In 2005, the world economy grew 4.32%, down from the 5.13% increase posted in 2004. This was caused by a combination of the U.S. Federal Reserve’s consecutive hikes in interest rates, international crude oil prices hovering at high levels due to a continuous imbalance in demand and supply, and China continuing its initiative to slow economic expansion.
In recent years, the government has been pushing to halve the number of financial holding companies, in order to make them more competitive internationally. This has prompted financial institutions to seek greater economies of scale and build a stronger international foothold. Faced with such a competitive marketplace, Chinatrust has adopted a strategy of making banking services its core business, featuring a complete range of innovative products and services. Thanks to the concerted efforts of its management and workforce, Chinatrust has been able to continuously grow shareholder’s value.

Expanding Presence in Overseas Chinese Markets

In line with international trends and its own operational needs, our subsidiary Chinatrust Commercial Bank (CTCB) has renamed its Personal Banking Division as the Retail Banking Division, which is further divided into wealth management and consumer banking operations. CTCB has also begun preparations for setting up a division catering specifically to small businesses. In addition, an international operations sector has been added to the bank’s credit card division to better promote its international credit-card business.
In its pursuit of international expansion, Chinatrust is especially keen about serving ethnic-Chinese customers in Hong Kong and China as well as Taiwan. In September 2005, the bank started a branch in Kowloon, its second branch in Hong Kong. This was in line with the bank’s belief that “Wherever Taiwanese businesses may go, Chinatrust will be ready to serve them there.” CTCB has a more far-reaching international presence than any other Taiwanese bank. Its full-range service platform is composed of 66 overseas outlets spanning 12 countries.

Creating the No. 1 Bank in Terms of Asset Quality
Chinatrust focused on the following areas in 2005:

• Take advantage of mergers and acquisitions to expand economies of scale
  

• Upgrade competitiveness through domestic and overseas strategic alliances
  

• Execute the core strategy of making Chinatrust a unified, value-added brand
  

• Build a stronger foothold in China and other overseas markets

In 2005, Chinatrust Financial Holding Company (CFHC) attained market capitalization of NT$200 billion. Consolidated assets amounted to NT$1.72 trillion, nearly doubling from May 2002 when CFHC was established. Meanwhile, shareholders’ equity rose by nearly 60% to NT$146 billion. With a capital adequacy ratio over 139% and a double leverage ratio below 90% in 2005, Chinatrust stands on a par with the world’s best-run financial institutions in terms of financial health and debt-repaying capability. In addition, CTCB is firmly positioned as Taiwan’s largest private bank with loans totaling NT$920 billion and deposits of NT$1.24 trillion. In 2005, CTCB registered a broadly defined non-performing loan ratio of 1.51% and NPL provision coverage ratio of 79.19%. Both figures attest to the bank’s status as Taiwan’s best bank in terms of asset quality.

Winning International Awards for Superior Performance

In 2005, CFHC saw pretax profit increase further to NT$20.5 billion. Return on equity on a pretax basis came in at 20.4%, significantly higher than the industry average of 15.03%. Such a superior track record did not go unnoticed. Chinatrust won recognition from respected publications including Asiamoney, Euromoney, and FinanceAsia as the “Best bank in Taiwan.”
In corporate banking, Chinatrust was cited by Global Finance as “The Best Foreign Exchange Bank in Taiwan” and “Best Trade Finance Bank in Taiwan”. The Asset and Asiamoney both selected Chinatrust as “Best Cash Management Bank in Taiwan.” Awards for Chinatrust in retail banking include Euromoney’s “2005 Taiwan Best Private Bank” and the Asian Banker Journal’s “Best Retail Bank in Taiwan.”

Devising Innovative Products and Services and Excelling in Risk Control

With a view to offering consumers the most convenient, secure payment instrument, Chinatrust joined hands with Visa International in introducing EMV (Europay MasterCard VISA) credit cards, making Taiwan the second market worldwide to adopt the VISA WAVE chip card. The EMV standard defines the interaction at the physical, electrical, data and application levels between IC cards and IC card processing devices for financial transactions. A big benefit for moving to EMV-based credit card payment systems is improved security, along with associated fraud reduction.
On the back of its well-devised KYC (know your customer) application-processing package, CTCB was approved by the Financial Supervisory Commission to launch wealth management services. As Taiwan’s first local bank allowed to offer wealth management services, Chinatrust once again emerged as a benchmark for the island’s financial services industry as it moves to the next level of professionalism.
Following the government’s launch of an innovative labor pension scheme, Chinatrust took the lead in introducing an employee trust program that combines the company’s repurchase plans and stock bonuses for employees. An upgrade from the traditional employee stock ownership plan, the Chinatrust offering is not only a major incentive to employees but also an effective tool for us to retain the most valued people to help with our mutual, sustainable development over the long term.
Viewing the world as one single market, Chinatrust has established a global service network that spans 847 banks operating in more than 100 countries. A cross-border service platform–iaccount developed for Taiwanese enterprises can effectively satisfy their needs, be it for financing, investment, fund allocation, or risk-hedging, in Hong Kong, China, the United States, Indonesia, and Vietnam as well as Taiwan. In particular, the “Facility Link” cross-border financing program makes possible the universal use of lending quota and collateral after an application is approved in one location. Customers in Taiwan and Hong Kong are thus able to expand their borrowing capacity by using their assets for cross-border financing. As of the end of 2005, Chinatrust had secured a 33% market share in terms of factoring, higher than any other bank in Taiwan.
The latest rating action on Chinatrust in 2006 was undertaken by Fitch Rating in March. A summary of credit ratings is as follows:

The high regard rating companies share for Chinatrust must be attributed to its superior management who are not only good at securing market niches and generating earnings growth but also give priority to risk control. In preparation for Basel II taking effect at the end of 2006, Chinatrust took the lead in installing and completing the test of a revised internal ratings mechanism in the middle of 2005. Going forward, Chinatrust is set to pattern after benchmark banks around the world in the establishment of a first-rate risk control mechanism.

Honoring Corporate Citizenship & Social Responsibility

Over the years, Chinatrust has been active in many kinds of charitable activities, based on its corporate motto of “We are Family.” Chinatrust’s “Light Up a Life” fund-raising campaign, which celebrated its 21st anniversary in 2005, has extended relief to more than 60,000 disadvantaged children. Going forward, Chinatrust remains committed to this and other charitable projects, through which donations from the general public can be put together with Chinatrust’s own contributions towards caring for even more children in need of such help.
In 2004, Chinatrust set up the Chinatrust Charity Foundation to take care of disabled and underprivileged children. So far, 796 employees have contributed by becoming volunteers to these activities, and the Foundation has also sponsored nearly 40 large-scale charitable events. In addition to providing schooling to needy children, the Foundation joins the Taiwan Fund for Children and Families (CCF) in giving grants to college students. Furthermore, the Foundation sponsors occupational training designed for single mothers so that they can secure a steady source of income.

Growing Earnings, Creating Shareholder’s Value & Aiming to be a Top-notch International Institution
Chinatrust is focused on the following areas in 2006:

• Optimize cross-selling synergies to further upgrade overall performance
  

• Strengthen corporate governance and enhance brand value
  

• Take advantage of mergers and acquisitions to expand economies of scale
  

• Push business frontiers overseas to make Chinatrust a world leader
  

• Take the initiative to get involved in public-welfare activities as a responsible corporate citizen

Positioned to compete internationally, Chinatrust will stay abreast of the industry in making mergers and acquisitions and devising innovative products and services. In the greater China region, Chinatrust is committed to creating a global brand that is looked upon with pride by ethnic-Chinese everywhere. More importantly, it will continue to generate attractive, sustainable value for shareholders.

　　　　　　　　　　　　　　　　　　　　　　　　　　　Jeffrey L.S. Koo
　　　　　　　　　　　　　　　　　　　　　　　　　　　Chairman