Stock Code: 5880 TAIWAN COOPERATIVE FINANCIAL HOLDING CO.,LTD. TAIWAN COOPERATIVE FINANCIAL HOLDING CO.,LTD. ANNUAL REPORT 2019 Proactive．Agile．Innovative ANNUAL REPORT 2019 Proactive．Agile．Innovative TAIWAN COOPERATIVE FINANCIAL HOLDING CO.,LTD. No.225, Section 2, Chang’an East Road, Taipei City, 105, Taiwan R.O.C. Tel : +886-2-2173-8888 Fax : +886-2-2731-3677 This annual report is available at our website: http://www.tcfhc.com.tw Printed on April 26, 2020 Spokesperson Taiwan Cooperative Venture Capital Co., Ltd. Name: CHOU, Chun-lung Address: 4F-1, No.7, Sec. 1, Roosevelt Rd., Zhongzheng Dist., Taipei City, Position: Executive Vice President 100, Taiwan R.O.C. Tel: +886-2-21738888 Tel: +886-2-23952115 email: [email protected] Website: http://www.tcfhc-vc.com.tw BNP Paribas Cardif TCB Life Insurance Co., Ltd. Deputy Spokesperson Address: 10F, No.325, Sec. 4, Jhongsiao East Rd., Da'an Dist., Taipei City, Name: SU, Tso-cheng 106, Taiwan R.O.C. Position: Executive Vice President Tel: +886-2-27726772 Tel: +886-2-21738888 Website: http://my.tcb-life.com.tw email: [email protected] Stock Transfer Agent TCFHC & Subsidiaries Contact Information Yuanta Securities Co., Ltd. Taiwan Cooperative Financial Holding Co., Ltd. Address: B1F, No.210, Sec. 3, Chengde Rd., Datong Dist., Taipei City, 103, Address: 17&19F, Bldg. A, No.225, Sec. 2, Chang'an Taiwan R.O.C. East Rd., Songshan Dist., Taipei City, 105, Taiwan R.O.C. Tel: +886-2-25865859 Tel: +886-2-21738888 (switchboard) Website: http://www.yuanta.com.tw Website: http://www.tcfhc.com.tw Taiwan Cooperative Bank, Ltd. Credit Rating Agency Taiwan Ratings Corporation Address: No.225, Sec. 2, Chang'an East Rd., Songshan Address : 49F, (Taipei 101 Tower), No.7, Sec. 5, Xinyi Rd., Taipei City, 110, Dist., Taipei City, 105, Taiwan R.O.C. Taiwan R.O.C. Tel: +886-2-21738888 (switchboard) Tel: +886-2-87225800 Website: https://www.tcb-bank.com.tw Taiwan Cooperative Securities Co., Ltd. S&P Global Ratings Hong Kong Limited Address: 6F, Bldg. C, No.225, Sec. 2, Chang'an East Rd., Address: Unit 1, Level 69, International Commerce Centre, 1 Austin Rd. Songshan Dist., Taipei City, 105, Taiwan R.O.C. West, Kowloon, Hong Kong Tel:+886-2-27528000 Tel: +852-25333500 Website: https://www.tcfhc-sec.com.tw Auditors Taiwan Cooperative Bills Finance Corporation Ltd. Name: CHEN, Yin-chou; KUO, Cheng-hung Address: 14F, No.85&87, Sec. 2, Nanjing East Rd., Name of accounting firm: Deloitte & Touche Zhongshan Dist., Taipei City, 104, Taiwan R.O.C. Address: 20F, No. 100, Songren Rd., Xinyi Dist., Taipei City, 110, Taiwan Tel: +886-2-25221656 R.O.C. Website: http://www.tcb-bills.com.tw Tel: +886-2-27259988 Co-operative Assets Management Co., Ltd. Website: http://www.deloitte.com.tw Address: 3F, No.77,Guangqian Rd., Zhongzheng Dist., Taipei City, 100, Taiwan R.O.C. Name of the overseas exchange for listing and trading of the negotiable Tel: +886-2-23820868 securities, and the means to inquire the information regarding such Website: http://www.coamc.com.tw securities: None Taiwan Cooperative Securities Investment Trust Co., Ltd. Address: 13F, No.85&87, Sec. 2, Nanjing East Rd., Notice to readers This English version annual report is a summary translation of the Chinese Zhongshan Dist., Taipei City, 104, Taiwan R.O.C. version and is not an official document of the shareholders’ meeting. If there Tel: +886-2-21815999 is any discrepancy between the English version and Chinese version, the Website: http://www.tcb-am.com.tw Chinese version shall prevail. CONTENTS 02 1. Letter to Shareholders 12 2. Company Profile 14 3. Corporate Governance Report 75 4. Fundraising Overview 81 5. Operating Overview 126 6. Financial Information 284 7. Financial Status Review and Risk Management Discussion 310 8. Special Disclosure 315 9. The List of Domestic Overseas Entities under the Group 2 Letter to Shareholders 1. Letter to Shareholders 03 I. TCFHC Performance in 2019 08 II. Overview of TCFHC 2020 Business Plan 09 III. Strategy for Future Development 09 IV. Influences of External Competition Environment, Regulatory Environment, and General Market Environment 11 V. Credit Ratings and Rating Dates 2019 ANNUAL REPORT I. TCFHC Performance in 2019 1. Global and Domestic Financial Environments in 2019 The pace of global economic growth has slowed down in 2019 mainly due to a few unfavorable factors including US-China trade disputes, Brexit turmoil, geopolitical conflicts, and dwindling economic performance of emerging markets. Such a slowdown has prompted private sectors adopting conservative approach towards investments and operations, and cooled down the manufacturing momentum 1. Letter to and trade activities. According to International Monetary Fund (IMF) in February 2020, the estimated global economic growth rate for 2019 Shareholders would be 2.9%, a decrease of 0.7% from the previous year. Nevertheless, with the adverse impact by the outbreak of COVID-19 pandemic on global economy, the IMF has adjusted downward the global economic growth rate forecast for 2020 to a negative figure amid other risky variables in the market including the trends of international oil price, the US Presidential election, US-China trade talks of the next phase, and weak economic momentum in the Euro zone as well as geopolitical uncertainties. The duration of the COVID-19 pandemic will add more to the uncertainties of global economic climate, increasing the chance of further downward adjustment of the global economic growth rate. Despite of the fact that Taiwan’s economy in 2019 declined moderately due to weakened overseas demand, its performance actually was better-than-expected, exhibiting a quarter- by-quarter growing trend, which was mainly contributed by the increase in transferred orders Chairman Paul C. D. Lei resulted from shifts in global supply chain, as well as the increasing inbound investments by Taiwanese enterprises and the expansion of semiconductor production that both stimulated the growth in domestic demands. According to the statistics published by Taiwan’s Directorate- General of Budget, Accounting, and Statistics, Executive Yuan (DGBAS) in February 2020, Taiwan’s annual economic growth rate for 2019 stood at 2.71%, a figure that was only a 0.04% decrease from 2.75% in 2018. With the impact of the COVID-19 pandemic on an array of economic activities including manufacturing, consumption, and other transactions, major economic forecast agencies have subsequently adjusted downward the projected economic growth rate of Taiwan for 2020, forecasting that Taiwan’s economy would hit the bottom in the first half of 2020. With the government rolling out various relief schemes, which are expected to mitigate the impacts on domestic economy by the virus pandemic, Taiwan’s economy for 2020 may show a trend of hitting low first and then bouncing back in the later part of the year. 2. Corporate Structure TCFHC consists of seven subsidiaries, namely, Taiwan Cooperative Bank (TCB), Taiwan Cooperative Securities Company (TCS), Taiwan Cooperative Bills Finance Corporation (TCBF), Co-operative Assets Management Company (CAM), Taiwan Cooperative Securities Investment Trust Company (TCSIT), BNP Paribas Cardif TCB Life Insurance 3 Company (BNP TCB Life), and Taiwan Cooperative Venture Capital Company (TCVC). Letter to Shareholders 4 3. Business Plan and Performance Thanks to the trusts and supports from our shareholders over the past year, TCFHC, tapping into the grand customer base and inter-subsidiary synergy, has continued to present remarkable performance on overall operations and has again hit record high on profits against the backdrop of fierce market competitions. In 2019, TCFHC’s consolidated net income after tax amounted to NT$17.612 billion, an increase of NT$1.596 billion from 2018, representing a growth rate of 9.97%, or an EPS after tax of NT$1.33, all of which have hit the highest record since TCFHC was established. Also, the return on equity (ROE) and return on assets (ROA) reached 8.02% and 0.49% respectively. In the future, TCFHC will continue to pursue growth and excellence by capitalizing on core business and technological innovation. A summary of TCFHC business performance in 2019 and business plan for 2020 are outlined as follows: 3-1. Profitability 3-1-1. For 2019, the seven subsidiaries of TCFHC have all generated significant profits with four of which including bank, securities, securities investment trust, and venture capital achieving the highest profit records respectively since each of their establishments. Taiwan Cooperative Bank (TCB), TCFHC’s major profit engine, will continue to focus on developing loan business on small-and-medium size enterprises (SMEs) and the project loan for the “5+2” innovative industries as categorized by the government, increasing demand deposit ratio to the overall deposit, and reducing the funding cost as well as increasing the loan/deposit interest rate difference on the one hand; and will actively seek to expand into overseas market to increase revenue from overseas market. In sum, TCB and its subsidiaries in 2019 have together brought in a net income NT$16.005 billion to the TCFHC, which is an increase of NT$1.236 billion from NT$14.769 billion in the previous year, representing a year-over-year growth rate of 8.37%. 3-1-2. In addition to TCB, four of TCFHC’s subsidiaries – TCS (securities), TCBF (bill finance), TCSIT (securities investment trust), and TCVC (venture capital) have all posted steady business growth, generating net income of NT$322 million, NT$474 million, NT$40 million, and NT$68 million respectively. The net income of CAM, TCFHC’s assets management subsidiary, however, has declined to NT$242 million in 2019 due to decrease in non-performing loan business. As for the life insurance subsidiary, BNP Paribas Cardif TCB Life Insurance Company, despite of a 17.44% year-over-year growth on premium income, its net income for 2019 has decreased to NT$749 million due to commission payout for contingent deferred sales charge.