Mega Bank Annual Report 2017

101 Annual Report 2017 212! 9. CAPITAL MANAGEMENT (1) Objective of capital management A. The Bank and subsidiaries’ qualifying self-owned capital should meet the regulatory requirements and meet the minimum regulated capital adequacy ratio. This is the basic objective of capital management of the Bank and subsidiaries. The calculation and provision of qualifying self-owned capital and regulated capital shall follow the regulations of the competent authority. B. In order to have adequate capital to take various risks, the Bank and subsidiaries shall assess the required capital with consideration of the risk portfolio it faces and the risk characteristics, and manages risk through capital allocation to realize optimum utilization of capital allocation. (2) Capital management procedures A. Following the “Regulations Governing the Capital Adequacy Ratio of Banks” of the Financial Super visory Commission, the Bank calculates capital adequacy ratio on a consolidated basis and reports this information regularly. B. The calculation of capital adequacy ratio of subsidiaries shall follow the regulations of regulatory authorities; if without regulations, capital adequacy ratio is computed as net of qualifying self-own capital divided by regulated capital. (3) Capital adequacy ratio Capital adequacy shown in the following table was calculated in accordance with “Regulations Governing the Capital Adequac y Ratio of Banks” effective on December 31, 2017 and 2016. UNIT Ǻ In NT Thousand Dollars, % Annual Items December 31, 2017 December 31, 2016 Self-owned capital Capital of Common equity $ 255,953,520 $ 249,538,884 Other Tier 1 Capital - - Tier 2 Capital, net 33,131,246 37,575,805 Self-owned capital, net 289,084,766 287,114,689 Total risk-weighted assets (Note 1) Credit risk Standardized Approach 1,858,660,700 1,851,031,943 Internal Ratings-Based Approach - - Asset securitization - 752,163 Operation risk Basic Indicator Approach 93,247,425 93,518,150 Standardized Approach / Alternative Standardized Approach - - Advanced Measurement Approaches - - Market risk Standardized Approach 44,747,263 35,868,088 Internal Models Approach - - Total risk-weighted assets 1,996,655,388 1,981,170,344 Capital adequacy ratio (Note 2) 14.48% 14.49% Total risk assets based Capital of Common equity, net Ratio 12.82% 12.60% Total risk assets based Tier 1 Capital, net Ratio 12.82% 12.60% Leverage ratio 7.34% 7.49% Note 1: The self-owned capital, risk-weighted assets and exposures amount in the table above should be filled in accordance with “Regulations Governing the Capital Adequacy Ratio of Banks” and “calculation method and table of self -owned capital and risk- weighted assets”. Note 2: Current and prior year's capital adequacy ratio should be disclosed in the annual reports. In addition to current and prior year's capital adequacy, capital adequacy ratio at the end of prior year should be disclosed in the semi-annual reports. Note 3: The relevant formulas are as follows: 1. Self-owned capital = Tier 1 Capital of Common equity, net + Other Tier 1 Capital, net ɠ Tier 2 Capital, net 2. Total risk-weighted assets = credit risk-weighted assets + (operation risk + market risk) * 12.5 3. Capital adequacy ratio = Self-owned capital / Total risk-weighted assets 4. Total risk assets based Tier 1 Capital of Common equity, net Ratio = Tier 1 Capital of Common equity, net / Total risk-weighted assets 5. Total risk assets based Tier 1 Capital, net Ratio = (Tier 1 Capital of Common equity, net + Other Tier 1 Capital, net) / Total risk- weighted assets 6. Gearing ratio = Tier 1 capital/ exposures amount Note 4: For 1st quarter and 3rd quarter financial reports, the table of capital adequacy ratio is not required to be disclosed. 10. OPERATING SEGMENTS INFORMATION (1) General information The Bank and subsidiaries use reported information to the Chief Operating Decision-Maker (CODM) to identify segments and geographic information. The Bank and subsidiaries mainly focus on the businesses in Asia and North America. The disclosed operating segment by the Bank and subsidiaries is stipulated in Article 3 of the Banking Law, and the generated income is the main source of income.