Table of Contents

Abstract ii
Acknowledgement iii
List of Figures vi
List of Tables vii
List of Terms and Abbreviation ix
1. Introduction 1
1.1. Background 1
1.2. Literature Review and Objectives 3
2. Research Methodology 5
2.1. Methodology and Hypotheses 5
2.2. Analytical Procedures 6
3. Over-banking and Financial Liberalization 7
3.1. Financial Liberalization 8
3.2. Financial Reform in 2001 & 2003 12
3.3. Financial Performance 15
3.4. Reshuffling the Business Focus in Post Consumer Dual Cards Crisis 19
4. Over-Lending and Proliferation of Unsecured Products 21
4.1. Characteristic of Credit Card Issuers (new entrants) 22
4.2. Chronicle History of the Credit Card Development 22
4.3. Credit Card and Its Financial Mechanism 23
4.4. Marketing Practices 25
4.5. Revolving Balance Acceleration 29
4.6. Cash Card 30
4.7. Dual cards Performance Summaries 31
4.8. Unsecured Consumer Lending 32
4.9. Asset Backed Security – Asset Revitalization 33
5. Stressed Economy 35
5.1. Overview of the Market Economics 35
5.2. Per Capita Consumer Spending to Disposable Income 37
6. Empirical Finding 39
6.1. Data Selection and Correlation Analysis 39
6.2. Regression Analysis 42
7. Conclusion 46
References 48
Appendices 49
A. Data Selection For Empirical Analysis 49
B. National Credit Card Center 51
C. Join Credit Information Center 52
D. Financial Supervisory Commission 52
E. GDP Detail Break Down 53
F. Financial Performance of ChinaTrust FHC and Taishin FHC 54
G. Domestic Banks’ Abridged Income Statement, Consolidated by FSC 56

List of Figures

Figure 1 Percentage of Growth for Banks, Branches, and Employees 12
Figure 2 Growth Rates to Year 1991 for Population, GDP, Financial Industry GDP Output, and Banking GDP Output 18
Figure 3 Annual Growth Rates on Population, GDP, Financial Industry GDP Output, and Banking GDP Output 19
Figure 4 Credit Cards in Force (CIF) from 1991 to 2007 27
Figure 5 Credit Cards Billing from 1991 to 2007 28
Figure 6 Revolving Balance from 1998 to 2007 30
Figure 7 Real GDP 36
Figure 8 Unemployment Rate 36
Figure 9 Consumer Spending to Disposable Income 37
Figure 10 Credit Cards Billing 37

List of Tables
Table 1 Number of Banks, Branches, Employees 10
Table 2 Number of Employees in Financial Institutions 11
Table 3 Taiwan’s Top 15 Financial Institutions by Net Worth 14
Table 4 ROA and ROE of Domestic Banks 15
Table 5 Financial Industry’s Output to GDP 17
Table 6 Chronicle History of Credit Card Development 23
Table 7 Summery of Acquisition Programs 26
Table 8 Summary of Usage Incentives and Rewards 28
Table 9 Summery of Stimulate Revolving Balance 29
Table 10 Credit Cards and Cash Cards - CIF 31
Table 11 Credit Cards and Cash Cards – Outstanding Balance 31
Table 12 Credit Cards and Cash Cards – Write-off 32
Table 13 Total Consumer Loan vs. Unsecured Loan 33
Table 14 Nominal GDP, CPI, Real GDP 35
Table 15 Variables Correlation Analysis 41
Table 16 Date Used for Regression Model 43
Table 17 Regression Results 44
Table A-1 Data Sets from Period 1991 to 2007 49
Table A-2 Data Sets from June 2004 to December 2007 50
Table A-3 GDP Detail Break Down 53
Table A-4 Taishin Financial Holding Co Ltd: Operational Indicators 54
Table A-5 Chinatrust Financial Holding Co Ltd: Operational Indicators 55
Table A-6 Fubon Bank’s Abridged Income Statement 56
Table A-7 Hua Nan Bank’s Abridged Income Statement 56
Table A-8 China Development Bank’s Abridged Income Statement 57
Table A-9 Cathay Bank’s Abridged Income Statement 57
Table A-10 E. SUN Bank’s Abridged Income Statement 58
Table A-11 Mega Bank’s Abridged Income Statement 58
Table A-12 Yuanta Bank’s Abridged Income Statement 59
Table A-13 Taishin Bank’s Abridged Income Statement 59
Table A-14 Shin Kong Bank’s Abridged Income Statement 60
Table A-15 SinoPac Bank’s Abridged Income Statement 60
Table A-16 Chinatrust Bank’s Abridged Income Statement 61
Table A-17 First Bank’s Abridged Income Statement 61
Table A-18 Jih Sun Bank’s Abridged Income Statement 62

List of Terms and Abbreviation

Billings Total Charges incurred on the cards; also referred to as spend or charge volume.

Card Fees Revenue earned from card membership fee; usually assessed on an annual basis.

Card In Force (CIF) The number of cards that are issued and outstanding at any given moment.

Credit Card Cards that have a range of revolving payment terms, grace period, benefits, rate and fees structured issuered by financial institutions, banks and other business (retail store, airlines etc.)

Cash Card A cash card is a plastic card which provides an alternative to cash, and its functionality is more similar to a loan taken from bank's credit line.

Financial Holding Company (FHC) A bank holding company is any entity that directly or indirectly owns, controls or has the power to vote 25% or more of a class of securities of a bank.

Financial Supervisory Commission (FSC) The commission is set up to consolidate the supervision of banking, securities and insurance industries under one roof, as well as to integrate the tasks of examining these industries

Interchange Fees that compensate the issuing bank for credit collection, float and plastic issuance.

Interest Revenue Interest revenue includes interest earned on revolving card products.

Joined Credit Information Center (JCIC) The center responsible for collecting, processing, and exchanging credit data among financial institutions.

National Credit Card Center (NCCC) The center is setup to provide Taiwan domestic authorization, clearing and settlement services of the credit card transactions

Non-Performing Loan (NPL) It is referring to loan that become non-performing after being in default for 3 to 6 months.

Revolve Balance The amount of charge volume a card member does not settled each billing cycle. Bank earns interest on revolved balance.

Write Off Write-off refers to a bad loan that is declared uncollectible after 6 months, and removing it from the account receivable.

Source: American Express GNS Financial Dictionary, Financial Supervisory Commission, and National Credit Card Center