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Market Analysis
Our Goals for 2002
Organization Chart
The global economy began to slow down in the second half of 2000, and the downturn became more acute in 2001. The worldwide shockwaves from the September 11 terrorist attacks added to the pessimism of economic expectations, and struck a hard blow at global financial market order. While prompt concerted action by central banks around the world to cut interest rates served to bring a swift return of stability to financial markets, business and consumer confidence were badly weakened. The damage to the global economy from the September 11 attacks is estimated to have put back economic recovery by one to two quarters.
The domestic economy nosedived into recession in 2001. The economic growth rate dipped from 0.91% in the first quarter to negative 2.35% in the second quarter and negative 4.21% in the third quarter. In the fourth quarter, with the global economy showing signs of gradual stabilization, the decline in domestic industrial production began to taper off. With the added boost of a gradual rebound in private consumption, the contraction in the economic growth rate narrowed to 1.87% in the fourth quarter. For the whole of the year, the economy contracted by 1.91%, the first negative growth rate since the start of records in 1952. According to projections by the Directorate General of Budget, Accounting and Statistics, the growth rate in 2002 will rise to 2.29%, with recovery expected to pick up sharply in the second half of the year.
In the stock market, domestic stocks were affected by the poor performance of stock markets across the world in 2001, with the Taiwan stock market index falling from 4739 points at the end of 2000 to a low of 3412 points on September 26, a loss of 1327 points. After tha, it recovered steadily to end the year at 5551 points, a gain for the year of 812 points.
In the foreign-exchange market, under the impact of the global slump and depreciation of the Japanese yen, the NT dollar lost 6% of its value against the US dollar, closing the year at 35.007 to the greenback compared with 32.992 at year-end 2000. The average exchange rate to the US dollar over the year was 33.79, some 8% lower than the average of 31.25 in 2000. In 2002, factors such as the gradual improvement of the domestic economy, the accumulating trade surplus, and increasing foreign exchange reserves are likely to cause a gradual rebound in the value of the NT dollar against the US currency.
Interest rates fell in line with the downturn in the domestic economy. To boost capital-market liquidity, the central bank followed the example of the US Federal Reserve Board by vigorously lowering interest rates. Altogether, it implemented twelve rate reductions, totaling 2.625 percentage points, which reduced the rediscount and accommodation rates to 2.125% and 2.5% respectively, both historic lows. In domestic short-term interest rates, the overnight call-loan rate averaged 4.51% in the first quarter, 4.06% in the second quarter, 3.46% in the third quarter, and an all-time low of just 2.53% in the fourth quarter. For the whole year, the overnight call rate averaged 3.64%. With the domestic price level already flat and signs of economic recovery growing brighter by the day, short-term interest rates are expected to rise slowly as the economy recovers.
In the domestic banking sector, of 53 local commercial banks, ten recorded losses and two showed negative net worth. The industry as a whole recorded its first ever decline in net worth. According to statistics from the Ministry of Finance (MOF), Taiwan's banks earned pre-tax profits of NT$57.5 billion for the whole of 2001, which was 40.5% lower than the NT$96.7 billion reported in 2000. Pre-tax profits declined successively in each quarter, and the declines were the largest ever recorded since the MOF began to compile such statistics. In December 2001 alone, the banks showed losses of NT$24.5 billion, setting a new monthly record for losses in a single month. This was mainly owing to the banks' active writing off of bad debts, and demonstrates the increasingly difficult business environment for banks pending recovery of the economy.
Despite the growing difficulties of making profits in the banking sector, our bank still managed to achieve an excellent performance in all areas of business. Our pre-tax profit for the year reached NT$2.56 billion, a growth rate of 4.5% over the previous year's NT$2.45 billion, and an outstanding achievement compared with other domestic financial institutions. Total deposit balances reached NT$274.1 billion, up 2.14% in the year, and loan outstandings grew 0.40% to NT$206.5 billion, in spite of the impact of the stormy financial climate at home and abroad. Foreign exchange contracts undertaken reached US$11.55 billion, a growth of 10.43%. Our trade in short-term bills, boosted by the introduction of our bond self-trading on June 20, 2000, and by our acquisition of a bond-trader's license in July 2001, soared almost threefold to NT$1.696 trillion. In trust operations, with six new additions expanding our range of custodian funds to twenty in all, we increased our total assets in custody to NT$133.7 billion, a growth of 90%.
To prepare for the impact of Taiwan's accession to the WTO, our main operating strategy in 2001 was to implement a system of regional centers, reorienting our existing organization toward more focused specialization in division of labor. Steps toward this end included: (1) the setting up of a risk control section under the corporate finance department; (2) the establishment of five appraisal centers in Taipei city and county (with two more added in Taoyuan and Lotung in February 2002); (3) the establishment of a customer service center; (4) the establishment of an operation center in the international banking department; (5) the establishment of a credit card center; (6) the establishment of ten regional corporate banking centers and eleven regional consumer banking centers; and (7) the setting up of four loan recovery centers.
In cross-industry operations, in July 2001 we set up the 100% own-invested IBT Life Insurance Agent Co., Ltd. and IBT Property Insurance Agent Co., Ltd., matching the related life insurance and property insurance business with various outside insurance companies. Among these, we opted to form a strategic business alliance with a Dutch company "AEGON Group", to introduce their life insurance products and specialized marketing know-how, while actively cultivating our own insurance marketing talent within the bank. On the securities side, we teamed up with Grand Cathay Securities to launch all-in-one investment and money management accounts, incorporating Grand Cathay's expertise in brokering, underwriting, investment consulting, investment trust, and futures, to provide our customers with simple, convenient, and diversified financial management services.
In 2002, we will utilize specialized division of labor and modern management methods to raise our bank's competitiveness, strengthen our operations, and respond to the impact from the setting up of financial holding companies. Under an enhanced organizational structure, we will make optimum use of our human resources to develop business and upgrade credit quality, with our efforts primarily concentrated on providing internationalized business banking, community-centered retail banking, and general banking that is oriented toward financial management. Our business plan for 2002 includes: (1) expanding the functions of all-in-one accounts, and introducing products from our insurance agency arms, to maximize aggregate cross-marketing returns; (2) actively planning foreign-exchange trusts, insurance trusts, retirement trusts, will trusts, and other such products; (3) augmenting e-finance functions for the provision of simple, convenient, first-class financial management advice and services to satisfy customers' diversified product needs; (4) setting up a negotiable instruments operations center; (5) acquiring a seal verification system, and in the future incorporating cellphone text or telephone voice messaging to notify of insufficiency of funds in checking accounts; (6) establishing more priority banking centers, staffed with more financial management specialists, to provide VIP customers with respectful and discreet financial management services; (7) setting up an off-site ATM promotion team, to promote the installation of our bank's ATMs in selected department stores, hypermarkets, and other such suitable retail outlets; (8) developing all-purpose Internet banking, to provid customers with convenient B2B and B2C electronic cash-flow services, and planning for personal and business Internet banking; (9) strengthening mobile banking service functions, following on from the introduction of STK mobile banking in March 2001 with plans for the launch of GPRS mobile financial management services in 2002 and participation in I-MODE wireless communication services; (10) launching IC multipurpose cards; (11) establishing a customer relations management (CRM) system; and (12) vigorously promoting the factoring business for which we obtained launch permission in October 2001.
In 2002, according to projections by Wharton Econometric Forecasting Association (WEFA), the global economic growth rate will rise moderately to 1.7% from 1.3% in 2001. It will also be the year when Taiwan and mainland China have to face up to the competition arising from entry to the WTO. It is expected that this will result in a realigning and repositioning of trade relations on both sides of the straits, and that the two sides will not only be vying with each other for competitive space in merchandise trade, but will also be contending for ascendancy in all sectors of service industry. In recent years, the government has put a lot of effort into carrying out financial industry reform, with the passage of the Trust Law, Financial Institutions Merger Law, and amendments to the Banking Law in 2000, and the passage of six more major laws - the Insurance Law, Deposit Insurance Law, Financial Holding Company Law, Business Tax Law, Regulation of the Financial Restructuring Fund, and Bill Finance Management Law - in 2001. In time to come, whether our domestic financial industry can raise its competitiveness and compete on an even footing with the elite of international finance, will be closely tied up with our country's future restructuring of industry and upgrading of economic development.
In the Global Competitiveness Report 2001 issued by the World Economic Forum (WEF) on October 19, 2001, Taiwan's growth competitiveness ranking for the next five years rose three places to 7th in the world. Among Asia's leading economies, only Singapore ranked higher (4th), while Hong Kong (13th), Japan (21st), South Korea (23rd), and mainland China (39th) all placed below Taiwan. This demonstrates the importance of Taiwan's position on the international economic stage.
Besides the efforts of our hard-working staff, our bank owes its achievements to the support and encouragement of our shareholders. We sincerely thank you and ask that you continue to give us your highly valued favor and trust, so that we may welcome a rosy future together.