Taiwan Banking Trends Time to Change Gears? Financial Services Ratings Mei Chiang Director Financial Services Ratings Taiwan Ratings Corp.

Changes in Taiwan’s financial architecture have been proceeding in a gradual fashion.

Improving Asset Quality

Improving Asset Quality

Improving Asset Quality

Rebuilding Capitalization

Pressured Profitability

Although Taiwan’s banking sector has made a good recovery from its NPL woes, the changes made have not been a radical break from the past.

Industry Structure Still Fragmented Major M&As Market share Acquirer Acquired Pre Post 06/04 Feb. 2002 Taishin Int'l Bank Dah An Bank 1.4% 2.3% 2.7% Oct. 2003 UWCCB Cathay United Bank 2.9% 3.6% 3.7% Dec. 2003 Chinatrust Bank Grand Bank 3.8% 4.5% 4.9% Sept. 2004 E.Sun Bank Kaohsiung BB 1.5% 1.7%

Industry Structure Still Fragmented

Industry Structure still Fragmented

Emergence of FHCs

Gradual pace of change set to move up a gear following the recent announcement of the launch of the second stage of financial reform.

Second Stage Financial Reform Targets By the end of 2005 Three financial institutions reach to have individual market shares of 10% Number of government owned banks to be reduced to 6 By the end of 2006 Number of FHCs to be reduced to 7 To have at least one domestic financial institution operated by a foreign entity or listed overseas

Taiwan Ratings Corp. http://www.taiwanratings.com Established in 1997 Major shareholders: S&P,TSEC,JCIC Current published ratings: Financial institutions: 76 Corporations: 34 Bond funds: 27 Structured finance: 9 Issues: NT$ 1.2 trillion