Ministry of Finance Taiwan Financial Services Conference Investor

Ministry of Finance Taiwan Financial Services Conference Investor Presentation March 2005

ACHIEVEMENTS IN THE BANKING SECTOR 1 Decrease in Total Number of Banks 3 2 Reduction in System NPL Ratio 1 Increase in Profitability (Pre-tax ROAE) 1. Broad-based NPL consistent with international NPL definition 2

TAIWAN BANKING MARKET RANKS THIRD IN ASIA (excluding Japan) 2003 Total Banking System Assets (US$ bn) China 3, 290 Hong Kong Taiwan South Korea India Malaysia Singapore Thailand Indonesia Philippines 3

BANKING SECTOR: IMPROVEMENT & RECOVERY Total Loan Assets* Banking Sector NPL Ratio** USD billion 1998 1999 2000 01 02 (%) 03 04*** 1998 1999 2000 01 02 03 04*** *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 4

BANKS IN TAIWAN Wholly Government Owned (4) 1. Bank of Taiwan Government Affiliated (9) 20%≤Gov’t Ownership <100%: 2. Central Trust 1. Bank of Kaohsiung 3. Export-Import Bank 2. Chang Hwa Bank 4. Land Bank of Taiwan 3. Farmers Bank 4. First 5. Hua Nan 6. Mega (CTB + ICBC) 7. Taiwan Business Bank 8. Taiwan Cooperative Gov’t Ownership < 20%: 1. Bank of Overseas Chinese Private Banks (34) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. Bank of Panshin Bank Sino. Pac Bowa Bank Cathay United CDIB Chinatrust Chinese Bank Chinfon Bank Chung Shing Bank Cosmos Bank Cota Bank Enterprise Bank of Hualien En. Tie Bank E Sun FEIB Fubon Taipei Bank Fuh Hwa Bank 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. Hsinchu International Hwa Tai Bank IBT Industrial Bk of Taiwan Jih Sun Bank Kao Shing Commercial Bank Lucky Bank Macoto Bank Shanghai Commercial Shin Kong Bank Sunny Bank Ta Chong Taichung Commercial Tainan Business Bank Taishin Taitung Business Bk Union Bank 5

GOVERNMENT BANKS DOMINATE MARKET SHARE Banking Assets by Category Private 40. 8% Top 10 Banks Ranked by Share of Total Assets Government Affiliated 40. 3% Wholly Government Owned 18. 9% Source: CBC (September 30, 2004) 6

PRIVATE BANKS MORE PROFITABLE LEADING BANKS BY NET INCOME & NET INCOME SHARE Government-affiliated bank Private bank Source: CBC (September 30, 2004) 7

BANKING SECTOR REMAINS FRAGMENTED Top Five Banks by Market Share (%) Number of Bank Branches per 10, 000 People Over 400 financial institutions in Taiwan Mean 60% Mean 1. 95 *Note: All data shown in bar graphs above are for 2003 8

TAIWAN IS WORLD LEADER IN OTHER INDUSTRIES KEY CONGLOMERATES BY INDUSTRY SECTOR Foundry TFT Petrochemical TSMC UMC Formosa Au Optronics Chi Mei EMS Hardware ODM Hon Hai Semiconductor Testing & Packaging Asustek Quanta ASE SPIL Steel China Steel Footwear Pou Chen 9

KEEPING PACE WITH REGIONAL COUNTERPARTS Top 20 Banks in Non-Japan Asia by Market Capitalization 1 (US$ million) Taiwan Financial Institutions Only 1 Taiwan bank in Top 10 Only 4 Taiwan banks in Top 20 1. As of February 15, 2005. 10

BUILDING BLOCKS: BOLSTERING COMPETITIVENESS Financial Sector Reform Financial Sector Privatization Enhancing Sector Competitiveness Financial Sector Consolidation Encouraging consolidation through policy change Increasing competitiveness through conducive regulation Creating sector transparency through foreign investment 11

CREATING NATIONAL CHAMPIONS World-standard Management to Fuel Performance Improvements Vision for the Future National Champion Finish Line Improve Profitability Increase Size & Scale Start 兆豐金融集團 Mega Holding Group 12

STEPPING STONES: PRIVATIZATION OF GOVERNMENT BANKS 50% - 20% 100% - 50% Part 1 20% Part 2 Part 3 n Bank of Taiwan n Chang Hwa Bank n n Land Bank of Taiwan n n Central Trust of China Farmers Bank of China Bank of Overseas Chinese n Taiwan Development and Trust Corporation n Taiwan Coop Bank n Taiwan Business Bank n First FHC n Hua Nan FHC n Mega FHC 13

PROGRESS: REFORM ACTIVITY Chang Hwa Bank Private placement to foreign investors Bank of Overseas Chinese Transfer of majority ownership from government to the private sector Taiwan Development and Trust Sale of core banking assets to another bank Taiwan Cooperative Bank Listed on Taiwan Stock Exchange & prepare for privatization in 1 Q/05 14

POTENTIAL MODELS FOR CONSOLIDATION 1 Government-Related Bank 2 Government-Related Bank 3 Government-Related Bank 4 Government-Related Bank + + Government-Related Bank Private Bank Foreign Investors + Foreign Investors 15

FOREIGN INVESTMENT STRUCTURES n Sale (control stake vs. minority stake) n Joint venture n Strategic investment n Financial investment 16

Conclusions

Questions & Answers