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For loan loss provision and guarantee reserve, the Bank and its subsidiaries have established the regulations for assets assessment
and loss reserve. According to the regulations of the Financial Supervisory Commission for banks, bills companies and insurance
companies, all assets in balance sheets and off balance sheets are classified as five categories. For credit assets on balance sheets
and off balance sheets, in addition to normal credit assets which shall be classified as "Category One", the remaining unsound credit
assets that required special attention shall be evaluated based on the status of the creditor’s the length of time overdue financial
situation, and loan collaterals, and classified as "Category Two". Assets that are substandard shall be classified as "Category Three".
Assets that are doubtful shall be classified as "Category Four", and assets for which there is loss shall be classified as "Category
Five”. "Category Two" to "Category Five” shall be assessed one by one for possible loss and set aside sufficient loss provision. And
loss provision shall be also set aside for "Category One" proportionately in accordance with regulations of competent authorities.
C.
Policies of hedging and mitigation of credit risk
To reduce credit risk, the Bank and it subsidiaries adopt the following policies:
(A)
Obtaining collaterals and guarantors
The Bank and its subsidiaries have established policies on collateral management, mortgage loan line setting, scope of collaterals,
collateral valuation, collateral management and disposal. Besides, protection of creditor’s right, collateral terms and offsetting terms
are all addressed in the credit extension contract in case of any occurrence of credit event, of which the amount may be deductible,
loan repayment schedule may be shortened or deemed as matured, or the debtor’s deposits can be used to offset its liabilities to
mitigate credit risks.
(B)
Loan limit control
To avoid extreme credit risk concentration, subsidiaries established policies for control of credit risk concentration and set up credit
extension limit for a single individual, a single group, a single industry, a single area/country, and single collateral.
(C)
Master netting arrangements
The Bank’s and its subsidiaries’ transactions predominantly settle at gross amount. Aportion of transactions have entered into master
netting arrangements with counterparties or upon the event of a default may cease all transactions with the counterparties and settle
by net amount in order to further reduce credit risk.
(D)
Other credit enhancements
The Bank and its subsidiaries have offsetting terms within their credit contracts, which clearly define that all deposits in the Bank
and its subsidiaries from debtors may be offset against their liabilities upon a credit event, and have guarantees from third parites or
financial institutions, in order to decrease credit risk.
D.
Maximum credit risk exposure
The maximum credit risk exposure of financial assets within the balance sheets is presented in book values. The maximum credit risk
exposure of guarantees and irrevocable commitments off balance sheets is calculated based on their limits. Letters of credit and the
guarantee refer to those issued but not used.
(A)
The maximum credit risk exposure of financial assets of the Bank and its subsidiaries excluding collaterals or other credit
enhancement instruments is approximately equal to book value. The maximum exposure to credit risk of items off balance sheet
is listed below:
December 31, 2015
December 31, 2014
NT$
US$
NT$
Credit risk exposure of items off balance sheet:
Irrevocable commitments
$ 166,108,998 $
5,050,748 $
171,133,933
Guarantee and letters of credit
272,848,162
8,296,283
294,133,035
Total
$ 438,957,160 $
13,347,031 $
465,266,968
(B)
Assets of the Bank and its subsidiaries with credit risk are analyzed as follows:
Unit: In NT Thousand Dollars
December 31, 2015
Cash and cash
equivalents, due from
the Central Bank and
call loans to banks
Bills discounted
and loans
Receivables
Bills and bonds
purchased under
resale agreement
and debt instruments
Derivative
financial
instruments
Other items
included in
balance sheet
Credit
commitments
Total
Government
organization
$
334,272,755
$
10,709,913
$ 150,430 $
18,100,977 $
- $
10,019
$ 81,658,932 $ 444,903,026
Financial institution,
investment and
insurance
312,819,051
173,014,187
82,460,399
391,638,844
2,480,950
93
19,663,315
982,076,839
Enterprise and commerce
- 1,211,258,965 56,431,606
61,780,324
1,645,168
4,850,325 277,025,545 1,612,991,933
Individuals
-
391,311,819
4,728,797
-
50,795
314,738
58,965,383
455,371,532
Others
-
10,440,399
723,668
203,755
680,681
34,825
1,643,985
13,727,313
Total
647,091,806 1,796,735,283 144,494,900
471,723,900
4,857,594
5,210,000 438,957,160 3,509,070,643
Less: Allowance for
probable losses
(
2,241 ) (
23,466,229 ) (
1,973,545 )
-
- (
2,992 )
- (
25,445,007 )
Net
$
647,089,565 $ 1,773,269,054 $142,521,355 $
471,723,900 $ 4,857,594 $ 5,207,008 $ 438,957,160 $ 3,483,625,636
Trade finance to enterprises accounted for 9.62%, totaling NT$116,501,780 thousand. Housing mortgage loans to individuals
accounted for 75.83%, totaling NT$296,737,772 thousand.