Ministry of Finance

Taiwan Financial Services ConferenceInvestor Presentation

March 2005

2

ACHIEVEMENTS IN THE BANKING SECTOR

Decrease in Total Number of Banks Reduction in System NPL Ratio1

5352

5049

2001 2002 2003 3Q2004

11.3%

8.9%

6.1%4.5%

2001 2002 2003 3Q2004

Increase in Profitability (Pre-tax ROAE)

5.5%

(5.1)%

6.5%9.7%

2001 2002 2003 3Q2004

1 2

3

1. Broad-based NPL consistent with international NPL definition

3

TAIWAN BANKING MARKET RANKS THIRD IN ASIA(excluding Japan)

2003 Total Banking System Assets (US$ bn)

China

Hong Kong

South Korea

India

Singapore

Malaysia

Thailand

Indonesia

Taiwan

Philippines

215

373

739

743

832

213

172

126

66

3,290

4

BANKING SECTOR: IMPROVEMENT & RECOVERY

*Based on exchange rate of US$1=NT$33**Domestic banks only***First 9 months; before 2001 NPL ratio is in narrow base – not include surveillance loans

Source: Bureau of Monetary Affairs, Central Bank

Total Loan Assets*USD billion

Banking Sector NPL Ratio**(%)

1998 1999 2000 01 02 03 04***

358

403430 421 414

434460

4.404.88

5.34

11.30

8.90

6.10

4.50

1998 1999 2000 01 02 03 04***

5

BANKS IN TAIWAN

Private Banks (34)Wholly Government

Owned (4)

1. Bank of Taiwan

2. Central Trust

3. Export-Import Bank

4. Land Bank of Taiwan

Government Affiliated (9)

1. Bank of Kaohsiung

2. Chang Hwa Bank

3. Farmers Bank

4. First

5. Hua Nan

6. Mega (CTB + ICBC)

7. Taiwan Business Bank

8. Taiwan Cooperative

20%≤Gov’t Ownership <100%:

Gov’t Ownership < 20%:

1. Bank of Overseas Chinese

18. Hsinchu International19. Hwa Tai Bank20. IBT21. Industrial Bk of Taiwan22. Jih Sun Bank23. Kao Shing Commercial

Bank24. Lucky Bank25. Macoto Bank26. Shanghai Commercial27. Shin Kong Bank28. Sunny Bank29. Ta Chong30. Taichung Commercial 31. Tainan Business Bank32. Taishin33. Taitung Business Bk34. Union Bank

Bank of PanshinBank SinoPacBowa BankCathay UnitedCDIBChinatrustChinese Bank Chinfon BankChung Shing BankCosmos BankCota BankEnterprise Bank of HualienEnTie Bank E SunFEIBFubon Taipei BankFuh Hwa Bank

1.2.3.4.5.6.7.8.9.

10.11.12.

13.14.15.16.17.

6

7.2%

10.3%

8.1%

6.7%6.1% 6.1%

5.3%

4.1%5.1%

4.1%

Ban

k of

Tai

wan

Tai

wan

Coo

pera

tive

Land

Ban

k of

Tai

wan

CT

B +

ICB

C

Hua

Nan

Firs

t Com

mer

cial

Cha

ng H

wa

Chi

nast

rust

Tai

pei F

ubon

Ban

k

Tai

wan

bus

ines

s B

ank

Wholly Government Owned Government AffiliatedPrivate

GOVERNMENT BANKS DOMINATE MARKET SHARE

Source: CBC (September 30, 2004)

Government Affiliated

40.3%

Wholly Government

Owned18.9%

Private40.8%

Banking Assets by CategoryTop 10 Banks

Ranked by Share of Total Assets

7

PRIVATE BANKS MORE PROFITABLE

Source: CBC (September 30, 2004)

11.53 11.05 10.74

9.09

7.57 7.49 7.316.57

4.95

3.36 2.91 2.47 2.38 2.311.72

0

3

6

9

12

15

Chinatrust Cathay ICBC +ChiaoTung

Bank ofTaiw an

Taishin Hua Nan FirstComm.

Fubon +Taipei

E. SunCom.

Shanghai Sinopac FarEastern

Intl. Bankof Taipei

LandBank

HsinchuInt'l Bank

Net

incom

e (%

)

Private bank

Government-affiliated bank

LEADING BANKS BY NET INCOME & NET INCOME SHARE

8

BANKING SECTOR REMAINS FRAGMENTED

Top Five Banks by Market Share (%)Number of Bank Branches

per 10,000 People

36

29

38

50

54

56

90

81

75

74

66

59

Sweden

UK

Portugal

Switzerland

Austria

Spain

Hong Kong

Korea

Japan

Taiwan

Italy

Germany1.0

1.3

3.4

2.4

2.0

2.0

1.9

1.6

Taipei

Kuala Lumpur

Chicago

Seoul

Hong Kong

Sydney

New York

Tokyo

Mean 60% Mean 1.95

Over 400 financial

institutions in Taiwan

*Note: All data shown in bar graphs above are for 2003

9

TAIWAN IS WORLD LEADER IN OTHER INDUSTRIES

KEY CONGLOMERATES BY INDUSTRY SECTOR

Foundry

TSMCUMC

Petrochemical

Formosa

EMS

Hon Hai

TFT

Au OptronicsChi Mei

ASESPIL

SemiconductorTesting & Packaging

Hardware ODM

AsustekQuanta

Steel

China Steel

Footwear

Pou Chen

10

KEEPING PACE WITH REGIONAL COUNTERPARTS

Top 20 Banks in Non-Japan Asia by Market Capitalization1 (US$ million)

8,581 7,948 7,696 7,594 6,891 6,875 6,437 5,665 5,620 5,152

14,84915,00416,63919,791

25,983

189,794

13,404 12,02111,048 8,676

HS

BC

Hol

ding

Han

g S

eng

Ban

k

BO

C H

K H

oldi

ngs

Cat

hay

FH

C

Koo

kmin

Ban

k

DB

S G

roup

UO

B

Mal

ayan

Ban

king

Ove

rsea

s C

hine

se B

anki

ng

Shi

nhan

Fin

anci

al G

roup

Fub

on F

HC

Sta

te B

ank

of I

ndia

Meg

a F

HC

Woo

ri F

inan

cial

Hol

ding

s

Pub

lic B

ank

Chi

natr

ust

FH

C

ICIC

I B

ank

Kor

ea E

xcha

nge

Ban

k

Ban

gkok

Ban

k

Han

a B

ank

Only 1 Taiwan bank in Top 10

Only 4 Taiwan banks in Top 20

1. As of February 15, 2005.

Taiwan Financial Institutions

11

BUILDING BLOCKS:BOLSTERING COMPETITIVENESS

Financial Sector PrivatizationFinancial Sector Privatization

Financial Sector ReformFinancial Sector Reform

Financial Sector ConsolidationFinancial Sector Consolidation

Enhancing Sector

Competitiveness

Enhancing Sector

Competitiveness

Encouraging consolidation through policy changeEncouraging consolidation through policy change

Increasing competitiveness through conducive regulationIncreasing competitiveness through conducive regulation

Creating sector transparency through foreign investmentCreating sector transparency through foreign investment

12

CREATING NATIONAL CHAMPIONS

World-standard Management to Fuel Performance Improvements

Vision for the Future

0

50

100

150

200

250

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

TWSE Banking & Insurance IndexComposite of Leading Private BanksComposite of Leading Government Banks

兆豐金融集團Mega Holding Group

National Champion

Improve Profitability

Increase Size & Scale

Start

Finish Line

13

STEPPING STONES:PRIVATIZATION OF GOVERNMENT BANKS

Bank of Taiwan

Land Bank of Taiwan

Central Trust of China

Taiwan Coop Bank

Chang Hwa Bank

Farmers Bank of China

Taiwan Business Bank

First FHC

Hua Nan FHC

Mega FHC

Bank of Overseas Chinese

Taiwan Development and Trust Corporation

Part 1 Part 2 Part 3

100% - 50% 50% - 20% 20%

14

PROGRESS: REFORM ACTIVITY

Bank of Overseas Chinese

Bank of Overseas Chinese

Chang Hwa Bank

Chang Hwa Bank

Taiwan Development and

Trust

Taiwan Development and

Trust

Transfer of majority ownership from government to the private sector

Transfer of majority ownership from government to the private sector

Private placement to foreign investorsPrivate placement to foreign investors

Sale of core banking assets to another bankSale of core banking assets to another bank

Taiwan Cooperative Bank

Taiwan Cooperative Bank

Listed on Taiwan Stock Exchange & prepare for privatization in 1Q/05

Listed on Taiwan Stock Exchange & prepare for privatization in 1Q/05

15

POTENTIAL MODELS FOR CONSOLIDATION

Government-Related Bank11 Government-Related Bank

Government-Related Bank22 Private Bank Private Bank

Government-Related Bank33 Foreign InvestorsForeign Investors

Government-Related Bank

44 Private BankPrivate Bank Foreign InvestorsForeign Investors

+

+

+

+ +

16

FOREIGN INVESTMENT STRUCTURES

Sale (control stake vs. minority stake)

Joint venture

Strategic investment

Financial investment

Conclusions

Questions & Answers