The 19 th Annual Conference on PBFEAM Comparison

The 19 th Annual Conference on PBFEAM Comparison of bank competitiveness between Taiwan and China Thomas M. F. Yeh Vice Chairman Polaris Financial Group Taipei, Taiwan July 9, 2011 1

Outline I. Overview of Taiwan’s Bank Competitiveness and China’s l l l l l Overall Competitiveness Business Efficiency ─ Finance & Management Top 1000 World banks 1~10 Top 1000 World in Taiwan and in China Taiwan’s bank size and China’s The Scale of Asia Countries’ Leading Banks Countries’ Market Share of 5 Largest Banks in Asia Countries’ State Ownership Banks/Sector in Asia Business Environment l l Taiwan’s Bank SWOT analysis China’s Bank SWOT analysis II. SWOT Analysis III. CONCLUSION 2

I. Overview of Taiwan’s Bank Competitiveness and China’s u Overall Competitiveness Latest ranking ─ China is No. 19；Taiwan is No. 6. IMD China IMD Taiwan 6 15 13 19 17 2003 2004 2005 2006 2007 2008 2009 2010 2011 IMD China 20 29 23 18 18 27 2001 2002 17 18 17 20 28 26 24 2000 16 22 17 8 11 12 IMD Taiwan 2008 2009 2010 2011 Overall Competitiveness 17 20 18 19 13 23 8 6 Economic Performance 2 2 3 3 21 27 16 8 Government Efficient 12 15 25 33 16 18 6 10 Business Efficient 33 37 28 25 10 22 3 3 Infrastructure 31 32 31 28 17 23 17 16 Data source：IMD the World Competitiveness Yearbook. 2008 2009 2010 2011 3

I. Overview of Taiwan’s Bank Competitiveness and China’s • Business Efficiency ─ Finance ─ Banking efficiency u Taiwan is superior to China in banking sector, including the financial cards, the banking regulation and supporting business activities efficiently. 4

I. Overview of Taiwan’s Bank Competitiveness and China’s • Business Efficiency ─ Finance ─ Stock Market Efficiency u Taiwan is also superior to China in the stock markets, excepting the listed domestic companies. 5

I. Overview of Taiwan’s Bank Competitiveness and China’s • Business Efficiency ─ Finance ─ Management Practices u Taiwan has well developed VC industry, sufficient financial institutions' transparency and consumer protection, but China still has a long way to go. 6

Ⅱ. Overview of Taiwan’s Bank Competitiveness and China’s • Business Efficiency ─ Finance ─ Availability of Skills and Education u China has more facilities to attract foreign high-skilled people than Taiwan, though Taiwan has more finance skills available. 7

Top 1000 World banks 1~10 u In Asia, China has become the most potential country in banking sector from the view of top 10 world banks. Unit：U. S. $Trillion Year 2005 Top 1~10 banks by tier 1 capital Year 2010 Assets Countr Top 1~10 banks Country (Ranking) by tier 1 capital y of US Citigroup US 1. 48 (2) 2. 22 (6) Bank America Corp Morgan US JP Morgan Chase 1. 16 (7) US 2. 03 (8) JP Chase 1. 28 (4) 1. 86 (10) Citigroup UK HSBC Holdings US Royal Bank of America UK 1. 11 (10) 2. 75 (2) US Scotland Corp Agricole 1. 24 (5) 2. 36 (4) HSBC Holdings France Credit UK Groupe Royal Bank of Fargo 1. 12 (9) 1. 24 (22) Wells UK US Scotland &Co Tokyo 0. 98 (12) 1. 73 (11) ICBC China JAPAN Mitsubishi Financial Group Financial 1. 30 (3) 2. 96 (1) BNP Paribas JAPAN Mizuho France Group UK HBOS 0. 76 (19) 1. 60 (14) Banco Spain Santander 8 1. 23 (6) 2. 23 (5) Barclays France BNP Paribas UK Data source： July 2005 & July 2010, The Banker

Top 1000 World banks in Taiwan and in China u From the view of bank size, Taiwan’ bank is far behind Unit：U. S. $Trillion of China. Top 1000 World banks Ranking 151 Taiwan Top 1~10 banks by tier 1 capital 0. 122(127) 1. 73( 11) 0. 068(174) 1. 28( 21) Bank of China 0. 054(210) 1. 41( 18) 0. 080(158) 1. 03( 25) 0. 034(295) 0. 48( 46) China Construction Bank Corporation Agricultural Bank of China Bank of Communications 0. 057(203) 0. 26( 72) China CITIC Bank 0. 066(181) 0. 21( 89) 0. 041(264) 0. 30( 63) First Commercial Bank 0. 060(191) 0. 20( 93) Bank of Taiwan 264 272 Cathy United Bank 202 228 229 238 275 278 Assets (Ranking) Industrial Commercial Bank of China Mega International Commercial Bank Chinatrust Commercial Bank Taiwan Cooperative Bank Shanghai Commercial & Savings Bank Hua Nan Financial Holdings Land Bank of Taiwan 174 Assets (Ranking) Top 1000 China Mainland’s單位：百萬美元 World Top 1~10 banks by tier 1 capital Ranking Taipei Fubon Bank Data source： July 2010, The Banker 0. 042(258) 0. 24( 81) China Minsheng Banking Corp China Merchants Bank Industrial Bank Shanghai Pudong Development Bank 7 14 15 28 49 67 80 81 97 108 9

I. Overview of Taiwan’s Bank Competitiveness and China’s u. Taiwan’s bank size and China’s u Taiwan’ bank assets is far below the level of the world’s top 100 bank’s. • 　　　 Taiwan’s bank The Level of the world’s top 100 bank’s assets 175, 397 • Data source：THE BANKER, July 2010 Unit： U. S. $ million 10

I. Overview of Taiwan’s Bank Competitiveness and China’s u. Taiwan’s bank size and China’s u China’s top 10 bank assets is above the level of the world’s top 100 bank’s. • 　　　 China’s bank Unit： U. S. $ million 175, 397 • Data source：THE BANKER, July 2010 The Level of the world’s top 100 bank’s assets 11

I. Overview of Taiwan’s Bank Competitiveness and China’s u. The Scale of Asia Countries’ Leading Banks u All of Japan, China, South Korea and Singapore’s leading bank assets are above the level of the world’s top 100 bank’s. World’s Rank 9 11 83 97 127 • Data source：THE BANKER, July 2010 158 174 181 191 203 210 239 258 264 12

I. Overview of Taiwan’s Bank Competitiveness and China’s u. Domestic Banks’ ROA in Taiwan u Taiwan’s Domestic bank’s ROA is below the level of the lowest international standard. % • Data source：http: //www. banking. gov. tw Year 13

I. Overview of Taiwan’s Bank Competitiveness and China’s u. Domestic Banks’ ROE in Taiwan u Taiwan’s Domestic bank’s ROE is still below the level of the lowest international standard. % • Data source：http: //www. banking. gov. tw 14 Year

I. Overview of Taiwan’s Bank Competitiveness and China’s u. Emerging-market Countries’ Market Share of 5 Largest Banks in Asia u China and Taiwan’s 5 largest banks’ market share is 51. 6% and 38. 9% respectively. % Data Source: EM Banking System Datawatch, Fitch. Ratings, 25 November 2010. All data as at end-H 1 10. 15

I. Overview of Taiwan’s Bank Competitiveness and China’s u. Emerging-market Countries’ State Ownership Banks/Sector in Asia u China and Taiwan’s state ownership banks over banking sector is 51. 3% and 53. 6% respectively. % Data Source: EM Banking System Datawatch, Fitch. Ratings, 25 November 2010. All data as at end-H 1 10. 16

I. Overview of Taiwan’s Bank Competitiveness and China’s u Business Environment ¤ BERI’ rating system, Business Risk Service (BRS), offers comprehensive assessments of operating conditions, political risk, and the foreign exchange/ external accounts position for 50 important countries. u Taiwan is still superior to China in BERI’ rating. Business Environment Risk Intelligence 2008 2009 2010 2011(f) Taiwan China Business Risk Composite rating 5 17 5 16 4 15 4 13 Political Risk Index (ORI) rating 11 17 13 18 11 16 8 13 Operations Risk Index (PRI) rating 3 24 5 22 3 20 Remittance & Repatriation Factor (R －Factor) rating 5 8 4 9 3 8 Data source：Business Risk Service, BERI, 2008~2011. 17

II. SWOT Analysis • Taiwan’s Bank SWOT analysis 18

II. SWOT Analysis • China’s Bank SWOT analysis 19

Ⅲ. CONCLUSION • China’s banking system is still larger than other countries in Asia, but banking regulation and corporate governance should be improved in the near future, especially strengthening the financial institutions' transparency. • Taiwan has suffered a setback in its effort to reform stateowned banks. Despite the setback, we expect the government to continue its financial reform efforts and mergers and acquisitions, albeit at a more cautious pace. • The banking regulations in both sides of Taiwan Straits should be improved as soon as possible. The earlier this can be achieved, the higher its benefits will be and the lower its costs for the pacific basin as a whole. • Both government’s long-term strategies are to continue improving the bank infrastructure for development, and to develop service industries to speed up economic 20 transformation.

THANK YOU！ 21