In 2020 economic activity came to a standstill in most countries around the world due to the COVID-19 pandemic. In response, quantitative easing through liquidity and government spending was implemented to relieve the different sectors and individuals that had been most affected by the pandemic. Taiwan not only managed to keep the pandemic under control but also reported an increase in exports as the global demand for related technology products accelerated as a result of people working from home. In the capital markets, with the implementation of quantitative easing around the world and Taiwan’s appropriate response to the pandemic, TAIEX bounced back and reached a record high, closing the year at 14,732 points, with an increase of 22.8% at the end of 2020.
China Development Financial (CDF) navigated the impact of the pandemic well and delivered consolidated net income was NT$20.68 billion in 2020 (including NT$8.02 billion from non-controlling equity), with EPS of NT$0.87 and consolidated ROE of 6.6%. Compared with the consolidated net income of NT$19.65 billion in 2019 (including NT$6.86 billion from non-controlling equity), resulting in YoY growth was of 5.2% in 2020.
In December 2020, Taiwan Ratings announced CDF’s long- and short-term ratings of "twA+" and "twA-1," respectively, while its outlook was rated as "positive." These rankings were in recognition of CDF’s strong capitalization, established franchise in Taiwan’s corporate banking and securities business, and business diversification. The "positive" outlook rated by Taiwan Ratings indicates further enhances the ability to compete the acquisition of the remaining listed shares in China Life Insurance.
Below are the highlights of 2020 performance by individual business segments.
(I). Banking business
KGI Bank leveraged its key pillars of growth, namely, Corporate Banking, Consumer Banking, and Global Markets, and reported an increase of NT$618mn in consolidated net income compared to NT$3,617mn in 2019. The demand deposit ratio rose to 35.5% which reflected a growth of 44% in terms of demand deposit balance while the industry average growth was 21%. The loan balance reached NT$380bn or YoY growth of 9% in 2020 compared to an industry average of 6%. All this while managing to keep risk levels under control as evidenced by 0.16% in NPL ratio and 842% in coverage ratio. Upholding the idea of "KGI inside," KGI Bank extended the scope of its business through a financial services offer which connected the bank to different third-party service platforms such as Ruten, Pi wallet, PX pay and Shopee. Global Markets strategically enhanced its portfolio, focusing on high-quality stock and bond investments which generated long-term interest and dividend income. Collaboration with various channels to expand business opportunities, such as investment, hedging, note/bond underwriting, financial product marketing, and asset management also contributed to a 9% increase in revenue.
(II). Venture Capital/Private Equity Investment business
Eleven funds denominated in New Taiwan dollars, US dollars, and Renminbi are currently under management, with investment mainly in the U.S. and Greater China. These funds totaled NT$42.0 billion at the end of 2020, of which NT$27.6 billion has been drawn down for investment, and proceeds of around NT$5.8 billion have been received. The COVID-19 pandemic impacted investment positions in certain industries, such as lodging, cross-border tourism, and retail, which negatively affected the valuations of investment positions of the CDIB Capital Group in these industries. Despite this impact, CDIB Capital Group completed the establishment and fund-raising of the second NTD-denominated healthcare fund in 2020, with the scale of assets under management reaching NT$3.1 billion.
(III). Securities business
In line with an overall market electronic trading volume growth, KGI Securities continued to introduce emerging technologies to enhance digital trading. The robust capital market growth resulted in an 8.8% share of the market from the brokerage business, making KGI Securities second in the industry in Taiwan and fist in our Wealth Management business. The Foreign Institutional Investor Brokerage Business was ranked number one among domestic securities firms with a 9.1% share of the market, the Securities Lending business reached 25% markets share (second among domestic securities firms) and the Investment Banking Business remained in the lead in terms of enterprise financing. Initial underwriting of domestic bonds (including NTD and foreign currency-denominated bonds) amounted to NT$318 billion with an industry-leading share of 11.8% in the market; the financial derivatives business optimized the trading strategies and systems proactively to offer a diverse range of financial derivatives; and the trading volume of warrants accounted for a 12.5% share of the market with the issue amount totaling NT$56.8 billion in 2020.
In response to the implementation of the "Capital Market Roadmap" by the Financial Supervisory Commission (FSC), KGI Securities offered products and services which are aligned with the Market Roadmap. In overseas operations, KGI Securities continued optimizing overseas trading platforms to offer electronic trading across time zones and Hong Kong teamed up with FinTech service providers to accelerate the online broker business. Contribution from our overseas operations represented 21% of securities net income.
In 2020, CDF was selected as a constituent of both DJSI World and DJSI Emerging Markets for the first time in recognition of its contribution to sustainable finance (responsible investment) and inclusive finance. CDF also won the CommonWealth Magazine Corporate Citizen Award for the third consecutive year and was selected as a constituent of FTSE Emerging Market Index and FTSE TIP Taiwan ESG Index for the fourth consecutive year. CDF continues to support various educational support projects via China Development Foundation, KGI Charity Foundation, and its subsidiaries, such as "Heritage 100 & Tutelage 100," "Nutrition 100," and "Vocational Education Scholarship." CDF achieved eight of the United Nations Sustainable Development Goals (SDGs) in its continued effort to fulfill the core value of the co-creation of the society during 2020. CDF launched its volunteer program in 2021 and set to organize volunteer activities featuring four key areas including environmental protection, elderly care, disadvantaged support, and local revitalization by partnering with external non-profit organizations. Through the volunteer program, CDF aims to enhance employees’ understanding of ESG and create a positive impact to the society.
Looking forward to 2021, the global economy is positioned to rebound as the roll out of the COVID-19 vaccination programs accelerate and further stimulus is introduced. However, the risk remains the economic recovery maybe impacted by further lockdowns being imposed in various parts of the world. Taiwan, which has been less affected by the COVID-19 pandemic, is expected to perform well in its exports at a moderate rate of growth given a relatively high base period.
On February 2, 2021, CDF completed the acquisition of a 21.13% equity stake in China Life Insurance Company Limited (China Life Insurance); with the shares held by KGI Securities, CDF now has a 55.95% interest in China Life Insurance. This majority equity interest lays a solid foundation for cooperation in banking, securities, and asset management, as well as in life insurance business. During late 2020 CDF put in place a new leadership team and launched its 5-year strategy during early 2021. We created several new roles including Chief Digital Officer, Chief Marketing Officer and Chief Data and Analytics officer in line with supporting our new strategy. The ABCDE Strategy consist of five parts: Accelerate Digital (A) designed to make CDF and its subsidiaries into leaders in digital, Become Employer of Choice (B), designed to achieve higher employee engagement and development; Customer Focus (C), designed to make us the most recommended financial services brand in the market; Drive Growth (D), designed to help us exceed industry benchmarks and; Execution Excellence (E), designed to deliver outstanding results for all our stakeholders. Further details of our progress will be shared in our upcoming investor presentations.
A big thank to all our staff for their hard work and to all our customer, regulators, and shareholders for their continued support. We plan to build on the strong foundation we already put in place to extend our success into 2021 and beyond.
Chia-Juch Chang, Chairman
Stefano Paolo Bertamini, President