Land Bank of Taiwan as Trustee for the Industrial Bank of Taiwan Corporate Loan Securitization Special Purpose Trust 2006-1

This report is based on information as of September 29, 2006. This report does not constitute a recommendation to buy, hold, or sell securities.

Rating Details:

Profile

Issuer: Land Bank of Taiwan (Land Bank, twAA+/Stable/twA-1) as Trustee for the Industrial Bank of Taiwan Corporate Loan Securitization Special Purpose Trust 2006-1 (the SPT)

Issue: NT$5.93 billion senior and subordinated beneficial certificates due 2012

Closing date: September 29, 2006

Trustee/Back-up Servicer/Account Bank: Land Bank

Trustor/Originator/Servicer: Industrial Bank of Taiwan (IBT, twA/Stable/twA-2)

Rationale

Taiwan Ratings Corp. assigned its 'twAAA', 'twAA', 'twA', and 'twBBB-' ratings to senior beneficial certificates of NT$4.035billion, NT$260 million, NT$475 million, and NT$340million, respectively, due 2012. The certificates are issued by Land Bank in the capacity of Trustee for the SPT. The ratings address the timely payment of interest and full-ultimate repayment of principal on or before the senior certificates' legal maturity date in August 2012. The trust certificates are backed by a static pool of corporate loans (the loan portfolio) originated by IBT. This is the 5th Collateralized Loan Obligation (CLO) originated and arranged by IBT.

The ratings are based on:

• The credit quality of the portfolio;
• The level of credit support for the different classes of senior certificates provided by subordinated certificates;
• The establishment of a liquidity reserve on closing day;
• Satisfactory cash flow test results proving the sufficiency of cash in-flows to meet timely payment of interest and ultimate repayment of principal by the final legal maturity date for each class of senior certificate under various stress scenarios;
• The experience of the servicer in managing and collecting corporate loans;
  The ratings of the supporting parties;
• Legal and accounting opinions complying with Taiwan Ratings' requirements; and
• The bankruptcy remoteness of the SPT.

Originator

IBT was officially set up as an industrial bank in July 1999. As of the date of the publication of this report, Taiwan Ratings' long-term and short-term counterparty credit ratings on IBT were 'twA' and 'twA-2', respectively. At the same date, the outlook was stable.

Transaction Overview

At closing, IBT entrusted the loan portfolio consisting of 39 New Taiwan Dollar denominated bilateral loans to the SPT. Land Bank as the Trustee accepted the entrustment aforesaid on behalf of the SPT and in turn issued two types of certificates, namely senior beneficial certificates and subordinated beneficial certificates. The senior beneficial certificates are publicly placed to investors and the subordinated beneficial certificates are privately placed.

Terms of the Senior and Subordinated Beneficial Certificates

The senior beneficial certificate holders will receive fixed-rate coupon payments at the rate specified on the indenture. The subordinated beneficial certificates are further divided into 3 classes with the 2 relatively senior ranked classes bearing stipulated coupon rates and the junior most class entitled to residual interest collection, if any. All 3 subordinated beneficial certificate classes, however, are non-rated. The first interest payment (to both senior and subordinate certificates) is based on a 5 month calculation period, and all other interest payments will be made on a semi-annual basis. When there is any shortage with respect to senior fees and beneficial certificate coupon payments, firstly, the principal collection, and secondly, the cash reserve, will be used to temporarily cover this shortage.

Article 41 of the Financial Asset Securitization Law stipulates that income from trust property, after deduction of costs and necessary expenses, belongs to the beneficiaries. The interest distribution, however, will be subject to withholding tax at the rate stipulated by the tax authority. Consequently, interest received by certificate holders will be net of tax withheld.

Principal payments will normally be made on a pass-through and sequential basis on each payment date (including the special payment day induced by prepayment). Principal of subordinated beneficial certificates will only be paid after senior beneficial certificates have been fully redeemed. There will be no withholding tax on the principal payment.

The Loan Portfolio

The asset pool is static, i.e. neither can IBT entrust new loans to the SPT nor can any transaction party substitute any existing loans after closing date. As of the closing date, 39 New Taiwan Dollar denominated bilateral loans have been included in the loan portfolio. All loans are existing, current, non-revolving, fixed-rate, and fixed-term amortizing bank loans. These loans have been fully drawn down before the closing day. Each loan forms a senior obligation of the obligor.

The main features of the loans include:

• Fixed coupon rate, which obligors have no option to change;
• All payments (interest and principal) will be in New Taiwan Dollars and obligors have no option to change the payment currency;
• Amortized following a schedule defined at closing date and obligors have no option to change it (including prepayment);
• Obligors are responsible for interest payment that is grossed up for taxes and stamp duties;
• Any overdue interest and/or principal will fall due by the last payment date;
• All loans are non-revolving, set-off prohibited, and non-transferable; and
• All obligors must remit their repayments (interest, principal and tax gross-up) directly to the trust accounts.

The loan portfolio encompasses a number of industries, including but not limited to computer storage and peripherals, electronics/electrical, air-transport, and chemical/plastics. The obligation included in the top 4 concentrated industries accounts for over 65% of the total pool size. The average loan size is about NT$152 million and the weighted average coupon rate is about 2.55%. The top 4 obligors account for 39% of the total pool balance as of the closing date while the rest of the obligors each accounts for less than 5%. All the above mentioned pool-features have been incorporated into Taiwan Ratings' analysis in deciding required credit support for each rating level.

Credit and Cash Flow Analysis

As most of the obligors are not publicly rated, Taiwan Ratings has performed credit assessments on all of the unrated obligors to determine their credit quality.

The results of such credit assessments along with obligor and industry concentration, loan size, and loan maturities are then incorporated into Standard & Poor's CDO EvaluatorTM to determine the default risk of the loan portfolio. CDO EvaluatorTM applies the Monte-Carlo methodology to integrate all abovementioned factors in determining the maximum level of defaults that a Collateralized Debt Obligation (CDO) class must be able to withstand at a given rating level.

Furthermore, Taiwan Ratings has performed cash flow analysis under various stress scenarios to verify the prompt interest payment and ultimate principal repayment of the senior beneficial certificates.

Structural Analysis

Commingling risk.
The commingling risk is very remote with this transaction. Under normal circumstances after closing day, all obligors are required to remit their payments directly to the trust accounts where the account bank should at all times possess an accommodated rating. When the obligors, for whatever reason, remit the payments instead to the servicer, or when there is any recovery proceeds from working out the defaulted obligations, the servicer should remit these proceeds to the trust account within one business day.

Obligor set-off risk.
The set-off risk with this transaction is mitigated by virtue of a specific waiver of the set-off rights by all obligors. The transaction legal opinion has opined that such waiver is legal, binding, and enforceable against each obligor under current Taiwan laws.

Interest rate risk.
There is no interest risk with this transaction. Both the asset and the liability of the SPT have fixed interest rates. As such, the transaction's cash flow is isolated from interest rate volatility.

Prepayment risk.
Prepayment risk for this transaction is limited. The obligors are not allowed to prepay. Nevertheless, under certain circumstances, such as breaching of covenants by obligors or the occurrence of early amortization events, the investors will be exposed to prepayment risk. The principal prepayments will be passed through to investors once the accumulated prepayment is higher than the stipulated amount. If the accumulated prepayment, however, is lower than the stipulated amount abovementioned, negative carry risk might arise. Taiwan Ratings has incorporated the negative carry risk into the cash flow analysis to make sure the liquidity reserve that has already been set aside at closing day is sufficient to mitigate this risk.

Liquidity risk.
There is virtually no liquidity risk for this deal as the amortization principal collection, if any, will be used to cover the interest cash flows 'down' to the senior certificate interest payment. Also, a cash reserve has been sized to cover the liquidity risk under certain scenarios (eg. liquidity risk during servicer transition period). Both features mentioned above have been incorporated into the cash flow analysis.

Servicing Transition Risk.
IBT is the initial Servicer for the loan portfolio. Upon the occurrence of Servicer Termination Events, Land Bank will step-in immediately. In addition, a 3 month senior certificate interest liquidity reserve has been fully funded at closing to mitigate the potential liquidity risk during the servicer transition period.

Legal Analysis

The transaction is structured in accordance with the Financial Asset Securitization Law of Taiwan, which provides for the establishment of the SPT, the perfected transfer of assets from the originator to the SPT, and protection from other creditors' and third parties' claims. Taiwan Ratings has received satisfactory legal and tax opinions prior to/on the closing day of the transaction. need to receive satisfactory legal and tax opinions prior to the closing of the transaction.


Surveillance

After the closing day, continuous surveillance will be maintained on the transaction until all rated beneficial certificates have been fully redeemed or otherwise retired. Pool credit quality and performance as well as all supporting ratings will be monitored to make sure that all changes are assessed and the then-current ratings can reflect the credit risk undertaken by investors.