Affected by the global financial meltdown in 2008, Taiwan's import/export trade grew 9.8% and 3.6% respectively amid shrinking consumer spending, a slump in investment and weakening overseas demand, resulting in a year-on-year economic growth of just 0.12%. In the financial sector, the Central Bank of the Republic of China (Taiwan) raised its interest rate twice during the first half of the year, by an eighth of a percentage point each time, in an effort to curb inflationary pressure. However, beginning in the third quarter, in response to deteriorating economic conditions, the Central Bank of the Republic of China (Taiwan) reversed the trend by cutting the re-discount rate five separate times over four months to 2%, a net reduction of 1.625%, to boost domestic demand and encourage domestic spending. The New Taiwan Dollar began the year strong against the U.S. currency but weakened as the year progressed, and closed the year at NT$32.86, 1.3% off the previous year's close, against the greenback. Taiwan's stock market, under the impact of the plunging equities markets worldwide, finished the year at 4,591 points, down 46% from the previous year's closing.

During the course of the year, the government continued to promote reform in the financial sector, amending the Standards Governing the Establishment of Commercial Banks to ease restrictions on the acquisition of local banks by foreign financial institutions, making the local banks confronted with ever-increasing competition in an already over banked environment. Again, with the tremendous impact of the global financial downturn on the financial industry, banking operations are growing ever more challenging. In response to this momentous challenge, the Bank adopted a policy of “create profit through strong asset quality and increase margins” while continuing to maintain high operation efficiency that is above the average of its peers.

The highlights of the Bank's accomplishment in 2008 were as follows:

I. Strong Capital Adequacy:
In 2008, the Bank increased its capital by NT$2.15 billion to NT$23.737 billion through the capitalization of earnings, while also issuing NT$5 billion in subordinated bonds and the strengthening of its capital management. At year's end, the Bank's capital adequacy ratio stood at 11.2%, far exceeding the international standard of 8%.

II. Maintain Excellent Liquidity:
During the year, the Bank continued to maintain ample liquidity through prudent the management of loan to deposit ratios. The Bank's average deposit of NT dollar and foreign currency balance during the course of the year increased by 11.2% while the liquid reserves ratio stood at 31.3% at year's end, thus providing sound capital operations.

III. Continue Improvement of Assets Quality:
The Bank continued to strengthen risk management and reinforce credit assets quality, with its non-performing loan ratio of 1.07% at year's end, lower than the industry average of 1.6%, and its coverage ratio of 126.0% for the same period, vastly superior to the industry average 63.6%.

IV. Steady Loan Growth:
The Bank cautiously adjusted to the ever changing economic climate to seize market opportunities and expand its corporate credit and housing loan operations. Its annual average balance on loans grew 13.8% over the previous year.

Analyses of budget execution, financial revenues and expenditures, and profitability are as follows:

I. Major Operations:
The Bank's 2008 average deposit balance was NT$428.803 billion, achieving 102.6% of the budgeted. The average loan balance was NT$299.271 billion, achieving 106.8% of the budgeted. The foreign exchange business totaled USD71.579 billion for 2008, achieving 99.4% of the budgeted.

II. Revenues & Expenditures:
Net earnings on interest and non-interest aggregated NT$12.023 billion for the year, down 26.3% from the previous year. Various provisions and operating expenses totaled NT$5.739 billion, a 4.8% decline from the previous year.

III. Profitability:
Pre-tax income for the year was NT$6.283 billion, achieving 77.6% of the budgeted. After-tax profit was just over NT$5.46 billion, translating earnings per share of NT$2.32 and the return on assets of 0.89% and the return on equity of 8.76%.

In 2008, the Bank has made the following adjustments to address the constantly changing financial environment:

I. Expending the Branch Network:
During the year, the Bank opened branches in Taipei's Nankang District, northern Hsinchu and Hong Kong to expand its service areas and strengthen the development of its branch network. In the middle of the year, the Bank obtained from the Financial Supervisory Commission approval to establish two additional new branches and thus became the only bank to get approval to open two new branches in consecutive years. The newly approved branches will be in Taipei's Wenshan District and in Yilan and are slated to open in January and March of 2009, respectively.

II. Strengthening Organizational Function:
The Bank set up an Investment Evaluation Committee during the year to tighten control over investment risk management. Meanwhile, in order to strengthen resource integration and facilitate the opening of the Hong Kong branch, a strategic project organization function was added to the Head Office so that the Bank could strengthen the operation management of overseas branches, construct a cash management network platform, bolster up customer experience management, and ultimately upgrade the Bank's service quality dramatically.

III. Strengthening Strategic Alliances:
Fortifying the competitive position in the cross-strait market and cementing customer relations, the Bank continued to strengthen strategic alliances with Shanghai Commercial Bank, Limited (Hong Kong) and The Bank of Shanghai (China). The three “Shanghai Banks” also jointly promoted the “green channel” services during the year, so customers across the strait can enjoy prompt and courteous service.

IV. Strengthening Risk Management:
To enhance operation competitiveness, the Bank continued to strengthen the risk management by taking measures, such as developing internal assessment mechanisms, building a credit management system to improve credit risk, instituting self-assessment of risks and controls throughout the operations process, and thus enormously benefiting the Bank's operation risk management.

V. Developing Financial Products:
To improve trade financing, the Bank introduced default insurance on accounts receivable from French insurer Coface Group. The Bank also took the lead in undertaking Renminbi currency exchange business to take advantage of the lifting of the ban on cross-strait tourism policy. To improve electronic funds transfer services, the Bank constructed a unified global financial network and enhanced the functions of its Internet banking services. Meanwhile, fixed-term but non-fixed funds investment was offered for the customers' convenience of investment management.

Last year, U.K. Periodical “The Banker” rated the Bank the world's 298th largest bank. Further more on December 18, 2008, Taiwan Ratings Corporation again accorded the Bank “twAA ” for long-term credit standing and “twA-1 ” for short-term credit standing. The rating stands for “stable” outlook. These results fully demonstrated the global recognition of the Bank's over-all performances. The economic forecast for 2009 is cautiously conservative, with the operating risks for the banking industry rising. The Bank, in this precipitous operating environment, is cautiously adopting measures to meet the global financial tsunami with the concept of upgrading its assets for stable development. The Bank also shows equal concern about quality of asset and interest spread to consolidate capital cost structure and control costs. Major operating objective for 2009 is to maintain on appropriate levels of growth. These include forecast growth of 6.1% in average deposit balance, 10.3% growth in average loan balance and 9% growth in foreign exchange business undertaken. All members of the Bank will adhere to its principle of providing “Warmth, Ease and Courtesy” service and display team spirit to pull together in surmounting any difficulties and attaining all operation goals. The Bank sincerely asks for constructive comments from our dear shareholders and thanks for their continuous support.