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Mega ICBC
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A.
NTD Central Government Bond: the yield rates across different contract length and one-hundred price bulletined by Over-The-Counter
(hereinafter OTC) are used.
B.
NTD corporate bonds, financial debentures, government bonds, bond-type beneficiary securities and designated financial debentures issued
by the Group: the present value of future estimated cash flows is calculated by using the yield rate curve from OTC.
C.
NTD short-term bills and NTD bill-type beneficiary securities: the present value of future estimated cash flows of NTD and USD short-
term bills is calculated by using average interest rate of commercial papers and TAIFX3 central parity rate from Reuters, respectively.
D.
Foreign securities: quoted prices from Bloomberg are adopted.
E.
Listed stock: the closing price being listed in TSE is adopted.
F.
Unlisted stock and domestic/foreign partnership-type fund: If the objective recently has representative trading, its trading price might be
the best estimate of its fair value. If the objective has comparable listed trades, its fair value can be estimated by using appropriate market
method, such as P/E method, P/B method, EV/EBIT method or EBITDA×EV method, taking into account the operation condition of the
comparable listed companies, most recent one month trading information and its liquidity. And if the objective has no comparable
instruments or its fair value cannot be estimated using market method, other valuation technique, such as net assets method or income
approach, is used to estimate its fair value.
G.
Funds: net assets value is adopted.
H.
Derivative financial instruments:
(A)
Foreign exchange forward contract, currency swaps, forward rate agreement, interest rate swaps and cross currency swaps: the
discounting future cash flow is adopted.
(B)
Options: Black-Scholes model is mainly adopted for valuation.
(C)
Some structured derivative financial instruments are valued by using BGM model.
(D)
Some foreign-currency derivatives are valued by using the quoted prices from Bloomberg.
(4)
Financial instruments not measured at fair value through profit or loss
A.
In relation to cash and cash equivalents, investments in bills and bonds under resale agreements, due from the Central Bank and call loans
to banks, receivables, refundable deposits, due to the Central Bank and financial institutions, funds borrowed from the Central Bank and
other banks, bills and bonds payable under repurchase agreements, payables and deposits received, the book value of the financial
instruments which have a short maturity period will be considered as their fair value. While the maturities are quite closed or the future
payment or receipt is closed to the carrying amount, the carrying amount at the consolidated balance sheet date is used to estimate the fair
value.
B.
Interest rates of the Bank and its subsidiaries’ bills discounted and loans (including non-performing loans) are generally based on the
benchmark interest rate plus or minus certain adjustment to reflect the market interest rate. Thus, their fair values are based on the book
value after adjustments of estimated recoverability. Fair values for long-term loans with fixed interest rates shall be estimated using their
discounted values of expected future cash flows. However, as such loans account for only a small portion of all loans, book value was
used to estimate the fair value.
C.
When held-to-maturity financial assets have a quoted market price available in an active market, the fair value is determined using the
market price. If there is no quoted market price for reference, a valuation technique or quoted price offer by the counterparties will be
adopted to measure the fair value.
D.
The fair value of deposits and remittances are represented by the book value.
E.
The coupon rate of convertible bonds and bank debentures issued by the Bank and its subsidiaries is equivalent to market interest rate;
therefore, fair value estimated based on the present value of future cash flows is equivalent to book value.
F.
For other financial assets, such as investments in debt instruments without active market, financial assets measured at cost and investments
accounted for under the equity method, as they have no quoted price in active market and their valuation results by using different
valuation methods are significantly different, their fair value cannot be measured reliably and is not disclosed here.
(5)
Level information of financial instrument at fair value
A.
Three definitions of the Bank and its subsidiaries’ financial instruments at fair value
(A)
Level 1
Level 1 are quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market refers to a market in
which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an
ongoing basis. The Bank and its subsidiaries’ investment in listed stock, beneficiary certificates, popular Taiwan government bonds
and the derivatives with a quoted price in an active market, are deemed as Level 1.
(B)
Level 2
Level 2 inputs are observable prices other than quoted prices included in Level 1, including observable direct (e.g. prices) or indirect
(e.g. those inferred prom prices) inputs in an active market. The Bank and its subsidiaries’ investments in non-popular government
bonds, corporate bonds, bank debentures, convertible bonds and most derivative instruments and corporate bonds issued by the
Bank and its subsidiaries belong to this category.