Financial Industry and opportunities facing

Investors

陳欽奇國泰金控 專員國泰證券 經理北科大 兼任講師

2005/10/27

2

Agenda

Source: TEJ, CSFB

Global financials – cycle gets tougher Financials in Asia – year of the thoroughbreds Taiwan banking sector

Global Financials

Cycle gets tougher

4

Global Financials – Continuing Challenges

Industry rating has declined Key Industry Challenges

1. Weaker revenue growth2. Specialisation vs. diversification3. Efficiency4. Consolidation5. Capital efficiency6. Markets and risk

Risk Management, Basle 2

5

Global (G7) Banks de-rating and focused on cash

0

2

4

6

8

10

12

14

16

18

20

Jan-

95

Jul-9

5

Jan-

96

Jul-9

6

Jan-

97

Jul-9

7

Jan-

98

Jul-9

8

Jan-

99

Jul-9

9

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

MSCI G7 Banks Forward PE Linear (MSCI G7 Banks Forward PE)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Jan-

95

Jul-9

5

Jan-

96

Jul-9

6

Jan-

97

Jul-9

7

Jan-

98

Jul-9

8

Jan-

99

Jul-9

9

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

MSCI G7 Banks Dividend Yield

0%

10%

20%

30%

40%

50%

60%

70%

80%

Mar

-01

May

-01

Jul-0

1

Sep-

01

Nov-

01

Jan-

02

Mar

-02

May

-02

Jul-0

2

Sep-

02

Nov-

02

Jan-

03

Mar

-03

May

-03

Jul-0

3

Sep-

03

Nov-

03

Jan-

04

Mar

-04

May

-04

MSCI G7 Banks PE Relative

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Mar

-01

May

-01

Jul-0

1

Sep-

01

Nov-

01

Jan-

02

Mar

-02

May

-02

Jul-0

2

Sep-

02

Nov-

02

Jan-

03

Mar

-03

May

-03

Jul-0

3

Sep-

03

Nov-

03

Jan-

04

Mar

-04

May

-04

MSCI G7 Market Dividend Yield MSCI G7 Banks Dividend Yield

G7 Banks Forward Price-earnings G7 Banks Dividend Yield

G7 Banks PE Relative to market PE G7 Banks dividend yield vs. market dividend yield

Source: Thomson Financial Datastream, MSCI, CSFB Analysis

6

Asia Banks are little differentAsia Banks Forward Price-earnings Asia Banks Dividend Yield

Asia Banks PE Relative to market PE Asia Banks dividend yield vs. market dividend yield

Source: Thomson Financial Datastream, MSCI, CSFB Analysis

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

Jan-

95

Jul-9

5

Jan-

96

Jul-9

6

Jan-

97

Jul-9

7

Jan-

98

Jul-9

8

Jan-

99

Jul-9

9

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

MSCI Asia Banks Forward PE Linear (MSCI Asia Banks Forward PE)

0

0.5

1

1.5

2

2.5

3

Jan-

95

Jul-9

5

Jan-

96

Jul-9

6

Jan-

97

Jul-9

7

Jan-

98

Jul-9

8

Jan-

99

Jul-9

9

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

MSCI Asia Banks Dividend Yield

0%

20%

40%

60%

80%

100%

120%

Mar

-01

May

-01

Jul-0

1

Sep-

01

Nov-

01

Jan-

02

Mar

-02

May

-02

Jul-0

2

Sep-

02

Nov-

02

Jan-

03

Mar

-03

May

-03

Jul-0

3

Sep-

03

Nov-

03

Jan-

04

Mar

-04

May

-04

Jul-0

4

Sep-

04

Nov-

04

MSCI G7 Banks PE Relative MSCI G7 Banks PE Relative

0

0.5

1

1.5

2

2.5

3

Mar

-01

May

-01

Jul-0

1

Sep-

01

Nov-

01

Jan-

02

Mar

-02

May

-02

Jul-0

2

Sep-

02

Nov-

02

Jan-

03

Mar

-03

May

-03

Jul-0

3

Sep-

03

Nov-

03

Jan-

04

Mar

-04

May

-04

MSCI MArket Market Dividend Yield MSCI Asia Banks Dividend Yield

7

Asia banks – no expectations of out-performance

0%

50%

100%

150%

200%

250%

300%

Jan-

95

Jul-9

5

Jan-

96

Jul-9

6

Jan-

97

Jul-9

7

Jan-

98

Jul-9

8

Jan-

99

Jul-9

9

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

MSCI Asia Banks PE Relative to G7 Banks

MSCI Asia Banks PE Relative to G7 Banks

Source: Thomson Financial, MSCI, Company Data, CSFB Analysis

8

Despite sharply improved returns

Asia banks are benefiting from: Credit recoveries Revived loan growth Stable market structure Balance competitive

pressures Diversifying revenues Consumer oriented

growth

ROE Projections 2004-2006 Asia Banks

Source: Company Data, CSFB Analysis

0%

2%

4%

6%

8%

10%

12%

14%

16%

2000 2001 2002 2003 2004 2005 2006

9

Trends Driving Asia’s Growth

Taiwan’s FHC and Banking

Stick with consolidators

11

Number of Financial Institutions in Taiwan

Head Branch Head BranchFHCs 14 14Domestic Banks 47 3,217 50 3,175Local Branches of Foreign Banks 35 68 36 68Credit Cooperatives 30 305 34 337Credit Departments of Farmer's Associations 253 826 253 826Credit Departments of Fishermen's Associations 25 39 25 39Trust and Investment Companies 3 26 3 26Postal Savings System 1 1,320 1 1,322Securities Finance Companies 4 4 4 4Property Insurance Companies 24 174 24 174Life Insurance Companies 29 134 29 135Bills Finance Companies 14 44 14 45

2005.06 2004.06

12

14 FHCs Reorganization M&A happened continuously… Divestitures ? What next… Will Government Policy success?

Taiwan FHC – from 2001/07/09

13

Taiwan banking – consolidation inevitable

0

500

1000

1500

2000

Hong Kong Indonesia Malaysia Korea Singapore Taiwan Thailand Australia China

Deposits Loans

Hirschman Herfindahl Index – Asia Banks

Source: Central Bank Data, CSFB Analysis

HHI = s1^2 + s2^2 + s3^2 + ... + sn^2 (where sn is the market share of the ith firm). 

14

Why stick with acquirers?

Economics favor buyer (supply exceeds demand)

Current valuation BV(P/B) Adjusted BV(P/ABV) Branch Value P/E

Ranking Reuter's code Bank/FHC name Market share1 Not listed Bank of Taiwan 9.2%2 5854.TW Taiwan Cooperative Bank 7.5%3 2886.TW Mega FHC (ICBC + Chiao Tung Bank) 7.0%4 Not listed Land Bank of Taiwan 6.4%5 2892.TW First FHC 5.6%6 2880.TW Hua Nan FHC 5.5%7 2801.TW Chang Hwa Bank 4.9%8 2891.TW Chinatrust FHC 4.5%9 2881.TW Fubon FHC 4.3%10 2834.TW Taiwan Medium Business Bank 3.9%11 2882.TW Cathay FHC 3.5%12 2887.TW Taishin FHC 2.4%13 2822.TW Farmers Bank 2.0%14 2890.TW Sinopac Holdings 1.7%15 2808.TW International Bank of Taipei 1.5%16 Not listed Shanghai Commercial Bank 1.5%17 2807.TW International Bank of Taipei 1.4%18 2884.TW E Sun FHC 1.3%19 2847.TW Ta Chong Bank 1.2%20 Not listed Central Trust of China 1.0%

Top 20 banks in Taiwan

15

Overview of Taiwan banking sector

Source: Banking Bureau of FSC, CSFB

MARKET SHARE DATA

Ranking Total assets Total loans Total deposits Number of branches1 Bank of Taiwan 9.2% Land Bank of Taiwan 8.2% Bank of Taiwan 10.4% Hua Nan FHC 1812 Taiwan Cooperative Bank 7.5% Taiwan Cooperative Bank 8.0% Taiwan Cooperative Bank 8.4% First FHC 1793 Mega FHC 7.0% Bank of Taiwan 7.2% Land Bank 7.0% Taiwan Cooperative Bank 1734 Land Bank of Taiwan 6.4% Mega FHC 6.6% Hua Nan FHC 5.9% Chang Hwa Bank 1675 First FHC 5.6% First FHC 5.9% First FHC 5.8% Bank of Taiwan 1476 Hua Nan FHC 5.5% Hua Nan FHC 5.7% Chang Hwa Bank 5.1% Land Bank of Taiwan 1347 Chang Hwa Bank 4.9% Chang Hwa Bank 5.4% Mega FHC 4.9% Taiwan Business Bank 1248 Chinatrust FHC 4.5% Taiwan Business Bank 4.4% Fubon FHC 4.0% Fubon FHC 1199 Fubon FHC 4.3% Chinatrust FHC 4.4% Chinatrust FHC 3.9% E Sun FHC 114

10 Taiwan Business Bank 3.9% Cathay FHC 3.9% Taiwan Business Bank 3.8% Cathay United bank 107

Ranking Corporate loans SME loans Consumer loans Mortgage1 Bank of Taiwan 9.1% Taiwan Cooperative Bank 19.4% Land Bank of Taiwan 10.3% Land Bank of Taiwan 11.5%2 Mega FHC 8.9% Taiwan Business Bank 12.1% Taiwan Cooperative Bank 8.7% Taiwan Cooperative Bank 8.8%3 Taiwan Cooperative Bank 7.7% Chang Hwa Bank 12.1% Chinatrust FHC 6.5% Chinatrust FHC 6.4%4 Land Bank of Taiwan 6.5% First FHC 8.6% Bank of Taiwan 5.7% First FHC 5.3%5 First FHC 6.3% Hua Nan FHC 6.5% First FHC 5.1% Chang Hwa Bank 5.1%6 Hua Nan FHC 6.1% Land Bank of Taiwan 4.0% Chang Hwa Bank 4.2% Hua Nan FHC 4.8%7 Chang Hwa Bank 5.8% Mega FHC 3.6% Hua Nan FHC 4.2% Cathay FHC 4.7%8 Taiwan Business Bank 5.1% Bank of Taiwan 3.4% Fubon FHC 4.2% Bank of Taiwan 4.6%9 Chinatrust FHC 4.1% Hsin Chu Int'l Bank 2.9% Cathay FHC 4.2% Fubon FHC 4.5%

10 Cathay FHC 3.8% Tainan MBB 2.5% Taishin FHC 4.1% Sinopac Holdings 3.6%

Ranking Credit card debts Other consumer loans* Cash card debts Car loans1 Chinatrust FHC 12.0% Bank of Taiwan 10.6% Cosmos Bank 33.9% Taishin FHC 23.3%2 Taishin FHC 10.8% Cosmos Bank 9.0% Taishin FHC 13.9% Chinatrust FHC 12.7%3 Cathay FHC 10.5% Taiwan Cooperative Bank 8.1% The Chinese Bank 9.2% Jih Sun FHC 11.5%4 Citibank 9.7% Chinatrust FHC 7.2% Chinatrust FHC 6.9% Cathay FHC 8.9%5 Far Eastern Int'l Bank 5.3% Taishin FHC 6.8% Ta Chong Bank 6.2% Far Eastern Int'l Bank 8.6%6 E Sun FHC 5.2% Land Bank of Taiwan 4.8% Union Bank 5.7% Union Bank 7.3%7 Fubon FHC 5.0% First FHC 4.2% Land Bank 3.4% EnTie Bank 6.2%8 Union Bank 5.0% Jih Sun FHC 3.3% Cathay FHC 3.0% Bowa Bank 3.4%9 ABN AMRO 3.9% Fubon FHC 2.7% E Sun FHC 2.9% Fubon FHC 3.3%

10 HSBC 3.0% Mega FHC 2.7% Bowa Bank 2.3% Chinfon Bank 3.1%* Excluding mortgage and credit card

16

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Car loansMortgageCredit card debtsOther consumer loans, cash card loans

49%

44%

12%

9%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

loan growth (to private sector) corporate loan growth consumer loans growth

18%

13%

8%

Earnings cycle recovered Loan growth

Source: FSC, CSFB

Loan growth rebounded post tech bubble and credit crunch

Consumer loan growth remains healthy

Credit Card and Cash Card?

17

Corporate loans61%

Mortgage34%

Credit card debts1%

Other consumerloans4%

Cash card loans0%

Car loans0.4%

Corporate loans52%

Mortgage35%

Car loans1%

Cash card loans2%

Other consumerloans7%

Credit card debts3%

Consumer loans remain growth driver Loan breakdown (as of March 05)

Source: FSC, DGBAS, CSFB

Non-mortgage consumer loans grew quickly to 13% of total loans (6% at end of 1999)

Consumer loans to GDP is rising quickly

Recovery in property prices support robust mortgage growth

Banks are under-taking more risks

• Fast growth in cash card loans

Non-mortgage loans: 13%

Loan breakdown (as of Dec 1999)

Non-mortgage loans: 6%

18

50

60

70

80

90

100

110

120

130

1Q91

1Q92

1Q93

1Q94

1Q95

1Q96

1Q97

1Q98

1Q99

1Q00

1Q01

1Q02

1Q03

1Q04

1Q05

Taipei City Taipei County Taichung City

Kaohsiung City Rest of Taiwan

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep Oct

Nov

Dec

2001 2002 2003 2004 2005

Property prices have peaked and stabilized

Property prices peaked in 4Q05 and were broadly flat in 1Q05

Transaction growth tapered off to 2% YoY in 1Q05 following +23% in 2002; 9% in 2003 (SARS) and 20% in 2004

CSFB expects property prices to stabilize in 2005

Residential property price index

Source: Sinyi Realty; Department of Interior, Taiwan

Transaction volume of residential housing

Taiwan property price index

Taipei CityTaipei

CountyTaichung

CityKaohsiung

CityRest ofTaiwan

WeightedAverage

2Q03 97.05 84.79 62.34 60.48 86.10 78.15 3Q03 100.55 88.56 63.44 60.83 89.00 80.48 4Q03 104.11 90.23 66.38 60.96 91.55 82.65 1Q04 105.61 93.70 67.69 65.48 93.97 85.29 2Q04 108.15 100.03 70.15 68.22 98.52 89.01 3Q04 109.19 104.08 70.74 64.57 99.95 89.71 4Q04 109.61 104.35 71.87 67.34 100.77 90.79

1Q05 109.66 104.39 72.29 68.53 100.78 91.13 QoQ % 0.0% 0.0% 0.6% 1.8% 0.0% 0.4%YoY % 3.8% 11.4% 6.8% 4.7% 7.2% 6.8%% from trough 13.0% 23.1% 16.0% 13.3% 17.0% 16.6%

19

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Jan-

04

Feb-

04

Mar

-04

Apr-0

4

May

-04

Jun-

04

Jul-0

4

Aug-

04

Sep-

04

Oct

-04

Nov-

04

Dec-

04

Jan-

05

Feb-

05

Mar

-05

Charge off ratio* Charge off ratio* (6m lag)Charge off ratio* (12m lag)

0

50

100

150

200

250

300

Jan-

03

Apr-0

3

Jul-0

3

Oct

-03

Jan-

04

Apr-0

4

Jul-0

4

Oct

-04

Jan-

05

NT$bn

0%

20%

40%

60%

80%

100%

120%

Cash card loans YoY growth

0%

5%

10%

15%

20%

25%

30%

35%

Cosmos Bank Taishin FHC Chinatrust FHC The Chinese Bank Union Bank

Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05

Cash card market Cash card loan balance and YoY growth

Source: FSC

Cash card charge off ratio* Market share of top five cash card loans providers

*180-days past due plus charge offs

Cash card loans continued to grow +40%

Taishin Bank has been the most aggressive

Loss ratio for the market is closer to 8-9%

Market will further consolidate – large players have advantage

20

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Chinatrust Taishin Citibank Cathay Union Bank

2004/10 2004/11 2004/12 2005/01 2005/02

0

100

200

300

400

500

600

Jan-99

Jul-99

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

NT$bn

0%

10%

20%

30%

40%

50%

60%

Credit card revolving balance YoY growth (RHS)

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05

Delinquency Ratio (90 days past due)

Credit card market Credit card revolving balance and YoY growth

Source: FSC

Credit card delinquency ratio

Market share of top five credit card players – by revolving debts

Growth has moderated but maintains at 15-20%

Net charge off ratio for top players are around 3-4%

Market structure is relatively stable

21

Significant Growth Opportunity

22

Credit crunch threat becoming real…?

23

1.50%

1.75%

2.00%

2.25%

2.50%

2.75%

3.00%

3.25%

3.50%

3.75%

4.00%

Jan-

91Ju

l-91

Jan-

92Ju

l-92

Jan-

93Ju

l-93

Jan-

94Ju

l-94

Jan-

95Ju

l-95

Jan-

96Ju

l-96

Jan-

97Ju

l-97

Jan-

98Ju

l-98

Jan-

99Ju

l-99

Jan-

00Ju

l-00

Jan-

01Ju

l-01

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Margin: muted rate hikes cap expansion

Net interest spread at domestic banks

Source: FSC, CSFB

Interest rate hikes have been muted (37.5 bps in 4Q04)

Strong NTD delays rate hikes

Competition remains fierce

Interest spread remains low

24

-10%

-5%

0%

5%

10%

15%

20%

25%

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Deposit growth (yoy) Loan growth (yoy)

30%

40%

50%

60%

70%

80%

90%

100%

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Margin: muted rate hikes cap expansionTaiwan banking system loan to deposit ratio

Source: FSC, CSFB

System loan to deposit ratio has stabilize

Deposit growth has been managed down due to aggressive sale of deposit substitute products (mutual funds, investment link life policies, etc)

Loan mix changes have so far been the key margin driver

Loan growth vs. deposit growth

25

Loan growth and NIM changes 1Q05 loan growth of major banks

Source: FSC, CSFB

1Q05 loan growth Private sector banks tend to

do better Consumer loans grew

stronger than corporate loans for most banks

1Q05 margin Changes in NIM is mostly a

function of changes in loan mix

General pressure persist to lift margin

Interest rate movement remains the key driver

NIM change from 1Q05 to 2004

-4%

-2%

0%

2%

4%

6%

8%

10%

Cathay

United

Bank

Taipei

Fubon

Bank

Chinatrust

Bank

Bank

Sinopac

Taishin

Bank

E Sun

Bank

Hua Nan

Bank

First Bank Mega

Corporate loan grow th Consumer loan grow th Total loan grow th

-30

-20

-10

0

10

20

30

40

CathayUnitedBank

TaipeiFubonBank

ChinatrustBank

BankSinopac

TaishinBank

E SunBank

Hua NanBank

First Bank Mega

(basis

poin

ts)

26

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

-10%

0%

10%

20%

30%

40%

50%

60%

Net fee income as % of total income Net fee income growth (RHS)

Non interest income: fee income

Net fee income as % of total income

Source: TEJ, CSFB

Wealth management initiatives led to strong fee income growth (+52% in 2004)

Low interest rates helped

Growth could moderate (consumer fatigue)

Fee income growth could vary greatly among banks

27

0%

5%

10%

15%

20%

25%

30%

35%

Mar-02

Jun-02

Sep-02

Dec-02

Mar-03

Jun-03

Sep-03

Dec-03

Mar-04

Jun-04

Sep-04

Dec-04

Mar-05

NPL ratio- 90 days Coverage ratio

Earnings drivers – credit loss

NPL ratio vs. coverage ratio

Source: TEJ, CSFB

Asset quality has normalized Provision charge fell to 100bps

of loans in 2004 Coverage ratio for the sector

remains low Credit loss will vary greatly

among banks0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

12

/97

03

/98

06

/98

09

/98

12

/98

03

/99

06

/99

09

/99

12

/99

03

/00

06

/00

09

/00

12

/00

03

/01

06

/01

09

/01

12

/01

03

/02

06

/02

09

/02

12

/02

03

/03

06

/03

09

/03

12

/03

03

/04

06

/04

09

/04

12

/04

NPL ratio - 180 days NPL ratio - 90 days

3.80%

2.78%

NPL ratios

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Provision charge to gross loans

28

0%

10%

20%

30%

40%

50%

60%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005E

Mortgage to GDP Consumer loans ex mortgage to GDP

0%

3%

5%

8%

10%

13%

15%

18%

20%

23%

25%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005E

Debt servicing ratio Household personal savings rate

Consumer loans: rising credit risk Consumer loans to GDP

Source: DGBAS, CSFB

Consumer loans to GDP likely to reach 57% by end of 2005

Non-mortgage consumer loans grew to 17% of GDP

CSFB estimates debts servicing could rise to 15% of disposable income in 2005

Regulators have stepped in to preempt systemic risk

Credit loss should rise

29

0%

10%

20%

30%

40%

50%

60%

CathayUnited Bank

TaipeiFubon Bank

ChinatrustBank

BankSinopac

TaishinBank

E Sun Bank Hua NanBank

First Bank Mega (ICBC+ CTB)

2003 2004 1Q05

0%

10%

20%

30%

40%

50%

60%

70%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

0%

5%

10%

15%

20%

25%

Cost to income ratio Expense growth

Operating efficiencyIndustry expense growth and efficiency ratio

Cost to income ratio comparison

Source: TEJ, CSFB

Bank has managed expense growth reasonably well

Reduction of business tax in late 90’s helped

Bank reorganization affects cost structure (rising variable cost to link to top line growth)

Cost to income ratio post a gradual downward trend

30

Goals of Taiwan’s FIs Restructure

First Stage:In 2 years,NPL Ratio<5%,BIS Ratio>8% Second Stage: Developing at least three financial institutions with over 10% of

market shares by the end of 2005. Halving the number of banks with government ownership from

12 to 6 by the end of 2005. Encouraging M&As to reduce the number of FHCs from 14 to 7. Having at least one financial institution either managed by

foreign institutions or listed in overseas markets by the end of 2006.

Investment options:three pillars

Quality,Scope and Scale

32

Quality

NPL Ratio : <2.5% Coverage Ratio : >40% Profit +

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

90 91Q191Q291Q3 91 92Q192Q292Q3 92 93Q193Q293Q3 93 94Q194Q2

0.00 %

2.00 %

4.00 %

6.00 %

8.00 %

10.00 %

12.00 %

14.00 %

廣義逾期放款逾放比

6.19

3.60

-6.93

3.52

10.30 10.36

0.48 0.27 -0.480.22 0.63 0.66

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

89 90 91 92 93 94H1

ROA

ROE

Coverage Ratio

13.6%17.2%

22.7%

30.3%33.7%

0.0%5.0%

10.0%15.0%20.0%25.0%30.0%35.0%40.0%

90 91 92 93 94H1

33

Scope

Business Bank Insurance Security Others…

Revenues Interest Fee Investment

34

Scale

Market Share Asset Product Branch Acquirer or Target ?

單位：%，百萬元 廣義逾放比 廣義呆帳覆蓋率 手續費收入佔營業收入比 資產規模市佔率 分行數建華商業銀行 1.00% 41.82% 9.39% 1.77% 45

玉山商業銀行 1.04% 58.32% 12.04% 1.75% 89

中國國際商業銀行 1.10% 119.66% 11.59% 4.29% 76

台新國際商業銀行 1.11% 64.84% 16.26% 3.07% 101

中國信託商業銀行 1.33% 83.67% 24.59% 5.24% 109

上海商業儲蓄銀行 1.42% 111.83% 15.31% 1.65% 56

國泰世華商業銀行 1.50% 64.72% 13.21% 4.07% 108

高雄銀行 1.76% 37.71% 6.67% 0.59% 36

台北國際商業銀行 1.80% 28.20% 18.61% 1.64% 84

臺灣銀行 1.82% 44.60% 3.73% 9.76% 149

第一商業銀行 2.18% 42.20% 8.11% 6.08% 180

華泰商業銀行 2.33% 52.51% 10.90% 0.33% 30

遠東國際商業銀行 2.41% 44.32% 19.16% 1.02% 36

臺灣新光商業銀行 2.46% 44.57% 7.84% 0.35% 28

陽信商業銀行 2.57% 38.96% 10.23% 0.71% 61

華南商業銀行 2.68% 32.47% 8.65% 6.12% 182

新竹國際商業銀行 2.70% 51.06% 14.78% 1.60% 83

交通銀行 2.77% 32.78% 5.57% 2.42% 31

台北富邦銀行 2.79% 33.29% 21.65% 4.16% 121

第七商業銀行 2.86% 32.31% 2.34% 0.35% 32

中央信託局 3.00% 51.99% 11.57% 1.00% 22

安泰商業銀行 3.22% 32.59% 13.17% 1.18% 53

復華商業銀行 3.46% 30.97% 16.92% 1.14% 50

三信商業銀行 3.58% 32.35% 15.12% 0.32% 18

聯邦商業銀行 3.77% 28.14% 14.83% 1.17% 74

誠泰商業銀行 4.01% 20.03% 14.62% 0.94% 80

萬泰商業銀行 4.26% 18.80% 9.11% 0.99% 63

臺灣土地銀行 4.30% 27.34% 5.93% 7.05% 135

大眾商業銀行 4.33% 16.97% 13.87% 1.26% 53

合作金庫銀行 4.50% 28.22% 4.98% 7.84% 172

板信商業銀行 5.21% 30.27% 9.16% 0.63% 46

臺灣中小企業銀行 5.28% 19.42% 5.74% 4.13% 125

臺南區中小企業銀行 5.45% 16.50% 13.46% 0.57% 63

中國農民銀行 5.63% 10.43% 4.94% 2.31% 106

高新商業銀行 5.99% 14.75% 3.66% 0.20% 34

臺中商業銀行 6.01% 23.81% 8.28% 0.98% 79

日盛國際商業銀行 6.37% 17.48% 13.65% 1.15% 34

華僑商業銀行 6.64% 19.18% 13.66% 1.01% 55

彰化商業銀行 7.67% 16.87% 6.28% 5.01% 169

中華商業銀行 8.73% 13.03% 13.35% 0.87% 36

臺東區中小企業銀行 14.46% 34.85% 18.60% 0.24% 31

慶豐商業銀行 17.08% 13.33% 14.84% 0.62% 34

寶華商業銀行 23.43% 17.43% 9.81% 0.77% 39

花蓮區中小企業銀行 29.64% 24.58% 0.91% 0.15% 30

35

Branch Value

-600

-400

-200

-

200

400

600

800

1,000

1,200

1,400

(100)

0

100

200

300

400

500

富邦

中信銀

國泰世華

中銀

台新

遠東

中信局

上海

萬泰

建華

慶豐

臺銀

日盛

華南

玉山

第一

土銀

彰化

北銀

華僑

復華

臺企

竹商銀

北商銀

安泰

大眾

誠泰

東企

聯邦

農銀

合庫

南企

板信

寶華

中商銀

高銀

三信

陽信

華泰

新光

第七

高新

花企

中華

平均值 =141.28平均值 =96.44每分行提存前稅前淨利 每分行淨利息及淨手續費

調整後淨值 /分行家數

36

Fundamental strategic thinking A bank is a ‘leveraged’ play on the underlying economy,

therefore the key challenge is to: Select the better performing economies Attract the most valuable clients in our chosen economies Aims to produce a blend of earnings from: Developed mature-growth economies Developing higher-growth economies (considered on a risk-

adjusted basis) Leveraging internationality provides revenue generating

and cost saving opportunities Leveraging through our local presence the increasing trade and

other links between developed and developing economies

37

Conclusion

Global financials are facing tougher cycle Strong will get stronger regionally Bought growth and organic growth Taiwan banking offer growth opportunities through M&A Investment options:three pillars