Mega Bank Annual Report 2017

1 Annual Report 2017 -1- Message to Shareholders After a major event in which the New York Branch was fined in 2016, the Bank learned from this bitter experience and designated 2017 as “the year of transformation”. Besides hiring multiple consultants and experts to assist in shaping a robust mechanism against money laundering and strengthening the internal audit and internal control systems, the Bank is also committed to developing a corporate culture of attaching importance to compliance throughout the entire bank, internal controls, and risk management. The concerted efforts of all employees of the Bank, including correcting the issues at the New York Branch, establishing an anti-money laundering system, and reconstructing the compliance culture throughout the entire Bank, are gradually getting results. While advancing various compliance systems and internal control mechanisms, the Bank has also focused on business development. In 2017, besides corporate finance, foreign exchange businesses, and other niche businesses, which continue to maintain dominance, the Bank has also actively sought a breakthrough in the field of consumer finance. Featured products new to the market are launched in businesses, such as credit cards and wealth management. Financial operations also demonstrated superior results. The net after-tax profit in 2017 was NT$21.523 billion, successfully meeting the target and ranking 2nd in domestic banks. Moreover, at the end of 2017, the non-performing loan ratio of the Bank was 0.12%; the coverage rate of the allowance for bad debt was 1,334.92%; the capital adequacy ratio was 14.30%. The overall asset quality is good and the capital adequacy is sufficient. All data points are superior to the industrial average. Looking ahead to 2018, the Bank will continue to strengthen the compliance system as the foundation of stable operation; at the same time, the Bank will promote various important business strategies for business development. In order to improve administrative and operational effectiveness, the Bank is planning on launching a second wave of reorganization, introducing the business and management model of “business groups”, expecting to amplify profitability thereby, and allowing the Bank to reveal a brand-new look. Operation Results of 2017 I. Global & Domestic Economic Dynamics 1. Economic Growth Benefiting from investment growth and rally of manufacturing and trading activities, IMF estimates the global economic growth rate at 3.7% in 2017; a new high since 2011. Looking ahead to 2018, IMF forecasts that the global economic growth rate will be 3.9%, which is still considered stable growth. However, since developed countries may continue to raise interest rates, which may gradually tighten global financial conditions, countries with financial vulnerability will face the market test. Driven by the improving international environment globally, economic growth on the domestic front accelerated in 2017; the economic growth rate for the entire year was 2.86%, significantly higher than 1.5% in 2016. Looking ahead to 2018, international institutions generally forecast that the global economic growth and trade momentum will continue, which is beneficial to the expansion of the external demands of our country; moreover, domestic employment will improve, which helps the growth of private consumption. Advanced production plans of major semiconductor manufacturers and construction of forward-looking infrastructure driven by the government are expected to drive domestic investment, and thus domestic demand is expected to continue. However, since exports in the comparative base period of 2017 were higher, the Directorate General of Budget, Accounting and Statistics estimates that the contribution to economic growth by foreign net demand will slow down in 2018, and the economic growth rate is estimated to shrink to 2.42%. It is noteworthy that there are still many variables in the global economy, including rising international trade protectionism, the impact of tax reform in the United States and monetary policy normalization on global capital flows, and adjustment of the economic structure in China; all will impact the overall domestic economic performance.