The Bankers Association of The Republic of China Annual Report 2002

Transcription

1 Bankers Association of the Republic of China 8th Floor, 46, Kuan-chien Road, Taipei, Taiwan 100, Republic of China TEL : (02) FAX : (02) Website The Bankers Association of The Republic of China Bankers Association of Taiwan, Republic of China 21, Fu Chung Road, Panchiao City, Taipei Hsien, Taiwan 220, Republic of China TEL : (02) FAX : (02) Bankers Association of Taipei, Republic of China 8th Floor, 46, Kuan-chien Road, Taipei, Taiwan 100, Republic of China TEL : (02) FAX : (02) Bankers Association of Kaohsiung, Republic of China 3F-2, 301, Chihsien 1st Road, Kaohsiung, Taiwan 800, Republic of China TEL : (07) FAX : (07) !"#$

2 The Bankers Association of The Republic of China Contents History and Functions of the Bankers Association of the Republic of China (BAROC)... 2 Organization of the BAROC... 4 An Overview of Economic and Financial Developments Association Affairs Business Activities Appendixes Financial System of ROC Financial & Business Summary of Domestic Banks Overseas Branches of ROC Financial Institutions by Region and Country Local Branches and Representative Offices of Foreign Banks in ROC by Region and Country Chronology of Major Events in List of Member Banks of BAROC... 66

3 HISTORY AND FUNCTIONS OF THE BANKERS ASSOCIATION OF THE REPUBLIC OF CHINA (BAROC) On March 23, 1995, Mr. Sheu was appointed as Governor of the Central Bank of China, Mr. K. H. Yeh, Managing Director of BAROC became the acting Chairman. On August 5, 1995, Mr. James C. T. Lo was elected as the Chairman during the first session of the fifth Board. On August 14, 1998, Mr. Lo was re-elected as the Chairman during the first session of the sixth Board. On July 1, 2000, Mr. Lo retired from his position as the Chairman of the Bank of Taiwan, and Dr. Yung-san Lee, Managing Director, became the acting Chairman of BAROC. Dr. Lee was elected as the Chairman during the 20th session of the sixth Board held on July 20 of the same year. 2 Mu-tsai Chen, Chairman The Bankers Association of the Republic of China (BAROC) was founded on August 9, 1983, based on the original structure of the Bankers Association of Taipei. Together with the Bankers Association of Taiwan and the Bankers Association of Kaohsiung, BAROC was formed in accordance with the regulations governed by the Commercial Association Law, and was approved by the Ministry of the Interior. The Association is located on the 8th floor, No. 46, Kuan Chien Road, Taipei. Dr. I-shuan Sun was the first Chairman. In January 1984, the Bankers Association of Taipei transferred its entire national banking operations to BAROC in order to integrate and function as a national association. On August 9, 1986, the second Boards of Directors and Supervisors were elected at the first session of the second General Assembly. Dr. I-shuan Sun was re-elected for a second term. On August 7, 1989, the first session of the third General Assembly was held. By that time, Dr. Sun had reached his two-term limitation as stipulated by law, and was succeeded by Mr. Y. D. Sheu. During the first session of the fourth General Assembly held on August 1, 1992, the new Boards of Directors and Supervisors were elected, and Mr. Sheu was re-elected as the Chairman. On August 17, 2001, the new Boards of Directors and Supervisors were elected at the first session of the seventh General Assembly, Dr. Yung-san Lee was elected as the Chairman of BAROC. When Dr. Lee was appointed as Finance Minister of the Republic of China on February 1, 2002, Mr. Mu-tsai Chen succeeded Dr. Lee as acting Chairman. On February 27, 2002, Mr. Chen was elected as the Chairman of BAROC during the sixth session of the seventh Board. As governed by the charter of BAROC, the missions of the Association are to assist the government in implementing economic and financial policies, to promote economic development, and to strengthen the relationship and improve mutual benefits among its members. Its main functions are: (1) to help implement economic, financial and monetary policies as well as commercial laws; (2) to study and balance the demand and supply of funds among various sectors in line with economic development; (3) to formulate and compile common rules and regulations relating to various businesses of its members; (4) to enhance communication, surveying, statistics, consultation, research, development and publication relating to national and international financial businesses; (5) to protect the legitimate rights of its members and to help settle disputes among them; (6) to promote the exchange, analysis, and reporting of credit information among its members and to establish the credit files of major clients of its members; (7) to consolidate the planning of information systems among its members; (8) to strengthen the mutual support, assistance, education, and interaction among employees of its members, to sponsor activities benefiting the public, and to help implement service ethics and self-disciplinary measures; (9) to participate in international financial organizations and to promote national diplomacy; (10) to conduct research and to make recommendations in response to requests from the government or private organizations; and (11) to participate in various social and charitable activities. To carry out the above-mentioned functions and tasks, the Association serves as a bridge between the government and member banks as well as between member banks and the general public. 3

4 ORGANIZATION OF THE BAROC BAROC consists of three association members, namely, the Bankers Association of Taipei, the Bankers Association of Taiwan, and the Bankers Association of Kaohsiung. As of the end of 2002, the head offices of member banks totaled 59, of which 45 were located in Taipei, 4 in Kaohsiung, and 10 in Taiwan province proper. The branches of member banks located in Taipei, Kaohsiung and Taiwan province proper join their respective local bankers associations and participate in local bankers association activities. BAROC has a Secretary General and two Deputy Secretaries General, all of whom are responsible for the daily operations of the Association under the supervision of the Chairman. There are five divisions under the Secretary General, namely, Association Affairs, Operations, Finance, General Affairs, and Information. In addition, there is a Consulting Services Center. The Association s affairs and operations are conducted through its nine operational committees and one interbank money center. ORGANIZATION OF THE BAROC National and Local Bankers Associations Head Office* Branches** Bankers Association of the Republic of China 59 The following is the organizational chart of BAROC : Lending Committee General Banking Committee Bankers Association of Taipei Bankers Association of Taiwan 10 1,745 Bankers Association of Kaohsiung Bankers Association of Taipei County Members General Assembly International Finance Committee Financial Regulations and Disciplinary Committee 4 Bankers Association of Taoyuan County 221 Bankers Association of Hsinchu County 34 Internal Management Committee 5 Bankers Association of Miaoli County 40 Bankers Association of Taichung County 127 Bankers Association of Changhwa County 94 Bankers Association of Nantou County 38 Board of Directors/ Chairman of the Board Board of Supervisors/ Executive Supervisor Banking Automation Committee Research and Development Committee Bankers Association of Yunlin County 47 Bankers Association of Chiayi County 18 Bankers Association of Tainan County 92 Bankers Association of Kaohsiung County 103 Observers Advisors Managing Directors/ Directors Supervisors Risk Management Committee Credit Card Business Committee Bankers Association of Pingtung County 72 Bankers Association of Ilan County 36 Taipei Interbank Money Center Bankers Association of Hualien County 1 24 Bankers Association of Taitung County 1 16 Secretary General Association Affairs Division Bankers Association of Penghu County 6 Bankers Association of Keelung City 27 Operations Division Bankers Association of Hsinchu City 1 75 Bankers Association of Taichung City Bankers Association of Chiayi City 53 Deputy Secretary General Finance Division General Affairs Division Bankers Association of Tainan City Notes : * refers to the head offices of member banks. Information Division ** refers to the branches of member banks. Consulting Services Center

5 The 7th Boards of Directors, Supervisors, Advisors and Observers of BAROC As of December 31, 2002 Title Name Position Title Name Position Chairman of the Board Managing Directors Mu-tsai Chen Gregory K.H. Wang Patrick C.J. Liang Chi-lin Wea Jerome J. Chen Teh-nan Hsu Chairman, Bank of Taiwan Chairman, United World Chinese Commercial Bank Chairman,Taiwan Cooperative Bank Chairman, Land Bank of Taiwan Chairman, First Commercial Bank President, Hua Nan Commercial Bank Supervisors Tai-ying Liu Kwan-lun Tseng Chen I Lin Ping-hui Liu Chien-chu Hu Herbert S.S. Chung Fang-lieh Chen Chairman, China Development Industrial Bank Inc. President, Chung Hsing Bills Finance Corp. Chairman, Macoto Bank Chairman, Bank of Panhsin President, Cosmos Bank Taiwan President, The Export-Import Bank of the Republic of China President, Tainan Business Bank Yung-jen Huang Chairman, E. Sun Commercial Bank Wenke Wu President, Fuhwa Commercial Bank Directors Chieh-chien Chao Chairman, The Farmers Bank of China Li-chang Chen President, Kaohsiung Business Bank Po-shin Chang Chairman, Chang Hwa Commercial Bank Ying-che Chang President, Cota Commercial Bank Chi-yuan Lin Chairman, Taipei Bank Advisors Ching-te Chiu Chairman, United Credit Commercial Bank 6 Shen-chih Cheng Jack H. Huang Chairman, Chiao Tung Bank Chairman, Central Trust of China Shin-hsiung Chuang Wen-long Lin President, Bank of Kaohsiung President, Bank of Overseas Chinese 7 Alexander T.Y. Dean President, Grand Commercial Bank Gregory C.P. Chang President, Chinfon Commercial Bank Paul C. Lo Chairman, Bank SinoPac C.T. Lee President, China Bills Finance Corp. K.J. Lin Shui-cheng Huang Chih-wei Wu Eli Hong Sheng-hong Chen Chairman, Enterprise Bank of Hualien Directorate General, Postal Remittances and Savings Banks President, Hsinchu International Bank President, Far Eastern International Bank Chairman, Sunny Bank Roger Lee Sheng-yann Lii Jin-fong Soo Yu-de Chuang Harvey Liu Tzong-yeong Lin Chairman, Cathay United Bank President, Bank of Taiwan President, Taiwan Business Bank President, Fuhwa Securities Finance Company Ltd. President, International Bills Finance Corp. Chairman, International Commercial Bank of China K.C. Yu President, International Bank of Taipei Steve S.F. Shieh President, Taishin International Bank Yih-pin Chen President, The Shanghai Commercial and Savings Bank Dolly Yang President, Jih Sun International Bank Chuan-hsi Wang President, Fubon Commercial Bank Ken-teng Chang President, EnTie Commercial Bank Shiang-chang Lee President, Union Bank of Taiwan Tein-kon Shaw Chairman, Taitung Business Bank Kenneth C.M. Lo President, Industrial Bank of Taiwan Fan-hsiung Kao President, The Chinese Bank Henry Lin Yih-hwain Fan President, Ta Chong Bank Ltd. President, Taiwan Development and Trust Corp. Shi-yuan Cheng Cheng-few Lee President, Pan Asia Bank Chairman, Foundation of Pacific Basin Financial Research and Development Yu-chang Tsai President, Taichung Commercial Bank Chang-luan Liu Tien-yu Su President, Lucky Bank Observers Alex C. Chiang Vice President, Taipei Branch, American Express Bank Ltd. Executive Supervisor Jeffrey L.S. Koo Chairman, Chinatrust Commercial Bank T. C. Lee Managing Director/ CCO, Taipei Branch, Deutsche Bank AG

6 AN OVERVIEW OF ECONOMIC AND FINANCIAL DEVELOPMENTS Major Staff Members of BAROC I. Recent Economic Development As of December 31, 2002 A. Moderate Economic Growth 8 Secretary General Deputy Secretary General Deputy Secretary General Chairman, General Banking Committee Chairman, International Finance Committee Chairman, Financial Regulations and Disciplinary Committee Chairman, Internal Management Committee Chairman, Banking Automation Committee Chairman, Research and Development Committee Chairman, Credit Card Business Committee Title Name Position / Full-time or Part-time Appointment Y.C. Kuo J.C. Wang J.T. Tseng Chairman, Lending Committee Danny C.S. Kuo (1) Chairman, Risk Management Committee Chief, Taipei Interbank Money Center Chi-chu Chen William J.W. Teng Chang-ming Ho Alan Y.T. Shaw C.H. Chou Heh-song Wang J.C. Wang Daniel Tsai (2) Sheng-yann Lii Secretary T.M. Wang Chief, Association Affairs Division Y.M. Chou Chief, Operations Division S.H. Kao Chief, Finance Division J.T. Tseng Chief, General Affairs Division Y.P. Chuang President, EnTie Securities Finance Corp., Part-time Chief Superintendent, Taiwan Cooperative Bank, Part-time Part-time EVP, Hua Nan Commercial Bank, Part-time EVP, the International Commercial Bank of China, Part-time EVP, Bank of Taiwan, Part-time EVP, Taipei Bank, Part-time EVP, Land Bank of Taiwan, Part-time SVP & GM, Bank of Taiwan, Part-time Full-time Chief Superintendent, Taiwan Cooperative Bank, Part-time EVP, Taishin International Bank, Part-time President, Bank of Taiwan, Part-time Full-time Full-time Full-time Full-time Full-time The year 2002 saw a recovery in Taiwan's economy from a rapid slowdown in the previous year. Thanks to increased foreign demand, especially from the Asian region, external trade and the manufacturing sector grew simultaneously. Nevertheless, domestic demand lagged behind, mainly because of the rising unemployment rate, sluggish stock markets, inadequate investment, and tight fiscal position of the government. The moderate recovery was also due to the fact that the domestic financial environment and industrial structure were still in the adjustment stage. According to statistics released by the Directorate-General of Budget, Accounting and Statistics (DGBAS) of the Executive Yuan, Taiwan's real GDP grew 3.54% in The growth rates in the four quarters of the year were 1.20%, 3.98%, 4.77%, and 4.22%, respectively. This performance reversed the negative growth rates from the second quarter to the fourth quarter in B. Slight Fall in Consumer Prices While the global economy improved in 2002, overall demand did not show any significant increase. This, together with the keen competition in commodities, led to a continuous decline in commodity prices. Domestically, the downward adjustment in tariffs and the gradual opening of the markets after Taiwan's accession to the WTO caused a decline in prices. Furthermore, the weak demand and the resultant competition in the domestic market kept consumer prices from rising. In 2002, the consumer price index went down in six out of twelve months, including a four-month consecutive decline from August to November. Only in December did the consumer price index go up by 0.76%. For 2002 as a whole, the consumer price index decreased by 0.20%. The index for commodities dropped by 0.05%, which could mainly be attributable to (i) the relatively low prices for vegetables, fruits, and crude oil compared with 2001; and (ii) keen competition in the domestic market. The index for services dropped by 0.38%, which was caused mainly by (i) the adjustment in the real estate sector and the decline in rent; and (ii) the downward adjustment in telecommunication service fees resulting from the opening of the telecommunication market. 9 Chief, Information Division M.L. Tsai Full-time C. Expansion in External Trade Chief, Consulting Services Center Y.T. Lee Full-time (1)Mr. K.C. Wang succeeded Mr. Danny C.S. Kuo as Chairman of Lending Committee on March 6, (2)Mr. Kao-lin Fang succeeded Mr. Daniel Tsai as Chairman of Credit Card Business Committee on March 27, In 2002, external trade resumed a growth trend, owing to the recovery in the global economy and the substantial increase in demand from the Asian region. Exports experienced a two-digit growth in five months during the latter half of 2002, and exceeded the US$10 billion level for ten months in a row. Total exports in 2002 reached US$ billion, a growth of 6.3% from 2001.

7 10 With regard to imports, Taiwan's entry into the WTO led to a gradual opening in the import market. The expansion in exports also caused increased demand for agricultural and industrial materials. As a result, total imports in 2002 amounted to US$ billion, an increase of 5.0% compared with Imports of agricultural and industrial materials grew by 8.2%, and those of consumer goods by 5.4%. Capital equipment imports dropped by 3.5%, despite an increase in the fourth quarter. Since exports grew faster than imports, the trade surplus increased by US$2.42 billion or 15.5% from the previous year to US$18.05 billion. This surplus was the highest since D. Favorable Balance of Payments During the first quarter of 2002, the balance of current account registered a surplus of US$7.01 billion. This was mainly attributed to a faster decrease in imports than exports, an increase in net inward remittances from indirect trade, a reduction in travel expenses, and decreases in investment income expenditures to non-residents and interest expenses of domestic banks. The financial account showed a net outflow of US$0.78 billion, due to increases in investment in foreign securities by residents and direct foreign investment. The large surplus in the current account contributed to an overall balance of payments surplus of US$6.22 billion in the first quarter of In the second quarter, the expansion in exports to Hong Kong, mainland China, and South Korea led to a current account surplus of US$5.98 billion. In the financial account, the weak U.S. dollar in the international market caused an expected appreciation in the New Taiwan (NT) dollar and a decline in foreign currency deposits. This, together with the selling of the U.S. dollar by banks at the spot market, led to a net inflow of other investment amounting to US$12.21 billion. Total net inflow in the financial account reached US$10.66 billion, a record high on a quarterly basis. The overall balance of payments for the second quarter registered a surplus of US$16.19 billion, also a record high in any quarter. The third quarter saw a decline in the trade surplus, since imports grew faster than exports, reflecting a slowdown in both export expansion and economic growth. The current account surplus decreased to US$5.02 billion. With respect to the financial account, both direct investment and portfolio investment showed net outflows. Nevertheless, the continuous decline in foreign exchange deposits by residents, decrease in deposits in foreign counterparts by banks, and their withdrawals of call loans abroad had combined to cause a net inflow of other investment amounting to US$9.55 billion. As a result, the financial account registered a net inflow of US$3.08 billion. The overall balance of payments for the third quarter was a surplus of US$8.98 billion. In the fourth quarter, the faster growth of exports than imports resulted in an increase in trade surplus amounting to US$7.43 billion, which was a record high in any quarter. As a result, the current account registered a surplus of US$7.72 billion. Nevertheless, direct investment, portfolio investment, and other investment all showed outflows. This led to a net outflow of US$4.57 billion in the financial account. The overall balance of payments in the fourth quarter was a surplus of US$2.27 billion, which was lower than the previous quarters. For 2002 as a whole, the current account had a surplus of US$25.73 billion, the financial account had a net inflow of US$8.39 billion, and the overall balance of payments had a surplus of US$33.66 billion. The surpluses of both current account and overall balance of payments were record highs. II. Financial Development A. An Easy Monetary Policy Although the economy showed a recovery in 2002, the domestic demand remained weak. Moreover, the banking system still had abundant funds, and the interest rate in the domestic market continued to decline. In a low inflationary environment and with a view to reflecting the market interest trend and to maintaining the financial stability, the Central Bank of China (CBC) cut the discount rate twice in June and November 2002 to a historic low of 1.625%. From December 2000 to the end of 2002, the CBC adjusted the interest rate downward 14 times. Moreover, effective November 12, 2002, the CBC cut the interest rate of reserve account B, where banks deposit their reserves, from 2.5% to 2.25%. Since the supply of the U.S. dollar exceeded the demand in the domestic foreign exchange market and the interest rate of the U.S. dollar was lower than that of the New Taiwan (NT) dollar, the CBC reduced the reserve ratio on foreign exchange deposits (the additional portion since December 8, 2000) from 2.5% to 0.125% effective June 28, B. Historic Low Growth of M2 The continuous downward adjustment of interest rates by the CBC has influenced the interest rates of banks to follow the same trend since The scale of downward adjustment in interest rates on time deposits was larger than that of passbook deposits. As a result, the difference in interest rates between these two types of deposits narrowed, and funds flowed from time deposits to passbook deposits. Between October 2001 and April 2002, the domestic stock market reversed its previous declining trend. The annual growth rates of the daily averages of monetary aggregates in terms of M1A and M1B resumed their positive growth in The annual growth rate of M1A rose to 11.87% in August, whereas that of M1B reached 20.80% in May. As the stock market turned bearish, the annual growth rates of M1A and M1B declined to 10.34% and 11.08%, respectively, in December. For 2002 as a whole, the annual growth rates of the daily averages of M1A and M1B were 8.59% and 17.01%, respectively. 11

8 Annual Growth Rates of Daily Averages of Monetary Aggregates M2 % decline. The rate for December 2001 was 2.39%, and by December 2002 it slid to 1.61%, a decrease of 0.78 percentage points. The annual average interbank overnight call-loan rate for 2002 was 2.05%, which was a historic low. Moreover, in the short-term bills market, the interest rates of various financial commodities in the primary and secondary markets also showed declining trends. The interest rate of commercial papers of days in the primary market declined from 2.93% in December 2001 to 2.24% in December The annual average for 2002 was 2.58%, a decline of 1.47 percentage points compared with 4.05% in The interest rate of commercial papers of days in the secondary market also declined from 2.44% in December 2001 to 1.75% in December The annual average for 2002 was 2.14%, a decline of 1.64 percentage points from 3.78% in Dec. Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec Changes in Central Bank's Interest Rates, 2000 to With respect to the growth rate of M2, most private enterprises did not have a strong demand for funds. The loans and investment of major financial institutions continued to show negative growth. Furthermore, the rapid growth of investment in the bond market constrained the creation of credit by banks. These factors contributed to a slow growth in the daily averages of monetary aggregates in terms of M2. Starting in July, the growth rate fell below the lower end of the target range (3.5% to 8.5%) set for the year. For 2002 as a whole, the annual growth rate for M2 averaged 3.55%, which was below the middle of the target range. C. Declining Interest Rates Effective date Discount date Interest rate on accommodation with collateral Interest rate for short-term loans Dec. 29, Feb. 2, Mar. 6, Background Unit:% per annum The banks tightened their credit lines, and there was demand for currency which commonly occurs at year-end. The stock market plunged, both the financial and real aspects deteriorated. Unemployment rate increased. The annual increase of M2 in 2000 was a historic low. The FED cut interest rates by 1 percentage point in a month. Both production and commercial activities in the private sector slowed down. The global economy continued to slow down. The economic monitoring indicators continued to show a blue light signal for Historic Low of Discount Rates In 2002, the turbulence in the international financial market and the rising risk of conflict between the United States and Iraq caused concerns that the recovery in the global economy might be adversely affected. Major countries in Europe and the U.S. successively cut their respective interest rates in order to stimulate their economies. Domestically, in view of the weak domestic demand and slow economic recovery, the CBC also adjusted interest rates downward twice, and the discount rate was cut by 0.5 percentage point. As of the end of 2002, the discount rate was 1.625%, which was a historic low. 2. Declining Bank Deposit and Lending Rates Mar. 30, Apr. 23, May 18, June 29, Aug. 20, Sep. 19, three consecutive months. The annual growth rate of M2 dropped further to historical lows. Unemployment rate climbed higher, banks' lending and investment slowed further down. Both corporate profits and production capacity utilization dropped to lower than expected levels. The FED cut US interest rates for the fifth time. Private consumption became more conservative and banks' credit line was further tightened. The Directorate General of Budget, Accounting and Statistics, Executive Yuan, announced only 1.06% GDP growth for Q1. The FED cut US interest rates for the sixth time. GDP for Q2 dropped by 2.35%, and the annual growth forecast was -0.37%. It was anticipated that the FED would cut interest rates for the seventh time. September 11 terrorist attack occurred and the FED adopted emergency measures by cutting the interest rates by half a percentage point. US stock prices fell drastically; the delayed recovery in the US economy was expected to affect our economy. The weighted average interest rates on deposits and loans continued the declining trend of the previous three years. In the fourth quarter of 2002, the weighted average interest rate on bank deposits was 1.95%, which was lower than the rate of 3.35% in the previous year. The weighted average interest rate on loans was 5.02%, which was also lower than the rate of 6.49% of the previous year. 3. Falling Monetary Market Rates In 2002, funds in the banking system were abundant, and the CBC cut the interest rate twice. The monthly average interest rate of interbank overnight call-loans continued to Oct. 4, Nov. 8, Dec. 28, June 8, Nov.11, The 0.5% cut in interest rate by the FED reflected the weakening of investment and consumption in the US, and will adversely our economic recovery. The FED further cut interest rates by half a percentage point; global economy remained sluggish. Our domestic consumption became more conservative as the unemployment rate went up. The force of recovery lacked momentum to extend further. Consumer prices remained stable. Turbulence in the international financial market caused concern that the recovery in the global economy might be adversely affected. Domestic demand was weak. Prices were stable. The annual growth rate of monetary aggregates in terms of M2 was below the lower end of the target range of 3.5% for four months in a row. Market interest continued to decline. Source: Economic Research Department, Central Bank of China, Financial Statistics Monthly, Taiwan District, Republic of China, February 2003.

9 Interbank Call Loan Rates and Money Market Interest Rates % days CP rates in secondary market Dec. Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec Weighted averages of overnight interest rates international stock market and the speculation that the U.S. might adjust the interest rate upwards led to a slight increase in the interest rate. However, as tensions in the international geopolitical situation rose, the global stock market turned sluggish. This, together with the keen competition among buyers, led to a decline in the weighted average interest rate for newly issued government bonds. For example, a new issue of the 10-year bonds posted an average yield of 3.7% in July The yield fell to 2.55% in December The annual average yield in 2002 was 3.30%, which was 1.69% percentage points below the level of 4.99% in The yield of 10-year central government bonds in the secondary market rebounded to 4.0% from March to May Since there was a strong demand for bonds, the yield showed a declining trend. It fell below 4.0% and 3.0% in June and October, respectively. The yield in December was 2.48%, a decline of 1.33 percentage points compared with 3.81% one year earlier. D. Fluctuating New Taiwan Dollar Exchange Rate Downward Trend of Bond Market Interest Rates The liquidity in the banking system remained abundant in This, together with the lackluster performance in the stock market, the conservative lending attitude of banks, and the purchase of government bonds through financial institutions by most life insurance companies, caused banks and investors to focus on bonds. In early 2002, the rebound in the Changes in Interest Rates in 2002 Rates of the Interest Rates Money Market Capital Market Item Central Bank of Domestic Banks Interest Rates Interest Rates days 10-year 10-year Interest rate on Weighted Weighted Weighted commercial government government Discount accommodations average average averages paper rates bond rates bond rates interest rates interest rates of overnight Month rate with collateral in secondary in primary in secondary on deposits on loans interest rates /Year market market market Unit:% In the first half of 2002, the strong dollar policy of the U.S. government was questioned. This, together with corporate and accounting misdeeds, widening current account deficits, and low corporate profits, caused the U.S. dollar to decline in the international exchange market. Domestically, the increase in stock prices in the first half of the year and the inflow of foreign capital led to an expected appreciation of the NT dollar. The exchange rate of the NT dollar rose to NT$ per U.S. dollar on July 17, Thereafter, the decline in stock prices and the outflow of foreign capital resulted in a depreciation of the NT dollar to the level of NT$35 per U.S. dollar in early October. However, as the conflict between the U.S. and Iraq intensified, the U.S. dollar became weaker in the international exchange market. Under the CBC's policy of maintaining a dynamic stability in the exchange rate, the NT dollar appreciated gradually. It reached NT$ per U.S. dollar on December 31, 2002, an appreciation of 0.71% compared with NT$ per U.S. dollar at the end of Dec Jan New Taiwan Dollar Spot Exchange Rates (End of Month) Feb Mar Apr May June July Aug Sep Oct NT$/US$ Nov Dec Note:The empty fields indicate data are not available. Source: 1.Economic Research Department, Central Bank of China, Financial Statistics Monthly, Taiwan District, Republic of China, February Dec. Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec

10 Key Economic and Financial Indicators of Taiwan District, Republic of China 16 Population Economic Per Capita GNP Industrial Merchandise Trade (Customs Statistics) Wholesale Prices Consumer Prices Discount Monetary Aggregates M2+Bond Foreign Exchange Spot Exchange Rate Growth Rate (at current prices) Production ( US$ million ) (2001=100) (2001=100) Rate M1BM2 Funds (net) Reserves (Interbank Closing Rate) Period Annual Annual Period 1,000 persons % NT$ US$ General Index Annual Annual % Annual (US$ million) NT$/US$ Growth Rate Growth Rate Imports Exports Balance Growth Growth per (%) (%) Growth (1) (2) (2) (2) (1996=100) Rate (%) Rate (%) annum (3) (4) Rate (%) (5) (5) , ,832 5, ,984 53,679 18, , , ,511 6, ,673 60,667 10, , , ,402 7, ,265 66,304 14, , , ,092 8, ,716 67,214 12, , , ,909 8, ,861 76,178 13, , , ,338 10, ,007 81,470 9, , , ,337 10, ,061 85,091 8, , , ,386 11, ,349 93,049 7, , , ,042 12, , ,659 8, , , ,115 13, , ,942 13, , , ,103 13, , ,081 7, , , ,582 12, , ,582 5, , , ,097 13, , ,591 10, , , ,087 14, , ,321 8, , , ,321 12, , ,866 15, , , ,094 12, , ,641 18, , Jan. 22, ,352 9,683 2, , Jan. Feb. 22, ,522 8,043 1, , Feb. Mar. 22, ,152 3, ,160 11,447 1, , Mar. Apr. 22, ,740 10,858 1, , Apr. May 22, ,435 11,041 1, , May June 22, ,492 3, ,616 11,225 1, , June July 22, ,641 11, , July Aug. 22, ,100 10,892 1, , Aug. Sep. 22, ,097 3, ,550 11, , Sep. Oct. 22, ,191 11,484 1, , Oct. Nov. 22, ,337 11,916 2, , Nov. Dec. 22, ,353 3, ,947 11,655 1, , Dec. Notes: Sources: (1)Refer to period averages. 1.Directorate-General of Budget, Accounting & Statistics, Executive Yuan, Monthly Statistics of the Republic of China, January (2)The figures for 2002 are quarterly data. 2.Directorate-General of Budget, Accounting & Statistics, Executive Yuan, Quarterly National Economic Trends, Taiwan Area, Republic of China. (3)M1B includes net currency issued, checking accounts, passbook deposits and passbook savings deposits. 3.Department of Statistics, Ministry of Economic Affairs, Industrial Production Statistics Monthly, Taiwan Area, Republic of China, February (4)M2=M1B+ quasi money. 4.Department of Statistics, Ministry of Finance, Monthly Statistics of Exports and Imports, Taiwan Area, Republic of China, February (5)Refer to end of period figures. 5.Directorate-General of Budget, Accounting & Statistics, Executive Yuan, Price Statistics Monthly in Taiwan Area, Republic of China, February Economic Research Department, The Central Bank of China, Financial Statistics Monthly, Taiwan District, Republic of China, February Directorate-General of Budget, Accounting & Statistics, Executive Yuan Monthly Bulletin of Manpower Statistics Taiwan Area, Republic of China, January

11 E. Sagging Stock Market III. Major Financial Reform Measures 18 In the first quarter of 2002, the expected recovery of the U.S. economy stimulated a rebound in U.S. stock prices. Domestic stock prices also rose, with the weighted share price index of the Taiwan Stock Exchange (TSE) reaching 6, points on April 22, Thereafter, affected by such unfavorable factors as the less-than-expected performance of the global economy and the heightened geopolitical risk, the stock prices in major countries in the U.S. and Europe dropped successively. Although the domestic economy showed signs of recovery, the unfavorable international financial situation, together with the lack of confidence domestically, caused the stock prices to fall. The price index was 4, points on December 31, 2002, a decline of 19.79% from 5, points at the end of F. Slight Decline in Non-Performing Loans (NPLs) of Banks In the first quarter of 2002, total non-performing loans (NPLs) of domestic banks reached NT$1,147.6 billion and their NPL ratio also climbed to 8.04%. Both figures were historical highs. Thereafter, a number of factors contributed to the slowdown in the increase of NPLs and the decline in the NPL ratio, including: 1) the writing-off of bad loans by banks as a result of the implementation of financial reforms, 2) the improvement in overdue accounts by borrowing enterprises because of the rebound in the economy, and 3) more prudence by banks in their control of credit risk in the light of past experiences of rapid increase in NPLs. As of the end of 2002, the NPL ratio of domestic banks as a whole dropped to 6.12%, a decline of 1.36 percentage points from 7.48% at the end of Total amount of NPLs also dropped to NT$864.4 billion, a decline of NT$222.6 billion compared with NT$1,087.0 billion at the end of If loans subject to observation were added to the NPLs mentioned above, the total amount would reach NT$1,251.2 billion, accounting for 8.85% of total outstanding loans of domestic banks. Non-Performing Loans of Domestic Banks and Loans Subject to Observation A. Financial Reform Being the Trend Since the establishment of new banks was permitted in 1991, overcompetition in the financial market has led to a deterioration in the profitability of banks and the qualities of their assets. After Taiwan's entry into the WTO, financial institutions have encountered increased competition and threat from their counterparts abroad. Indeed, the drastic changes in the domestic and international financial environment have brought severe challenges to financial institutions. In order to help these institutions cope with the adverse impact, the government has endeavored to expand the scope of their businesses on the one hand, and to carry out financial reforms to solve the root cause of financial problems on the other. Recently, many severe problems emerged in the financial sector. These included the disposal of non-performing assets, the need to deal with problem banks, and the restructuring of the beleaguered community financial institutions, among others. In response, the financial system instituted major changes of historical nature. Many important financial laws and regulations were enacted or became effective in the past two years. This radical reform in the financial system was aimed at making financial institutions stronger and healthier through expansion by mergers and acquisitions, universal banking, and globalization, thereby enhancing their international competitiveness. B. Continuous Implementation of Financial Reform by the Government 19 Unit:NT$ billion 1.Total non-performing loans (NPLs) Total amount of loans 14, Ratio of NPLs to total loans (1 2) 6.12% 4.Loans subject to observation (a+b+c) a.repayment for mid- and long-term loans overdue for more than three months but less than six months b.other overdue accounts for less than three months in principal repayment but with overdue interest payment for more than three months but less than six months c.default accounts that met the criteria for classifying as non-performing loans but were subject to further observation (note) Loans subject to observation in proportion to total amount of outstanding loans (4 2) 2.73% 6.Total amount of non-performing loans and loans subject to observation (1+4) 1,251.2 In order to implement financial reform, which has been a consensus of society, the government has enacted or amended a number of major financial laws since 2000, so as to lay a solid foundation for the reform. These included the Banking Law, Deposit Insurance Act, Financial Institutions Merger Law, Trust Enterprise Act, the Law Governing Bills Finance Business, Financial Holding Company Law, Statute for the Establishment and Administration of the Financial Reconstructing Fund of the Executive Yuan, Financial Asset Securitization Act, and so on. The evolution in financial laws and regulations has created a development platform for financial institutions completely different from that of the past. The salient features of the new platform included further financial liberalization, emphasis on diverse development, and the establishment of a dynamic adjustment mechanism, so as to stimulate the more sound and active development of financial institutions. 7.Ratio of non-performing loans and overdue loans subject to observation to total amount of outstanding loans (1 4) % Note : Accounts meeting NPL criteria but subject to further observation are: (1) accounts that have arranged to repay loans through installment agreements; (2) accounts to be compensated by the Trust Guarantee Fund that have sufficient amounts in certificates of deposits or provision of loan losses to offset the bad loans; (3) accounts belonging to victims of the September 21st earthquake that were granted extensions of the repayment period; (4) accounts that auctioned off collateral and were about to be distributed for compensation;and (5) other accounts that applied and were approved for delayed repayment. Source : Under the blueprint of the relevant laws and regulations concerning financial reform, the Executive Yuan has set up a Financial Reform Task Force. The Task Force has five subcommittees, each of which would be responsible for the reform work of banking, insurance, capital market, community financial institutions, and combating financial crime. Thanks to the concerted efforts of the government and financial institutions, there have been some promising preliminary results of implementation. Different financial institutions have merged

12 20 with each other or formulated financial holding companies. New financial businesses and instruments have successively merged. Meantime, the asset quality of financial institutions has improved. The write-off of bad loans by many banks in 2002 has led to a decline of the NPL ratio of domestic banks from the peak of 8.04% in March to 6.12% at the end of the year. Notwithstanding this improvement, the government did not relax its requirement on the asset quality of financial institutions. More specifically, the government considered new financial supervisory measures in the near future, including differential treatments with respect to the concessions on the establishment of new branches or applications for new businesses and the penalties on the restricted distribution of profits. All these measures were aimed at the accelerated disposal of the NPLs of banks. Furthermore, since financial reform was the unswerving objective of the government, the Ministry of Finance (MOF) would continue to devote its efforts toward the enactment of the amended "Statute for the Establishment and Administration of the Financial Restructuring Fund of the Executive Yuan". With the enactment of the amended statute, there would be an increase in the Financial Restructuring Fund for the purpose of expediting the disposal of NPLs of financial institutions. The government also formulated a "258 Financial Reform Plan" to strengthen the financial status of financial institutions. This meant that in two years, the NPL ratio of these institutions would be reduced to below 5% and their capital adequacy ratio would be maintained at a minimum 8% as required by the Bank for International Settlements. In addition, a Financial Supervisory and Management Committee would be set up to improve the effectiveness and efficiency of financial supervision and to build up a financial supervisory system consistent with the international criteria. The government would also speed up the reform of community financial institutions and promote the merger of financial institutions so as to enhance the competitiveness of these institutions. Based on the principle of "Liberal in Business Supervision, and Rigid in Financial Supervision", the government would encourage the diversification of the businesses of financial institutions. In the meantime, the government would also raise the penalties for financial crimes and punish those who have committed crimes by revising relevant laws and regulations. In short, the government would continue to implement financial reform with a firm determination, and emphasize communication and coordination so as to reduce objections to the reform and lessen the impact on society. The overall objective would be to improve the financial sector so that it could fulfill the function of financial intermediary. IV. Major Financial Measures A. Important Financial Related Measures 1. Measures Undertaken by the Ministry of Finance a. Promoting Financial Asset Securitization In line with the implementation of the financial asset securitization policy, the Ministry of Finance (MOF) amended Article 3 of the Criteria for the Establishment of Trust Enterprises on February 18, 2002, whereby the minimum paid-in capital of a trust company was adjusted downward from NT$5 billion to NT$2 billion. In addition, in order to assist with the disposal of non-performing loans or assets of financial institutions, the MOF was actively promoting the enactment of the financial asset securitization act. After several reviews and discussions, the Legislative Yuan completed three readings and approved the "Financial Asset Securitization Act" on June 20, The Act was promulgated for implementation by the President of the R.O.C. on July 24, In order to attract the inflow of foreign capital, the Legislative Yuan also made a supplementary resolution to the effect that initially, the interest income from beneficiary securities or asset-based securities accrued to foreign investors would be subject to an income tax deduction of 6%. b. Revising the "Guidelines for Providing Loans and Credit Guarantee to Traditional Industries by Financial Institutions" in Conjunction with the CBC In response to the development needs of traditional industries, particularly to help them obtain operating funds, the MOF coordinated with the CBC in revising the "Guidelines for Providing Loans and Credit Guarantees to Traditional Industries by Financial Institutions". Among various measures, the appropriation of NT$300 billion as banks' own funds and the extension of the deadline for applications were approved by the Executive Yuan on September 16, After coordination with financial institutions, an additional NT$300 billion was appropriated as banks' own funds. The total amount of loans available reached NT$1,050 billion, and the deadline for applications was extended to October 10, c. Setting up a Joint Study Team with the Bankers Association of the R.O.C. (BAROC) on the New Basel Capital Accord In line with the planned implementation of the New Basel Capital Accord by the Bank for International Settlements in 2006, the MOF set up a "Task Force on the New Basel Capital Accord" in May The MOF had also sponsored several seminars and published some articles on the subject. In order to publicize the new Capital Accord and to facilitate domestic banks in emphasizing the requirements so as to enhance their competitiveness, the MOF, together with BAROC, set up a Joint Study Team on the New Basel Capital Accord in November The Team was divided into five divisions, responsible for credit risk standards approach, credit risk IRB, operational risk, market discipline and asset securitization, and supervision and regulation. 21

13 22 d.. Establishing a Warning and Reporting Mechanism and Formulating a Clause in the Contract Terminating Clients from Using Credit Cards In order to punish crimes and to reduce losses to the public, the MOF and banks have cooperated fully with police and investigation units in dealing with criminal cases. With a view to further punishing crimes for using garage account, the MOF invited representatives from banks, prosecution, police and investigation units to discuss the establishment of a warning and reporting mechanism in November 2002 in accordance with a resolution made by the 16th Meeting of Improving Social Security of the Executive Yuan. Also discussed was the content of a clause to be incorporated in the contract to allow a client to terminate the use of a stolen card. 2. Measures Undertaken by the Central Bank of China a. Establishing a Real-Time Gross Settlement (RTGS) Previously, the fund appropriation and clearing system among banks had the functions of both "instant account transfer" and "designated timing account transfer". Since the latter was of the nature of a multilateral net amount clearing, the CBC was proceeding with the restructuring of the fund appropriation and clearing system among banks in order to comply with the international criteria. The RTGS was established and became operational on September 16, 2002, thus eliminating the clearing risk. b. Restructuring the Clearing Houses in the Taiwan District into a Single Legal Entity Originally, the clearinghouses in 16 cities and counties in the Taiwan District were nonlegal entities under the jurisdiction of the Bank of Taiwan. After the resumption of operations of the CBC in Taiwan, the clearinghouses were transferred to the CBC, but they were neither internal units of the CBC nor its invested enterprises. In order to resolve the problems that these clearing houses had no legal status and that their resources could not be consolidated, the CBC had planned to restructure the clearing houses into a single legal entity. The Taiwan Clearing House officially became a legal entity on November 1, c. Encouraging Banks to Provide Index Housing Loans so as to Protect the Interest of the Public The interest rates of old housing loans by banks were fixed by adding or deducting margins from their prime rates, whereas the interest rates of most new housing loans were fixed by deducting margins from their prime rates. However, the prime rates of banks could not be adjusted flexibly in line with the market rates, and consequently, the interests of old housing loan borrowers were adversely affected. In order to resolve the problem of high lending rates of old housing loans, the CBC had resorted to various ways and means, including moral persuasion, collecting the practices of advanced countries, and making special examination of such loans. In February 2002, the CBC wrote to BAROC to do research as to how the prime rate system and the housing loan pricing mechanism could be improved. A consensus was reached with BAROC that banks should follow the practices of advanced countries by adopting index housing loans. Moreover, with a view to facilitating enquiry and comparison by the public, the web sites of banks had been interconnected by the end of August 2002, so that the information concerning the housing loan market could become more transparent. d. Prompting Banks to Adjust the Pricing of their Prime Rates From the end of 2000 to the end of 2002, the CBC adjusted downward various discount and lending rates 14 times, by a total of percentage points. The rigidity in the prime rates of banks had already impacted the effect of an easy monetary policy of the CBC and also the interests of consumers. As such, the CBC announced on May 6, 2002 that the pricing system of the prime rates should be reformed completely. Such rates would only be applicable to loans to small and medium enterprises and to short-term consumer finance. The CBC expected that the prime rates of banks should be consistent with the market trend, of a representative nature, and also transparent. It was felt that the pricing of loans should be more versatile. After the reform, the pricing of the new prime rate should all adopt the policy of adding margins, rather than deducting margins. B. Other Important Financial Related Measures 1. Financial Business Operations a. After Taiwan's accession to the WTO on January 2, 2002, the MOF fulfilled one of its commitments under banking and services by allowing local branches of foreign banks to respond to requests by clients to provide services to open deposit accounts with their respective head offices under the careful supervision of our governing authorities. This was the so-called "Provision of Tables Domestically, and Opening of Accounts Abroad" service. b. On April 3, 2002, the MOF approved that the E. Sun Commercial Bank, Hwa Nan Commercial Bank, Taipei Bank and Fubon Commercial Bank could conduct cash value saving card business. Thereafter, these banks could provide a more convenient and safe payment instrument without using cash, so as to create an electronic transaction environment. c. On April 17, 2002, the MOF proclaimed that if those bank departments conducting trust businesses and investment trust companies would like to be the attestors of new share certificates, share payment certificates, beneficiary certificates, Taiwan depository receipts, and the issuance of any other securities with the approval of the SFC or the MOF, they should submit their applications to the MOF, together with operational plans and the resolutions to this effect to the Board of Directors. d. To enable the various regulations concerning the Trust Enterprise Act to fulfill their governing functions and with a view to avoiding any misunderstandings and questions about these regulations by trust enterprises, the MOF promulgated the "Enforcement Rules concerning the Trust Enterprise Act" on July 9, 2002, pursuant to Article 62 of the Trust Enterprise Act. 23

14 e. In order to implement the concept of "Liberal in Business Supervision, Rigid in Financial Supervision", the MOF informed banks on August 20, 2002 that if financial institutions would like to send their staff to securities dealers to act as cashiers to handle securities transaction funds, the MOF would allow such actions by adopting an "automatic effective system", rather than the previous "approval system". f. In order to promote the development of trust businesses and to fulfill the concept of "Liberal in Business Supervision, Rigid in Financial Supervision", the MOF issued regulations on October 23, 2002 to simplify the application procedures to conduct trust businesses by such enterprises. The simplified procedures stated that (i) trust enterprises could conduct new trust commodities under the original business items without prior approval; they should only report such business thereafter; and (ii) for banks which conducted trust businesses concurrently, their branches should obtain prior approval before conducting "those trust businesses undertaken by the special departments of their head offices and approved by MOF". c. On June 23, 2002, a resolution was made jointly by the MOF and the Ministry of Economic Affairs (MOEA) that the capital, capital surplus, and undistributed earnings of banks, securities firms, and insurance companies taken over by financial holding companies could be fully converted into the capital of these companies. d. In order to promote the positive effect of consolidation and integration in the investment of financial holding companies, to avoid overinvestment of these companies and to prevent the adverse effect on their financial soundness, and to establish unified criteria for the screening of their investment, the MOF promulgated the "Guidelines for Screening the Investment Applications of Financial Holding Companies Pursuant to Article 36 of the Financial Holding Company Act" on August 23, Under these Guidelines, financial holding companies would be required to achieve a capital adequacy ratio exceeding 100%. If these companies use cash to invest, they should clearly indicate the sources of their funds. If they borrow funds to invest, they should have repayment plans, including sources of repayment, so as to maintain the soundness of their capital structure. 24 g. In order to promote the internationalization of asset management businesses and to assist the long-term and sound development of investment and trust businesses to meet the investment needs of the public, the CBC had earlier agreed in December 2001 to allow securities investment and trust enterprises to mobilize trust funds domestically totaling NT$60 billion to invest in foreign securities. On July 2, 2002, the CBC again wrote to the Securities and Futures Commission of the MOF and expressed its agreement to raise the above-mentioned funds by another NT$100 billion as suggested by the Securities Investment Trust and Consulting Association. h. In order to provide more diverse investment instruments to the public and in line with the revision of the "Category and Scope of Foreign Securities to be Introduced or Consulted by Securities Investment and Consulting Enterprises" made by the MOF, the CBC advised those financial institutions conducting "Designated Purposes Trust Funds Investing in Foreign Securities" business that they could increase trust funds under "Stock Exchange Buying and Selling Fund" and "Deposit Certificates" for investment in the foreign securities stock market and OTC (Over-the-Counter) market. 2. Financial Holding Companies a. In order to help financial holding companies achieve the benefit of integrated operations and to provide relevant regulations for these companies to comply with in conducting marketing campaigns, the MOF promulgated on March 25, 2002 guidelines for common marketing, which would govern such matters as operating units, business scope, personnel assignments, cross utilization of information, ways of application and approval, and so on. b. On April 16, 2002, the MOF wrote a letter to public issuing financial institutions stating that should they be converted into fully owned subsidiaries of financial holding companies, they should still comply with Article 36, Section 3 of the Securities and Exchange Law concerning the preparation of annual reports by public issuing companies. Furthermore, on December 30, 2002, the MOF issued the "Rules Governing the Preparation of Financial Reports by Financial Holding Companies" so as to strengthen the publicity of their financial information. e. On September 18, 2002, the MOF wrote to the Securities Association of R.O.C. stating that those securities companies which were subsidiaries of financial holding companies would not be allowed to invest in banks, bills finance companies and trust enterprises. However, those securities firms which had made such investments prior to participating in the establishment of financial holding companies and pursuant to with Section 18, Sub-Section 4 of the Rules Governing the Management of Securities Firms could keep these investments, but they would not be allowed to increase their investment. 3. Foreign Exchange Management a. On March 13, 2002, the CBC revised and promulgated the "Regulations on the Reporting of Foreign Exchange Receipts, Payments, and Transactions". In the revised Regulations, additional clauses were included to the effect that those who are obliged to report could make use of the internet and submit relevant data by electronic documents to the CBC through designated banks authorized by the CBC to conduct internet foreign exchange businesses. Moreover, it is also provided in the revised Regulations that those who are obliged to report could make the reporting through the counters of banks or through the internet, and that if the latter is used, they should fax relevant documents to designated banks and the cumulated amount should not exceed that approved by the governing authorities. b. On April 26, 2002, the CBC expanded the business scope of foreign exchange brokers by amending Section 2 of the "Salient Points concerning the Permission of Foreign Exchange Brokers". As a result, foreign exchange brokers would be allowed to apply for the conduct of the brokerage of derivatives in NT dollars. 25

15 26 c. In order to eliminate the risk of foreign exchange settlements, the Continuous Linked Settlement Bank, which had been funded jointly by 67 major foreign exchange trading banks and supported by the central banks of the concerned countries, became operational on September 9, The CBC collected relevant information and sent these to designated banks for reference. The CBC also encouraged domestic banks to carefully evaluate and compare the services provided by various settlement banks and participate in the CLS system of one settlement bank so as to eliminate the risk of foreign exchange settlement. 4. Financial Institutions Management a. Pursuant to the delegated authority under Article 45-1, Section 2 of the Banking Law, the MOF revised the title and contents of the "Regulations on the Disposal of Overdue Loans and Bad Loans by Banks" on January 22, The MOF also issued the "Rules for Bank Asset Evaluation, Loss Reserve Provision, and the Disposing of Overdue Loans, Non-accrual Loans and Bad Debts". These measures were aimed at strengthening the financial structure of financial institutions and improving their capabilities to absorb losses, so as to ensure the soundness of their asset qualities. b. In order to simplify the management of branches and offices of domestic banks and to revert the management of these local offices to the existing financial laws and regulations, the MOF wrote to BAROC on March 5, 2002 requesting it to advise member banks that they should restructure these local offices into branches or mini-branches or otherwise abolish them before the end of December b. On June 5, 2002, MOF agreed that securities firms could invest in domestic banks and trust enterprises with their own funds. c. Pursuant to Article 4, Section 1, Sub-Section 4 of the "Regulations on the Management of Investment in Securities by Overseas Chinese and Foreigners", the MOF approved on September 11, 2002 that qualified foreign institutional investors, overseas Chinese and foreigners could, in their capacity as "specific persons", buy new shares of the Emerging Stock trading market under capital increase and those shares not subscribed by original shareholders of companies listed in the stock market (TSEC) or OTC market. d. Pursuant to Article 4, Section 1, Sub-Section 4 of the "Regulations on the Management of Investment in Securities by Overseas Chinese and Foreigners", the MOF approved on October 1, 2002 that the scope of investment in securities by qualified foreign institutional investors, overseas Chinese and foreigners would include, among others, domestic securities through private placement by companies listed in the stock market (TSEC), OTC market or Emerging Stock trading market. e. Pursuant to Article 4, Section 1, Sub-Section 4 of the "Regulations on the Management of Investment in Securities by Overseas Chinese and Foreigners", the MOF approved on December 12, 2002 that the scope of investment in securities by qualified foreign institutional investors, overseas Chinese, and foreigners would include, among others, beneficiary securities issued by trusted entities through public offering, asset-based securities issued by specific purpose companies through public offering, beneficiary securities through private placement in accordance with the Financial Asset Securitization Act, and asset-based securities. 6. Cross-Strait Financial Relations 27 c. On May 29, 2002, the MOF wrote to banks requesting them to disclose major financial and business information (including loans subject to observation) on their web sites on a quarterly basis, thus making the information of financial institutions more transparent and subject to discipline. d. In line with the trend of globalization of the banking sector, to promote the sound operations of banks and the stable development of the international financial market, and to fulfill its responsibility as the governing authority of the financial sector, the MOF promulgated the revised "Salient Points concerning the Setting Up of Branches Abroad by Domestic Banks" on October 22, The revised Salient Points indicate clearly the bank qualifications for setting up branches abroad. More specifically, those banks with an equity capital to risk asset ratio below 10% or inadequate reserves for bad loans would not be allowed to set up branches abroad. 5. Capital Market Management a. On May 13, 2002, the MOF wrote to the Securities Association and agreed that securities firms could buy foreign exchange with their own funds and deposit them in their foreign exchange accounts with designated foreign exchange banks. However, total foreign exchange deposited in such accounts should not exceed 10% of their respective net worth. a. In line with the opening of direct trade between the two sides of the Taiwan Strait by the government, the MOF amended the "Guidelines for Conducting Remittance to Mainland China by Financial Institutions in the Taiwan District" and "Guidelines for Conducting Foreign Exchange Businesses relating to Export to and Import from Mainland China by Banks in the Taiwan District" on February 13, These Guidelines would serve the needs of direct trade across the strait. Nevertheless, these Guidelines would be incorporated in the "Regulations Governing the Permission to Conduct Financial Businesses Between the Taiwan District and Mainland China" when direct remittance is allowed across the strait in the future. b. On August 2, 2002, the MOF amended the "Regulations Governing the Permission to Conduct Financial Businesses Between the Taiwan District and Mainland China". The purpose of the amendment was to allow the overseas branches and offshore banking units (OBUs) of banks in the Taiwan District to provide credits to and to purchase accounts receivables from Taiwanese businessmen in the mainland. The MOF also adopted measures with a view to

16 28 effectively managing the credit risk derived from such businesses, and applications from banks would be subject to such risk management mechanism as screening beforehand and management thereafter. In addition, the above amendment also permits subsidiary banks overseas to set up representative offices in the mainland. As of the end of December 2002, seven banks, namely, the Chang Hwa Commercial Bank, Unite World Chinese Commercial Bank, Hwa Nan Commercial Bank, Cooperative Bank of Taiwan, First Commercial Bank, Land Bank of Taiwan, and Chinatrust Commercial Bank, had obtained the approval of the People's Bank of China to set up representative offices in such places as Kungshan, Shanghai, Shenzhen and Peking. c. On December 27, 2000, the CBC promulgated the "Regulations Governing Remittances by Financial Institutions in Kinmen and Matsu Concerning Exports and Imports of Commodities and Exit and Entry of Residents Between Kinmen/Matsu and the Mainland Area and the Buying and Selling of Foreign Currencies and Travelers' Checks of Residents in the Mainland Area". In line with the amendment of the "Guidelines for Conducting Remittances to Mainland China by Financial Institutions in the Taiwan District" by the MOF, the CBC wrote to designated banks on February 15, 2002 that Item 1 of the above-mentioned Regulations concerning remittances resulting from the export and import of commodities between the residents in Kinmen and Matsu area and the mainland would become null and void effective from that date. Such remittances would be governed by the amended Guidelines issued by the MOF mentioned above. 7. Bills Finance Businesses for the purpose of preventing bills finance companies from transferring interests to related persons or specific persons and facilitating the more effective utilization of funds by bills finance companies. e. Under the authorization of Article 32 of the Law Governing Bills Finance Business, the MOF issued the "Rules Governing Asset Evaluation, Loss Reserve Provision, and Disposing of Overdue Loans, Non-accrual Loans, and Bad Debts for Bills Finance Companies" on April 9, f. In accordance with Article 40, Section 2 of he Law Governing Bills Finance Business, the MOF issued the "Regulations on the Management of Derivative Financial Commodity Transactions by Bills Finance Companies" on April 23, The issuance of the Regulations would enable bills finance companies to expand their scope of businesses and also to strengthen their overall risk management. g. In accordance with Article 73 of he Law Governing Bills Finance Business, the MOF issued the "Enforcement Rules on the Law Governing Bills Finance Business" on July 2, h. In order to maintain proper order in the transaction of the bills market, the MOF issued a letter on July 5, 2002 which indicated that effective July 9, 2002, bills enterprises, in conducting the endorsement, underwriting, brokerage, and trading of short-term bills, should ascertain the credit ratings of the issuers or guarantors of these bills and provide the result of enquiries on the ratings to the other parties concerned. The only exception would be those short-term bills issued by government-owned enterprises or securities finance companies. 8. Strengthening Community Financial Institutions 29 a. In accordance with Article 14 of the Law Governing Bills Finance Business, the MOF issued the "Criteria for the Establishment of Bills Finance Companies" on January 8, b. In accordance with Article 36 of the Law Governing Bills Finance Business, the MOF issued the "Guidelines Governing the Account, Allocation and Management of the Guarantee Bond Deposited by a Bills Finance Company" on January 22, The Regulations were aimed at ensuring the safety of transaction in the bills market and meeting the future demand for liquidity and funds by bills companies during the daytime. a. Beginning October 16, 2002, the MOF allowed those credit departments of farmers' and fishermen's associations with a non-performing loan ratio below 10% for three consecutive months to apply for the conduct of simple foreign exchange businesses. The purpose was to improve the competitiveness of these credit departments of farmers' and fishermen's associations by enlarging their business scope and increasing their income from fees. b. On October 16, 2002, the MOF wrote to various city and county governments and requested them to inform their respective farmers' and fishermen's associations that if the business items listed in the permission certificates of their credit departments had already included "To be Entrusted to handle the Receipt and Payment of Funds", these departments could conduct such businesses without seeking prior approval from the MOF. c. In accordance with Article 43 of the Law Governing Bills Finance Business, the MOF issued the "Guidelines for the Implementation of the Internal Control and Auditing System of Bills Companies" on January 29, The Guidelines were issued for compliance by bills finance companies. c. In order to show the sincerity and determination of the government in placing great emphasis on the development of farmers' and fishermen's association, the Executive Yuan announced on November 17, 2002 that the implementation of the classified management measures of these associations would be postponed, and that assistance or supervision would continue to be provided on a case-by-case basis to those credit departments with high nonperforming loan ratios. d. In accordance with Article 27, Section 2 and Article 40, Section 2 of he Law Governing Bills Finance Business, MOF issued the "Criteria for Bills Finance Companies to Buy, Sell and Hold Short-Term Bills or Bonds Issued by Specific Enterprises" and "Regulations on the Management of Investment in Bonds by Bills Finance Companies" on April 2, These were issued

17 V. Evolution in Financial Institutions and their Operations B. Deposits, Lending and Foreign Exchange Operations of Banks A. Change in Deposit Money Banks 1. Deposit Operations Financial institutions in Taiwan are classified into two categories depending on how they create money, namely, monetary institutions and other financial institutions. Monetary institutions comprise the Central Bank of China (CBC) and deposit money banks, which include domestic banks, medium business banks, local branches of foreign banks, credit cooperatives, and the credit department of farmers' and fishermen's associations. Other financial institutions include Post Remittances and Savings Banks, investment and trust companies and life insurance companies. As of the end of 2002, there were a total of 437 financial institutions, a decrease of 11 institutions compared with the end of The number of domestic banks was reduced by one because of the merger of the Taishin International Bank and Dah An Commercial Bank. Local branches of foreign banks were reduced by two due to suspension of operations or mergers. The number of credit cooperatives declined by two, and credit departments of farmers' associations were reduced by seven because those community financial institutions with a negative net equity ceased to operate as required by the Financial Restructuring Fund. The number of life insurance companies increased by one. The number of bank branches totaled 5,873, an increase of 32 compared with the end of The growth of deposits for major financial institutions in 2002 (including all deposit money banks and the postal savings system) was affected by the slow recovery of the economy, rising unemployment, and sluggish stock market since the second quarter, and investment in bond funds and other low risk means by enterprises and individuals. As a result, the annual growth rate of bank deposits showed a declining trend. It fell from 4.64% in early 2002 to the historic low level of 2.15% in September. As of the end of December, the growth rate rose slightly to 2.23%, which was still lower than 4.41% as of the end of the previous year. The outstanding balance of deposits of major financial institutions was NT$20,609.8 billion, an increase of NT$449.1 billion from the previous year. Demand deposits increased by NT$464.1 billion, the highest in terms of amount, whereas purchase agreements increased by 20.98%, the highest in terms of ratio. Foreign exchange deposits and government deposits declined by 6.81% and 6.25%, respectively, compared with the previous year. Change in Deposits of Major Financial Institutions 30 Number of Financial Institutions in Taiwan Unit: number Period Change End of 2002 End of 2001 Item Amount % Unit: NT$ billion 31 Monetary Institutions Other Financial Institutions Demand Deposits 4, , Deposit Money Banks Time Deposits 10, , Year Total 1 Central Domestic Medium Local Credit Credit Credit Chunghwa Post Investment and Life Insurance Business Branches Departments Departments Company Ltd. 3 Trust Companies Companies Bank Bank Banks of Foreign Cooperatives of Farmers' of Fishermen's Banks 2 Associations Associations Head Branches Head Branches Head Branches Head Branches Head Branches Head Branches Head Head Branches Head Branches Head Branches Office Office Office Office Office Office Office Office Office Office , , , , , , , , Foreign Currency Deposits 1, , Government Deposits Purchase Agreements Postal Savings Deposits 3, , Total 20, , Source: Economic Research Department, Central Bank of China, Financial Statistics Monthly, Taiwan District, Republic of China, February , , , , , , , , , , , , , , , , , , , , , , , , Notes: 1.Refer to the number of institutions that are formally opened for business. 2.The figure of head offices represents the number of foreign banks that have set up branches domestically while the data of branches represents the number of their domestic offices. 3.Excludes postal agencies. Source: Economic Research Department, Central Bank of China, Financial Statistics Monthly, Taiwan District, Republic of China, February As regards the market share of various deposit money banks, domestic banks increased their share slightly from 79.10% at the end of 2001 to 79.86% at the end of They still accounted for the highest market share. The market share of medium business banks also increased from 5.45% to 5.55%, whereas that of local branches of foreign banks dropped from 3.11% to 3.07%. Because of the government efforts to restructure community financial institutions, the number of credit departments of farmers' and fishermen's associations continued to decline. Consequently, their market share declined from7.89% to 7.40%, the largest decline among deposit money banks. The market share of credit cooperatives also dropped from 4.45% to 4.12%.

18 Market Share of Deposits by Types of Deposit Money Banks, End of 2002 Analysis of Borrowers of Major Financial Institutions Unit : NT$ billion Domestic Banks 79.86% Medium Business Banks 5.55% Local Branches of Foreign Banks 3.07% Credit Cooperatives 4.12% Period Change End of 2002 End of 2001 Item Amount % Claims on Government 2, , Claims on Government Enterprises Claims on Private Enterprises & Others 12, , Total 15, , Credit Departments of Farmers & Fishermen s Association 7.40% Source: Economic Research Department, Central Bank of China, Financial Statistics Monthly, Taiwan District, Republic of China, February Lending and Investment Operations In 2002, the demand for funds by enterprises remained weak, because the economy did not fully recover from the slowdown in the previous year and industries continued to relocate their production bases outward. The prevalence of direct finance made enterprises less dependent on bank loans. Furthermore, financial institutions adopted a conservative attitude toward lending, as they actively dealt with non-performing loans and writing off bad loans. Banks became more rigid in their screening of new loan and credit applications because of their growing concern with higher credit risks. In addition, the advance repayment of large sum of loans by public and private enterprises as well as government agencies exacerbated the situation. All these combined to cause a negative growth in lending and investment by major financial institutions in In July, the decline was 4.58% compared with one year earlier, the lowest in history. The situation improved slightly in the latter half of the year. At the end of 2002, the outstanding balance of loans and investments of major financial institutions was NT$15,493.9 billion, a decrease of NT$528.8 billion over the previous year. Following a negative growth rate of 0.95% in 2001, the decline continued for two years in a row and expanded to 3.30% in Total loans of major financial institutions was NT$13,561.6 billion, a decrease of 2.54% over the previous year. Total securities and investments amounted to NT$1,932.3 billion, a decrease of 8.32% over the previous year. With respect to the clients of major financial institutions in lending and investment, total lending to public enterprises showed an increase of NT$17.9 billion or 3.45% over the previous year. This was the only item showing an increase. Lending to private enterprises continued to show a negative growth. It dropped by NT$436.3 billion or 3.45% compared with the previous year. As regards credits to the government, there was a decrease of NT$110.4 billion or 3.88%, compared with a positive growth rate of 9.73% in the previous year. With respect to the market shares of loans by deposit money banks, the share of domestic banks increased from 85.05% at the end of 2001 to 85.31% at the end of 2002, whereas that of medium business banks also increased from 5.58% to 5.77% in the same period. The shares of all other deposit money banks declined. The share of the credit departments of farmers' and fishermen's associations registered the highest decline from 3.94% to 3.63%, and that of local branches of foreign banks showed the lowest decline from 2.65% to 2.64%. Market Share of Loans by Types of Deposit Money Banks, End of 2002 Domestic Banks 85.31% Medium Business Banks 5.77% Local Branches of Foreign Banks 2.64% Credit Cooperatives 2.65% Credit Departments of Farmers & Fishermen s Association 3.63% As to lending of domestic banks, lending to private enterprises continued to decline by 1.79% in 2002, after a decline of 4.14% in The negative growth rate for two years in a row was the first time since Loans to the construction industry showed a negative growth rate for four consecutive years; although the rate of decline shrank from 22.23% as of the end of 2001 to 8.95% as of the end of Lending to the service sector went down for three consecutive years; the negative growth rate improved from 37.93% in the previous year to 8.60%. While lending to the finance and insurance sector increased, the rate of growth slowed down from 83.75% in the previous year to 4.67%. 33

19 3. Foreign Exchange Operations VI. Development in the Financial Market In 2002, the average daily trading volume in foreign exchange was US$5.608 billion (which included transactions between banks and non-bank customers as well as interbank transactions), an increase of 19.17% from the previous year. The average daily transaction value between A. Money Market 1. Bills Market banks and customers was US$2.071 billion, which was 1.02% higher than that of the previous year. The average daily transactions between banks amounted to US$3.537 billion, a significant increase of 33.17% from the previous year. In terms of the changes in foreign exchange transactions between banks, all types of transactions showed increases over the previous year. Cross currency swaps registered the highest growth of 100% in Options grew by 51.27%, and spot transaction grew by 28.68%. With respect to the types of foreign exchange transactions between banks, spot transactions accounted for the lion's share, although it dropped by 2.03% from 2001 to 58.10%. The share of foreign exchange swaps increased slightly from 24.21% of the previous year to 24.63%. Cross currency swaps transactions were still insignificant with only 0.79% of total turnover. As regards export earnings and import payments, the recovery in global economy in 2002 a. Primary Market Despite a rebound in the economy, domestic demand was still weak. Market demand for funds remained at a low level, and commercial papers issued by enterprises continued to shrink. The total amount of notes and bills issued declined from the peak in 1998 to NT$8,378.1 billion in 2002, a decrease of NT$1,523.4 billion or 15.39% compared with the previous year. Among the various bills, the values of issuance of treasury bills and bankers' acceptances increased by % and 11.08%, respectively, compared with the previous year. Nevertheless, the value of negotiable certificates of deposits declined by NT$220.7 billion or 25.86% from the previous year, the largest decline in terms of ratio, whereas that of commercial papers declined by NT$1,401.7 billion or 15.7%. 34 led to a stable growth in foreign trade, which in turn caused both foreign exchange earnings and payments to increase. Total export earnings amounted to US$ billion, an increase of 3.83% from the previous year, whereas total import payments amounted to US$ billion, an increase of 2.78% over the previous year. A favorable trade balance of US$ billion was registered in 2002, an increase of US$1.956 billion compared with the previous year. Issues of Bills and Notes Unit : NT$ billion Period Change Item Amount % Treasury Bills Bankers' Acceptances Daily Turnover of Foreign Exchange Transactions between Banks by Product Unit : US$ million Period Change Item Amount % Negotiable Certificates of Deposit Commercial Paper 7, , , Total 8, , , Source: Economic Research Department, Central Bank of China, Financial Statistics Monthly, Taiwan District, Republic of China, February Spot 2,055 1, Forward Foreign Exchange Swaps Options Cross Currency Swaps Total 3,537 2, Source: Economic Research Department, Central Bank of China, Financial Statistics Monthly, Taiwan District, Republic of China, February b. Secondary Market Total trading volume of all bills by bills finance companies amounted to NT$53,048.3 billion in 2002, representing a decline of 8.63% compared with the previous year. Only the trading volumes of commercial acceptance and treasury bills registered increases compared with the previous year, and those of other bills declined. Negotiable certificates of deposits declined by 18.09%, the largest in terms of ratio, and commercial papers declined by NT$7,094.6 billion, the largest in terms of amount.

20 Transactions of Bills in the Secondary Market Issues of Bonds Unit : NT$ billion Unit : NT$ billion Period Change Item Amount % Period Change Item Amount % Treasury Bills 3, , , Bankers' Acceptances Commercial Acceptances , National Government Bonds Provincial and Municipal Government Bonds Corporate Bonds Negotiable Certificates of Deposit 6, , , Bank Debentures Commercial Paper 43, , , Total Total 53, , , Source : Economic Research Department, Central Bank of China, Financial Statistics Monthly, Taiwan District, Republic of China, February Source : Economic Research Department, Central Bank of China, Financial Statistics Monthly, Taiwan District, Republic of China, February Interbank Call-Loan Market In 2002, trading in the interbank call-loan market amounted to NT$9,687.7 billion, a decrease of 15.71% from the previous year. This indicated that transactions for call loans between financial institutions were not very active. In terms of borrowers, domestic banks, bills finance companies, and local branches of foreign banks were the major borrowing entities, which accounted for 44.94%, 30.53%, and 19.18%, respectively of total trading. With respect to lenders, domestic banks with abundant liquidity remained the largest providers of funds, accounting for 73.34% of total transactions. Medium business banks were next, with a share of 10.19% of total transactions. b. Secondary Market Affected by the uncertainty in the global economic prospects, the sluggish stock market from the second quarter, and declining interest rates, institutional and individual investors switched their investment portfolios to the bond market. As such, the secondary bond market boomed. In 2002, total trading volume of bonds was NT$134,399.0 billion, which was a historic high. It grew by 12.95% compared with the previous year. Among the various types of bonds, only foreign bonds registered a decline of NT$73.7 billion or 20.47%, the rest showed increases. Government bonds showed the highest increase of NT$14,853.1 billion, and its rate of growth was 12.55%. Bank debentures grew by a spectacular 437%. In terms of the transaction value, central government bonds accounted for 99.1%. 37 B. Capital Market 1. Bond Market a. Issuing Market There have been more and more means for corporate Transactions of Bonds in the Secondary Market Period Change Item Amount % Unit : NT$ billion financing in the past few years, which contributed to the continuing growth of direct finance. The drastic fall in market interest rates made the bond market the most Central Government Bonds 133, , , Corporate Bonds Bank Debentures popular channel for financing. Total issues of bonds was Foreign Bonds as high as NT$936 billion, an increase of NT$162 billion or 20.93% compared with the previous year. Among the various kinds of bonds issued, central government bonds accounted for the lion's share of 45.53%, although the amount of Total 134, , , Source : Economic Research Department, Central Bank of China, Financial Statistics Monthly, Taiwan District, Republic of China, February issuance declined by NT$10.8 billion or 2.47%. Bank debentures registered the highest increase of NT$95 billion or 79.83%.

21 2. Stock Market VII. Economic and Financial Outlook for 2003 Affected by the recovery in both global and domestic economies and the inflows of foreign capital, share prices continued to increase in the first quarter of 2002, following the reversal of the declining trend in the fourth quarter of The weighted share price index reached the highest in April. After the second quarter, the drastic declines in the U.S. and European stock prices caused domestic stock prices to turn bearish. Only in the fourth quarter, the stabilizing international stock prices brought a gradual recovery in domestic stock prices. As of the end of 2002, there were 638 companies listed in the Taiwan Stock Exchange Corporation(TSEC), an increase of 54 compared with 2001.The total trading volume of shares in 2002 amounted to NT$21,874.0 billion, an increase of 19.17% over the previous year. The weighted share price index for the year was 5, points (1966 being the base year), an increase of 6.48% from the previous year. However, the weighted share price closed at 4, points at the end of 2002, a decrease of 19.79% from 5, points one year earlier. Total market value reached NT$9,094.9 billion at the end of 2002, a decline of 11.46% over the end of the previous year. With respect to domestic economic performance in 2003, the Director-General of Budget, Accounting and Statistics (DGBAS) of the Executive Yuan indicated in May 2003 that the U.S.- Iraq war in March-April ended in an expeditious manner, while international trade and financial transactions have returned to normal gradually, global economy remains in the process of adjustment in the short-term. As such, the pace of recovery is still slow. In additional, due to the outbreak of SARS in East Asia recently, the disease-affected countries have adopted strict control measures. As a result, intra-regional trade and investment in Asia decreased significantly. According to the latest projection by Global Insight Inc., global growth is projected to increase from 2.0% in 2002 to 2.2% in 2003; world trade volume is projected to grow 4.7% in 2003 compared to 3.0% in 2002, an increase of 1.7 percentage points. Affected by the slow-than- 38 Statistics of the TSE Market Unit : NT$ billion ; % Period Change End of 2002 End of 2001 Item Amount % expected growth in world output and global trade, the expansion of foreign trade in ROC will be limited. DGBAS predicted that the economy will grow by 2.89% this year, and consumer prices will remain stable with a slight increase of 0.6%. 39 Number of companies listed in TSEC Total trading value of the year 21, , , Concerning the monetary policies of the Cen- TSEC index 1966=100 5, , tral Bank of China (CBC), the domestic economy Market value 9, , , Source : Economic Research Department, Central Bank of China, Financial Statistics Monthly, Taiwan District, Republic of China, February has not fully recovered, and demand for fund is still weak. Private consumption is unlikely to show a significant increase, because of the sagging real estate market, the shrinkage in the market value of stocks, the exodus of industries, and the high unemployment rate. As domestic prices are expected to remain stable, the CBC will continue maintain an easy monetary policy. An environment of abundant funds will continue in the domestic market, and interest rates will remain at low levels. The exchange rate of the New Taiwan dollar will continue to depend on the trend of the U.S. dollar in the foreign exchange market. Judging from the depressed state of the U.S. economy, its unfavorable balance of trade, and its increasing fiscal deficit, it will be difficult for the U.S. dollar to remain strong.

22 ASSOCIATION AFFAIRS I. Regular Meetings With regard to the operating environment of financial institutions, the most serious and urgent problem is the increasing non-performing loan ( NPL) ratio of banks, which has adversely affected the stability and soundness of the domestic financial system. To deal with this problem, the monetary authorities have set up a "2-5-8" Financial Reform Plan (which means that within a two-year period, financial institutions should lower their NPL ratios to below 5%and raise their capital adequacy ratios to a minimum of 8%), and financial institutions would continue to write off their bad loans. Assisted by the disposal of non-performing loans, NPL ratios of financial institutions are likely to decrease continuously. All meetings of BAROC were scheduled in advance and were held in accordance with the statutory procedures. If for whatever reasons such meetings had to be rescheduled or extraordinary meetings had to be held, notices were sent in advance either in writing (through fax) or by telephone. In 2002, one general assembly meeting was held, in which one case was reported and four motions were discussed. In addition, ten Board of Directors meetings, two Board of Supervisors meetings, and two joint Boards of Directors and Supervisors meetings were held. In total, 44 report cases, 46 discussion cases, 8 extraordinary reports and 18 extraordinary discussion cases were handled. Each motion was reviewed and commented upon by the BAROC's committee as well as the division and center concerned. The resolution of each proposal was made after discussions by directors, supervisors and advisors. Resolutions were then submitted to competent authorities for approval, sent to relevant agencies for reference, or passed on to member banks for implementation. II. Participation in Financial Conferences Chairman Mu-tsai Chen, in his capacity as Advisor to the official delegation, attended the 35th Meeting of the Board of Governors of the Asian Development Bank held from May 10 to 12, 2002 in Shanghai, China. In addition, Chairman Chen also attended the "Sino-American Financial Conference" held from May 31 to June 15, 2002 in Washington D. C., followed by visits to major financial governing bodies and financial institutions in the United States. 40 This would help enhance the willingness of financial institutions to make new loans and also III. Sponsoring Community Service Activities 41 to develop new business. As to the restructuring of the financial landscape, the successive listing of 14 financial holding companies in the stock market poses a threat to those financial institutions which have 1. In 2002, BAROC continued to make donations to a number of cultural and educational groups. BAROC coordinated with relevant agencies in organizing certain charity events, such as sponsoring summer internships in banking operations for college students organized by the China Youth Corps, sponsoring the publicity of different lanes for cars and motorcycles, and providing assistance to representatives nominated for 2002 Good People and Good Events. not yet joined financial holding companies. Some financial institutions are improving their own capital resources, or continuing to look for suitable partners to form financial holding companies, or proceeding with cross-selling by forming strategic alliances with other institutions. 2. BAROC made donations to various emergency disaster relief and charitable groups in 2002, which included the "Lu Wei Center for the Mentally Retarded" for advisory assistance to the youth, "Home for the Seniors" operated by Catholic groups in Taiwan, and "Providing Warmth and Assistance During Winter and Year End" activity of the Taipei Welfare Association of the Deaf. Therefore, it is likely that the cases of vertical integration or horizontal cooperation among banks, insurance companies and securities firms will increase in Mr. Mu-tsai Chen, Chairman of BAROC, delivered opening remarks during the 7th General Assembly.

23 BUSINESS ACTIVITIES I. To Assist Member Banks in Solving Common Operational and Managerial Problems 1. In order to achieve the objective of common certificates on the financial Extensible Markup Language (XML) system, BAROC established a "Task Force for the Evaluation and Screening of the Financial Root CA" to proceed with the evaluation and selection work. The BAROC's Banking Automation Committee agreed that the Taiwan-CA.Com, Inc. would be the Root CA. The matter was also approved by the Board of Directors. 2. To cope with the development of cash flow under e-commerce, the BAROC's Electronic Banking Division completed the "Message Implementation Guideline (MIG) of Financial XML ", "Financial XML System Implementation Guideline", and the relevant security control regulations for foreign currency payments and finance In order to actively promote a financial chip card, BAROC established a "Task Force on the Development of Financial Chip Card". The Task Force work is divided into two phases. Phase one involves the system development, installation and trial operation in a two-year period from July 2002 to June 2004, whereas phase two focuses on the full extension for a period of five years. The Task Force has sponsored a number of seminars and training courses on a financial chip card, so that member banks would fully understand the contents, timing, and applications of such cards. 4. Recently, it has been found that some wicked people are trying to steal the magnetic strip data and codes on the financial cards of clients by installing video cameras at automatic service center (ATMs), so as to produce fake cards for the purpose of withdrawing funds of other clients. BAROC drew the attention of member banks about this phenomenon and urged them to improve the administration of ATMs. 5. BAROC studied the issues of maintenance, proclamation, and intellectual property rights relating to "IC Card Standard for Financial Certificate". BAROC also reported the progress of development to member banks in XML explanatory meetings. 6. In line with the proclamation and effectiveness of " The Law Governing Bills Finance Business" by the Ministry of Finance (MOF) on July 9, 2001, BAROC revised Article 8 of the "Salient Points relating to the Establishment of Interbank Money Center", so that the period of call loans Finance Minister Chuan Lin addressed the 15th meeting of the 7th Board of Directors. among bills finance companies should not exceed six months. The revision was approved by the Board of Directors, and member banks were duly informed. 7.With a view to improving the situation of evasion of proper settlements, which has long bothered member banks, the Taipei Interbank Money Center of BAROC collected relevant data and submitted them to the Central Bank of China (CBC). With the assistance of the CBC, the matter was reported to the MOF. It was agreed by the MOF that call loan transactions in New Taiwan (NT) dollars, together with the transfer of interest and forward dated transactions by members of the Interbank Money Center could be done through the CBC's fund appropriation and clearing system among banks. The tables showing the transaction details generated from the system could be used as a document for accounting purposes. Moreover, judging from their contents, these tables do not represent any receipt of funds, and therefore, it is not necessary to pay stamp tax. Member banks were duly informed. 8. In line with the implementation of the RTGS ( Real-time Gross Settlement Payment System ) mechanism under the CBC's fund appropriation and clearing system among banks, BAROC invited more than 20 member banks with relatively large call loan transactions to discuss relevant issues. The conclusions reached during the discussion and the relevant data were analyzed by BAROC. As directed by the CBC, BAROC also examined the future development and dependence of the daytime call loan market, and the findings were submitted to the CBC for reference. 43 BAROC sponsored a seminar on Financial XML Information and Safety Control. 9. In light of the doubts raised by banks in their practical operations, BAROC suggested to the MOF to revise Table 1-E Transaction Items attached to "Explanations relating to the Calculation of Banks' Own Capital and Risk Assets". Pursuant to instructions issued by the MOF, BAROC revised the Transaction Item "Original Contract Period Not Yet Reaching One Year or Commitments That Can Be Cancelled Any Time" with "Credit Conversion Co-Efficient" being 0% to "Original Contract Period Less Than One Year, or Commitments That Can Be Cancelled Any Time Without any Condition Attached". In addition, BAROC amended the Transaction Item "Commitments with Original Contract Period Over One Year" with "Credit Conversion Co-Efficient" being 50% to "Commitments with Original Contract Period Exceeding One Year".

24 10.The MOF had directed BAROC to inform member banks that in accordance with Article 26 of "Regulations on the Implementation of Internal Control and Auditing System of Banks", they should, beginning from 2002, engage certified public accountants to audit the internal control system of banks and to express their opinions regarding the accuracy of financial reports submitted by banks to governing authorities, implementation of the internal control system and compliance with relevant laws and systems, and the appropriateness of their policies regarding setting aside provision for bad loans. Moreover, pursuant to Article 29 of the abovementioned Regulations, banks were informed that they should, beginning from 2003, submit the auditing reports of certified public accountants for the previous year to the MOF before the end of April, and the auditing reports should at least indicate the scope, basis, procedures and results of their auditing. BAROC already informed member banks to take such actions. 11. BAROC set up a single window to handle complaints relating to credit cards, and started online processing on January 10, Minister of the Interior, Mr. Cheng-hsieh Yu (left), awarded the Outstanding Commercial Association to BAROC; Mr. Y. C. Kuo, Secretary General of BAROC, received the award. 16.The Taiwan Clearing House considered a mechanism relating to a service charge for opening automatic media exchange account transfer (ACH) among banks. The matter was reviewed by the E-Commerce Division of the BAROC's General Banking Committee, and was subsequently approved by the Board of Directors. BAROC sent its opinions to the Taiwan Clearing House The Chinatrust Commercial Bank requested BAROC to define "credit card applicants who fall into the category of student" referred to by the MOF in a letter. The MOF responded that all credit card issuing agencies should establish their risk management mechanisms for such applicants and set up their own parameters in this regard. BAROC informed all credit card business institutions about the above-mentioned direction of the MOF for action. 13. Pursuant to the conclusions and recommendations of the "National Credit Card Conference" held on July 9, 2001, the National Credit Card Center of ROC had made proposals to improve the cash flows relating to domestic credit card clearing operations. The proposals were discussed and approved by the Business Division of the Credit Card Business Committee of BAROC. However, the details relating to the implementation of these proposals were delegated to the National Credit Card Center and Financial Information Service Co. Ltd. BAROC responded to the National Credit Card Center, with a copy to the MOF. 14. The Hongkong and Shanghai Banking Corporation raised doubts that the Tourism Bureau had requested acquirers of credit cards to cooperate with respect to "National Tourism Cards" being promoted by the Bureau. BAROC studied the matter and forwarded its opinions to the Bureau for reference. 15. BAROC studied the various issues relating to the promotion and implementation of converting to IC credit cards nationwide, including adjusting the issuer reimbursement fees (IRFs) to subsidize the acquirers in the upgrade and replacement of point of sales (POS) terminals, amounting to NT$1.33 billion in a four-year period, the administrative mechanism and the establishment of a fund for a project management office (PMO), the selection of a management consulting firm to participate in the operations of the PMO, and so on. These matters were discussed and approved by the Board of Managing Directors. Among the matters approved, the mechanism relating to compensating acquirers for POS would be implemented beginning January 1, BAROC continued to cooperate with the Joint Credit Information Center on business activities, with a view to improving the operating performance of member banks, enhancing the efficiency of using credit information by banks, and promoting the sound development of the credit system. BAROC also studied issues relating to the forwarding and filing of various data to the Center, including credit to non-legal entities, purchasing accounts receivables by banks, and payments arising from acceptances and guarantees by financial institutions. 18.BAROC studied the issues of improving the prime lending rate system of banks and their mechanisms for fixing housing loan rates. The suggestions relating thereto were discussed and approved by the Board of Directors, and were forwarded to member banks for action. The MOF and the CBC were also informed of the matter. 19.BAROC studied the issue concerning the charge of a committee fee by banks based on the amount of lending to enterprises. A report on the subject was approved by the Board of Directors and was subsequently submitted to MOF, CBC and member banks for reference. 20.BAROC studied the issue concerning the charge of a penalty fee by banks for prepayment of loans by borrowers. A report on the subject was approved by the Board of Directors and was subsequently submitted to the MOF, the CBC and member banks for reference. 21. BAROC studied the criteria concerning lending rate and service fees for credit businesses. A report on the subject was approved by the Board of Directors and was subsequently forwarded to member banks for reference, with copies to the MOF and the CBC. 22. In line with the implementation of new policies that fire insurance would cover earthquakes and that all long-term insurance would be converted to one- year insurance, BAROC made proposals concerning the revisions of loan agreements of banks, which were submitted to the MOF for reference. 45

25 46 23.BAROC prepared a "Plan to Implement the Labor Safety and Sanitation Law Applicable to Banks". It also assisted member banks in completing educational and training courses in this regard by the end of June BAROC engaged the Industrial Safety and Sanitation Association of the R.O.C. to prepare a "Manual on the Practices of Labor Safety and Sanitation Management System for Banks". It also sponsored two explanatory meetings concerning the usage of the Manual in early October II. Studies on Various Financial Businesses and Regulations Requested by Governing Authorities 1. BAROC participated in the work of the E-Commerce/Data Exchange Standard Committee of the R.O.C. of the Bureau of Standards, Metrology and Inspection, the Ministry of Economic Affairs ( MOEA), with a view to promoting financial electronic data interchange ( EDI ) and e-commerce. 2. In line with the implementation of the Industrial Automation and Electronification Promotion Program of the Executive Yuan and with a view to fulfilling the Electronification Program of the financial sector, BAROC reported on a monthly basis the progress of financial electronification of member banks to the Bureau of Monetary Affairs (BOMA) of the MOF, so as to monitor the progress of member banks in this regard. 3. In order not to affect the representation of the call loan rate, BAROC was directed by the CBC to study those policy-related call loans. Such call loans would not be included in the statistics of transactions nor would they be disclosed, but they would be retained in the data file for auditing purposes. 4. The National Police Administration of the Ministry of the Interior considered revising the financial institutions police reporting system and the general public/police inter-connection reporting system installed at the Service Command Centers of various police stations (substations) offices, and requested BAROC to find out the views of member banks on this matter. BAROC presented the pros and cons of the revisions to the Administration for reference. 5. As directed by the MOF, BAROC established a task force to adjust the working draft concerning the legal compliance official systems prepared earlier. BAROC sent the adjusted working draft to member banks as reference in formulating their own working drafts. 6. As directed by the MOF, BAROC established a task force to revise the Guidelines for Risk Management of Banks in Conducting Securities Businesses prepared earlier. The revised draft Guidelines were approved by MOF, and were forwarded to member banks as the basis for formulating their own internal guidelines. 7. In coordination with BOMA, BAROC set up a "Common Study Team on the New Basel Capital Accord". Based on the contents of the new Accord, the Team was divided into five Divisions, namely, Credit Risk Standardized Approach, Credit Risk IRB, Operational Risk, Market Discipline and Assets Securitization, and Supervision and Regulation. Representatives from regulatory agencies, the Joint Credit Information Center, and member banks were mobilized for the task. They met periodically as scheduled to discuss the impact of the new Capital Accord on the financial sector and the need to revise the relevant laws and regulations in light of the domestic financial environment. The various preparatory work was expected to be completed by the end of Pursuant to the conclusions and recommendations of the "National Credit Card Conference" held on July 9, 2001, BAROC prepared the "Operating Procedures and Salient Points concerning the Reporting and Investigation of Suspected CPP ( Common Purchase Point ) ", " Salient Points concerning the Reporting of Departing Credit Card Personnel", and "Salient Points concerning the Operations of the Credit Card Fraud and Crime Prevention Center". These documents were approved by the MOF and became effective thereafter. 9. In coordination with the Department of Taxation of the MOF, BAROC promoted the payment of 2001 income taxes via credit cards. Such means of payment was implemented on a trial basis in May 2002, and it proceeded smoothly. The MOF decided to include the payment of income tax by credit cards as a normal means of paying such tax in In coordination with BOMA with a view to resolving the issues relating to credit cards for students, BAROC requested card issuing agencies to report on their implementation of the directions of the MOF relating to such cards. The data collected, together with an evaluation report of BAROC, were submitted to the MOF for reference. 11. BAROC set up a task force on "Review of the Draft Bankruptcy Law", whose function was to provide the views of the financial sector on the direction of how the draft version prepared by the Judicial Yuan should be improved. The opinions were submitted to the Judicial Yuan for reference. 12.As indicated in a letter from the MOF, Legislator Jan-daw Yu had pointed out that the selfpaid amounts charged by some banks relating to concessionary gifts as bonus points of credit card business even exceeded the market prices of these gifts, thus affecting the rights of consumers. In this light, BAROC studied the matter based on the opinions presented by the banks concerned, and its findings were submitted to the MOF and also approved by the Board of Directors. Moreover, BAROC urged card issuing agencies to indicate in their bonus points accumulation or conversion catalog in eye-catching letters that the self-paid amounts of commodities given from the conversion of bonus points could be different from the prices in wholesale markets because of seasonal factors or promotion by producers, so that cardholders would be fully aware of the situation and that their rights would be duly protected. 13.MOF had requested BAROC to study the feasibility of entrusting convenient stores to receive payment due from credit card holders. BAROC consolidated the views of member banks into two options of either postponing the idea or to implementing it, and submitted them, together with the resolution of the Board of Directors to postpone it, to the MOF for reference. 47

26 14.The BOMA of the MOF had requested BAROC to seek the views of member banks concerning the feasibility of adopting differential interest rates for recycling credits of credit cards. BAROC consolidated the views of card issuing agencies, and submitted them to BOMA for reference. These views were subsequently approved by the Board of Directors. 22.In view of the annulment of the "Regulations on the Processing of Checking Account Depositors" by the MOF, BAROC prepared the "Guidelines for the Processing of Checking Account Depositors" for self-discipline of member banks. The Guidelines were also approved by the MOF In order to improve the management of the credit card business, the MOF had requested BAROC to find out the differences between credit cards and cash cards issued by financial institutions and to report the relevant data to the MOF. BAROC consolidated the views of card issuing agencies, and submitted them to the MOF for reference. These views were subsequently approved by the Board of Directors. 16.In order to find out whether the relatively high recycling interest rates of credit cards violated the Fair Trade Law, the Fair Trade Commission of the Executive Yuan had requested BAROC to provide data and opinions concerning various points raised by the Commission. Having compiled relevant data and also sought the legal opinions from its legal advisor, BAROC submitted its response to the Commission. The matter was subsequently discussed by the 551st Meeting of the Commission held on May 30, 2002, and the Commission decided that it was difficult to say that the Fair Trade Law had been violated based on the available facts and evidences. The Commission advised BAROC and card issuing agencies on the matter. 17.The MOF had requested BAROC to study the feasibility of incorporating Resolution No. 3 of the 551st Meeting of the Fair Trade Commission concerning the disclosure of credit card pro forma contracts in such contracts or in the user guide of card holders. BAROC studied the matter, and its opinions, after being approved by the Board of Directors, were submitted to MOF for reference. 18.As requested by the MOF, BAROC revised the sample version of the "Regulations on Combating Money Laundering by Credit Card Business Agencies". After being approved by the MOF, the revised version was forwarded to various credit card business agencies for action. 19.It has been found that some illicit people have utilized the "Telephone Remote Control Designated Transfer" services provided by the China Telephone Corporation to connect to the customer service fax machine number at the Financial Institutions Credit Card Center and steal the credit card numbers and other personal data of card holders for the purpose of utilizing such cards on web sites. As directed by the BOMA of the MOF, BAROC studied the matter and submitted its opinions to BOMA for reference. These opinions were subsequently approved by the Board of Directors. 20.The MOF had requested BAROC to look into the legality of some credit card issuing agencies in providing mail order catalogues and salient points to their clients. BAROC sought the opinions of its legal advisor and submitted them to MOF for reference. 21.In line with the policy to promote electronification by the MOF and MOEA, BAROC strived to carry out the Interbank Common Platform and Cash (ICP&C) plan. Of the eight member banks that are coordinating with the C Plan, some were on-line by the end of 2002, and the rest will be on-line before the end of June The ICP plan would be fully implemented beginning Assistance would be given to those member banks which had set up internet banking to be on-line by the end of 2003, and the rest would be on-line by the end of As directed by the MOF, BAROC continued to revise the "Recommendations on Unifying the Transaction Accounts of Financial Derivatives" prepared by itself earlier. However, in line with the plan on "Perfecting the Accounting Systems of Various Sectors" being promoted by the "Task Force on Perfecting the Accounting Systems of Enterprises", BAROC had revised the draft "Sample Model of the Accounting System of Banks", which already included the handling of transaction accounts of financial derivatives. Thus, the BOMA of the MOF approved that the two matters could be combined for implementation. 24.The Consumers Protection Commission of the Executive Yuan had made clarification as to "whether it is legal or appropriate if non-general clauses of contracts contradict with the items that should not be listed in pro forma contracts as proclaimed by governing agencies". Such clarification was sent to member banks for reference. III. Suggestions to Amend Existing Laws and Regulations with a View to Improving the Financial System 1. Based on the views from member banks, BAROC submitted to governing authorities contradictions, doubts, and needs for adjustments that had emerged in the applications of the newly amended Company Law and the existing financial laws and regulations for their reference in the future amendment of laws and regulations. 2. BAROC suggested to the MOF to coordinate with the Ministry of the Interior in providing necessary assistance in the registration of various rights over things of the dissolved financial institution by the financial institution which has obtained the permission to merge pursuant to Article 17 of the Financial Institutions Merger Law. 3. BAROC requested MOF to clarify the doubt from member banks as to whether the ways of disclosing the transfer of non-performing loans by financial holding companies would violate the Computer-processed Personal Data Protection Law. BAROC also submitted its own views on the matter to MOF. 4. BAROC submitted a "Table showing Suggested Revisions of the Lodgment Law" for reference of governing authorities in the future amendment of the Law. 5. The Council for Economic Planning and Development of the Executive Yuan had asked BAROC to review the "Issues concerning the Exercise of Mortgage and Pledge Derived from the Different Legal Systems after the Future Deepening of Financial Relations between the Two Sides of the Taiwan Strait and the Ways and Means to Deal With Them by the Creditors in Taiwan". BAROC consolidated the views of member banks and submitted them to competent authorities for reference. 6. Member banks had raised the following issues, namely, the "disturbances caused by the fact that some courts prohibited banks from cutting down the interest coupons of government bonds which were deposited with the court and served as collateral of their loans" and 49

27 "whether any interest would accrue from the properties of the accused being confiscated by judicial institutions". BAROC studied these issues and submitted its legal opinions to competent authorities for reference. 15.BAROC revised the "Guidelines for Providing Credit by Member Banks of BAROC". After being approved by the Board of Directors and subsequently by the MOF, the revised Guidelines were sent to member banks for action. 7. BAROC sent to member banks a proclamation concerning the revised draft Article 7 of the "Enforcement Rules of the Banking Law" and sought their views on need for amendment. After consolidating the views of member banks, BAROC submitted them to the BOMA of the MOF for consideration. 16.BAROC revised the "Guidelines for Credit Investigation by Member Banks of BAROC". After being approved by the Board of Directors and subsequently by the MOF, the revised Guidelines were sent to member banks for action BAROC suggested to governing authorities to examine and amend the current laws and regulations concerning the operations of offshore banking units (OBUs). In particular, the "Designated Foreign Exchange Business Units" of domestic banking units (DBUs) should be allowed to conduct the inward remittances and deposits of OBUs, so that the overseas clients of OBUs could enjoy the same efficient services as the domestic clients of DBUs. BAROC also submitted its opinions regarding the position of OBUs to the MOF for reference. 9. The Bank of Taiwan had suggested simplifying the auditing work relating to bills financing by financial institutions. BAROC made suggestions in this regard and submitted them to the MOF for reference. 10.In view of the fact that the Well Phone Securities Company. Ltd. had violated the laws and regulations concerning securities administration, the Securities and Futures Commission of the MOF had requested BAROC to inform financial institutions that should they find any inaccurate data or facts in the financial reports of their securities dealers, they should report such cases to the Commission. BAROC submitted its opinions concerning the relevant regulations of the matter and its feasibility to the MOF for reference. 11.According to newspaper reports, some borrowers (e.g., construction companies) had entrusted their real estate to third parties (such as construction management companies or lawyers) as a means to evade possible actions by banks, thus affecting banks in securing their loans. In this light, BAROC submitted its opinions concerning the practical aspects of the matter as well as the ways and means to deal with it to the MOF for reference. 12.Suggestions had been made by the public that those loans which were fully secured by time deposits of the same banks should not be included in the total amount of lending to the clients. BAROC submitted its evaluation on the matter, including pros and cons, to the MOF for reference. 17.Questions had arisen as to how the Reconstruction Loans under the 921 Earthquake Combination Housing Reconstruction Plan should be linked with the Financial Institutions 921 Earthquake Housing Reconstruction Loans. BAROC studied the matter and came up with uniform criteria concerning the loan amounts of financial institutions, and submitted them to the MOF for reference. IV. Gathering of Financial Information and Preparation of Various Research Reports to Meet the Needs for the Development of Financial Businesses 1. Pursuant to the conclusions and recommendations of the "National Credit Card Conference" held on July 9, 2001, BAROC, together with credit card enterprises and the BOMA of the MOF, organized a team to visit Korea from September 22 to 25, 2002 to conduct a fact-finding mission on how the Korea Government encouraged people to consume by using credit cards and also achieved the increase in tax income through auditing measures. After the visit, the team prepared a report on the Credit Card Consumption Expenditures and the related Tax Incentives in Korea. The report was submitted to the BOMA and the Department of Taxaction of the MOF for reference. 2. Pursuant to the conclusions and recommendations of the "National Credit Card Conference" held on July 9, 2001, BAROC prepared the "Samples Languages on the Awareness of Credit Card Risks and the Publicity of Personal Data Protection". After being approved by the MOF, these sample languages were forwarded to card issuing agencies for use in making movies to be shown on the media or for publication in their credit card periodicals, so as to protect consumers by alerting the public and card holders about credit card risks and publicizing the protection of personal data BAROC expressed its opinions regarding the appropriate timing of implementing the "Regulations on Lending Secured by Shares to be Conducted by Member Banks of BAROC" prepared by itself earlier. 14.In line with the request of the Ministry of the Interior, financial institutions had studied the measures under "Financial Institutions applying the Canceling of Mortgage through Internet and Using Electronic Land Registration Data under the Land Administration Electronic Gate on a Trial Basis". BAROC submitted its opinions concerning the possible legal issues that may be derived, the controversies regarding benefits and responsibilities, the process of applying the canceling of mortgage through internet by financial institutions, and the charge of internet service fees, and so on to the MOF for reference. Former Finance Minister Yung-san Lee delivered a speech at the seminar on New Guarantee System for Fulfilment of Public Works.

28 3. BAROC engaged Ms. Shu-ling Cheng, a lawyer, to prepare a report on the "Impact of IC Credit Cards on the Legal Relations of the Parties Concerned". The report was posted on the web site of BAROC for perusal by the public. 4. BARC engaged the Pricewaterhouse Coopers Management Consulting Co. Ltd. to prepare a report on the "Sample Version of the Accounting System for Credit Cards". The draft was completed, and after being reviewed by BAROC, it would be submitted to governing authorities for reference. 5. Considering that Taiwan entered the WTO and became its 144th member on January 1, 2002, BAROC engaged the Russin Vecchi International Legal Counsellors to translate major laws and regulations concerning the economy, trade and service sectors into English. These documents were made available on the English web site of BAROC for reference by all members of the WTO. 2. In order to improve the knowledge of the public (including students) on the usage of credit cards and to protect the interests of card holders, BAROC prepared a mini-encyclopedia on credit cards as an educational tool and as publicity material. The mini-encyclopedia was posted on the web site of BAROC for perusal by the public. 3. BAROC sent representatives to attend a "Coordination Meeting for Safety Preservation of Financial Institutions in Taiwan District" sponsored by the National Police Administration of the Ministry of the Interior held on March 29, The First Commercial Bank was requested to report on security preservation at business sites of financial institutions by security service providers. 4. BAROC nominated the E. Sun Commercial Bank to collaborate with the Police Department of the Tao Yuan County on the 2002 Drill on Self-Defense of Financial Institutions in the Northern District held at the Ta Nan Training Base in Pa-The Village of Tao Yuan County on September After being approved by a joint meeting of the Boards of Directors and Supervisors, BAROC set up a Task Force to compile the laws and regulations concerning financial transactions across the Taiwan Strait, so that member banks could abide by them in doing such businesses and also avoid any illegal matters. The list of data collected and their respective web sites were forwarded to those member banks conducting foreign exchange businesses for their reference, with copies to the CBC and the MOF. 7. After being approved by a joint meeting of the Boards of Directors and Supervisors, BAROC set up a task force to prepare a report on the "Application and Comparison of UCP500 and ISP98". The report was sent to those member banks conducting foreign exchange businesses, with copies to the CBC and the MOF. 8. BAROC prepared a pamphlet on the Questions and Answers on Joint Guarantee Contracts of Banks. After being approved by the Board of Directors, the pamphlet was sent to member banks for reference. V. Providing Financial Information to the Public and Participating in Financial Security and Charity Activities 1. In order to enable the public to better understand the service fees charged by credit card issuing agencies and other matters concerning the interests of consumers, BAROC was directed by MOF to compile a "Table showing Service Fees Charged by Credit Card Issuing Agencies and other Relevant Information". The table was shown on the web site of BAROC for reference by the public. 5. BAROC nominated the First Commercial Bank to collaborate with the Police Department of the Kaohsiung City on the 2002 Drill on Self-Defense of Financial Institutions in the Southern District held at the Lin Ya Branch of the Bank in Kaohsiung City on September 29, The National Police Administration of the Ministry of the Interior prepared a "Table on Evaluation and Inspection of Crime Prevention Environment of Financial Institutions" for use by police stations. BAROC wrote to member banks to request their branches to cooperate with police stations on the matter and to improve any deficiencies so as to ensure their safety. 7. In 2002, BAROC approved ten applications for safety preservation funds from seven member banks, namely, the Land Bank of Taiwan, First Commercial Bank, Postal Remittances and Savings Banks, Dah An Commercial Bank, Chung Hsing Bank, Union Bank of Taiwan, and Chang Hwa Commercial Bank. The amount paid from the fund totaled NT$1 million, of which NT$760,000 were prizes, NT$180,000 were relief funds, and NT$60,000 was set aside for consolation. 8. In coordination with the MOF, BAROC participated in a charity publicity activity entitled "Happy to Celebrate Brightness, and Joyful to Promote Economy and Finance" at the plaza in front of the Presidential Office. 9. In order to prevent crimes by fraud groups and garage accounts, BAROC prepared and printed more than 80,000 copies of pamphlets to alert the public on various means of fraud, such as "Cellular Phone Message", "Advertisement on Lending without Collateral", "Advertisement on Winning Lottery" and so on. These pamphlets were distributed to member banks for their use In order to foster friendship among member banks and to promote recreational activities, BAROC sponsored a variety of sports activities in 2002, including badminton, golf, basket ball, table tennis, fishing, go, and so on. 11. In 2002, BAROC made donations to the "Home for the Seniors" operated by the Catholic Groups in Taiwan, "Lu Wei Center for Mentally Retarded Children", the Red Cross of the R.O.C., the Taipei Welfare Association of the Deaf and so on, with a view to assisting those underprivileged and to providing social services. Mr. Scott Powell ( second from left ), Director of Economist Intelligent Unit, visited BAROC.

29 on April 26, Mr. Cheng-chi Chen, Deputy Division Chief of the Foreign Trade Bureau of MOEA and Dr. Heh-song Wang, Chairman of the Research and Development Committee of BAROC were invited as lectures. 6. BAROC, together with the Trusecure Corporation, sponsored a "Seminar on How to Effectively Reduce Information Safety Risk and to Protect the Income and Reputation of Banks" in April Mr. Gary K. L. Tseng, Director General of the BOMA of MOF, delivered a speech at the seminar on Financial Asset Securitization. VI. Sponsoring Professional Seminars and Lectures on Finance and Other Activities 7. BAROC, together with the Environmental Protection Administration of the Executive Yuan, Industrial Bureau of MOEA and Taiwan Business Council for Sustainable Development, sponsored a "Seminar on Sustainable Development and Social Responsibility Investment Fund" at the first conference room on the 10th Floor of the Head Office of the Land Bank of Taiwan on May 9, The purpose of the Seminar was to help financial institutions fulfill their social responsibility and to realize their influence through the promotion of "social responsibility investment" and investment in companies emphasizing environmental protection, sustainable development and financial performance BAROC sent representatives to attend a "Lecture on Credit Card Crime and Fraud and their Detecting Techniques" held at the Central Police University Continuing Education and Training Center on January 17, The purpose of the lecture was to enable detecting agencies to be fully aware of fraud and to emphasize the seriousness of fraud and other crimes relating to credit cards, so that they could reach a consensus with card issuing agencies on the establishment of a sound risk preservation system. 2. In order to enable member banks to gain an in-depth understanding about the salient points of the revised Company Law as well as its impact on the supervision of companies and the banking sector, BAROC sponsored a seminar on the "Salient Points relating to the Amendment of the Company Law and its Impact on the Banking Sector" held at the Public Treasury Department of the Bank of Taiwan on March 28, Mr. Jing-yuan Kao, a Senior Specialist from the Commerce Department of MOEA and Mr. Tien-lu Chen, Senior Specialist from the Legal Affairs Office of the International Commercial Bank of China were invited as lecturers. 3. In order to enable the banking sector, government and academia to gain further understanding about the transaction rules and legal relations of credit cards and also to reach consensus on the additions and revisions of clauses in credit card criminal laws, BAROC engaged the Taiwan Academy of Banking and Finance to sponsor two rounds of "Seminar on Credit Card Business and Legal Affairs" at Yang Ming Shan on April 25 and 26 and May 9 and 10, These seminars were attended by more than 100 persons, including judges, prosecutors, as well as representatives from the Ministry of Justice, criminal police units, MOF, and card issuing agencies. 8. BAROC held a second conference to introduce the transfer of SWIFTNet FIN on May 27, 2002, which was attended by 148 persons from 68 user banks. Moreover, BAROC also sponsored two-day education and training courses on SWIFTNet FIN in March and October BAROC sponsored a "Seminar on the Progress of Economic Integration in the Economic Union and the Trend of the Euro" at the Public Treasury Department of the Bank of Taiwan on May 31, Mr. Terry King, General Manager of the Taiwan Branch of ABN-AMRO Bank and Mr. Chin-an Chen, Economic Research Department of the International Commercial Bank of China were invited as lecturers. 10. BAROC sponsored three-day training courses on SWIFT Category 5 Message Types at its conference room on June 10 to 12, In addition, BAROC also sponsored training courses concerning ISO15022 on November 16, BAROC sponsored a "Seminar on the Nanometer Technology and its Applications" at the Public Treasury Department of the Bank of Taiwan on June 25, Dr. Ping-ping Tsai from the Nanometer Technology Research Center of the Industrial Technology Research Institute (ITRI)was invited as lecturer BAROC, together with the Bankers Association of Taipei, Central Deposit Insurance Corporation, and Chung Hwa Institute for Economic Research, sponsored a "Seminar on Strengthening Financial Supervision System as well as Strategies and Practices of the Financial Sector to Cope with It" at the Tsiang Sho-chih International Conference Hall of the Institute on April 26, BAROC sponsored a "Seminar concerning the Impact of Taiwan's Entry into the WTO on Industries and the Banking Sector" at the Public Treasury Department of the Bank of Taiwan Mr. Y.C. Kuo, Secretary General, represented BAROC in the award ceremony during the press conference on the achievements of Global Information e-allied Movement.

30 12. BAROC sponsored a "Seminar on Financial Asset Securitization and a Financial White Paper on Financial Holding Company Law" at the Public Treasury Department of the Bank of Taiwan on July 25, Mr. Gary K. L. Tseng, Director General of the BOMA of MOF and Mr. David T. Chow, Secretary General of the Risk Management Commission of the Chung Hwa Financial Holding Company were invited as lecturers. 13. In order to enhance the capabilities of member banks to differentiate counterfeit foreign currency bills from genuine ones, BAROC, together with the Taipei Branch of the Hongkong and Shanghai Banking Corporation, sponsored six "Seminars on How to Differentiate Counterfeit Foreign Currency Bills from Genuine Ones" in Taipei on August 12 to 14, BAROC sponsored a "Seminar on the Trends of the U.S. and Japanese Economies and the U.S. Dollar and Yen" at the Public Treasury Department of the Bank of Taiwan on August 23, Dr. Chung-shu Wu from the Institute of Economics, Academia Sinica and Dr. Heh-song Wang, Chairman of the Research and Development Committee of BAROC were invited as lecturers. 21. Domestically, both the MOF and the CBC are actively promoting the concept of risk management by banks, whereas internationally, the Bank for International Settlements is expected to issue the Basel II Capital Accord by the end of 2003 as a reference by banks and governing authorities for risk management and the calculation of capital adequacy ratio. In this light, the Taiwan Branch of Reuters sponsored and BAROC co-sponsored a "2002 Seminar on Risk Management of Financial Institutions" at the Civil Service Development Center on September 26, The Seminar was aimed at assisting domestic banks to gain an in-depth understanding about the impact of the Basel II Capital Accord and also to improve their risk management. 22. BAROC sponsored a "Seminar concerning the Regulations on Capital Adequacy Ratio set by the Bank for International Settlements and their Implementation Issues as well as their Impact on Bank Operations and Risk Management" at the Public Treasury Department of the Bank of Taiwan on September 27, Dr. Julius Caesar Parrenas, Advisor to the Asian Bankers Association, and Dr. Heh-song Wang, Chairman, Research and Development Committee of BAROC, were invited as lecturers BAROC sponsored a "Seminar on Financial XML Information and Safety Control", "Seminar on Financial XML Foreign Currency Payment Information", and "Seminar on Financial XML Finance Information " for member banks at the First Conference on the 10th Floor of the Head Office of the Land Bank of Taiwan in August, September and December In order to strengthen risk management as well as asset and liability management of member banks, BAROC, together with the Martingale Corporation and IPS-Sendero College, sponsored a "Seminar on the Planning and Implementation of International Asset and Liability Management Policies" and another "Seminar on How International Banks Use Interest as Operational Policies" on September 2 and 3, 2002, respectively. Mr. Randall Payant, Director of the Research Department of the College was invited as lecturer. The former seminar introduced the most recent theory about international asset and liability management, planning and implementation of asset and liability management policies, interest and capital liquidity risk management, policy and responsibilities of asset and liability management committee, and how to ensure the implementation of the above. The latter seminar focused on the importance of interest on bank operations, pros and cons of various ways of interest pricing, how to set the interest of various products, and the use of interest as the operational policy to guide the prices of products, customer relations and effective management, and so on. 17.BAROC sponsored a "Seminar on the Analysis and Applications of the Practices of International Guarantee Letters" at the Public Treasury Department of the Bank of Taiwan on September 13, In order to improve the financial knowledge and expertise of judges and their techniques in handling major financial criminal cases in a speedy and appropriate manner, BAROC, together with the Institute for Judicial Professionals of the Judicial Yuan, sponsored the first "Seminar on the Practices of Major Financial Criminal Cases" at the Staff Training Institute of the Bank of Taiwan on September 18 and 19, Representatives from the BOMA and the Department of Insurance of the MOF also attended the Seminar. 19.In line with the government policy to promote financial e-commerce businesses, BAROC sponsored two rounds of the "2002 Seminar on Financial E-Commerce" on the 10th Floor of the Head Office of the Land Bank of Taiwan on September 23 to 25 and October 7 to 9, BAROC sponsored a "Seminar on the Inclusion of the Banking Sector in the Application of the Labor Safety and Sanitation Law and the Related Matters" at its first conference room on September 25, BAROC sent representatives to visit the Chung Tai Institute of Technology, Hsin Kuo Management Institute, Ya Tung Institute of Technology and Shiu Ping Institute of Technology on October 8 and 23, November 20 and December 4, respectively, to educate students about the proper usage of credit cards. 24.BAROC sponsored a "Seminar on the Future Development Trends of Bio-Technology and Semi- Conductor Industries" at the Public Treasury Department of the Bank of Taiwan on November 22, Dr. Elan Liaw, Advisor to MOEA and Dr. Alfred Li-ping Cheng, Chief, Strategic Research Center of the Chung Hwa Institute for Economic Research were invited as lecturers. 25. In line with the enactment of the Financial Asset Securitization Law and to promote the development of credit card business, BAROC sponsored a "Seminar on the Practices of Credit Card Securitization" at the First Conference Room on the 10th floor of the Head Office of the Land Bank of Taiwan on November 25, BAROC, together with the Global Views Monthly, Oracle, Taiwan Academy of Banking and Finance, sponsored a "Seminar on Strengthening Risk Capital Structure to Interconnect with the International Market" at the Taipei World Trade Center Club on November 26, BAROC, together with the Chung Hwa Institute for Economic Research and Securities Association, sponsored a "Seminar on the Strategies and Practices of Establishing Risk Management System by the Financial Sector" at the Tsiang Sho-chih International Conference Hall of the Institute on December 2 and 3, The Seminar discussed the practical issues encountered by financial institutions in the establishment of a sound risk management system and the measures to cope with these issues. 28.BAROC invited Mr. Geoff Bell, the head of the New Basel Capital Accord Development Committee for the Asian region of Deloitte Consulting, to give a lecture on "Developing a Joint Approach to Basel for Banks in Taiwan" at its Second Conference on December 10, In order to assist financial institutions with formulating strategic analysis, self-evaluation, as well as credit risk establishment and evaluation in coping with the Basel II Accord, BAROC, together with the Taiwan Academy for Banking and Finance and Deloitte Consulting, sponsored a "Seminar on How to Cope with Basel II Capital Accord by Financial Institutions" at the Taipei Branch of the Taiwan Academy of Banking and Finance on December 11, BAROC coordinated with and made contributions to five major international credit card issuing agencies on the "2002 Seminar and Prize Award Ceremony on the Credit Card Crime Prevention and Risk Analysis in the Taiwan District" held at Kengting Howard Plaza Hotel in Ping Tung on December 19 to 20, BAROC sponsored a "Public Hearing on the Draft Sample Model of the Accounting System for Banks" held at its first conference room on December 30,

31 APPENDIXES Appendix 1 : Financial System of ROC Domestic Banks Ministry of Finance Local Branches of Foreign Banks Deposit Money Banks Medium Business Banks Credit Cooperatives Life Insurance Companies 58 Financial Management Financial Operations Supervision Financial System of R.O.C. Financial Operations Supervision Financial Institutions Financial Market Other Financial Institutions Money Market Capital Market Credit Departments of Farmers' Associations Credit Departments of Fishermen's Associations Insurance Institutions Chunghwa Post Company Ltd. Credit Card Institutions Investment and Trust Companies Offshore Banking Units Credit Guarantee Fund Financial Market Professional Institutions Interbank Call-Loan Market Short-term Bills Market Bond Market Stock Market Bank-Customer Market General Insurance Specific Insurance Bills Finance Companies Securities Finance Companies Securities Brokerage Houses Securities Investment Trust Companies Foreign Exchange Brokers Interbank Money Center Primary Market Secondary Market Exchange Market Over-the-Counter Market Property and Casualty Insurance Companies Reinsurance Company Central Deposit Insurance Corporation The Export-Import Bank of R.O.C. Export Insurance Department Dealers Brokers Underwriters 59 The Central Bank of China Foreign Exchange Interbank Market Foreign Currency Call-Loan Market Futures Market

32 Appendix 2 : Financial & Business Summary of Domestic Banks 60 As of December 31,2002 Bank Item Unit: NT$ million Forex Deposits Loans Transactions Total Assets Net Worth (US$1,000) Central Trust of China 174, ,826 7,016, ,529 1,195 ( 172,911 ) ( 181,094 ) ( 8,082,667 ) ( 274,539 ) ( 6,121 ) The Farmers Bank of China 407, ,808 4,221, ,536 14,931 ( 413,963 ) ( 332,376 ) ( 4,776,428 ) ( 528,864 ) ( 25,569 ) Chiao Tung Bank 285, ,546 8,423, ,400 54,679 ( 266,025 ) ( 409,084 ) ( 8,016,996 ) ( 552,105 ) ( 54,016 ) Bank of Taiwan 1,929,811 1,150,724 15,591,779 2,324, ,776 ( 1,915,772 ) (1,279,768 ) ( 16,571,065 ) ( 2,329,143 ) ( 194,481 ) Land Bank of Taiwan 1,371,799 1,020,459 6,310,072 1,549,207 81,057 ( 1,360,218 ) (1,047,259 ) ( 6,932,382 ) ( 1,522,478 ) ( 83,269 ) Taiwan Cooperative Bank 1,548,830 1,127,292 7,705,298 1,885,514 61,517 ( 1,484,525 ) (1,149,311 ) ( 8,945,027 ) ( 1,787,910 ) ( 59,396 ) First Commercial Bank, Ltd. 1,081, ,393 21,619,014 1,365,846 49,148 ( 1,045,476 ) ( 812,368 ) ( 19,335,462 ) ( 1,346,754 ) ( 84,255 ) Hua Nan Commercial Bank, 1,074, ,562 23,643,664 1,355,465 49,656 Ltd. ( 1,007,926 ) ( 760,455 ) ( 23,393,556 ) ( 1,312,993 ) ( 80,251 ) Chang Hwa Commercial 973, ,879 16,818,994 1,217,835 44,056 Bank, Ltd. ( 960,905 ) ( 737,705 ) ( 17,274,109 ) ( 1,220,426 ) ( 78,501 ) Bank of Overseas Chinese 235, ,330 6,750, ,924 10,778 ( 236,504 ) ( 142,182 ) ( 6,593,759 ) ( 263,610 ) ( 9,610 ) The Shanghai Commercial & 279, ,658 10,234, ,931 42,689 Savings Bank, Ltd. ( 281,336 ) ( 181,099 ) ( 10,204,151 ) ( 346,587 ) ( 43,173 ) Taipei Bank 507, ,039 8,437, ,079 49,310 ( 533,526 ) ( 403,179 ) ( 7,976,456 ) ( 723,451 ) ( 46,674 ) United World Chinese 536, ,785 7,837, ,222 51,040 Commercial Bank ( 601,721 ) ( 399,092 ) ( 7,086,562 ) ( 698,427 ) ( 66,263 ) The Export-Import Bank - 104,726 75, ,540 17,053 of the R.O.C. ( - ) ( 111,403 ) ( 108,782 ) ( 122,672 ) ( 16,572 ) Bank of Kaohsiung 144, , , ,690 9,924 ( 183,373 ) ( 155,465 ) ( 705,192 ) ( 210,046 ) ( 10,647 ) The International Commercial 632, ,169 29,351, ,721 63,184 Bank of China ( 583,480 ) ( 450,729 ) ( 26,616,965 ) ( 902,932 ) ( 61,611 ) China Development Industrial 45,141 78, , , ,347 Bank Inc. ( 38,135 ) ( 76,318 ) ( 50,580 ) ( 204,779 ) ( 138,660 ) Industrial Bank of Taiwan 23,982 29,886 50,491 49,071 23,014 ( 22,233 ) ( 28,386 ) ( - ) ( 49,459 ) ( 24,767 ) Hwatai Commercial Bank 69,320 55,522 9,486 78,232 6,348 ( 68,790 ) ( 54,581 ) ( 10,195 ) ( 77,687 ) ( 6,097 ) Mocoto Bank 148,503 95, , ,782 10,506 ( 152,047 ) ( 102,229 ) ( 1,277,726 ) ( 173,045 ) ( 10,427 ) Sunny Bank 124,181 96, , ,059 7,739 ( 106,931 ) ( 78,702 ) ( 23,673 ) ( 118,391 ) ( 7,103 ) Bank of Panhsin 92,492 72,231 9, ,111 8,488 ( 89,471 ) ( 64,545 ) ( 9,895 ) ( 101,251 ) ( 8,445 ) Cota Commercial Bank 56,260 43,971 9,416 62,509 4,907 ( 53,906 ) ( 32,911 ) ( 10,000 ) ( 59,874 ) ( 4,613 ) United Credit Commercial 55,578 40,324-62,012 5,555 Bank ( 58,153 ) ( 41,958 ) ( - ) ( 64,472 ) ( 5,504 ) Lucky Bank 79,385 47,150 5,595 84,239 3,595 ( 79,907 ) ( 51,432 ) ( 9,030 ) ( 86,824 ) ( 5,717 ) Kao Shin Commercial Bank 45,998 29,306-50,259 2,544 ( 47,547 ) ( 27,949 ) ( - ) ( 51,354 ) ( 3,132 ) Grand Commercial Bank 167, ,878 16,041, ,641 15,366 ( 170,823 ) ( 134,577 ) ( 6,907,075 ) ( 195,041 ) ( 14,553 ) Dah An Commercial Bank ( 177,540 ) ( 156,501 ) ( 1,793,618 ) ( 221,082 ) ( 16,973 ) Item Forex Deposits Loans Transactions Bank (US$1,000) Total Assets Net Worth Union Bank of Taiwan 149, ,663 3,520, ,587 15,193 ( 159,870 ) ( 120,532 ) ( 3,522,561 ) ( 186,659 ) ( 16,535 ) The Chinese Bank 183, ,446 1,072, ,963 15,763 ( 188,881 ) ( 163,960 ) ( 960,916 ) ( 213,422 ) ( 15,428 ) Far Eastern International 159, ,136 6,215, ,088 12,188 Bank ( 149,205 ) ( 136,534 ) ( 3,734,699 ) ( 195,677 ) ( 17,068 ) Fuhwa Commercial Bank 148, ,542 1,025, ,541 9,662 ( 140,846 ) ( 110,171 ) ( 1,020,399 ) ( 162,277 ) ( 13,393 ) Bank SinoPac 235, ,431 15,276, ,998 25,501 ( 217,367 ) ( 166,126 ) (19,163,232 ) ( 278,750 ) ( 23,844 ) E.Sun Commercial Bank 225, ,196 3,281, ,798 16,353 ( 224,986 ) ( 175,793 ) ( 2,334,943 ) ( 266,697 ) ( 23,481 ) Cosmos Bank Taiwan 191, , , ,053 19,023 ( 174,366 ) ( 132,227 ) ( 655,356 ) ( 196,757 ) ( 14,388 ) Pan Asia Bank 146, , , ,718 9,010 ( 153,674 ) ( 118,091 ) ( 754,435 ) ( 174,016 ) ( 10,700 ) Chung Shing Bank 106,425 41, , ,576-27,985 ( 139,084 ) ( 63,594 ) ( 341,455 ) ( 149,940 ) ( -16,450 ) Taishin International Bank 383, ,963 16,596, ,125 36,214 ( 234,825 ) ( 195,493 ) (10,821,993 ) ( 300,792 ) ( 28,332 ) Fubon Commercial Bank 218, ,876 2,561, ,758 27,763 ( 227,259 ) ( 141,574 ) ( 2,957,069 ) ( 281,095 ) ( 29,287 ) Ta Chong Bank, Ldt. 176, ,187 10,655, ,326 14,065 ( 174,078 ) ( 142,738 ) ( 6,308,951 ) ( 203,253 ) ( 18,232 ) Jih Sun International Bank 174, ,686 1,322, ,363 11,152 ( 159,957 ) ( 134,564 ) ( 1,182,988 ) ( 185,127 ) ( 12,367 ) EnTie Commercial Bank 162, , , ,926 13,932 ( 168,520 ) ( 144,442 ) ( 1,129,264 ) ( 192,543 ) ( 15,558 ) Chinatrust Commercial Bank 680, ,544 27,651, ,936 79,894 ( 653,445 ) ( 498,706 ) (24,708,896 ) ( 814,093 ) ( 74,340 ) 127,189 78, , ,975 9,833 Chinfon Commercial Bank ( 135,504 ) ( 88,847 ) ( 62,313 ) ( 162,193 ) ( 11,783 ) 158, , , ,776 13,209 Cathay United Bank ( 139,063 ) ( 115,600 ) ( 497,556 ) ( 156,193 ) ( 11,939 ) 782, ,056 8,379, ,224 40,138 Taiwan Business Bank ( 759,131 ) ( 616,936 ) ( 8,577,083 ) ( 929,417 ) ( 35,584 ) International Bank of Taipei 287, ,437 4,164, ,097 31,908 ( 273,981 ) ( 206,983 ) ( 3,617,010 ) ( 319,533 ) ( 29,144 ) Hsinchu International Bank 280, ,412 1,421, ,865 13,315 ( 270,784 ) ( 202,711 ) ( 1,111,625 ) ( 298,548 ) ( 16,942 ) Taichung Commercial Bank 207, ,302 1,123, ,200 12,997 ( 201,045 ) ( 131,604 ) ( 971,109 ) ( 225,091 ) ( 17,582 ) 117,027 88, , ,962 6,478 Tainan Business Bank ( 118,150 ) ( 85,461 ) ( 181,910 ) ( 129,692 ) ( 8,302 ) Kaohsiung Business Bank 72,230 28,031 3,595 67,186-9,035 ( 82,985 ) ( 41,692 ) ( 4,675 ) ( 83,791 ) ( -3,867 ) Enterprise Bank of Hualien 40,454 22,877-43,417 2,002 ( 41,204 ) ( 24,015 ) ( - ) ( 44,815 ) ( 1,941 ) 42,346 28,828-43, Taitung Business Bank ( 39,524 ) ( 23,630 ) ( - ) ( 44,217 ) ( 4,102 ) Notes:1.Forex transactions are annual figures, the rest are year-end data. 2.Figures in brackets denote 2001 year-end or 2001 annual total figures. 3.Taishin International Bank merged with Dah An Commercial Bank on February 18, 2002; and Asia Pacific Bank was renamed Fuhwa Commercial Bank on October 21, Source: Bureau of Monetary Affairs, Ministry of Finance. 61

33 Appendix 3 : Overseas Branches of ROC Financial Institutions by Region and Country Appendix 4 : Local Branches and Representative Offices of Foreign Banks in ROC by Region and Country 62 As of December 31, 2002 Unit: Number Institution Branch Representative Other Outlets Total Region Country Offices Offices Offices U.S.A North America Canada Subtotal Panama Central El Salvador Paraguay America Brazil Subtotal U.K France Europe Netherlands Belgium Poland Subtotal Africa South Africa Japan Thailand Philippines Singapore Hong Kong Macao Asia Indonesia Vietnam As of December 31, 2002 Unit: Number Institution No. of Foreign Banks No. of No. of with Branches Representative Region Country in Taiwan Branches Offices U.S.A North Canada America Subtotal U.K France Germany Europe Netherlands Switzerland Sweden Belgium Subtotal Japan Thailand Asia Philippines Singapore Hong Kong Subtotal Oceania Australia Africa South Africa Total Note:The figures in the table refer to actual number of branches / representative offices in operation. Source: Bureau of Monetary Affairs, Ministry of Finance. 63 Bahrain India Malaysia Cambodia Mainland China Subtotal Australia Oceania Palau Subtotal Total Notes:1.Other outlets refer to overseas subsidiary banks and branches. 2.The overseas branches of the Central Trust of China do not operate as banks and, as such, are not included. Source: Bureau of Monetary Affairs, Ministry of Finance.

34 Appendix 5 : Chronology of Major Events in January 24 The 5th Meeting of the 7th Board of Directors was held. February 27 The 6th Meeting of the 7th Board of Directors was held. March 22 In order to enable financial institutions to have in-depth knowledge and better understanding about the operations of the financial chip card, BAROC sponsored eight seminars on the operational and information aspects of such cards from March 22 to April 19. The business, planning, and information personnel of financial institutions were invited to attend these seminars. March 28 The 7th Meeting of the 7th Board of Directors was held. March 28 The 3rd Meeting of the 7th Board of Supervisors was held. March 28 BAROC sponsored a seminar on "The Salient Points Relating to the Amendment of the Company Law and its Impact on the Banking Sector." April 1 BAROC officially opened its web site for use by its members and the public. April 21 Mr. Chi-chu Chen, Convener, and Mr. Weijong Pan, Secretary of the E- Commerce Division of the General Banking Committee of BAROC attended the first seminar on "The Technical Standard of E-Commerce on Both Sides of the Taiwan Strait" held in Beijing and jointly sponsored by the Institute for Information Industry and the National Information Standardization Technical Committee of mainland China. April 25 The 8th Meeting of the 7th Board of Directors was held. April 26 BAROC sponsored a seminar on "The Impact of Taiwan's Entry into WTO on Industries and the Banking Sector." May 9 BAROC, together with the Environmental Protection Administration of the Executive Yuan, Industrial Bureau of the Ministry of Economic Affairs, and Taiwan Business Council for Sustainable Development, sponsored a seminar on "Sustainable Development and Social Responsibility Investment Fund" at the first conference room on the 10th Floor of the Head Office of the Land Bank of Taiwan. May 10 Chairman Mu-tsai Chen attended the 35th Board of Governors Meeting of the Asian Development Bank held from May 10 to 12 in Shanghai, China. May 16 Mr. J. C. Wang, Deputy Secretary General of BAROC, attended the Annual Meetings of the APEC Business Advisory Council and the Pacific Economic Cooperation Council ( ABAC/ PECC ) on May 16 and 17 in Sydney, Australia. May 30 The 9th Meeting of the 7th Board of Directors was held. May 31 Chairman Mu-tsai Chen attended the "Sino-American Financial Conference" held from May 31 to June 15 in Washington D.C., followed by visits to major financial governing bodies and financial institutions in the United States. May 31 BAROC sponsored a seminar on "The Progress of Economic Integration of the European Union and the Trend of the Euro." June 25 BAROC sponsored a seminar on "Nanometer Technology and its Applications." June 27 The 2nd Joint Meeting of the Boards of Directors and Supervisors was held. July 25 The 10th Meeting of the 7th Board of Directors was held. July 25 BAROC sponsored a seminar on "Financial Asset Securitization" and "Financial White Paper on Financial Holding Company Law". August 15 The 2nd Meeting of the 7th General Assembly was held. August 12 BAROC, together with the Taipei Branch of the Hongkong and Shanghai Banking Corporation, sponsored ten seminars on "How to Differentiate Genuine and Counterfeit Foreign Currency Bills", including six such seminars from August 12 to 14 in Taipei, two such seminars on August 15 in Taichung, and another two such seminars on August 16 in Kaohsiung. August 23 BAROC sponsored a seminar on "The Trends of the U.S. and Japanese Economies as well as the Dollar and Yen." August 28 BAROC sponsored two seminars on "The Functions of the Internet" at its conference room on August 28 and 30. August 29 BAROC sponsored a seminar on "Financial XML Information and Safety Control." August 29 The 11th Meeting of the 7th Board of Directors was held. September 18 BAROC, together with the Institute for Judicial Professionals of the Judicial Yuan,sponsored the first seminar on "The Practices of Major Financial Cases" at the Staff Training Institute of the Bank of Taiwan from September 18 to 19. September 23 BAROC sponsored two rounds of the seminar on "Financial E-Commerce" on September 23 to 25 and October 7 to 9. September 26The 12th Meeting of the 7th Board of Directors was held. September 27BAROC sponsored a seminar on "The New Basel Capital Accord and Risk Management". October 6 In line with the "2002 Presidential Office Open House on Holidays for Charitable Activities" sponsored by MOF, BAROC invited member banks to participate and to sponsor booths. October 14 BAROC invited representatives from the Bureau of Monetary Affairs of the Ministry of Finance and the Council for Economic Planning and Development of the Executive Yuan to visit Seoul, Korea to study financial reforms in that country, with a view to preparing a report on the "Strategies and Achievements of Financial Reforms in Korea". October 31 The 13th Meeting of the 7th Board of Directors was held. October 31 BAROC sponsored a seminar on "Financial XML Foreign Currency Payment Information." November 22 BAROC sponsored a seminar on "The Future Development Trends of Biology Technology and Semi-Conductor Industry". December 5 The 14th Meeting of the 7th Board of Directors was held. December 5 The 4th Meeting of the 7th Board of Supervisors was held. December 26 The 3rd Joint Meeting of the 7th Boards of Directors and Supervisors was held. December 31 BAROC sponsored a seminar on "Financial XML Financial Information." 65