In 2022, due to the impact posed by the drastic changes in the overall economy, the local banks’ business environment presented the situation full of long and short trading intermeshed with each other most of time. The COVID-19 epidemic spread rapidly at the very beginning and then was put under control at home and abroad. Various countries lifted the border controls successively and the economy was recovering. However, the Russia–Ukraine War and supply chain problems caused global inflation pressure. Major economies adopted lift rates and monetary policies to suppress the inflation. In order to suppress the expectations toward inflation and keep the commodity price stable domestically, the Central Bank of Taiwan has escalated the interest for the first time since the past one decade. In 2022, the range of lift rates adopted by the US Fed has attained 4.25% cumulatively, while it attained 0.625% by the Central Bank of Taiwan cumulatively. The overall interest spread in the banking industry was expected to expand step by step. However, the rapid interest rate growth in the bond market and the declining capital market resulted in losses on valuation of the banking industry’s own investment positions. The wealth management business also declined as investors kept riding on the fence.

In 2023, major research and survey institutions all expect that global inflation pressure shall remain high, while the lift rate arouses the concern about economic growth momentum. Besides this, the persistent geopolitical tension still poses challenges to the international financial market’s stability. The banking industry’s investment and loan risks might increase at home and abroad. Notwithstanding, under the impact posed by the lift rate, the net interest spread is expected to grow step by step. In the post-epidemic era, the border controls are lifted, and the global economic and trading exchange is expected to recover to the normal condition. Generally, the political and economic environment still appears to benefit the banking industry’s business development.

For the FinTech and digital financial development, driven by the change in the behavior of the public resulting from the epidemic in recent years, the local banks have accelerated the establishment of integrated digital financial platforms and optimization of online services, and engaged in the horizontal alliance to build a financial ecosystem to improve the entire digital financial service quality, benefit the precision marketing of various business lines and deepen the business operations and reduce the local banks’ operating costs effectively in the long run.

Given that the global climate changes and warming effects have remarkably affected the earth ecology, the ESG issue has been valued by governments and the public increasingly. In response to the international trend and the “Pathway to Net-Zero Emissions in 2050” boosted by the government, the Bank, per the direction by Yuanta FHC’s sustainable development roadmap, engages in reducing the carbon emissions systematically and scientifically. The scope of carbon reduction ranges from its own operations to the most critical investment and financing positions of the financial industry, for which the complete carbon emission reduction strategy has been in place. The sustainable finance is practiced in the business. The Bank also guides customers to join the carbon reduction movement by exercising the financial industry’s influence, in order to demonstrate its determination to fight climate changes.

• (1) In order to integrate the operation and management of the Wholesale Banking Group effectively, the Group Banking Division and International Business Division have been abolished since January 2022. The Group Business Dept. I and II initially subordinated to the Group Banking Division were consolidated into the Wholesale Banking Division. Meanwhile, the Offshore Banking Unit(OBU) initially subordinated to the International Business Division was supervised by Wholesale Banking Group instead.
• (2) In response to the rapid development of the digital financial service and the management need of Information Technology Dept., the Information Technology Development Dept. has been split into the Information Technology Development Dept. I and II since August 2022.
• (3) In response to Yuanta FHC’s “Sustainable Development Best-Practice Principles” and related planning, the Bank Company established the “Sustainable Development Committee” in January 2023, which is responsible for promotion of the matters related to the Bank’s corporate sustainable development.

In 2022, the Bank focused on the control over risk when using the best effort to pursue various business scales’ growth proactively, in order to improve the long-term profitability. When dealing with the loaning operations, the Bank targeted excellent large-scale corporate accounts and excellent personal accounts as the major customer base. Meanwhile, the Bank strengthened the momentum of new cases for credit loan operations to pursue the stable development of scale and asset quality at the same time. The number of wealth management service customers and AUM continued to grow, coupled with the operation of credit care membership system, to improve the results of cross-sale of other products. In the field of digital finance, the Bank also optimized multiple functions and added application scenes, and support the development of various business lines through integration of real and virtual services. For the asset quality, until the end of December 2022, the non-performing loans (NPL) ratio, NPL coverage ratio and loan coverage ratio were 0.02%, 6,091.71% and 1.35%, respectively, which continued to be the excellent ones in the industry. The changes in the main business volume are stated as following：

The Bank has been committed to the customers’ management, product innovation and promotion of financial sustainability for a long term. The awards and honors received by the Bank from various professional organizations in 2022 are stated as follows：

The Bank’s net income amounted to NT$20.750 billion in 2022, decreasing by NT$355 million from the net income, NT$21.105 billion, in 2021. Of which：

• The net interest income amounted to NT$14.280 billion, increasing by NT$1.211 billion from 2021, primarily as a result of the external lift rate and the Bank’s additional interest revenue from loans, accounts receivable and investment in securities exceeding the additional interest expenses on deposits.
• The net income other than interest amounted to NT$6.470 billion, decreasing by NT$1.566 billion from 2021, primarily as a result of the decrease in the net income from the service charges for wealth management, loan and credit card operations, and the decrease in financial instruments and exchange income in 2022 from 2021 due to the financial market volatility.
• The bad debt expenses amounted to NT$362 million, decreasing by NT$171 million from 2021. The operating expenses amounted to NT$11.526 billion, increasing by NT$151 million from 2021.
• In conclusion, in 2022, the Bank’s net profit before tax amounted to NT$8.863 billion, and net profit after tax NT$7.288 billion, decreasing by NT$734 million from 2021. The budget achievement rate was 99%.

• Insurance system optimization and upgrade： In 2022, the Bank optimized the mobile insurance underwriting system’s acceptance efficiency and automatic inspection mechanism. In addition to the existing mobile insurance policy query, the Bank also completed the development of mobile folders, insurance intelligent Q&A module and insurance gap analysis functions. Meanwhile, the Bank will continue to optimize their performance to improve customers’ access rate and digital experience. Further, the insurance agent system and mobile insurance underwriting system also optimized and upgraded the compliance indicators to implement the internal controls.
• In order to develop the insurance trading model for the “remote insurance underwriting” in the post-epidemic era, Yuanta FHC had Yuanta Life apply for operation of such model on a trial basis, and included the Bank into the service recipients on a trial basis. The project was carried out on a trial basis in August 2022, and held successful at the end of December 2022. Then, the relevant service was offered officially on January 16, 2023.
• Robotic Process Automation (RPA) was applied by the departments in charge of the initial operations and then implemented into the automation of service supply and review at the business end. So far, more than 50 processes have been launched officially to help the actual application operations and thereby improved the efficiency of specific operations by 50%–90%, reduced manual errors, improved the process quality and efficiency of the middle and back offices, shortened the time spent in performing duties and reduced operating costs, which will be implemented and optimized continuously in the future.
• The Bank applied the FinTech or blockchain technology to the corporate banking, trading and financing operations. For example, the Bank joined the Global Trade Sharing Blockchain, in order to prevent enterprises from requesting financing from other banks repeatedly and improve the risk controls, through blockchain encryption and irreversible technology. Some domestic shipping company has signed in to join the platform. The Bank also signed a cooperation agreement with that company. Upon receipt of the authorization from customers, the Bank may transfer the shipping notes and information to the Bank in an electronic form, in order to help the Bank verify the authenticity of transactions and mitigate the loan risk.
• As one of the first individual clearing members of the OTC financial derivatives of TAIFEX, the Bank’s capital requirement needed by the trading counterpart’s credit risk may be reduced accordingly.
• The Bank built the SBS equity system, integrated pre-trade limit queries and controls, connected futures houses’ data, generated accounts automatically, and improved the futures trading operation process.
• In response to the digital financial development, technology innovation, management strategies and future business development goals, the Bank continues to improve the information infrastructure, strengthen the efficiency an information security, and be oriented toward customers’ needs to improve various digital channels’ functions proactively.
• In order to improve the defensive ability of the Bank’s information system and to mitigate risks, the Bank applied for the BSI ISO 27001：2013 information security management system (ISMS) certification, executed various information security evaluation operations, vulnerability scanning & fix and offensive & defensive exercise, established the APT defensive system, detected abnormal activities early, set up the SIEM and improved the ability to manage and analyze information security incidents. In 2022, the Bank also implemented the international business continuity standards, and received the ISO 22301：2019 BCMS certification, in order to provide customers with safe, stable and non-interrupted financial services.
• According to the FSC’s “Guideline for Data Sharing between Financial Institutions,” the parent company, Yuanta FHC, gathered the five major subsidiaries including Yuanta Bank, Yuanta Securities, Yuanta Life, Yuanta Futures and Yuanta Securities Investment Trust to propose the “digital identity authentication and authorization” theme-based regulatory sandbox and new business trial planning jointly. Given this, Yuanta Bank played the core role and established the Group’s identification mechanism, “Yuanta FIDO Identity Authentication,” which, under the strict information security control mechanism, followed the FIDO standards to build the cross-subsidiary FIDO authentication services, in order to reduce the operating procedures and steps to be taken by customers for opening of accounts, improve service efficiency, and provide interdisciplinary asset integration services upon receipt of customers’ consent.

Impacts on the Company posed by changes in important regulatory policies and laws & regulations, and corresponding countermeasures to such changes, are stated as follows：

• Constructing a friendly financial environment for aged customers and interest and right protection measures：

  In response to the trend of an aging society in Taiwan, the competent authority enhances the four indicators including financial instrument sale service protection measures, friendly dealing with aged customers, friendly dispute settlement and prevention of financial frauds, in order to promote the seniors’ protection. Among other things, with respect to the financial instrument sales, it particularly mentions that banks are not allowed to refer domestic structured notes and foreign securities actively, but shall implement KYC and KYP to understand and evaluate customers’ needs and strengthen product fitness to protect the seniors’ interests and rights. The Bankers Association of the Republic of China issued the public notice for promulgation of the “Self-Disciplined Regulations Governing Dealing with Aged Customers in Banking Industry” in March 2022, and implemented the same officially since October of the same year. In order to improve the protection to aged customers, the Bank amended the customer risk attributes evaluation measures to strengthen the evaluation on the risk tolerance and product fitness to the seniors, set the sales limit on high-risk products unfavorable to aged customers, and adopted the measures such as expansion of counterparts to be cared via phone interview and increase in transaction monitoring types. Meanwhile, the Bank included the protection of the interests and rights of the disadvantaged customers, such as the aged customers, into the indicators for the evaluation procedures prior to launch of any new products, in order to protect aged customers’ consumer interests and rights through ore comprehensive controls.

• In response to the FSC’s “Financial Information Security Action Plan 2.0,” the Bank continues to improve the financial information security protection practices：

  In order to strengthen the information security protection abilities of the financial industry, Financial Supervisory Commission (FSC) issued the Financial Information Security Action Plan on August 6, 2020. The public and private sectors have worked with each other to implement the same proactively. In the past two years, it has set multiple key performance indicators including appointment of the chief information security officer, implementation of international information security standards, organization of information security offensive & defensive exercises and competitions, and establishment of a financial security incident response system. Meanwhile, in response to the business development and technological progress, the Bank continues to improve the financial institution’s information security protection momentum. The FSC has reviewed the FinTech development trends, changes in the information security development and practices in the most recent two years. In reference to the international information security regulatory policy, the FSC issued the “Financial Information Security Action Plan 2.0” on December 27, 2022, in order to keep aiming to make improvement by expanding the application, implementation, in-depth development and encouragement of prospectives.

  In response to the information security or new high-type crime pattern concerns potentially caused by the rapid development of financial services, the Bank executes the existing information security control measures and also plans to implement the important information security projects, including optimization of the IPS, and improvement of the NDR, computer system information security evaluation, e-payment platform security evaluation, ISO 27001：2022 ISMS revision and information security intelligence analysis and defensive system, in order to strengthen the Bank’s defensive and responsive abilities and build a business environment dedicated to providing safe, convenient and non-interrupted financial services.

• Adjusting the real estate loan strategies in response to the policy and economic environment：

  Since the end of 2020, the Central Bank has adopted several housing market credit control and risk control measures successively. In addition to escalating the policy interest rates, it also limited the percentage of loans for housing purchased by corporations and natural persons, land loans, loans for surplus houses, and loans secured by idle land in industrial parks, and canceled the grace period for the loan for purchase of the second housing in specific districts, and the measures requiring land purchased with loans to be constructed within specific time period. In 2022, the Bank also controlled the construction financing in response to the competent authority’s policy. By carefully selecting and undertaking cases with three excellent indicators (including borrower, location of collateral, and yield rate), controlling the application for new cases, and implementing the allocation system, the Bank achieved the goal set to reduce the concentration of loans for construction projects. Meanwhile, given the impact posed by said credit control measures and lift rates, the trading volume of the domestic real estate market has begun to shrink since Q2 of 2022. Besides this, the Legislative Yuan has passed The Equalization of Land Rights Act after the final reading in January 2023, which is expected to further suppress the short-term investment in pre-sale and existing houses. The Bank’s house loans will continue to focus on self-occupied house loans and excellent customers’ financing request, and also develop the wealth management-type house loans delivering better yield rates to keep the Bank’s business develop stably.

In 2023, the Bank will continue to implement the risk controls, compliance and internal controls, focus on adjustment and upgrading of income structure, and adequately plan the business volume to improve the capital utilization efficiency. Meanwhile, the Bank will use the best effort to promote digital transformation, maximize the profitability with robust management, and take actions against sustainable development physically, in order to fulfill the financial industry’s social responsibility. The business plan is summarized as follows：

• Business Development

  • Corporate banking services： The lending grows stably while risk controls are taken into consideration. The Bank continues to develop existing customers more thoroughly to increase the drawdown of facilities, targets excellent customers with better credit ratings as new customers to be developed, seizes the opportunities for reorganization of syndicated loans of excellent enterprises with stable financial performance and positive industry development or provide them with suggestions on integration of liabilities and syndicated loans used to enrich the mid-term working capital, and continues to follow up the opportunities for financing of the projects such as industrial consolidation.
  • Consumer banking services： Taking the credit card services as the stepping stone to success, the Bank establishes the best business model in quality and quantity delivering a win-win situation for cross sales. The house loan services continue to target the self-occupied customers’ need for purchase of house and also transform to primarily launch wealth management-type house loan instead. Notwithstanding, it will still focus on the collaterals situated in metropolitan areas and with better liquidity primarily. For the car loan services, the Bank continues to develop the existing new car brand channels more thoroughly and strengthen the original car financing operations. Meanwhile, it will develop foreign car loan services proactively. The credit loan services target customer bases with capital needs, launch competitive credit loan products, upgrade the brand awareness and attract active customer bases, by taking into account both risk and income. In order to fulfill the sustainable financial liability, the Bank continues to provide the Green Building Label house loan projects and new energy car loan projects.
  • Wealth management services： The Bank verifies changes in the market, selects excellent financial investment products, helps customers with adequate asset allocation, and works with the icash card member promotion mechanism and promote the marketing programs for various target customer bases to expand the wealth management customer base’s management abilities, upgrade the AUM, and also continue improving the emerging tech digital platform’s functions, upgrading the trading efficiency and customer services, and increasing the sources of revenue from service charges.
  • Financial trading services： Improve capital allocation and management, stabilize investment-related income, and strengthen expansion of the seller’s business operations including TMU and proprietary trading of bond, in order to expand the sources of income.
  • Digital financial services： By focusing on customers, the Bank continues to improve the digital channel service experience, build the one-stop financial product service on the digital financial platform, and move toward the goals for “convenience,” “friendliness” and “Yuantalization.” In order to develop the digital cash flow services, the Bank has worked with multiple e-payment service suppliers to create the cash flow service ecosystem, hoping to improve the customer loyalty and activate accounts, and deepen the bond with customers.

• Internal Control

  • Comply with external laws and regulations, and continue to strengthen the completeness of the operating procedures, such as anti-money laundering, information security, personal data protection, corporate governance, consumer protection, friendly financial culture and service measures. Conduct the case study on the sanctions in the same trade and promote the correct countermeasures against individual cases to enhance the clerks’ compliance concept and establish the ethical management cultures.
  • By establishing the risk models and databases, the Bank intends to improve its ability to control various risks over credit, market, operation and concentration. Meanwhile, subject to the changes in the market, the Bank executes the theme-based risk detection and monitoring periodically, so as to help the business decision making and early warning system for risk.
  • In order to improve the quality of wealth management services and sales, the Bank establishes the “Customer Service Risk Early Warning System” which includes the suspected unfair sales into the database. Then, the Bank may understand the wealth management specialists’ sales behavior and model and confirm whether the customers have full knowledge of the related investment risk, through data analysis and personnel management and customer care operations, in order to detect and avoid the concerns about unfair sales.
  • Improve the risk control, compliance risk assessment and internal audit/internal control management mechanism of overseas branch and subsidiaries.

• Personnel Training

  • Improve new employees’ recognition of the Bank’s organizational cultures, thus enhancing their work participation and stability. In response to the long-term business development, the Bank, pursuant to the employee career planning, trains them to learn related professional functions, and conduct the training of managerial functions and successor candidates for high-rank sales personnel with potential, in order to lay a solid foundation for its sustainable development.
  • By participating in external training courses and organizing internal educational training programs, the Bank aims to enhance the employees’ skills in digital technology and foreign language proficiency. Meanwhile, the Bank provides the reward for English proficiency certification and international professional certificates/licenses, in order to encourage the employees to improve themselves, help promote the digital transformation, establish bilingual branches and develop business overseas.

As one of the “Sustainable Finance Pioneers Alliance” members, Yuanta FHC promises to take more active action against the five major issues, including “Green Procurement,” “Investment, Financing and Engagement,” “Information Disclosure,” “Assistance and Promotion” and “Connection to Global Networks.” Meanwhile, the Bank, based on the SDGs as its roadmap, includes the ESG into its enterprise culture and business strategies, promotes the sustainable practices for the five major general standards, including corporate governance, customer interest and right, employee care, environmental sustainability and social public welfare, and also sets the short-term, mid-term and long-term sustainability performance indicators as the basis for compliance and review, hoping to become an international sustainable benchmarking enterprise.

The Bank adheres to the management philosophy stressing “Ethics, Stability, Service, Innovation and Care” and, under the direction by the Board of Directors throughout the Bank, complies with the corporate governance, compliance and risk control mechanism. The Bank has established various internal control systems and sound products & services, and also implemented the improvement plans, such as the set-up of the email addresses of the chief corporate governance officer and Audit Committee, grievance channels and employee opinion mailbox, passage of the ISO 10002 customer complaint management system certification, completion of the appraisal on performance of the Board of Directors and functional committees (by the internal personnel, or external independent professional institutions by contract, for example) periodically, execution and disclosure of the institutional investors’ stewardship information, fair dealing policy evaluation, disclosure of the diversity and independence of the Board of Directors and functional committees’ information in the annual report, and publication and report of the self-audited annual financial information within 75 days at the end of year. Accordingly, the Bank received the distinguished certification of “CG6013 (2021) Corporate Governance System Evaluation” by Taiwan Corporate Governance Association in 2022.

In 2023, the corporate governance plan will continue to follow the FSC’s “Corporate Governance 3.0 – Sustainable Development Roadmap” and take into account the suggestions reported by the CG6013 (2021) Corporate Governance System Evaluation. In order to enhance the functions and independence of independent directors and Audit Committee, the Bank plans to amend its “Articles of Association for Audit Committee” and “Rules Governing Job Responsibilities of Independent Directors” and prepare the written policies and regulations governing the diversified combination of diversity, expertise and talent, and gender and age, of the Board members that satisfy the business needs. Meanwhile, in order to fulfill the Board of Directors’ accountability, promote the reporting of transactions with related parties in non-business activities to a shareholders’ meeting and complete the AQI operations, the Bank also plans to upload the annual report in Chinese and English at the same time, disclose the whistleblower policy implementation status sufficiently in the annual report, functions of the Risk Management Committee and its members and status, report various functional committees’ annual operations and work to the Board of Directors, and disclose the links for participation in the investor conferences convened by the parent company, Yuanta FHC on the official website, in order to keep improving and establish a sounder corporate governance system.

The Bank has joined the Equator Principles Association officially and executed the “Equator Principles” since October 2020, thus becoming 7th equator bank in Taiwan, and 112th in the world. In the future, the Bank will review the loan applications based on international standards. Further, the Bank will proactively engage in issuance or investment of green/ESG bonds, credit card carbon footprint reduction, promotion of the loan for purchase of green building and car loan for eco-friendly energy cars, promotion of ESG-related funds and insurance products, branches applying 100% green energy, responsible investment, and fulfillment of the fair dealing policy, and continue to promote the sustainable development projects including energy conservation and carbon reduction, and social care. For the financial product innovation and service, the Bank adopted the measures to expand the number of digital account users, improve digital mobile users’ activity, and innovate and optimize digital platform services on an ongoing basis, and also acquired the mobile bank carbon footprint verification procedure ahead of the others in the same trade. Meanwhile, the Bank received the ISO 14067 product carbon footprint standard certificate upon verification by the BSI, and launched the innovative “Diamond Carbon – Carbon Account” to help customers check the monthly “carbon reduction results” Mobile Banking APP, so as to verify the carbon emission volume saved by the e-trading in the routine management and also encourage customers to engage in the promotion of green financial services jointly.

In response to the “Guide on Climate-related Financial Disclosures by Banks” issued by FSC on November 30, 2021, the Bank established the project taskforce in December of the same year to research the related responsive measures and control mechanism in terms of the four major standards about the climate risk, namely corporate, strategy, risk management, indicator and target. Meanwhile, the Bank also participated in the climate risk project organized by the Bankers Association of the Republic of China to help research the local bank’s climate risk stress test operations and climate risk management handbook. The Bank plans to complete the 2022 TCFD report and disclose the same on the Bank’s website by the end of June 2023.

In order to integrate the Bank’s efforts in sustainable development-related matters, the Bank has established the “Sustainable Development Committee” as a dedicated organization in January 2023. By adhering to Yuanta FHC’s commitment to the five major issues for sustainable finance, the Bank combined all of its efforts in promoting the execution and implementation of related matters, hoping to achieve more active practices, and take the initiative and then work with customers and partners to move toward the sustainability target jointly.