develop towards high profit, high CSM products and while further enhancing the competitiveness of its agency force. If the U.S. further cuts rates, it will benefit the overall performance of Taiwan Life's investment portfolios. Last but not least, sustainable development. CTBC Holdings performance in international sustainability assessments was once again highly recognized. We have been selected into the S&P Global Sustainability Yearbook for the seventh consecutive year, and we have ranked among the top 5% of global banks in terms of sustainability performance. We have also retained our highest leadership level, Level A in CDP. We support -- we continue to support net zero transformation through financial means. As of the end of 2025, CTBC Bank had facilitated offshore wind power syndicated loans over TWD 670 billion. And in terms of responsible investment, CTBC Holdings investment exceeded TWD 1.4 trillion by 2025. And last year, we worked with Taijiang National Park in Southern Taiwan in Thailand. We created Taiwan's eco-friendly fish farms and conservation symbiosis site in a national park. And this is the first such site in a national park in Taiwan, hoping to implement natural capital governance and protect biodiversity. This concludes my highlights. Now the IR team will provide more details on our Q4 financial performance. Thank you.

Please turn to performance highlights on Page 4. Holding reported net profit of TWD 80.6 billion, up 12% Y-o-Y in 2025, marking a record high. EPS was TWD 4.08. Holding's ROE was 16.9%, leading peers. CTBC Bank's net profit was TWD 57.3 billion, up 16% Y-o-Y, ranked #1 among peers. Bank's capitalization was solid and asset quality remained stable. Taiwan Life's net profit was TWD 20.8 billion in 2025, down 3% Y-o-Y due to a one-off FX reserve allocation in December. In terms of business momentum, FYPE increased 54% in 2025, supported by stronger sales of participating and investment-linked policies. Other subsidiaries, including Taiwan Lottery, CTBC Securities and CTBC Investments reported 6% Y-o-Y profit growth, driven by sustained business momentum. Page 5, strategic pillars and business focus. In banking business, CTBC Bank continues to strengthen franchise value by enhancing product offering, service and channel propositions while further developing domestic and overseas platforms. In private banking, the bank continues to enhance product offerings and family office services and leverages AI to optimize business processes and customer service to improve efficiency. In corporate banking, we aim to reinforce our global network, focus on cross-border platform development and strengthen regional hubs to support clients' global operations. In Taiwan, we continue to refine our SME business model and expand customer base. In life insurance business, Taiwan Life will focus on high-value products and scale up the agency force to build stable earnings momentum. In terms of investment, Taiwan Life will continue to optimize the portfolio and enhance returns through asset revitalization and participation in public infrastructure projects. Due to the implementation of IFRS 17 and TIS this year, Taiwan Life will further strengthen its asset liability management, reduce currency mismatch risks and maintain the TIS ratio at 125%. Regarding securities and site operations, CTBC Securities will integrate its platform and channels and leverage group resources to expand brokerage market share while continuing to grow its underwriting business. For CTBC Investments, we will continue to strengthen both active and passive fund business, including ETFs, while developing niche products to enhance product competitiveness and grow AUM. Page 6, profitability. Holdings EPS was TWD 4.08 in 2025. Group ROE was 16.9% and ROA was 0.9%. Page 8, capital ratio. We remain well capitalized with group CAR at 125% and Life RBC ratio at 359%. Bank's CAR was 14.6% and CE Tier 1 ratio was 11.1%. Page 9, profit breakdown by entities. In Q4, Life's net profit was impacted by the one-off FX reserve allocation in December and down 70% Q-o-Q. Holdings net profit was therefore down 20% Q-o-Q. For the full year, the holding company achieved 12% profit growth, mainly supported by strong banking performance, contributing 70% of total profit. Let's go to our banking business. CTBC Bank delivered strong operating performance with ROE reaching 13.9%. Page 12, revenue breakdown. Revenue increased by 12% Y-o-Y. Net interest income accounted for 55% of total revenue, growing 22% Y-o-Y, mainly driven by loan growth and wider net interest margin. Fee income represented 32% of revenue, supported by steady momentum in wealth management, corporate banking and credit card businesses and grew 11% Y-o-Y. Meanwhile, trading and others declined to 13% of revenue, down 13% Y-o-Y, mainly due to a decrease in swap income. Next, on loan growth. Total loans grew by 10% Y-o-Y with growth mainly driven by foreign currency loans, mortgages and unsecured personal loans, all delivering double-digit growth. As for NT dollar corporate loans, excluding government-related lending, growth also reached 14% Next, on foreign currency loan. Foreign currency loans grew 11% Y-o-Y. Among overseas subsidiaries, growth was mainly driven by LH and TSB. Among overseas branches, lending performances was particularly strong at Singapore, Tokyo, New York and Vietnam branches, all recording double-digit loan growth. In addition, lending momentum from OBU and DBU remains robust. Page 15, bank deposit mix. As of the end of 2025, total NT dollar and foreign currency deposits reached TWD 5.7 trillion, grew 7% Y-o-Y. The mix of CASA and time deposits in both NT dollar and foreign currencies remained stable. Page 16, loan-to-deposit ratio. NT dollar LDR was 85.9%. Foreign currency LDR was 61.4%. Overall LDR was 75.4%, representing an increase of 2.4 percentage points compared with the previous year. Page 17. In Q4, overall spread increased and NIM went up to 1.64% due to lower FX funding costs and improved yields for marketable securities. In 2025, NIM increased by 16 basis points Y-o-Y to 1.56%. Including swap income, NIM was 1.66% in 2025. Page 18, fee breakdown. Total fees were up 11% Y-o-Y, supported by solid business momentum in wealth management, corporate banking and credit cards. In wealth management, increased demand for insurance products, structured products and custody and trust services in 2025 drove continued growth in fee income. Corporate banking fee income was mainly supported by loan growth, which boosted related fee revenues. In addition, syndicated lending and offshore private banking businesses both delivered solid performance. For credit cards, strong business momentum continued and higher spending in 2025 further supported fee income growth up 8% Y-o-Y. For wealth management fee breakdown in 2025, the proportion of bancassurance inbound and others increased due to better sales of bancassurance and structured products. Page 20. In 2025, the cost/income ratio remained flat Y-o-Y, reflecting a content OpEx growth. Next, on asset quality. Asset quality remained stable with NPL ratio at 0.5%. NPL coverage ratio was 313%. Credit costs also stayed benign. Moving to the Life business. Taiwan Life reported net profit of TWD 20.8 billion in 2025, down 3% Y-o-Y, mostly due to a one-off FX reserve allocation in December. ROE was 12.24%. Next on premiums. Taiwan Life's product strategy focuses on value-driven products, foreign currency policies and investment-linked policies, driven by increased sales of investment-linked and traditional policies. Total premiums were up 20% Y-o-Y and FYP grew 54% Y-o-Y. On the upper right-hand side, the product mix also shows an increasing proportion of investment-linked and traditional insurance products. On the lower left-hand side, regular paid products represented 42% of FYP, while single-paid products accounted for 33%, mainly driven by the sales momentum of interest-sensitive products denominated in foreign currencies. Foreign currency policies made up 48% and NT dollar policies 26%. On the lower right-hand side, in terms of channels, the proportion of CTBC Bank increased to 46%, reflecting increased sales of investment-linked policies. Page 25, investment asset mix. On the investment portfolio, the allocation remained steady with investment assets reaching TWD 2 trillion by the end of 2025. Taiwan Life continued to adjust its investment deployment, increasing its equity exposure. In 2025, total investment yield after hedge increased Y-o-Y to 4.42%, driven by capital gains from equities and funds. Pre-hedging recurring yield was 3.6%, down 13 basis points Y-o-Y, mainly due to reduced noninterest income after currency conversion resulting from NT dollar appreciation in 2025. The high interest rate environment has increased cost of liabilities. Page 27, hedging mix. On the left, 42% of overseas investment assets were foreign currency policies, 31% were fully hedged, 17% were unhedged and the rest was OCI position. On the right, Taiwan Life allocated TWD 15.1 billion from excess liability reserves in July and TWD 8.5 billion of 2025 pretax profits in December to replenish FX reserves. FX reserves amounted to TWD 27.9 billion at the end of 2025. Hedging costs were 1.46% in 2025, increased Y-o-Y, mainly due to the depreciation in the U.S. dollar. However, in the second half of 2025, the stabilization of the U.S. dollar together with FX reserves offset led to an improvement in hedging costs compared with the end of September. Now let's move on to the impact of the new accounting standards on Taiwan Life's financial statements. On the balance sheet, in response to fair value measurement of insurance liabilities, Taiwan Life reclassified part of bond holdings from AC to FVOCI. This helps reduce the impact of market interest rate movements on net worth. In addition, with the phaseout of the overlay approach, Taiwan Life reclassified most of its equity investments to FVOCI. On the liability side, insurance liabilities are now major at fair value. In terms of equity, the adoption of IFRS 17 resulted in an impact of around TWD 1.3 billion and the asset reclassification contributed another TWD 12.2 billion. As a result, the equity-to-asset ratio declined from 8.1% to 7.5%. Moving to the income statement. Under IFRS 17, recognition of insurance revenue and profit has shifted from a cash basis approach to CSM release. Taiwan Life's opening CSM balance is TWD 160 billion, which will be released gradually over time. Release rate will be around 7% each year. We also expect double-digit growth in new business CSM in 2026. Cost of liabilities is not liner using a current yield curve since the yield curve is low in the front end and higher at the long end, we expect lower cost of liabilities in 2026, which will help expand the investment spread. For equity investments, the overlay approach discontinued. Most equities are reclassified into FVOCI as gains and losses in FVOCI are recognized through OCI. The impact of capital gains or losses on 2026 earnings will be reduced. Foreign exchange accounting has also changed. FX gains and losses on AC bond holdings can now be amortized over time instead of being recognized all at once. This will help mitigate earnings volatility from FX fluctuations. As a result, Taiwan Life plans to gradually lower its hedging ratio depending on market conditions, so reducing hedging costs. In terms of capital adequacy, Taiwan Life has adopted the TIS regime this year and maintains a TIS ratio at 125%. CTBC Holding has continued to gain strong international recognition. We have been included in the S&P Global Sustainability Yearbook for 7 consecutive years, ranking within the top 5% of global banks this year. We also once again received the highest leadership Level A rating from CDP, reaffirming our leading position in sustainable finance. That concludes the presentation. We are now open for Q&A.

[Operator Instructions] Sorry, the President has some information to add.

Dear investors, Previously, we collected some questions from investors and the media. So I'll first answer those questions. First, in 2025, Taiwan's banking sector performed very well because AI and semiconductor exports were very strong. So Taiwan's GDP was 8.7% growth and the interest rates started to go down last September. So foreign currency capital cost went down. So the spread continued to widen. And the capital market was strong in the second half of last year as well. So wealth management, credit card and corporate finance fee income was very strong. So overall, Taiwan's banking sector performed very well in Taiwan in 2025. Many companies reached historic highs. As for a question about mortgage ratio, the regulator ratio is 72%, and our ratio is 28% and the law stipulates that it cannot be higher than 30%. So it seems that we still have a quota of about TWD 100 billion. So there is no problem in terms of this quota. We can provide customers with their needs in this case. Another question is about Taiwanese businesses investing more in the U.S. and the help for our American business. CTBC currently now in New York has a branch, CTBC Bank branch in New York. And in the first half of this year, we plan to establish an LA branch and also an office in Texas. CBC Bank has a subsidiary called CTBC USA, and it plans to also open Phoenix branch in Arizona this year in order to provide services to the families and employees of Taiwanese businesses there. As for our subsidiary business development strategies, our IR team already gave you some highlights. I'm not going to elaborate on that. As for dividend payout ratio, this is something that investors pay a lot of attention to. This earnings call is about 2025 profit and only in March and in April, when we report to the BOD regarding dividend payout proposals this year. It seems that it's probably going to be around 60% or so, which is similar to previous years. And the exact amount of dividend payout will be determined -- discussed and determined in the BOD meeting. As for overseas deployment, I talked about the U.S. already. Another important place is Japan. In Q4 2025, we obtained the permission to establish Fukuoka office and Sydney branch. and we will continue to accelerate our applications with local authorities. In Vietnam, last year, we established offices in Haifeng and Dongguan. And with Hanoi and Ho Chin Min City, we hope to connect the dots and provide Taiwanese businesses with the financial services that they need. As for Indonesia, we have Indonesian subsidiary. And now we focus on Jakarta, Guangdong and Surabaya, we already have presence there. And in Mid-Java, we currently don't have any presence to service Taiwanese businesses. So in Semarang, we plan to establish a branch to service Taiwanese businesses. In terms of India, we already have 2 branches in India. And this month, we plan to open a third branch in GIFT City. We will observe the situation of Taiwanese businesses there in order to assess whether or not we open more branches in India. Some questions about Taiwan Life have already been answered on the slides. The last question that I have here is about some financial projections for 2026. We believe that the bank will continue to grow in a steady manner. The overall loan will have a high single to double-digit growth similar to last year. As for fee income, the momentum is pretty good on the market. So we are relatively optimistic. It's going to be somewhere between high single and low double-digit growth. In terms of NIM, with rate cuts and widening spread, we believe that there will be an increase of 4 to 8 points. Asset quality -- it's roughly 25 to 30 bps. Over the past 2 years, it was roughly 29 points. So these are some questions that we have collected. Now I'd like to give the floor to the moderator to see if you investors have further questions or comments. Thank you.

Thank you, President, for your information. [Operator Instructions] The first question is from Morgan Stanley, [ Jenny Huang ].

Sorry, I joined the meeting a bit late. If I repeat some questions, please bear with me and repeat for me. The first question is about NIM expansion, 4 to 8 points. Is this adjusted NIM? Or is this reported NIM? 4% to 8% is relatively a broad range. I don't know if -- I don't know what do you think believe will be the factors affecting whether -- where exactly in this range, the NIM is going to be. Another question the swap revenue from CTBC Bank, how much of it comes from insurance company flow? How much is from corporate flows? Because with the new accounting -- hedging accounting rules, there will be less flow in the future from certain sources. What's your observation? As for Taiwan Life, I don't know if I missed anything. The opening balance, what is the exact number in terms of the opening balance? And how -- what's your take on -- well, what's the recurring profit in your opinion? What's the level? How should investors look at the recurring profit of Taiwan Life in the future?

Let me first answer the question about NIM, the outlook for this year. Well, to answer this question, it will be a smaller range than what the President said, 1.7% to 1.73%, and it's adjusted NIM. The reason why it's widening is because of 2 reasons. First, foreign currency spread increase. This is the first reason because the pricing tenor is shorter in foreign currency. So last year, when -- in order to reflect interest rate cuts, some impact, some influence is only reflected this year. So this is the first reason for the widening spread. Second, in terms of foreign currency deposit and the ratio between CASA and time deposit, the percentage of time deposit has been going down because when we look at our customers, when these businesses expand their business, they turn their past time deposit into their capital expenditure. So this is the second reason. And another thing is that for marketable securities, our bond investment, the tenure on average is 5 years. So when bonds mature, we allocate new positions and the interest rates are quite different from previous bonds. The lowest point was -- at some point, it was less than 1%. So -- but over time, these bonds are replaced with higher yield bonds. So this is my explanation about NIM. The second question is about swap revenue and how much of it comes from insurance. Corporate customers, there is none. Our swap mainly is from insurance companies and other banks. So insurance swap, when we do this business with other banks due to methodology change, there will be less in the future. But we have other ways to reduce our capital. So swap is only one way for us to utilize our capital. As for the question on insurance, first of all, CSM, the balance is TWD 160 billion and the amortization ratio is 7%. If you want to know the recurring profit, so we look at mortality morbidity difference first. So I mentioned 7%. So every year, it's around TWD 11 billion. Of course, there is some cost that has to be deducted. But under IFRS 17, if we look at it proportionately, then the cost under IFRS -- so it's -- the cost is less under IFRS 17 compared to IFRS 14 because the calculation is reflected in the CSM calculation. So roughly TWD 10 billion minus the overall operating related expenditure. So it's roughly half of the previous number. So this is an estimation of the mortality morbidity difference. As for the spread, if we look at this year, we believe that the recurring yield is roughly 3.5%. And this 3.5% includes, for example, NTD appreciation possibility. So this is why we currently have the estimation of 3.5%. As for cost of liability, when you calculate, it's roughly 2.3%, and we have some participating policies, right? So when we calculate the gains, the profit from these policies, then the impact is that when the return is good, then we earn 5% and our liability also needs to reflect this 5% this is why when we distribute the earnings, then it's proportionately distributed to shareholders and customers. The reason why I say this is because there are participating policies and this is why the overall cost of liability gets increased. As a result, we believe that it will be less than 2.6% or roughly 2.6%. So 3.5% minus 2.6%. And we also need to consider hedging costs, which is roughly 1.1% to 1.2% and the overall foreign currency accounts for about 70% of the assets. So we have to further deduct 70 or so points, so we can interpret these as our recurring profit. I believe that with these calculations, we can roughly get to this result.

I have a follow-up question. Participating policies account for how much in your total reserve. And you mentioned roughly 2.6% -- 2.6% as your cost. over the next 5 years, in theory, this number will gradually go up. How should we look at this increase?

Okay. The extent of this increase, let me first answer this question. When we look at the yield curve over the next 5 years, every year, it will go up by less than 4 points, roughly 3.8 points per year. As for participating policies percentage, give me a moment. I will answer this question a bit later.

The next question -- the next one, Thomas Wang from Goldman Sachs.

I just want to confirm what you just said in terms of hedging costs, you said 1.1 to 1.2. Could you talk more about the 70%, which you just mentioned? The second one is also related to NIM, you said 1.7% to 1.73%, is it adjusted or reported as the basis?

Okay. To answer this question about hedging costs, by 70%, I mean in all of our assets, 70% is invested overseas. When we say hedging costs, we talk about this 70%. We talk about the average number using this 70% as our denominator. And we have to consider this 70% as our -- all of our assets. So we have to use 1.1x to 1.2x 70%. So this is why it's roughly 70 to 80 points. Okay. So the spread is roughly 10 or so basis points, Yes, recurring. This includes stocks -- this includes dividend, but capital gains are not taken into consideration here. 1.7x to 1.73x what I mean by that is adjusted NIM.

[Operator Instructions] The next question is Michael Zhang from Citi.

I have 2 questions. The first one, you talked about 1.7x to 1.73x adjusted NIM. It seems that in Q4 2024, you were already in this range. So do you think that over the next few quarters, the NIM will be roughly the same? And you also talked about bond investment yield, which can have some rollover benefit. May I ask you this year or over the next 2 years, what's the average yield rates for those bonds that are going to mature over the next 1 to 2 years? My second question, I want to ask about loan growth. In 2025, it seems that mortgage and consumer loan grew pretty relatively well. And corporate loan didn't grow as fast. So what about the outlook for 2026? The main drivers for loan growth will be the same or different? And what about the demand for corporate loan, we see some significant growth there.

To first answer the question on NIM. In 2025, in Q4, the adjusted NIM was 1.698x. So the range that I mentioned, 1.7x to 1.73x is better, slightly better than the Q4 number. This depends on our loan portfolio. Sometimes we bid for some government tenders and the interest rates are relatively low for enterprises, but we can still make money out of it. 2026 corporate loan outlook, okay. To answer this question, our projection is that it will be better. The main reason is because when it comes to new customer development, starting from our existing customers and supply chains plus overseas new customers, so we can do a lot more. We will also leverage our overseas presence as an advantage if our customers want to invest overseas, then we can enjoy some new business opportunities.

Okay. I want to have a follow-up question on reinvestment of bonds. What will be the benefit roughly?

Well, to answer this question, marketable securities towards NIM will bring 1 to 2 basis points. Well, to answer your question regarding participating -- the position of participating policies in Taiwan Life, it's less than 5%.

Eric Shih from KGI.

Hello managers, I want to ask a question about Taiwan Life AC to OCI, roughly more than 10%. So does it do most of the U.S. policies are most of them matched? And also what's the impact on interest rate sensitive policies in both NTD and USD terms? And what is the midterm outlook after the adoption? Will you be able to maintain a double-digit ROE in the mid- to long term? And also unrealized gains and losses, including both stocks and bonds.

To answer the question about interest rate sensitivity, we have done some testing when there's a 25 basis points increase of the interest rate and when the NTD also goes up, by -- well, the contribution will be 0.5%. So this is the result of our sensitivity test. As for ROE, our outlook for ROE, based on our current projection, I think there shouldn't be any problem that our ROE maintains at a double-digit level. For unrealized gains and losses, if we use -- if we look at Q4, the end of Q4, equity was roughly TWD 14 billion. And as for fixed income, it was minus TWD 13 billion. If we look at the current situation, in January, the P&L after tax was TWD 4 billion. And everything else is reflected on OCI. So we also take OCI into consideration. So the overall P&L is roughly TWD 22.4 billion as of the end of January.

I have one follow-up question. In the mid- to long term, what will be the hedge cost? How -- to which level will it go down to?

When NDF matures, we are not going to continue it. So the direction is that the hedging cost will go down significantly. So the impact on the financial statements will go down. We will reduce the hedging cost because of that. But if we look at the economic fundamentals, we still are going to observe external conditions. When we need to hedge, we will still do hedging because the impact will mainly come from the economic factors.

The next question comes from UBS, Alex Ye.

I have a few questions. The first question is about hedging costs under 1.2, do you take into consideration so the speakers' volume is not stable? Second, you mentioned Taiwan Life's mortality morbidity difference. You can use half of IFRS 14 as the basis. So can we use TWD 5.9 billion as the basis divided by 2? And how big will be the impact and I have another question for CTBC Bank. Foreign currency loan growth target, do you think that it will be faster than NTD loan growth and also the LDR, foreign currency LDR target?

Hedging cost. To answer this question about hedging costs first. As I mentioned a while ago, there are some external economic factors, which can change rapidly. So when we estimate 1.1 to 1.2, we don't take NDF maturity into consideration. We don't take the cost of that into consideration. The actual hedging percentage can go down to 40%, but this number doesn't reflect that yet because when there are some external factors that are volatile, then we can still adjust the hedging ratio flexibly. Second, if we can -- yes, we can use the number from the full year last year, and we divide it by 2 as an estimate. We can use this for calculation, yes. And the offsetting of mortality morbidity difference is taken into consideration in the reserves. Foreign currency loan growth, we believe that it will be roughly the same as NTD, high single to low double-digit growth. As for LDR, this year, we believe that it will be slightly higher than that in 2025.

[Operator Instructions] The next question is from Thomas Wang, Goldman Sachs.

I have 2 follow-up questions. The first is the CSM in 2026, what's the target? And also, you talked about sensitivity. Have you done some sensitivity testing regarding oil prices? For example, at a certain level, what will be the impact on your revenue or your loan growth?

Okay. To first answer the question on CSM. Our target this year is that we hope to achieve TWD 16 billion. Regarding oil prices, we have seen some external research results and also our internal economic research results. The views are similar. people are relatively optimistic about the capital market, including the Fed's rate cuts. These views come from the rise of new AI applications. So relevant but related investment demand is still there. And also the American tariff policies have resulted in that people are going to invest in the U.S. and also there's midterm elections and tax reduction. So according to external and internal research results, the war in the Middle East will not last long. So in terms of our wealth management sales and loan growth, we haven't seen any significant impact on them.

[Operator Instructions] We don't have any further questions. Let's give the floor back to the President.

Thank you to all the investors and analysts. I wish you prosperous investment. If you have any other questions in the future, feel free to contact our IR team. Thank you.

Thank you, President. Thank you once again for your participation. This concludes our earnings call. Thank you. Goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]