Page 1

LOOKING FORWARD WITH VISION, CLARITY AND CARE

Chinatrust Financial nan nc Holding ding i Co., Ltd Ltd. td. d

ANNUAL REPORT 2007


Chinatrust Financial Holding Co., Ltd.

Financial Highlights

01

Letter to Shareholders

02

Company ProďŹ le

10

The Organization

22

Business Overview

30

Social Responsibility

46

Financial Report

50

Special Notes

62


Financial Hightlights

In millions, except per share date

2007 Consolidated

2006 Consolidated

NT$

USD

NT$

USD

(Loss) Income before Income Tax

(14,758)

(453)

20,541

625

Net (loss) Income

(10,200)

(313)

16,120

491

1,706,521

52,354

1,714,591

52,195

123,318

3,783

145,597

4,432

Earnings per share-before income tax

(2.02)

(0.06)

2.83

0.09

Earnings per share-after income tax

(1.46)

(0.04)

2.20

0.07

11.513

0.35

14.814

0.45

ITEM븋 FOR THE YEAR

AT THE YEAR END Total Assets Stockholders' Equity

PER SHARE

Stockholders' Equity per Share-common stock

Group Capital Adequacy Ratio

121.11%

139.44%

Return on Equity-after income tax

(11.82%)

15.88%

Return on Assets-after income tax

0.68%

1.02%

1. U.S. Dollars amounts are converted at the prevailing exchange rate on Dec.31, 2006 of NT $32.596=US$1 2. U.S. Dollars amounts are converted at the prevailing exchange rate on Dec.31, 2005 of NT $32.850=US$1 3. (123,317,876-30,000,000-1,432,290)/7,986,083 4. (145,597,270-40,000,000-612,000-8,630)/7,090,749

This annual report is a simpliďŹ ed version of its full conrent. Please referthe annual report in Chinese or visit our website at www.chinatrust.com.tw for complete discourse required by the regulations.

1


L e t t e r To S h a r e h o l d e r s

In 2006, the global economy was challenged by hikes in crude oil prices and interest rates, yet at the same time witnessed a booming European economy and robust growth in China and other emerging markets. Forecasts by leading international institutions, such as GII, IMF, EIU, and the United Nations in August, September, and October, revealed that the global economic outlook for 2006 was reviving, with a growth range of about 3.8 to 5.1 percent. Meanwhile, due to continued relaxed monetary policies in many countries, there was an abundance of liquidity, which led to rising prices in financial stocks, bonds, raw materials and real estates and therefore making global financial assets market prosperous. Unfortunately, the situation in Taiwan’s financial industry was not as positive. Taiwanese banks went through a period of cutthroat competition a few years ago, which forced them to adopt more lenient loan policies. The inevitable result was significant damage to financial institutions, particularly because of the “dual card crisis” in 2006. In turn, banks adopted increasingly stringent policies for granting unsecured loans. In an attempt to solve the insolvency problem caused by over-extended credit, Taiwanese government developed an “Interbank Debt Relief Program” to address these liabilities, which gradually helped bring the consumer credit crisis under control. On the other hand, banks committed themselves to writing off bad debts and improving asset quality, which helped move Taiwan’s consumer finance market closer to normalization. Faced with such a competitive marketplace, Chinatrust has adopted a bank-centric strategy, featuring an innovative range of financial products and services that are more customeroriented. Attributed to the concerted efforts of its management and entire staff, Chinatrust Financial Holding Co., Ltd. (CFHC), as in the past, has been able to continuously grow shareholder value. Although it reported the first loss in company history in 2006, as a result of the consumer credit crisis, the bank persevered with the strategies of “Strengthening Asset Quality”, and “Diversifying Profit Sources”. Through it all, CFHC managed to achieve a remarkable performance both in corporate banking as well as in wealth management, while making vast improvements in unsecured loans asset quality. All of these have cemented a stronger foundation for CFHC, and paved the way for a brighter future.

2


Adjusting profit sources, diversifying operating risk Taiwanese corporations have increasingly tried to develop their business in overseas markets over the past few years. Overbanking in Taiwan and an over-supply of funds led to reduced profits from the domestic corporate loans sector. To cope with the rapidly changing economic climate, Chinatrust Commercial Bank (CTCB), a subsidiary of the CFHC, embarked on an aggressive project several years ago to diversify its financial undertakings. CTCB tried to reduce its dependence on the lending business by generating additional fee income. Meanwhile, it made a concerted effort to diversify its operating risks in the hope of delivering investment returns for shareholders amidst a challenging financial industry stry climate with tough competition. In corporate banking services, CTCB took advantage of its ts enormous customer base to boost its Cross-Sell Ratio. It started to build ld closer tie with its customers through more comprehensive financial services, ervices, and augment its revenue from sources other than loans to achieve eve a win-win payoff. Attributed to this foresight and strategy, CTCB produced uced d strong non-spread income in 2006; virtually triple the spead ng income. Moreover, CTCB remained the leader in the factoring and syndication businesses. In the years ahead, CTCB will continue to offer a variety of products and focus on “Customer-Oriented” services. er When it comes to retail banking, CTCB remains the leader in Taiwan. It has been awarded the ultimate accolade of “Taiwan’s Best Private Bank” by “Euromoney” for three consecutive years (2004, 2005, and 2006). This honor is further evidence of how much clients and the market have approved of and supported CTCB’s wealth management services. CTCB has also launched its “Financial Advisory System” in 2006, which offered one of the most ents. analytical and effective asset allocation services to its VIP clients.

3


Over the past twenty-two years, through the “Light up a Life” fund-raising charity campaign, the foundation has contributed to 28 social welfare organizations. With over $480 million raised for charity so far, Chinatrust Charity Foundation has helped put a smile on the faces of nearly 80,000 children. In 2006, Chinatrust Commercial Bank won the bid to run Taiwan’s official public lottery. CTCB has pledged to contribute NT$2 billion to the government every year to run this public welfare program. The public lottery business offers thousands of job opportunities to underprivileged people island-wide. Today, the lottery business is run through over 5,000 computerized outlets and more than 12,000 traditional and instant lottery outlets.

Growing earnings, creating sharholder value and aiming to be a top-notch international financial institution Chinatrust will focus on the following areas in 2007: Cultivate company culture and create value to customers. Improve asset quality and implement risk-based pricing policies. Expand presence in Greater China and accelerate overseas business expansion. Enhance brand value and strengthen corporate governance. Fulfill corporate responsibilities by showing greater support to underprivileged citizens. CFHC is committed to lead the industry by best practices and capture opportunities from new businesses and markets. Starting from the strength of our home base in Taiwan, Chinatrust will continue to penetrate into the Greater China region, expand in Asia, and extend its network on the globe. Through our dedication and unyielding efforts, we envisage a worldclass brand for Chinatrust and create sustainable value for shareholders.

Jeffrey L.S. Koo Chairman

6


7


L e t t e r To S h a r e h o l d e r s

Chinatrust Financial Holding Company Chinatrust Financial Holding Company (hereafter “the Company” or “CFHC”) was founded on May 17, 2002 to provide integrated services to its customers and to establish an international and multi-faceted financial entity. With Chinatrust Commercial Bank (CTCB) as the flagship organization, Chinatrust Securities Company (Chinatrust Securities) and Chinatrust Insurance Brokers Company (Chinatrust Insurance) were amalgamated into a single new organization in the initial phase. Subsequently, other subsidiaries of CFHC, Chinatrust Venture Capital Corp. (Chinatrust VC), Chinatrust Asset Management Company (Chinatrust Asset), Chinatrust Bills Finance Corporation (Chinatrust Bills), Chinatrust Security Company (Chinatrust Security), and the Taiwan Lottery Corporation (TLC), were also included within the Company. The business activities of member companies are classified into three major categories, namely retail banking, consumer finance, and institutional banking. This integrated matrix structure, comprising both divisions and subsidiaries, will enable resource sharing and cross selling among each unit. It will also ensure the provision of multi-faceted finacial services to customers. also ensure the provision of multi-faceted financial services to customers. The main objectives of CFHC include the following: To establish CFHC as the leading and most trustworthy financial institution. To provide the most comprehensive and one-stop financial services that lead to complete customer satisfaction. To be the leader and pioneer in providing new financial products and solutions, and serve as a bellwether in the financial sector. To be the best run Chinese financial institution in the world. Chinatrust Financial Holding Company will continue to uphold its tenet “to maximize value for its shareholders”. The company will map out its strategic business plans, strengthen its competitiveness, and provide more convenient the industry, as well as the best run Chinese financial institution in the world..

8


Credit Rating Types of credit rating

Chinatrust Financial Holding Company Names of credit rating agencies

Credit rating level

Outlook

Additional notes

Effective date

Long term Short term

Foreign currency

National

Moody’s

-

-

Stable

Issuer Rating: Baa1

2006.12.01

Standard & Poor’s

BBB

A-3

Positive

-

2006.10.04

Fitch

A-

F2

Negative

Individual: B/C Support: 5

2006.11.22

Taiwan Ratings

twAA-

twA-1

Stable

Credit Worthiness: Very Strong

2006.10.04

Fitch (twn)

AA (twn)

F1+ (twn)

Negative

Individual: B/C Support: 5

2006.11.22

Honor/Awards

Chinatrust Financial Holding Company Items

Name of agencies

Asia’s Best Companies 2006 - The Best Managed Company, Best Corporate Governance & Best Investor Relations in Taiwan, Best Investment Bank in Taiwan &

FinanceAsia

Chinatrust Commercial Bank Originally known as the China Securities Investment Corporation (CSIC), the bank was established back in 1966, and became the Chinatrust Commercial Bank, or CTCB, in 1992. Its extensive range of services include savings deposits, loans, guarantees, foreign exchange, OBU, trusts, credit/debit cards, securities, bonds, financial derivatives, factoring, safe deposit boxes, electronic banking, and others. To expand its operations, CFHC acquired Grand Commercial Bank in December of 2003, while its subsidiary CTCB acquired Fengshan Credit Cooperative in October 2004. As of December 31, 2006, CTCB had 111 domestic outlets and 71 overseas outlets, with 3,399 domestic ATMs. Total deposit balances reached NT$1.24 trillion, while total assets exceeded NT$1.6 trillion, thereby firmly positioning it on top of the list of all non-government banks in Taiwan.

9


16


17


M a n a g e m e n t Te a m

Chinatrust’s amangement team has long been recognized international. Foreign ownership accounted for over 50% of our common shares at the end of 2006. this raito was the highest among domestic financial institutions.

Jason Wang

Julie L. Yang

James J. Sheu

Oliver Shang

Current Position: Chief Strategic OfficerChinatrust Financial Holding Company Executive Vice PresidentChinatrust Commercial Bank Significant Experience: Senior Vice PresidentChinatrust Commercial Bank Education: Master of Public Finance, National Chengchi University.

Current Position: General AuditorChinatrust Financial Holding Company Executive Vice PresidentChinatrust Commercial Bank Significant Experience: Senior Vice President-Chinatrust Commercial Bank Education: MBA, The City University of N.Y. Baruch College, USA

Current Position: President & Chief Risk Officer-Chinatrust Financial Holding Co. Deputy PresidentChinatrust Commercial Bank. Significant Experience: Executive Vice PresidentChinatrust Commercial Bank. Education: MBA, Wharton Graduate Division of

Current Position: President of Retail GroupChinatrust Financial Holding Co. Executive Vice PresidentChinatrust Commercial Bank Chairman-Taiwan Lottery Corp. Significant Experience: Chief Administrative OfficerChinatrust Financial Holding Co. Senior Vice PresidentChinatrust Commercial Bank Education:

MBA, University of Delaware, U.S.A.

Jack T.K. Cheng

Charles L.F. Lo

Connie Lin

Current Position: Chief Credit OfficerChinatrust Financial Holding Company Executive Vice PresidentChinatrust Commercial Bank Significant Experience: Senior Vice PresidentChinatrust Commercial Bank Education: Bachelor of Business Administration, National TaiwanUniversity.

Current Position: President of Consumer Finance GroupChinatrust Financial Holding Co. Chairman & President of Retail Banking GroupChinatrust Commercial Bank Representative of R.O.C. Product Development & Marketing CommitteeVISA Int’l Organization. Significant Experience: PresidentChinatrust Financial Holding Co.

Current Position: Chief Human Resources Officer-Chinatrust Financial Holding Co. Senior Vice PresidentChinatrust Commercial Bank. Significant Experience: Vice PresidentChinatrust Commercial Bank Education: Shin-Ming High School of Commerce

Education:

Bachelor of Economics, National Chung Hsing University. Bachelor of Economics, National Chung

20


Consolidated Balance Sheet

CHINATRUST FINANCIAL HOLDING COMPANY LIMITED AND SUBSIDIARIES

Expressed in Thousand of New Taiwan Dollars

December 31, 2007 & 2006

2006

2007

LIABILITES AND STOCKHOLDERS EQUITY

Amount

Amount

Change in %

Liabilites븋 Deposit from Central Bank and other Bank

$

(453)

27,456,799 (313)

Earnings per share-before income tax Earnings per share-after income tax Stockholders' Equity per Share-common stock

$

27,456,799

1,204,227,308

1,204,227,308

-

28,345,123

28,345,123

216

116,345,566

116,345,566

14

23.455,456

15

52,354

Group Capital Adequacy Ratio

(58)

23.455,456 3,783

Return on Equity-after income tax

27,456,799

27,456,799

13

Return on Assets-after income tax

1,204,227,308

1,204,227,308

16

Financial liabilites measured at fair value through profit or loss Stockholders' Equity per Share-common stock

28,345,123

28,345,123

5

116,345,566

116,345,566

(20)

3,456.455,456

3,456.455,456

1

(0.06) (0.04)

Total liabilities

0.35

Deposit from Central Bank and other Bank Earnings per share-before income tax TOTAL LIABILITIES AND SHOCKHOLDERS’ EQUITY

27,456,799

27,456,799

12

1,204,227,308

1,204,227,308

(24)

$ 3,456.455,456

$ 3,456.455,456

(15)

1. U.S. Dollars amounts are converted at the prevailing exchange rate on Dec.31, 2006 of NT $32.596=US$1 2. U.S. Dollars amounts are converted at the prevailing exchange rate on Dec.31, 2005 of NT $32.850=US$1 3. (123,317,876-30,000,000-1,432,290)/7,986,083 4. (145,597,270-40,000,000-612,000-8,630)/7,090,749 5. U.S. Dollars amounts are converted at the prevailing exchange rate on Dec.31, 2006 of NT $32.596=US$1 6. U.S. Dollars amounts are converted at the prevailing exchange rate on Dec.31, 2005 of NT $32.850=US$1 7. (123,317,876-30,000,000-1,432,290)/7,986,083 8. (145,597,270-40,000,000-612,000-8,630)/7,090,749

54


Consolidated Balance Sheet

CHINATRUST FINANCIAL HOLDING COMPANY LIMITED AND SUBSIDIARIES

Expressed in Thousand of New Taiwan Dollars

December 31, 2007 & 2006 LIABILITES AND STOCKHOLDERS EQUITY

2007

2006

Change in

Amount

Amount

%

Liabilites븋 Deposit from Central Bank and other Bank

$

(453)

27,456,799 (313)

Earnings per share-before income tax Earnings per share-after income tax Stockholders' Equity per Share-common stock

27,456,799

(58)

1,204,227,308

1,204,227,308

-

28,345,123

28,345,123

216

116,345,566

116,345,566

14

23.455,456

15

52,354

Group Capital Adequacy Ratio

$

23.455,456 3,783

Return on Equity-after income tax

27,456,799

27,456,799

13

Return on Assets-after income tax

1,204,227,308

1,204,227,308

16

Financial liabilites measured at fair value through profit or loss Stockholders' Equity per Share-common stock

28,345,123

28,345,123

5

116,345,566

116,345,566

(20)

3,456.455,456

3,456.455,456

1

(0.06) (0.04)

Total liabilities

0.35

Deposit from Central Bank and other Bank Earnings per share-before income tax Earnings per share-after income tax

27,456,799

27,456,799

12

1,204,227,308

1,204,227,308

(24) (15)

28,345,123

28,345,123

116,345,566

116,345,566

Group Capital Adequacy Ratio

23.455,456

23.455,456

54

Return on Equity-after income tax

27,456,799

27,456,799

34

Return on Assets-after income tax

1,204,227,308

1,204,227,308

(160)

28,345,123

28,345,123

Stockholders' Equity per Share-common stock

Financial liabilites measured at fair value through profit or loss

116,345,566

116,345,566

2

Return on Equity-after income tax

3,456.455,456

3,456.455,456

13

Return on Assets-after income tax

116,345,566

116,345,566

(33)

23.455,456

23.455,456

-

27,456,799

27,456,799

12

1,204,227,308

1,204,227,308

3

28,345,123

28,345,123

15

116,345,566

116,345,566

Stockholders' Equity per Share-common stock

Financial liabilites measured at fair value through profit or loss Stockholders' Equity per Share-common stock Subtotal Stockholders’ Equity for Parent Company Miority interest Total Shareholder’s Equity Commitments and contingencies TOTAL LIABILITIES AND SHOCKHOLDERS’ EQUITY

55

3,456.455,456

3,456.455,456

$ 3,456.455,456

$ 3,456.455,456

-


Chinatrust Financial Holding Company 18F, 3 Sung Shou Road, Taipei, Taiwan ROC. Tel: 886 2 72 22 20 02 www.chinatrustgroup.com.tw

Chinatrust Commercial Bank 3 Sung Shou Road, Taipei, Taiwan ROC. Tel: 886 2 72 22 20 02 www.chinatrust.com.tw

Chinatrust Securities Company 10F, 3 Sung Shou Road, Taipei, Taiwan ROC. Tel: 886 2 87 80 88 67 www.win168.com.tw

Chinatrust Insurance Brokers Company 13F, 16 Young-ji Road, Taipei, Taiwan ROC. Tel: 886 2 27 68 05 05 www.ctbrokage.com.tw

Chinatrust Venture Capital Corporation 3 Sung Shou Road, Taipei, Taiwan ROC. Tel: 886 2 27 22 20 02 www.chinatrustgroup.com.tw/group/investment.htm

Chinatrust Asset Management Company 3 Sung Shou Road, Taipei, Taiwan ROC. Tel: 886 2 72 22 20 02 www.chinatrust.com.tw

Chinatrust Bills Finance Corporation 11F, 98 Nanking E. Road, Sec 2, Taipei, Taiwan ROC. Tel: 886 2 25 22 22 22 www.ctbf.com.tw

Chinatrust Security Company 15F, 3 Sung Shou Road, Taipei, Taiwan ROC. Tel: 886 2 72 22 20 02 www.chinatrust.com.tw/group/safe.htm

Taiwan Lottery Corporation

Designed: http://www.newyorkdesign.com.tw

9F, 133 Minsheng E. Road, Sec 4, Taipei, Taiwan ROC. Tel: 886 2 21 75 19 15 www.taiwanlottery.com.tw


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