Current regulatory environment of credit ratings in Taiwan Summary (July, 1999)

• The Securities & Futures Commission (SFC) states that the issuer of warrants must beforehand obtain a rating of BBB- or higher from a credit rating agency approved by the SFC. The guarantor or risk manager of an issuer of warrants must obtain a similar rating as well. (promulgated on May 31, 1997) The SFC revised the requirement of credit rating of the warrant issuer, who shall beforehand obtain a rating of BB- or above from the credit rating agency recognized by the SFC. The guarantor or risk manager of an issuer of warrants must obtain a similar rating as well. (promulgated on June 28, 1999)

• The Ministry of Finance (MOF) issued a requirement for all financial institutions acting as guarantors for commercial paper issues to apply a rating before the end of 1998. (promulgated on September 10, 1997)

• The revised bond regulations stipulate that an issuer of non-guaranteed corporate bonds shall obtain a rating from a credit rating agency approved by the SFC. This mandatory requirement will become effective from January 1st of 1999. (promulgated on March 31, 1998)

• The draft amendments of Rules For Administration Of Securities Investment Trust Enterprises (SITE) have been submitted to the Executive Yuan by the MOF. The proposed Article 35 states simply that a SITE shall , in accordance with requirements, obtain a rating from a credit rating agency approved by the SFC.
• The SFC approved the Futures Exchange Clearing Membership Criteria proposed by the Futures Exchange. A requirement was added that a clearing member of the Futures Exchange shall, within two years after being admitted to the clearing membership, obtain a rating of BBB or higher from a credit rating agency approved by the SFC. (April 2, 1998)
• Article 103 of the Bank Law stipulates that a trust investment company must deposit with Central Bank of China (CBC), cash or any CBC-recognized securities as reserves for compensation of trust funds. CBC now recognizes the corporate bonds guaranteed by the financial institutions or obtained a certain level rating or above as reserves for compensation of trust funds. (promulgated on May 21, 1997)
• Point 5 of the Central Bank of China's Major Points Governing the Refinance in Foreign Currencies reads that the Central Bank of China may determine the amount of refinance, which includes the maximum amount of refinance to each appointed bank and the actual amount of refinance for each case, in the light of the bank's operation, business risk, as well as its credit ratings assigned by the domestic or foreign credit rating agencies. (Promulgated on June 27, 1997)
• Point 17 of the Operation Points Governing the Central Bank of China's (CBC) Finance to Banks states that while reviewing the banks' applications of finance, the Central Bank of China may determine according to the following reference: the credit ratings of the applying bank, the performance of credit checking, the bank's general reserve position, use of accommodations, the bank's performance in cooperation with the CBC's monetary polices, and any of the bank's negative records or serious violation of rules and laws in the proceeding year. (Promulgated on October 17, 1997)
• Article 19 of the Regulations Governing The Bills Financial Dealers stipulates that the bills financial company must deposit the equivalent of 5% of its capital (in the form of cash, government bonds, financial debenture or corporate bonds guaranteed by financial institutions) into the Central Bank of China (CBC) as a required deposit. CBC states that the corporate bonds shall obtain the following ratings: a Moody's Investor Service's A3 rating or better, a Standard & Poor's Corporation's A- ratings or better, or a Taiwan Ratings Corporation's twA- rating or better. ( promulgated on April 2, 1998)
• The Central Bank of China (CBC) revised the Calculations of Bank For International Settlements (BIS) Capital in May 1998. On calculation of the risk weighted capital by the respective interest rate risk, a new requirement was added for the qualified debt instruments. The debt instruments shall meet one of the following qualifications:

1. Which obtains at least two investment grade ratings from the rating agencies appointed by the MOF;
2. Which obtains two investment grade ratings that one is from the rating agencies appointed by the MOF and the other is from a rating agency without MOF's appointment; and the rating from the rating agency without MOF's appointment shall not be lower than the one from the rating agency appointed by the MOF.

Lists of MOF-appointed rating agencies:

Ratings agencies ("credit rating enterprises") are regulated by the SFC (April 1997). Taiwan Ratings Corp. is an approved credit rating enterprise.

According to Article 9 of the Rules Governing the Offshore Banking Unit, the Bureau of Monetary Affairs of the MOF provides a requirement of credit rating of securities invested by the approved offshore banking unit of bank. The offshore banking unit shall only hold the government bonds issued by the central government of foreign countries obtaining a long-term "BBB" credit rating assigned Standard & Poor's or "Baa2" credit rating assigned by Moody's Investors Service, or the paper issued by a issuer obtaining a long-term "Baa2" credit rating assigned Standard & Poor's or "Baa2" credit rating assigned by Moody's Investors Service. ( promulgated on April 23, 1999)

The MOF stipulates that the balance of a credit cooperative's holding of bonds and bills, which are not issued by the government and government-owned financial institutions, shall not exceed ten percent (10%) of its total balance of deposits, and the obligators of such bonds or bills (issuer, guarantor or acceptor) or the specific debts shall be assigned a "BB" long-term and a "B" short-term credit rating or above. Such bonds and bills include financial bonds, corporate bonds, negotiable certificate deposit, banker's acceptance, trader's acceptance, and commercial papers. (promulgated on June 5, 1999)

The annual rating fee for each bond fund will be NT$500,000 per annum The maximum annual fee payable by a Securities Investment Trust Enterprise ("SITE") is NT$2,000,000. Business taxes are not included in the above rating fees. The fee schedule is reviewed annually and can be subject to changes.

Forty percent (40%) of the due rating fee shall be paid after signing the Rating Agreement, with the balance paid after the rating has been assigned.

If you have any questions about this fees schedule or require information for any funds not listed above, please contact Taiwan Ratings at 2368-8277.