2017 was a turbulent year punctuated by a rising tide of protectionism in the United States as well as that country's withdrawal from the Trans-Pacific Partnership, along with uncertainty resulting from key elections in major EU countries. However, the overall effect of these geopolitical developments on the global economy was less severe than feared, with its recovery continuing at a steady pace. This extended to Taiwan, where the economy has been gradually picking up in tandem with the global economy.
However, although the world economy is emerging from the gloom, the challenges faced by financial holding companies remain. In a market characterized by excess liquidity, the industry has continued to engage in fierce price competition, making operations difficult for industry players. Despite this environment, CTBC Financial Holding Co., Ltd., with its solid customer base and dynamic group- wide synergies, has advanced steadily and outperformed its internal budget. For 2017, CTBC Holding generated after-tax profit totaling NT$37.2 billion—a near-record high. In fact, when excluding the one-off profit in 2014 with the purchase of The Tokyo Star Bank, last year's result is the highest in the Company's history. This achievement testifies to the effectiveness of the holding company's integration of resources in achieving synergy among the subsidiaries. Going forward, CTBC Holding will continue to expand our corporate borders, building up an international network to provide international financial services. At the same time, as we collaborate for mutual gains in line with our management principles, we will maximize the advantages of being a holding company. We will continue to uphold our "We are family" brand spirit, to strengthen our corporate governance and corporate social responsibility per our corporate mission to "Protect and Build," and to demonstrate our brand values of "Caring, Professional, and Trustworthy" as we aim to become a leading brand with the best governance, and the most trusted financial institution by customers and shareholders.
Business Plans and Results
(1) Expanding Globally, Launching From Asia Pacific
CTBC Holding is based in Taiwan as it actively targets expansion in overseas markets, achieving significant gains this fiscal year. Last September, Taiwan's Financial Supervisory Commission approved CTBC Bank Co., Ltd.'s request to open a branch in Shenzhen, China. Looking forward, the branch, which will deepen our reach into the Pearl River Delta Economic Zone and leverage the region's key industry chain, will be linked to our other branches in Taiwan, Hong Kong, and elsewhere overseas to build a full-range cross-border financial platform that offers a comprehensive array of financial products and services, including trade financing and international insurance and finance. Looking at the Southeast Asia market, we have been working in line with the Taiwan government's "New Southbound Policy" to identify strategic investments, share investments, as well as M&A that target specific customer bases, networks, and complementary services. Furthermore, in July last year, CTBC Bank successfully completed its bid for an equity investment in Thailand's LH Financial Group, obtaining a 35.6% stake as well as seats on the company's board. In the future, we will continue strengthening our network and expanding our financial service offerings across Southeast Asia. Meanwhile, Tokyo Star Bank has expanded its business scope by investing in private equity funds. As of Dec. 31, 2017, it had invested in 12 private equity funds, including ones covering leasing, manufacturing, retail sales, and IT. The investment amount totaled 5.1 billion yen, with a strong investment return of 83%.
(2) Reinforcing Corporate Governance, Accumulating Brand Value
In response to the growing emphasis of government authorities on corporate governance, CTBC has set up a strong corporate governance mechanism. It is one to which we are making constant improvements, such as by increasing the personnel dedicated to ensuring sound corporate governance. In addition, the Company is the first financial institution in Taiwan to have independent directors fill more than half of the seats on its board. This ensures that when the Board reviews major proposals, it does so in a manner that is characterized by transparency, independence, and that prioritizes CTBC's customers, employees, and shareholders as well as the public. As part of our efforts to combat money laundering, CTBC has established a special unit tasked with preventing money laundering and terrorism financing, instilling the culture of anti-money-laundering along with combating terrorism financing, promoting anti-money-laundering education initiatives, implementing money- laundering preventative controls, and fighting terror operations. We have also bolstered the supervision of our overseas branches. These efforts are focused on burnishing the credibility of our group's brand and maximizing the benefits of its equity.
((3) Integrating Group Resources, Creating Synergy
CTBC Holding completed its acquisition of Taiwan Life on Jan. 1, 2016. By comprehensively integrating CTBC's resources and utilizing its existing channels, CTCB Holding steered the insurer to rapid growth. In 2017, Taiwan Life recorded annual profit of NT$10.2 billion, marking the first time in its 70-year history it has surpassed the 10-billion-dollar milestone and a clear demonstration of the Company's ability to deliver results. Looking ahead, CTBC Holding will continue improving its sales operation model. We will also deepen cooperation among our banking, life insurance, securities, and investment arms. By maximizing their synergy, we will be able to offer a full spectrum of comprehensive financial products and services while facilitating the continual growth of these subsidiaries.
(4) Upgrading Digital Finance, Creating Value for the Customer
CTBC Holding is committed to upgrading digital finance services, with a development team managed directly under the holding. All services are tested internally prior to launch to ensure flawless service procedures and complete consumer protection. The Company's innovative digital finance services and comprehensive protection of consumer rights have enabled our digital finance products to attain positive results. Recent offerings include finger vein authentication at ATMs, online travel insurance, the smart investment fund Smart GO, and LINE Pay, a credit card issued in partnership with a mobile payment operator. These are a reflection of CTBC's unsparing effort to develop the digital finance sector and to drive exceptional outcomes.
(5) Enhancing Risk Control Technology, Achieving Stringent Asset Quality Control
CTBC Holding is well known for sound risk management aligned with international standards. We have adopted Basel III to strengthen risk management, and we continually develop new risk management techniques and systems to keep pace with expansion in the Company's business operations and territories, proactively enhancing the effectiveness of its risk management. By the end of 2017, our non-performing loans ratio had declined to 0.41% and our combined coverage ratio had risen to 306.85%, an indication of our rigorous approach to risk control and asset quality.
2017 Business Plans, Strategies, and Results
CTBC Holding has many subsidiaries that specialize in a broad variety of services, from banking, securities, life insurance, venture capital, and asset management to investment trusts, security services, and lottery draws. In addition, 99.86% of revenues and profits are recognized using the equity method and are mostly contributed from our banking and insurance subsidiaries, with the remaining 0.14% coming from other sources. In 2017, CTBC Holding recorded a consolidated after-tax profit of NT$37.2 billion and a consolidated after-tax profit of 12.77% on return to ordinary shareholders— ranking it among Taiwan's top financial holding companies.
Moreover, CTBC Holding has received acclaim for its efforts in corporate governance, brand image, corporate social responsibility, personal banking, institutional banking, digital payment, and innovation, winning 176 major local and international awards in 2017—nine more than in the previous year. Among these accolades, CTBC Holding was ranked No. 1 in the domestic financial sector in the 2017 Best Taiwan Global Brands awards while CTBC Bank was Taiwan's highest-placed bank for the fifth consecutive year in Brand Finance's Global 500 index of the world's top banking brands. The scale and scope of such awards make us the pride of Taiwan's financial industry and are the best possible affirmation of CTBC Holding's outstanding operating results. We were also honored in 2017 by being selected for the Dow Jones Sustainability Indices' World Index for the first time, just one year after our maiden inclusion as a constituent stock on the Dow Jones Sustainability Indices' Emerging Markets Index. To have won this top global honor is recognition that our group has successfully integrated economic, environmental, and social concerns in its operating model and supporting sustainable development. Going forward, the Company will commit itself to maintaining customer trust. Through our work in corporate governance, sustainable development, human capital development, products and services, and social welfare, we will demonstrate the importance we place on fellow enterprises, the environment, our employees, our customers, and society at large. The Company will continue to maintain its sound corporate constitution, provide customers with thoughtful financial services, and fulfill its responsibilities to society and to the environment in order to forge an even better future.
Latest Credit Ratings and Effective Dates
|Fitch||A-||F2||Stable||Sept. 20, 2017|
|Moody’s||Baa1||Baa1||Stable||Dec. 9, 2016|
|S&P Global Ratings||BBB||A-2||Stable||Oct. 23, 2017|
|Fitch||AA(twn)||F1+(twn)||Stable||Sept. 20, 2017|
|Taiwan Ratings||twAA-||twA-1+||Stable||Sept. 28, 2017|
2018 Business Overview
CTBC Holding will continue our sustainable practices as we work to strengthen our financial structure and maintain the most appropriate capital allocation. Realizing these goals will further enable us to build long-term customer relations and a solid foundation for the future development of CTBC Holding. Below is a summary of our plans for 2018.
(1) 2018 Operational Guidelines
- Enhance our operational efficiency and spur organic growth.
- Establish a solid foundation for digital financial services and accelerate CTBC's digital transformation.
- Cultivate international talent and deepen our operations abroad.
- Strengthen cooperation among subsidiaries so as to maximize group synergy.
- Deepen focus on the Asian market, including by identifying new strategic partners.
- Further improve corporate governance and strengthen the functions of our directors.
- Ensure complete legal compliance as well as the prevention of money laundering.
(2) Operational Goals
- Become the most customer-centric, most trusted, and most efficient financial institution.
- Actively integrate the group's business activities and system in order to improve our financial products and services.
- Enhance collaboration among various subsidiaries to deliver greater group synergy.
- Steer our banking business to greater profits domestically and further expansion abroad.
- For our insurance business, promote high-yield products via multiple channels, maximize profits, and raise our recurring revenue rate in order to ensure a stable profitability base.
- Develop our securities business by building a digital broker model that prioritizes smooth customer experience.
- Work to transform our investment trust business into a private bank-grade investment management company.
- Continue pushing forward with the digital transformation of our businesses, thereby developing an innovative digital business model.
(3) Key Operational Policies
- Practice corporate social responsibility and invest in public charitable activities.
- Ensure information transparency while further refining our corporate governance mechanism.
- Create long-term value by ensuring high asset quality and operational stability as well as through sustainable brand management.
- Implement risk management and strengthen compliance management.
- Actively recruit international talent, expand our overseas presence, and further internationalize our headquarters.
- Increase customer satisfaction by more acutely listening to their needs and improving our financial services accordingly.
- Develop digital finance infrastructure, maintain our momentum in innovation, and continue adopting new technologies.
Impacts from the Competitive Environment, Regulatory Environment, and Overall Business Environment
Taiwan's financial sector is a crowded one, with an overly competitive market amid low domestic interest rates. As such, achieving desired profitability can be difficult. Meanwhile, the booming fintech industry is compounding the situation, making competition in the sector even fiercer. Taiwan has also seen increased attention paid by government authorities to money-laundering prevention, with related laws increasing operating costs. Despite this challenging environment, CTBC Holding will maintain its strategy of strengthening our home base, expanding regionally, and extending into other businesses as we integrate our subsidiaries' abundant resources and leverage synergies to provide diverse, innovative, and full-service financial products and services, maintaining our market-leading position.
Regarding the cross-strait market, China's economic growth has increased the financing needs of Taiwanese enterprises. Boasting the advantages of a multinational financial platform as well as offering convenient financing channels and fund management services, CTBC Bank is the optimal backer to help such enterprises expand into the mainland market. Of course, the Bank exercises great care to control its China-related exposure and maintain high asset quality, while also continually introducing new channels, products, and services to the cross-strait market.
In line with the government's "New Southbound Policy," CTBC will continue to expand overseas, replicating our domestic success and capturing new development opportunities. Indeed, as CTBC Holding perfects its overseas platform, we anticipate effectively capturing growth opportunities in the Asia-Pacific region, with the hope of helping subsidiary CTBC Bank develop its stature as a regional bank and assisting Taiwan Life Insurance and CTBC Securities in expanding their operational scales.
Future Corporate Development Strategy
Reflecting on the changes witnessed in 2017, particularly the fluctuations in the global financial environment, further rise of digital finance and corporate social responsibility trends, and increasing regulations concerning money-laundering prevention, CTBC Holding will harness the continued concerted efforts of its professional staff to track international as well as cross-strait economic developments, exploit the opportunities posed by digital finance, enhance our corporate governance mechanism, and strive to comply with all relevant laws and regulations domestically and abroad. CTBC's future development strategies are as follows:
- Leverage our brand strengths to expand our competitive edge.
- Strengthen legal compliance and reinforce corporate governance, and instil the culture of anti-money-laundering along with combating terrorism financing.
- Maintain strict capital controls to enhance utilization efficiency.
- Continue steady growth of existing businesses while seeking new M&A opportunities.
- Consolidate group resources, establish a foundation for digital financial services, and continue to advance the Company's digital transformation.
- Strengthen the foundation of our life insurance business to create a powerful profit engine.
- Deepen our expansion throughout Asia by taking advantage of cross-border platforms.
CTBC Holding is committed to pursuing stable growth on the back of strong fundamentals. We will continue to prioritize the values of our customers, identify market trends, and offer market-leading financial services all while expanding our reach farther abroad. Acting with deep belief in our "We are family" brand spirit, we aim to become a leading brand with the best governance, and the most trusted financial institution by customers and shareholders.