ADDRESS: NO. 30, Ta-Cheng Street, Taipei, Taiwan, R.O.C. … · 2017-06-15 · taiwan business...

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese)

TAIWAN BUSINESS BANK, LTD.AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017 AND 2016 INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

ADDRESS: NO. 30, Ta-Cheng Street, Taipei, Taiwan, R.O.C.

TELEPHONE : 02-2559-7171

The auditors’ report and the accompanying consolidated financial statements are the English translation of the Chinese version preparedand used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chineselanguage auditors’ report and consolidated financial statements, the Chinese version shall prevail.

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TABLE of CONTENTS

Contents Page

Cover Page 1

Table of Contents 2

Independent Accountants' Review Report 3

Consolidated Balance Sheets 4

Consolidated Statements of Comprehensive Income 5

Consolidated Statements of Change in Equity 6

Consolidated Statements of Cash Flows 7

Notes to the Consolidated Financial Statements

1. Company history 8

2. Approval date and procedures of the consolidated financial statements 8

3. New standards, amendments and interpretations adopted 9～12

4. Summary of significant accounting policies 12～25

5. Significant accounting assumptions and judgments, and major sources ofestimation uncertainty

25～26

6. Explanation of significant accounts 26～110

7. Related party transactions 110～114

8. Pledged assets 114

9. Commitments and contingencies 114～115

10. Losses due to major disasters 115

11. Subsequent events 115

12. Other 115～116

13. Other disclosures

(A) Information on significant transactions 116～117

(B) Information of investees 118～119

(C) Information on investment in mainland China 120

14. Segment information 121～122

Segment information of Security Division 123～124

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Independent Accountants' Review Report

To the Board of Directors Taiwan Business Bank, Ltd.:

We have reviewed the accompanying consolidated balance sheets of Taiwan Business Bank, Ltd. and itssubsidiaries as of March 31, 2017 and 2016, and the related consolidated statements of comprehensive income,changes in equity and cash flows for the three months ended March 31, 2017 and 2016. These consolidatedinterim financial statements are the responsibility of the Bank’s management. Our responsibility is to issue areport on these consolidated interim financial statements based on our review.

We conducted our reviews in accordance with Statement on Auditing Standard 36, "Review FinancialStatements". A review is limited primarily to inquiries of company personnel and applying analyticalprocedures to financial data and thus provides less assurance than an audit. We have not performed anaudit, and accordingly, we do not express an audit opinion.

Based on our reviews, we are not aware of any material modifications that should be made to theconsolidated interim financial statements referred to in the first paragraph in order for them to be inconfom1ity with the Regulations Governing the Preparation of Financial Reports by Public Banks, theRegulations Governing the Preparation of Financial Reports by Securities Firms, and the InternationalAccounting Standards (IAS) 34 “Interim Financial Reporting” endorsed by the Financial SupervisoryCommission of the Republic of China.

KPMG

Taipei, Taiwan (Republic of China)May 10, 2017

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated statement of financial position,financial performance and its cash flows in accordance with the accounting principles and practices generally accepted in the Republic ofChina and not those of any other jurisdictions. The standards, procedures and practices to review such consolidated financial statementsare those generally accepted and applied in the Republic of China.

The auditors’ report and the accompanying consolidated financial statements are the English translation of the Chinese version preparedand used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chineselanguage auditors’ report and consolidated financial statements, the Chinese version shall prevail.

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Reviewed only, not audited in accordance with generally accepted auditing standards as of March 31,2017 and 2016.

TAIWAN BUSINESS BANK, LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2017, December 31, 2016, and March 31, 2016

(Expressed In Thousands of New Taiwan Dollars)

March 31, 2017 December 31, 2016 March 31, 2016Assets Amount ％ Amount ％ Amount ％Cash and cash equivalents (Notes 6(A) and 7) $ 41,812,050 3 49,564,948 3 41,951,824 3

Due from the Central Bank and call loans to banks (Notes 6(B) and

7)

98,981,795 6 90,619,262 6 95,398,008 7

Financial assets at fair value through profit or loss (Note 6(C)) 1,321,142 - 1,443,693 - 2,293,875 -

Securities purchased under resell agreements (Notes 6(D) and (N)) 15,617,825 1 619,201 - 9,523,969 1

Receivables－net (Note 6(E)) 25,647,667 2 24,000,980 2 19,924,956 1

Current Income tax assets 116,062 - 116,062 - 265,479 -

Discounts and loans－net (Notes 6(F) and 7) 1,039,966,896 69 1,045,014,647 70 988,179,042 68

Available-for-sale financial assets－net (Notes 6(G) and (N)) 68,277,427 5 73,330,688 5 66,375,745 5

Held-to-maturity financial assets－net (Note 6(H)) 197,040,851 13 192,523,259 13 200,750,397 14

Other financial assets－net (Note 6(I)) 2,126,799 - 2,132,723 - 2,090,742 -

Premises and equipment－net (Note 6(J)) 14,135,086 1 14,120,706 1 14,114,894 1

Intangible assets－net 202,134 - 183,061 - 147,540 -

Deferred income tax assets－net (Note 6(V)) 1,332,323 - 1,240,678 - 1,231,301 -

Other assets－net (Note 6(K)) 5,051,609 - 3,819,074 - 2,035,885 -

Total assets $ 1,511,629,666 100 1,498,728,982 100 1,444,283,657 100

March 31, 2017 December 31, 2016 March 31, 2016Liabilities and equity Amount % Amount % Amount %Liabilities

Deposits from the Central Bank and other banks (Notes 6(L) and 7) $ 84,084,793 6 75,817,857 5 74,875,012 5

Financial liabilities at fair value through profit or loss (Note 6(M)) 174,436 - 214,259 - 127,279 -

Securities sold under repurchase agreements (Note 6(N)) 1,843,187 - 2,758,905 - 2,120,176 -

Payables (Note 6(O)) 32,307,064 2 35,412,594 2 25,717,969 2

Current income tax liabilities 475,382 - 310,077 - - -

Deposits and remittances (Notes 6(P) and 7) 1,256,876,593 83 1,253,804,477 84 1,210,092,773 84

Financial debentures (Note 6(Q)) 45,700,000 3 42,750,000 3 45,600,000 3

Other financial liabilities (Note 6(R)) 11,345,556 1 10,819,145 1 11,696,554 1

Provision for liabilities (Note 6(S)) 3,593,943 - 3,606,753 - 3,282,092 -

Deferred income tax liabilities (Note 6(V)) 881,667 - 884,569 - 894,685 -

Other liabilities (Note 6(T)) 1,997,436 - 1,480,006 - 708,096 -

　　Total liabilities 1,439,280,057 95 1,427,858,642 95 1,375,114,636 95

Equity parent company

Common stock (Note 6(U)) 59,688,949 4 59,688,949 4 56,846,618 4

Retained earnings:

Legal reserve (Note 6(U)) 7,088,772 1 7,088,772 1 5,626,631 1

Special reserve (Note 6(U)) 185,128 - 185,128 - 185,128 -

Undistributed earnings (accumulated deficit)(Note 6(U)) 6,422,471 - 4,936,973 - 6,228,790 -

Other items in equity (1,035,711) - (1,029,482) - 281,854 -

　　Total equity 72,349,609 5 70,870,340 5 69,169,021 5

Total liabilities and equity $ 1,511,629,666 100 1,498,728,982 100 1,444,283,657 100

(The accompanying notes are an integral part of the consolidated financial reports.)

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016


For the three months ended March 31, 2017 2016

Amount ％ Amount ％Interest revenue (Notes 6(Z) and 7) $ 5,965,951 119 6,236,229 108

Less: Interest expenses (Notes 6(Z) and 7) (2,207,010) (44) (2,459,763) (43)

Net interest income　 3,758,941 75 3,776,466 65

Non-interest income

Service fee and commission income (Notes 6(AA) and 13) 904,489 18 1,028,688 18

Gains (losses) on financial assets or liabilities at fair value through profit or loss - net (Note 6(AB)) 293,819 6 178,722 3

Realized (losses) gains on available-for-sale financial assets - net (Note 6(AC)) (864) - (107) -

Foreign exchange gains (losses) 3,901 - 66,084 1

Net other non-interest income (Notes 6(AD) and 7) 9,646 - 26,436 1

Securities brokerage income - net 41,174 1 37,706 1

Other miscellaneous income (Note 6(AE)) - - 643,973 11

Net revenue 5,011,106 100 5,757,968 100

Bad debt expenses and guarantee liability provisions (miscellaneous provision)(Note 6(AF)) (321,057) (6) (1,130,333) (20)

Operating expenses：

Employee benefit expenses (Notes 6(AG) and 12) (1,897,551) (38) (1,881,872) (33)

Depreciation and amortization expenses (Notes 6(AH) and 12) (99,584) (2) (96,591) (1)

Other general and administrative expenses (Note 6(AI)) (943,218) (19) (1,041,175) (18)

　 Total operating expenses (2,940,353) (59) (3,019,638) (52)

Income from continuing operations before income tax 1,749,696 35 1,607,997 28

Income tax expenses (Note 6(V)) (264,198) (5) (253,011) (4)

Net income 1,485,498 30 1,354,986 24

Other comprehensive income：

Items that are or may be reclassified subsequently to profit or loss

Difference of foreign exchange in translating financial statements of foreign operating units (696,055) (14) (182,420) (3)

Unrealized (losses) gains on available-for-sale financial assets-net 580,104 12 369,053 6

Income tax related to items that are or may be reclassified to profit or loss 109,722 2 (31,727) (1)

　Total items that are or may be reclassified subsequently to profit or loss (6,229) - 154,906 2

Other comprehensive income (net amount after tax) (6,229) - 154,906 2

Total comprehensive income $ 1,479,269 30 1,509,892 26

Earnings per share (in NT dollar)(Note 6 (X))

Basic earnings per share (in NT dollar) $ 0.25 0.23

Diluted earnings per share (in NT dollar) $ 0.25 0.23


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CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY



Equity attributed to the parent companyOther item in equity

Stock Retained earnings Difference of foreignexchange in

translating financialUnrealized gains and

losses on available

Common stock Legal reserve Special reserveUndistributed

earnings Total statements of foreign

operating units-for-sale financial

assets TotalBalance ─ January 1, 2016 $ 56,846,618 5,626,631 185,128 4,873,804 10,685,563 221,642 (94,694) 67,659,129

Net Income for the three months ended March 31, 2016 - - - 1,354,986 1,354,986 - - 1,354,986

Other comprehensive income (losses) for the three months ended March 31,2016

- - - - - (151,408) 306,314 154,906

Total comprehensive income for the three moonths ended March 31, 2016 - - - 1,354,986 1,354,986 (151,408) 306,314 1,509,892

Balance ─ March 31, 2016 $ 56,846,618 5,626,631 185,128 6,228,790 12,040,549 70,234 211,620 69,169,021

Balance ─ January 1, 2017 $ 59,688,949 7,088,772 185,128 4,936,973 12,210,873 (19,637) (1,009,845) 70,870,340

Net Income for the three months ended March 31, 2017 - - - 1,485,498 1,485,498 - - 1,485,498

Other comprehensive income (losses) for the three months ended March 31,2017

- - - - - (584,105) 577,876 (6,229)

Total comprehensive income for the three moonths ended March 31, 2017 - - - 1,485,498 1,485,498 (584,105) 577,876 1,479,269

Balance ─March 31, 2017 $ 59,688,949 7,088,772 185,128 6,422,471 13,696,371 (603,742) (431,969) 72,349,609


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CONSOLIDATED STATEMENTS OF CASH FLOWS




Cash flows from operating activities:　Net income before tax $ 1,749,696 1,607,997　Adjustments：　Accounts that do not affect cash flow　　　Depreciation expenses 80,880 79,306　　　Amortization expenses 18,704 17,285　　　Provision of bad debt expenses 323,537 1,126,945　　　Net (gain) loss on financial assets and liabilities at fair value through profit or loss (17,418) 8,275　　　Interest expenses 2,207,010 2,459,763　　　Interest revenues (5,965,951) (6,236,229)　　　Net change of provision for guarantee liabilities (2,480) 3,388　　　Losses on disposal and retirement of premises and equipment 35 567　　　Other 163,747 30,942　　　　Total (3,191,936) (2,509,758) 　Change in assets and liabilities related to operating activities：　Net change in assets related to operating activities：　　　(Increase) decrease in due from the Central Bank and call loans to banks (8,362,388) 23,486,763　　　Decrease (increase) in financial assets at fair value through profit or loss 107,668 (291,527)　　　(Increase) decrease in securities purchased under resell agreements (14,998,624) 17,260,546　　　(Increase) decrease in receivables (1,834,314) 5,019,794　　　Decrease in discounts and loans 4,798,913 18,141,721　　　Increase in other financial assets (2,304) (511)　　　(Increase) decrease in other assets (1,804,100) 2,770,281　　　　Total (22,095,149) 66,387,067 　Net change in liabilities related to operating activities：　　　Increase (decrease) in deposits from the Central Bank and other banks 8,266,936 (2,982,525)　　　Decrease in financial liabilities at fair value through profit or loss (7,522) (20,732)　　　Decrease in provisions for lawsuit - (10,433)　　　Decrease in securities sold under repurchase agreements (915,718) (2,042,971)　　　Decrease in payables (3,485,750) (5,505,465)　　　Increase (decrease) in deposits and remittances 3,072,116 (22,227,912)　　　Increase (decrease) in other financial liabilities 528,277 (498,506)　　　Increase (decrease) in provision for employee benefits 2,089 (36,619)　　　　Total 7,460,428 (33,325,163)　　　　　Total change in assets and liabilities related to operating activities (14,634,721) 33,061,904　　　Total adjustments (17,826,657) 30,552,146 　Cash (used in) provided by operating activities (16,076,961) 32,160,143 　Interest collected 6,116,542 5,940,390 　Interest paid (1,826,790) (2,160,760) 　Income tax paid (249,139) (46,651)　　　Net cash (used in) provided by operating activities (12,036,348) 35,893,122Cash flows from investing activities：　Proceeds from disposition of available-for-sale financial assets 5,631,137 -　Purchase of available-for-sale financial assets - (40,400,646)　Purchase of hold-to-maturity financial assets (4,517,592) -　Proceeds from repayments of hold-to-maturity financial assets - 5,527,082　Purchase of premises and equipment (100,469) (89,356)　Proceeds from disposition of premises and equipment 10 38　Increase in guarantee deposits paid (12,570) -　Decrease in guarantee deposits paid - 23,183　Purchase of intangible assets (34,719) (33,730)　　Net cash provide by (used in) investing activities 965,797 (34,973,429)Cash flows from financing activities：　Issuance of financial debentures 4,000,000 -　Redemption of financial debentures (1,050,000) -　Increase in guarantee deposits received 112,138 1,837　Decrease in lease payable (1,866) (2,057)　Increase(decrease) in other liabilities 297,244 (29,826)　　Net cash provided by (used in) financing activities 3,357,516 (30,046)Foreign exchange effect (39,863) 367Net (decrease) increase in cash and cash equivalents (7,752,898) 890,014Cash and cash equivalents, at the beginning of the period 49,564,948 41,061,810Cash and cash equivalents, at the end of the period $ 41,812,050 41,951,824


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AS OF MARCH 31, 2017 AND 2016 Reviewed only, not audited in accordance with the generallyaccepted auditing standards.

TAIWAN BUSINESS BANK, LTD.AND ITS SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017 and 2016(Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Stated)

1. COMPANY HISTORY

TAIWAN BUSINESS BANK, LTD. (the “Bank”) was formerly a general savings union known as“Taiwan Mutual Financing Bank” or “Tai-Shio Mutual Financing Bank” when it was established in1915. After several mergers and acquisitions, it was renamed as Taiwan Business Bank, Ltd. inorder to finance and provide banking assistance to small and medium-size businesses on July 1,1976. The Bank’s major lines of business are the following:

(A) As prescribed by the Banking Law, provides professional services tailored to the needs ofsmall and medium-size businesses;

(B) Trust and securities brokerage businesses as approved by the relevant authority;

(C) International banking business; and

(D) Other relevant businesses as authorized by the relevant authority in-charge.

As of March 31, 2017, the Bank not only set up the banking dept., international dept., securitiesdept. and trust dept. under head office but also has 124 domestic branches, 1 offshore banking unit,7 overseas branches, 1 oversea representative office and 17 securities brokerage locations.

The Bank became listed on the Taiwan Stock Exchange on January 3, 1998.

Under the ” Statute for Privatization of State Enterprises” and upon the approval of TaiwanProvince Government, the shares of the Bank owned by the provincial government were sold to thepublic. In line with privatization of the three other major Taiwan province government owned runcommercial banks, the Bank had completed its own privatization on January 22, 1998.

2. APPROVAL DATE AND PROCEDURES OF THE CONSOLIDATED FINANCIALSTATEMENTS

These consolidated financial statements were authorized for issuance by the board of directors onMay 10, 2017.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONT'D)

3. NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS ADOPTED

(A) Impact of the International Financial Reporting Standards ("IFRSs") endorsed by the FinancialSupervisory Commission, R.O.C. ("FSC") which have already taken effect

The Bank and its subsidiaries are required to conform to the IFRSs which were issued by theInternational Accounting Standards Board (IASB) before January 1, 2016, and were endorsed by theFSC on January 1, 2017 in complying quarterly financial statements. The related new standards,amendments and interpretations are as follows:

New, Revised or Amended Standards and InterpretationsEffective date per

IASBAmendments to IFRS 10, IFRS 12 and IAS 28 "Investment Entities: Applyingthe Consolidation Exception"

January 1, 2016

Amendments to IFRS 11 "Accounting for Acquisitions of Interests in JointOperations"

January 1, 2016

IFRS 14 "Regulatory Deferral Accounts" January 1, 2016

Amendment to IAS 1 "Disclosure Initiative" January 1, 2016

Amendments to IAS 16 and IAS 38 "Clarification of Acceptable Methods ofDepreciation and Amortization"

January 1, 2016

Amendments to IAS 16 and IAS 41 "Agriculture: Bearer Plants" January 1, 2016

Amendments to IAS 19 "Defined Benefit Plans: Employee Contributions" July 1, 2014

Amendment to IAS 27 "Equity Method in Separate Financial Statements" January 1, 2016

Amendments to IAS 36 "Recoverable Amount Disclosures for Non-FinancialAssets"

January 1, 2014

Amendments to IAS 39 "Novation of Derivatives and Continuation of HedgeAccounting"

January 1, 2014

Annual improvements cycles 2010-2012 and 2011-2013 July 1, 2014

Annual improvements cycle 2012-2014 January 1, 2016

IFRIC 21 "Levies" January 1, 2014

The Bank and its susdiaries assessed that the initial application of the above IFRSs would not haveany material impact on the consolidated financial statements.

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(B) Newly released or amended standards and interpretations not yet endorsed by the FSC

A summary of the new standards and amendments issued by the IASB but not yet endorsed by theFSC. The FSC announced IFRS 9 and IFRS 15 should be applied starting at January 1, 2018. As ofthe date the consolidated financial statements were issued, the FSC has yet to announce the effectivedates of the other IFRSs. As of the end of reporting date is as follows:

New, Revised or Amended Standards and InterpretationsEffective date

per IASBIFRS 9 "Financial Instruments" January 1, 2018

Amendments to IFRS 10 and IAS 28 "Sale or Contribution of Assets Betweenan Investor and Its Associate or Joint Venture"

Effective date tobe determined byIASB

IFRS 15 "Revenue from Contracts with Customers" January 1, 2018

IFRS 16 "Leases" January 1, 2019

Amendment to IFRS 2 "Clarifications of Classification and Measurement ofShare-based Payment Transactions"

January 1, 2018

Amendment to IFRS 15 "Clarifications of IFRS 15" January 1, 2018

Amendment to IAS 7 "Disclosure Initiative" January 1, 2017

Amendment to IAS 12 "Recognition of Deferred Tax Assets for UnrealizedLosses"

January 1, 2017

Amendments to IFRS 4 "Insurance Contracts" (Applying IFRS 9 FinancialInstruments with IFRS 4 "Insurance Contracts")

January 1, 2018

Annual Improvements to IFRS Standards 2014-2016 Cycle:

IFRS 12 "Disclosure of Interests in Other Entities" January 1, 2017

IFRS 1 "First-time Adoption of International Financial Reporting Standards"and IAS 28 "Investments in Associates and Joint Ventures"

January 1, 2018

IFRIC 22 "Foreign Currency Transactions and Advance Consideration" January 1, 2018

Amendments to IAS 40 Investment Property January 1, 2018

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The Bank and its subsidiaries is still currently determining the potential impact of the standardslisted below:

Issuance / ReleaseDates Standards or Interpretations Content of amendment

May 28, 2014April 12, 2016

IFRS 15 "Revenue fromContracts with Customers"

IFRS 15 establishes a five-step model forrecognizing revenue that applies to allcontracts with customers, and will supersedeIAS 18 "Revenue," IAS 11 "ConstructionContracts," and a number of revenue-relatedinterpretations.

Final amendments issued on April 12, 2016,clarify how to (i) identify performanceobligations in a contract; (ii) determinewhether a company is a principal or an agent;(iii) account for a license for intellectualproperty (IP); and (iv) apply transitionrequirements.

November 19, 2013July 24, 2014

IFRS 9 "Financial Instruments" The standard will replace IAS 39 "FinancialInstruments: Recognition and Measurement",and the main amendments are as follows:

Classification and measurement: Financial‧assets are measured at amortized cost, fairvalue through profit or loss, or fair valuethrough other comprehensive income,based on both the entity's business modelfor managing the financial assets and thefinancial assets' contractual cash flowcharacteristics. Financial liabilities aremeasured at amortized cost or fair valuethrough profit or loss. Furthermore, there isa requirement that "own credit risk"adjustments be measured at fair valuethrough other comprehensive income.

Impairment: The expected credit loss‧model is used to evaluate impairment.

Hedge accounting: Hedge accounting is‧more closely aligned with risk managementactivities, and hedge effectiveness ismeasured based on the hedge ratio.

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Issuance / ReleaseDates Standards or Interpretations Content of amendment

January 13, 2016 IFRS 16 "Leases" The new standard of accounting for lease isamended as follows:

For a contract that is, or contains, a lease,‧the lessee shall recognize a right-of-useasset and a lease liability in the balancesheet. In the statement of profit or loss andother comprehensive income, a lessee shallpresent interest expense on the leaseliability separately from the depreciationcharge for the right-of use asset during thelease term.

A lessor classifies a lease as either a‧finance lease or an operating lease, andtherefore, the accounting remains similarto IAS 17.

The Bank and its subsidiaries is evaluating the impact on its financial position and financialperformance of the initial adoption of the abovementioned standards or interpretations. The resultsthereof will be disclosed when the Bank and its subsidiaries completes its evaluation.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) Statement of compliance

These consolidated interim financial statements have been prepared in accordance with theRegulations Governing the preparation of Financial Reports by Public Banks (hereinafterreffered to as the Regulation) and the preparation and guidelines of IAS 34 “Interim FinancialReporting” which are endorsed by FSC and do not include all of the information required bythe Regulations and International Financial Reporting Standards, International AccountingStandards, IFRIC Interpretations and SIC Interpretations endorsed by the FSC (hereinafterreferred to IFRS endorsed by the FSC) for full annual consolidated financial statements.

(B) Basis of preparation

(a) Basis of measurement

The consolidated financial statements have been prepared on a historical cost basisexcept for the following material items in the statement of financial position:

(1) Financial instruments measured at fair value through profit or loss are measured atfair value (including derivative instruments);

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(2) Available-for-sale financial assets are measured at fair value; and

(3) The net defined benefit liability (asset) is recognized as fair value of plan assets, lesspresent value of defined benefit obligation and the effect of the asset ceiling in Note4(M).

(b) Consolidation of financial statement

The consolidation financial statements include the headquarter and all the domesticbranches, foreign branches and its subsidiaries. The internal transactions within theheadquarter, the domestic branches and the foreign branches are offset when preparingthe consolidated financial statement.

(c) Functional and presentation currency

The functional currency of each entities is determined based on the primary economicenvironment in which the entities operate. The consolidated financial statements arepresented in New Taiwan Dollar, which is the Bank’s functional currency. All financialinformation presented in New Taiwan Dollar has been rounded to the nearest thousand.

(C) Basis of consolidation

(a) Subsidiary

A subsidiary is an enterprise controlled by the Bank. The financial statements ofsubsidiaries are included in the consolidated financial statements from the date thatcontrol commences until the date that control ceases.

Gains or losses applicable to the non-controlling interests in a subsidiary are allocated tothe non-controlling interests even if doing so causes the non-controlling interests to havea deficit balance.

(b) Elimination of inter-group transaction

Intra-group balances and transactions, and any unrealized income and expenses arisingfrom intra-group transactions are eliminated in preparing the consolidated financialstatements. The unrealized profits arising from the transactions with the investmentsunder the equity method are eliminated to the extent of the percentage of sharespossessed by the group over the investee. The unrealized losses are eliminated in thesame way as the unrealized profit, but only under the circumstances that there are noevidences of impairment.

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List of subsidiaries in the consolidated financial statements

Shareholding(Holding %)

Establishedlocation

Main businessscope

March 31,2017

December 31,2016

March 31,2016

Taiwan Business Bank InsuranceAgency Co., Ltd.

Taiwan Agent ofpersonalinsurance

100 100 100

Taiwan Business Bank PropertyInsurance Agency Co., Ltd.

Taiwan Agent ofpropertyinsurance

100 100 100

Taiwan Business Bank InternationalLeasing Co., Ltd.

Taiwan Leasingbusiness

100 100 100

Taiwan Business Bank InternationalFinancing Leasing Co., Ltd.

China Leasingbusiness

100 100 100

TBB (Cambodia) MicrofinanceInstitution Plc

Kampuchea Financialcompany

100 100 100

(D) Foreign currency

(a) Foreign currency transaction

Transactions in foreign currencies are translated to the respective functional currenciesof Group entities at exchange rates at the dates of the transactions. Monetary assets andliabilities denominated in foreign currencies on the reporting date are retranslated to thefunctional currency at the exchange rate of Bank of Taiwan at 10 AM. The foreigncurrency gain or loss on monetary items is the difference between amortized cost in thefunctional currency at the beginning of the year adjusted for the effective interest andpayments during the year, and the amortized cost in foreign currency translated at theexchange rate at the end of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are measuredat fair value are retranslated to the functional currency at the exchange rate at the datethat the fair value was determined. Non-monetary items in a foreign currency that aremeasured based on historical cost are translated using the exchange rate at the date oftranslation. Foreign currency differences arising on retranslation are recognized in profitor loss, except for the available-for-sale equity investment which are recognized in othercomprehensive income arising on the retranslation.

(b) Foreign operations

The income and expenses of foreign operations, excluding foreign operations inhyperinflationary economies, are translated to the Group’ s functional currency(not thecurrency under highly inflation economy) by the following procedures:

(1) Assets and liabilities are translated to the Group’s functional currency at exchangerates at the reporting date;

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(2) Profit and loss are translated to the Group’s functional currency by the average rate(unless the exchange rate of the period fluctuates intensively, then it applies theexchange rate on the trade date);

(3) Foreign currency differences are recognized in other comprehensive income.

All the translation differences arising from above procedures are presented in the foreigncurrency translation reserve in equity. The exchange difference from translating netinvestments in foreign operations is recognized in other comprehensive income. When aforeign operation is wholly or partially disposed, the cumulative amount in thetranslation reserve related to that foreign operation is reclassified to profit or loss as partof the gain or loss on disposal.

(E) Cash and cash equivalent

Cash and cash equivalent comprise cash on hand, petty cash, foreign currency on hand andcash in banks, but excludes those items which are designated for specific purposes orrestricted by contracts and law.

(F) Financial Instruments

(a) Financial assets and liabilities at fair value through profit or loss

Financial instruments in this category includes financial assets and liabilities classifiedas held-for-trading and financial assets and liabilities designated as at fair value throughprofit or loss on initial recognition. Financial instrument is classified in this category ifacquired principally for the purpose of selling or repurchasing in the short term. Thistype of financial asset is measured at fair value at the time of initial recognition, andattributable transaction costs are recognized in profit or loss as incurred. A regular waypurchase or sale of financial assets shall be recognized and derecognized, as applicable,using trade-date accounting. The derivative financial instruments held by the Bank andits subsidiaries, except for those designated as hedging instruments, are classified underthis account. In addition, the Bank and its subsidiaries designates financial assets, otherthan ones classified as held-for-trading, as at fair value through profit or loss at initialrecognition under one of the following situations:

(1) A hybrid instrument contains one or more embedded derivatives;

(2) Designation eliminates or significantly reduces a measurement or recognitioninconsistency that would otherwise arise; and

(3) In accordance with the Bank and its subsidiaries’ risk control policy or investmentstrategy, a set of financial assets or liabilities and its components managed are alsodesignated at fair value.

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(b) Available for sale financial assets

Financial assets are measured at fair value and unrealized gains and losses thereon arerecognized as an adjustment item of equity. Financial instruments held by the Bank andits subsidiary are recorded on the trade dates. Financial instruments are initiallyrecognized at fair value plus transaction costs. The impairment loss is recognized if thereis evidence indicating that a decline in the value of an investment is other thantemporary. If the impairment loss in the following period is reduced, reversal of loss forequity investments is adjusted to equity, and reversal of loss for debt instrument iscredited to current income if the reduction of impairment loss resulted from a subsequentevent.

(c) Held-to-maturity financial assets

Financial assets are measured at amortized cost and its interest income via effective rate.Financial assets held by the Bank and its subsidiary are recorded on the trade dates andare initially recognized at fair value plus transaction costs. The impairment loss isrecognized if there is evidence indicating that a decline in the value of an investment isother than temporary. If in a subsequent period, the amount of the impairment lossdecreases and the decrease can be related objectively to an event occurring after theimpairment was recognized, the previous recognized impairment loss is reversed throughthe profit or loss. The carrying value after the reversal should not exceed the amortizedbalance of the assets assuming no impairment loss was recognized.

(d) Financial assets measured at cost

Equity instruments with no quoted market price and whose fair value cannot be reliablymeasured are stated at cost. The impairment loss is recognized if there is evidenceindicating that a decline in the value of an investment is other than temporary, and theimpairment loss is irreversible.

(e) Debt instrument with no active market

These are debt instruments with no active market quote and measured at amortized cost.The impairment loss is recognized if there is evidence indicating that a decline in thevalue of an investment is other than temporary. If in a subsequent period, the amount ofthe impairment loss decreases and the decrease can be related objectively to an eventoccurring after the impairment was recognized, the previous recognized impairment lossis reversed through the profit or loss .The carrying value after the reverse should notexceed the amortized balance of the assets assuming no impairment loss was recognized.

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(f) Derecognition of financial assets and liabilities

The Bank and its subsidiaries shall derecognize a financial asset when the contractualrights to the cash flows from the financial asset expire or when the Bank and itssubsidiaries transfer substantially all the risks and rewards of ownership of the financialassets. A financial liability should be removed from the balance sheet when, and onlywhen, it is extinguished, that is, when the obligation specified in the contract is eitherdischarged or cancelled or expires. If the bonds or stocks are taken as collateral, shall notbe derecognized because the Bank and its subsidiaries have retained substantially all therisks and rewards of ownership.

(g) Financial instruments offsetting

A financial asset and a financial liability should be offset and the net amount reportedwhen, and only when, an entity has a legally enforceable right to set off the amounts; andintends either to settle on a net basis, or to realize the asset and settle the liabilitysimultaneously.

(h) Loans and advances

Loans and advances are recorded as initial fair value (including direct transaction cost),and the subsequent measurement recognizes interest income via effective interest ratemethod (if there is not much difference then it can adopt straight line method) and isbooked as per amortized cost deducted by impairment loss.

Interest accrual on loans and advances is suspended if either of the following occurs:

(1) Payment of principal or interest is very likely not to be redeemed as per contracts.

(2) Non-performing loans are categorized as overdue loans in six months after thesettlement period ends.

(i) Allowance for bad debts and provision for guarantee liabilities

Adequate allowance for bad debts is provided for loans and receivables by assessingwhether there is evidence indicating that a single financial asset or a group of financialassets are impaired per the “ Regulations Governing the Procedures for BankingInstitutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans,”and the “Regulations Governing Institutions Engaging in Credit Card Business”.

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For loans and receivables, the objective evidence should be identified first to reveal anyimpairment existing for financial assets that are individually significant, and individualor collective impairment for financial assets that are not individually significant. If noobjective evidence of impairment exists in an individually assessed financial asset, itshould be included in a group of financial assets with similar credit risk characteristicsand collectively assessed for impairment. For assets which have recognized impairmentlosses or continue to recognize impairment losses, the aforementioned assessmentmethod is not required.

If there is an objective evidence that an impairment loss on a financial asset hasoccurred, the amount of the loss is recognized and measured via the difference betweenthe asset’ s carrying amount and the present value of the estimated future cash flowsdiscounted at the financial asset’s original effective interest rate; the amount of the lossshould be recognized as bad debt expenses in profit or loss of the current period. Theestimate of future cash flows includes the recoverable amount of collaterals and relatedinsurances when determining the amount of the loss.

Above evidences of impairment loss usually include the following:

(1) Significant financial difficulty occurs to the issuer or the debtor.

(2) There are already default circumstances occur to the issuer or debtor, for example:default or overdue payment of interest or principal.

(3) The creditor give in to the debtor due to commercial or legal concern.

(4) The debtor is likely to bankrupt or execute certain financial reorganization.

(5) The issuer has financial difficulty and the financial assets cannot be traded in theactive market.

(6) The payment status of the debtor worsens.

(7) The national and regional situation related to the default of the asset changes.

The Bank and its subsidiaries should recognize bad debt expenses when there is animpairment loss on the financial assets measured at amortized cost.

The impaired amount is the difference between the book value of the financial asset andthe sum of estimated future cash flows discounted by the original effective rate. Thebook value of the financial assets is reduced by the allowance account and the amount ofimpairment losses shall be recognized as current gains and losses. When deciding theamount of the impairment loss, the estimate of future cash flows should include thecollaterals and the recoverable amount of relevant insurances.

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According to “ Regulations Governing the Procedures for Banking Institutions toEvaluate Assets and Deal with Non-Performing and Non-Accrual Loans ” , the Bankshall provide the sum of the following to be the allowance for bad debts:

(1) 1% of the first class credit assets deducted by the amount of credit assets from thegovernment.

(2) 2% of the second class credit assets.

(3) 10% of the third class credit assets.

(4) 50% of the fourth class credit assets.

(5) 100% of the fifth class credit assets.

The allowance for bad debts assessed by the previously stated method shall not be lessthan the amount regulated by “ Regulations Governing the Procedures for BankingInstitutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans ”.

The Bank provides reserve for guarantee liabilities for off-balance-sheet non-creditassets taking into account the regulation of “Regulations Governing the Procedures forBanking Institutions to Evaluate Assets and Deal with Non-Performing and Non-AccrualLoans”.

Unrecoverable overdue loans and bad debts, which are not able to be recovered after theoverdue collection process, are written-off after deducting the recoverable portion. Uponapproval by the board of directors and notification to supervisors, the excess amount ofwritten off loans over such allowance or reserve is reflected as a current loss.

Above amounts provided are booked under the account of bad debt expenses.

(G) Impairment loss on non-financial assets

The recoverable amount for an individual asset or a cash-generating unit is the higher of itsfair value less costs to sell or its value in use. If, and only if, the recoverable amount of anasset is less than its carrying amount, the carrying amount of the asset shall be reduced to itsrecoverable amount. That reduction is an impairment loss. An impairment loss shall berecognized immediately in profit or loss.

An impairment loss recognized in prior periods for an asset other than goodwill shall bereversed if, and only if, there has been a change in the estimates used to determine the asset’srecoverable amount since the last impairment loss was recognized. If this is the case, thecarrying amount of the asset shall be increased to its recoverable amount, as a reversal of apreviously recognized impairment loss.

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An impairment loss in respect of goodwill is not reversed. For other assets, an impairmentloss is reversed only to the extent that the asset’ s carrying amount does not exceed thecarrying amount that would have been determined, net of depreciation or amortization, if noimpairment loss had been recognized.

(H) Property, Plant and Equipment

Items of property, plant and equipment are measured at cost less accumulated depreciationand accumulated impairment losses. Cost includes expenditure that is directly attributed tothe acquisition of the asset.

Subsequent expenditure is capitalized only when it is probable that the future economicbenefits associated with the expenditure will flow to the Group. The carrying amount of thoseparts that are replaced is derecognized. Ongoing repairs and maintenance is expensed asincurred.

Land has an unlimited useful life and therefore is not depreciated. The estimated useful livesfor the current and comparative years of significant items of property, plant and equipmentare as follows:

(a) Buildings 35-50 years

(b) Equipment and machine 3-8 years

(c) Lease asset 5 years

The Bank and its subsidiaries reviews and adjusts the residual value and the useful lives ofassets at the end of each fiscal year. Whenever there is evidence indicating that the carryingamount is unable to be recovered due to environmental activities or changes, the Bank and itssubsidiaries evaluate the impairment loss of assets.

If the carrying amount is higher than the recoverable amount, the carrying amount is adjustedto the recoverable amount. The recoverable amount is the fair value or the use value deductedby the disposition expense.

The gain or loss on disposal is the difference between the carrying amount and net disposalproceeds, and gain or loss on disposal shall be recognized as net gain or loss on non-otherinterest of consolidated comprehensive income.

When purchasing machinery equipment and computer software, the education fee implied inthe contract is not recognized as the cost of machinery equipment and is recognized asexpense.

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For the lease contracts which regulate the Bank and its subsidiaries to restore the property tothe original status, the Group reviews the terms of each contract and calculated the presentvalue of the restoration expenses when signing the contracts. The decommissioning liabilityreserve is provided based on the calculation and the discount rate is determined based on theBank’s policy.

(I) Leasehold

Leases contract can be divided into operating lease contracts and financing (capital) leasecontracts. If a lease contract transfers almost all the risk and reward comes with theleasehold, the leasehold is considered financing (capital) lease. If a lease contract does nottransfers almost all the risk and reward comes with the leasehold, the leasehold is consideredoperating lease.

Depreciation is calculated per the regulation of IAS 16 “Property, Plant and Equipment” andIAS 38 “ Intangible Assets” . If there is no reason to be sure that the lessee will obtain theownership of the assets at the end of the lease period for financing leasehold, the assets shallbe depreciated within the lease period or the durable service time, whichever is shorter. Thelease contracts of the Bank and its subsidiaries include operating lease and financing lease.

(J) Deferred assets

The costs of installation for utilities, including electricity and water, as well as securityfacilities, are capitalized and amortized equally over 5 years.

(K) Collateral assumed

Collaterals assumed are stated at the lower of net book value or net realizable value; i.e., theamount the Bank receives when creditors cannot meet obligations and the collaterals andsalvages are auctioned off. Under FSC Letter Ruling (2)0948010856 on July 11, 2005,collateral assumed must be disposed before December 31, 2005. If the Bank is unable todispose the collateral assumed before December 31, 2005, it reserves a provision for lossequal to the carrying value of the collateral assumed. On disposition of collateral, the relatedprovision is reversed. The selling price deducts the original book value of collateral assumedis recognized as gain on sale of collateral assumed.

(L) Provisions

A provision is recognized if, as a result of a past event, the Group has a present legal orconstructive obligation that can be estimated reliably, and it is probably that an outflow ofeconomic benefits will be required to settle the obligation. Provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflects the current marketassessments of the time value of money and the risks specific to the liability. Amortizationof the discount is recognized as interest expense. Future operating loss cannot be recognizedas liability reserve.

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Contingent liability refers to the possible obligation results from past events. The existence ofcontingent liability can only be proved by whether one or more uncertain events which cannot be controlled by the Bank and its subsidiaries occurs or not. Contingent liability alsorefers to the current obligation results from a past event, but not likely to cause outflow ofeconomic resource to redeem the obligation or the amount of the obligation cannot bemeasured reliably. The Bank and its subsidiaries do not recognized contingent liability anddisclose it per related regulations.

(M) Employee benefit

(a) Short term employee benefit

Short-term employee benefit obligations are measured on an undiscounted basis and areexpensed as the related service is provided.

(b) Retirement benefit

The pension provision of the Bank and its subsidiaries includes defined contributionplan and defined benefit plan. For the personnel of foreign offices, the Bank providespension fund per the regulations of the local authorities.

Defined contribution plan refers to the plan that the Bank and its subsidiaries annuallyprovide certain amount of money to funds to fulfill the obligation. The Bank and itssubsidiaries provide pension based on compulsory obligation, contracts or voluntary willto public or private managed pension funds. If certain pension fund fail to pay theemployees the benefit which they deserve for the service they provided, the Bank and itssubsidiary do not hold legal or constructive obligation to pay additional provision. TheBank and its subsidiaries recognize the pension fund provided as current pension cost onaccrual basis.

The Bank’ s net obligation in respect of defined benefit pension plans is calculatedseparately for each plan by estimating the amount of future benefit that employees haveearned in return for their service in the current and prior periods; that benefit isdiscounted to determine its present value. Any unrecognized past service costs and thefair value of any plan assets are deducted. The discount rate is the yield at the reportingdate on government bonds that have maturity dates approximating the terms of the Bank’s obligations and that are denominated in the same currency in which the benefits areexpected to be paid.

The calculation is performed annually by a qualified actuary using the projected unitcredit method. When the calculation results in a benefit to the Bank, the recognized assetis limited to the total of the present value of economic benefits available in the form ofany future refunds from the plan or reductions in future contributions to the plan. Inorder to calculate the present value of economic benefits, consideration is given to anyminimum funding requirements that apply to any plan in the Bank. An economic benefitis available to the Bank if it is realizable during the life of the plan, or on settlement ofthe plan liabilities.

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When the benefits of a plan are improved, the expense, the portion of the increasedbenefit relating to past service by employees, is recognized immediately in profit or lossto the extent that the benefits vest immediately.

The remeasurements of defined benefit liability (asset) include:

(1) Actuarial gains and losses;

(2) Return on plan assets, excluding net interest on the net defined benefit liability(asset); and

(3) The effect of the asset ceiling, excluding net interest on the net defined benefitliability (asset).

The remeasurements of defined benefit liability (asset) are recognized as othercomprehensive income with a corresponding debit or credit to retained earnings in theperiod in which they occur.

The Bank recognizes gains or losses on the curtailment or settlement of a defined benefitplan when the curtailment or settlement occurs. The gain or loss on curtailmentcomprises any resulting change in the fair value of plan assets and change in the presentvalue of defined benefit obligation.

(c) Deposits with favorable rate

The Bank provides deposits with favorable rate to employees, which include currentemployee fix amount deposits with favorable rate and retired employee fix amountdeposits with favorable rate. The rate difference between the favorable rate and themarket rate belongs to the category of employee benefit.

According to article 28 of “Regulations Governing the Preparation of Financial Reportby Public Banks”, the additional interests result from the difference between deposit withfavorable rate and the deposits with market interest rate shall be calculated by actuaryper the regulations related to defined benefit plan in IAS 19 . The parameters of actuarialassumptions shall follow the regulations of the competent authority.

In accordance with the regulation of “ Discussion of the employee benefit actuarialassumption related matter for adopting IAS 19 with respect to the additional interest ofemployee deposits with favorable rate” issued by the Banking Bureau, the differencebetween the actual payment and the estimated retirement benefit obligation is deemed aschanges in accounting estimate and is recognized in profit or loss.

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(d) Termination benefits

Termination benefits are recognized as an obligation when the Group is demonstrablycommitted, without realistic possibility of withdrawal, to a formal detailed plan to eitherterminate employment before the normal retirement date, or to provide terminationbenefits as a result of an offer made to encourage voluntary redundancy. The Bank andits subsidiaries recognize liabilities when a formal irrevocable termination project isundertaken or when benefit is provided for encouraging voluntary resignation. If benefitsare payable more than 12 months after the reporting period, then they are discounted totheir present value.

(N) Income tax

The Group evaluates and discloses interim period income tax expense in accordance withparagraph B12 of IAS 34 “Interim Financial Reporting”.

Income tax expense is the best estimated by multiplying the pretax income for the interimreporting period by the effective annual tax rate as forecasted by the management, and isrecognized as current tax expense, and the expenses of income tax and deferred income taxare allocated based on the ratio of the estimated annual income tax expense of the year anddeferred income tax expense.

Temporary differences between the carrying amounts of assets and liabilities for financialreporting purposes and their respective tax bases shall be measured based on the tax rates thathave been enacted or substantively enacted at the time of the asset or liability is recovered orsettled and recognized directly in equity or other comprehensive income as tax expense.

(O) Revenue recognition

Interest is recognized according to interest method. Interest accrual is suspended from thedate when the loan is reclassified to non-performing loan and only when the Bank and itssubsidiaries receive cash, the revenue is recognized.

The revenue of handling fee is recognized when cash collected or when the process of theprofit are mostly completed. In addition, for the individual loan which does not belong tolabor service and the handling fee is over 1% of the principal, the interest rate shall beadjusted from the original agreed interest rate to the effective interest rate. For the individualloan which does not belong to the service and the handling fee is less that 1% of theprincipal, the recognition of the revenue should be deferred and be recognized as revenueduring the loan period.

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(P) Operating segments

Operating segment is the component of the Bank and its subsidiaries that engages in businessactivities from which it may earn revenues and incur expenses (including revenues andexpenses relating to transactions with other components of the Bank and its subsidiaries).The segment's operating results are reviewed regularly by the Bank’s chief operating decisionmaker to make decisions pertaining to the allocation of resources to the segment and toassess the performance for which discrete financial information is available.

(Q) Earnings per share (EPS)

EPS is based on the weighted-average number of shares outstanding. In the event of capitalincrease through capitalization of retained earnings, capital surplus, or employee bonuses,EPS is retroactively adjusted based on the percentage of capital increase, regardless of theperiod when the incremental shares are outstanding.

The employee bonuses of the Bank and its subsidiaries issued by stocks were dilutivepotential common shares. If the potential common shares have a non-dilutive effect, the Bankand its subsidiaries should only disclose the basic earnings per share. On the contrary, if thepotential common shares have a dilutive effect, the Bank and its subsidiaries should discloseboth the basic and diluted earnings per share. In calculating the diluted earnings per share, itis based on the assumption that all dilutive potential common shares are outstanding, andtherefore the net income and the shares outstanding shall be adjusted in accordance with thecalculation.

5. SIGNIFICANT ACCOUNTING ASSUMPTIONS AND JUDGMENTS, AND MAJORSOURCES OF ESTIMATION UNCERTAINTY

The preparation of the consolidated financial statements in conformity with the Regulations and theIFRSs No.34 ” Interim financial reporting” endorsed by the FSC requires management to makejudgments, estimates and assumptions that affect the application of the accounting policies and thereported amount of assets, liabilities, income and expenses. Actual results may differ from theseestimates.

The management inspects estimates and basic assumptions continuously, changes in accountingestimate will be recognized in the periods which the change occurred and future periods effected.

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Information about critical judgments in applying accounting policies that have the most significanteffect on the amounts recognized in the consolidated financial statements is as following :

(A) Impairment losses on loans

The Bank and its subsidiaries review loan portfolios quarterly to evaluate impairment losses.When deciding whether to recognize impairment or not, the Bank and its subsidiaries observeevidences indicating the possibilities of impairment. The observable evidence may includethe unfavorable changes of payment status or the economic conditions of the countries orareas related to the default loan. The management applies past loss experience of assets withsimilar credit risk characteristic to analyze the expected cash flows. The Bank and itssubsidiary regularly review the methods and assumptions applied for calculating the amountand timing of the expected cash flows in order to diminish the difference between theestimated amount and the actual amount.

(B) Retirement benefit

The present value of the retirement benefit obligation is the actuarial result based on severalassumptions. Any change of the assumptions may influence the carrying amount of theretirement benefit obligation.

The assumptions applied to determine net pension cost (revenue) include the discount rate.The Bank and its subsidiaries determine the appropriate discount rate at the end of each yearand apply it to calculate the present value of the future cash outflows which are to be paid tothe retirement benefit obligation. To determine the appropriate discount rate, the Bank and itssubsidiaries should consider the interest rate of high quality corporate bonds and governmentbonds. The currency of the retirement benefit shall be the same as that of the high qualitycorporate bond or government bonds and the duration till maturity date shall comply with theduration of the related pension obligation. Other significant assumptions of retirement benefitobligation are based on the current market situation.

6. EXPLANATION OF SIGNIFICANT ACCOUNTS

(A) Cash and cash equivalents

March 31, 2017 December 31, 2016 March 31, 2016Petty cash and revolving fund $ 9,927,529 8,693,045 10,152,248

Foreign currencies on hand 899,066 981,889 950,650

Checks for clearing 6,024,203 12,020,489 2,591,933

Due from other banks 24,961,252 27,869,525 28,256,993

Total $ 41,812,050 49,564,948 41,951,824

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(B) Due from the Central Bank and call loans to banks

March 31, 2017 December 31, 2016 March 31, 2016Due from the Central Bank $ 47,904,224 52,131,770 50,957,541

Deposits transferred to the CentralBank

60,245 172,915 60,220

Call loans to banks 50,971,871 38,314,577 44,380,247

Bank overdraft 45,455 - -

Trust fund indemnity reservedeposited

70,000 70,000 70,000

Securities served as trust fundindemnity reserve deposited

(70,000) (70,000) (70,000)

Total $ 98,981,795 90,619,262 95,398,008

As of March 31, 2017 December 31, 2016 and March 31, 2016 in accordance with theBanking Law and the Central Bank Law, the required reserve deposited by the Bank with theCentral Bank amounted to $47,890,683, $51,994,051 and $50,792,146, of which$34,105,130, $35,822,502 and $32,897,645 respectively, were restricted and such restrictionmay only be lifted when the required reserve is adjusted to a lower amount.

Effective December 2000, in accordance with the amended “Rules Governing Adjustments toand Review of Deposits in Financial Institutions and Reserve for Other Liabilities”, the Bankprovides the required additional reserve on foreign currency deposits. As of March 31, 2017December 31, 2016 and March 31, 2016, the required reserve with the Central Bankamounted to $13,541, $137,719 and $165,395 respectively, and its use was unrestricted.

As of March 31, 2017 , December 31, 2016 and March 31, 2016, deposits collected on behalfof the armed forces, prisons, and other national deposits were restricted.

Effective January 20, 2001, in accordance with the requirement of the Central Bank of China,the Bank complies with Clause 34 of the Trust Law to treat the discretionary trust ofinvestments in overseas marketable securities as a default loss reserve. As of March 31, 2017, December 31, 2016 and March 31, 2016, the Bank deposited marketable securities of both$70,000 as trust fund reserves.

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(C) Financial assets at fair value through profit or loss

March 31, 2017 December 31, 2016 March 31, 2016Financial assets held for trading:

Commercial paper $ 769,481 939,345 499,748

Listed and OTC stocks 22,019 22,473 236,267

Beneficiary certificates 15,104 15,660 103,615

Foreign exchange forwardcontracts

99,864 105,172 61,142

Currency swap contracts 283,892 301,114 437,326

Foreign currency options-call 39,142 47,345 11,172

Structured product options-call 129 2 136

Stock index futures 441 12,582 9,629

Sub-total 1,230,072 1,443,693 1,359,035

Financial assets designated at fairvalue through profit or loss:Overseas bonds 91,070 - 934,840

Total $ 1,321,142 1,443,693 2,293,875

As of March 31, 2017, December 31, 2016 and March 31, 2016, the nominal amounts ofunsettled financial derivative instrument contracts were as follows:

March 31, 2017 December 31, 2016 March 31, 2016Foreign exchange forward

contracts$ 5,692,560 4,019,898 3,112,944

Currency swap contracts 90,863,157 75,681,956 80,404,705

Interest swap contracts - - 965,250

Option contracts-call 4,484,245 4,246,411 3,501,282

Option contracts-put 4,484,245 4,246,411 3,501,282

(D) Securities purchased under resell agreements

March 31, 2017 December 31, 2016 March 31, 2016Securities under resell agreements $ 15,617,825 619,201 9,523,969

Face amount 15,631,000 620,000 9,533,000

Resell period 106.4.5~106.4.14 106.1.4~106.1.13 105.4.1~105.4.13

Range of resell interest rate 0.38%~0.42% 0.4%~0.55% 0.36%~0.37%

Resell price $ 15,622,409 619,327 9,526,907

Please refer to Note 6 (N) for information with regard to repurchase conditions for securitiespurchased under resell agreements shown above.

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(E) Receivables–net

March 31, 2017 December 31, 2016 March 31, 2016Interest receivable $ 2,777,254 2,947,889 2,702,763

Acceptances receivable 1,405,178 1,213,733 1,002,368

Accrued incomes 79,228 159,554 110,233

Accounts receivable 215,088 256,744 125,130

Accounts receivable factoringwithout recourse

411,622 319,040 -

Spot exchange receivable-foreigncurrencies

18,040,125 16,322,243 13,025,188

Refinancing guaranty deposits 8,858 1,132 1,699

Guaranteed proceeds receivablefrom refinancing

8,976 1,190 1,584

Receivable from credit card 1,266,547 1,292,977 1,282,907

Receivable from security brokerage 161,168 76,324 70,472

Settlement fund - 254,063 228,919

Installment receivables and leases 794,011 936,813 936,604

Other receivables 585,010 332,013 574,118

Sub-total 25,753,065 24,113,715 20,061,985

Less: Allowance for bad debts (105,398) (112,735) (137,029)

Net $ 25,647,667 24,000,980 19,924,956

The change in allowance for bad debts was as follows:

For the three months ended March 31, Receivables 2017 2016

Beginning balance $ 112,735 89,635Provision 17,735 47,515Write off (24,329) -Foreign exchange (743) (121)Ending balance $ 105,398 137,029

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(F) Discounts and loans–net

March 31, 2017 December 31, 2016 March 31, 2016Import/export bills negotiated $ 377,618 397,578 200,820

Bills and notes discounted 1,227,286 1,202,635 1,218,735

Overdrafts 21,125 40,485 10,759

Secured overdrafts 3,209,690 1,980,738 899,616

Short-term loans 270,996,889 265,430,634 222,071,971

Short-term secured loans 158,027,544 164,465,443 149,100,924

Margin loans receivable 1,889,224 1,708,746 1,821,411

Medium-term loans 96,724,801 102,042,620 123,369,037

Medium-term secured loans 146,646,936 146,321,825 132,336,026

Long-term loans 16,557,409 17,243,249 16,052,402

Long-term secured loans 353,014,775 352,502,256 348,632,451

Account receivable financing 530,959 596,752 616,451

Overdue loans 3,205,439 3,857,556 4,047,089

Sub-total 1,052,429,695 1,057,790,517 1,000,377,692

Less: Adjustment of discount andpremium

(205,863) (225,907) (233,793)

Less: Allowance for bad debts (12,256,936) (12,549,963) (11,964,857)

Net $ 1,039,966,896 1,045,014,647 988,179,042

The change in allowance for bad debts is as follows:

For the three months ended March 31, Loan 2017 2016

Beginning balance $ 12,549,963 11,341,593Provision 437,384 1,093,106Transfer out (139,824) (10,411)Write-off (756,708) (544,772)Foreign exchange (28,678) (3,703)Written-off recovered 194,799 89,044Ending balance $ 12,256,936 11,964,857

(G) Available-for-sale financial assets–net

March 31, 2017 December 31, 2016 March 31, 2016Government bonds $ 38,457,467 43,523,682 41,417,504

Corporate bonds 18,719,436 19,096,625 14,452,066

Overseas bonds 7,657,010 8,151,648 8,185,112

Listed and OTC stocks 3,196,195 2,558,733 2,321,063

Beneficiary certificate 247,319 - -

Total $ 68,277,427 73,330,688 66,375,745

Please refer to Note 6(N) for the information with regard to repurchase conditions foravailable-for-sale financial assets shown above.

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(H) Held-to-maturity financial assets–net

March 31, 2017 December 31, 2016 March 31, 2016Certificates of deposit with the

Central Bank$ 125,145,000 125,475,000 155,675,000

Government bonds 31,359,972 26,293,871 12,432,407

Corporate bonds 13,396,070 13,300,376 12,442,214

Overseas bonds 27,076,011 27,386,350 20,133,208

Negotiable certificates of deposit 63,798 67,662 67,568

Total $ 197,040,851 192,523,259 200,750,397

As of March 31, 2017, December 31, 2016 and March 31, 2016, held-to-maturity financialassets provided and deposited as reserve for provisional seizure by the court, internationalcard payment reserve, trust claim reserve and operating guaranty funds amounted to$735,900, $681,500 and $728,300, respectively. As of March 31, 2017 , December 31, 2016and March 31, 2016, the overseas branches have provided $63,798, $67,662 and $67,568,respectively, for the reserve of overdraft guarantee.

In order to comply with the immediate tax settlements mechanism of Central Bank and theinterbank funds transfer system, the Bank provided time deposits with the Central Bank allamounting to $8,200,000 as overdraft guarantee as of March 31, 2017 , December 31, 2016and March 31, 2016, respectively. The amount of the guarantee could be modified anytimeand the remaining amount could be served as liquid reserves.

As of March 31, 2017, December 31, 2016 and March 31, 2016, in compliance with the item16 of “Guidelines Governing Financial Institution in Conducting Treasury Affairs Authorizedby Central Bank”, the Bank provided secured central bank certificates of deposit with facevalue of $1,505,000, $1,505,000 and $825,000, respectively to the Central Bank. Whencertain conditions are satisfied, the Bank will be returned the certificates without interestfrom Central Bank.

As of March 31, 2017 December 31, 2016 and March 31, 2016, the Bank provided Centralbank certificates of deposit with face value of $17,000,000 to serve as a guarantee forborrowing US dollars from Central bank.

～ 31 ～



(I) Other financial assets–net

March 31, 2017 December 31, 2016 March 31, 2016Non-accrual loans transferred from

non-loan financial assets$ 158,476 157,421 70,927

Less: Allowance for bad debts－non-accrual loans transferred fromnon-loan financial assets

(67,096) (60,198) (16,284)

Non-accrual loans transferred fromnon-loan financial assets－net

91,380 97,223 54,643

Exchange bills negotiated 315 383 988

Less: Allowance for bad debt－exchange bills negotiated

(17) (4) (10)

Exchange bills negotiated－net 298 379 978

Financial assets carried at cost 2,035,121 2,035,121 2,035,121

Total $ 2,126,799 2,132,723 2,090,742

(a) Financial assets carried at cost were as follows:

March 31, 2017 December 31, 2016 March 31, 2016

Investee Amount % Amount % Amount %Taiwan Power Company $ 11,427 - 11,427 - 11,427 -

Taiwan Sugar Corporation 58,294 0.30 58,294 0.30 58,294 0.30

Sunysino Development Associated Inc. 17,440 3.12 17,440 3.12 17,440 3.12

Taiwan Small & Medium EnterprisesDevel. Co., Ltd.

29,000 4.84 29,000 4.84 29,000 4.84

Taipei Forex Incorporation 7,000 3.53 7,000 3.53 7,000 3.53

Financial Information Service Co., Ltd. 45,500 1.14 45,500 1.14 45,500 1.14

Evernight Investment Co., Ltd 500,000 4.95 500,000 4.95 500,000 4.95

Taiwan Stock Exchange Corp. 198,012 0.95 198,012 0.95 198,012 0.95

Taiwan Futures Exchange Co., Ltd. 20,000 1.00 20,000 1.00 20,000 1.00

Taiwan Asset Management Corp 750,000 5.68 750,000 5.68 750,000 5.68

Taiwan Finance Asset Service Corp 50,000 2.94 50,000 2.94 50,000 2.94

Financial E-Solution Co., Ltd. 9,245 4.12 9,245 4.12 9,245 4.12

Taiwan Depository and Clearing Corp. 4,639 0.08 4,639 0.08 4,639 0.08

Yand Guang Asset Management Corp. 460 0.77 460 0.77 460 0.77

Taiwan Trusted Service Manager Co.,Ltd.

6,000 1.00 6,000 1.00 6,000 1.00

Taipei Financial Center Corp. 328,104 0.80 328,104 0.80 328,104 0.80

Total $ 2,035,121 2,035,121 2,035,121

～ 32 ～



(b) The change in allowance for bad debts was as follows:

For the three months ended March 31, Other financial assets 2017 2016

Beginning balance $ 60,202 20,300

Reversal (131,596) (13,676)

Transfer in 139,824 10,411

Write-off (6,796) (6,236)

Written-off recovered 5,479 5,495

Ending balance $ 67,113 16,294

(J) Premises and equipment–net

March 31, 2017 CostRevaluationappreciation

Accumulateddepreciation

Accumulatedimpairment Total

Land $ 6,678,952 2,986,161 - 14,031 9,651,082Buildings 7,502,198 31,184 3,723,600 14,754 3,795,028

Machinery 2,021,718 - 1,751,339 - 270,379

Transportationequipment

285,743 - 246,743 - 39,000

Miscellaneousequipment

579,600 - 511,309 - 68,291

Leaseholdimprovement

71,505 - 22,740 - 48,765

Construction inprogress

150,163 - - - 150,163

Prepayment forequipment

73,963 - - - 73,963

Leased assets 72,778 - 34,363 - 38,415

Total $ 17,436,620 3,017,345 6,290,094 28,785 14,135,086

December 31, 2016 CostRevaluationappreciation



Land $ 6,678,952 2,986,161 - 14,031 9,651,082Buildings 7,486,854 31,184 3,682,819 14,754 3,820,465

Machinery 1,966,592 - 1,733,509 - 233,083


286,164 - 244,838 - 41,326


580,418 - 509,879 - 70,539


69,916 - 22,725 - 47,191


153,162 - - - 153,162


62,933 - - - 62,933

Leased assets 72,495 - 31,570 - 40,925

Total $ 17,357,486 3,017,345 6,225,340 28,785 14,120,706

～ 33 ～



March 31, 2016 CostRevaluationappreciation



Land $ 6,678,952 2,986,161 - 14,156 9,650,957Buildings 7,440,358 31,184 3,561,173 21,411 3,888,958

Machinery 1,963,350 - 1,765,486 - 197,864


291,147 - 248,152 - 42,995


587,348 - 521,257 - 66,091


84,596 - 41,113 - 43,483


126,718 - - - 126,718


50,585 - - - 50,585

Leased assets 70,597 - 23,354 - 47,243

Total $ 17,293,651 3,017,345 6,160,535 35,567 14,114,894

Change of cost

January 1, 2017 Increase DecreaseForeign

ExchangeMarch 31,

2017Land $ 9,665,113 - - - 9,665,113Buildings 7,518,038 15,344 - - 7,533,382

Machinery 1,966,592 64,000 8,057 (817) 2,021,718

Transportation equipment 286,164 1,759 1,321 (859) 285,743

Miscellaneous equipment 580,418 3,020 2,834 (1,004) 579,600

Leasehold improvement 69,916 5,943 2,981 (1,373) 71,505

Construction in progress 153,162 - 2,999 - 150,163


62,933 13,119 2,010 (79) 73,963

Leased assets 72,495 283 - - 72,778

Total $ 20,374,831 103,468 20,202 (4,132) 20,453,965


ExchangeMarch 31,

2016Land $ 9,665,113 - - - 9,665,113Buildings 7,470,764 778 - - 7,471,542

Machinery 1,967,149 45,164 48,418 (545) 1,963,350

Transportation equipment 290,326 4,196 3,506 131 291,147

Miscellaneous equipment 586,357 6,359 5,473 105 587,348

Leasehold improvement 71,008 15,586 2,020 22 84,596

Construction in progress 101,726 24,992 - - 126,718


58,325 - 7,740 - 50,585

Leased assets 70,577 20 - - 70,597

Total $ 20,281,345 97,095 67,157 (287) 20,310,996

～ 34 ～



Change of depreciation


ExchangeMarch 31,

2017Buildings $ 3,682,819 40,781 - - 3,723,600

Machinery 1,733,509 25,633 6,250 (1,553) 1,751,339


Miscellaneous equipment 509,879 4,875 2,830 (615) 511,309

Leasehold improvement 22,725 3,436 2,981 (440) 22,740

Leased assets 31,570 2,793 - - 34,363

Total $ 6,225,340 80,880 13,380 (2,746) 6,290,094


ExchangeMarch 31,

2016Buildings $ 3,520,394 40,779 - - 3,561,173

Machinery 1,790,698 23,087 47,929 (370) 1,765,486


Miscellaneous equipment 522,051 4,736 5,415 (115) 521,257

Leasehold improvement 38,373 4,583 1,840 (3) 41,113

Leased assets 20,616 2,740 - (2) 23,354

Total $ 6,140,400 79,306 58,661 (510) 6,160,535

Accumulated impairment


ExchangeMarch 31,

2017Land $ 14,031 - - - 14,031Buildings 14,754 - - - 14,754

Total $ 28,785 - - - 28,785


ExchangeMarch 31,

2016Land $ 14,156 - - - 14,156Buildings 21,411 - - - 21,411

Total $ 35,567 - - - 35,567

When the Bank first adopted IFRSs, it elected to apply the revaluation amount calculated perthe regulation of GAAP of R.O.C as the original cost on the transition date.

As of March 31, 2017 December 31, 2016 and March 31, 2016, the appreciation fromrevaluation of properties all amounted to $3,017,345. Reserve for land incremental tax allamounted to $879,056 (Recognized under deferred tax liabilities). The difference ofrevaluation was recognized as retained earnings.

～ 35 ～



As of March 31, 2017 December 31, 2016 and March 31, 2016, land which was illegallyoccupied amounted to $5,496, respectively. Part of the illegally occupied land would bedisposed after the Bank received the certificate of legal costs and the rest would be auctionedat appropriate time.

(K) Other assets-net

March 31, 2017 December 31, 2016 March 31, 2016Office supplies $ 27,648 27,554 27,893Prepayments 4,354,589 3,134,882 1,519,171

Operating guaranty deposits andsettlement fund

30,608 32,721 33,471

Guarantee deposits paid 634,338 621,768 186,176

Deferred assets 98 117 190

Temporary payments and suspenseaccounts

- - 268,931

Proceeds of settlement and credittransaction

4,328 2,032 53

Total $ 5,051,609 3,819,074 2,035,885

(L) Deposits from the Central Bank and other banks

March 31, 2017 December 31, 2016 March 31, 2016Deposits from the Central Bank $ 788,280 155,958 91,674

Call loans from the Central Bank 7,746,900 9,827,100 9,491,625

Deposits from banks 163,786 80,933 100,957

Call loans from banks 32,253,132 27,354,665 26,981,367

Overdrafts on banks 1,164,949 1,187,819 961,874

Deposits transferred fromChunghwa Post Co., Ltd.

41,967,746 37,211,382 37,247,515

Total $ 84,084,793 75,817,857 74,875,012

(M) Financial liabilities at fair value through profit or loss

March 31, 2017 December 31, 2016 March 31, 2016Foreign exchange forward

contracts$ 4,295 28,543 4,307

Currency swap contracts 130,867 138,273 111,664

Foreign currency option-put 39,145 47,441 11,172

Structured product option-put 129 2 136

Total $ 174,436 214,259 127,279

Please refer to 6(C) for the nominal amount of unsettled financial derivatives instrumentcontracts of March 31, 2017, December 31, 2016 and March 31, 2016.

～ 36 ～



(N) Securities sold under repurchase agreements

March 31, 2017

Assets Par value

Selling Price(Recognized insecurities sold

under repurchaseagreements)

Designatedrepurchase

amountDesignated

repurchase dateSecurities purchased

under resellagreements

$ 5,000 5,000 5,001 Prior to April 5,2017

Available-for-salefinancial assets

1,662,300 1,838,187 1,839,405 Prior to September30, 2017

Total $ 1,667,300 1,843,187 1,844,406

December 31, 2016

Assets Par value




amountDesignated

repurchase dateAvailable-for-sale

financial assets$ 2,631,300 2,758,905 2,760,319 Prior to August 31,

2017

March 31, 2016

Assets Par value




amountDesignated

repurchase dateSecurities purchased

under resellagreements

$ 2,000 2,000 2,000 Prior to April 13,2016

Available-for-salefinancial assets

1,927,800 2,118,176 2,119,875 Prior to November30, 2016

Total $ 1,929,800 2,120,176 2,121,875

～ 37 ～



(O) Payables

March 31, 2017 December 31, 2016 March 31, 2016Interest payable $ 1,886,043 1,505,823 1,976,606

Accounts payable 6,365,956 12,022,274 3,801,617

Acceptances 1,427,364 1,258,085 1,022,202

Accrued expenses 2,350,664 2,251,579 2,403,521

Collection payable 667,718 576,282 725,534

Deposits received from securitiesborrowers

58,937 91,888 71,090

Guaranteed price deposits receivedfrom securities borrowers

71,151 117,170 74,938

Accounts payable factoring 146,825 87,050 -

Spot exchange payable－ foreigncurrencies

18,029,599 16,313,119 13,026,839

Other payables 1,131,780 836,438 2,271,955

Trusted security payable 105,264 326,830 295,129

Settlement 41,683 - -

Others 24,080 26,056 48,538

Total $ 32,307,064 35,412,594 25,717,969

(P) Deposits and remittances

March 31, 2017 December 31, 2016 March 31, 2016Savings deposits $ 592,934,706 597,431,556 576,119,321

Time deposits 303,206,216 283,317,117 284,530,094

Demand deposits 340,493,353 343,623,036 329,987,325

Checking account deposits 19,845,414 29,065,712 19,181,380

Remittances 396,904 367,056 274,653

Total $ 1,256,876,593 1,253,804,477 1,210,092,773

～ 38 ～



(Q) Financial debentures

Terms of Transactions Bond Issued

Bonds Issue dateMaturity

date Interest Rate & repayment Type AmountMarch 31,

2017December31, 2016

March 31,2016

2009-1P 10/23/2009 None The debentures bear annual interest rate which is theseven Banks' board floating average interest rate for 1-year time deposit plus 1.29% for the seven years afterthe issue date. The interest rate will be the seven Banks'board floating average interest rate for 1-year timedeposit plus 2.29% from the eighth year. The bond isredeemable per face at the interest payment date afterseven years from the issue date under the consent of thecompetent authority.

Perpetualaccumulatedsubordinatedfinancialdebentures

$ - - 12,000,000

2009-3 12/18/2009 12/18/2016 The debentures bear an annual interest rate of 2.5%.Simple interest rate is accrued and paid annually. Theprincipal will be repaid in full at maturity.

Unsecuredsubordinatedlong-termfinancialdebentures

- - 1,550,000

2010-1 03/05/2010 03/05/2017 The debentures bear an annual interest rate of 2.32%.Simple interest is accrued and paid annually. Theprincipal will be repaid in full at maturity.

〞 - 1,050,000 1,050,000


〞 6,000,000 6,000,000 6,000,000

2010-1P A 09/23/2010 None The debentures bear annual interest rate which is theChunghwa post's board average interest rate for 1-yeartime deposit plus 1.34% for the ten years after the issuedate. The interest rate will be the Chunghwa post's boardinterest rate for 1-year time deposit plus 2.34% from theeleventh year. The debentures is redeemable per facevalue plus accrued interest at the interest payment dateafter ten years from the issue date under the consent ofthe competent authority.

Perpetualnon-accumulatedsubordinatedfinancialdebentures

3,200,000 3,200,000 3,200,000

2010-1P B 09/23/2010 None The debentures bear an interest rate of 3.05% for thefirst ten years after the issue date. The interest rate willbe 4.05% from the eleventh year. The debentures isredeemable per face value plus accrued interest at theinterest payment date after ten years from the issue dateunder the consent of the competent authority.

〞 800,000 800,000 800,000



5,000,000 5,000,000 5,000,000

2013-2A 11/25/2013 11/25/2020 (A) The debentures bear annual interest rate, which isthe index rate plus 0.52%. The index rate is the averageoffer of 90-days CP which is indicated in Reuter's page6165 at 11 A.M Taipei time, 2 operation days prior tothe interest commencement date.(B) Since January 1, 2015 according to variousindicators of interest rate changes during the value datetwo business days before the pricing (FIXING) Bank ofthe Republic of China Business Association NationalUnion RCAs website "Taipei fixing the financial sectorcall loan rate (TAIBOR)" three-month interest ratefixing. Simple interest rate is accrued four times a yearand paid annually. The principal will be repaid in full atmaturity.

" 3,100,000 3,100,000 3,100,000

2013-2B 11/25/2013 11/25/2020 The debentures bear an annual interest rate of 1.92%.Simple interest is accrued and paid annually. Theprincipal will be repaid in full at maturity.

〞 2,900,000 2,900,000 2,900,000

2015-1P 06/18/2015 None The debenture bear an annual interest rate of 3.9%.Simple interest is accrued and paid annually. Thedebentures is redeemable per face value plus accruedinterest at interest payment date after five years from theissued date under the consent of the competent authority.


5,000,000 5,000,000 5,000,000

～ 39 ～



Terms of Transactions Bond Issued

Bonds Issue dateMaturity

date Interest Rate & repayment Type AmountMarch 31,

2017December31, 2016

March 31,2016

2015-2A 08/31/2015 08/31/2023 The debenture bear an annual interest rate of 2.05%.Simple interest is accrued and paid annually. Theprincipal will be repaid in full at maturity.


$ 4,700,000 4,700,000 4,700,000

2015-2B 08/31/2015 08/31/2025 The debenture bear an annual interest rate of 2.10%.Simple interest is accrued and paid annually. Theprincipal will be repaid in full at maturity.

〞 300,000 300,000 300,000

2016-1P 09/20/2016 None The debenture bear an annual interest rate of 3.2%.Simple interest is accrued and paid annually. Thedebentures is redeemable per face value plus accruedinterest at interest payment date after five years andthree months from the issued date under the consent ofthe competent authority


8,000,000 8,000,000 -



2,700,000 2,700,000 -

2017-1A 03/28/2017 03/28/2024 The debentures bear an annual interest rate of 1.50%.Simple interest is accrued and paid annually. Theprincipal will be repaid in full at maturity.

〞 390,000 - -

2017-1B 03/28/2017 03/28/2025 The debentures bear an annual interest rate of 1.60%.Simple interest is accrued and paid annually. Theprincipal will be repaid in full at maturity.

〞 250,000 - -

2017-1C 03/28/2017 03/28/2025 The debentures bear an annual interest rate of 1.85%.Simple interest is accrued and paid annually. Theprincipal will be repaid in full at maturity.

〞 3,360,000 - -

$ 45,700,000 42,750,000 45,600,000

(R) Other financial liabilities

March 31, 2017 December 31, 2016 March 31, 2016Appropriated loans funds $ 11,308,820 10,780,543 11,652,094

Lease payable 36,736 38,602 44,460

Total $ 11,345,556 10,819,145 11,696,554

Cumulative earnings on appropriated loan fund is the project contract signed by NationalDevelopment Council, Small and Medium Enterprise Administration, Ministry of EconomicAffairs, and the Bank. The Bank appropriates the fund to the companies which meet theconditions for loans. The fund is classified as principal account, interest yielding account,loaned account and un-loaned account. The interests paid to the government are calculatedrespectively.

(S) Provision for liabilities

March 31, 2017 December 31, 2016 March 31, 2016Provision for guarantee liabilities $ 144,832 147,491 101,035

Provision for lawsuit 334,251 346,491 406,776

Provision for employee benefit 3,114,860 3,112,771 2,774,281

Total $ 3,593,943 3,606,753 3,282,092

～ 40 ～



Change of provision

January 1,2017 Increase Decrease Use

Provision(Reversal)

Foreignexchange

March 31,2017

Provision for

guarantee

liabilities

$ 147,491 3,549 - - (6,029) (179) 144,832

Provision for lawsuit 346,491 - - - - (12,240) 334,251

Provision for

employee benefit 3,112,771 65,284 52,183 11,012 - - 3,114,860

Total $ 3,606,753 68,833 52,183 11,012 (6,029) (12,419) 3,593,943

January 1,2016 Increase Decrease Use

Provision(Reversal)

Foreignexchange

March 31,2016

Provision for

guarantee

liabilities

$ 97,708 10,750 - - (7,362) (61) 101,035

Provision for lawsuit 413,129 - - 10,433 - 4,080 406,776

Provision for

employee benefit2,810,900 66,200 53,600 49,219 - - 2,774,281

Total $ 3,321,737 76,950 53,600 59,652 (7,362) 4,019 3,282,092

Please refer to Note 6(W) for the information with regard to provision for employee benefitshown above.

(T) Other liabilities

March 31, 2017 December 31, 2016 March 31, 2016Advance interest receipts $ 4,472 5,364 4,592

Unearned revenue 103,834 115,673 87,169

Other advances receipts 72,654 70,705 60,192

Guarantee deposits received 695,526 583,388 550,939

Temporary receipts and suspenseaccounts

1,105,032 698,698 -

Other 15,918 6,178 5,204

Total $ 1,997,436 1,480,006 708,096

(U) Equity

(a) Common stock

As of March 31, 2017, December 31, 2016 and March 31, 2016, the Bank’s authorizedcapital were all $60,000,000 and the paid-in capital for common shares of the Bank were$59,688,949, $59,688,949 and $56,846,618 and the face value of each share is NTD $10.The outstanding shares were 5,968,895, $5,968,895 and 5,684,662 thousand shares,respectively.

～ 41 ～



Pursuant to the resolution approved by the stockholders’ meeting of the Bank on June24, 2016, the Bank increased its capital from the retained earnings by $2,842,331 andissued 284,233 thousand shares. The capital increase has been approved by FinancialSupervisory Commission and came into effect on August 17, 2016. The base date of thecapital increase is set on September 10, 2016. The Bank has completed the registrationof change in paid-in capital on September 26, 2016.

(b) Capital surplus

Pursuant to the amendment of the Company Act which was published in January 2012,the Company can only transfer realized capital surplus into capital or distribute cashdividends after the capital surplus be used to offset a deficient. In compliance with theresolution, realized capital surplus includes the income derived from the issuance of newshares at a premium and the income from endowments received by the company.According to the Regulations Governing the Offering and Issuance of Securities bySecurities Issuers, the total amount of capital surplus to be used to increase capital shallnot exceed 10% of total paid-in capital.

(c) Earnings distribution and dividend policy

Under the Bank’s Articles of Incorporation, earnings are used initially to pay for incometaxes and restore cumulative losses, and 30% of the remaining earnings is set aside aslegal reserve. Special reserve is appropriated from or reversed to earnings per otherregulations. Add accumulated retained earnings from previous years as distributabledividends and the amount of dividends is resolved by the annual stockholders’ meetingaccording to the proposal submitted by the Board of Directors.

In order to continuously expand scale and increase profitability, the Bank, based on thefuture capital budget plan, adopts residual dividend policy and primarily distributes stockdividend to ensure the capital is sufficient. When there is surplus of capital, theremaining capital can be distributed by cash dividend. Cash dividend shall not be lowerthan 10% of the total dividend distributed. If the cash dividend distributed per share islower than NTD$ 0.1, except for otherwise resolved by the shareholder’s meeting, it isnot distributed. If there is any situation conforms to that is regulated in article 44 item 1of the Banking Act of The Republic of China, the Bank is not allowed to distributeearnings by cash or purchase shares outstanding. The maximum cash earning distributionis not allowed to be over 15% of the total paid in capital unless the legal reserve reachesthe total paid-in capital.

In compliance with the amendment of Company Act published in January 2012, if theCompany incurs no loss, under the consent of the shareholder’s meeting, the Company isallowed to distribute new shares or cash dividends from legal reserve to the extent thatthe legal reserve issued is the surplus exceeding 25% of the paid in capital.

～ 42 ～



Under the Ruling No. 1010012865 issued on April 6, 2012 by the FSC, special reserve isappropriated from retained earnings based on the equivalent amounts of the contraaccounts in equity. This special reserve may not be distributed as dividends tostockholders until the balances of these contra accounts in equity are reversed.

The Bank resolved the earning distribution for the earnings of 2016 and 2015 in theboard’ s meeting on March 22, 2017 and shareholder’ s meeting on June 24, 2016,respectively. The dividends distributed were as follows:

2016 2015Distribution

rate (NT dollar) Amount

Distributionrate

(NT dollar) Amount Dividends to common share

holders　Share $ 0.30 1,790,669 0.50 2,842,331

　Cash 0.102 608,827 0.10 568,466Total 2,399,496 3,410,797

(d) Other equity items

Difference of foreignUnrealized losses ofavailable-for-salefinancial assets

exchange in translatingfinancial statements offoreign operating unit Total

January 1, 2017 $ (1,009,845) (19,637) (1,029,482)

Available-for-sale financial assets

-Valuation adjustment 577,012 - 577,012

-Realized amount 864 - 864

Currency translation difference-Current exchange difference (584,105) (584,105)

March 31, 2017 $ (431,969) (603,742) (1,035,711)

January 1, 2016 $ (94,694) 221,642 126,948

Available-for-sale financial assets

-Valuation adjustment 306,207 - 306,207

-Realized amount 107 - 107

Currency translation difference-Current exchange difference - (151,408) (151,408)

March 31, 2016 $ 211,620 70,234 281,854

～ 43 ～



(V) Income taxes

(a) The amount of income tax for the three months ended March 31, 2017 and 2016 were asfollows:


Current tax expense Current period $ 249,139 18,676 Basic tax - 27,975

249,139 46,651 Deferred tax expense Origination and reversal of temporary

different15,059 206,360

Income tax expenses $ 264,198 253,011

(b) The amount of (expense) income tax recognized in other comprehensive income for theyears ended March 31, 2017 and 2016 were as follows:

For the three months ended March 31,

2017 2016

Items that may be reclassified subsequently to profit or loss:　Foreign exchange difference in translating financial statements of foreign

operations$ 111,950 31,012

　Unrealized valuation losses on available-for-sale financial asset (2,228) (62,739)$ 109,722 (31,727)

(c) The Bank’s income tax returns for years up to 2012 and 2014 have been approved by theTax Authority.

The income tax returns of the subsidiaries Taiwan Business Bank International LeasingCo., Ltd. have been approved until 2013 by the Tax authority. Taiwan Business BankInsurance Agency Co., Ltd. have been approved until 2015 by the Tax authority. TaiwanBusiness Bank Property Insurance Agency Co., Ltd. have been approved until 2014 bythe Tax authority.

(d) Imputation Credit Account and Tax Deductible Ratio were summarized below：

March 31, 2017 December 31, 2016 March 31, 2016Balance of imputation credit

account$ 326,942 262,143 125,593

2016(estimated) 2015(actual)Creditable ratio for earnings distribution to ROCresidents

%5.29 %4.00

～ 44 ～



As of March 31, 2017, December 31, 2016 and March 31, 2016, all of the endingbalance of undistributed retained earnings arose from earnings in 1998 and thereafter.The above imputation information is calculated based on the Decree No.10204562810issued by the Ministry of Finance, R.O.C on October 17, 2013.

(W) Provision for employee benefit

As of March 31, 2017, December 31, 2016 and March 31, 2016, the balance of provision foremployee benefit of the Bank and its subsidiaries were as follows:

March 31, 2017 December 31, 2016 March 31, 2016Recognized on the balance sheet

Defined benefit plan $ 2,308,008 2,313,473 2,017,446

Employee deposit with favorablerate

806,852 799,298 756,835

Total $ 3,114,860 3,112,771 2,774,281

(a) Defined benefit plan

Subsequent to December 31, 2016 and 2015, there is apparently no evidence of anymaterial market volatility, material curtailment, reimbursement and settlement or othermaterial one-time events. Therefore, the pension cost for the interim periods are assessedand discovered at the actualrial costs that were determined on December 31, 2016 and2015 by the Bank.

The Bank and its subsdiaries recognized the expense of gain or loss of defined benefitplan for the three months ended March 31, 2017 and 2016 are $57,887 and $59,166,respectively.

(b) Defined contribution plan

The pension costs incurred from the contributions to the Bureau of the Labor Insuranceamounted to $25,700 and $23,018 for the three months ended March 31, 2017 and 2016,respectively.

(c) Employee deposit with favorable rate

Subsequent to December 31, 2016 and 2015, there is apparently no evidence of anymaterial market volatility, material curtailment, reimbursement and settlement or othermaterial one-time events. Therefore, the interest cost for the interim periods are assessedand disclosed at the actuarial costs that were determined on December 31, 2016 and2015 by the Bank.

The Bank recognized expenses amounting to $7,554 and $7,029 for the three monthsended March 31, 2017 and 2016, respectively.

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(X) Earnings per share


2017 2016Net income $ 1,485,498 1,354,986

Weighted average number of common stock shares outstanding (in thousands) (Note 1) 5,968,895 5,968,895

Basic earnings per shares (in dollars) $ 0.25 0.23

Dilutive potential common shares (in thousands) (Note 2) 11,605 9,909

Weighted average number of shares outstanding for diluted EPS (in thousands) (Note 1) 5,980,500 5,979,300

Diluted earnings per shares (in dollars) $ 0.25 0.23

Note1: The basic earnings per share of January 1 to March 31, 2016, has applied retrospectiveadjustments.

Note 2: The shares were calculated based on the stock price on the balance sheet date.

(Y) Employees and directors' remuneration

According by the Bank’s Articles of Incorporation. If there is an annual profit, distributableearnings shall be aside to employees' remuneration from 1% to 6% and no more than 0.6%shall be aside to board of directors as remuneration. But when there are accumulated losses,the Bank shall first remain earning for the deficit.

For the three months ended March 31, 2017 and 2016, the estimated employee remunerationwere $97,486 and $84,526, and the estimated directors' remuneration were $11,037 and$10,143, the estimates are based on pre-tax net profit for the period, before deductingemployee and director's remuneration, multiplied by the elaboration of the Bank's Articles ofAssociation of employee and the directors remuneration ratio, and recognized as operatingcost. If there are any differences between the actual distribution amount of next year andestimated, the differences are regarded as a change of accounting estimates and will reflect asa gain or a loss in the next year. If the board’s meeting decides to release stock dividends asemployee’ s bonuses,the total number of employee bonus stocks to be issued shall bedetermined by the common stock closing price of the day before the meeting date.

For the years ended December 31, 2016 and 2015, the estimated employee remunerationwere $342,837 and $334,482 and the estimated directors' remuneration were $40,239 and$39,259, respectively. There is no difference with actual distribution. The information isavailable at the Market Observation Post System website.

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(Z) Net interest income


Interest revenue:Loan $ 1,406,183 1,507,917Secured loans 3,407,517 3,509,337Bills negotiated 1,451 1,161Bank overdraft 5,212 3,515Discount 6,963 6,397Time deposit from Central Bank 181,739 289,494Due from the Central Bank 35,652 40,483Call loans to banks 178,147 208,262Bond 475,215 324,485International credit card 14,623 15,021Overdue loans 31,235 93,958Bills 33,052 48,275Due from other Banks 134,583 136,860Other 54,379 51,064Subtotal 5,965,951 6,236,229Interest expense:Deposits 1,851,180 2,085,532Deposits from banks 11 17Call loans from banks 103,058 100,554Fund 2,351 3,208Financial debentures 246,918 267,706Bond sold under repurchase agreement 1,541 2,540Other 1,951 206Subtotal 2,207,010 2,459,763Total $ 3,758,941 3,776,466

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(AA) Service fee and commission income


Service charge income:Remittance service fee $ 24,225 25,015Import bills negotiated service fee 16,758 15,948Export bills negotiated service fee 4,974 4,704Letter of credit service fee 2,449 2,703Certification service fee 455 245Acceptance service fee 454 362Trust service fee 96,810 80,982Guarantee service fee 39,654 24,048Agency service fee 24,819 24,245Interbank service fee 16,620 16,510Card service fee 29,534 29,884Commission revenue of insurance premium 577,779 656,506Custodian service fee 34,322 34,235Foreign currency service fee 24,484 24,650Commission of futures 1,100 1,788Loan service fee 37,035 60,546Miscellaneous fees 104,422 97,682Subtotal 1,035,894 1,100,053Service fee expense:Foreign currency service fee 7,343 6,022Interbank service fee 34,236 31,837Trust service fee 1,882 981Agency service fee 640 1,062IC card service fee 16,296 15,700Check clearing service fee 2,540 2,944Remittance service fee 984 1,067Custodian service fee 8,179 6,981Call loans service fee 51 35Miscellaneous fees 59,254 4,736Subtotal 131,405 71,365Total $ 904,489 1,028,688

～ 48 ～



(AB) Gains (losses) on financial assets and liabilities at fair value through profit or loss-net


Valuation profit and loss:Corporate bonds $ (70) (11,499)Financial debentures - (2,905)Stock of listed company 2,860 10,475Beneficiary certificates 218 4,736Commercial paper (85) 24Option contracts 113 578Foreign exchange forward contracts 24,198 61,017Currency swap contracts (9,816) 89,353Foreign exchange forward contracts - 472Subtotal 17,418 152,251Disposition profit and loss:Stock of listed company (2,070) 2,538Beneficiary certificates - (16,562)Option contracts 5,270 4,137Interest swap contracts - 5,722Foreign exchange forward contracts 83,656 (23,803)Currency swap contracts 188,344 75,091Non-delivery forward contracts - 1,638Stock index futures - (25,608)Subtotal 275,200 23,153Dividend revenue 11 -Interest income 1,190 3,318Total $ 293,819 178,722

(AC) Realized (losses) gains on available-for-sale financial assets


Gains on disposal of government bond $ (242) -Gains from disposal of stock of listed company 552 (107)Gains from disposal of financial debentures (1,174) -Total $ (864) (107)

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(AD) Net other non-interest income


Rental revenue of operating assets $ 2,402 1,508Loss on disposal and retirement of premises and

equipment(35) (567)

Loss of account error (74) (22)Gold deposit book 723 661Other operating expense (6,875) (6,435)Other miscellaneous income 13,505 31,291Total $ 9,646 26,436

(AE) Other miscellaneous income


Compensation of Taiwan High Speed Rail'saccumulated dividend of preferred stock

$ - 643,973

(AF) Bad debt expenses and guarantee liability provisions


Discounts, loans and overdue loans $ 437,384 1,093,106Call loans to banks 14 -Receivables and other financial assets (113,861) 33,839Subtotal 323,537 1,126,945Guarantee liabilities (2,480) 3,388Total $ 321,057 1,130,333

(AG) Employee benefit expenses


Salary expense $ 1,463,788 1,464,801Labor and health insurance 105,333 96,960Pension expense 83,587 82,184Other employee benefit 244,843 237,927Total $ 1,897,551 1,881,872

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(AH) Depreciation and amortization expenses


Property and equipment depreciation $ 80,880 79,306Amortization

Computer software 18,686 17,239Other deferred charges 18 46

Total $ 99,584 96,591

(AI) Other general and administrative management expenses


Compensation loss $ 212 174Water and electricity fee 17,390 19,297Postage and telecommunication 37,618 38,885Transportation fee 9,769 10,157Printing and advertisement fee 35,104 46,662Maintenance fee 7,032 7,503Insurance fee 93,469 93,703Professional service fee 45,970 45,965Materials and supplies 32,721 46,708Rental expenses 167,275 184,614Duties and levies 313,948 358,643Membership, donation and partaking 129,167 130,360Storage, packing and processing 10,930 9,860Cash transit 27,714 32,992Other 14,899 15,652Total $ 943,218 1,041,175

(AJ) Financial Instruments

(a) Fair value information

(1) General description

Fair value is the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at the measurementdate.

The financial instruments are record as fair value when original recognizing, usuallyrefer to the transaction price in many circumstances. Except some amortized costfinancial instruments, the financial instruments are measured in fair value. A quotedmarket price in an active market provides the most reliable evidence of fair value. Iffinancial instruments are without active market, the Bank adopted the valuetechnique, refer to Bloomberg, Reuters or the price at which the asset could bebought or sold in a current transaction between willing parties.

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(2) The definition of fair value hierarchy

A. First tier

The input of this tier is quoted prices in active markets for identical financialinstruments. The active market is a market in which transactions for thehomogenous assets or liabilities take place with sufficient frequency andvolume to provide pricing information. The stock of listed company and thebeneficiary certificates, government bonds and the derivative financialinstruments with public quote inactive market procrssed by the Bank belong tothe First tier.

B. Second tier

The input of this tier are other than quoted market prices included within Firsttier that are observable for the asset or liability, either directly (i.e., as prices) orindirectly (i.e. derived from prices). The government bonds with lower tradevolume, corporate bonds, financial debentures, convertible corporate bonds andderivative instruments, including financial debentures the bank issued arebelong to second tier.

C. Third tier

The input are unobservable for the asset or liability in market. Unobservableinputs like: Option pricing model using the historical volatility. Because thehistorical volatility cannot represent the future volatility expected value ofwhole market participants. The equity instruments with no active market whichthe Bank invested are third tier.

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(3) Based on fair value measurement

A. The fair value hierarchy of information

The financial instruments which are record as fair value measure on an ongoingbasis, the fair value hierarchy of information were as follows:

March 31, 2017

Assets and Liabilities Total 1st Tier 2nd Tier 3nd TierInstruments measured at fair valueon a recurring basisNon-derivative financial assets:

Financial assets at fair valuethrough profit or lossFinancial assets held for

tradingSecurity Investment $ 22,019 22,019 - -Other 784,585 15,104 769,481 -

Financial assets designated atfair value on initialrecognition

91,070 - 91,070 -

Available-for-Sale FinancialAssetsSecurity Investment 3,196,195 3,196,195 - -Bond Investment 64,833,913 57,176,903 7,657,010 -Other 247,319 247,319 - -

Derivative financial assets andliabilitiesAssets:

Financial assets at fair valuethrough profit or loss

$ 423,468 441 423,027 -

Liabilities: Financial liabilities at fair value

through profit or loss174,436 - 174,436 -

December 31, 2016

Assets and Liabilities Total 1st Tier 2nd Tier 3nd TierInstruments measured at fair valueon a recurring basisNon-derivative financial assets

Financial assets at fair valuethrough profit or lossFinancial assets held for trading

Security Investment $ 22,473 22,473 - -Other 955,005 15,660 939,345 -

Available-for-Sale Financial AssetsSecurity Investment 2,558,733 2,558,733 - -Bond Investment 70,771,955 62,620,306 8,151,649 -

Derivative financial assets andliabilities Assets:


$ 466,215 12,582 453,633 -

Liabilities:Financial liabilities at fair value


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March 31, 2016

Assets and Liabilities Total 1st Tier 2nd Tier 3nd TierInstruments measured at fair valueon a recurring basisNon-derivative financial assets

Financial assets at fair valuethrough profit or lossFinancial assets held for trading

Security Investment $ 236,267 236,267 - -Other 603,363 103,615 499,748 -

Financial assets designated atfair value on initialrecognition

934,840 - 934,840 -

Available-for-Sale Financial AssetsSecurity Investment 2,321,063 2,321,063 - -Bond Investment 64,054,682 - 64,054,682 -

Derivative financial assets andliabilitiesAssets:


$ 519,405 9,629 509,776 -

Liabilities:Financial liabilities at fair value


B. Valuation techniques used in estimating the fair values of financial instruments

If the financial instruments has quoted price in an active market, the quotedprice is regarded as its fair value.

If the financial instruments of quoted price, which are from the Stock Exchange,Brokers, Pricing service agencies or Government institutions, are timely andfrequently, and reflects the actual price, then the financial instruments has aquoted price in an active market. If the above conditions are not fulfilled, themarket is inactive.

Except for the above financial instruments of quoted price in an active market,there is no quoted price in an active market for the financial asset, its fair valueis estimated on the basis of the result of a valuation technique that refers toquoted prices considered the identical financial instrument with samecharacteristics and essential terms of transaction, Discounted-Cash-Flow modeland other valuation techniques including the model using market information tobe made of the calculation at the balance sheet date(eg Taipei Exchangereference yield curve, Reuters quoted the average commercial paper rate, theTaipei Financial industry call loan rate fixing TAIBOR).

The financial asset's fair value is estimated on the basis of the result of avaluation technique, the Bank adopted that refers to quoted prices provided byfinancial institutions. Ask (bid) is used to evaluate the selling (buying) positionby the Bank if the quoted price include ask and bid price. If there is not a quotedprice for the financial asset, transaction price close to the balance sheet date isthe fair value.

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Fair value of financial derivatives are the amount of cash to be paid or to bereceived by the Bank, assuming that the contract will be terminated on thebalance sheet date. The Bank adopts mark-to-model prices which are usuallyadopted among the banking industry, such as Discounted-Cash-Flow model andBlack-Scholes model. The Bank adopts the price data from Reuters andBloomberg to calculate the fair value of the holding position. The aforesaidprice data is based upon the middle price and used consistently by the Bank.Furthermore, the fair value of the embedded financial derivatives are calculatedbased upon the quote from the counterparty, and separately calculated inaccordance with the contracts.

C. Adjustment for fair value

a. The restraint of evaluation model and uncertain inputs

The estimates of output-based value using the evaluation model, whichmay not reflect the Bank's all related factors. Therefore the estimated valueof the evaluation model will be appropriately adjusted according to theextra parameters such as model risk or liquidity risk. Information and priceparameters used in the evaluation process after careful assessment, andappropriately adjusted according to the current market situation.

b. Credit risk value adjustment

The Bank's credit risk value adjustment of OTC transaction derivativeinstruments can be divided to Credit value adjustments (CVA) and debitvalue adjustments (DVA). To reflect the fair value of the Group'scounterparty or the Bank likely to default, and the Group may not bereceived or paid full market value of trading possibilities.

The Bank would calculate credit valuation adjustment (CVA) by assessingprobability of default (PD) and loss given default (LGD) of thecounterparty before multiplying exposure at default (EAD) of thecounterparty. On the contrary, debit valuation adjustment (DVA).

The Bank assess the probability of default on the assumption of 60%, but atthe risk of the nature and circumstances of available data, we may use otherloss given default assumptions.

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(4) Not based on fair value measurement

A. Fair value information

The following chart presents the financial instruments not based on fair valuemeasurement of the Bank have. Except those items, others' fair value arereasonably approximate value, the Bank does not disclosure their fair value.

March 31, 2017Book value Fair value

Held-to-maturity financial assets－net $ 197,040,851 196,846,024

December 31, 2016Book value Fair value


March 31, 2016Book value Fair value


B. The fair value hierarchy of information

March 31, 2017Assets and Liabilities Total 1st Tier 2nd Tier 3nd Tier

Held-to -maturity financial assets-net $ 196,846,024 44,678,527 152,167,497 -

December 31, 2016Assets and Liabilities Total 1st Tier 2nd Tier 3nd Tier

Held-to-maturity financial assets–net $ 192,110,053 39,402,776 152,707,277 -

March 31, 2016Assets and Liabilities Total 1st Tier 2nd Tier 3nd Tier

Held-to -maturity financial assets-net $ 201,177,909 - 201,177,909 -

C. Valuation techniques

Methods and assumptions used by the Bank for fair value evaluation offinancial instruments were as follows:

a. Cash and cash equivalents, due from Central Bank and call loans to banks,securities purchased under resell agreements, receivables, non-accrualloans transferred from non-loan financial assets, exchange bills negotiatedguarantee deposits paid, temporary payments and suspense accounts,proceeds of settlement and credit transaction, deposits from Central Bankand other banks, securities sold under repurchase agreements, payables,other financial liabilities , guarantee deposits received and temporaryreceipts and suspense accounts: since these instruments have shortmaturities, the book value is adopted as a reasonable basis in estimating thefair value.

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b. Discounts and loans(including non-performing loans): the interest rate ofbank loans, dependent on the benchmark interest rate which plus or minusthe input value(i.e. motorized interest rate), said market rates, therefore, thebook value of financial assets is equivalent to their fair value. Among thecase of fixed interest rate, the estimated fair value of long-term loans usingthe discounted value of its expected cash flows, but this is minority, so thebook value of financial assets is equivalent to their fair value.

c. Hold-to-maturity financial assets: the quoted price is regarded as its fairvalue. If there is no quoted price in an active market for the financial asset,its fair value is estimated on the basis of the result of a valuation technique.

1) Central Government Securities (NTD): using the comment of“Bonds a fair price for each of times” from Taipei Exchange.

2) Corporate bonds and financial bonds (NTD): the present value or fairprice of Taipei Exchange determined using the future cash flow ofyield curve discounting evaluation.

d. Deposits and remittance: to determine the fair value, considered Bankingindustry characteristics, the market interest rates (i.e. market price) is thefair value. And deposits are mostly due within one year, the carryingamounts is the fair value of reasonable basis. The fixed interest rate oflong-term deposits should be estimated by the discounted value of itsexpected cash flows at fair value, and its maturity date no longer than threeyears, so its estimated fair value of the carrying amount is consideredreasonable.

e. Bank debentures payable: The bank debentures payable, issued by theBank, whose stated rate was equal the effective rate, using discounted cashflow projections to estimate the fair value, equivalent to its book value.

f. Other financial assets– debt investment without active market: If there issome dealing price, using the price to evaluate the fair value. If there is notmarket value, using evaluation model to estimate the fair value.

g. Other financial assets–the financial assets using cost method: Because thereis without active price and estimated fair value's variation material or thevariation estimates cannot be reasonable assessment, the fair value cannotbe reliably measured, the Bank does not disclose their fair value.

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(AK) Financial Risk Information

(a) General description

The goal of the financial risk management of the Bank is to effectively diversify, transferand avoid risks by taking customer service, financial business operating target, overallrisk tolerance and external limitation of laws into consideration and provide benefit tocustomers, shareholders and employees.

The Bank's Financial Risk Management policy is to establish a risk managementmechanism in terms of risk identification, risk measurement, risk monitoring, and riskcontrol and to construct the overall risk management system. It is to facilitate thebusiness model with appropriate risk management and to control the rationality betweenrisks and rewards under the premise of legal capital ratio in order to achieve operatingtargets and increase the value of the Bank for the shareholders. The scope covers themanagement of credit risk, market risk, operation risk, banking book interest rate risk,capital liquidity risk, and capital adequacy.

(b) Risk management organization structure

Board of directors

President

General manager

Vice president

Risk management center

Risk Management Committee

Assets and Liabilities Management

Committee

Credit Examination Committee

Overdue Loans Clearing Committee

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(1) Risk Management Committee

The chairperson of the Risk Management Committee is appointed by the president.The chairpersons include general manager, deputy general manager of the non-regulatory compliance in head office and department directors of head office(excluding the director of audit department in the Board). This Committee is set upfor the purpose of establishing a sound risk management system, strengthening riskmanagement and the implementation of the Bank's risk management andmonitoring. The meeting will be held once a month in principle. The meeting can beheld by the chairman of the Committee when it necessary. The duties are as follows:

A. Conduct Analysis and response project when significant domestic and foreigneconomic, financial and industrial risk management occur.

B. Risk management report of various risk exposure and agenda processing.

C. The processing of examination of the risk management relevant policy of theBank and limitations, management indices and the response project when therisk exceeds the limitations.

D. Supervise the Bank's capital adequacy management.

E. Conduct or supervise the issues that have to report to Risk ManagementCommittee according to the regulations drawed by the competent authority athome and abroad.

F. Conduct or supervise other risk management related issues.

Risk Management Department is the assistant unit of the Risk ManagementCommittee. The responsibility of the Risk Management Department is to executepreparing sittings agenda, convening sittings, agenda processing, taking meetingminutes and tracking resolution and regularly report the important resolution andvarious risk exposure to the board of (executive) directors.

(2) Assets and Liabilities Management Committee

The chairperson of the Assets and Liabilities Management Committee is the generalmanager, and the members are formed by the vice assistant general manager and thedepartment heads of deposit, loan, financial transaction, capital deployment and riskmanagement units. The responsibility of the Assets and Liabilities ManagementCommittee is to monitor and manage the banking book interest rate risk and capitalliquidity risk and convenes meetings regularly, to approve the analyzing andmeasurement methods of the capital liquidity risk and banking book interest rate riskexposure, to examine the capital liquidity risk and banking book interest rate riskmanagement policy as well as the relevant limitations and management indices, toreceive interest rate risk and capital liquidity risk exposure reports and adjust theassets and liabilities interest rate duration structure and capital maturity structure.

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(3) Credit Examination Committee

The convener of the Credit Examination Committee is the assistant general managersupervising Risk Management Center. The Committee in principle convenes weeklyto examine the modification and establishment of the regulations (including mainpoints, measures and procedures) for significant loans, foreign exchange andguarantee cases.

(4) Overdue Loans Clearing Committee

The convener of the Overdue Loans Clearing Committee is the supervising vicepresident and the executive secretary is the manager of the Creditor’ s RightManagement Department. The convener holds meetings based on the necessity toclear the non-performing loans and non-accrual loans and bad debts in order toimprove the quality of the credit assets of the Bank and its subsidiaries.

(c) Credit risk

(1) Source and definition of credit risk

Credit risk refers to the default risk resulted from the inability to fulfill the contractobligations due to deteriorating financial status of trade counterparties, pessimisticexternal economic situation or other factors. The primary source of the credit risk ofthe Bank is the loan business, such as loans of various terms, guarantees and lettersof credit, loan commitments, etc., in addition, other sources of credit risk includecall loans from banks, securities investments, derivative financial instrumenttransactions, etc.

(2) Credit risk management policy

In order to control the credit risk to a tolerable scope, the Bank continuously conductbelow operations:

A. Fully understand the credit status and ratings of loan customers and tradecounterparties as well as the purposes and payments of loans.

B. Prudently evaluates the credit risk status of loan customers and tradecounterparties and consider the adequacy of collaterals and guarantees to assessrisk and profit.

C. Establish credit rating mechanism for loan customers or apply the ratings fromoutside credit rating institutions as the reference for undertaking credit cases orinterest rate determination.

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D. Modify relevant regulations to control the credit risk to a tolerable extent for theBank.

The credit risk management procedure and measurement methods of the Bank'smajor business are as follows:

A. Credit Business (Including loan commitments and guarantees)

The categorization and credit quality rating of credit assets are as follows:

a. Categorization of credit assets

The credit assets are classified into 5 categories. Except for normal creditassets which are classified as the first category, others are classified, basedon the assurance status and the time overdue, as second category (needattention), third category (possible to recover), fourth category (difficult toretrieve) and the fifth category (unable to retrieve). In order to managecreditor's rights, the Bank established “ Regulations Governing theProcedures to Evaluate Assets and Deal with Non-performing/Non-accrualLoans” , “ Regulations Governing the Reconciliation of Non-performing/Non-accrual Loans” and its operating procedure “ Operatingprocedure Governing the Collection of Non-performing/Non-accrualLoans” and “ Code of Conduct to Deal With Non-Performing Loans” toserve as the guidelines for dealing with non-performing credit and overdueloans collection.

b. Categorization of credit quality

Based on historical default data, the Bank established internal credit ratingmodel and completed internal rating system to serve as a reference to creditrisk control.

In order to develop an appropriate credit rating model for the Bank toevaluate the credit risk for corporate banking customers and privatebanking customers, it applied statistical methods, professional expertjudgments and relevant customer information to fulfill the requirements.The Bank examined whether the internal credit rating model is inconformity with the actual scenario based on practical default data quarterlyand adjusted all parameters to optimize the estimated results.

B. Due from other banks and call loans to banks

The Bank evaluates the credit status of counterparties before transaction andtakes the rating information from domestic and foreign credit rating institutionsinto consideration to determine various credit risk facilities for thecounterparties.

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C. Debt instrument investments and derivative financial instruments

The Bank manages credit risk of debt instruments through credit rating data ofexternal institutions, credit quality of bonds, geographic situations andcounterparties’ risk so as to identify credit risk.

The financial institutions which the Bank conducts derivative instruments aremostly investment quality and are controlled based on the trade amount(including loans at call). Counterparties which do not have credit rating orwhich are of low quality shall be examined individually. For counterpartieswhich are general customers, the Bank controls the credit risk exposure basedon the derivative instrument risk facilities and conditions approved by generalcredit procedures.

(3) Credit risk hedging or diminishing.

A. Collaterals

The Bank adopts a series of policies and procedures to mitigate credit risk andenhance credit risk tolerance. The method applied most is to request customersto provide collaterals. The Bank established collateral accreditation code ofconduct in term of collateral management and total loan amount to regulate thescope of collaterals and the accreditation method and regularly inspects thecollaterals. When the collaterals devaluate or the concern of devaluation occurs,the Bank shall increase collaterals or retrieve part of the loans to ensure thecreditor’s right is intact.

B. Limit of credit risk and the control of credit risk concentration

a. In order to avoid the situation that the credit risk of single customer beingtoo high, the credit limit of an individual, a related party or a relatedenterprise shall be in conformity with “ Authorization method forsubsection 3 of Article 33 of the Banking Act of the Republic of China”and the credit limit authorization steps are regulated in the Key Points ofCredit Engagement Authorization and the Key Points of CreditEngagement Authorization for Overseas Branches of the Bank.

b. To enhance the risk concentration management, the Bank establishedregulations in terms of countries, financial institutions, industries and groupenterprises. The relevant limits are reviewed and approved annually and theusage of the credit is monitored on a daily basis. In addition, the results arereported regularly.

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C. General agreement of net amount settlement

The transactions of the Bank are mostly settled with gross amount. Part of thetransactions agreed on net amount settlement. When a default occurs, the Bankterminates all the transactions with the counterparty and settles by net amount tofurther lower credit risk.

D. Enhancement of other credit

The assessment of credit business apply to credit 5P principles, credit risk isoffset by dividing self-liquidating loan commitments as the main, and set theaccounts to master the repayment of cash flow. Also in terms of the creditagreement stipulates the offset.(i.e. all kinds of deposits, except prohibition oflow or the parties agreement, the Bank can set off all the debts), thus to reducethe loan amount, shorter loan repayment period or are considered part or all ofexpiration of acceleration clauses. To strengthen the protection of creditor andreduce credit risk, using qualified and effective enhancement, such as therequirement of real property, personal property, demand deposits, time deposits,securities and the guarantee of financial institution or the credit guaranteemechanism approved by government.(ig R.O.C SMEG, Agricultural CreditGuarantee Fund, Overseas Credit Guarantee Fund)

(4) Maximum credit risk exposure of the Bank.

The maximum credit exposure of the assets in the consolidated financial statementis approximately the book value when not considering collaterals or other creditenhancement instruments. The maximum credit exposure off the consolidatedbalance sheet (when not considering collaterals or other credit enhancementinstruments and not revocable) was as follows:

Maximum credit risk exposure Off balance sheet items March 31, 2017 December 31, 2016 March 31, 2016

Loan commitment signed andirrevocable

$ 93,886,126 93,069,743 92,588,195

Signed but not used L/C creditamount

8,588,823 9,350,457 10,457,121

Various guarantee proceeds 14,102,169 14,670,384 9,910,814

Total $ 116,577,118 117,090,584 112,956,130

The Management of the Bank evaluated the credit risk exposure and believed thatthe Bank is able to continuously control and minimize the off-balance-sheet creditrisk exposure due to its strict appraisal process and regular subsequent examination.

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(5) Credit risk concentration

The Bank and its subsidiaries do not conduct significant transaction with singlecustomer or single trade counterparty. The total amount of discounts and loans,overdue loans in terms of individual customer or individual trade counterparty is notsignificant. The information of credit risk concentration of the Bank’s discounts andloans and overdue loans are divided by industries, geographic areas and collateralsand listed as follows:

A. By industry

Distribution of discounts and loans, overdue loans based on industries.


Industry Amount % Amount % Amount %

Private business $ 567,329,192 %53.91 574,400,741 %54.30 539,867,198 %53.97

Public business 29,241,116 %2.78 17,127,308 %1.62 20,724,177 %2.07

Government institution 151,784,904 %14.42 157,538,499 %14.89 140,399,776 %14.03

Nonprofit organization 3,579,873 %0.34 3,630,663 %0.35 3,673,464 %0.37

Individual 268,260,440 %25.49 268,176,536 %25.35 263,078,807 %26.30

Foreign financial institution 8,060,869 %0.76 7,385,582 %0.70 4,289,881 %0.43

Foreign non-financial institution 24,173,301 %2.30 29,531,188 %2.79 28,344,389 %2.83

Total $ 1,052,429,695 %100.00 1,057,790,517 %100.00 1,000,377,692 %100.00

B. By geographic area

Distribution of discounts and loans, overdue loans based on geographic area.

March 31, 2017 December 31, 2016 March 31, 2016Area Amount % Amount % Amount %

Domestic $ 1,020,255,491 %96.94 1,021,032,082 %96.52 967,777,475 %96.74

Foreign 32,174,204 %3.06 36,758,435 %3.48 32,600,217 %3.26

Total $ 1,052,429,695 %100.00 1,057,790,517 %100.00 1,000,377,692 %100.00

C. By collateral

Distribution of discounts and loans, overdue loans based on collateral.


Collateral Amount % Amount % Amount %

Unsecured $ 330,738,471 %31.43 331,635,937 %31.35 314,280,958 %31.41

Stock 8,492,057 %0.81 8,355,354 %0.79 9,272,731 %0.93

Bond 9,560,878 %0.91 8,204,126 %0.77 4,432,548 %0.44

Real estate 572,676,667 %54.41 576,184,860 %54.47 541,837,397 %54.16

Chattel 11,291,532 %1.07 11,913,083 %1.13 9,979,665 %1.00

Notes receivable 1,561,214 %0.15 1,682,824 %0.16 1,496,843 %0.15

Guarantee 110,652,720 %10.51 112,962,902 %10.68 113,313,062 %11.33

Other 7,456,156 %0.71 6,851,431 %0.65 5,764,488 %0.58

Total $ 1,052,429,695 %100.00 1,057,790,517 %100.00 1,000,377,692 %100.00

～ 64 ～



Note: Secured credit are categorized in its respective item per the type of thecollaterals. Non-secured credit (no collateral provided) is classified infiduciary credit. If the credit amount is higher than the accreditationvalue, the credit amount within the accreditation is classified in therespective item, the credit amount exceeds the accreditation value isclassified in fiduciary credit. The accreditation value is the valuecalculated per the accreditation regulations of the Bank and itssubsidiaries, not the discounted value of the signed contract.

(6) Credit quality and overdue impairment loss of financial assets

Part of the financial assets, such as cash and cash equivalent, due from the CentralBank and call loans to banks, financial assets at fair value through profit or loss,bills and bonds purchased under resell agreement, guarantee deposits paid andoperation guarantee deposits and settlement funds are considered of minimum creditrisk due to the good credit ratings of the trade counterparties.

～ 65 ～



Except for the abovementioned items, the credit quality analyses of the rest of the financial assets were as follows:

A. Credit quality analysis of discounts and loans as well as receivables

Not overdue and not impairment amount Loss provided (D)

March 31, 2017 Excellent Good Medium AcceptableUnder

standard No rating Subtotal (A)Overdue but not

impaired (B)Impaired amount

(C) Total (A)+(B)+ (C)

With objectiveevidence ofimpairment

Without objectiveevidence ofimpairment

Net Amount(A)+(B)+(C)-(D)

Receivable

-Credit card $ 370,883 255,490 253,296 101,314 14,476 260,934 1,256,393 10,154 - 1,266,547 - 3,071 1,263,476

-Other 465,975 1,472,290 371,664 24,088 - 3,790,205 6,124,222 - 63,941 6,188,163 34,704 67,623 6,085,836

Discounts and

loans212,687,952 314,047,856 268,689,069 43,681,756 11,224,710 185,681,175 1,036,012,518 2,813,324 13,603,853 1,052,429,695 2,736,892 9,520,044 1,040,172,759

Other financial

assets- - 15 - - - 15 300 158,476 158,791 67,096 17 91,678

Total $ 213,524,810 315,775,636 269,314,044 43,807,158 11,239,186 189,732,314 1,043,393,148 2,823,778 13,826,270 1,060,043,196 2,838,692 9,590,755 1,047,613,749


December 31, 2016 Excellent Good Medium AcceptableUnder







Receivable

-Credit $ 396,034 260,472 280,608 48,894 8,922 288,706 1,283,636 9,341 - 1,292,977 - 3,273 1,289,704

-Other 400,589 1,401,566 362,045 18,767 - 3,727,078 5,910,045 - 96,187 6,006,232 60,152 49,310 5,896,770

Discounts and

loans212,553,044 317,772,953 263,411,813 46,550,494 11,542,857 189,461,418 1,041,292,579 2,812,587 13,685,351 1,057,790,517 2,983,450 9,566,513 1,045,240,554

Other financial

assets- - 112 - - - 112 271 157,421 157,804 60,198 4 97,602

Total $ 213,349,667 319,434,991 264,054,578 46,618,155 11,551,779 193,477,202 1,048,486,372 2,822,199 13,938,959 1,065,247,530 3,103,800 9,619,100 1,052,524,630


March 31, 2016 Excellent Good Medium AcceptableUnder







Receivable

-Credit card $ 387,243 270,386 263,705 75,053 9,756 267,831 1,273,974 8,933 - 1,282,907 - 3,751 1,279,156

-Other 279,606 1,457,756 220,994 53,820 - 3,173,567 5,185,743 - 155,240 5,340,983 90,026 43,252 5,207,705

Discounts and

loans165,804,455 317,998,957 233,075,722 47,353,023 46,796,683 170,686,327 981,715,167 2,806,160 15,856,365 1,000,377,692 3,249,274 8,715,583 988,412,835

Other financial

assets- 969 - - - - 969 19 70,927 71,915 16,284 10 55,621

Total $ 166,471,304 319,728,068 233,560,421 47,481,896 46,806,439 174,127,725 988,175,853 2,815,112 16,082,532 1,007,073,497 3,355,584 8,762,596 994,955,317

～ 66 ～



The abovementioned “Excellent” refers to the position which belongs to level 1 to level 4 of the Bank’s internal credit ratingsystem, “Good” refers to the position belongs to level 5 to level 9, “Medium” refers to the position belongs to level 10 to level 17,“Acceptable” refers to the position belongs to level 18 to level 23, “under standard” refers to the position belongs to level 24 tolevel 26 and “No rating” refers to the position which possesses no credit rating in the Bank's internal rating system.

B. Credit quality analysis based on internal credit rating criteria of the not overdue and not impaired discounts and loans andexpressed by customer types

March 31, 2017 Excellent Good Medium Acceptable Under standard No rating TotalPrivate banking

Secured $ 76,939,650 95,185,895 64,924,497 6,500,886 2,647,349 5,538,711 251,736,988

Non-secured 1,384,295 4,611,655 6,104,047 753,332 327,938 426,852 13,608,119

Corporate banking

Government and public institution - 17,113,881 10,000,000 - 2,127,235 151,769,723 181,010,839

Financial institution 546,840 7,147,928 995,196 - - - 8,689,964

Margin loans receivable - - - - - 1,889,224 1,889,224

Large Enterprise- credit andguarantee fund

90,384 192,396 18,443 35,250 - - 336,473

Large Enterprise-secured 51,747,151 16,536,391 5,130,206 1,444,258 - - 74,858,006

Large Enterprise-unsecured 24,254,018 36,981,138 17,044,190 3,506,383 - 2,544,489 84,330,218

Medium and small enterprises-credit and guarantee fund

5,271,444 27,348,195 42,473,007 4,553,750 873,983 955,989 81,476,368

Medium and small enterprises-secured

41,774,854 89,159,981 100,871,168 19,086,747 3,522,346 7,220,868 261,635,964

Medium and small enterprises-unsecured

10,679,316 19,770,396 21,128,315 7,801,150 1,725,859 15,335,319 76,440,355

Total $ 212,687,952 314,047,856 268,689,069 43,681,756 11,224,710 185,681,175 1,036,012,518

～ 67 ～



December 31, 2016 Excellent Good Medium Acceptable Under standard No rating TotalPrivate banking

Secured $ 75,184,115 95,847,141 67,821,656 6,124,027 2,493,083 3,106,026 250,576,048

Non-secured 920,335 4,355,783 6,711,990 871,247 266,981 1,488,162 14,614,498

Corporate banking

Government and publicinstitution

- 5,000,073 10,000,000 - 2,127,235 157,521,969 174,649,277

Financial institution 579,960 6,843,476 322,200 - - 289,980 8,035,616



98,657 172,376 23,825 11,875 - - 306,733

Large Enterprise-secured 50,656,118 17,719,414 3,270,544 1,435,726 250,000 - 73,331,802

Large Enterprise-unsecured 24,555,855 39,306,610 14,091,585 4,653,681 236,973 2,591,521 85,436,225


5,600,410 29,109,628 43,230,476 4,590,697 887,130 328,827 83,747,168


42,576,682 96,721,445 96,982,654 20,982,398 3,185,713 5,741,430 266,190,322

Medium and small enterprises-unsecured

12,380,912 22,697,007 20,956,883 7,880,843 2,095,742 16,684,757 82,696,144

Total $ 212,553,044 317,772,953 263,411,813 46,550,494 11,542,857 189,461,418 1,041,292,579

～ 68 ～



March 31, 2016 Excellent Good Medium Acceptable Under standard No rating TotalPrivate banking

Secured $ 75,035,409 74,105,163 72,584,529 15,379,701 4,022,916 1,644,803 242,772,521

Non-secured 1,347,103 3,880,917 9,227,314 1,242,667 222,254 1,189,062 17,109,317

Corporate banking

Government and public institution - 18,596,943 - - 2,127,235 140,381,524 161,105,702

Financial institution - 3,471,771 1,310,000 - - 321,750 5,103,521



64,584 182,968 3,528 - - - 251,080

Large Enterprise-secured 7,806,722 11,454,202 869,354 2,688,454 35,431,859 - 58,250,591

Large Enterprise-non secured 21,099,996 32,700,921 9,967,690 3,826,411 449,892 3,212,800 71,257,710


4,919,359 31,234,994 43,851,297 3,417,765 449,567 104,156 83,977,138


39,531,237 109,177,920 81,401,963 12,819,563 3,284,782 6,873,548 253,089,013

Medium and small enterprises- nonsecured

16,000,045 33,193,158 13,860,047 7,978,462 808,178 15,137,273 86,977,163

Total $ 165,804,455 317,998,957 233,075,722 47,353,023 46,796,683 170,686,327 981,715,167

～ 69 ～



C. Credit quality analysis of security investments

Not overdue and impaired position Overdue but not Impairment Total Loss Net amount

March 31, 2017 Investment Sub investment High risk No rating Subtotal (A)impaired

position (B) position (C) (A)+(B)+(C) provided (D)(A)+(B)+(C)-

(D)

Financial assets at fair value through profit or loss

-Overseas bonds $ - - - 91,070 91,070 - - 91,070 - 91,070

Available-for-sale financial assets-net

-Overseas bonds 7,392,369 - - 264,641 7,657,010 - - 7,657,010 - 7,657,010

-'NT bonds 57,176,903 - - - 57,176,903 - - 57,176,903 - 57,176,903

Hold-to-maturity financial assets-net

-Overseas bonds 27,139,809 - - - 27,139,809 - - 27,139,809 - 27,139,809

-'NT bonds 44,756,042 - - - 44,756,042 - - 44,756,042 - 44,756,042


December 31, 2016 Investment Sub investment High risk No rating Subtotal (A)impaired


(D)Available-for-sale financial assets-net

-Overseas bonds $ 7,874,215 - - 277,433 8,151,648 - - 8,151,648 - 8,151,648

-'NT bonds 62,620,307 - - - 62,620,307 - - 62,620,307 - 62,620,307


-Overseas bonds 27,454,012 - - - 27,454,012 - - 27,454,012 - 27,454,012

-'NT bonds 39,594,247 - - - 39,594,247 - - 39,594,247 - 39,594,247

～ 70 ～




March 31, 2016 Investment Sub investment High risk No rating Subtotal (A)impaired


(D)Financial assets at fair value through profit or loss

-Overseas bonds $ 318,670 - - 616,170 934,840 - - 934,840 - 934,840

Available-for-sale financial assets-net

-Overseas bonds 7,664,298 - - 520,814 8,185,112 - - 8,185,112 - 8,185,112

-'NT bonds 55,869,570 - - - 55,869,570 - - 55,869,570 - 55,869,570


-Overseas bonds 19,396,405 804,371 - - 20,200,776 - - 20,200,776 - 20,200,776

-'NT bonds 24,874,621 - - - 24,874,621 - - 24,874,621 - 24,874,621

For the investment ratings of above tables, investment grade refers to AAA to BBB-, Sub investment grade refers to BB+ ~B-,high risk refers to CCC+ and below. No rating refers to the bonds not graded by credit rating institution.

～ 71 ～



(7) Aging analysis of financial assets which are overdue but not impaired

Operation process delay of loan borrowers and other administrative factors maycause financial assets to be overdue but not impaired. According to the internal riskmanagement regulations of the Bank and its subsidiaries, financial assets overduewithin 90 days are not considered impaired unless there are other evidence indicatesotherwise.

March 31, 2017within 1month 1~3 months over 3 months Total

Account receivables

-Credit card $ 3,856 6,298 - 10,154

Discounts and loans

Private banking

-Secured 1,521,530 477,074 - 1,998,604

-Unsecured 67,796 12,327 - 80,123

Corporate banking

-Large enterprise unsecured 18,681 - - 18,681

-Medium and small enterprises- creditand guarantee fund

295,342 75,793 - 371,135

-Medium and small enterprises-secured

231,494 49,657 - 281,151

-Medium and small enterprises-unsecured

63,630 - - 63,630

Other financial assets - Exchange billsnegotiated

300 - - 300

Total $ 2,202,629 621,149 - 2,823,778

December 31, 2016within 1month 1~3 months over 3 months Total

Account receivables

-Credit card $ 3,852 5,489 - 9,341

Discounts and loans

Private banking

-Secured 1,363,945 416,999 - 1,780,944

-Unsecured 75,328 26,146 - 101,474

Corporate banking

-Large enterprise unsecured 48,225 - - 48,225


258,843 74,242 - 333,085


334,165 55,816 - 389,981


147,478 11,400 - 158,878


271 - - 271

Total $ 2,232,107 590,092 - 2,822,199

～ 72 ～



March 31, 2016within 1month 1~3 months over 3 months Total

Account receivables

-Credit card $ 5,579 3,354 - 8,933

Discounts and loans

Private banking

-Secured 1,563,412 546,917 - 2,110,329

-Unsecured 76,376 14,988 - 91,364

Corporate banking

-Large enterprise-unsecured 14,751 - - 14,751


309,610 88,014 - 397,624


108,679 23,611 - 132,290


59,802 - - 59,802


19 - - 19

Total $ 2,138,228 676,884 - 2,815,112

(8) Impairment loss analysis of the financial assets

A. Discounts and loans

March 31, 2017 Item Discounts and loans Allowance for bad debts

With objective evidence of impairment

Individual assessment $ 8,933,579 1,283,066

Collective assessment

Government and public institution 15,181 15,181

Medium and small enterprises-credit and guarantee fund 2,089,631 670,789

Medium and small enterprises-secured 503,047 233,012

Medium and small enterprises-unsecured 63,010 60,948

Private banking-secured 1,825,738 364,624

Private banking-unsecured 170,219 106,989

Preliminary negotiation projects 3,448 2,283

Subtotal 13,603,853 2,736,892

Without objective evidence of impairment


Government and public institution 181,010,839 157,484

Financial institution 8,689,964 7,561

Margin loans receivables 1,889,224 18,892

Large Enterprise- credit and guarantee fund 336,473 17,740

Large enterprise secured 74,858,006 1,387,554

Large enterprise-unsecured 84,348,899 2,128,188

Medium and small enterprises-credit guarantee fund 81,847,503 1,577,617

Medium and small enterprises-secured 261,917,115 1,663,806

Medium and small enterprises-unsecured 76,503,985 1,903,019


Private banking-unsecured 13,688,242 65,577

Subtotal 1,038,825,842 9,520,044

Total $ 1,052,429,695 12,256,936

～ 73 ～



December 31, 2016 Item Discounts and loans Allowance for bad debts


Individual assessment $ 9,012,502 1,533,524


Government and public institution 16,530 16,530

Medium and small enterprises-credit and guarantee fund 2,109,832 677,215

Medium and small enterprises-secured 513,017 237,858

Medium and small enterprises-unsecured 60,927 58,975


Private banking-unsecured 158,768 99,916

Preliminary negotiation projects 1,568 985

Subtotal 13,685,351 2,983,450



Government and public institution 174,649,277 149,389

Financial institution 8,035,616 6,873

Margin loans receivables 1,708,746 1,462

Large Enterprise- credit and guarantee fund 306,733 15,900

Large enterprise secured 73,331,802 1,334,473

Large enterprise-unsecured 85,484,450 2,120,490

Medium and small enterprises-credit guarantee fund 84,080,253 1,595,071

Medium and small enterprises-secured 266,580,303 1,666,660

Medium and small enterprises-unsecured 82,855,022 2,026,346


Private banking-unsecured 14,715,971 69,152

Subtotal 1,044,105,166 9,566,513

Total $ 1,057,790,517 12,549,963

March 31, 2016 Item Discounts and loans Allowance for bad debts

With objective evidence of impairment Individual assessment $ 11,042,137 1,595,168Collective assessment

Large enterprise-secured 27,800 12,118

Large enterprise-unsecured 34,252 28,267

Medium and small enterprises-credit and guarantee fund 2,166,342 790,317Medium and small enterprises-secured 510,058 159,286Medium and small enterprises-unsecured 121,086 86,322Private banking-secured 1,773,091 448,137Private banking-unsecured 179,383 128,300Preliminary negotiation projects 2,216 1,359Subtotal 15,856,365 3,249,274

Without objective evidence of impairmentCollective assessment

Government and public institution 161,105,701 149,275Financial institution 5,103,521 4,729Margin loans receivables 1,821,411 1,688Large Enterprise- credit and guarantee fund 251,080 14,113Large enterprise secured 58,250,592 1,118,761Large enterprise-unsecured 71,272,459 1,759,957Medium and small enterprises-credit guarantee fund 84,374,762 1,955,809Medium and small enterprises-secured 253,210,221 1,058,225Medium and small enterprises-unsecured 87,036,968 1,749,727Private banking-secured 244,892,091 785,677Private banking-unsecured 17,202,521 117,622Subtotal 984,521,327 8,715,583

Total $ 1,000,377,692 11,964,857

～ 74 ～



B. Receivables

March 31, 2017 Item Receivables Allowance for bad debts


Individual assessment $ 49,246 29,132

Collective assessment 14,695 5,572

Subtotal 63,941 34,704



Credit card proceeds receivable 1,266,547 3,071

Accounts receivable 215,088 3,187

Installment accounts receivable and rents receivable 792,353 11,842

Other receivables 524,551 24,217

Acceptances receivable 1,405,178 14,052

Accounts receivable factoring 409,798 4,116

Interest receivable 2,777,254 10,209

Subtotal 7,390,769 70,694

Total $ 7,454,710 105,398

December 31, 2016Item Receivables Allowance for bad debts



Collective assessment 28,556 11,178

Subtotal 96,187 60,152



Credit card proceeds receivable 1,292,977 3,273

Accounts receivable 256,744 2,321

Installment accounts receivable and rents receivable 912,753 13,933

Other receivables 259,886 8,881

Acceptances receivable 1,213,733 12,137

Accounts receivable factoring 319,040 3,190

Interest receivable 2,947,889 8,848

Subtotal 7,203,022 52,583

Total $ 7,299,209 112,735

March 31, 2016 Item Receivables Allowance for bad debts

With objective evidence of impairment Individual assessment $ 105,003 78,322Collective assessment 50,237 11,704Subtotal 155,240 90,026

Without objective evidence of impairmentCollective assessment

Credit card proceeds receivable 1,282,907 3,751Accounts receivable 104,124 -Installment accounts receivable and rents receivable 873,400 8,603Other receivables 503,088 16,515Acceptances receivable 1,002,368 10,024Interest receivable 2,702,763 8,110Subtotal 6,468,650 47,003

Total $ 6,623,890 137,029

～ 75 ～



C. Other financial assets

March 31, 2017 Item Other financial assets Allowance for bad debts




Guarantee, acceptance and other advances 9,440 55,534

Credit card 54,549 10,267

Subtotal 158,476 67,096



Exchange bills negotiated 315 17

Total $ 158,791 67,113

December 31, 2016 Item Other financial assets Allowance for bad debts




Guarantee, acceptance and other advances 9,440 47,901

Credit card 57,016 10,956

Subtotal 157,421 60,198



Exchange bills negotiated 383 4

Total $ 157,804 60,202

March 31, 2016 Item Other financial assets Allowance for bad debts

With objective evidence of impairmentIndividual assessment $ 1,590 1,355Collective assessment

Guarantee, acceptance and other advances 5,159 3,989Credit card 64,178 10,940

Subtotal 70,927 16,284Without objective evidence of impairment

Collective assessmentExchange bills negotiated 988 10

Total $ 71,915 16,294

(9) Collateral management policy

A. Collaterals are recognized under the account of other assets per the rules of“ Regulations Governing the Preparation of Financial Reports by Public HeldBanks”.

B. Details were as follows:

Collaterals refer to the collaterals provided by clients as guarantee which areundertaken through public auction when the debtor is not able to fulfill itsobligation. The collaterals assumed are recognized using the prices undertakenper the rules of “Regulations Governing the Preparation of Financial Reports byPublic Banks” and measured by the book value or the fair value deducted bycost of sale, whichever is lower, at the end of the period. Collaterals will be soldwhen they are available to be sold and the proceeds received will be used toreduce the book amount of collaterals.

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(10)Disclosure required under “ Regulations Governing the Preparation of FinancialReports by Public Held Banks ”

A. Loan quality:

Unit：In Thousands of New Taiwan Dollars, %Month/Year March 31, 2017

ItemsNon-performing

loans Total loansNon-performing

loan ratioAllowance forcredit losses Coverage ratio

Corporatefinance

SecuredUnsecured

2,652,017636,867

412,204,544376,171,892

0.64 %0.17 %

4,650,3334,487,464

175.35 %704.62 %

Residence mortgages(Note 4) 420,948 140,697,981 0.30 % 1,581,423 375.68 % Consumer Cash cards - 105 - % - - %

Small sum credit loans(Note 5) 13,652 854,342 1.60 % 15,136 110.87 %finance Others Secured 391,879 109,898,784 0.36 % 1,229,706 313.80 %

(Note 6) Unsecured 80,446 12,602,047 0.64 % 292,874 364.06 %total loan business 4,195,809 1,052,429,695 0.40 % 12,256,936 292.12 %

Overdue loans Total receivables Overdue ratioAllowance for

doubtful accountsRatio of allowanceto overdue loans

Credit cards business 2,660 1,321,096 0.20 % 13,338 501.43 %Account receivable factoring-withoutrecourse

- 411,622 - % 4,116 - %

Month/Year December 31, 2016

ItemsNon-performing



Corporatefinance

SecuredUnsecured

2,702,3661,017,223

417,320,736377,249,746

0.65 %0.27 %

4,725,3184,730,164

174.86 %465.01 %

Residence mortgages(Note 4) 447,319 140,996,715 0.32 % 1,580,928 353.42 %Consumer Cash cards - 114 - % - DIV/0 %

Small sum credit loans(Note 5) 11,495 849,136 1.35 % 13,581 118.15 %finance Others Secured 277,251 107,758,146 0.26 % 1,202,590 433.75 %




Credit cards business 2,070 1,349,993 0.15 % 14,229 687.39 %Account receivable factoring-withoutrecourse

- 319,040 - % 3,190 - %

Month/Year March 31, 2016

ItemsNon-performing



Corporatefinance

SecuredUnsecured

3,728,5151,103,331

393,131,028349,809,509

0.95 %0.32 %

7,646,6772,403,687

205.09 %217.86 %

Residence mortgages(Note 4) 445,144 136,337,460 0.33 % 1,306,040 293.40 %Consumer Cash cards 2 145 1.38 % 2 100.00 %

Small sum credit loans(Note 5) 4,464 617,839 0.72 % 4,464 100.00 %finance Others Secured 235,042 103,990,840 0.23 % 470,134 200.02 %




Credit cards business 1,462 1,347,085 0.11 % 14,691 1,004.86 %Account receivable factoring-withoutrecourse

- - - % - - %

Note 1 Non-performing loans represent the amount of overdue loans asreported in accordance with the "Regulations on the Procedures forBanking Institutions to Evaluate Assets and Deal with Past Due/Non-performing Loans". The credit card overdue loans represent the amountof overdue loans as reported in accordance with Jin-Kuan-Yin-(4)-ZiNo. 0944000378, dated July 6, 2005.

～ 77 ～



Note 2 Non-performing loan ratio = Non-performing loans÷ total loans; Creditcard delinquency ratio = Overdue receivables÷ balance of receivables

Note 3 Coverage ratio for loans = allowance for credit losses ÷ non-performing loans; Coverage ratio for credit card business = allowancefor credit losses ÷ overdue receivables.

Note 4 For residential mortgage loans, a borrower provides his/her (or spouse’s or minor child’ s) house as collateral in full and pledges it to thefinancial institution for the purpose of obtaining funds to purchaseproperty and to construct or repair a house.

Note 5 Microcredit loans are defined by Jin-Kuan-Yin-(4)-Zi No.09440010950, dated December 19, 2005, and do not include creditcards or cash cards.

Note 6 Others in consumer finance are secured and unsecured consumer loansother than residential mortgage loans, cash card loans, and microcreditloans, and do not include credit cards.

Note 7 In accordance with Jin-Kuan-Yin-(5)-Zi No. 0944000494, dated July19, 2005, the amounts of without-recourse factoring will be classifiedas overdue receivables within three months from the date that suppliersor insurance companies resolve not to compensate the loss.

B. Overdue loans and receivables exempted from reporting

Unit : In Thousands of New Taiwan DollarsMarch 31, 2017 December 31, 2016 March 31, 2016

Loans may beexempted fromreporting as a

non-performing

loan

Receivablesmay be

exempted fromreporting as

overduereceivables


non-performing

loan

Receivablesmay be


overduereceivables


non-performing

loan

Receivablesmay be


overduereceivables

Pursuant to a contractunder a debtnegotiation plan

2,605 6,986 2,847 7,546 4,059 9,867

Pursuant to a contractunder a debtliquidation plan and adebt relief plan

82,192 44,903 83,998 47,400 86,691 56,706

Total 84,797 51,889 86,845 54,946 90,750 66,573

Note A: In accordance with Jin-Kuan-Yin-(1)-Zi No. 09510001270, dated April25, 2006, a bank is required to make supplemental disclosure of creditinformation which was approved under the debt coordinationmechanism of unsecured consumer debts by the Bankers Associationof the R.O.C.

～ 78 ～



Note B: In accordance with Jin-Kuan-Yin-(1)-Zi No. 09700318940, datedSeptember 15, 2008, a bank is required to make supplementaldisclosure of credit information once debtors apply for pre-negotiation,relief and liquidation under the “Consumer Debt Clearance Act.”

C. Concentration of credit extensions

Unit：In Thousands of New Taiwan Dollars, %March 31, 2017

Ranking Group enterprise Credit amountCredit amount toequity ratio (%)

1 A company. (Railway transportation) 31,900,542 %44.092 B group. (Chemical raw materials manufacturing ) 9,303,881 %12.863 C group. (Steel rolling and extruding) 8,049,285 %11.134 D company. (Real estate development) 6,521,072 %9.015 E group. (Real estate development) 6,008,160 %8.306 F group. (Integrated Circuits Manufacturing) 6,000,000 %8.297 G group. (Computer manufacturing) 5,494,584 %7.598 H group. (Chemical raw materials manufacturing) 5,389,792 %7.459 I group. (Steel smelting) 5,218,289 %7.21

10 J group. (Liquid crystal panel and componentsmanufacturing)

3,302,050 %4.56

Unit：In Thousands of New Taiwan Dollars, %December 31, 2016


1 A company. (Railway transportation) 31,900,542 %45.012 B group. (Chemical raw materials manufacturing) 9,491,629 %13.393 C group. (Steel rolling and extruding) 8,406,097 %11.864 D company. (Real estate development) 6,521,072 %9.205 E group. (Real estate development) 6,508,160 %9.186 F group. (Integrated circuits manufacturing) 6,000,000 %8.477 G group. (Computer manufacturing) 5,513,184 %7.788 H group. (Chemical raw materials manufacturing) 4,674,109 %6.609 I group. ( Steel smelting) 3,869,721 %5.46

10 J group. (Liquid crystal panel and componentsmanufacturing)

3,520,717 %4.97

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Unit：In Thousands of New Taiwan Dollars, %March 31, 2016


1 A company. (Railway transportation) 35,048,053 %50.672 B group. (Petroleum and chemical material

manufacturing)9,488,537 %13.72

3 C group. (Steel rolling and extruding) 7,285,861 %10.534 D company. (Real estate development) 6,227,072 %9.005 G group. (Computer manufacturing) 5,449,731 %7.886 H group. (Petroleum and chemical material


7 K group. (Real estate development) 4,453,740 %6.448 I group. (Steel smelting) 3,657,844 %5.299 J group. (Liquid crystal panel and components


10 L group. (Real estate rental and leasing) 3,317,528 %4.80

Note 1 The top ten enterprise groups other than government or stated-ownedenterprises are ranked according to their total outstanding creditamount. If the borrowers belong to an enterprise group, the aggregatecredit balance of the enterprise should be calculated and disclosed as acode number for each such borrower together with an indication of theborrowers’ line of business. In addition, if the borrowers are enterprisegroups, the enterprise group’ s industry sector with the maximumexposure to credit risk in its main industry sector should be disclosed,along with the “class” of the industry, in compliance with the StandardIndustrial Classification System of the R.O.C. posted by theDirectorate-General of Budget, Accounting and Statistics, ExecutiveYuan, R.O.C.

Note 2 Enterprise group is as defined in Article 6 of the “ SupplementaryProvisions to the Taiwan Stock Exchange Corporation Rules forReview of Securities Listings”.

Note 3 Consists of loans (foreign currency imports financing, foreign currencyexport financing, notes discounted, customer overdrafts, short-termunsecured loans, short-term secured loans, receivables from securitieslending, medium-term unsecured loans, medium-term secured loans,long-term unsecured loans loan-term secured loans, non-performingloans), foreign currency long positions, accounts receivable-factoringdiscount, bankers’ acceptance receivable, guarantees receivable.

Note 4 In the calculation of Credit amount to equity ratio, the domestic bankshould be calculated in the net value of head office. The Foreign bankshould be calculated in the net value of Taiwan branch.

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(d) Liquidity risk

(1) The origin and definition of liquidity risk

Liquidity risk refers to the potential financial loss results from the inability toliquidate assets or obtain finance to fulfill the financial obligation which is going tomature with sufficient fund, such as early rescind of time deposits, the channels andterms to call loan from other bank are deteriorated due to the influence of specificmarkets and the default of loan customers worsen and it is harder for the Bank toreceive payments and liquidate financial instruments. The abovementionedsituations may diminish the source of cash for the Bank to undertake loan business,trades and investment activities. Under some extreme circumstances, the lack ofliquidity may increase the potential possibility of reduction of the overall position ofconsolidated financial statement, sale of assets and inability to fulfill loanobligation. Liquidity risk is an inherent risk of bank operations and is influenced byspecific or overall events in various markets. Those events include but not limitedto: Credit event, merger or buyout, systematic strike and natural disaster.

(2) The management policy, process and measurement of liquidity risk

A. Policy

a. In accordance with the target and limit for liquidity risk managementapproved by the board of directors and monitor all liquidity risk positions.

b. Established “Directions Governing the Capital Liquidity Risk Managementof Taiwan Business Bank” and “Remarks Governing the Capital LiquidityRisk Management of Taiwan Business Bank” to serve as guidance toeffectively control capital liquidity risk.

c. Overseas branches shall regulate the code of conduct for liquidity riskmanagement based on business characteristics and the regulations of localauthorities. After being approved by the general manager, the RiskManagement Department will be in charge of monitoring liquidity risk.

B. Process

a. Finance Department is in charge of daily capital deployment to ensure thatthe capital is sufficient to cope with various demands for capital.

b. Risk Management Department is in charge of the identification,measurement, supervision and control of capital liquidity risk to establish afirm operation process and structure.

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c. Risk Management Department reports the result of capital liquidity riskmeasurement to the Assets and Liabilities Management Committee on amonthly basis and reports the results of capital liquidity risk and pressuretest to the board of directors quarterly.

C. Measurement

a. Maturity gap: To place the inflows and outflows of capital into various timezones accordingly based on the remaining days to maturity and calculatethe gap of capital of each time zone in order to measure the capitaldeficiency of each time zone.

b. Loan-deposit ratio: To calculate the deposits the Bank received which areused to conduct loan business. In other words, the percentage of the totalloan amount accounts for the total deposit amount.

c. Capital concentration and stability: In order to prevent the Bank from over-relying on single trade counterparty, product or market, the Bank observesseveral aspects such as the changes in large time deposit customers, thepercentage of demand deposits and the continuity of deposits.

d. Pressure test: Except for monitoring the capital demand under normalcircumstances, the Bank conducts pressure test regularly in order toevaluate the capital liquidity under abnormal circumstances and ensure thatthe Bank is equipped with sufficient capital.

(3) Financial assets possessed for managing liquidity risk and maturity analysis for non-derivative financial liability

A. Financial assets possessed for managing liquidity risk

The Bank possesses cash and other high liquidity interest yielding assets to copewith payment obligations and potential emergent capital demands in the market.The assets possessed for managing liquidity risk include cash and cashequivalent, due from the Central Bank and call loans to banks, financial assetsat fair value through profit or loss, discounts and loans, available-for-salefinancial assets, held-to-maturity financial assets, debts investment withoutactive market.

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B. Maturity analysis for non-derivative financial liabilities

The table below shows the cash outflows from the non-derivative financialliabilities which are possessed by the Bank based on the remaining days fromthe consolidated financial statement date to the contract maturity date. Theamount disclosed is based on the cash flows of the contracts and thus part of theamount disclosed may not correspond to the amount disclosed in theconsolidated financial statement.

March 31, 20170-30 days 31-90 days 91 days-1 year 1-5 years Over 5 years Total

Major matured cash outflow $ 804,986,803 159,361,937 351,846,893 67,458,457 18,045,346 1,401,699,436Deposits from the Central Bank

and banks952,066 - - - - 952,066

Overdrafts on banks 1,164,949 - - - - 1,164,949Call loans from the Central Bank

and banks26,535,972 11,762,772 1,701,288 - - 40,000,032

Securities sold under repurchaseagreement

969,775 719,426 153,986 - - 1,843,187

Interest payable 320,961 484,583 1,008,821 71,631 47 1,886,043Deposits transferred from

Chunghwa Post Co., Ltd.8,134,226 18,252,011 15,581,509 - - 41,967,746

Demand deposits 681,884,173 - - - - 681,884,173Time deposits 84,619,527 128,139,895 327,278,049 34,551,906 6,139 574,595,516Remittance 396,904 - - - - 396,904Financial debentures - - 6,000,000 28,000,000 11,700,000 45,700,000Appropriated loan fund 8,250 3,250 123,240 4,834,920 6,339,160 11,308,820

December 31, 20160-30 days 31-90 days 91 days-1 year 1-5 years Over 5 years Total


and banks236,891 - - - - 236,891

Overdrafts on banks 1,187,819 - - - - 1,187,819Call loans from the Central Bank

and banks26,311,984 10,869,781 - - - 37,181,765


1,772,500 325,799 660,606 - - 2,758,905

Interest payable 337,226 309,866 799,102 59,594 35 1,505,823Deposits transferred from


Demand deposits 699,189,213 - - - - 699,189,213Time deposits 93,431,200 113,763,731 314,329,475 32,718,085 5,717 554,248,208Remittance 367,056 - - - - 367,056Financial debentures - 1,050,000 6,000,000 28,000,000 7,700,000 42,750,000Appropriated loan fund 10,750 8,830 140,000 5,107,420 5,513,543 10,780,543

March 31, 20160-30 days 31-90 days 91 days-1 year 1-5 years Over 5 years Total


and banks192,631 - - - - 192,631

Overdrafts on banks 961,874 - - - - 961,874Call loans from the Central Bank

and banks25,362,449 6,288,206 4,822,337 - - 36,472,992


1,148,887 890,353 80,936 - - 2,120,176

Interest payable 506,451 503,669 900,917 65,560 9 1,976,606Deposits transferred from


Demand deposits 655,189,618 - - - - 655,189,618Time deposits 93,888,629 111,863,846 314,981,328 33,892,061 2,638 554,628,502Remittance 274,653 - - - - 274,653Financial debentures - - 14,600,000 26,000,000 5,000,000 45,600,000Appropriated loan fund 6,750 10,500 252,660 5,677,260 5,704,924 11,652,094

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(4) Derivative financial liabilities maturity analysis

A. Derivative financial instruments settled by net amount

The derivative instruments of the Bank’ s possession which are settled by netamount include foreign derivative instruments, such as non-delivery forwardcontracts, foreign exchange options settled by net amount. After evaluation theBank concluded that the maturity date is the basic element to comprehend allthe derivative financial instruments listed in the consolidated financialstatement. The amount disclosed is based on the cash flows of the contracts andthus part of the amount disclosed may not correspond to the amount disclosedin the consolidated financial statement.

The maturity analysis of derivative financial liabilities settled by net amount isas follows:

March 31, 2017

0-30 days 31-90 days 91-180 days181 days to 1 year

Over1 year Total

Derivative financial liabilitiesat fair value through profitor lossForeign exchange

derivative instrument$ - 5,230 18,110 1,620 - 24,960

December 31, 2016


Over1 year Total


derivative instrument$ - 980 - 280 - 1,260

March 31, 2016


Over1 year Total


derivative instrument$ - 1,700 - 1,025 - 2,725

B. Derivative financial instruments settled by gross amount

The derivative instruments of the Bank’ s possession settled by gross amountinclude the following:

a. Foreign exchange derivative financial instrument: Foreign exchangeoptions settled by gross amount, foreign exchange forward contracts andcurrency swap contracts.

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b. Interest rate derivative financial instruments: interest rate swap contracts.

The table below shows the derivative financial instruments of the Bank’spossession which are settled by gross amount based on the remaining daysfrom the consolidated financial statement date to the contract maturity date.The amount disclosed is based on the cash flow of the contracts and thuspart of the amount disclosed may not correspond to the amount disclosed inthe consolidated financial statement. The maturity analysis for derivativefinancial liabilities settled by gross amount is as follows:

March 31, 2017 0-30 days 31-90 days 91-180 days181 days to 1 year Over 1 year Total

Derivative financialinstruments at fair valuethrough profit or lossForeign exchange

derivative instrumentCash outflow $ 2,583,226 3,610,802 4,129,487 1,408,004 - 11,731,519Cash inflow 2,660,432 3,697,523 4,216,013 1,473,211 - 12,047,179

Total cash outflow 2,583,226 3,610,802 4,129,487 1,408,004 - 11,731,519Total cash inflow 2,660,432 3,697,523 4,216,013 1,473,211 - 12,047,179Net cash flow $ (77,206) (86,721) (86,526) (65,207) - (315,660)

December 31, 2016 0-30 days 31-90 days 91-180 days181 days to 1 year Over 1 year Total


derivative instrumentCash outflow $ 34,409,631 22,383,020 5,836,494 716,221 - 63,345,366Cash inflow 34,401,750 21,827,320 5,690,894 745,027 - 62,664,991

Total cash outflow 34,409,631 22,383,020 5,836,494 716,221 - 63,345,366Total cash inflow 34,401,750 21,827,320 5,690,894 745,027 - 62,664,991Net cash flow $ 7,881 555,700 145,600 (28,806) - 680,375



derivative instrumentCash outflow $ 27,353,199 13,055,751 3,308,597 5,136,625 - 48,854,172Cash inflow 27,041,118 12,930,509 3,309,831 5,178,391 - 48,459,849

Total cash outflow 27,353,199 13,055,751 3,308,597 5,136,625 - 48,854,172Total cash inflow 27,041,118 12,930,509 3,309,831 5,178,391 - 48,459,849Net cash flow $ 312,081 125,242 (1,234) (41,766) - 394,323

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(5) Maturity analysis of off balance sheet items

The table below shows the maturity analysis of the off-balance-sheet items of theBank based on the remaining days from the consolidated financial statement date tothe contract maturity date. For the financial guarantee contracts issued, themaximum amount of the guarantee is listed in the earliest time zone that theguarantee may be executed. The amount disclosed is based on the cash flows of thecontracts and thus part of the amount disclosed may not correspond to the amountdisclosed in the consolidated financial statement.


Issued and irrevocable loancommitment

$ 40,176,476 820,615 1,202,056 32,798,057 18,888,922 93,886,126

Issued but not yet executedletter of credit

2,734,532 4,758,234 530,982 182,223 382,852 8,588,823

Miscellaneous guarantee 14,102,169 - - - - 14,102,169Total $ 57,013,177 5,578,849 1,733,038 32,980,280 19,271,774 116,577,118

December 31, 2016 0-30 days 31-90 days 91-180 days181 days to 1 year Over 1 year Total


$ 153,450 196,726 40,959,262 33,153,734 18,606,571 93,069,743


3,138,218 5,023,578 467,989 337,231 383,441 9,350,457




$ 313,551 1,099,803 2,451,745 40,350,791 48,372,305 92,588,195


3,238,376 5,374,919 691,544 482,582 669,700 10,457,121


(6) Maturity analysis of lease contract commitments

Operating lease commitment refers to, when the Bank is the lessor or lessee andunder the irrevocable operating lease conditions, the minimum total future rentpayment. Below tables show the maturity analysis of the Bank’ s operating leasecontract commitments:

March 31, 2017 Below 1 year 1-5 years Over 5 years TotalOperating lease expense

(lessee)$ 70,558 121,221 88,707 280,486

Operating lease income(lessor)

3,879 1,842 - 5,721

December 31, 2016 Below 1 year 1-5 years Over 5 years TotalOperating lease expense

(lessee)$ 70,329 69,346 - 139,675


3,934 2,410 - 6,344

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March 31, 2016 Below 1 year 1-5 years Over 5 years TotalOperating lease expense

(lessee)$ 77,793 118,912 - 196,705


1,114 2 - 1,116

The capital expenditure commitment of the Bank refers to the contract signed toobtain buildings and equipment. The maturity analysis of the capital expenditurecommitment of the Bank is as follows:

March 31, 2017 Below 1 year 1-5 years Over 5 years TotalMachinery and equipment $ 583,408 - - 583,408Communication and

transportation equipment460 - - 460

Lease property 9,955 26,780 - 36,735Miscellaneous equipment 11,213 - - 11,213Total $ 605,036 26,780 - 631,816

December 31, 2016 Below 1 year 1-5 years Over 5 years TotalMachinery and equipment 653,130 - - 653,130Lease property 9,878 28,380 25 38,283Miscellaneous equipment 11,213 - - 11,213Total $ 674,221 28,380 25 702,626

March 31, 2016 Below 1 year 1-5 years Over 5 years TotalBuildings and constructions $ 36,088 - - 36,088Machinery and equipment 585,383 7,106 - 592,489Lease property 12,529 34,675 150 47,354Miscellaneous equipment 3,299 - - 3,299Total $ 637,299 41,781 150 679,230

(7) Disclosures required by “ Regulations Governing the Preparation of FinancialReports by Public Held Banks”

A. Maturity analysis in New Taiwan dollars

Unit : In Thousands of New Taiwan DollarsMarch 31, 2017

Amount during the maturity period from the balance sheet date to due date

Total 0-10days 11-30days 31-90days 91-180days 181days-1year Over 1 year

Major maturitycapital inflow

$ 1,297,369,879 84,318,709 140,229,726 153,979,757 159,384,447 153,137,030 606,320,210

Major maturitycapital outflow

1,604,936,072 48,780,603 71,647,553 172,681,427 206,092,632 302,771,087 802,962,770

Gap (307,566,193) 35,538,106 68,582,173 (18,701,670) (46,708,185) (149,634,057) (196,642,560)

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Note: Listed amounts are denominated in New Taiwan dollars (i.e.,excluding foreign – currency amounts) of the head office and domesticbranches, including commitment of credit agreement and estimates to

outflow $342,125,770.

Unit : In Thousands of New Taiwan DollarsDecember 31, 2016




$ 1,291,674,625 93,072,084 148,945,573 130,659,717 187,702,413 197,681,634 533,613,204


1,640,504,835 60,126,831 79,718,754 162,421,241 173,761,581 296,143,485 868,332,943

Gap (348,830,210) 32,945,253 69,226,819 (31,761,524) 13,940,832 (98,461,851) (334,719,739)

Note: Listed amounts are denominated in New Taiwan dollars (i.e.,excluding foreign – currency amounts) of the head office and domesticbranches, including commitment of credit agreement and estimates tooutflow $346,854,347.

Unit : In Thousands of New Taiwan DollarsMarch 31, 2016




$ 1,254,202,747 85,593,782 165,854,783 148,044,739 154,540,165 172,867,170 527,302,108


1,618,513,464 39,166,444 79,027,873 153,828,329 208,935,722 307,225,334 830,329,762

Gap (364,310,717) 46,427,338 86,826,910 (5,783,590) (54,395,557) (134,358,164) (303,027,654)

Note: Listed amounts are denominated in New Taiwan dollars (i.e.,excluding foreign – currency amounts) of the head office and domesticbranches, including commitment of credit agreement and estimates tooutflow $364,759,700.

B. Maturity analysis in U.S. dollars

Unit : In Thousands of US DollarsMarch 31, 2017


Total 0-30days 31-90days 91-180days 181days-1year Over 1 year


$ 8,962,246 2,358,666 1,390,174 1,424,965 2,061,669 1,726,772


9,985,996 2,331,606 1,494,605 1,393,598 1,791,832 2,974,355

Gap (1,023,750) 27,060 (104,431) 31,367 269,837 (1,247,583)

Note: Including commitment of credit agreement and estimates to outflowUS$1,072,873.

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Unit : In Thousands of US DollarsDecember 31, 2016




$ 7,826,263 2,618,874 1,522,669 992,539 922,752 1,769,429


8,791,509 2,045,754 1,575,051 981,556 1,272,230 2,916,918

Gap (965,246) 573,120 (52,382) 10,983 (349,478) (1,147,489)


Unit : In Thousands of US DollarsMarch 31, 2016




$ 7,502,764 2,151,086 1,509,184 1,066,543 1,232,264 1,543,687


8,624,396 2,146,620 1,396,342 911,812 1,059,862 3,109,760

Gap (1,121,632) 4,466 112,842 154,731 172,402 (1,566,073)


(e) Market risk

(1) Definition of market risk

Market risk refers to the possible loss of the Bank’s business in or off the balancesheet results from the disadvantageous fluctuation in market price in terms ofinterest rates, stock prices, foreign exchange rates and commodity prices.

(2) Policies and procedures of market risk management

A. Strategy

a. To carry out market risk management, achieve operation target andmaintain healthy capital adequacy by following “Directions Governing theMarket Risk Management of Taiwan Business Bank” and other relevantregulations.

b. Under the risk tolerance approved by the board of directors, the Bankapplies various risk control mechanism to effectively deploy and managecapital in order to maintain the market risk exposure within the tolerableextent and achieve earning target.

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B. Policies and procedures

In order to establish the market risk management mechanism and ensure that themarket risk is within the tolerable extent, the Bank set up directions governingthe market risk management, remarks governing the limit of market risk andfinancial product valuation procedures as the primary management guidance.Other than what is stated above, the Bank also establish limit controlmechanism in terms of trade positions, stop-limit, suspensions and lines of alertbased on the operation notices and procedures of different financial products(including fix income products, equity securities, foreign exchange transactionand derivative financial products).

(3) Process for market risk management

A. Risk identification

In accordance with the rules of “ Directions Governing the Market RiskManagement of Taiwan Business Bank” , the Bank shall conduct appropriatemarket risk evaluation and document the process for later review beforefinancial products are promoted. The content of evaluation includes risk factorsidentification, evaluation methods, cost-benefit analysis, market liquidity, riskstrategy, adequacy of risk management mechanism and the influence on theBank for undertaking market risk.

B. Risk measurement

a. Annually based on the business development of transaction units and submitto the board of directors for approval. For the units which the positions andlimits remain unchanged after evaluation, they can put the positions andlimits into practice after receiving the approval from the general manager.

b. The risk measurements (or evaluations) of the financial products of theBank are conducted through different information systems. For the marketdata and parameters of the models applied for evaluation, they shall beinspected regularly to determine the rationality.

C. Risk monitoring

a. Valuation reports of various financial products are prepared regularly forhigh rank supervisors to review and serve as the guidance for daily riskmanagement operation.

b. All financial transactions are equipped with different regulations in termsof limit of loss and stop-limit. Provided that the valuation loss amount isover the limit, a stop-limit, suspension and subsequent risk control will beexecuted.

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D. Risk report

Risk management department report current market risk management status ofthe Bank to directors (executive directors) and high rank management tofacilitate the directors and management to control the risk exposure status andadjust management procedures properly.

(4) Scope and method of market risk management

A. Foreign exchange risk management

a. Definition of foreign exchange risk management

Foreign exchange risk refers to the potential profit or loss of the foreigncurrency financial instruments which results from the transition amongfluctuating currencies.

b. Applicable scope

All the financial instruments which apply to trading book position andbanking book position and involve in foreign currencies.

c. Purpose for foreign exchange risk management

To avoid loss of earnings or deterioration of financial status due tointensive fluctuation of foreign exchange and to increase capitaldeployment efficiency and business operation integrity.

d. Procedures of foreign exchange risk management

1) In order to control foreign exchange transaction risk, the Bankestablished trade position authorization standard for financialtransaction operations, trade units and traders in current regulations. Inaddition, for non-commercial business foreign exchange operation, alltrade units submit the required amounts of position annually based onoperation status. Risk management department will evaluated therequirement and submit to the board of directors’ (executive directors)for approval. The demand will be executed after the board of directorsapproved. For the units which the positions remain unchanged afterevaluation, they can put the positions into practice after receiving theapproval from the general manager.

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2) The trade units conduct various foreign financial product business, theyshall fully understand the content of commodities, the risk toleranceand trade purpose. Trade units shall establish financial products tradingstrategies based on market status in the meeting every morning andsubmit the risk-benefit evaluation in the meeting minutes for thedepartment heads to review. The trading shall follow the relevantauthorization rules of the Bank and the stop-limit of all trade positionsshall be executed reliably.

e. Process of foreign exchange risk management

1) Identification and measurement

A) Risk Management department established risk factor chart basedon different financial transactions to effectively identify riskfactors and market risk resources. In addition, the financialtransactions which the Bank conducts deal with simple typefinancial products. For complex financial products, the Bankconducts back-to-back hedge covering to effectively avoid marketrisk.

B) Risk Management department has used Greek to measure theinflunce level of exchange rate for held-for-trading spot exchangeand exchange rate derivative, also draft Greek's sensitivityallowance according to the yearly demand of trade units and thestate of utilization, and monitor the load of fluctuation of exchangerate in an acceptable range each.

C) Positions of the trading book shall be evaluated daily where thepositions of the banking book shall be evaluated monthly. Whenthere are public quotes for financial instruments, the quotes shallbe the prior evaluation prices. If the financial instruments areevaluated by models, then they shall be evaluated by mathematicmodels prudently and the assumptions and parameters of themodels shall be reviewed regularly.

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2) Monitoring and report

A) When the evaluation loss of non-commercial foreign exchangetransactions is over the limit, the trade units shall execute a stop-limit per the regulations. If the loss amount reaches the suspensionwarning line or suspension limit of the financial transaction, riskmanagement units shall report to the general manager. Providedthat the loss amount reaches the annual suspension line, riskmanagement department shall report to the board of directors(executive directors).

B) Reports of operation results shall be prepared and submitted to thedepartment heads for approval on a daily basis.

B. Equity security risk management

a. Definition of equity security risk

The market risks of the equity securities possessed by the Bank include theindividual risk results from the market price fluctuation of individual equitysecurity and the general market risk results from overall market pricefluctuation.

b. Applicable scope

Financial instruments similar to equity security in all trading books.

c. Purpose of equity security risk management

To avoid loss of earnings or deterioration of financial status due tointensive fluctuation of equity securities and to increase capital deploymentefficiency and business operation integrity.

d. Procedures of equity security risk management

1) All trade units submit the required amounts of position annually baseon operation status. Risk management department will evaluate therequirement and submit to the board of directors’ (executive directors)for approval. The demand will be executed after the board of directorsapproved. For the units which the positions remain unchanged afterevaluation, they can put the positions into practice after receiving theapproval from the general manager.

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2) The trade units shall predict the possible trend of domestic stockmarket based on the information of foreign and domestic securitymarkets so as to set up the operation strategies and directions. Thetraders shall pay close attention to the market trend when the marketopens so as to conduct security transactions and the operations as wellas the meeting minutes shall be submitted to the department heads toreview.

e. Process of equity security risk management


A) The risk management department apply Value at Risk models tomeasure the market risk of equity security investment.Furthermore, based on the trade units' operation demand and therisk limit established by the Bank’ s risk tolerance, the riskmanagement units effectively control the variation of risk factorsunder an acceptable extent.

B) Trading book position shall be evaluated daily. When there is apublic quote in the market, the quote shall be adopted as the priorevaluation price (If the transaction is in secondary market and theliquidity is high, the closing price can be adopted as the evaluationprice); If the financial instruments are evaluated by models, thenthey shall be evaluated by mathematic models prudently and theassumptions and parameters of the models shall be reviewedregularly.


A) When the evaluation loss of equity security investment is over thelimit, the trade units shall execute a stop-limit per regulations. Ifthe loss amount reaches the suspension warning line or suspensionlimit of the financial transaction, risk management units shallreport to the general manager. Provided that the loss amountreaches the annual suspension line, risk management departmentshall report to the board of directors (executive directors).

B) Transaction reports shall be prepared and submitted to thedepartment heads for approval on a daily basis. And theinvestment gains or losses shall report to the board of directors(executive directors) regularly for future reference.

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C. Interest rate risk management

a. Definition of interest rate risk

Interest rate risk refers to the price decline of the Bank’s financial productswhich contain interest risk factors due to the disadvantageous changes ininterest rate.

b. Applicable scope

Financial instruments which contain interest rate factors in all tradingbooks.

c. Purpose of interest rate risk management

To avoid loss of earnings or deterioration of financial status due tointensive fluctuation of interest rate and to increase capital deploymentefficiency and business operation integrity.

d. Procedures of interest rate risk management

1) In order to control interest rate risk, the Bank established trade positionauthorization standard for financial transaction operations, trade unitsand trade counterparties in current regulations. In addition, for thepositions held for trading, all trade units submit the required amountsof position annually based on operation status. Risk managementdepartment will evaluated the requirement and submit to the board ofdirectors’ (executive directors) for approval. The demand will beexecuted after the board of directors approved.

2) The trade units shall consider safety, liquidity and profitability andgather market information to assess the potential risk and benefit. Inadditional, the trade units shall choose investment target prudentlythrough analyzing the issuers’ credit, financial status, country risks andinterest rate trends.

～ 95 ～



e. Process of interest rate risk management


A) The risk management department establish risk factor charts baseon different financial transaction to effectively identify risk factorsand market risk resources. In addition, the financial transactionswhich the Bank conducts deal with simple type financial products.For complex financial products, the Bank conducts back-to-backhedge covering to effectively avoid market risk.

B). Position of the trading book shall be evaluated daily. When thereare public quotes for financial instruments, the quotes shall be theprior evaluation prices. If the financial instruments are evaluatedby models, then they shall be evaluated by mathematic modelsprudently and the assumptions and parameters of the models shallbe reviewed regularly.


A) The risk management department apply DV01 to measure to whatextent the trading book bond positions are influenced by theinterest rate risk and set up interest rate sensitivity limit base onthe requirements of the trade units and the risk tolerance of theBank annually.

B) The trade units shall prepare the income assessment tables of tradepositions and traders for the department heads to review. Inaddition, when the evaluation loss of the position is over the limit,the trade units shall execute a stop-limit per the regulations. If theloss amount reaches the suspension warning line or suspensionlimit of the financial transaction, risk management departmentshall report to the general manager. Provided that the loss amountreaches the annual suspension line, risk management units shallreport to the board of directors (executive directors).

D. Concentration management

a. The trade counterparties of the Bank are mostly financial institutions. Toavoid the risk being over concentrated and enhance credit risk management,the Bank established financial institution credit risk limit based on theworld ranking of tier 1 capital and credit ratings from The Banker. Thetrade units shall also pay attention to the changes of the credit status ofindividual financial institution as well as the changes of the national creditrating to conduct the transaction prudently.

～ 96 ～



b. For equity security investments, the Bank set up limits for single institutionand single related party.

(5) Interest rate risk management of the banking book

A. The definition and management purpose for the interest rate risk of the bankingbook

a. The interest rate risk of the banking book refers to the negative effecttowards the future net interest income or economic value of equity resultsfrom the fluctuation of interest rate. Net Interest Income (hereafter NII) isthe total amount of interest revenue deducted by the total amount of interestexpense; Economic Value of Equity (hereafter EVE) is the total discountedfuture cash inflow from assets deducted by the total discounted future cashoutflow from liabilities.

b. The management purpose of the interest rate risk management of thebanking book is to control the negative effect from the interest rate riskfluctuation towards NII or EVE within the approved limit extent.

B. The process for the interest rate risk management of the banking book

a. Identification and measurement

When the Bank conducts interest rate related products, it identifies therepricing risk, yield curve risk, basis risk and option characteristic risk andmeasures the possible influence on the earnings and economic value resultsfrom interest rate fluctuation.

b. Monitoring and report

The Bank established limits of the ratio between interest-rate-sensitivityassets and interest-rate-sensitivity liabilities, the effect to NII in 1 yearwhen the market interest rate parallel changes 1 BP and the effect to EVEwhen the market interest rate parallel changes 200 BP to control thebanking book interest rate risk. The results of interest rate riskmeasurement are reported to the Assets and Liabilities ManagementCommittee monthly and to the board of directors (executive directors)quarterly. When the measurement result is over the limit, relevant unitsshall be convened to establish responding plan and the plan shall besubmitted to the Assets and Liabilities Management Committee fordiscussion. After the plan is approved by the general manager, it shall beexecuted by the relevant business units and report to the board of directors(executive directors).

～ 97 ～



(6) Value at Risk

A. Description of Value at Risk

Value at Risk (VaR) is a statistical amount used to evaluate the maximumpossible loss of portfolio results from the changes of market risk factors withina certain period of time and a fixed confidence interval.

B. Value at Risk models and assumptions

In order to enhance the market risk control operation, the Bank establishedquantified indices of market risk for the equity security position of the tradingbook. Based on the historical information of the last 1 year and appliesHistorical Simulation Method (with the confidence interval being 99% and theduration of possession being 1 day), the Bank calculates and monitors the trendof Value at Risk.

C. The limit of Value at Risk model

Value at Risk is a tool to measure market risk under normal circumstance. Thelimits of the model are listed below:

a. Value at Risk can not reflect the losses result from other type of risks, suchas credit risk and liquidity risk.

b. Value at Risk measures the possible loss of the position on hand at the endof the transaction day, but it can not reflect the distribution of the partwhich actual loss exceeds Value at Risk

c. Value at Risk model is based on historical data to evaluate the amount, andtherefore it may not be able to predict the future changes of risk factors,especially for those exceptions result from significant market fluctuation.

～ 98 ～



(7) Foreign exchange risk disclosure and sensitivity analysis

A. Foreign exchange risk exposure

a. Significant net positions of foreign currencies (Market risk)

March 31, 2017

CurrencyForeign currency

amount NT$ amountUSD $ 280,127 8,510,258EUR 53,140 1,724,393GBP 44,644 1,694,686NZD 12,179 258,804AUD 9,749 226,518

December 31, 2016


amount NT$ amountUSD $ 209,668 6,755,503JPY 6,760,895 1,873,444AUD 21,484 501,544HKD 46,044 191,267EUR 4,599 156,274

March 31, 2016


amount NT$ amountUSD $ 244,075 7,853,113JPY 733,413 210,049AUD 7,081 174,370HKD 30,848 127,988NZD 2,903 64,447

Note 1 Main foreign currencies are the top five foreign currencies rankedin NTD value.

Note 2 Net foreign currency is the absolute value of the net value of eachforeign currency.

～ 99 ～



b. Assets and liabilities of foreign currency

March 31, 2017

Monetary Financial assets Monetary Financial liabilities

Currency

Foreigncurrency

amount (inthousands) Spot rate NTD amount

Foreigncurrency


USD $ 8,636,402 30.3800 262,373,893 8,299,252 30.3800 252,131,276

AUD 3,376,170 23.2350 78,445,310 3,340,648 23.2350 77,619,956

CNY 5,841,357 4.4110 25,766,226 5,844,893 4.4110 25,781,823

HKD 5,046,765 3.9090 19,727,804 4,906,607 3.9090 19,179,927

JPY 66,549,119 0.2712 18,048,121 66,601,698 0.2712 18,062,380

EUR 385,073 32.4500 12,495,619 378,231 32.4500 12,273,596

ZAR 4,136,497 2.2600 9,348,483 4,136,372 2.2600 9,348,201

GBP 116,971 37.9600 4,440,219 117,005 37.9600 4,441,510

CAD 71,507 22.7800 1,628,929 71,585 22.7800 1,630,706

NZD 53,144 21.2500 1,129,310 53,105 21.2500 1,128,481

SGD 6,848 21.7400 148,876 6,896 21.7400 149,919

Other (Note) - - 141,773 - - 145,351

Non-monetary Financial assets Non-monetary Financial liabilities

USD 5,039 30.3800 153,085 - - -

EUR 1,007 32.4500 32,677 - - -

December 31, 2016Monetary Financial assets Monetary Financial liabilities

Currency

Foreigncurrency


Foreigncurrency


USD $ 7,498,326 32.2200 241,596,064 7,150,191 32.2200 230,379,154

AUD 3,067,824 23.3450 71,618,351 3,035,025 23.3450 70,852,659

CNY 6,098,123 4.6240 28,197,721 6,098,569 4.6240 28,199,783

HKD 5,027,848 4.1540 20,885,681 4,904,884 4.1540 20,374,888

JPY 63,840,614 0.2771 17,690,234 63,842,974 0.2771 17,690,888

EUR 244,797 33.9800 8,318,202 236,899 33.9800 8,049,828

ZAR 3,494,742 2.3700 8,282,539 3,495,193 2.3700 8,283,607

CAD 57,314 23.9200 1,370,951 57,531 23.9200 1,376,142

NZD 35,690 22.4600 801,597 35,659 22.4600 800,901

GBP 20,119 39.6100 796,914 20,253 39.6100 802,221

CHF 3,667 31.6050 115,896 3,666 31.6050 115,864

SGD 5,078 22.3100 113,290 5,017 22.3100 111,929

Other (Note) - - 47,841 - - 52,494

～ 100 ～



March 31, 2016Monetary Financial assets Monetary Financial liabilities

Currency

Foreigncurrency


Foreigncurrency


USD $ 6,841,932 32.1750 220,139,162 6,538,698 32.1750 210,382,608

AUD 1,951,968 24.6250 48,067,212 1,916,798 24.6250 47,201,151

CNY 7,756,667 4.9710 38,558,392 7,756,665 4.9710 38,558,382

HKD 6,930,777 4.1490 28,755,794 6,837,862 4.1490 28,370,289

ZAR 4,138,307 2.1600 8,938,743 4,139,303 2.1600 8,940,894

EUR 193,613 36.4300 7,053,322 186,994 36.4300 6,812,191

JPY 18,365,469 0.2864 5,259,870 18,397,394 0.2864 5,269,014

NZD 121,473 22.2000 2,696,701 121,358 22.2000 2,694,148

CAD 44,757 24.7700 1,108,631 44,784 24.7700 1,109,300

GBP 15,802 46.1900 729,894 15,821 46.1900 730,772

CHF 1,724 33.3050 57,418 1,784 33.3050 59,416

Other (Note) - - 86,788 - - 104,644

Non-monetary Financial assets Non-monetary Financial liabilities

USD 1,349 32.1750 43,404 - - -

Note：Consolidated disclosure is applied for other currencies not over NT$100,000.

B. Foreign exchange risk sensitivity analysis (Change by 1%)

Foreign exchange risk sensitivity analysis is the analysis that given otherconditions remain the same, the influence on profit or loss and equity wheneach respective currency depreciate or appreciate by 1%.

March 31, 2017

Depreciate by 1% Appreciate by 1%Currency Income Equity Income Equity

USD $ 77,814 (47,417) (77,814) 47,417

AUD 8,116 (12,865) (8,116) 12,865

HKD 3,139 (6,709) (3,139) 6,709

CAD 57 - (57) -

GBP (14) - 14 -

SGD 10 - (10) -

ZAR (11) - 11 -

SEK 3 - (3) -

CHF 30 - (30) -

JPY 239 - (239) -

THB 3 - (3) -

EUR (320) - 320 -

NZD (37) - 37 -

CNY (22,152) - 22,152 -

Total $ 66,877 (66,991) (66,877) 66,991

～ 101 ～



December 31, 2016


USD $ 63,165 (46,371) (63,165) 46,371

AUD 8,130 (12,302) (8,130) 12,302

HKD 3,239 (8,827) (3,239) 8,827

CAD 83 - (83) -

GBP 24 - (24) -

SGD (13) - 13 -

ZAR 2 - (2) -

SEK 14 - (14) -

JPY 353 - (353) -

THB 32 - (32) -

EUR (22) - 22 -

NZD (23) - 23 -

CNY (23,564) - 23,564 -

Total $ 51,420 (67,500) (51,420) 67,500

March 31, 2016


USD $ 65,292 (61,459) (65,292) 61,459

AUD 8,453 (13,426) (8,453) 13,426

HKD 3,160 (6,290) (3,160) 6,290

CAD 11 - (11) -

GBP 8 - (8) -

SGD 62 - (62) -

ZAR 17 - (17) -

SEK 25 - (25) -

CHF 20 - (20) -

JPY 94 - (94) -

THB 92 - (92) -

EUR 501 - (501) -

NZD (26) - 26 -

CNY (25,391) - 25,391 -

Total $ 52,318 (81,175) (52,318) 81,175

～ 102 ～



(8) Interest rate risk disclosure and sensitivity analysis

A. Interest rate sensitivity analysis

The assumption of interest rate sensitivity analysis is, under the circumstancethat other conditions remain the same, the yield of the market increase ordecrease by 1 basis point (1 bp).

March 31, 2017

Interest rate increases by 1 bp Interest rate decreases by 1 bpCurrency Income Equity Income Equity

Trading bookTWD $ 25 (6,123) (25) 6,123

Banking book

TWD - (57,830) - 57,830

USD 16 (5,288) (16) 5,288

AUD - (83) - 83

ZAR - (52) - 52

HKD - (164) - 164

CNY - (559) - 559

Total $ 41 (70,099) (41) 70,099

December 31, 2016


Trading bookTWD $ 13 (7,589) (13) 7,589

Banking book

TWD - (58,243) - 58,243

USD - (6,005) - 6,005

AUD - (68) - 68

ZAR - (87) - 87

HKD - (196) - 196

CNY - (706) - 706Total $ 13 (72,894) (13) 72,894

March 31, 2016


Trading bookTWD $ 18 (13,784) (19) 13,784

Banking book

TWD - (36,936) - 36,936

USD (16) (4,325) 16 4,325

JPY - (15) - 15

AUD - (82) - 82

ZAR - (170) - 170

HKD - (270) - 270

CNY - (610) - 610

Total $ 2 (56,192) (3) 56,192

～ 103 ～



B. Sensitivity analysis of expected net revenue/Sensitivity of equity in terms ofinterest rate fluctuation

March 31, 2017Effect on NII in 1 year Effect on EVE in 1 year

TWD USD TWD USDScenario

Interest rate increases by 100 bp 2,919,581 (15,732) (1,291,970) (16,505)Interest rate decreases by 100 bp (5,639,386) (4,703) 2,232,125 17,370

December 31, 2016Effect on NII in 1 year Effect on EVE in 1 year


Interest rate increases by 100 bp 3,189,673 (15,668) (1,474,526) (17,478)Interest rate decreases by 100 bp (5,680,182) (3,261) 2,437,609 18,331

March 31, 2016Effect on NII in 1 year Effect on EVE in 1 year


Interest rate increases by 100 bp 2,914,510 (14,381) 159,408 (14,029)Interest rate decreases by 100 bp (5,425,985) (3,902) 310,016 14,210

(9) Equity security risk disclosure and sensitivity analysis

A. Equity security sensitivity analysis (Changes by 1%)

The assumption of equity security sensitivity analysis is, under the circumstancethat other conditions remain the same, the price of equity security increased ordecreased by 1%.

March 31, 2017Change Currency Income Equity

Equity security price increases by 1 % TWD 220 21,732

USD 5 45

EUR - 10

Equity security price decreases by 1 % TWD (220) (21,732)

USD (5) (45)

EUR - (10)

December 31, 2016Change Currency Income Equity

Equity security price increases by 1 % TWD 381 15,847

Equity security price decreases by 1 % TWD (381) (15,847)

March 31, 2016Change Currency Income Equity

Equity security price increases by 1 % TWD 2,965 14,451

USD 13 -

Equity security price decreases by 1 % TWD (2,965) (14,451)

USD (13) -

～ 104 ～



B. Value at Risk of equity security

From April 1, 2016 to March 31, 2017

Value at Risk Average Maximum Minimum

Equity security risk 36,266 46,242 29,974

For the years ended December 31, 2016



From April 1, 2015 to March 31, 2016



(10)Disclosures required by “ Regulations Governing the Preparation of FinancialReports by Public Held Banks”

A. Analysis of interest rate-sensitive assets and liabilities (New Taiwan dollars)

Unit : In Thousands of New Taiwan Dollars, %March 31, 2017

Item 1~90 days 91~180 days 181days~1year over 1 year total

Interest rate-sensitive assets $ 1,086,874,031 12,552,861 6,862,661 117,837,267 1,224,126,820

Interest rate-sensitive liabilities 937,304,565 87,362,639 85,328,736 42,445,499 1,152,441,439

Interest rate sensitivity gap 149,569,466 (74,809,778) (78,466,075) 75,391,768 71,685,381

Net amount 72,349,609

Ratio of interest rate-sensitive assets to debt (%) 106.22

Ratio of interest rate-sensitive gap to net worth (%) 99.08

Unit : In Thousands of New Taiwan Dollars, %December 31, 2016








～ 105 ～



Unit : In Thousands of New Taiwan Dollars, %March 31, 2016








Note 1 Listed amounts are denominated in N.T. dollars of the head office anddomestic branches, offshore banking unit, overseas branches. (i.e.,excluding foreign currency amounts).

Note 2 Interest rate-sensitive assets and liabilities refer to revenue or cost ofinterest– yielding assets and interest– bearing liabilities, which areaffected by interest rate fluctuations.

Note 3 Interest rate-sensitivity gap = Interest rate-sensitive assets - Interest-rate-sensitive liabilities.

Note 4 Ratio of interest rate-sensitive assets to liabilities=Interest rate-sensitive assets÷ Interest rate-sensitive liabilities (New Taiwan dollarsinterest-rate-sensitive assets and New Taiwan dollars interest-rate-sensitive liabilities).

B. Analysis of the interest-sensitive assets and liabilities (U.S. dollars)

Unit : In Thousands of US Dollars, %March 31, 2017


Interest rate-sensitive assets $ 3,783,619 438,244 158,151 449,520 4,829,534

Interest rate-sensitive liabilities 4,948,658 373,779 310,037 - 5,632,474

Interest rate sensitivity gap (1,165,039) 64,465 (151,886) 449,520 (802,940)



Ratio of interest rate-sensitive gap to net worth (%) (33.72)

Unit : In Thousands of US Dollars, %December 31, 2016








～ 106 ～



Unit : In Thousands of US Dollars, %March 31, 2016








Note 1 Listed amounts are in U.S. dollars (i.e., excluding contingent assets andcontingent liabilities) of the head office and domestic branches,offshore banking unit, overseas branches.

Note 2 Interest rate-sensitive assets and interest rate-sensitive liabilities referto the interest yielding assets and interest paying liabilities which therevenue and cost are affected by interest rate fluctuation.

Note 3 Interest rate sensitivity gap=interest rate-sensitive assets-interest rate-sensitive liabilities.

Note 4 Ratio of interest rate-sensitive assets to liabilities=Interest rate-sensitive assets÷ Interest rate-sensitive liabilities (U.S. dollars interest-rate-sensitive assets and U.S. dollars interest-rate-sensitive liabilities).

(f) Transferred financial assets that are not fully derecognized

The transactions, relating to transferred financial assets not qualifying for fullderecognition, the Bank conduct during daily operation mostly involve securities lendingin accordance to repurchase agreements. Since the right to receive contractual cash flowhas been transferred to others and the Bank’ s obligation to repurchase the transferredassets for a fixed price at a future date is recognized under liability, for thesetransactions, the Bank can not use, sell or pledge those transferred financial assets inavailability period, the Bank have interest rate risk and credit risk, the said transferredassets are not fully derecognized.

The following tables are financial assets that are not fully derecognized and relatedfinancial liabilities:

December 31, 2016

Types of financial assets

Carryingamount of

transferredfinancial assets

Carryingamount ofassociatedfinancialliabilities

Fair value oftransferred

financial assets

Fair value ofassociatedfinancialliabilities Net fair value

Available-for-sale financial assetsRepurchase agreement $ 917,453 900,000 917,453 900,000 17,453

～ 107 ～



(g) Offsetting financial assets and financial liabilities

The Bank has an exercisable master netting arrangement or similar agreement in placewith counterparties. When both parties reach a consensus regarding net settlement, theaforesaid exercisable master netting arrangement or similar agreement can be net settledby offsetting financial assets and financial liabilities. If not, the transaction can be settledat total amount. In the event of default involving one of the parties, the other party canhave the transaction net settled.

The following tables present the aforementioned offsetting financial assets and financialliabilities:

March 31, 2017Financial assets that are offset, have an exercisable master netting arrangement or similar agreement

Gross amounts

Gross amountsof financial

liabilities offsetNet amount offinancial assets

Amounts not set off in thebalance sheet(d)

Item

of recognizedfinancial assets

(a)

in the balancesheet(b)

presented in thebalance sheet

(c)=(a)-(b)

Financialinstruments

(Note)Cash collateral

receivedNet amount(e)=(c)-(d)

Derivative financialinstruments

$ 144,392 - 144,392 - 102,408 41,984

March 31, 2017Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement

Gross amountsof recognized


assets offset in

Net amount offinancialliabilities


Item

financialliabilities

(a)

the balancesheet(b)


(c)=(a)-(b)



pledgedNet amount(e)=(c)-(d)


$ 36,377 - 36,377 - - 36,377

December 31, 2016Financial assets that are offset, have an exercisable master netting arrangement or similar agreement

Gross amounts




Item


(a)



(c)=(a)-(b)





$ 156,238 - 156,238 - 67,763 88,475

December 31, 2016Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement



assets offset in



Item


(a)

the balancesheet(b)


(c)=(a)-(b)





$ 48,674 - 48,674 - - 48,674

～ 108 ～



March 31, 2016Financial assets that are offset, have an exercisable master netting arrangement or similar agreement

Gross amounts




Item


(a)



(c)=(a)-(b)





$ 13,126 - 13,126 - 10,456 2,670

March 31, 2016Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement



assets offset in



Item


(a)

the balancesheet(b)


(c)=(a)-(b)





$ 398 - 398 - - 398

(AL) Capital Management

(a) The Bank takes business development and risk control into consideration and calculatescapital adequacy per “ Regulations Governing the Capital Adequacy Ratio and CapitalCategory of Banks” and “ Calculation Methods and Forms of Proprietary Capital andRisk Capital of Banks” . The ratio between proprietary capital and risk capital shallremain above the regulated minimum ratio.

(b) In order to maintain adequate capital and reach a balance between risk control andbusiness development, the Bank established “Directions Governing Capital Adequacy”as the guidance for controlling capital adequacy. The scope of the directions include,except for the least capital requirements for credit risk, market risk and operation risk,significant risk such as banking book interest rate risk, liquidity risk and concentrationrisk. In addition, in order to link business strategies, capital and risk management, theBank sets up capital management plan annually for the president’s approval and reportsto Risk Management Committee and the board of directors quarterly about relevant risksand capital control status.

(c) The Bank identifies, measures, monitors and reports various risks based on thedirections, notices and relevant rules of competent authority regarding credit risk, marketrisk, operation risk, legal and compliance risk, interest rate risk of the banking book,liquidity risk and concentration risk so as to be familiar with current businessenvironment and monitors and adjusts capital adequacy effectively.

(d) To cope with the implementation of new Basel Accord, the Bank set up complete riskmanagement system, risk management operation tracking procedures to provide themanagement with appropriate risk management information for making decisions.Therefore, the Bank is able to maintain adequate capital within the tolerable extent andto ensure the provision of proprietary capital of the Bank corresponds with the overalloperating risk characteristics of the Bank.

～ 109 ～



(1) Tier 1 capital

A. Common stock equity: The item includes common stock deducted by treasurystock, goodwill and other intangible assets, deferred tax assets based on futureprofit status of the Bank, unrealized gain on available-for-sale financial assets,operating reserve and deficiency of allowance for bad debts, real estate retainedearning increment arising from applying the fair value or the revaluation reserveas the deemed cost when first adopting IFRSs, and 25% of the investment onfinancial related business which is classified in banking book.

B. Other tier 1 capital: Twenty-five percent of the perpetual non-accumulatedsubordinated financial debentures deducted by the investment on financialrelated business which is classified in banking book.

(2) Tier 2 capital

The item includes perpetual accumulated subordinated financial debentures, longterm subordinated debenture, real estate retained earning increment arising fromapplying the fair value or the revaluation reserve as the deemed cost when firstadopting IFRSs, 45% of unrealized gain on available-for-sale financial assets, and50% of the investment on financial related business which is classified in bankingbook.

7. RELATED PARTY TRANSACTIONS

(A) Names of related parties and relationship with the Bank

Name of related party Relationship with the Bank and its subsidiariesBank of Taiwan Corporate director of the BankMinistry of Finance, R.O.C Corporate director of the BankLand Bank of Taiwan Corporate director of the BankOther Major shareholders, directors (includes independent

directors), president, executive vice president,managers and their second tier of kinship.

(B) Significant related party transactions

(a) Due from other Banks

March 31, 2017Amount %

Bank of Taiwan $ 208,194 0.84Land Bank of Taiwan 3,518 0.01Total $ 211,712 0.85

～ 110 ～



December 31, 2016Amount %




Interest rates are the same as those with regular clients.

(b) Deposits from other banks


Land Bank of Taiwan $ 683 0.42


Land Bank of Taiwan $ 1,350 1.67


Land Bank of Taiwan $ 655 0.65


(c) Call loans to banks

March 31, 2017 December 31, 2016 March 31, 2016Bank of Taiwan $ - - 62,235

Land Bank of Taiwan 195,450 - -

Total $ 195,450 - 62,235

Interest income

Maximumbalance

For the threemonths ended

March 31, 2017Annual

interest rateBank of Taiwan $ 7,198,495 128 0.17%~2.2%Land Bank of Taiwan 195,450 253 0.55%~1.90%Total $ 7,393,945 381

～ 111 ～



Interest income

Maximumbalance



interest rateBank of Taiwan $ 5,497,103 2,580 0.23%~5%Land Bank of Taiwan 1,090,893 5,199 0.34%~1.2%

Total $ 6,587,996 7,779


(d) Call loans from banks

March 31, 2017 December 31, 2016 March 31, 2016Bank of Taiwan $ 1,519,000 1,127,700 198,840

Land Bank of Taiwan 573,960 2,416,500 1,012,853

Total $ 2,092,960 3,544,200 1,211,693

Interest expense

Maximumbalance



interest rateBank of Taiwan $ 2,452,455 359 0.73%~4.5%Land Bank of Taiwan 3,745,740 5,527 0.03%~12%

Total $ 6,198,195 5,886

Interest expense

Maximumbalance



interest rateBank of Taiwan $ 3,517,125 1,480 0.36%~13%Land Bank of Taiwan 7,629,318 3,310 0.06%~8%Total $ 11,146,443 4,790


(e) Deposits


Others $ 1,818,886 0.14


Others $ 1,810,161 0.14

～ 112 ～




Bank of Taiwan $ 3,267 -Others 1,401,075 0.12Total $ 1,404,342 0.12


(f) Credit

March 31, 2017

Number of Performing situations Transaction terms

Category clients or name ofrelated party

Maximumbalance

Ending balance Performing loan Non-performingLoans

Collaterals are the same as thosewith regular clients

Employeeconsumer loans

126 311,852 302,367 302,367 - none none

Self-use residencecollateral loans

135 473,764 468,717 468,717 - real estate none

Others Du ○ ○ 4,943 4,943 4,943 - real estate noneChiang ○ ○ 2,332 2,332 2,332 - real estate none

Liu ○ ○ 1,472 1,472 1,472 - real estate noneLu ○ ○ 1,304 1,304 1,304 - real estate none

December 31, 2016



Maximumbalance




123 321,561 307,360 307,360 - none none


134 503,468 461,734 461,734 - real estate none

Others Du ○ ○ 4,667 4,667 4,667 - real estate noneChen○ ○ 3,654 - - - real estate none

Chiang ○ ○ 3,025 2,418 2,418 - real estate noneHung ○ ○ 1,317 - - - real estate noneLiu ○ ○ 1,765 1,762 1,762 - real estate noneCho○ ○ 300 - - - real estate noneWu ○ ○ 1,152 264 264 - real estate noneLu ○ ○ 1,705 2 2 - real estate none

March 31, 2016



Maximumbalance




129 303,840 299,306 299,306 - none none


119 417,437 411,254 411,254 - real estate none

Others Du ○ ○ 2,507 2,507 2,507 - real estate noneChen ○ ○ 3,654 3,654 3,654 - real estate none

Chiang ○ ○ 3,025 3,025 3,025 - real estate noneLiu ○ ○ 1,703 1,703 1,703 - real estate noneWu ○ ○ 1,152 1,152 1,152 - real estate noneLu ○ ○ 1 1 1 - real estate none

(g) Guarantees of credit: None.

(h) Service fees: None.

(i) Rental revenue: None.

～ 113 ～



(j) Derivatives financial instrument transactions: None.

(k) Sales of Non–Performing Loans Transactions: None.

(C) Major management salary information


Salary and other short-term employee benefit $ 25,002 37,707Retirement Benefit 443 408Total $ 25,445 38,115

8. PLEDGED ASSETS : Please refer to note 6(H) for more details.

9. COMMITMENTS AND CONTINGENCIES

(A) Significant commitments and contingencies were as follows:

March 31, 2017 December 31, 2016 March 31, 2016Marketable securities held for

custody$ 13,561,459 13,620,094 13,987,188

Bills collected for others 48,523,543 52,582,087 54,236,610Bills lent for others 27,156,806 25,617,527 25,538,378Guarantees and letters of credit 22,690,993 24,020,841 20,367,935Collaterals received 426 426 426Trust liabilities 122,728,755 124,653,387 126,288,426Travelers’ check in custody for sale 86,908 100,238 113,453Items held for custody 4,119,880 4,012,754 3,815,381Registered government bonds for sale 68,342,000 67,970,300 52,083,800Registered short-term bills for sale 1,932,100 1,958,553 3,630,700Guarantee notes payable 27,440,900 27,369,420 26,753,300

(B) Unrecognized contractual commitments:

As of December 31, 2017, December 31 2016 and March 31, 2016, major constructions inprogress and purchases amounted to $455,202, $520,138 and $675,298 respectively, ofwhich $368,567, $448,327 and $459,272 respectively, remained unpaid.

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(C) In 1996, the Bank’s World Trade Center Branch was sued for handling a letter of creditexport collection from Chin Seen Industrial Co., which allegedly used a forged exportdocument and failed to ship the goods to the importer, the International Comagnie deCommercialization et d’ Invertissement (I.C.C.I.) of the Republic of Zaire, suffered aloss thereon. In November 1998, I.C.C.I. initiated a case with the Court of Commerceof Brussels in Belgium, requested the L/C opening bank (Banque Bruxelles Lambert, orBBL) and the Bank to jointly pay compensation of US$7,830 thousands plus interest,losses, and expenses for the L/C. On August 31, 2005, the Court of Commerce ofBrussels rendered its judgment which the Bank has to make compensation of US$7,674thousands plus interest to I.C.C.I.. The Bank has engaged a local attorney in Belgium toformally file an appeal. In February 2011, Court of Appeal in Brussels had made anintermediate adjudication which I.C.C.I and the Bank are both responsible for theoffense. Furthermore, on November 16, 2011, the judgment of the court indicated thatthe Bank should be responsible for 90% of the negligence proportion. In terms of thejudgment of the court of the second instance, the Bank has filed an appeal on November3, 2011. On February 6, 2013, the court overruled the Bank’s appeal and the Bank lostthe case. As of March 31, 2017, the Bank has accrued the compensation of NT$74,650thousands and EUR$8,000,000. Please refer to Note 6(S) for relevant provision.

10. LOSSES DUE TO MAJOR DISASTERS: None.

11. SUBSEQUENT EVENTS: None.

12. OTHER

(A) Employee benefits, depreciation, depletion and amortization expenses were as follows:


Nature Operating expense Operating expenseEmployee benefit expenses

Salary expense $ 1,463,788 1,464,801Labor and health insurance expenses 105,333 96,960Pension expenses 83,587 82,184Other employee benefit 244,843 237,927

Total employee benefit 1,897,551 1,881,872Depreciation expenses 80,880 79,306Amortization expenses 18,704 17,285Total $ 1,997,135 1,978,463

The employee numbers amounted to 4,946 and 4,875 people as of March 31, 2017 and 2016,respectively.

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(B) Profitability

Unit: %Item March 31, 2017 March 31, 2016

The ratio of return on Before income tax 0.12 0.11

assets After income tax 0.10 0.09

The ratio of return on Before income tax 2.44 2.35

equity After income tax 2.07 1.98

Net income ratio 29.64 23.53

Note 1 The ratio of return on assets = Income before (after) income tax expense÷ averageassets.

Note 2 The ratio of return on equity = Income before (after) income tax expense ÷ averageequity.

Note 3 Net income ratio = Gain or loss after income tax expense ÷ Net revenue.

Note 4 Income before (after) income tax expense refers to income accumulated from Januaryof the current year to the current period.

13. OTHER DISCLOSURES

(A) Information on significant transactions:

(a) Cumulative purchase or sale of the same investee’s capital stock up to $300,000 or 10%

of paid-in capital: None. 　

(b) Acquisition of real estate amounting to over $300,000 or 10% of paid-in capital: None.

(c) Disposition of real estate amounting to over $300,000 or 10% of paid-in capital: None.

(d) Discount of commissions and handling fees with related parties amounting to over$5,000: None.

(e) Receivables from related parties amounting to over $300,000 or 10% of paid-in capital:None.

(f) Sale of non-performing loans information: None.

(g) Types of securitization goods and related information approved by financial assetssecuritization rules or real estate securitization rules: None.

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(h) Business relationship and significant transactions with the subsidiaries:

Transaction status For the three months ended March 31, 2017

No Trader Counterparty Relationship Account Amount Terms

Percentage accountedfor consolidated net

revenue or total assets0 TAIWAN BUSINESS

BANK, LTD. Taiwan Business BankInsurance Agency Co.,Ltd.

1 AccountReceivables

122,100 No difference withnon-related parties

0.01 %

0 TAIWAN BUSINESSBANK, LTD.

Taiwan Business BankInsurance Agency Co.,Ltd.

1 Deposits andremittances


0.02 %



1 Service revenue 419,238 No difference withnon-related parties

8.37 %



1 Other net non-interest income

551 No difference withnon-related parties

0.01 %


Taiwan Business BankProperty InsuranceAgency Co., Ltd.

1 AccountReceivables


- %





- %



1 Service revenue 7,648 No difference withnon-related parties

0.15 %





- %


Taiwan Business BankInternational LeasingCo., Ltd.



0.03 %


Taiwan Business BankInternational LeasingCo., Ltd.



- %

Note: The meaning of the number is as follows.

1. Zero stands for the parent company

2 . Subsidiaries are coded from No 1 per respective companies.

(i) Other significant transactions that might have influence over the decision makingprocess of the financial statements users: None.

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(B) Information of investees:

(a) The following is the information on investees (excluding investment in mainland China):

(Unit : In Thousands of New Taiwan Dollars；thousand shares)The cross holding of the Bank and its related parties

Number of Total Note Name ofinvestee Location

Main businessscope

Shareholdingratio

Bookvalue

Investment gain (loss)

Number ofshares

prefomatshares

Number ofshares

Shareholdingratio

Taiwan BusinessBank InsuranceAgency Co., Ltd.

2F, No.158,SongjiangRd TaipeiCity

Agent ofpersonalinsurance

100.00 % 236,102 85,958 500 - 500 100.00 % Alreadywritten-offwhenpreparing theconsolidatedfinancialstatements

Taiwan BusinessBank PropertyInsuranceAgency Co., Ltd.

2F, No.158,SongjiangRd TaipeiCity

Agent ofpropertyinsurance

100.00 % 11,051 2,236 300 - 300 100.00 % 〞

Taiwan BusinessBankInternationalLeasing Co., Ltd.

5F.,No.151,Sec. 4,Nanjing E.Rd.,TaipeiCity

Leasing business 100.00 % 1,343,038 5,220 150,000 - 150,000 100.00 % 〞

TBB (Cambodia)MicrofinanceInstitution Plc

Kampuchea SMEs andpersonal financebusiness

100.00 % 603,440 (148) 10 - 10 100.00 % 〞

(b) Loans to others:

(Unit : In Thousands of New Taiwan Dollars)

NO. Loan Loan Main Related Maximum Ending Actual Range ofMainloan

DealingThe

neccessaryreason for

Allowancefor Guarantee

Limitedamount

for

Total limitedamount

from to Account party Amount balance amount intrest rate nature amount short-termloans

bad debts Name Value individualobject

for loan

1 Taiwan

Business Bank

International

Financing

leasing Co.,

Ltd.

SHANGH

AI BUYN

OW ELEC

TRONIC I

NFORMA

TION CO.,

LTD.

Entrusted

loan

No 69,190 69,190 79,398 6.5%.~6.8% 1 79,398 1,072 None - 343,836 1,375,344

1 Taiwan

Business Bank

International

Financing

leasing Co.,

Ltd.

SANYUA

N CONST

RUCTION

(QINGDA

O) DEVEL

OPMENT

CO., LTD.

Entrusted

loan

No 101,453 101,453 101,453 10% 2 - To the lender

for building

commercial

facilities and

buying

equipment

1,522 Construction

land use

right、Com-

mercial and

residential

buildings

4F&13F

1,757,982 343,836 1,375,344

2 Taiwan

Business Bank

International

leasing Co.,

Ltd.

CHAO

YANG

INTERNA

TIONAL

CO., LTD.

Loans No 10,000 10,000 10,000 6%.~7% 2 - To the lender

for buying

goods

100 None - 343,836 1,375,344

Note1：The meaning of the number is as follows.

(1)Zero stands for issuer.

(2)Investee companies are coded from NO 1 per respective companies.

Note2：The quota / amount is still valid up to now.

Note3：The meaning of the loan nature is as follows.

(1)1 stands for business dealing.

(2)2 stands for the neccessary for short-term loans.

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Note4：Limited amount for individual object：25% net value of parent company.

Note5：Total limited amount for loan： 100% net value of parent company.

(c) Endorsements and guarantee for others: None

(d) Acquisition of securities:

(Unit : In Thousands of New Taiwan Dollars)At the end of the period

Companyacquired

Type andname of the

securityRelationship withthe security issuer Account

Number ofshares

Carryingamount

Shareproportion

(Note 2)

Marketprice

(Note 1) NoteTaiwan BusinessBank InternationalFinancing leasingCo., Ltd.

Not public The investee under theequity method of thesubsidiary TaiwanBusiness BankInternational LeasingCo., Ltd.

Investment underequity method

- 779,758 100.00 % 779,758 The transaction hasbeen written off whenpreparing theconsolidated financialstatements.

Note 1: Listed companies apply the market price to calculate the net amount of the shares possessed. Not listed companies and companies that are not inthe over-the-counter market apply the share proportion to calculate the net amount of the shares possessed. The net amount of preferred stock iscalculated based on the settlement.

Note 2: The share proportion of the preferred stock is calculated based on the shares the Company possessed divided by the shares issued.

(e) Accumulative purchases or sales of the same investee companies amounting to over$300,000 or 10% of paid-in capital: None.

(f) Acquisition of real estate amounting to over $300,000 or 10% of paid-in capital: None.

(g) Disposition of real estate amounting to over $300,000 or 10% of paid-in capital: None.

(h) Discount of commissions and handling fees with related parties amounting to over$5,000: None.

(i) Receivables from related parties amounting to over $300,000 or 10% of paid-in capital:None.

(j) Transactions of financial derivatives: None.

(k) Sale of non-performing loans information: None.

(l) Types of securitization goods and related information approved by financial assetssecuritization rules or real estate securitization rules: None.

(m) Other significant transactions that might have influence over the decision makingprocess of the financial statements users: None.

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(C) Information on investment in mainland China：

(a) Name and major business item of the investee in China：


Name of investeecompany in Investment

Accumulatedamount

transferred fromTaiwan, beginning

of theInvestment transferred out or

recovered

Accumulatedamount

transferred fromTaiwan,

The currentprofit or loss of

Shares directlyor indirectly

possessed Profit or lossEnding book

value of

Investmentprofit

transferred

Mainland ChinaMajor

business Paid-in capital method period Transferred out Recovered end of the period the investee by the Bank recognized investment in

Taiwan Business Bank ,

Ltd. Shanghai branch

Banking

business

3,910,537(CNY800 million)(Operating capital)

( e ) 3,910,537(CNY800 million))

- - 3,910,537(CNY800 million)

- Shanghai branchof the Bank, not aninvestee company

- 3,817,601 None

Taiwan Business Bank ,

Ltd. Wuhan branch

Banking

business

3,942,815(CNY800 million)(Operating capital)

( e ) 3,942,815(CNY800 million)

- - 3,942,815(CNY800 million)

- Wuhan branch ofthe Bank, not aninvestee company

- 3,684,366 "

Taiwan Business Bank

International Financing

leasing Co., Ltd.

Leasing

business

838,305(CNY170 million)(Operating capital)

( d ) 838,305(CNY170 million)

- - 838,305(CNY170 million)

4,427 100% 4,427 779,758 "

Investment method is divided into 5 categories and are listed as follows:

(a) Invest in a Chinese Company through remittance from the third party.

(b) Establish a company in the third party and use the company to invest in a Chinese Company.

(c) Reinvest in the existing company in the third party and use the company to invest in a Chinese company.

(d) Directly invest in a Chinese company.

(e) Other: establish a foreign branch.

(b) Limit of investment in China：


Name of Company

Accumulated outflow ofinvestment from Taiwan toMainland China, end of the

period

Investment amountauthorized by Investment

Commision, MOFA

Upper limit on investmentauthorized by Investment

Commission, MOEATaiwan Business Bank Co.,Ltd.(Note)

8,691,657(CNY 1,770 million)

8,691,657(CNY 1,770 million)

43,409,765

Note: The investment amount in China of the subsidiary Taiwan Business Bank International Leasing Co, Ltd isincluded.

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14. SEGMENT INFORMATION

(A) General information

The chief operating decision maker is the general manager of the Bank and its subsidiarieswho is in charge of all major projects approval, budget review and performancemeasurement. In order to express operating activities legitimately, the reportable segments ofthe Bank are Bank segment, Securities department, Trust department and Others. In 2016 and2015, Securities department, Trust department and Other segments didn't meet the quantitivethresholds, therefore regarded as the same reporting department. The main operations of thebanking sector are engaged in the exchange of foreign currency in connection with exportsand imports and the securities investment business. The trust department mainly providescustomers relevant financial services, including securities review and approval, custodianbank service, new type trust business and specific trust funds investing in domestic or foreignsecurities. Other segments include all the business of subsidiaries, which are TaiwanBusiness Bank Insurance Agency Co, Ltd. Taiwan Business Bank Property Insurance AgencyCo, Ltd, Taiwan Business International Leasing Co, Ltd. and TBB (Cambodia) MicrofinanceInsititution Plc. The profit or loss of the operating segments of the Bank and its subsidiariesis measured by net income before tax. The reported amount is consistent with the data whichwas provided to the chief operating decision maker in order to use it as the base of resourceallocation and performance measurement.

(B) Segment information

For the three months endedMarch 31, 2017 Bank Department

Securities, Trustand others

Inter-departmentadjustment Total segment

Net interest income $ 3,676,050 82,891 - 3,758,941Non-interest income 1,078,563 267,653 (94,051) 1,252,165Net revenue 4,754,613 350,544 (94,051) 5,011,106Bad debt expenses (318,020) (3,037) - (321,057)Operating expense (2,807,171) (133,967) 785 (2,940,353)Net income before tax $ 1,629,422 213,540 (93,266) 1,749,696

Total assets $ 1,492,138,756 22,573,583 (3,082,673) 1,511,629,666

Total liabilities $ 1,422,347,279 17,821,820 (889,042) 1,439,280,057

For the three months endedMarch 31, 2016 Bank Department

Securities, Trustand others

Inter-departmentadjustment Total segment

Net interest income $ 3,675,626 100,840 - 3,776,466Non-interest income 1,838,137 152,870 (9,505) 1,981,502Net revenue 5,513,763 253,710 (9,505) 5,757,968Bad debt expenses (1,093,870) (36,463) - (1,130,333)Operating expense (2,892,538) (128,130) 1,030 (3,019,638)Net income before tax $ 1,527,355 89,117 (8,475) 1,607,997

Total assets $ 1,413,612,566 33,073,923 (2,402,832) 1,444,283,657

Total liabilities $ 1,347,312,442 28,325,063 (522,869) 1,375,114,636

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(C) Significant client information:

No single customer represents 10% or more of the Bank and its subsidiaries' operatingrevenue. Therefore, no disclosure of major customer information is required.

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Reviewed only, not audited in accordance with generally accepted auditing standards as of March 31, 2017 and 2016.

TAIWAN BUSINESS BANK, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2017, DECEMBER 31, AND MARCH 31, 2016


March 31, 2017 December 31, 2016 March 31, 2016Assets Amount ％ Amount ％ Amount ％Current Assets：

Cash and cash equivalents $ 10 - - - 10 -

Available-for-sale financial assets－current 2,635,933 15 2,359,131 11 776,356 3

Margin loans receivable 1,870,332 11 1,691,659 8 1,803,197 7

Refinancing margin 8,858 - 1,132 - 1,699 -

Guaranteed proceeds receivable from refinancing 8,976 - 1,190 - 1,584 -

Receivables 304,659 2 500,717 2 542,848 2

Other current assets 23,559 - 36,827 - 20,616 -

　　Total current assets 4,852,327 28 4,590,656 21 3,146,310 12

Non-current Asssets：

Held-to-maturity financial assets－non currnet 330,594 2 330,580 2 406,222 1

Available-for-sale financial assets－non current 12,296,484 70 16,216,859 77 23,996,673 87

Premises and equipment－net 11,776 - 12,972 - 11,580 -

Intangible assets－net 4,341 - 4,881 - 3,705 -

Clearing and settlement fund 30,608 - 32,721 - 33,471 -

Guarantee Deposits paid 713 - 713 - 712 -

Deffered expense 3 - 3 - 3 -

　　Total non current assets 12,674,519 72 16,598,729 79 24,452,366 88

Total assets $ 17,526,846 100 21,189,385 100 27,598,676 100

March 31, 2017 December 31, 2016 March 31, 2016Liabilities and equity Amount % Amount % Amount %Current Liabilities

Liabilities for bonds with attached repurchase agreements $ 1,838,187 11 2,758,905 13 2,118,176 8

Deposits received from securities borrowers 58,937 - 91,888 - 71,090 -

Guaranteed price deposits received from securities borrowers 71,151 - 117,170 1 74,938 -

Account Payable 147,837 1 327,402 2 296,408 1

Other current liabilities 48,615 - 45,175 - 46,441 -

　　Total current liabilities 2,164,727 12 3,340,540 16 2,607,053 9

Guaranteed deposits received 20 - 20 - 20 -

Interbank transaction 12,969,375 74 15,420,527 73 22,378,644 81

　　Total non current liabilities 12,969,395 74 15,420,547 73 22,378,664 81

　　Total liabilities 15,134,122 86 18,761,087 89 24,985,717 90

Equity parent company

Assigned working capital 2,200,000 13 2,200,000 10 2,200,000 8

Special reserve 185,128 1 185,127 1 185,128 1

Undistributed earnings 44,438 - 89,798 - 19,966 -

Other items in equity (36,842) - (46,627) - 207,865 1

　　Total equity 2,392,724 14 2,428,298 11 2,612,959 10

Total liabilities and equity $ 17,526,846 100 21,189,385 100 27,598,676 100


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Reviewed only, not audited in accordance with generally accepted auditing standards as of March 31, 2017 and 2016.

TAIWAN BUSINESS BANK, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME




2017 2016Amount ％ Amount ％

Revenues：

Brokerage handling fee revenue $ 44,834 41 41,196 33

Handling fees from securities borrowers 187 - 403 -

Interest revenue 63,766 58 83,425 66

Future commission revenues 1,100 1 1,788 1

Other operating income 107 - 118 -

109,994 100 126,930 100

Expenses：

Brokerage handling fee expenses 2,732 2 2,590 2

Refinancing processing fee expenses 52 - 35 -

Financial costs 1,628 2 2,593 2

Other operating expenses 555 1 473 -

Operating expenses 54,952 50 59,305 47

Other gains and losses 5,637 5 41,968 33

65,556 60 106,964 84

Net income 44,438 40 19,966 16

Other comprehensive income：

Unrealized valuation gains on available-for-sale financial assets 9,785 9 180,609 142

Income tax related to items that are or may be reclassified to profit or loss - - - -

Other comprehensive income (net amount after tax) 9,785 9 180,609 142

Total comprehensive income $ 54,223 49 200,575 158


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ADDRESS: NO. 30, Ta-Cheng Street, Taipei, Taiwan, R.O.C. … · 2017-06-15 · taiwan business...

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Transcript of ADDRESS: NO. 30, Ta-Cheng Street, Taipei, Taiwan, R.O.C. … · 2017-06-15 · taiwan business...