CONDITIONS FOR LISTED FI-NANCIAL INSTITUTIONS TO PURCHASE TREASURY STOCK

01/01/2005

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In an order dated 23 November 2004, the Financial Supervisory Commission (FSC) set out various conditions to be met by financial institu-tions listed on the Taiwan Stock Exchange or the GreTai over-the-counter securities market if they intend to buy back their own stock under Article 28-2 of the Securities and Exchange Act (SEA), and the Regulations Governing Share Repur-chase by Listed and OTC Companies. The con-ditions are intended to maintain such institutions' financial soundness. The main points are as follows:

Financial holding companies:

1.The group's capital adequacy ratio, after deducting the funds required to buy back shares under the current filing, is not less than 150%.

2.The capital adequacy ratio of the financial holding company's subsidiary banks and bills finance companies is not less than 12%, that of its subsidiary securities com-panies not less than 200%, and that of its subsidiary insurance companies not less than 300%.

3.None of its subsidiaries has yet to complete fundraising after being ordered by the regulatory authority to increase its capital.

Banks:

1.The bank's capital adequacy ratio, after deducting the funds required to buy back shares under the current filing, is not less than 12%.

2.All its lending that is more than two years overdue has been designated as uncollect-ible accounts, and adequate provision has been made against possible losses on all at-risk assets.

3.Its most recent self-reported broad overdue loans ratio is less than 2.5%.

Bills finance companies:

1.The company's capital adequacy ratio, after deducting the funds required to buy back shares under the current filing, is not less than 12%.

2.Its most recent self-reported ratio of ad-vances on guarantees was less than 2.5%, and it has made adequate provision for guarantee liabilities and uncollectible ac-counts.

Insurance companies:

The company's capital adequacy ratio, after deducting the funds required to buy back shares under the current filing, is not less than 300% (based on CPA-reviewed capital ade-quacy ratio for the most recent financial year), and the various ratios of its application of funds are in compliance with Articles 146 to 146-6 of the Insurance Act, and other relevant provisions.

Securities companies:

The company's capital adequacy ratio, after deducting the funds required to buy back shares under the current filing, is not less than 200%.

For any of the above types of financial institution, the institution's most recent annual and semi-annual financial statements have been audited and certified by a CPA and have received an unqualified opinion; the institution is financially sound; it has no current or accumulated losses; and there are no grounds for suspecting that it has losses that are not revealed in its financial statements.

When a financial institution files a report of its intention to buy back its own shares under the Regulations Governing Share Repurchase by Listed and OTC Companies, the responsible person of the company must additionally make a written declaration that (1) the com-pany's financial situation is in compliance with the above conditions; and (2) if the share buyback is for the purpose of transferring shares to employees, that the company will so transfer them in good faith. The above dec-laration should be sent to the bureau of the FSC responsible for regulating the relevant financial services industry, together with copies of the share buyback filing letter and the share transfer plan.

If the purpose of the buyback is to transfer shares to employees, every six months the fi-nancial institution must submit to the relevant FSC bureau a detailed report on the progress of the execution of its share transfer plan and the specific measures of such execution, and it must complete the transfer within three years after the buyback. If the transfer is not com-pleted within that time so that the outstanding shares have to be cancelled, the FSC will take the following actions, unless failure to com-plete the transfer was due to employees' vol-untarily abandoning their subscription rights due to market price factors:

1.The FSC will order the financial institution to restore the cancelled capital by an increase in capital, and before such restoration the institution may not apply to engage in new areas of business, or to buy back company shares.

2.After said capital has been restored to its previous level, if the institution intends to again buy back shares, it may only do so if its capital adequacy ratio as calculated ac-cording to the above principles is not less than the following levels: for a financial holding company, 180% (and each sub-sidiary must achieve the relevant individual CAR below); banks and bills finance companies 14.5%; insurance companies 360%; and securities companies 240%.

The above conditions do not apply to a buyback of shares under Article 28-2 of the SEA and the Regulations Governing Share Repurchase by Listed and OTC Companies, if it was filed for before the FSC's announce-ment.