Struck by the sovereign debt crisis and the fiscal consolidation policy in Europe, the global financial market was exposed to overall weak confidence in 2010. U.S.A executed the second-round quantitative easing monetary policy and bought USD 600 billion of debt in order to recover U.S economy while Peoples Bank of China halted its easing policy and, instead, chose to raise its interest rates and required reserve ratios in response to inflation. These policies fully mirrored the trend asymmetry of the main economy entities. In general, U.S and European countries tend to face a sluggish economic recovery and thus higher jobless rates. Meanwhile, fiscal improvement measures led to slowing economic growth. It is estimated that, in 2011, U.S and Europe economies will grow slowly. Extra attention must be placed onto the system risk in Europe financial system. In emerging and Asia markets, their better economic data echo their stronger recovery drive. Nevertheless, U.S quantitative easing policy brought in hot money and simultaneously a risk to hoist exchange rates and inflation. World Economic Outlook Report released on January 25th 2011 by International Monetary Fund forecasted the global economy growth rate in 2010 to be 5% and in 2011 to be 4.4%.
Domestic economy benefited from both the gradually stabilizing recovery of global economy and ECFA. Consequently, domestic production constantly ascended. Export volume in electronic, chemical, plastic and rubber, and transportation products hiked to a new record. In 2010, trade surplus amounted to USD 23.25 billion. Meanwhile, the government practiced a wide variety of policies to stimulate domestic demand, expand infrastructure and fortify local constructions, for which private consumption and fixed investment may progressively rebound. According date from Directorate General of Budget, Accounting and Statistics, Executive Yuan, the economic growth rate of 2010 is 10.47%, a new record since 1990’s, while that of 2011 is estimated to be 4.92%. World Bank also forecasted Real GDP of Taiwan will grow by 5% in 2011, which indicates that domestic economy will sustain its stable recovery in 2011.
Organizational Change
In order to intensify the advanced preview on launched products and safeguard operation benefit and risk management, the Bank established Financial Product Evaluation Committee in Nov 2009 and New Product Preview Committee in Apr 2010. In addition, to well structure the Bank’s corporate governance, the Bank established Compensation Committee, whose major duty lies in developing standards for appraisal of manager’s performance and remuneration and the structure and system of director remuneration in Sep 2010. Also, it examines the comprehensive human resource strategies of the Bank to assist the Board of Directors with developing a fair and reasonable compensation system and elevating information transparency.
Further, after generally assuming 18 branches of Chinfon Commercial Bank in April 2010, the Bank adopted regional income distribution in Taiwan as the major indicator. In 2010, the Bank added 11 new domestic branches and achieved a total of 81 branches from 70. Among these branches, branches in metro Taipei stood for 42% and 7 new locations are expected. The Bank will possess 88 branches, among which branches in metro Taipei will rise to 47%. In order to utilize the synergy, the Bank adopted a distribution strategy to open its branches on the same address as the securities firms. As of the end of 2010, 23 branches sat on the same address as the securities firms and will expectedly increase to 29 in 2011.
Actual Accomplishments in 2010
After the Bank elevated its asset quality and actively improved the operation structure, better performance has been gradually manifested. As of December 2010, the Bank possessed 81 branches, the asset up to NTD 455.7 billon, total deposits of NTD 329.6 billion, total loan (excluding the receivables) of NTD 260.7 billion, earning per share of NTD 0.60, and yearly accumulated after tax income of NTD 1.317 billion, an increase of NTD 872 million from NTD 445 million of accumulated after tax income in 2009. Splendid profit was fully shown. Meanwhile, NPL ratio and the coverage rate amounted to 0.49% and 359.08% respectively. The overall asset quality excelled in the industry and completely exhibited the resolve of the Bank to grow stably. The Bank’s main services are delineated as follows:
(1) Deposits
In addition to continuously utilizing the advantageous resources in brokerage from Yuanta Securities, a subsidiary of the group and further developing security transfer deposits, the Bank also aggressively advances general deposits and broaden its customer base in order maximize the scope of asset management and boost the growth of financial services.
In 2010, the Bank possessed total deposits of NTD 329.6 billion, an increase of NTD 36.1 billion from NTD 293.5 billion in 2009. Meanwhile, demand deposits in 2010 totaled NTD 185.3 billion, a NTD 40.5 billion increase from NTD 144.8 billion in 2009. Its weight over total deposits hiked from 49.31% in 2009 to 56.20%.
(2) Loans
In respect of corporate loan, the Bank not only intensified its service and relationship with large-sized enterprises, but offered customized project-based financing to corporate customers (such as securities corporate clients) in correspondence with their demands. Furthermore, The Bank, according to its capital structure, carried out “The Short-Term Capital Financing Program” in order to maximize the balance utilization rate of corporate credit accounts. In customer loans, the Bank targeted quality customer segments through customer segment analysis to realize differentiated marketing. Meanwhile, cooperation with original car manufacturers will be broadened to maximize the Bank’s market share.
In 2010, the Bank possessed total loan of NTD 206.7 billion, increased by NTD 29.3 billion over NTD 231.4 billion in 2009. Meanwhile, total corporate loan to corporate finance in 2010 totaled NTD 161.2 billion or 61.82% of total loan and total consumer loans reached NTD 99.5 billion or 38.18% of the total.
(3) Foreign Exchange
The Bank has established direct cross-strait remittance links with China offices of 27 foreign banks and head offices of 29 Chinese banks in an aim to satisfy the demand of Taiwanese companies in fund dispatching and aggressively applied for establishing International Banking Units in order to expand the Bank’s business. As of the end of December 2010, the Bank has possessed up to 30 International Banking Units. In the meantime, the Bank started the bookless foreign exchange deposits and fortified automated services to perfect its operations and elevate its service quality.
In 2010, foreign exchange sales of the Bank reached USD 20.6 billion, a growth of 36% from USD 15.1 billion in 2009. Meanwhile, remittance service weighted 92.26%, import for 5.52% and export for 2.22% of total sales.
(4) Trust Business
In respect of trust service, the Bank not only aggressively introduced new fund products, but also actively expanded its custody services such as fund custody and custody for foreign investors to replenish fee income. As of the end of 2010, the Bank has added 3 custodian funds with the fund size increased by NTD 25 billion, 17 foreign-investor custodian accounts with the balance increased by NTD 1.5 billion and 80 accounts of discretionary custody with the balance increased by NTD 1 billion. In addition, the Bank served as the solicitor of the shareholder proxy form for 14 companies and the trustee of corporate bond issuance for 10 companies.
Total balance of the Bank’s trust asset amounted to NTD 111.1 billion in 2010, a NTD 32.1 billion increase or a growth by 40.66% over 2009.
(5) Wealth Management
With regard to Wealth Management Services, through tiered designation of Financial Consultants teams serving different classes of clients according to their specific needs, we helped the clients to increase the holdings of different financial products and asset classes. Aided by promotional campaigns and assertive marketing of the balance-based income and insurance services, the fee income margins were increased.
The Bank’s net fee income of wealth management amounted to NTD 572 million in 2010, a NTD197 million increase or a growth by 52.5% over 2009.
(6) Credit Card
To grasp more quality customers with asset of high net worth, the Bank initially launched Fortune Infinite Card and provided a wide variety of honored and premium benefits in an aim to increase its customers with high-net-worth asset and thus hoist transaction value of credit cards amount through customized services.
In 2010, the Bank issued 290 thousand outstanding credit cards, an active card rate at 42.85%, equivalent to the number at the end of 2009.
Budget Utilization, Financial Status and
Profitability
2010 net income amounted to NTD 6.141 billion, among which net interest income stood for NTD 4.219 billion and various net non-interest income totaled NTD 1.922 billion. Compared with NTD 5.552 billion of 2009 net income, it was seen an increase by NTD 589 million. Major differences from 2009 are itemized and described as follows:
(1)
Net Interest Income: An increase by NTD 615 million from 2009, which originated from the increases of deposits and loans from 2009 by NTD 36.1 billion and NTD 29.3 billion respectively.
(2)
Net non-interest income: A decrease by NTD 26 million from 2009, which originated from the decreases of financial product transactions and net exchange income from 2009.
(3)
The considerable elevation of the Bank’s asset quality procured gain on reversal of bad debt of NTD 175 million in 2010 or a decrease of NTD 530 million from NTD 355 million of 2009 bad debt expense. Meanwhile, operating expense totaled NTD 4.582 billion, an increase of NTD 242 million from NTD 4.34 billion of 2009 operating expense.
(4)
In conclusion, the Bank manifested NTD 1.734 billion for its 2010 pretax income and, after deduction of NTD 417 million for income tax expense, NTD 1.317 billion for after tax income, an increase of NTD 872 million from NTD 445 million of after tax income in 2009.
Research and Development
(1)
Actively mastered the industry trends, fully executes risk management for risk pricing and differentiated marketing and launched innovative products to maximize sales volume and profitability.
(2)
Integrated a variety of novel financial products such as foreign exchange, interest rates, equities and credit, intensified marketing and designing of structured financial products and expanded business of financial transactions.
(3)
Launched Fortune Infinite Card to maximize the transaction value and service fee income.
(4)
Added Value Averaging, a fund investment service, advanced collection of securities and trust, and other trust services in money and real estate from transfer and sale of development rights.
(5)
Risk Management:
A.
Credit Risk: It is estimated to accomplish the establishment of mortgage application and behavior scorecards during the 2nd quarter of 2011 to enhance the Bank’ coverage of the internal ratings/scores system to over 90%.
B.
Market Risk: The Bank strengthens the techniques and timeliness of the middle office on various financial transactions, market risk and credit risk management.
C.
Operational Risk: The Bank reinforced system functions of operational risk, established analysis of risk indicators and planned to apply employing Standardized Approach for capital charge measurement.
(6)
Information System Development and Upgrade: The Bank established critical information projects including new core banking system, the large exposure platform, the group financial and accounting system, the financial transaction system, the collateral system, the new data warehousing project Phase1, establishment of the new HR system, the notes system, construction of the remote backup, the new internet banking and FXML B2B customer transference project to maximize efficiency and safety of system operation.
2. Impacts of External Competitive, Regulative and Overall Operating Environment
In prospect of Year 2011, international economy is seen with high uncertainty while domestic financial market also needs to face a surrounding with sluggish interest spread and higher risks those results from fierce competition. Nevertheless, boosted by stable economic recovery, returning of overseas funds, and opening of Taiwanese banks in China, corporate and personal fund and finance demands will drive the growth of overall service of the Bank. In addition, because the risk awareness is elevated, and the government intensifies domestic supervision measures in response to international finance reform, the quality of the Bank’s asset will remain sustained. As a result, profitability is forecasted to steadily hike.
In addition, impacts of relevant regulation changes are as elaborated:
(1)
The third amendment to “Accounting for Financial Instruments” in “Amendment to Financial Accounting Standard No.34”, announced on December 4th 2008
The effective date starts on January 1st 2011. Early applicability is acceptable. This amendment is centered on incorporating loans and receivables originated by the Bank into the scope of the Standards. It requires the valuing of loans and receivables at fair value and evaluation on the impairment loss. The impairment provision adopted the concept “the loss has occurred”, which recognizes the impairment loss after forecasting the future cash flow of the loan through objective evidence on that loss that has existed and happened according to the difference between the net present value discounted at the original effective interest rates and the book value. During the evaluation of impairment, all credit risk exposure should be considered. The Bank has conducted tentative calculation with existing data. The book value of allowance for bad debt does not require provision because of the third amendment in “Amendment to Financial Accounting Standard No.34”. The Bank will continue its supervision on all possible factors of the increase in impairment loss to sustain its fine loan quality.
(2)
”Directions for Banks Conducting Financial Derivatives Businesses” amended on December 31st 2009.
Some stipulations took effect on March 30th, 2010 and June 30th. The amendment focuses on introducing customer classification system and strengthening marketing management. The amendment also requires the bank association to develop self-displayed standards on details such as the products that regular customers can write. Huge emphasis is placed on protecting customer rights. Operation procedures and the trading platform must be adjusted and capital expenditure and operation cost will be increased in correspondence to regulations on related services. Meanwhile, restrictions on the product types that regular customers may write and the addition of marketing management will impact directly on derivatives. Further business and product development plans should be developed according to customer segmentation.
(3)
”Regulations Governing the Banking Activity and the Establishment and the Investment by Financial Institution Between the Taiwan Area and the Mainland Area” amended by Financial Supervisory Commission, Executive Yuan on March 16th 2009.
Financial Supervisory Commission renamed “Regulations Governing Approvals of Banks to Engage in Financial Activities between the Taiwan Area and the Mainland Area” Regulations Governing the Banking Activity and the Establishment and the Investment by Financial Institution Between the Taiwan Area and the Mainland Area”. The Article 12 of the amendment loosened its previous restriction on credit granting against Taiwan businesses in China. Every well-operated bank may raise it upper credit limit on Taiwanese businesses in China from 30% of net worth of OBU (Offshore Banking Unit) to 50%. This amendment has a positive effect on the Bank’s OBU crediting service.
(4)
Regulations Governing the Extension of Housing loans in Specific Areas by Financial Institutions” declared by Central Bank on June 24th 2010.
For the borrower who has secured loan for over one house in Taipei City and specific areas in 10 county-controlled cities including Taipei County, restrictive conditions on loans should be applied, including no grace period is available, the lending quota shall not exceed 70% of the valuation amount of houses, no application of addition loans is acceptable for renovation, working fund or any other reason. Only few risky borrowers fall under this regulation. However, the Bank always strictly controls its crediting risk and primarily accepts quality clients and house mortgage cases with fine collateral. Huge attention is surely placed onto the liquidity of borrowers. Therefore the Bank is less affected by this policy than other financial institutes.
3. Latest Credit Ratings
The Bank receives recognitions from credit rating companies because of its performance of improving asset quality and elevating profitability. Taiwan Ratings Corp and Standard & Poor's (S&P) raised its credit outlook from Stable to Positive. The Fitch Ratings Corporate Group (Fitch) upgraded the Bank’s individual rating from D to C/D. The latest credit ratings of the Bank are summarized as follows:
Type of rating
Rating agency
Date
Latest Credit Ratings
Long-term
rating
Short-term
rating
Outlook
International rating
S&P
2011.01.18
BBB
A-2
Positive
Fitch
2011.01.26
BBB
F3
Stable
Domestic rating
Taiwan Ratings
2011.01.18
twAA-
twA-1+
Positive
Fitch
2011.01.26
A+ (twn)
F1 (twn)
Stable
4. Business Plan in 2010 and Outlook
In prospect of Year 2010, the Bank will center its operation on the balance with quality and quantity in aims to enlarge its asset size, strengthen the asset quality, establish its image and maximize its comprehensive competitiveness. The Bank will also persist in utilizing the advantage of its financial holding company in joint marketing to further integrate the group resources, diversify its financial services for customers, exercise its niche in operation synergy, thus advance its profitability and pursue maximum interests for all of shareholders. The Bank’s business plan in 2011 is summarized as follows:
(1)
Business Development: Centered on corporate finance to drive the balanced development in consumer banking, financial management, trust and financial transactions and advance the scope of overall services. The Bank will also integrate e-commerce service to turn itself into the fund procurement center of companies; launch niche services to fortify the Bank’s competency with product diversification; and well select appropriate products to intensify its management of mid-to-small business.
(2)
Clientele Development: Persist in market segmentation, execute differentiated marketing, target at highly contributing clients, strengthen and deepen customer relationship and fully carry out differentiated pricing according to customers’ credit ratings in order to achieve equilibrium between asset quality and profitability.
(3)
Channel Management: Follow the overall wealth distribution of Taiwan and Focus on Metro Taipei to accelerate its expansion of the physical channels, escalate the scope and the depth of business development. In addition, the Bank will also aggressively establish its overseas service locations, structure the topology and scheme of overseas business, integrate the resources of the financial holdings to develop diverse cash flow and develop business opportunities in Greater China.
(4)
Group Integration: Utilize resources of the subsidiary companies of the financial holdings to not only persistently security transfer deposits but also intensify the cooperation with subsidiary companies inside the group.
(5)
Risk Management: Strengthen the Bank’s response and compliance for Basel III practices and sustain the Bank’s ability in risk data integration and analysis and the risk management ability, minimize loss contingency and maximize its operation effectiveness and efficiency.
(6)
Training: Fortify employee training to elevate personnel quality and solidify its basis for future development.
All data and
information on this page is provided for informational purposes only,
and may subject to adjustment. For more details, please refer to our official
annual reports.
Copyright c 2007 Yuanta Commercial Bank Company Limited. All Rights Reserved.
No. 157, Sec. 3, Ren'ai Rd., Da'an Dist., Taipei City 106 , Taiwan
E-mail: service@yuanta.com
Service Hotline: 0800-688-168
