Form 6-K

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

 


 

For the month of April 2003

 

Kookmin Bank

(Translation of registrant’s name into English)

 

9-1, 2-Ga, Namdaemun-Ro, Jung-Gu, Seoul, Korea 100-703

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F     X         Form 40-F             

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):                         

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):                        

 

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submission to furnish a report or other document that the registration foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes                  No     X    

 


 

On April 16, 2003, Kookmin Bank released the following information.

 

Exhibit Index


99.1 

  

Kookmin Bank Consolidated Audit Report 2002

 

 

2


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

         
               

Kookmin Bank


               

(Registrant)

 

         
   

Date: April 16, 2003

     

By:

 

/s/    Jong-Kyoo Yoon


               

(Signature)

                 
           

Name:

 

Jong-Kyoo Yoon

           

Title:

 

ExecutiveVice President &

Chief Financial Officer

 

 

 

 

3


LOGO

 

Independent Auditor’s Report

 

To the Board of Directors and Shareholders of

Kookmin Bank

 

We have audited the accompanying consolidated balance sheets of Kookmin Bank (“the Bank”) and its subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for the years then ended, expressed in Korean Won. These consolidated financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Kookmin Credit Card Co., Ltd., Kookmin Futures Co., Ltd., Kookmin Bank Luxembourg S.A., and Kookmin Finance HK Ltd., whose statements represent 7.4% of total assets as of December 31, 2002 and 16.2% of total revenues for the year then ended. Also, we did not audit the financial statements of subsidiaries, Kookmin Credit Card Co., Ltd., Kookmin Leasing Co., Ltd., Kookmin Venture Capital Co., Ltd., Kookmin Futures Co., Ltd., Kookmin Investment Co., Ltd., Kookmin Bank Luxembourg S.A., Kookmin Finance HK Ltd., Kookmin Bank Finance Asia Ltd., and Kookmin Leasing & Finance (Hong Kong) Ltd., whose statements represent 6.9% of total assets as of December 31, 2001 and 18.1% of total revenues for the year then ended. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for these entities, is based solely on the reports of the other auditors.

 

We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.

 

In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kookmin Bank and its subsidiaries as of December 31, 2002 and 2001, and the results of their operations, the changes in their shareholders’ equity and their cash flows for the years then ended in conformity with financial accounting standards for consolidated financial statements generally accepted in the Republic of Korea.

 

Without qualifying our opinion, we draw your attention to the following matters.

 

As discussed in Note 32 to the consolidated financial statements, the Bank completed the legal consolidation with H&CB as of October 31, 2001. Despite the legal form of consolidation, the business combination was accounted for as an acquisition with the Bank as acquirer of H&CB’s total assets of (Won)67,742,958 million and liabilities of (Won)64,381,185 million. The Bank’s registration statement with the Securities and Exchange Commission of the United States of America was declared effective on September 10, 2001, and the new shares of the Bank are listed on New York Stock Exchange as American Depositary Shares (“ADS”) since November 1, 2001.

 

Continued;

 

Samil Accounting Corporation is the Korean member firm of PricewaterhouseCoopers. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

 


 

As discussed in Note 2 to the consolidated financial statements, during the current period, the rates for determining allowances for consumer loans and credit cards loans were changed, in preparation for the increasing risk of loan losses due to the increase of consumer loans and credit cards, as follows.

 

Credit Risk Classification


  

Allowance Rates

before Changes


 

Allowance Rates after Changes


    

Consumer


 

Credit Cards


Normal

  

0.50%

 

0.75%

 

1.00%

Precautionary

  

2.00%

 

8.00%

 

12.00%

Sub-standard

  

20.00%

 

20.00%

 

20.00%

Doubtful

  

50.00%

 

55.00%

 

60.00%

Estimated loss

  

100.00%

 

100.00%

 

100.00%

 

As a result of the changed allowance rates, for the year ended December 31, 2002, the Bank provided additional allowances of (Won)274,673 million for consumer loans and (Won)87,035 million for credit cards loans, resulting in a decrease of (Won)361,708 million in net income before income tax expenses.

 

Kookmin Credit Card, a subsidiary of the Bank, had been providing for loan losses under the Regulation on Supervision of Credit-Specialized Financial Business in prior years. However, from the current period, to better provide for increased risks against losses on credit card receivables, Kookmin Credit Card revised its provision policy based on the historical loan loss rates and expectations on future redemption amounts. Due to this change, for the year ended December 31, 2002, Kookmin Credit Card provided additional allowances of (Won)397,158 million resulting in a decrease of (Won)397,158 million in net income before income taxes.

 

As discussed in Note 1 and 18 to the consolidated financial statements, the Bank sold 65.43% of its 85.43% investment in Alpha Capital Corp. (Jooeun Leasing Co., Ltd. until prior period) and (Won)172,024 million of its loans to Sun Capital Inc. for (Won)145,000 million on August 30, 2002. The Bank also sold an additional 5.03% of its investment in Alpha Capital Corp. to Sun Capital Inc. for (Won)900 million on October 28, 2002.

 

As discussed in Note 18 to the consolidated financial statements, the Bank sold its 87.00% ownership of Kookmin Investment Trust Management Co., Ltd. and 88.66% ownership of Kookmin Leasing Co., Ltd. to Morgan Stanley Private Equity, the M&A private funds led by Morgan Stanley Global Emerging Markets Inc. and affiliated funds, and Sun Capital Inc. on May 29, 2002 and December 27, 2002, respectively.

 

As a result of the changes in the scope of the subsidiaries of the Bank, assets of (Won)788,924 million and liabilities of (Won)615,097 million which were included in the consolidated financial statements as of December 31, 2001, were excluded from the consolidated financial statements as of December 31, 2002.

 

Continued;

 

2


 

As discussed in Note 1 to the consolidated financial statements, Kookmin Venture Capital Co., Ltd. merged with Frontier Investment Co., Ltd. and Kookmin Investment Co., Ltd. on December 31, 2001 and June 27, 2002, respectively, to avoid duplicate investments. Kookmin Venture Capital Co., Ltd., Frontier Investment Co., Ltd., and Kookmin Investment Co., Ltd. had been subsidiaries of the Bank as of December 31, 2001.

 

Accounting principles and auditing standards and their application in practice vary among countries. The accompanying consolidated financial statements are not intended to present the financial position, results of operations, and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than the Republic of Korea. In addition, the procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying consolidated financial statements are for use by those who are knowledgeable about Korean accounting principles or auditing standards and their application in practice.

 

 

 

Samil Accounting Corporation

 

Seoul, Korea

February 14, 2003

 

 

This report is effective as of February 14, 2003, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

 

3


KOOKMIN BANK

CONSOLIDATED BALANCE SHEETS

December 31, 2002 and 2001

 


 

    

In Millions of Korean Won


    

2002


  

2001


ASSETS:

             

Cash and due from banks (Note 3)

  

(Won)

4,790,636

  

(Won)

7,842,446

Trading securities (Note 4)

  

 

9,273,445

  

 

11,634,338

Investment securities (Note 5)

  

 

27,588,861

  

 

26,653,008

Loans (Notes 6 and 7)

  

 

135,143,612

  

 

116,340,721

Fixed assets (Note 8)

  

 

3,360,158

  

 

3,291,295

Other assets (Note 9)

  

 

6,969,562

  

 

6,836,998

    

  

Total Assets

  

(Won)

187,126,274

  

(Won)

172,598,806

    

  

LIABILITIES AND SHAREHOLDERS’ EQUITY:

             

Deposits (Note 10)

  

(Won)

126,890,960

  

(Won)

120,448,949

Borrowings (Note 11)

  

 

15,473,094

  

 

17,072,682

Debentures (Note 12)

  

 

23,450,346

  

 

13,861,215

Other liabilities (Note 15)

  

 

10,956,773

  

 

11,939,004

    

  

Total Liabilities

  

 

176,771,173

  

 

163,321,850

    

  

Commitments and Contingencies (Note 18)

             

Common stock, par value : (Won)5,000 authorized : 1,000 million shares, issued and outstanding : 328,258,685 shares (Notes 1 and 19)

  

 

1,641,293

  

 

1,498,487

Capital surplus (Note 20)

  

 

5,968,401

  

 

5,745,002

Retained earnings (Note 21)

  

 

2,462,235

  

 

1,519,064

Capital adjustments (Note 22)

  

 

30,817

  

 

205,274

Minority interest in consolidated subsidiaries (Note 23)

  

 

252,355

  

 

309,129

    

  

Total Shareholders’ Equity

  

 

10,355,101

  

 

9,276,956

    

  

Total Liabilities and Shareholders’ Equity

  

(Won)

187,126,274

  

(Won)

172,598,806

    

  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

4


KOOKMIN BANK

CONSOLIDATED INCOME STATEMENTS

For the years ended December 31, 2002 and 2001

 


 

    

In Millions of Korean Won except for share amounts


 
    

2002


    

2001


 

Interest income:

                 

Interest on due from banks

  

(Won)

56,412

 

  

(Won)

91,986

 

Interest on trading securities

  

 

369,631

 

  

 

379,593

 

Interest on investment securities

  

 

2,059,765

 

  

 

1,864,045

 

Interest on loans

  

 

10,472,306

 

  

 

5,824,121

 

Other interest income

  

 

130,323

 

  

 

144,362

 

    


  


    

 

13,088,437

 

  

 

8,304,107

 

    


  


Interest expenses:

                 

Interest on deposits

  

 

4,982,936

 

  

 

3,783,808

 

Interest on borrowings

  

 

735,982

 

  

 

703,912

 

Interest on debentures

  

 

1,236,299

 

  

 

947,119

 

Other interest expenses

  

 

52,738

 

  

 

66,778

 

    


  


    

 

7,007,955

 

  

 

5,501,617

 

    


  


Net interest income

  

 

6,080,482

 

  

 

2,802,490

 

Provision for loan losses (Note 7)

  

 

3,196,161

 

  

 

1,414,178

 

    


  


Net interest income after provision for loan losses

  

 

2,884,321

 

  

 

1,388,312

 

    


  


Non-interest income:

                 

Fees & commission income

  

 

2,571,278

 

  

 

2,157,852

 

Dividends on trading securities

  

 

1,234

 

  

 

495

 

Dividends on investment securities (Note 25)

  

 

13,575

 

  

 

7,138

 

Gain on foreign currency transactions

  

 

212,832

 

  

 

398,630

 

Gain on derivatives (Note 17)

  

 

2,378,593

 

  

 

2,314,740

 

Other (Note 24)

  

 

597,648

 

  

 

445,891

 

    


  


    

 

5,775,160

 

  

 

5,324,746

 

    


  


Non-interest expenses:

                 

Fees & commission expenses

  

 

862,507

 

  

 

436,417

 

General and administrative expenses

  

 

2,977,475

 

  

 

1,764,850

 

Loss on foreign currency transactions

  

 

246,090

 

  

 

270,697

 

Loss on derivatives (Note 17)

  

 

2,193,185

 

  

 

2,336,897

 

Other (Note 24)

  

 

424,015

 

  

 

368,053

 

    


  


    

 

6,703,272

 

  

 

5,176,914

 

    


  


Operating income

  

 

1,956,209

 

  

 

1,536,144

 

Non-operating loss, net (Note 26)

  

 

(137,777

)

  

 

(179,839

)

Extraordinary gain

  

 

—  

 

  

 

161,527

 

    


  


Income before income tax expenses

  

 

1,818,432

 

  

 

1,517,832

 

    


  


Income tax expenses (Note 27)

  

 

612,384

 

  

 

560,400

 

    


  


Net income before consolidation adjustment

  

 

1,206,048

 

  

 

957,432

 

Minority interest in earnings of consolidated subsidiaries

  

 

65,260

 

  

 

(120,557

)

    


  


Net income

  

(Won)

1,271,308

 

  

(Won)

836,875

 

    


  


Basic earnings per share (Note 28)(In Korean Won)

  

(Won)

4,001

 

  

(Won)

4,188

 

    


  


Diluted earnings per share (Note 28)(In Korean Won)

  

(Won)

4,001

 

  

(Won)

4,003

 

    


  


 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

5


KOOKMIN BANK

CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY

For the years ended December 31, 2002 and 2001

 


 

    

(In millions of Korean Won)


 
    

Capital


    

Capital surplus


    

Retained earning


    

Capital adjustments


    

Minority interest


    

Total


 

Balance, January 1, 2001

  

(Won)

1,698,067

 

  

(Won)

1,647,292

 

  

(Won)

708,156

 

  

(Won)

(17,100

)

  

(Won)

215,251

 

  

(Won)

4,251,666

 

Business combination

  

 

(219,445

)

  

 

4,067,855

 

  

 

—  

 

  

 

—  

 

  

 

  —  

 

  

 

3,848,410

 

Conversion of overseas convertible bonds to stocks

  

 

19,865

 

  

 

15,069

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

34,934

 

Acquisition of equity securities of subsidiaries

  

 

—  

 

  

 

14,336

 

  

 

  —  

 

  

 

—  

 

  

 

  —  

 

  

 

14,336

 

Net income

  

 

—  

 

  

 

—  

 

  

 

836,875

 

  

 

—  

 

  

 

  —  

 

  

 

836,875

 

Appropriations for dividends

  

 

—  

 

  

 

—  

 

  

 

(119,867

)

  

 

89,900

 

  

 

  —  

 

  

 

(29,967

)

Loss in excess of minority interest

  

 

—  

 

  

 

—  

 

  

 

32,427

 

  

 

—  

 

  

 

  —  

 

  

 

32,427

 

Changes in treasury stock

  

 

   —  

 

  

 

450

 

  

 

  —  

 

  

 

39,673

 

  

 

  —  

 

  

 

40,123

 

Unrealized gain on investment securities

  

 

   —  

 

  

 

—  

 

  

 

  —  

 

  

 

67,294

 

  

 

  —  

 

  

 

67,294

 

Stock options

  

 

   —  

 

  

 

—  

 

  

 

  —  

 

  

 

25,507

 

  

 

  —  

 

  

 

25,507

 

Changes in minority interest

  

 

   —  

 

  

 

—  

 

  

 

  —  

 

  

 

—  

 

  

 

93,878

 

  

 

93,878

 

Others

  

 

—  

 

  

 

—  

 

  

 

61,473

 

  

 

—  

 

  

 

  —  

 

  

 

61,473

 

    


  


  


  


  


  


Balance, December 31, 2001

  

(Won)

1,498,487

 

  

(Won)

5,745,002

 

  

(Won)

1,519,064

 

  

(Won)

205,274

 

  

(Won)

309,129

 

  

(Won)

9,276,956

 

    


  


  


  


  


  


Balance, January 1, 2002

  

(Won)

1,498,487

 

  

(Won)

5,745,002

 

  

(Won)

1,519,064

 

  

(Won)

205,274

 

  

(Won)

309,129

 

  

(Won)

9,276,956

 

Conversion of overseas convertible bonds to stocks

  

 

52,906

 

  

 

181,194

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

234,100

 

Changes in minority interest in Kookmin Card

  

 

—  

 

  

 

42,610

 

  

 

(4,294

)

  

 

—  

 

  

 

14,965

 

  

 

53,281

 

Net income

  

 

—  

 

  

 

—  

 

  

 

1,271,308

 

  

 

—  

 

  

 

—  

 

  

 

1,271,308

 

Appropriations for dividends

  

 

—  

 

  

 

—  

 

  

 

(325,234

)

  

 

—  

 

  

 

(6,883

)

  

 

(332,117

)

Issuance of stock dividends

  

 

89,900

 

  

 

—  

 

  

 

—  

 

  

 

(89,900

)

  

 

—  

 

  

 

—  

 

Loss in excess of minority interest

  

 

—  

 

  

 

—  

 

  

 

3,360

 

  

 

—  

 

  

 

—  

 

  

 

3,360

 

Changes in treasury stock

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

(147,610

)

  

 

—  

 

  

 

(147,610

)

Unrealized gain on investment securities

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

87,330

 

  

 

34

 

  

 

87,364

 

Stock options

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

(25,624

)

  

 

395

 

  

 

(25,229

)

Changes in minority interest

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

(65,260

)

  

 

(65,260

)

Others

  

 

—  

 

  

 

(405

)

  

 

(1,969

)

  

 

1,347

 

  

 

(25

)

  

 

(1,052

)

    


  


  


  


  


  


Balance, December 31, 2002

  

(Won)

1,641,293

 

  

(Won)

5,968,401

 

  

(Won)

2,462,235

 

  

(Won)

30,817

 

  

(Won)

252,355

 

  

(Won)

10,355,101

 

    


  


  


  


  


  


 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

6


KOOKMIN BANK

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2002 and 2001

 


 

    

In Millions of Korean Won


 
    

2002


    

2001


 

CASH FLOWS FROM OPERATING ACTIVITIES:

                 

Net income

  

(Won)

1,271,308

 

  

(Won)

836,875

 

Adjustments to reconcile net income to net cash provided by operating activities:

                 

Realized gain on trading securities, net

  

 

(94,540

)

  

 

(49,350

)

Unrealized gain on trading securities, net

  

 

(118,486

)

  

 

14,430

 

Provision for loan losses

  

 

3,196,161

 

  

 

1,414,178

 

Gain on foreign currency transactions, net

  

 

33,258

 

  

 

(127,933

)

Loss on derivative instruments, net

  

 

(185,408

)

  

 

22,157

 

Retirement benefits

  

 

114,023

 

  

 

124,853

 

Depreciation and amortization

  

 

445,471

 

  

 

197,459

 

Gain on disposal of fixed assets, net

  

 

6,401

 

  

 

17,575

 

Realized gain on investment securities, net

  

 

(188,226

)

  

 

(89,230

)

Impairment loss on investment securities, net

  

 

348,697

 

  

 

117,665

 

Loss on sale of troubled loans, net

  

 

97,644

 

  

 

162,305

 

Minority interest in earnings of consolidated subsidiaries

  

 

(65,260

)

  

 

120,557

 

Others, net

  

 

29,070

 

  

 

(374,235

)

Changes in assets and liabilities resulting from operations:

                 

Accrued income

  

 

13,225

 

  

 

310,056

 

Prepaid expenses

  

 

(94,532

)

  

 

(3,552

)

Deferred tax assets

  

 

(40,229

)

  

 

85,910

 

Other assets

  

 

(15,409

)

  

 

(99,809

)

Accrued expenses

  

 

(202,531

)

  

 

(202,020

)

Unearned income

  

 

(7,436

)

  

 

(8,425

)

Deferred tax liabilities

  

 

(29

)

  

 

824

 

Withholding taxes

  

 

(55,480

)

  

 

(50,306

)

Other liabilities

  

 

69,148

 

  

 

36,397

 

Payment of retirement benefits

  

 

(24,034

)

  

 

(655,644

)

Increase in pension funds

  

 

(63,894

)

  

 

(27,821

)

Decrease in the National pension fund

  

 

69

 

  

 

26,519

 

    


  


Net cash provided by operating activities

  

(Won)

4,468,981

 

  

(Won)

1,799,435

 

    


  


 

The accompanying notes are an integral part of these consolidated financial statements.

 

Continued;

 

7


KOOKMIN BANK

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2002 and 2001

 


 

 

    

In Millions of Korean Won


 
    

2002


    

2001


 

CASH FLOWS FROM INVESTING ACTIVITIES:

                 

Decrease (increase) in due from banks

  

(Won)

2,797,251

 

  

(Won)

(2,112,025

)

Decrease (increase) in trading securities

  

 

2,507,440

 

  

 

(3,581,594

)

Increase in investment securities

  

 

(959,556

)

  

 

(1,376,433

)

Increase in loans, net

  

 

(21,183,846

)

  

 

(8,836,726

)

Proceeds from disposal of fixed assets

  

 

17,749

 

  

 

26,531

 

Acquisition of fixed assets

  

 

(706,195

)

  

 

(479,701

)

Others, net

  

 

(54,197

)

  

 

(1,315,097

)

    


  


Net cash used in investing activities

  

 

(17,581,354

)

  

 

(17,675,045

)

    


  


CASH FLOWS FROM FINANCING ACTIVITIES:

                 

Increase in deposits, net

  

 

6,442,197

 

  

 

11,503,007

 

Increase (decrease) in borrowings

  

 

(1,972,051

)

  

 

4,000,529

 

Increase (decrease) in debentures

  

 

9,839,721

 

  

 

(2,880,627

)

Others, net

  

 

(1,441,623

)

  

 

2,572,955

 

    


  


Net cash provided by financing activities

  

 

12,868,244

 

  

 

15,195,864

 

    


  


Decrease in cash resulting form changes in the scope of consolidated subsidiaries

  

 

(18,143

)

  

 

—  

 

Net decrease in cash and cash equivalents

  

 

(262,272

)

  

 

(679,746

)

Cash and cash equivalents, beginning of year (Note 33)

  

 

3,469,520

 

  

 

4,149,266

 

    


  


Cash and cash equivalents, end of year (Note 33)

  

(Won)

3,207,248

 

  

(Won)

3,469,520

 

    


  


 

The accompanying notes are an integral part of these consolidated financial statements.

 

8


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002 and 2001


 

 

1.    The Consolidated Company;

 

The accompanying consolidated financial statements have been prepared in accordance with financial accounting standards and the relevant laws and regulations of the Republic of Korea. The accompanying consolidated financial statements include the banking accounts and trust accounts, subject to guaranteed fixed rates of return or principal repayment, of Kookmin Bank and its consolidated subsidiaries (“the Consolidated Company”). General information on Kookmin bank and its controlled subsidiaries is described below.

 

The Bank -

 

Kookmin Bank (“the Bank”) was established in 1963 under the Citizens National Bank Act to provide and administer funds for financing the general public and small businesses. Pursuant to the repeal of the Citizens National Bank Act effective January 5, 1995, the Bank has conducted its operations in accordance with the provisions of the General Banking Act.

 

The Bank merged with Korea Long Term Credit Bank (“KLB”) on December 31, 1998 and with Daegu, Busan, Jeonnam Kookmin Mutual Savings & Finance Co., Ltd. on August 22, 1999. Also, under the decision of the Financial Supervisory Commission in accordance with the Act concerning the Structural Improvement of the Financial Industry, the Bank purchased certain assets, including the loans classified as normal or precautionary, and assumed most of the liabilities of Daedong Bank as of June 29, 1998. The Bank completed the legal consolidation with H&CB as of October 31, 2001 (See Note 32).

 

The Bank had its shares listed on the Korea Stock Exchange since September 1994. As a result of the business combination with H&CB, the former shareholders of the Bank and H&CB received new common shares of the Bank on the basis of a pre-determined ratio. The new common shares of the Bank were relisted on the Korea Stock Exchange on November 9, 2001. The Bank’s paid-in capital amounts to (Won)1,641,293 million as of December 31, 2002. Also, as of December 31, 2002, 37,728,214 shares of the Bank are listed on the New York Stock Exchange as American Depositary Shares (“ADS”) (See Note 19).

 

The Bank is engaged in the banking and trust business according to the provisions of the General Banking Act and the Trust Business Act and operates through 1,336 domestic branches and offices (including ATMs) and 3 overseas branches as of December 31, 2002.

 

Trust Accounts of the Bank -

 

According to the accounting and reporting guidelines by the banking regulatory authorities, the accompanying consolidated financial statements include trusts subject to guaranteed fixed rates of return or principal repayment. Total assets of consolidated and non-consolidated trusts of the Consolidated Company at December 31, 2002 and 2001 are as follows (in millions of Won):

 

    

2002


  

2001


Consolidated trusts

  

(Won)

3,960,057

  

(Won)

5,865,422

Non-consolidated trusts

  

 

38,248,912

  

 

26,434,210

    

  

    

(Won)

42,208,969

  

(Won)

32,299,632

    

  

 

Continued;

 

 

9


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

1.    The Consolidated Company, Continued;

 

Subsidiaries either consolidated or accounted for by the equity method -

 

The subsidiaries of the Bank, either consolidated or accounted for by the equity method as of December 31, 2002 and 2001, are summarized as follows:

 

Companies


  

Balance sheet date


  

2002


  

2001


     

Number of shares


  

Ownership

(%)


  

Number of shares


  

Ownership

(%)


Consolidated subsidiaries

                        

Kookmin Credit Card Co., Ltd.

  

December 31

  

54,365,028

  

74.27

  

54,365,028

  

74.27

Kookmin Data System Corp.

  

December 31

  

799,800

  

99.98

  

799,800

  

99.98

Kookmin Futures Co., Ltd.

  

March 31

  

3,999,200

  

99.98

  

3,999,200

  

99.98

Kookmin Investment Co., Ltd.1*

  

December 31

  

8,941,587

  

99.89

  

6,399,930

  

99.99

K.B. Luxembourg S.A.

  

December 31

  

70,000

  

100.00

  

70,000

  

100.00

Kookmin Finance Hong Kong Ltd.

  

December 31

  

2,000,000

  

100.00

  

2,000,000

  

100.00

K.B. Int’l Ltd.(London)

  

December 31

  

20,000,000

  

100.00

  

20,000,000

  

100.00

KB Investment Trust Mgt. Co., Ltd.2*

  

March 31

  

6,134,040

  

80.00

  

6,134,040

  

80.00

KB Real Estate Trust Co., Ltd. 3*

  

December 31

  

15,999,930

  

99.99

  

15,999,930

  

99.99

KB Credit Information Co., Ltd. 4*

  

December 31

  

867,716

  

69.28

  

504,000

  

50.00

Kookmin Leasing Co., Ltd. 5*

  

March 31

  

—  

  

—  

  

36,541,400

  

88.66

Kookmin Venture Capital Co., Ltd. 1*

  

December 31

  

—  

  

—  

  

8,855,024

  

94.11

Frontier Investment Corp.1*

  

December 31

  

—  

  

—  

  

4,599,965

  

99.99

Kookmin Finance Asia Ltd. (HK) 6*

  

December 31

  

—  

  

—  

  

2,000,000

  

100.00

Kookmin Leasing & Finance 7*

  

December 31

  

—  

  

—  

  

20,000,000

  

100.00

Alpha Capital Corp.8*

  

March 31

  

—  

  

—  

  

16,960,000

  

85.43

Jooeun Industrial Co., Ltd. 9*

  

December 31

  

—  

  

—  

  

1,999,910

  

99.99

Kookmin Bank Investment Trust Mgt. Co., Ltd. 10*

  

December 31

  

—  

  

—  

  

1,999,910

  

99.99

Equity method investees

                        

ING Life Co., Ltd.

  

March 31

  

280,000

  

20.00

  

1,400,000

  

20.00

Korea Asset Investment Co., Ltd.12*

  

December 31

  

1,005,000

  

49.79

  

1,005,000

  

49.79

Korea Mortgage Corp. 11 *

  

December 31

  

6,000,000

  

26.67

  

6,000,000

  

28.22

Jeio Co., Ltd. 12*

  

December 31

  

419,049

  

21.14

  

—  

  

—  

Jooeun Industrial Co., Ltd. 9*

  

December 31

  

1,999,910

  

99.99

  

—  

  

—  

Kookmin Finance Asia Ltd. (HK) 6*

  

December 31

  

2,000,000

  

100.00

  

—  

  

—  


1*   Kookmin Investment Co., Ltd. merged with Frontier Investment Corp. as of December 31, 2001 and with Kookmin Venture Capital Co., Ltd. as of June 27, 2002.
2*   Jooeun Investment Trust Mgt Co., Ltd. was renamed KB Investment Trust Mgt. Co., Ltd. as of June 10, 2002.
3*   Jooeun Real Estate Trust Co., Ltd. was renamed KB Real Estate Trust Co., Ltd. as of September 16, 2002.
4*   Jooeun Credit Information Co., Ltd. merged with KB Credit Information Co., Ltd. as of May 2, 2002 and was renamed KB Credit Information Co., Ltd.
5*   The Bank sold Kookmin Leasing Co., Ltd. to Sun Capital Co., Ltd. and excluded it from the scope of consolidation.
6*   Kookmin Finance Asia Ltd. (HK) is in the process of liquidation and was excluded from the scope of consolidation as of December 31, 2002
7*   Kookmin Leasing & Finance, a subsidiary of Kookmin Leasing Co., Ltd. was excluded from the scope of consolidation due to the disposal of Kookmin Leasing Co., Ltd.
8*   The Bank sold the stocks of Alpha Capital Corp. in this fiscal year and excluded it from the scope of consolidation and applying the equity method due to a reduction to 14.97% in equity ownership.
9*   The dissolution of Jooeun Industrial Co., Ltd. was approved during the shareholders’ meeting of the company on March 19, 2002.
10*   The Bank sold the stocks of Kookmin Bank Investment Trust Mgt. Co., Ltd. to Morgan Stanley Global Emerging Markets Inc. in this fiscal year and excluded it from the scope of consolidation and applying the equity method.
11*   Korea Mortgage Corp. increased its capital as of December 21, 2002 but since the consolidated company did not participate, its equity rate decreased.
12*   Korea Asset Investment Co., Ltd. was invested by the Bank and Kookmin Investment Co., Ltd., a subsidiary of the Bank, and Jeio Co., Ltd. was invested by Kookmin Investment Co., Ltd., a subsidiary of the Bank.

 

Continued;

 

10


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

1.    The Consolidated Company, Continued;

 

Operations of the subsidiaries either consolidated or accounted for by the equity method -

 

Consolidated Subsidiaries -

 

    

Location


  

Outstanding Capital

(in Millions)


  

Major Business


Kookmin Credit Card Co., Ltd.

  

Korea

  

KRW

  

366,000

  

Credit card operations, consumer installment financing, factoring, payment guarantees

Kookmin Data System Corp.

  

Korea

       

8,000

  

Software services for the Bank and other companies

Kookmin Futures Co., Ltd.

  

Korea

       

20,000

  

Dealing and brokerage services for futures transactions

Kookmin Investment Co., Ltd.

  

Korea

       

44,759

  

Investing and financing small and medium-sized enterprises

Kookmin Bank Luxembourg S.A.

  

Luxembourg

  

EUR

  

17.5

  

Commercial banking business and foreign exchange operation

Kookmin Bank Int’l Ltd. (London)

  

U.K.

  

GBP

  

20

  

Commercial banking business and foreign exchange operation

Kookmin Finance HK Ltd.

  

Hong Kong

  

USD

  

20

  

Commercial banking business and foreign exchange operation

KB Investment Trust Mgt. Co., Ltd

  

Korea

  

KRW

  

38,338

  

Providing security investment trust services and investment consulting services

KB Real Estate Trust Co., Ltd.

  

Korea

       

80,000

  

Development, management and brokerage services with regard to real estate and trust business of real estate

KB Credit Information Co., Ltd.

  

Korea

       

6,262

  

Delinquent loan collecting service and credit checking service

 

Equity Method Investees -

 

    

Location


  

Outstanding Capital

(in Millions)


  

Major Business


ING Life Co., Ltd. 1*

  

Korea

  

KRW

  

70,000

  

Insurance

Korea Asset Investment Co., Ltd.

  

Korea

       

10,093

  

Franchising, financing, consulting and information services with regard to real estate

Korea Mortgage Corp.

  

Korea

       

106,300

  

Purchase, issuance and sales of mortgage backed securities

Jeio co., Ltd.

  

Korea

       

2,095

  

Inspecting materials, manufacturing measuring instruments

Jooeun Industrial Co., Ltd.

  

Korea

       

10,000

  

House construction, rent and management service with regard to real estate

Kookmin Finance Asia Ltd. (HK)

  

Hong Kong

  

USD

  

20

  

Commercial banking business and foreign exchange operation


1*   The Consolidated Company applied the equity method based on the amended financial statements of ING Life Korea Co., Ltd. for additional (Won)16,117 million of income taxes.

 

Continued;

 

11


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

1.    The Consolidated Company, Continued;

 

Significant Financial Data -

 

A summary of significant financial data of the Bank and its subsidiaries, included in the accompanying consolidated financial statements is as follows (in millions of Won):

 

    

Total Assets


    

Shareholders’

Equity


    

Operating Revenue


    

Net Income (Loss)


 

Banking accounts

  

(Won)

171,498,841

 

  

(Won)

10,049,397

 

  

(Won)

15,587,361

 

  

(Won)

1,310,291

 

Trust accounts

  

 

3,960,057

 

  

 

45,755

 

  

 

314,121

 

  

 

—  

 

Kookmin Credit Card Co., Ltd.

  

 

13,381,369

 

  

 

918,227

 

  

 

3,134,576

 

  

 

(260,888

)

Kookmin Data System Corp.

  

 

18,290

 

  

 

14,419

 

  

 

43,935

 

  

 

2,008

 

Kookmin Futures Co., Ltd.

  

 

39,315

 

  

 

25,097

 

  

 

13,323

 

  

 

2,581

 

Kookmin Investment Co., Ltd.

  

 

99,980

 

  

 

73,773

 

  

 

10,335

 

  

 

(33,883

)

K.B. Luxembourg S.A 1*

  

 

459,080

 

  

 

5,128

 

  

 

17,829

 

  

 

7,501

 

Kookmin Finance Hong Kong Ltd.

  

 

293,210

 

  

 

61,437

 

  

 

21,063

 

  

 

12,191

 

K.B. Int’l Ltd. (London)

  

 

344,265

 

  

 

47,739

 

  

 

10,648

 

  

 

742

 

KB Investment Trust Mgt. Co., Ltd

  

 

63,073

 

  

 

57,335

 

  

 

33,953

 

  

 

16,479

 

KB Real Estate Trust Co., Ltd.

  

 

300,671

 

  

 

87,728

 

  

 

64,079

 

  

 

8,915

 

KB Credit Information Co., Ltd.

  

 

20,440

 

  

 

13,744

 

  

 

34,682

 

  

 

3,492

 

Elimination and equity pick-up

  

 

(3,352,317

)

  

 

(1,044,678

)

  

 

(422,308

)

  

 

201,879

 

    


  


  


  


    

(Won)

187,126,274

 

  

(Won)

10,355,101

 

  

(Won)

18,863,597

 

  

(Won)

1,271,308

 

    


  


  


  



1*   Due to differences in accounting between the Bank and KB Luxembourg S. A., adjustments which resulted to a (Won)21,626 million decrease in investment securities and (Won)577 million increase in allowances for loan losses have been made. Those adjustments pertain mostly to periods before December 31, 2001.

 

2.    Summary of Significant Accounting Policies:

 

The significant accounting policies followed by the Consolidated Company in the preparation of the accompanying consolidated financial statements are summarized below.

 

Basis of Consolidated Financial Statement Presentation -

 

The official accounting records of the Bank and its subsidiaries, except for foreign subsidiaries, are maintained in Korean Won in accordance with financial accounting standards and the relevant laws and regulations of the Republic of Korea. Such basis of accounting and presentation is not in conformity with International Accounting Standards, which, if applied, would give rise to material adjustments to the financial statements.

 

The Bank maintains its official accounting records in Korean Won and prepares statutory financial statements in the Korean language in conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Bank that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and translated into English from the Korean language financial statements. Some information attached to the Korean language financial statements, but not required for a fair presentation of the Bank’s financial position, results of operations or cash flows, is not presented in the accompanying financial statements.

 

The preparation of the consolidated financial statements in conformity with financial accounting standards requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates.

 

Continued;

 

12


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

2.    Summary of Significant Accounting Policies, Continued;

 

Accounting Policies of Consolidated Companies -

 

The financial statements of the Consolidated Company are prepared in conformity with generally accepted financial accounting standards and the relevant laws and regulations of the Republic of Korea. The relevant laws and regulations that differ from generally accepted financial accounting standards are as follows:

 

   

Relevant Laws and Regulations


The Bank and Trust Accounts

 

Accounting Standards of Banking Industry, General Banking Act, and Trust Business Act

Kookmin Credit Card Co., Ltd.

 

Loan Specialization Financial Business Act, and Credit Card Business Act

Kookmin Investment Co., Ltd.

 

Act on support for foundation of small and medium-sized companies, and Loan Specialization Financial Business Act

KB Investment Trust Mgt. Co., Ltd

 

Securities Investment Trust Business Act, and Accounting Standards for Securities Investment Trust Business

Kookmin Futures Co., Ltd.

 

Supervisory Guidelines on Futures Trading

KB Real Estate Trust Co., Ltd.

 

Trust Business Act

KB Credit Information Co., Ltd.

 

Act on the use and protection of credit information

 

Principles of Consolidation -

 

The Bank records differences between the cost basis of investment accounts and the corresponding capital accounts of subsidiaries at the time of acquisition as goodwill.

 

When net losses attributable to minority interests exceed the minority interest in the equity of the subsidiary, the excess is charged to the equity of the Bank. When the subsidiaries report income, the minority interest portion of such income is allocated to the equity of the Bank until the minority interest’s share of net losses previously charged to the Bank has been fully recovered.

 

If the fiscal year-end of subsidiaries is different from that of the Bank, financial statements of such subsidiaries were prepared as of and for the year then ended December 31 for consolidation purposes.

 

All significant intercompany transactions and account balances among the consolidated company are eliminated in consolidation.

 

Recognition of Interest Income -

 

The Consolidated Company recognizes interest income on loans and debt securities on an accrual basis. However, interest income on delinquent and dishonored loans and debt securities, other than those subject to security deposits and guaranteed by financial institutions, is recognized on a cash basis.

 

Translation of Foreign Currency -

 

Assets and liabilities denominated in foreign currencies are translated into Korean Won at exchange rates announced by Seoul Money Brokerage Services, Ltd. at the balance sheet date. The resulting exchange gains or losses are reflected in other operating income or expenses.

 

The exchange rate used to translate foreign currency denominated assets and liabilities are (Won)1,200.4 : US$1 , (Won)1,925.02 : GBP1, (Won)1,257.36 : EUR1 and (Won)1,012.87 : JPY100 at December 31, 2002 and (Won)1,326.1 : US$1 , (Won)1,923.11 : GBP1, (Won)1,172.60 : EUR1 and (Won)1,009.4 : JPY100 at December 31, 2001, respectively.

 

Continued;

 

13


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

2.    Summary of Significant Accounting Policies, Continued;

 

Loans -

 

Until November 30, 2002, the Consolidated Company regarded granting lines of credit under import usance letters of credit, as guarantees and acceptances outstanding (acceptances on letters of credit), and provided allowances only for the transactions classified as “sub-standard” or below according to the credit risk classifications. However, under the revised Enforcement Regulations on Supervision of Banking Business, effective on December 1, 2002, those transactions are regarded as loans in foreign currencies (domestic usance bills) and borrowings in foreign currencies and the Bank provided allowances for loan losses under the same criteria for regular loans. As a result, as of December 31, 2002, loans in foreign currencies and borrowings in foreign currencies have been both increased by (Won)981,379 million, and allowances for guarantees and acceptances outstanding have been decreased by (Won)11,568 million and allowances for loan losses have been increased by (Won)18,866 million.

 

Allowances for Loan Losses -

 

The Bank applies its internal credit rating system, the Forward Looking Criteria (“FLC”), to corporate loans in order to classify the borrowers and to determine allowances for loan losses. Effective as of January 1, 2002, the classification of corporate borrowers changed from 10 credit risk categories (AAA, AA, A, BBB, BB, B, CCC, CC, C, D) to 12 credit risk categories (AAA, AA, A, BBB, BB, BB-, B, B-, CCC, CC, C, D). Credit risk classification under the FLC is based on a scaled valuation of financial and non-financial risks with additional consideration of the loan type, collateral and/or guarantees.

 

Allowances are determined by applying at minimum the following rates to the outstanding balances of each credit risk classification.

 

    

Credit Ratings

before Changes


  

Credit Ratings

after Changes


    

Allowance Rates


 

Normal

  

AAA ~ B

  

AAA ~ B

    

0.5

%

Precautionary

  

CCC

  

B-, CCC

    

2

%

Sub-standard

  

CC

  

CC

    

20

%

Doubtful

  

C

  

C

    

50

%

Estimated loss

  

D

  

D

    

100

%

 

However, the Bank does not apply the FLC to small-sized corporate loans, consumer loans, and credit cards. Alternatively, the bank classifies such loans by considering the current financial status including delinquent number of days, bankruptcies and collateral value. During the current period, the rates used for determining the allowances for small-sized corporate loans, consumer loans, and credit cards were changed as follows:

 

      

Allowance Rates

before Changes


    

Allowance Rates after Changes


 
         

Small-sized Corporate


    

Consumer


    

Credit Cards


 

Normal

    

0.50

%

  

0.50

%

  

0.75

%

  

1.00

%

Precautionary

    

2.00

%

  

2.00

%

  

8.00

%

  

12.00

%

Sub-standard

    

20.00

%

  

20.00

%

  

20.00

%

  

20.00

%

Doubtful

    

50.00

%

  

50.00

%

  

55.00

%

  

60.00

%

Estimated loss

    

100.00

%

  

100.00

%

  

100.00

%

  

100.00

%

 

As a result of the changed allowance rates for the year ended December 31, 2002, the Bank provided additional allowances of (Won)274,673 million for consumer loans and (Won)87,035 million for credit cards loans resulting in a decrease of (Won)361,708 million in net income before income tax expenses.

 

Subsidiaries of the Bank recognize provision for loan losses based on a credit risk classification of loans and receivables in accordance with accounting standards for related subsidiaries’ industry and relevant laws and regulations. The material difference between the provision for loan losses of a subsidiary and that applied by FLC of the Bank is accounted for as additional provision (See Note 1).

 

Continued;

 

14


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

2.    Summary of Significant Accounting Policies, Continued;

 

Allowances for Loan Losses, Continued-

 

Kookmin Credit Card, a subsidiary of the Bank, had been providing for loan losses under the Regulation on Supervision of Credit-Specialized Financial Business in prior years. However, from the current period, to better provide for increased risks against losses on credit card receivables, Kookmin Credit Card revised its provision policy based on the historical loan loss rates and expectations on future redemption amounts. Due to this change, for the year ended December 31, 2002, Kookmin Credit Card provided additional allowances of (Won)397,158 million resulting in a decrease of (Won)397,158 million in net income before income taxes.

 

Present Value Discounts -

 

Troubled debt restructuring loans, which are modified as to outstanding principal, interest rate, and/or maturity under programs such as workout, court receivership, court mediation, or debt restructuring agreements of parties concerned, are carried at present value if the difference between the book value and the present value of the restructured loan is significant. When estimating the present value of the loans, the Consolidated Company applies the interest rate as of the inception of the loans, except for the interest rate of variable rate loans and extended maturity loans, which are adjusted to reflect the interest rate as of the restructuring date. The present value discounts are recorded by reclassifying allowances for loan losses and if additional allowances need to be provided for, the additional allowances are provided and recognized as provision for loan losses of the current period. These present value discounts are amortized using the effective interest method and are recognized as interest income. Allowances for loan losses on the restructured loans are provided for based on the loan balances net of present value discounts.

 

The Consolidated Company recorded (Won)21,156 million and (Won)28,868 million of present value discounts as of December 31, 2002 and 2001, respectively, on long-term deposits placed with Hansol Mutual Savings & Finance Co., Ltd. (previously, Bukook Mutual Savings & Finance Co., Ltd.), a subsidiary of the Bank sold in December 1999 (See Note 3). The receivables from the disposal of foreclosed assets that are redeemed in long-term installments are recorded in the balance sheet net of the related present value discounts.

 

Securities -

 

Marketable securities held for short-term capital gain purposes, which exclude stocks issued by associates and debt securities held to maturity, are classified as trading securities. Securities that are not classified as trading securities are classified as investment securities.

 

Securities are recorded at cost at acquisition, including incidental expenses, using the moving-average or specific identification method. The subsequent valuation methods used for the securities are summarized as follows:

 

    

Valuation

Method


  

Recognition of Unrealized

Gains and Losses


Trading securities

  

Fair value

  

Net income

Investment securities

         

Available-for-sale securities and marketable equity securities

  

Fair value

  

Capital adjustments

Held-to-maturity securities and non-marketable equity

  

Cost

  

N/A

Investment in associates

  

Equity

  

Net income, retained earnings, or capital adjustments per source of the gain or loss

 

If the fair value of the investment securities are significantly below the book value and the decrease in value is anticipated to be permanent, the Consolidated Company adjusts the investment securities to their fair value and recognizes impairment losses in non-operating expenses of the current period.

 

Continued;

 

15


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

2.    Summary of Significant Accounting Policies, Continued;

 

Fixed Assets and Related Depreciation -

 

Tangible assets are recorded at cost, except for upward revaluation of certain assets in accordance with the Korean Asset Revaluation Law. Depreciation is calculated based on the estimated average useful lives of the assets and is presented as accumulated depreciation, which is a contra account of tangible assets in the financial statements.

 

The estimated useful lives and depreciation methods of the tangible assets are as follows:

 

    

Depreciation Method


    

Estimated Useful Life


Buildings and structures

  

Straight-line method

    

40 years

Leasehold improvements

  

Declining balance method

    

4 years

Equipment and vehicles

  

Declining balance method

    

4 years

 

Expenditures that enhance the value or extend the useful life of the assets involved are capitalized as additions to tangible assets. Routine maintenance and repairs are recognized as expenses as incurred.

 

The Consolidated Company recorded goodwill as a result of the merger with H&CB for the cost of the merger exceeding the fair value of the net assets acquired. Intangible assets including goodwill are amortized based on the following estimated average useful lives using the straight-line method and are presented in the financial statements net of accumulated amortization.

 

    

Amortization Method


  

Estimated Useful Life


Goodwill

  

Straight-line method

  

9 years

Trademarks

  

Straight-line method

  

1-10 years

Others

  

Straight-line method

  

7-30 years

 

Foreclosed assets acquired through, or in lieu of, loan redemption are stated at cost and are not depreciated. A valuation allowance is recorded when the latest bidding price at a public auction is below the book value, and is presented as a contra account of foreclosed assets in the financial statements.

 

Stock Issuance Costs and Debenture Issuance Costs -

 

Stock issuance costs are deducted from paid-in capital in excess of par value. Debenture issuance costs are recorded as discounts on debentures and amortized over the maturity of the debentures using the effective interest method.

 

Accrued Retirement Benefits -

 

Employees and directors with more than one year of service as of the balance sheet date are entitled to receive a lump-sum payment upon termination of their employment with the Consolidated Company, based on their length of service and rate of pay at the time of termination. Additionally, the Bank records the contributions to pension funds, which grant the payment rights to its employees, and contributions to the national pension fund as contra accounts of accrued retirement benefits.

 

Guarantees and Acceptances -

 

By applying the credit risk classification used for loans to the guarantees and acceptances, the Consolidated Company records an allowance for losses on outstanding guarantees and acceptances according to their classification as sub-standard, doubtful, or estimated loss (allowance rates are at minimum 20%, 50% and 100%, respectively).

 

Deferred Income Taxes -

 

The Consolidated Company records the future tax effects of temporary differences between the financial and tax bases of assets and liabilities as deferred tax assets or liabilities. The tax effects of temporary differences arising from the cumulative effects of accounting changes are adjusted in retained earnings.

 

Continued;

 

16


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

2.    Summary of Significant Accounting Policies, Continued;

 

Bonds under Repurchase/Resale Agreements -

 

Securities bought under resale agreements are recorded in loans as bonds purchased under resale agreements. Securities sold under repurchase agreements are recorded in borrowings as bonds sold under repurchase agreements.

 

Stock Options -

 

The Bank had applied the fair value method using an option-pricing model in measuring compensation cost until the prior period. However, starting from the current period, expecting a high probability of grant and exercise as stock appreciation rights, the Bank changed the measurement method to the intrinsic value method. As a result, previous amounts recorded in capital adjustments (stock options) have been reclassified into accrued expenses (See Note 14).

 

Derivatives Instruments -

 

Derivative financial instruments for trading or hedging purposes are valued at estimated market price and resulting unrealized gains or losses are recognized in current operations, except for the effective portion of derivative transactions entered into for the purpose of cash-flow hedges, which is recorded as an adjustment to shareholders’equity.

 

Fair value hedge accounting is applied to a hedging transaction relationship entered into for hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment (hedged item) that is attributable to a particular risk. The gain or loss, both on the hedging derivative instrument and on the hedged item attributable to the hedged risk, are recognized in current operations.

 

Cash flow hedge accounting is applied to a hedging transaction relationship entered into for hedging the exposure to variability in expected future cash flows of an asset or a liability or a forecasted transaction that is attributable to a particular risk. The effective portion of the gain or loss on the hedging derivative instrument designated as a cash flow hedge is recorded as a capital adjustment and the ineffective portion is recorded in current operations. The effective portion of the gain or loss recorded as a capital adjustment is reclassified into current operations in the same period during which the hedged forecasted transaction affects earnings. If the hedged transaction results in the acquisition of an asset or the incurrence of a liability, the gain or loss recorded in capital adjustment is added to or deducted from the asset or the liability.

 

National Housing Fund -

 

The Consolidated Company, as designated by the Korean Government under the Housing Construction Promotion Law, manages the sources and uses of funds of the National Housing Fund (the “NHF”) and records the related NHF account in other liabilities. In addition, the Bank pays interest, which is computed by multiplying the average balance of the NHF account by the passbook deposit interest rate, to the NHF.

 

Gains and Losses on Trust Management -

 

The Bank’s trust accounts (“the Trust Accounts”) recognize as an expense the trust commissions paid to the banking accounts, which is equivalent to the total trust revenue less total trust expenses and trustee benefits (including the guaranteed principal and minimum rate of return). The Bank recognizes these trust commissions as a gain on trust management in other operating income. The trust fees on money trusts consist of base fees of 0.5% ~ 2.0% (depending on trust fund types) and special fees applied to the invested capital.

 

Translation of the Foreign Currency Financial Statements of Foreign Entities -

 

Accounting records of the overseas branches are maintained in a foreign currency prevailing in their respective countries. For the purpose of presentation in the accompanying financial statements, the financial statements of the branches have been translated into Korean Won, using exchange rates published by Seoul Money Brokerage Services, Ltd. as of the balance sheet dates.

 

Continued;

 

17


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

2.    Summary of Significant Accounting Policies, Continued;

 

Statement of Cash Flows -

 

In the preparation of the statement of cash flows, the Consolidated Company has presented the net amounts of cash inflows and cash outflows for loans and deposits.

 

Consolidation Adjustment -

 

The accompanying consolidated financial statements reflect certain consolidation adjustments as follows:

 

    

Net Income (Loss)


    

Retained Earnings


 
    

2002


    

2001


    

2002


    

2001


 

Aggregate balances of each entity

  

(Won)

1,069,429

 

  

(Won)

1,323,716

 

  

(Won)

2,956,039

 

  

(Won)

1,706,921

 

Consolidation adjustments:

                                   

Elimination of shareholdings

  

 

(893

)

  

 

(1,470

)

  

 

(250,693

)

  

 

(44,307

)

Minority interest in earnings or losses, net

  

 

65,260

 

  

 

(120,557

)

  

 

(208,594

)

  

 

31

 

Reversal of the equity method

  

 

267,419

 

  

 

(358,003

)

  

 

(26,572

)

  

 

(498,822

)

Merger between subsidiaries

  

 

(81,502

)

  

 

—  

 

  

 

—  

 

  

 

—  

 

Disposal of subsidiaries

  

 

(59,077

)

  

 

—  

 

  

 

—  

 

  

 

—  

 

Elimination of provisions for loan losses for consolidated subsidiaries

  

 

(318

)

  

 

(88,180

)

  

 

918

 

  

 

214,232

 

Additional provisions for loan losses for consolidated subsidiaries

  

 

—  

 

  

 

1,689

 

  

 

—  

 

  

 

(29,516

)

Elimination of gains and losses on derivatives transaction for consolidated subsidiaries

  

 

1,342

 

  

 

—  

 

  

 

1,483

 

  

 

—  

 

Change in foreign exchange rate

  

 

(3,286

)

  

 

(7,743

)

  

 

(8,291

)

  

 

3,836

 

Reversal of trust reserve

  

 

10,006

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

Restoration of equity investments conversion

  

 

—  

 

  

 

83,803

 

  

 

—  

 

  

 

174,751

 

Other consolidation adjustments

  

 

2,928

 

  

 

3,620

 

  

 

(2,055

)

  

 

(8,062

)

    


  


  


  


    

 

201,879

 

  

 

(486,841

)

  

 

(493,804

)

  

 

(187,857

)

    


  


  


  


Balances in the consolidated financial statements

  

(Won)

1,271,308

 

  

(Won)

836,875

 

  

(Won)

2,462,235

 

  

(Won)

1,519,064

 

    


  


  


  


 

Application of the Statements of Korean Financial Accounting Standards -

 

The Korean Accounting Standards Board (“KASB”) has published a series of Statements of Korean Financial Accounting Standards (“SKFAS”), which will gradually replace the existing financial accounting standards established by the Korean Financial and Supervisory Board. SKFAS No. 2 through No. 9 become effective for the Bank on January 1, 2003, and the Bank plans to adopt these statements in its financial statements for the year ending December 31, 2003.

 

18


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

3.    Cash and Due from Banks:

 

Cash and due from banks as of December 31, 2002 and 2001 are summarized as follows (in millions of Won):

 

         

2002


    

2001


 

Cash on hand

                      

Cash in Won

       

(Won)

2,393,118

 

  

(Won)

2,553,714

 

Cash in foreign currency

       

 

186,780

 

  

 

147,314

 

         


  


         

 

2,579,898

 

  

 

2,701,028

 

         


  


Due from banks in Won

                      

The Bank of Korea

  

Reserve deposits

  

 

1,340,482

 

  

 

3,450,528

 

Banks

  

Time deposits

  

 

99,849

 

  

 

238,866

 

Other financial institutions

  

Cash management accounts

  

 

140,000

 

  

 

1,144,971

 

Others

  

Futures margin accounts and others

  

 

108,664

 

  

 

6,330

 

         


  


         

 

1,688,995

 

  

 

4,840,695

 

    

Present value discounts1*

  

 

(21,156

)

  

 

(28,868

)

         


  


         

 

1,667,839

 

  

 

4,811,827

 

         


  


Due from banks in foreign currencies

                      

The Bank of Korea

  

Demand deposits

  

 

25,677

 

  

 

33,795

 

Domestic banks

  

Demand deposits

  

 

10,221

 

  

 

125,798

 

Foreign banks

  

Time deposits

  

 

220,763

 

  

 

146,565

 

Off-shore

  

Demand deposits

  

 

5,064

 

  

 

23,433

 

Others

  

Other deposits

  

 

281,174

 

  

 

—  

 

         


  


         

 

542,899

 

  

 

329,591

 

         


  


         

(Won)

4,790,636

 

  

(Won)

7,842,446

 

         


  



1*   Present value discounts are recorded in relation to the (Won)140,000 million of time deposits (1% interest, five-year maturity at the point of deposit, uncallable for five years) placed with Hansol Mutual Savings & Finance Co., Ltd. (previously, Bukook Mutual Savings & Finance Co., Ltd.).

 

Included in cash and due from banks as of December 31, 2002 and 2001 are the following restricted deposits (in millions of Won):

 

    

2002


  

2001


  

Restrictions


Reserve deposits in the Bank of Korea and Korea Exchange Bank

  

(Won)

1,377,891

  

(Won)

3,450,528

  

General Banking Act

Deposits placed with Hansol Mutual Savings & Finance Co., Ltd.

  

 

140,000

  

 

145,000

  

Withdrawal at maturity

Deposits at insurance companies

  

 

66,000

  

 

749,723

  

Related to borrowings

Other deposits

  

 

20,653

  

 

56,543

  

Futures guarantee deposit

    

  

    
    

(Won)

1,604,544

  

(Won)

4,401,794

    
    

  

    

 

The maturities of the amounts of due from banks as of December 31, 2002 are summarized as follows (in millions of Won):

 

    

Due from Banks

in Won


  

Due from Banks

in Foreign Currencies


  

Total


Due in 3 months or less

  

(Won)

1,511,803

  

(Won)

470,875

  

(Won)

1,982,678

Due after 3 months through 6 months

  

 

—  

  

 

72,024

  

 

72,024

Due after 6 months through 1 year

  

 

35,000

  

 

—  

  

 

35,000

Due after 1 year through 2 years

  

 

50,000

  

 

—  

  

 

50,000

Due after 2 years through 3 years

  

 

90,000

  

 

—  

  

 

90,000

Due after 3 years through 4 years

  

 

—  

  

 

—  

  

 

—  

Due after 4 years through 5 years

  

 

1,000

  

 

—  

  

 

1,000

Thereafter

  

 

1,192

  

 

—  

  

 

1,192

    

  

  

    

(Won)

1,688,995

  

(Won)

542,899

  

(Won)

2,231,894

    

  

  

 

19


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

4.    Trading Securities:

 

Trading securities as of December 31,2002 and 2001 comprise the following (in millions of Won):

 

    

Par Value


  

Beginning

Balance1*


  

Amortized Amount2*


  

Balance Sheet Amount


             

2002


  

2001


Trading securities in Won

                                  

Listed equity securities

  

(Won)

—  

  

(Won)

140,230

  

(Won)

140,230

  

(Won)

95,501

  

(Won)

56,590

Government and municipal bonds

  

 

954,172

  

 

974,579

  

 

970,785

  

 

976,166

  

 

1,769,831

Finance debentures

  

 

1,397,731

  

 

1,385,611

  

 

1,384,443

  

 

1,388,997

  

 

2,102,761

Corporate bonds

  

 

2,370,529

  

 

2,747,343

  

 

2,741,049

  

 

2,731,459

  

 

2,839,845

Beneficiary certificates

  

 

—  

  

 

3,698,994

  

 

3,699,767

  

 

3,862,439

  

 

4,148,264

Other trading securities3*

  

 

—  

  

 

176,462

  

 

182,215

  

 

207,041

  

 

658,919

           

  

  

  

           

 

9,123,219

  

 

9,118,489

  

 

9,261,603

  

 

11,576,210

           

  

  

  

Trading securities in foreign currencies

  

 

12,526

  

 

12,364

  

 

12,366

  

 

11,842

  

 

58,128

           

  

  

  

           

(Won)

9,135,583

  

(Won)

9,130,855

  

(Won)

9,273,445

  

(Won)

11,634,338

           

  

  

  


1*   Book value as of December 31, 2001 or acquisition costs for the year ended December 31, 2002
2*   Beginning balance of accumulated amortization plus current year’s amortization.
3*   Other trading securities include 161,993 million of commercial papers dominated in Korean Won.

 

Trading debt securities in Won are recorded at fair value using the market yield of bonds provided by the Korea Securities Dealers Association. Trading debt securities in foreign currencies are recorded at fair value using the market yield of bonds provided by bond dealers.

 

Trading securities risk concentrations as of December 31, 2002 are as follows (in millions of Won):

 

    

Securities in Won


  

Securities in Foreign Currencies


    

Amount


  

Ratio (%)


  

Amount


  

Ratio (%)


By Country

                       

—  Korea

  

(Won)

9,261,603

  

100.00

  

(Won)

11,842

  

100.00

    

  
  

  
    

(Won)

9,261,603

  

100.00

  

(Won)

11,842

  

100.00

    

  
  

  

By Type

                       

—  Fixed rate bond

  

(Won)

4,294,774

  

46.37

  

(Won)

—  

  

—  

—  Floating rate bond

  

 

1,021,923

  

11.03

  

 

11,842

  

100.00

—  Equity securities

  

 

95,501

  

1.03

  

 

—  

  

—  

—  Others

  

 

3,849,405

  

41.57

  

 

—  

  

—  

    

  
  

  
    

(Won)

9,261,603

  

100.00

  

(Won)

11,842

  

100.00

    

  
  

  

By Industry

                       

—  Government and government agencies

  

(Won)

1,171,906

  

12.65

  

(Won)

—  

  

—  

—  Financial institutions

  

 

6,789,441

  

73.31

  

 

—  

  

—  

—  Others

  

 

1,300,256

  

14.04

  

 

11,842

  

100.00

    

  
  

  
    

(Won)

9,261,603

  

100.00

  

(Won)

11,842

  

100.00

    

  
  

  

 

Continued;

 

20


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

4.    Trading Securities, Continued;

 

The maturities of the trading securities except equity securities as of December 31, 2002 are summarized as follows (in millions of Won):

 

    

Government and Municipal Bonds


  

Finance Debentures


  

Corporate Bonds


  

Beneficiary

Certificates


  

Trading Securities in Foreign Currencies


  

Others


  

Total


Due in 3 months or less

  

(Won)

3,887

  

(Won)

39,996

  

(Won)

170,472

  

(Won)

3,857,413

  

(Won)

—  

  

(Won)

155,319

  

(Won)

4,227,087

Due after 3 ~ 6 months

  

 

23,867

  

 

117,148

  

 

161,904

  

 

5,026

  

 

—  

  

 

38,046

  

 

345,991

Due after 6 ~ 9 months

  

 

11,822

  

 

135,108

  

 

187,226

  

 

—  

  

 

—  

  

 

700

  

 

334,856

Due after 9 ~ 12 months

  

 

33,481

  

 

77,089

  

 

121,265

  

 

—  

  

 

—  

  

 

3,966

  

 

235,801

Due after 1 ~ 2 years

  

 

126,700

  

 

920,123

  

 

798,706

  

 

—  

  

 

—  

  

 

9,010

  

 

1,854,539

Due after 2 ~ 3 years

  

 

570,492

  

 

69,171

  

 

634,575

  

 

—  

  

 

11,842

  

 

—  

  

 

1,286,080

Due after 3 ~ 4 years

  

 

101,116

  

 

—  

  

 

436,219

  

 

—  

  

 

—  

  

 

—  

  

 

537,335

Due after 4 ~ 5 years

  

 

86,802

  

 

—  

  

 

98,773

  

 

—  

  

 

—  

  

 

—  

  

 

185,575

Thereafter

  

 

17,999

  

 

30,362

  

 

122,319

  

 

—  

  

 

—  

  

 

—  

  

 

170,680

    

  

  

  

  

  

  

    

(Won)

976,166

  

(Won)

1,388,997

  

(Won)

2,731,459

  

(Won)

3,862,439

  

(Won)

11,842

  

(Won)

207,041

  

(Won)

9,177,944

    

  

  

  

  

  

  

 

As of December 31, 2002, the beneficiary certificates in trading securities include discretionary investing contract assets. Securities included in discretionary investing contract assets consist of Samsung Electronics Co., Ltd. stock and other 27 listed or registered stocks. Acquisition costs and fair values of these assets amount to (Won)8,358 million and (Won)7,260 million, respectively. The Bank recorded the difference between acquisition costs and fair values of (Won)1,098 million as unrealized loss on trading securities.

 

5.    Investment Securities:

 

Investment securities as of December 31, 2002 and 2001 are as follows (in millions of Won):

 

    

2002


  

2001


Equity securities

             

—  Marketable equity securities

  

(Won)

272,973

  

(Won)

366,512

—  Non-marketable equity securities

  

 

408,025

  

 

499,011

—  Domestic related parties

  

 

56,241

  

 

58,655

    

  

    

 

737,239

  

 

924,178

    

  

Investment in special funds

             

—  Stock market stabilization fund

  

 

12,947

  

 

23,178

—  Investment union fund

  

 

39,287

  

 

44,901

    

  

    

 

52,234

  

 

68,079

    

  

Government and municipal bonds

  

 

4,609,487

  

 

3,795,572

Finance debentures

  

 

3,191,214

  

 

3,317,256

Corporate bonds

  

 

12,516,526

  

 

13,174,726

Beneficiary certificates

  

 

5,162,573

  

 

3,762,445

Securities lent

  

 

47,835

  

 

198,934

Other investment securities1*

  

 

1,914

  

 

2,079

Securities denominated in foreign currencies

             

—  Overseas related parties

  

 

2,363

  

 

2,303

—  Equity securities

  

 

30,436

  

 

35,640

—  Debt securities

  

 

1,237,040

  

 

1,371,796

    

  

    

 

1,269,839

  

 

1,409,739

    

  

    

(Won)

27,588,861

  

(Won)

26,653,008

    

  


1*   Other investment securities include commercial papers and national stock trusts.

 

Continued;

 

21


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

5.    Investment Securities, Continued;

 

As of December 31, 2002, the amortized amounts and balance sheet amounts of the Bank’s investment debt securities are as follows (in millions of Won):

 

    

Par

Value


  

Beginning Balance1*


  

Amortized

Amount


  

Balance Sheet

Amount


Available-for-sale

                           

—  Government and municipal bonds

  

(Won)

2,174,547

  

(Won)

2,215,911

  

(Won)

2,186,170

  

(Won)

2,226,732

—  Finance debentures

  

 

2,308,398

  

 

2,257,078

  

 

2,249,679

  

 

2,267,156

—  Corporate bonds

  

 

3,834,894

  

 

3,753,493

  

 

3,639,398

  

 

3,695,983

—  Securities denominated in foreign currencies

  

 

1,194,164

  

 

1,054,763

  

 

1,029,891

  

 

1,053,170

    

  

  

  

    

 

9,512,003

  

 

9,281,245

  

 

9,105,138

  

 

9,243,041

    

  

  

  

Held-to-maturity

                           

—  Government and municipal bonds

  

 

2,372,448

  

 

2,386,293

  

 

2,382,755

  

 

2,382,755

—  Finance debentures

  

 

951,000

  

 

924,048

  

 

924,059

  

 

924,058

—  Corporate bonds

  

 

8,772,500

  

 

8,909,211

  

 

8,821,272

  

 

8,820,543

—  Securities denominated in foreign currencies

  

 

239,662

  

 

168,215

  

 

179,361

  

 

183,870

    

  

  

  

    

 

12,335,610

  

 

12,387,767

  

 

12,307,447

  

 

12,311,226

    

  

  

  

    

(Won)

21,847,613

  

(Won)

21,669,012

  

(Won)

21,412,585

  

(Won)

21,554,267

    

  

  

  


1*   Book value as of December 31, 2001 or acquisition costs for the year ended December 31, 2002.

 

Available-for-sale debt securities in Won are recorded at fair value using the market yield of bonds provided by the Korea Securities Dealers Association. Available-for-sale debt securities in foreign currencies are recorded at fair value using the market yield of bonds provided by bond dealers.

 

Government and municipal bonds sold under repurchase agreements of (Won)3,074,161 million and (Won)2,955,442 million as of December 31, 2002 and 2001, respectively, are included in the investment securities (See Note 11).

 

Equity securities in related parties as of December 31, 2002 and 2001 are as follows (in millions of Won):

 

                   

Unrealized Gains (Losses)


  

Balance Sheet Amount


Issuer


  

Ownership (%)


  

Acquisition Cost


  

Beginning Balance


  

NI


    

R/E


  

C/A


  

2002


  

2001


KLB Securities Co., Ltd.1*

  

36.41

  

(Won)

10,316

  

(Won)

—  

  

(Won)

—  

 

  

(Won)

 

  

—  

  

(Won)

 

  

—  

  

(Won)

—  

  

(Won)

—  

Jooeun Industrial Co.,Ltd.1*

  

99.99

  

 

23,994

  

 

11,714

  

 

(11,714

)

         

—  

         

—  

  

 

—  

  

 

—  

ING Life Korea Co., Ltd.

  

20.00

  

 

21,769

  

 

24,891

  

 

(3,278

)

         

—  

         

—  

  

 

21,613

  

 

24,891

Korea Mortgage Co., Ltd.

  

26.67

  

 

30,628

  

 

32,487

  

 

1,080

 

         

—  

         

—  

  

 

33,567

  

 

32,487

Jeio Co., Ltd.

  

21.14

  

 

750

  

 

835

  

 

(288

)

         

—  

         

—  

  

 

547

  

 

—  

Korea Asset Investment Co., Ltd.

  

48.60

  

 

4,905

  

 

3,054

  

 

(2,540

)

         

—  

         

—  

  

 

514

  

 

1,277

Kookmin Singapore Ltd.1*

  

100.00

  

 

12,123

  

 

2,084

  

 

—  

 

         

—  

         

—  

  

 

2,084

  

 

2,303

Kookmin Finance Asia Ltd.(HK) 1*

  

100.00

  

 

8,403

  

 

1,023

  

 

(744

)

         

—  

         

—  

  

 

279

  

 

—  

         

  

  


  
  
  

  

         

(Won)

112,888

  

(Won)

76,088

  

(Won)

(17,484

)

  

(Won)

 

  

—  

  

(Won)

 

  

—  

  

(Won)

58,604

  

(Won)

60,958

         

  

  


  
  
  

  


1*   KLB Securities Co., Ltd., Jooeun Industrial Co., Ltd., Kookmin Singapore Ltd. (Merchant Bank), Ltd. and Kookmin Finance Asia Ltd. (HK) are in the process of liquidation.

 

Continued;

 

 

22


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

5.    Investment Securities, Continued;

 

Equity securities, excluding equity securities in related parties, as of December 31, 2002 are as follows (in millions of Won):

 

Issuer


  

Ownership (%)


  

Acquisition Cost


  

Fair Value or Net Asset Value1*


  

Balance Sheet Amount


Marketable equity securities (KSE)

                         

—  Hyundai Construction Co., Ltd.

  

6.14

  

(Won)

140,125

  

(Won)

48,197

  

(Won)

48,197

—  KP Chemical Co., Ltd.

  

7.89

  

 

36,650

  

 

22,818

  

 

22,818

—  Kia Motors Corp.

  

0.65

  

 

26,281

  

 

21,267

  

 

21,267

—  SK Securities Co., Ltd.

  

5.58

  

 

26,878

  

 

21,259

  

 

21,259

—  Hankang Restructuring Fund

  

6.25

  

 

21,444

  

 

16,632

  

 

16,632

—  INI Steel Co., Ltd.

  

2.14

  

 

9,564

  

 

14,469

  

 

14,469

—  Daewoo Securities Co., Ltd.

  

1.60

  

 

53,627

  

 

13,741

  

 

13,741

—  Ssangyong Motor Company

  

2.09

  

 

27,655

  

 

12,653

  

 

12,653

—  Saehan Industries Inc.

  

5.67

  

 

11,968

  

 

11,333

  

 

11,333

—  Samsung Electronics Co.,Ltd.

  

0.02

  

 

5,205

  

 

9,420

  

 

9,420

—  KT

  

0.05

  

 

8,497

  

 

7,978

  

 

7,978

—  Korea Zinc Co., Ltd.

  

1.91

  

 

9,008

  

 

6,485

  

 

6,485

—  Daewoo Engineering & Construction Co., Ltd.

  

1.35

  

 

5,077

  

 

5,843

  

 

5,843

—  Korea Electric Power Corporation

  

0.05

  

 

6,120

  

 

5,475

  

 

5,475

—  Daewoo Heavy Industries & Machinery Ltd.

  

1.11

  

 

3,164

  

 

5,243

  

 

5,243

—  ByuckSan Engineering & Construction Co., Ltd.

  

5.25

  

 

6,610

  

 

4,631

  

 

4,631

—  Crown Confectionary Co, Ltd.

  

10.94

  

 

1,823

  

 

4,416

  

 

4,416

—  Shinwon Corp.

  

8.38

  

 

9,873

  

 

4,366

  

 

4,366

—  Nam-Kwang Engineering & Construction Co., Ltd.

  

2.25

  

 

2,797

  

 

1,499

  

 

1,499

—  Others

  

—  

  

 

25,766

  

 

21,685

  

 

21,685

         

  

  

         

 

438,132

  

 

259,410

  

 

259,410

         

  

  

Marketable equity securities (KOSDAQ)

                         

—  C&H Capital Co., Ltd.

  

9.75

  

 

8,135

  

 

3,867

  

 

3,867

—  CJ Corp.

  

0.73

  

 

300

  

 

2,538

  

 

2,538

—  Others

  

—  

  

 

16,463

  

 

7,158

  

 

7,158

         

  

  

         

 

24,898

  

 

13,563

  

 

13,563

         

  

  

Non-marketable equity securities

                         

—  Mutual Fund 2*

  

11.87

  

 

103,353

  

 

92,239

  

 

92,239

—  Korea Housing Guarantee Co., Ltd.

  

11.79

  

 

53,330

  

 

76,543

  

 

68,648

—  KT Icom Co., Ltd.

  

2.08

  

 

37,465

  

 

37,840

  

 

37,465

—  Dongbu Electronics Co., Ltd.

  

6.61

  

 

30,000

  

 

20,702

  

 

30,000

—  Hyundai Petrochemical Co., Ltd.

  

9.31

  

 

20,173

  

 

73,184

  

 

20,173

—  Daewoo Electronics Co., Ltd.

  

1.85

  

 

9,862

  

 

384

  

 

9,862

—  The Korea Securities Finance Corp.

  

2.40

  

 

8,160

  

 

10,371

  

 

8,160

—  Korea Asset Management Corp.

  

5.38

  

 

7,827

  

 

16,563

  

 

7,827

—  Samsung Life Insurance Co., Ltd.

  

0.11

  

 

7,479

  

 

5,988

  

 

7,479

—  Korea Highway Corp.

  

0.12

  

 

6,248

  

 

14,716

  

 

6,248

—  Hansol Patech Co., Ltd.

  

2.12

  

 

5,955

  

 

1,642

  

 

5,955

—  BC Card Co., Ltd.

  

4.95

  

 

5,738

  

 

8,040

  

 

5,738

—  Mirae Asset Securities Co., Ltd.

  

4.43

  

 

5,000

  

 

7,679

  

 

5,000

—  Others

  

—  

  

 

176,031

  

 

97,982

  

 

103,231

         

  

  

         

(Won)

476,621

  

(Won)

463,873

  

(Won)

408,025

         

  

  

 

Continued;

 

23


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

5.    Investment Securities, Continued;

 

Issuer


  

Ownership (%)


  

Acquisition Cost


  

Fair Value or Net Asset Value1*


  

Balance Sheet Amount


Equity securities denominated in foreign currencies

                         

—  Asia Credit Services (PTE) Ltd.

  

6.67

  

(Won)

12,004

  

(Won)

9,892

  

(Won)

9,892

—  Nanjing Kumho Tire Co., Ltd.

  

6.00

  

 

2,553

  

 

2,006

  

 

2,553

—  Investment Development Leasing Co.

  

10.00

  

 

1,539

  

 

2,089

  

 

2,089

—  Pan Asia Paper (Thailand) Co., Ltd.

  

4.12

  

 

4,835

  

 

2,876

  

 

2,876

—  Sahaviriya Steel Industry

  

1.09

  

 

900

  

 

2,016

  

 

2,016

—  Baring Communications Equity

  

6.73

  

 

4,921

  

 

1,947

  

 

1,947

—  China Enterprise Development Fund

  

2.63

  

 

1,224

  

 

1,224

  

 

1,224

—  Asia Finance and Investment Corp.

  

2.17

  

 

3,001

  

 

1,179

  

 

1,179

—  Tianjin Samsung Opto- Electronics.

  

10.00

  

 

1,173

  

 

1,381

  

 

1,173

—  Isotechnika

  

1.02

  

 

1,857

  

 

1,563

  

 

1,563

—  Others

  

—  

  

 

5,974

  

 

7,046

  

 

3,924

         

  

  

         

 

39,981

  

 

33,219

  

 

30,436

         

  

  

         

(Won)

979,632

  

(Won)

770,065

  

(Won)

711,434

         

  

  


1*   Net asset value is calculated using the monthly closing information of investees as of December 31, 2002 if possible, otherwise the most recent financial information is used.
2*   Investments in mutual funds are calculated using the net asset value per share provided by restructuring funds which consist of Seoul Debt-Restructuring Fund, Arirang Restructuring Fund, and Mukungwha Restructuring Fund formed to support corporate restructuring.

 

Unrealized gains and losses on investment securities included in net income for the year ended December 31, 2002 are summarized as follows (in millions of Won):

 

    

Beginning

Balance


  

Fair Value/ Net Asset Value


  

Unrealized

Gains (Losses)


 

Investment in special funds

                      

—  Stock market stabilization fund

  

(Won)

10,577

  

(Won)

12,947

  

(Won)

2,370

 

Beneficiary certificates

                      

—  Special fund for corporate bonds

  

 

976

  

 

628

  

 

(348

)

    

  

  


    

(Won)

11,553

  

(Won)

13,575

  

(Won)

2,022

 

    

  

  


 

Most of the operating assets in the above funds are composed of short-term financial assets and related gains and losses are recognized in the current year as unrealized gains and losses on investment in funds.

 

Impairment losses on investment securities for the year ended December 31, 2002 are as follows (in millions of Won):

 

Issuer


  

Acquisition Cost


    

Impairment Loss


  

Book Value


Equity Securities

                      

Marketable equity securities (KSE)

                      

—  Hyundai Construction Co., Ltd.

  

(Won)

140,125

    

(Won)

91,928

  

(Won)

48,197

—  KP Chemical Co., Ltd

  

 

36,650

    

 

13,832

  

 

22,818

—  Daewoo Securities Co., Ltd.

  

 

53,627

    

 

39,886

  

 

13,741

—  Ssangyong Motor Company

  

 

27,655

    

 

15,002

  

 

12,653

—  Saehan Industries Inc.

  

 

11,968

    

 

635

  

 

11,333

—  Shinwon Corp.

  

 

9,873

    

 

5,507

  

 

4,366

—  Woo Bang Housing & Construction Co., Ltd.

  

 

6,122

    

 

2,524

  

 

3,598

 

Continued;

 

24


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

5.    Investment Securities, Continued;

 

Issuer


  

Acquisition Cost


  

Impairment Loss


  

Book Value


—  Hanmi Capital Co., Ltd.

  

(Won)

2,335

  

(Won)

994

  

(Won)

1,341

—  Others

  

 

2,925

  

 

1,595

  

 

1,330

    

  

  

    

 

291,280

  

 

171,903

  

 

119,377

    

  

  

Marketable equity securities (KOSDAQ)

                    

—  C&H Capital

  

 

8,135

  

 

4,268

  

 

3,867

—  Others

  

 

12,779

  

 

10,166

  

 

2,613

    

  

  

    

 

20,914

  

 

14,434

  

 

6,480

    

  

  

Non-marketable equity securities

                    

—  Alpha Capital Corp.

  

 

3,919

  

 

1,081

  

 

2,838

—  Others

  

 

113,214

  

 

95,361

  

 

17,853

    

  

  

    

 

117,133

  

 

96,442

  

 

20,691

    

  

  

Equity securities denominated in foreign currencies

                    

—  Asia Credit.

  

 

12,004

  

 

2,112

  

 

9,892

—  Pan Asia Paper.

  

 

4,835

  

 

1,959

  

 

2,876

—  Baring Communications Equity

  

 

4,921

  

 

2,974

  

 

1,947

—  Asia Finance and Investment Corp.

  

 

3,001

  

 

1,822

  

 

1,179

—  Others

  

 

3,105

  

 

2,050

  

 

1,055

    

  

  

    

 

27,866

  

 

10,917

  

 

16,949

    

  

  

Investment on funds

                    

—  KB 14 th Investment Union

  

 

1,000

  

 

75

  

 

925

—  Others

  

 

4,961

  

 

4,112

  

 

849

    

  

  

    

 

5,961

  

 

4,187

  

 

1,774

    

  

  

    

 

463,154

  

 

297,883

  

 

165,271

    

  

  

Debt Securities

                    

Corporate bonds

                    

—  Hyundai Engineering & Construction Co. Ltd.

  

 

69,400

  

 

40,811

  

 

28,589

—  H&CB 200105 ABS Specialty Co., Ltd.

  

 

23,500

  

 

7,459

  

 

16,041

—  Kookmin-2nd ABS Specialty Co., Ltd.

  

 

10,000

  

 

209

  

 

9,791

—  Kookmin-4th ABS Specialty Co., Ltd.

  

 

6,500

  

 

480

  

 

6,020

—  Kookmin-5th ABS Specialty Co., Ltd.

  

 

4,000

  

 

1,166

  

 

2,834

—  Others

  

 

746

  

 

730

  

 

16

    

  

  

    

 

114,146

  

 

50,855

  

 

63,291

    

  

  

Debt securities denominated in foreign currencies

                    

—  Daehan Global

  

 

43,296

  

 

14,726

  

 

28,570

—  PT Pelabuan

  

 

14,028

  

 

5,025

  

 

9,003

—  Berjaya Group capital

  

 

1,991

  

 

530

  

 

1,461

—  Others

  

 

10,514

  

 

7,376

  

 

3,138

    

  

  

    

 

69,829

  

 

27,657

  

 

42,172

    

  

  

    

 

183,975

  

 

78,512

  

 

105,463

    

  

  

    

(Won)

647,129

  

(Won)

376,395

  

(Won)

270,734

    

  

  

 

For the year ended December 31, 2002, the recovery of impairment losses on investment equity securities amounts to (Won)15,318 million related to the investments in Korea Housing Guarantee Co., Ltd. and the recovery of impairment losses on investment debt securities amounts to (Won)6,800 million and (Won)5,580 million related to the investments in Kookmin-3rd ABS Specialty Co., Ltd. and Kookmin-4th ABS Specialty Co., Ltd., respectively.

 

Continued;

 

25


KOOKMIN BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002 and 2001


 

 

5.    Investment Securities, Continued;

 

Investment securities risk concentrations as of December 31, 2002 are as follows (in millions of Won):

 

    

Securities in Won1*


  

Securities in Foreign Currencies


    

Amount


  

Ratio (%)


  

Amount


  

Ratio (%)


By Country

                       

—  Korea

  

(Won)

26,271,187

  

100.00

  

(Won)

924,237

  

72.78

—  USA

  

 

—  

  

—  

  

 

85,220

  

6.71

—  Philippines

  

 

—  

  

—  

  

 

66,708

  

5.25

—  Germany

  

 

—  

  

—  

  

 

30,010

  

2.36

—  Mexico

  

 

—  

  

—  

  

 

20,007

  

1.58

—  India

  

 

—  

  

—  

  

 

22,294

  

1.76

—  Indonesia

  

 

—  

  

—  

  

 

22,575

  

1.78

—  Hong Kong

  

 

—  

  

—  

  

 

19,132

  

1.51

—  Singapore

  

 

—  

  

—  

  

 

10,252

  

0.81

—  Thailand

  

 

—  

  

—  

  

 

11,978

  

0.94

—  Others

  

 

—  

  

—  

  

 

57,426

  

4.52

    

  
  

  
    

(Won)

26,271,187

  

100.00

  

(Won)

1,269,839

  

100.00

    

  
  

  

By Type

                       

—  Fixed rate bonds

  

(Won)

16,957,848

  

64.55

  

(Won)

453,349

  

35.70

—  Floating rate bonds

  

 

4,837,263

  

18.41

  

 

491,096

  

38.67

—  Subordinated bonds

  

 

422,708

  

1.61

  

 

156,066

  

12.29

—  Convertible bonds

  

 

30,128

  

0.11

  

 

119,286

  

9.39

—  Equity securities

  

 

737,580

  

2.81

  

 

32,799

  

2.58

—  Others

  

 

3,285,660

  

12.51

  

 

17,243

  

1.37

    

  
  

  
    

(Won)

26,271,187

  

100.00

  

(Won)

1,269,839

  

100.00

    

  
  

  

By Industry

                       

—  Government and government agencies

  

(Won)

12,796,929

  

48.71

  

(Won)

180,347

  

14.20

—  Financial institutions

  

 

10,397,551

  

39.58

  

 

614,224

  

48.37

—  Others

  

 

3,076,707

  

11.71

  

 

475,268

  

37.43

    

  
  

  
    

(Won)

26,271,187

  

100.00

  

(Won)

1,269,839

  

100.00

    

  
  

  

1*   Securities lent are not included.

 

The maturities of the investment securities, excluding investment equity securities, investment in special funds, and securities lent, as of December 31, 2002 are summarized as follows (in millions of Won):

 

    

Government and Municipal Bonds


  

Finance Debentures


  

Corporate Bonds


  

Beneficiary Certificates


  

Securities in Foreign Currencies


  

Others


  

Total


Due in 3 months or less

  

(Won)

58,372

  

(Won)

569,808

  

(Won)

749,435

  

(Won)

2,370,297

  

(Won)