The pace of global economic recovery picked up in 2017, with commodity prices up substantially and financial markets performing strongly. Monetary policies were on pace to return to normalcy as global inflation and interest rates gradually trended up. The US, in particular, saw a relatively robust economy, with continued expansion in job and housing markets as well as a steady rebound in consumption and inflation, which prompted the Fed to begin policy normalization. In the eurozone, overall political/ economic systemic risk eased, driven by growing consumption and foreign trade, while quantitative easing was expected to phase out amid improving employment and economic recovery. In China, stabilizing economic growth coincided with industrial transitions and economic structural adjustments, while Taiwan, benefitting from the global economic recovery, saw economic growth increase to 2.84% in 2017. With investors returning to the market, the Taiex saw both trading volume and prices rise. According to Taiwan Securities Association, the combined average daily turnover of the Taiex and the OTC reached NT$138bn in 2017, up 39% YoY, and the Taiex climbed from 9,253 points to close at 10,643 points, up around 15%.
In September last year, CDF successfully purchased 25.33% of China Life Insurance Company to become the largest shareholder, formally extending its reach into four areas of business: life insurance, commercial banking, securities, and venture capital/ private equity. Driven by the robust performance of global financial markets and growing business in terms of volume and momentum, CDF registered consolidated net profit of NT$12.365bn in 2017 (including non-controlling interests of NT$670mn), for EPS of NT$0.80, with consolidated ROE of 5.94%. Highlights of the company’s core businesses are outlined below:
1. Commercial banking
In 2017, KGI Bank continued to derive operating growth from three major drivers: Corporate Banking, Consumer Banking and the Financial Market, complemented by a digital banking platform which facilitates professional development of financial technology (FinTech) platforms and big data applications to expand its client base. KGI Bank also leveraged group resources to increase product penetration and enhance business synergies. In addition, the bank implemented business mix adjustments, operations process improvement and IT systems optimization in an effort to enhance existing business strength, while actively promoting cooperation opportunities in innovative technology and pursuing growth opportunities in new channels. Below are highlights of key KGI Bank businesses: (1) Corporate Banking. The bank continued to provide well-tailored project financing services to corporate clients, strengthen CDF’s cultivation of local and overseas markets and actively cross-sell financial planning services to business owners and companies to help put idle capital to use. The bank plans to expand credit asset size as well as optimize profit structure through participating in syndicated loans, attracts corporate customers with supply chain trade and cash management business and works to keep abreast of overseas private equity funds as well as global investment banks’ sponsorship for leverage buy-out transactions. (2) Consumer Banking. The bank actively expanded sales channels and product types, optimized service flows and built a client base with sustainably robust growth through more meticulous customer relationship management and leveraging the group’s cross-selling resources. The wealth management business launched a new membership system in 2017 to focus on enhancing service quality and establishing a closer client relationship through customer segmentation and upgrade of customer rights and interests. (3) The Financial Market. The bank continued to expand its bond and equity investments locally and globally and pursue stable gains while diversifying market volatility risks by adhering to strict risk management controls and hedging strategies. It also underwrites bonds for local and foreign companies as well as financial institutions and gradually increases its visibility. Moreover, it cooperates with international investment and commercial banks to exchange development trends of various new financial products and provide clients with more comprehensive services covering note and bond underwriting, financial products marketing, private banking and asset management to meet needs for credit and investment products.
Thanks to speedier global economic recovery and enhanced trading momentum in capital markets, the overall environment favored the securities business, helping maintain KGI Securities’ leadership in brokerage, investment banking, warrant trading and bond underwriting. In response to the structural change of Taiex investors and the wealth management needs of new-generation investors, securities brokers were advised to transition to financial consultants. In addition, customer relationship management and digital technology were incorporated in the introduction of new products to stimulate demand for trading services and wealth management planning. In the future, KGI Securities will continue to incorporate FinTech and use big data analysis to conduct targeted marketing, providing differentiated services with customer segmentation techniques. Regarding overseas development, Hong Kong serves as the center of overseas deployment, linking Greater China and the ASEAN. Platforms of international financial products were established to grab demand for wealth management and opportunities from market volatility in the Asia-Pacific. Through close cooperation in various businesses across platforms, offering diverse product lines domestically and globally and with the support of IT systems, the goal of developing a regional wealth management business is being achieved.
3. Venture capital/ private equity
The continued rally in capital markets has boosted the value of our investment positions and favored our divestment plans. In 2017, two third-party funds — the Innovation Fund and Growth Fund — were established. Combining the six existing funds — the Creative Fund, Healthcare Fund, Hua Nan Fund, Hua Dong Fund, US dollar-denominated Asia Partners Fund and Ali Fund — total assets under management reached NT$31.9bn as of the end of 2017, of which NT$18.6bn have been deployed. In addition to these eight funds, a new renminbi-denominated fund is scheduled for launch this year (2018), while another US dollar-denominated fund is in the pipeline.
In terms of credit ratings, Taiwan Ratings gave CDF a long-term rating of “twA+,” a short-term rating of “twA-1,” and a “Stable” outlook in November 2017. These ratings were in recognition of the group’s strong capitalization relative to its risk profile, established franchise in Taiwan's corporate banking business and securities industry and adequate business diversification compared with other financial groups' in Taiwan.
Looking into 2018, the economies of Europe and the US are expected to extend solid recovery, while China will exercise cautious controls amid reforms and stable economic growth. Taiwan’s economy also appears healthy, as emerging markets benefit from warming demand and rising commodity prices, both positives for global economic performance. However, potential volatility in financial markets as well as global political and economic risks can’t be ignored. In response to the ever-changing landscape of financial markets, KGI Bank will continue to strengthen cross-selling activities by leveraging group resources to expand its customer base, maintain solid growth momentum in lending, enhance its syndicated loan/ mortgage/ SME lending business, actively develop digital banking and build quality service platforms to expand business through overseas deployment and horizontal alliances. KGI Securities will expand its wealth management business by integrating digital technology to optimize services, actively utilize cross-selling synergies and product innovation capability of group companies, continue to diversify trading strategies to expand profit sources and upgrade its trading systems to gain a competitive edge in the market, and capitalize on Asia-Pacific regional platform to gain presence in the international investment banking market. And last but not least, the private equity /venture capital entity will strive to diverse its assets, strengthen the asset management business, actively promote financial advisory business and offer customized investment consulting services for institutional investors to create diversified and stable sources of returns.
In the realm of corporate social responsibility, CDF has incorporated the concept into all subsidiaries. KGI Bank offers environmental, social and governance (ESG) programs with its Flexible Card, extending fee discounts and preferential interest rates to vocational license holders, entrepreneurs raising funds through crowdfunding websites and low-income families. In an effort to support the government’s promotion of green finance policies, KGI Securities was the lead underwriter of all three domestic corporate green bonds issued last year, with an amount of NT$14.1bn. In recent years, it has committed to promoting green finance initiatives to help alleviate global warming and to increasing capital market support for a greater number of companies promoting environmental sustainability. All of CDIB Capital Group’s investments conform to the six UN Principles for Responsible Investment (PRI) as it strives to fulfill the company’s stewardship as an institutional investor with a continued focus on ESG investing. Moving ahead, CDF will strive to improve ESG performance and further strengthen corporate governance, making information transparent and readily available with equitable access. CDF will also, as always, adhere to a corporate culture of good faith management in order to enhance shareholder returns and to reach its goal of corporate sustainability management.