In 2008, the global economy faced severe challenges. The credit crunch resulting from the sub-prime crisis in the United States, the soaring oil and crop prices, the deteriorating inflation, and the spreading global financial crisis have hurt the global economy badly. With the willingness for consumption being low, the shrinking domestic and international demands and uncertainties are detrimental to economic development. The global banking crisis is worsening. Major international research institutes are conservative and pessimistic in their economic forecasts. Governments have offered various financial bailout measures and economic stimulus plans to revive their respective economies and to prevent economic and social turmoil.

In response to the dramatic change of the banking environment, Bank SinoPac had completed a series of organizational reinforcement in 2008 by delegating the business operations to branches that are on the frontlines contacting clients directly. The "full-function branch" is capable of satisfying customers with one-stop shopping. The flattened organization and manpower re-assignment have been put in place to effectively broaden and deepen the contact with customers. Costs have also been brought down accordingly. Bank SinoPac has also implemented other cost-saving measures. A personnel leaner project for overseas units was implemented in 3Q08. No new recruitment is to be made in order to secure employees' right to work. In addition, entertainment expenses, marketing expenses, travel & transportation expenses, rental expenses, and general administrative expenses have been reined in and overseas trips are being replaced by teleconferences. Moreover, after Bank SinoPac and SinoPac Card Services are merged in 2009, the BIS ratio will improve. The channels of the bank, securities, investment trust, and insurance agency will be fully utilized for cross-selling to generate higher economies of scale and better synergies. Going forward, the bank will continue to follow through the strategy already set in place by further reinforcement and restructuring in order to reduce operating costs and enhance operating performance.

Together with its peers, Bank SinoPac was inevitably affected by the global economic downturn. Bank SinoPac's total assets amounted to NT$974.5 billion at the end of 2008, shareholders' equity reached NT$56.4 billion. The total deposits were NT$794.4 billion, total loans NT$635.9 billion, and total credits NT$677.1 billion. The BIS ratio was 11.01%. Bank SinoPac posted a net loss of NT$2.757 billion in 2008 due to SIV (Structured Investment Vehicle) investments. Therefore, the pre-tax EPS was a minus NT$0.88 and the after-tax EPS was a minus NT$0.6. The return on shareholders' equity was -4.71%. But the NPL ratio and the coverage ratio improved to 1.35% and 75.05% respectively after writing off NT$3.888 billion in bad debt.

Bank SinoPac has 129 domestic branches, of which 93 branches are located in the Greater Taipei area. As part of its global deployment, Bank SinoPac has four branches in Hong Kong, Kowloon, Macao, and Peikuan. The number of branches set up by Bank SinoPac in the Hong Kong and Macao region is second to none among Taiwan peers and they have improved the service quality provided to Taiwanese enterprises in Hong Kong, Macao, and Mainland China. Along the Pacific Rim, a total of 21 branches, including that in the United States and Vietnam, have formed a powerful and comprehensive service network.

The total credits extended to corporate customers in 2008 amounted to NT$321.6 billion, of which credits in foreign currency accounted for 40% indicating that the development of the overseas corporate credit business was a success. The factoring business reached NT$157.2 billion, with the foreign exchange business amounting to US$167 billion, each representing a significant market share in the market. Considering that the external environment is very severe and the domestic and global economies are expected to remain recessionary, the lending business will be conducted in accordance with a principle of "be sound and conservative". Bank SinoPac also plans to reinforce cross-selling and cultivate deeper into the existing customer base under the new framework of "full function" branches and monitors credit risk closely.

The corporate banking's cross-continent service network has provided integrated and cross-border services to Taiwanese enterprises overseas. The CrossPacific Account (CPA) provides over 4,500 corporate customers with cross-region cash management and financing services. The MMAb2b corporate banking network is a convenient online service used by 19,000 corporate members. Factoring by Insurance (FBI) provides corporate customers with comprehensive services and helps reduce overseas operating costs for the factoring business. As such, Bank SinoPac is able to extend these services to customers in Europe and the United States. Moreover, the promotion of the said services helps Bank SinoPac become the leader among domestic banks in supply chain financing while Taiwanese enterprises have been globalizing their supply chains.

With respect to the marketing of and trading in financial instruments, Bank SinoPac has not only participated in the financial markets in Taiwan and Asia but also provided customers with a variety of financial hedging, operation, and investment products. Of which, trading in the spot markets of both foreign exchange and bond are most successful. Given that major economies are still expected to face severe challenges, the strategic focus will be on utilizing the comprehensive resources of our branches to increase clients' trade volume and reinforce the treasury marketing team and their professional techniques and to adjust product pricing and strategy flexibly along with the change of the financial market in order to generate reasonable profits. It is also important to expand the scope of financial instruments to meet customer demands for custom-made products. The deterioration of the financial market has spread into the economy leading to sluggish consumption and investment. In response to the challenging situation, it is crucial to strengthen the assets and liabilities management, control assets quality, reinforce financial market operations, and deploy program trading strategy to achieve the goal of low risks and high returns.

Bank SinoPac's mortgage loan balance exceeded NT$330 billion in 2008 and was ranked fourth in Taiwan. More importantly, the asset quality of the mortgage loans made by Bank SinoPac is superior to its peers as attention has been paid to both quality and volume. Bank SinoPac has outperformed among domestic banks in this respect. At a time when the global economy and the real estate markets are affected by the financial crisis, Bank SinoPac has exercised extra care to handle the individual banking business in response to the said challenging environment. In addition to cashing in on customer data and credit risk rating modules to control customer risks, Bank SinoPac has also priced its mortgage loans in line with market developments. Loans are properly traced and managed and the feedback is given to loan officers to establish a sounder business cycle. Moreover, in order to broaden and deepen business relations with clients, Bank SinoPac has conducted cross-selling to chosen customers with good credit and potential by utilizing cutting-edge datamining know-how. In order to better realize synergy, Bank SinoPac will also increase the ratio of its front desk staff and sales-force against back office personnel in a bid to enhance contributions and reduce costs.

As regards wealth management, the originally very profitable business has declined evidently due to the financial crisis. Bank SinoPac had invested NT$55.2 billion of designated money trust in domestic and international mutual funds and international marketable securities in 2008, with the total assets amounted to NT$97.5 billion. In respect of the general trust and custody businesses, Bank SinoPac has built up a business scale and market position through years of efforts with a total of NT$57.5 billion in assets under custody. To satisfy customers in many ways, Bank SinoPac has designed and developed a variety of trust products such as personal property trust, real estate trust, transaction safety trust, marketable securities trust, charity trust, employee's shareholding trust, and employee's welfare saving trust. All trust assets of Bank SinoPac amounted to NT$318.8 billion at year end. In addition to complying with the guidelines of asset allocation, Bank SinoPac must reserve momentum, integrate resources and platforms, reinforce core competence and harness key technology while waiting for the recovery of the economy to offer long-lasting excellent services to capture whatever potential the retirement planning market may offer.

Bank SinoPac launched two innovative products in 2008, MMA-bidmoney and MMA-R, to develop long-term customers and increase profitability.

"MMA-bidmoney" is the first online bidmoney platform ever created worldwide. It is combined with advanced network technology, e-banking and auditing know-how. As such, it provides not only zero-risk bidmoney protection but also a brand new Web 2.0 interactive network finance platform. Moreover, it is the first financial instrument winning a patent in Taiwan (patent No. 160266). The innovative business model has caught the interest and attention of the market and it has won the Gold Award at the 8th "e-21 Network Award" held by the Market Intelligence & Consulting Institute (MIC) and three categories were nominated for the 9th "Gold Finger Network Award" and won the "e-commerce" Silver Finger Award. The network bidmoney platform will be promoted continuously to provide consumers with more financing options. And interaction with members will be made to reinforce product offering and flows to live up to the "forever-innovative" motto of Bank SinoPac.

Bank SinoPac has the MMA-R pension service platform developed for the mass market while Taiwan is facing an aging population and an M-shaped society. The diversified financial instruments, including deposits, trust funds, and annuity insurance, are a custom-made pension account designed for customers. "MMA-R pension planning reports" are generated in a custom-made fashion by the "MMA-R retirement planning tool" in accordance with customers' investment portfolios to help customers understand the probability of achieving their retirement goals. Bank SinoPac also provides transaction statements and eservice to customers periodically to keep customers informed of their pension assets to help them control investment plans and examine and adjust pension plans accordingly.

Bank SinoPac has a comprehensive service network in the Greater Taipei area. The bank had spent an additional NT$200 million in 2008 to build clean and bright business lobbies so that the professional image can be further enhanced. Twenty-two branches, including Shetzu, Nanmen, Tingchou, Hsintien, Yenping, Tayuan, Yungho, Chunghsin, Lungchiang, Shihlin, Jenai, Chisui, Chingmei, Chengchung, Taishan, Fengyuan, Chiencheng, Tehui, Sanho, Hsichih, Changshu, Chungho and Szuyuan, were renovated. In addition, an advanced customer service system has been introduced to enable clerks to access customers' data over the counter to identify instantly VIP customers upon their taking a service number or inserting their cards so that first-priority quality services can be offered to them. Big-screen TFT-LCD TVs are also installed to provide customers with live reports on financial markets and related information about custom-made products and services.

In terms of credit rating in 2008, Standard & Poor's rated Bank SinoPac as follows: long-term credit at BBB, short-term credit at A-2, and stable outlook. Taiwan Ratings gave long-term credit at twA+, shortterm credit at twA-1, and stable outlook to Bank SinoPac. Fitch rated Bank SinoPac as BBB+ for longterm credit, F2 for international short-term credit, AA-(twn) for domestic long-term credit, F1+(twn) for domestic short-term credit, and stable for outlook.

On top of routine business operations, Bank SinoPac participated in social events and sponsored the Chinese arts. Bank SinoPac worked with E-Classical and National Symphony Orchestra to hold Bank SinoPac E-Classical Awards for the 8th year in a row which has become one of the important classical musical tournaments in Taiwan. The "Bank SinoPac Dissertation Awards" was held for the 5 straight year with many outstanding winners awarded and with high regard and recognition received from the academy. Moreover, Bank SinoPac has been the sole sponsor for the films of "Pirates of the Caribbean: At World's End," and "Lust Caution" since 2007 with a great reception from the general public and customers. Bank SinoPac presented the "CJ7" film directed by Stephen Chow to customers at the beginning of 2008 as a New Year gift for them to enjoy the humor without language barriers and the charm and care of a super movie star. Bank SinoPac sponsored "Red Cliff" directed by an internationally renowned director, Mr. John Woo, in July 2008. Customers of Bank SinoPac were impressed by the said movies and those films have indeed helped bring them closer to Bank SinoPac.

Based on the experience of having successfully merged two banks, Bank SinoPac will continue to study its M&A strategy so that it will not miss out the trend. As such, it has decided to further reinforce its capital strength to get the funds ready for any feasible acquisition of quality banks in a bid to realize merger synergies and solidify market positions.

Despite that the banking business may remain challenging, we are determined to focus on customer-oriented services, pursue scale and scope of operation, and upgrade service quality. Bank SinoPac will endeavor to secure a strategically important position in the rapidly growing Chinese banking circle to provide our fast globaling customers with world-class banking services.