The investment climate was extremely challenging both domestically and overseas in the second half of 2011, when the European debt crisis brought the global economy to a standstill. But Fubon Financial still had an outstanding year, thanks to an effective diversification strategy, the continued pursuit of strong growth and steady expansion, and enhanced risk management. Fubon Financial was the most profitable company in Taiwan’s financial services sector for the third year in a row with record after-tax net income of NT$30.543 billion and earnings per share of NT$3.39.
Fubon Financial went public on December 19, 2001. In the 10 years since then, we have dedicated ourselves to strengthening our roots in Taiwan, offering customers the best and most professional financial services in the industry and maximizing shareholder value while adhering to our core values -- integrity, sincerity, professionalism and innovation.
Over the next 10 years, further cultivating the domestic market will remain a key focus. But Fubon Financial also intends to aggressively expand into Greater China and build the most complete financial services platform in the regional market, steadily moving us closer to the goal of becoming one of Asia’s first-class financial institutions.
Record-high Income Again Leads Industry
The global economy ground to a halt in the second half of 2011 as the European debt crisis intensified. External demand stalled, causing a precipitous decline in Taiwan’s export growth, and the pervasive economic gloom led domestic companies to significantly reduce their capital expenditures. As a result of these and other factors, Taiwan’s economic growth fell to 4.04% in 2011, from 10.72% in 2010.
Despite the challenging environment, Fubon Financial had another outstanding year, benefiting from outstanding results posted by subsidiaries Taipei Fubon Bank and Fubon Life, an increase in cash dividend income, and gains from the sale of Fubon Multimedia Technology. Our after-tax income of NT$30.543 billion, up 53.4% from 2010, and EPS of NT$3.39, were both the highest in the industry for the third consecutive year. Return on assets (ROA) and return on equity (ROE) were 0.9% and 13.5% respectively.
Fubon Financial also saw total assets rise 4.8% in 2011, driven by the continued asset growth of Fubon Life. As of the end of December, the holding company’s assets totaled NT$3.618 trillion, ranking Fubon Financial as the second biggest publicly listed financial holding company by assets in Taiwan.
Fubon Financial’s Key Profit Centers
Fubon Life and Taipei Fubon Bank were Fubon Financial’s main sources of income in 2011. Fubon Life’s after-tax income rose 52.5% for the year to NT$10.104 billion. It was the highest of any Fubon subsidiary and accounted for 33% of the holding company’s after-tax earnings. Taipei Fubon Bank’s after-tax income grew 24.4% in 2011 to NT$9.054 billion, contributing 30% of Fubon Financial’s after-tax earnings.
Taipei Fubon Bank’s loan business grew 10.6% year-on-year, well above the industry average. Fee income rose 11%, the result of steady growth in the net interest spread and net interest margin through effective control of the Bank’s deposits-to-loans ratio. Though mutual fund sales were affected by market volatility in the second half of the year, the Wealth Management Group’s fee income still rose 14.3%, buoyed by a balanced growth strategy and a shift in the sales mix of insurance products, with traditional policy sales posting robust growth.
Efforts by Fubon Life to adjust its product mix also came to fruition in 2011, with first-year premium and total premium ranking second in market share. First-year premium totaled NT$222.8 billion, or a 22.4% share of the domestic market, and was bolstered by strong growth in traditional policies paid for in installments, which accounted for 23.2% of FYP, up from 10.4% in 2010. Total premium rose 16.8% for the year to NT$368.2 billion.
Although traditional and foreign currency policies carried greater weight in the company’s overall product mix, Fubon Life was nonetheless able to maintain its cost of liability at 4.16%. Return on investment rose slightly to 3.8% despite the market’s volatility because of timely investment and hedging strategies.
A Complete Range of Financial Services
Fubon Bank (Hong Kong) became a wholly owned subsidiary of Fubon Financial in 2011 after being successfully privatized and delisted from the Hong Kong exchange on June 8, 2011. The move has given the Bank added flexibility in helping Fubon Financial build a presence in the Greater China market.
The only Taiwanese-invested bank in Hong Kong, the Bank’s after-tax income rose 5.1% in 2011 to HK$280 million. It will continue to pursue its long-term development by capitalizing on opportunities presented by the internationalization of China’s renminbi, optimizing customer service and enhancing operating efficiency.
Fubon Insurance’s after-tax income grew 15.0% year-on-year to NT$3.08 billion in 2011, and its written premium market share of 21.6% led the industry for the 30th consecutive year. Direct written premium totaled NT$24.29 billion, representing a 9.5% YoY growth rate that far outpaced the industry average. Fubon Insurance’s net combined ratio was a strong 94%.
Fubon Securities delivered outstanding results in 2011 despite the Taiwan stock exchange’s poor performance. After-tax income grew 30% in 2011 to NT$2.67 billion, well ahead of its main competitors, and its share of the securities brokerage market reached 6.08%.
Dual-pronged Banking Strategy in China
Fubon Financial has progressively expanded into the Greater China market, hoping eventually to build the most complete financial services platform in the region. In the banking sector, we have followed a dual-pronged strategy involving establishing branches in China and acquiring stakes in Chinese banks.
At the end of 2008, Fubon Financial acquired a stake in Xiamen City Commercial Bank (now Xiamen Bank) through Fubon Bank (Hong Kong), becoming the first Taiwanese-invested financial institution to buy a stake in a Chinese bank. After a two-year reorganization process and efforts to strengthen its asset quality, Xiamen Bank posted record after-tax income in 2011 of 378 million renminbi, up 177% from 2010. The Bank’s nonperforming loan ratio fell to 1.03%, from 1.47% a year earlier, and its NPL coverage ratio rose to 359.7%, from 213.5% the year before.
Xiamen Bank extended its reach beyond the city of Xiamen for the first time in 2010 by opening a branch in Fuzhou, and in March 2011 it added another outlet in Quanzhou. Two months later, a new branch was launched in Chongqing, the first Xiamen Bank branch to be located outside Fujian Province. In the future, new locations will be added in Zhangzhou, Tianjin and Nanchang, creating a network that will position the Bank as the financial gateway to the West Coast of the Taiwan Strait and help it better cultivate local clients and serve Taiwanese-invested businesses based in the region.
In terms of Fubon Financial’s separate branch strategy, Taipei Fubon Bank gained its first foothold in China in December 2011 when it formally opened a representative office in Suzhou. After the office has been opened for a year, it can apply to the financial regulatory agencies in both Taiwan and China to become a branch, which would enable it to provide China-based Taiwanese businesses and local Chinese customers the most specialized financial services.
Gaining Footholds in China’s Insurance Market
Fubon Insurance’s China subsidiary, Fubon Property & Casualty Insurance Co., Ltd., formally opened in October 2010, becoming the first Taiwanese-invested insurer to obtain a business license in China after the landmark cross-strait Economic Cooperation Framework Agreement took effect a month earlier. The company, headquartered in Xiamen, had written premium of 48.89 million renminbi in 2011, ranking ninth among 18 insurers in the city. Sixty percent of the revenue was derived from automobile insurance, a market that has given foreign-invested insurers fits. Fubon Property & Casualty, however, was able to successfully apply its parent company’s wealth of experience in the field in Taiwan to the Fujian market.
In November 2011, Fubon Property & Casualty Insurance received preparatory approval from the China Insurance Regulatory Commission to set up a branch in Chongqing. The Chongqing branch then obtained final approval to open from the regulatory agency in March 2012, becoming Fubon Property & Casualty Insurance’s first branch and the first Taiwanese-invested P&C insurer in the Sichuan Province city. This important beachhead will be dedicated to providing Taiwanese businesses in Chongqing and city residents outstanding insurance services.
In the life insurance sector, Fubon Life and Nanjing Zijin Investment Holding signed a letter of intent in October 2010 to open a joint venture called “Fubon Zijin Life,” to be headquartered in Nanjing. In March 2011, the companies applied to the China Insurance Regulatory Commission for preliminary approval.
Fubon Financial also relied on a partnership to make inroads into China’s fund management market. Fubon Asset Management and China-based Founder Securities Co. set up a joint venture called Founder Fubon Fund Management Co. that opened in Beijing on July 25, 2011. It was the first fund management joint venture set up by companies from Taiwan and China and has already launched its first fund.
Developing a Strong Presence in Vietnam
Bullish on Vietnam’s economic potential, Fubon Financial has made the country an important target of overseas expansion. We currently offer banking, life insurance, and property & casualty insurance services in Ho Chi Minh City (including Binh Thanh District), Hanoi, Binh Duong province, Dong Nai province, and Danang. Our goal is to emulate our success in Taiwan by providing a complete range of banking services to local consumers and Taiwanese-invested businesses in Vietnam and eventually emerge as their preferred banking and insurance partner.
The journey into Vietnam began in June 2008, when Taipei Fubon Bank opened a branch in Hanoi. That was followed in October 2009 by the acquisition of Chinfon Commercial Bank’s two branches in Vietnam, giving Taipei Fubon Bank three locations (Hanoi branch, Ho Chi Minh City sub-branch, and Binh Thanh branch) in the country, the most of any Taiwan-based bank.
Fubon’s insurance arms have also aggressively developed a presence in the Southeast Asian country. Fubon Insurance established wholly owned subsidiary Fubon Insurance (Vietnam) Co. in 2008, and then added a Hanoi branch in June 2009 and a branch in Binh Duong province in May 2010. Another outlet was established in Dong Nai province in August 2011 and approval was received in March 2012 to set up a branch in Danang.
Fubon Life’s wholly owned subsidiary in Vietnam – Fubon Life Insurance (Vietnam) Co. – opened in Hanoi in March 2011, and it later opened a branch in Ho Chi Minh City. The moves helped propel Fubon Life into the ranks of regional life insurers in Asia.
Controlling Risk to Keep Capital Structure Strong
In the process of expanding Group operations, Fubon Financial has remained extremely attentive to risk management, maintaining a strong capital structure and a level of asset quality that exceeds the market average. In 2011, our capital adequacy ratio was 141.2%, far above the legally mandated 100%.
Taipei Fubon Bank's BIS ratio was 13.48% as of the end of 2011, an indication of the bank’s strong capital position. Despite steady loan growth, the Bank’s nonperforming loan ratio fell to 0.26%, from 0.32% a year earlier, well below the industry average of 0.43%. To meet a new regulation that took effect in January 2012 requiring banks to set aside at least 1% of their total outstanding loans as loan-loss reserves, the Bank increased its coverage ratio to 335.55% by the end of 2011, well above the 251.83% coverage ratio averaged by the industry.
The strength of our operating performance and asset quality was reflected in positive ratings by credit rating agencies. Taiwan Ratings Corp. announced on November 15, 2011 that Fubon Financial's long-term rating remained at “twAA” and its short-term rating remained at “twA-1+,” with the company's outlook stable. The ratings clearly reflected Fubon's superior profit-generating capability and asset quality relative to others in the industry.
The ratings of various rating agencies in 2011 were as follows:
|Rating Agency Type
|Long-term ; Short-term
||Standard & Poor’s
||Taiwan Ratings Corp.
Earning Recognition for Corporate Governance, CSR
Fubon Financial puts a high priority on corporate governance. We were not only Taiwan’s first publicly listed company to introduce an independent board director system but also the first domestic financial organization to have at least one-third of its board composed of independent directors, setting the standard for corporate governance. At present, of the 13 members on Fubon Financial’s board, four are independent, a ratio of over 30%, and a majority are outside directors, helping us stand out as a benchmark for corporate governance in Taiwan and in the region and earn recognition from several prestigious financial journals.
Aside from being honored by Euromoney for “Best Corporate Governance” in Taiwan’s banking and financial sector for six consecutive years and as one of the “Best Managed Companies” in Asia’s banking and financial sector for three straight years, Fubon Financial was named by Corporate Governance Asia for the third year in a row in 2011 as one of the “Best of Asia” for corporate governance. The company also received a Platinum Award for corporate governance from The Asset in 2011.
Fubon Financial’s long-term commitment to transparency in managing investor relations also earned recognition from IR Magazine, winning awards in 2011 for “Best Corporate Governance and Disclosure – Taiwan” and for “Best Investor Relations” in the banking & financial service sector in Greater China.
These outstanding corporate governance practices also helped Fubon Financial Chairman Daniel M. Tsai earn an “Asian Corporate Director Recognition Award” for Taiwan from Corporate Governance Asia for the second straight year in 2011, establishing him as a leader in corporate social responsibility and environmental management.
In its 2011 survey of Taiwan’s top corporate citizens, CommonWealth Magazine honored Fubon Financial’s enduring dedication to corporate governance and efforts to care for society by naming the company as the top corporate citizen among large companies (with revenues over NT$10 billion) in the financial sector.
“Fubon Financial’s corporate citizenship ranking has risen consistently over the years, indicating the continued diligence of the entire company, from top to bottom, in meeting its CSR commitment. Every policy related to CSR must be approved by a board resolution, reflecting both how high of a priority CSR is to Fubon Financial’s top executives and how deeply CSR has become ingrained as a core corporate value throughout the company,” the magazine wrote.
Outstanding Performance of Subsidiaries Widely Recognized
Fubon Financial was also named Taiwan’s “Best Domestic Bank” by Asiamoney, and Group subsidiaries amassed numerous accolades of their own. Taipei Fubon Bank was honored as “Best Trade Finance Bank” in Taiwan for the third year in a row and “Best Investment Bank” in Taiwan for the second straight year by Global Finance. It was also cited as Taiwan’s “Best Trade Finance Bank,” “Best SME Bank” and “Best Private Bank” by The Asset.
Fubon Life was honored by CommonWealth Magazine as Taiwan’s “Most Admired Company” in the insurance sector for the third consecutive year and as the winner of the “Golden Service Award” for the life insurance industry. It was named “2011 Insurance Company of the Year” for Taiwan by London-based journal World Finance and grabbed six awards at the 13th “Faith, Hope and Love Awards of Insurance.” Fubon Insurance also garnered seven awards at the “Faith, Hope and Love Awards,” including the “Distinguished Policy Designer Award,” and another six at the Taiwan Insurance Best Performance Awards.
Fubon Securities’ top-notch underwriting results again drew recognition as the company was named by The Asset as “Best Brokerage House” in Taiwan for the second year running, and it remained Taiwan’s only integrated securities firm to have captured the prestigious honor.
CSR: Getting Everybody Involved
Fubon Financial has actively engaged in social welfare activities for many years through four major foundations. We also have established a Fubon Volunteer Association and offered incentives such as paid leave for volunteering, creating a spirit of “giving back to society what is reaped from society” within the organization in the process of helping fulfill our corporate social responsibility.
The Fubon Charity Foundation has long provided emergency relief and assistance and also helped economically disadvantaged children realize their dream of getting an education through its “Making Friends with Love” campaign, launched in 2002. To date, the initiative has helped 112,850 students stay in school.
The Fubon Cultural & Educational Foundation’s top priorities are caring for teenagers, promoting better parent-child relationships, and connecting Taiwan with the rest of the world. It recently instituted an innovative “Young Voice, Young Life, Young Career” campaign to help meet those goals.
The Fubon Art Foundation is devoted to fostering cultural citizens and infusing art into people’s daily lives through campaigns that strengthen cultural roots, promote humanism, and bring art to life. The Taipei Fubon Bank Charity Foundation is dedicated to caring for the physical and mental well-being of the elderly, encouraging people with disabilities to grow artistically and athletically, and helping the economically disadvantaged escape poverty.
Fubon Financial has also extended a helping hand when natural disasters strike, both at home and overseas. Following the massive earthquake and tsunami that devastated northern Japan on March 11, 2011, Fubon encouraged employees to donate a day’s pay to disaster rescue and relief efforts, raising NT$21,112,579. Our subsidiaries pitched in another NT$20 million, bringing the total contributed to NT$41,112,579.
Steadily Gaining a Foothold in Greater China
Taiwan’s economy is expected to maintain stable growth momentum in 2012, helped by a moderate recovery in the United States, effective measures to bring the European debt crisis under control, and the gradual easing of fears that growth in China will fall dramatically. If there are no major economic shocks on the horizon, we estimate that Taiwan’s GDP will grow at a rate of 3.5%-4% this year.
The key development strategies and goals for 2012 for each of our six business groups are as follows:
Corporate & Investment Banking Group – The Group will focus domestically on expanding its customer franchise and increasing cross-selling and share of wallet among core clients. As China’s banking sector gradually opens to Taiwanese financial institutions, Taiwanese-invested companies in southern and eastern China will still be targeted, but new initiatives will be taken to solicit Chinese enterprises and cooperate with Chinese banks to broaden sources of income. Corporate and investment banking services will be delivered through the Group’s Asia-Pacific platform (serving Taiwan, Hong Kong, China, Vietnam and the United States) and with the help of Fubon Securities and the Financial Markets Group.
Financial Markets Group – The Group will focus on developing CNY hedging models and anticipates introducing CNY exotic products. New forex products involving G7 currencies will be offered, and opportunities in CNH (Chinese offshore yuan) trading will be explored. CNH FX Swaps, interest rate swaps, and “dim sum bonds” are expected to be of particular interest in building profit-generating and international trading capabilities.
Consumer Finance Group – The mortgage division will concentrate on raising the relative weight of home equity loans in its product mix, and online and bank referral channels will be strengthened to complement major existing distribution channels, including brokers, developers, and the Wealth Management Group. On the consumer credit side, new targeted and seasonal promotions are being planned that will create a buzz and generate higher demand for credit, especially during peak spending periods. The Fubon Bank Card, targeted at high-wealth clients and business people, will be the credit card division’s main focus, but the Fubon Fortune Card brand will also be freshened to establish Fubon as the credit card brand offering the greatest rewards.
Wealth Management Group – Supported by the RAM (Risk Allocation Management) that can alert customers to their portfolio risk at any time, asset allocations will focus on saving/protection-oriented insurance plans, bond and balanced funds, conservative fixed income products and semi-discretionary individually managed trusts. Getting customers to use the e-trading platform, strengthening mobile bank trading functions and money management content, and designing tablet computer Apps will also be top priorities. Fubon Securities will continue to promote its overseas equity and fund sub-brokerage business, and life insurance products will be made a key segment of the company’s product mix. Fubon Asset Management will concentrate on fixed income products and will pursue a higher QFII quota to be able to issue related ETFs and Greater China funds. Anticipating a further relaxation in restrictions, the Group’s next step, once legal restrictions are eased, will be to issue purely China funds, helping the firm emerge as the asset manager of choice in Greater China.
Investment Management Group – With the economic outlook for 2012 relatively cloudy, the Group plans to expand its holdings of relatively high-income, highly rated fixed income assets and will carefully tackle the challenge of an appreciating Taiwan dollar. Investing in high-dividend blue chip stocks and income-oriented real estate, which should lower the risk from a potential economic slowdown and improve investment returns, will also remain high priorities.
Insurance Group: Fubon Life will concentrate on “pursuing stability.” Business divisions and distribution channels will be expanded and better staffed, and the competitiveness of in-house salespeople and outside agents will be enhanced. New initiatives will be taken to further cultivate bancassurance channels and strengthen sales of products with higher margins. The innovative “Fubon House” and cloud computing technology will be used to create a convenient “Fubon living circle” featuring more localized services. Because policy growth in the non-life market is expected to slow, Fubon Insurance plans to strengthen product differentiation, further diversify its distribution system, develop the potential of e-commerce, and take full advantage of its relative edge in claims and loss prevention services.
In April 2011, the Fubon Group celebrated its 50th anniversary, and Fubon Financial completed its 10th year as a publicly listed company at the end of the year. Building on those milestones, we hope to create the foundation for another outstanding 50 years by continuing to stress governance and risk management, strengthen our presence in Taiwan and steadily expand into Greater China.
Fubon Financial Chairman
Fubon Financial Vice Chairman