Form 6K
Table of Contents

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 November 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

 

1


Table of Contents

TABLE OF CONTENTS

 

Summary of 3rd Quarter Business Report of Kookmin Bank

   3

1.    Introduction to the Bank

   4

1.1.        Business Purpose

   4

1.2.        History

   4

1.3.        Capital Structure

   4

1.4.        Dividend

   11

1.5.        Merger Summary

   11

2.    Business

   13

2.1.        Source and Use of Funds

   13

2.2.        Principal Banking Activities

   15

2.3.        Property, Plants and Equipment

   19

2.4.        Other Details Relevant to Investment Decision

   20

3.    Financial Information

   21

4.    Principal Accountant Fees and Services

   22

4.1.        Audit & Review Service

   22

4.2.        Service Other than Audit & Review

   22

5.    Corporate Governance and Affiliated Companies

   23

5.1.        Board of Directors

   23

5.2.        Audit Committee

   23

5.3.        Voting Rights of Shareholders

   24

5.4.        Compensation to the Directors

   24

5.5.        Affiliated Companies

   24

6.    Share Ownership and Stocks

   26

6.1.        Major Shareholders

   26

6.2.        Market Price Information for the Previous Six Months

   26

7.    Directors, Senior Management and Employees

   27

7.1.        Executive Directors

   27

7.2.        Non-Executive Directors

   27

7.3.        Senior Management

   28

7.4.        Employees

   28

7.5.        Labor Union

   28

8.    Related Party Transaction

   29

8.1.        Transactions with Largest Shareholders and Affiliates

   29

8.2.        Transactions with Shareholders (Other than the Largest Shareholders and Etc.), Directors and Employees.

   31

9.    Exhibits

   33

9.1.        List of Financial Statements

   33

 

2


Table of Contents

Summary of 3rd Quarter Business Report of Kookmin Bank

 

On November 14, 2003, Kookmin Bank filed a 3rd quarter business report (the “Business Report”) with the Financial Supervisory Commission of Korea pursuant to the Securities and Exchange Act of Korea. This is a summary of the Business Report translated into English.

 

All references to “Kookmin Bank” mean Kookmin Bank on a non-consolidated basis, and all references to “we” or “us” “the Bank” mean Kookmin Bank and, as the context may require, its subsidiaries. Kookmin Bank means a new entity established by a consolidation with former Kookmin Bank and H&CB on the consolidation date of October 31, 2001. Sometimes we refer it to New Kookmin Bank. On the other hand, we use the “Former Kookmin Bank” for the name of the former Kookmin Bank, which had been another entity before it merged H&CB.

 

We were formed through a consolidation between the Former Kookmin Bank and H&CB, which formed a new corporation named “Kookmin Bank” effective November 1, 2001. Accordingly, financial information in this Business Report since the merger date reflects the impact of the merger. Under generally accepted accounting principles in Korea, the Former Kookmin Bank is deemed the accounting acquirer of H&CB in the consolidation, and we have accounted for the acquisition using the purchase method of accounting. However, trust accounts are not accounted by the purchase method accounting according to the Korean Financial Supervisory Service’s guidelines.

 

Therefore, unless indicated otherwise, any comparative description or table of year 2000 1) for bank accounts is based on the Former Kookmin Bank’s results and 2) for trust accounts is based on simply consolidated numbers of Former Kookmin Bank’s and H&CB’s results.

 

All references to “Won” or “W” in this document are to the currency of the Republic of Korea.

 

3


Table of Contents

1.    Introduction to the Bank

 

1.1.    Business Purpose

 

The business purpose of the Bank is to engage in the following business activities:

 

  n   The banking business as prescribed by the Bank Act,

 

  n   The trust business as prescribed by the Banking Trust Act,

 

  n   The credit card business as prescribed by the Non-Banking Financing Act, and

 

  n   The other businesses permitted by the Bank Act or other relevant Korea laws and regulations

 

1.2.    History

 

  n   November 1, 2001 Incorporated and Listed on the New York Stock Exchange

 

  n   November 9, 2001 Listed on the Korea Stock Exchange

 

  n   September 23, 2002 Integrated two brand operations onto a single information technology platform in connection with the merger

 

  n   December 4, 2002 Entered into a strategic alliance agreement with ING Bank N.V., which replaced the prior investment agreement with H&CB

 

  n   May 30, 2003 Entered into a merger agreement with Kookmin Credit Card, one of our major subsidiaries and officially submitted Merger Statement to Financial Supervisory Service

 

  n   September 30, 2003 Completed small-scale merger with Kookmin Credit Card

 

1.3.    Capital Structure

 

1.3.1.    Common Shares

 

Kookmin Bank has authority to issue a total of 1,000,000,000 shares of capital stock according to its articles of incorporation. Kookmin Bank’s articles of incorporation also provide that it is authorized to issue shares of preferred stock up to one-half of all of the issued and outstanding shares of common stock. On completion of the merger between Former Kookmin Bank and H&CB, Kookmin Bank issued 299,697,462 common shares.

 

4


Table of Contents

Upon the resolution of shareholders’ meeting held on March 22, 2002, Kookmin Bank issued additional 17,979,954 common shares in connection with stock dividend of 6 percent.

 

On November 25, 2002 Goldman Sachs Capital Koryo, L.P. converted all of its convertible bonds into common shares. According to this conversion, on November 30, Kookmin Bank issued 10,581,269 common shares and distributed them to Goldman Sachs Capital Koryo, L.P.

 

With regard to the Merger between Kookmin Bank and Kookmin Credit Card on September 30, 2003, Kookmin Bank issued additional 8,120,431 shares on September 30, 2003 with total 336,379,116 shares issued and total 1,681,896 million Won of paid-in capital.

 

1.3.2.    Treasury Stock

 

The following table shows the purchase and disposition of our treasury stock as of November 14, 2003.

 

(Unit: in thousands of Won unless otherwise indicated)


Date    Transaction    Number of shares    Cost   

Average cost per

one share


November 15, 2001

   Acquisition of fractional shares in the course of the merger    41,548 shares    1,794,885    43,200 Won

December 24, 2001

   Disposition due to exercise of stock option by a grantee    10,000 shares    432,003    48,900 Won

April 3, 2002

   Acquisition of fractional shares due to stock dividend    36,089 shares    2,071,557    57,400 Won

May 14, 2002

   Disposition pursuant to the Bank Act of Korea    31,548 shares    1,601,944    50,788 Won
July 30 -
October 23, 2002
   Acquisition pursuant to the Securities and Exchange Act of Korea    3,000,000 shares    147,632,489    49,210 Won

December 24, 2002

   Disposition due to exercise of stock option by a grantee    10,000 shares    492,294    49,229 Won

January 15, 2003

   Disposition due to exercise of stock option by a grantee    10,000 shares    492,294    49,229 Won
September 4 - 9, 2003    Acquisition pursuant to the Securities and Exchange Act of Korea    650,000 shares    29,094,064    44,760 Won

October 16, 2003

   Acquisition of fractional shares due to the Merger with Kookmin Credit Card    5,095 shares    214,254    42,050 Won

October 27, 2003

   Disposition due to exercise of stock option by a grantee    62,961 shares    3,049,075    48,428 Won

November 3, 2003

   Disposition due to exercise of stock option by a grantee    5,000 shares    242,140    48,428 Won

Total

   —      Outstanding balance:
3,603,223 shares
   174,497,499    —  

 

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Table of Contents

1.3.3.    Stock Option

 

The following table is the breakdown of stock options Kookmin Bank has granted to the directors and employees.

 

(As of September 30, 2003, Units: in Won, shares)


Grant date

  

Name of the
grantee

  

Position when granted

   Exercise period

  

Exercise

price

  

Number
of
granted
options*

  

Number
of
exercised
options

   Number of
exercisable
options
         From    To            

31-Oct-98

   Jungtae Kim    Chairman, President & CEO    01-Nov-01    31-Oct-04    5,000    400,000    330,000    70,000

27-Feb-99

   Choulju Lee    Auditor & Executive Director    28-Feb-02    27-Feb-05    13,900    30,000    30,000    0

27-Feb-99

   Seungdong Kim    Executive Vice President    28-Feb-02    27-Feb-05    13,900    20,054    20,054    0

27-Feb-99

   Youngjo Joo    Executive Vice President    28-Feb-02    27-Feb-05    13,900    30,000    30,000    0

27-Feb-99

   Seokil Cho    Executive Vice President    28-Feb-02    27-Feb-05    13,900    20,054    20,054    0

27-Feb-99

   Hongshik Chung    Executive Vice President    28-Feb-02    27-Feb-05    13,900    20,000    20,000    0

27-Feb-99

   Bonghwan Cho    Executive Vice President    28-Feb-02    27-Feb-05    13,900    30,000    30,000    0

27-Feb-99

   Sunjoo Kim    Executive Vice President    28-Feb-02    27-Feb-05    13,900    10,000    10,000    0

27-Feb-99

   Jehyung Jo    Executive Vice President    28-Feb-02    27-Feb-05    13,900    30,000    30,000    0

27-Feb-99

   Hogi Baek    Executive Vice President    28-Feb-02    27-Feb-05    13,900    20,000    20,000    0

27-Feb-99

   Bruce Willison    Non Executive Director    28-Feb-02    27-Feb-05    13,900    10,000    10,000    0

28-Feb-00

   Jan Op de Beeck    Director & Executive Vice President    01-Mar-03    28-Feb-06    27,600    22,490    0    22,490

28-Feb-00

   Sungchul Kim    Executive Vice President    01-Mar-03    28-Feb-06    27,600    30,000    0    30,000

28-Feb-00

   Woojung Lee    Executive Vice President    01-Mar-03    28-Feb-06    27,600    30,000    0    30,000

28-Feb-00

   Kukju Kwon    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,800    0    4,800

28-Feb-00

   Sunjin Kim    Non Executive Director    01-Mar-03    28-Feb-06    27,600    7,000    0    7,000

28-Feb-00

   Joon Park    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,800    0    4,800

28-Feb-00

   Moonsoul Chung    Non Executive Director    01-Mar-03    28-Feb-06    27,600    7,000    0    7,000

28-Feb-00

   Juhyun Yoon    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,800    0    4,800

28-Feb-00

   Heungsoon Chang    Non Executive Director    01-Mar-03    28-Feb-06    27,600    2,486    0    2,486

28-Feb-00

   Injoon Kang    Non Executive Director    01-Mar-03    28-Feb-06    27,600    2,486    0    2,486

28-Feb-00

   Sunghee Jwa    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,800    0    4,800

28-Feb-00

   Seungwoo Nam    Non Executive Director    01-Mar-03    28-Feb-06    27,600    1,928    0    1,928

28-Feb-00

   Woonyoul Choi    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,909    0    4,909

28-Feb-00

   Kyunghee Yoon    Non Executive Director    01-Mar-03    28-Feb-06    27,600    7,000    0    7,000

28-Feb-00

   Sungcheon Hong    Head of Regional Head Office    01-Mar-03    28-Feb-06    27,600    6,821    0    6,821

28-Feb-00

   Miro Yoon    Head of Regional Head Office    01-Mar-03    28-Feb-06    27,600    3,333    0    3,333

28-Feb-00

   Hakdong Shin    Head of Regional Head Office    01-Mar-03    28-Feb-06    27,600    6,821    0    6,821

28-Feb-00

   Hakyeon Jeong    Head of Regional Head Office    01-Mar-03    28-Feb-06    27,600    10,000    0    10,000

28-Feb-00

   Jeongyeon Kim    Head of Regional Head Office    01-Mar-03    28-Feb-06    27,600    10,000    0    10,000

28-Feb-00

   Jongwhan Byun    Head of Regional Head Office    01-Mar-03    28-Feb-06    27,600    10,000    0    10,000

28-Feb-00

   Samyoung Lee    Head of Regional Head Office    01-Mar-03    28-Feb-06    27,600    6,821    0    6,821

28-Feb-00

   Wonki Kim    Head of Regional Head Office    01-Mar-03    28-Feb-06    27,600    6,821    0    6,821

28-Feb-00

   Bangyeoul Kim    Head of Regional Head Office    01-Mar-03    28-Feb-06    27,600    3,333    0    3,333

*   Some numbers of the granted options have been adjusted due to the merger and the early retirement of the grantees

 

6


Table of Contents

Grant date

  

Name of the
grantee

  

Position when granted

   Exercise period

  

Exercise

price

  

Number
of
granted
options*

  

Number
of
exercised
options

   Number of
exercisable
options
         From    To            

28-Feb-00

   Byungman Lim    Head of Regional Head Office    01-Mar-03    28-Feb-06    27,600    3,333    0    3,333

24-Mar-01

   Youngil Kim    Executive Vice President    25-Mar-04    24-Mar-07    25,100    30,000    0    30,000

24-Mar-01

   Jongin Park    Executive Vice President    25-Mar-04    24-Mar-07    25,100    19,333    0    19,333

24-Mar-01

   Wonbae Yoon    Non Executive Director    25-Mar-04    24-Mar-07    25,100    2,318    0    2,318

24-Mar-01

   Jaekyu Lee    Non Executive Director    25-Mar-04    24-Mar-07    25,100    2,318    0    2,318

24-Mar-01

   Chulsoo Ahn    Non Executive Director    25-Mar-04    24-Mar-07    25,100    1,916    0    1,916

24-Mar-01

   Jaehan Kim    Head of Regional Head Office    25-Mar-04    24-Mar-07    25,100    10,000    0    10,000

24-Mar-01

   Jongok Na    Head of Regional Head Office    25-Mar-04    24-Mar-07    25,100    10,000    0    10,000

24-Mar-01

   Kyuho Lee    Head of Regional Head Office    25-Mar-04    24-Mar-07    25,100    3,275    0    3,275

18-Mar-00

   Sanghoon Kim    Chairman & CEO    19-Mar-03    18-Mar-05    23,469    41,460    0    41,460

18-Mar-00

   Jongmin Lee    Auditor & Executive Director    19-Mar-03    18-Mar-05    23,469    14,807    0    14,807

18-Mar-00

   Sejong Oh    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    0    2,961

18-Mar-00

   Inkie Kim    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    0    2,961

18-Mar-00

   Jihong Kim    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    2,961    0

18-Mar-00

   Jinho Hwang    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    0    2,961

18-Mar-00

   Hyungjin Chang    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    0    2,961

18-Mar-00

   Ikrae Kim    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    0    2,961

18-Mar-00

   Bongho Paick    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    0    2,961

18-Mar-00

   Bockwoan Kim    Executive Vice President    19-Mar-03    18-Mar-05    23,469    11,845    0    11,845

18-Mar-00

   Yoohwan Kim    Executive Vice President    19-Mar-03    18-Mar-05    23,469    11,845    0    11,845

18-Mar-00

   Dukhyun Kim    Executive Vice President    19-Mar-03    18-Mar-05    23,469    11,845    0    11,845

15-Mar-01

   Sanghoon Kim    Chairman & CEO    16-Mar-04    15-Mar-09    28,027    29,614    0    29,614

15-Mar-01

   Jongmin Lee    Auditor & Executive Director    16-Mar-04    15-Mar-09    28,027    14,807    0    14,807

15-Mar-01

   Inkie Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Hyungjin Chang    Non Executive Director    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Jihong Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Bongho Paick    Non Executive Director    16-Mar-04    15-Mar-09    28,027    1,870    0    1,870

15-Mar-01

   Ikrae Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Seungheon Han    Non Executive Director    16-Mar-04    15-Mar-09    28,027    1,870    0    1,870

15-Mar-01

   Youngseok Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027    1,870    0    1,870

15-Mar-01

   Sewoong Lee    Non Executive Director    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Changki Min    Non Executive Director    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Bockwoan Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    0    11,845

15-Mar-01

   Yoohwan Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    0    11,845

15-Mar-01

   Dukhyun Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    0    11,845

15-Mar-01

   Yoonok Hyun    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    0    11,845

15-Mar-01

   Taigon Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    0    11,845

15-Mar-01

   Byungsang Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    0    11,845

15-Mar-01

   Byungjin Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    0    11,845

15-Mar-01

   Jihan Koo    Head of Regional Head Office    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Dongsoon Park    Head of Regional Head Office    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Hoosang Chang    Head of Regional Head Office    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Sanghoon Lee    Head of Regional Head Office    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Jaein Suh    Head of Regional Head Office    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Sunghyun Chung    Head of Regional Head Office    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Jonghwa Lee    Head of Regional Head Office    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

 

7


Table of Contents

Grant date

  

Name of the
grantee

  

Position when granted

   Exercise period

  

Exercise

price

 

Number
of
granted
options*

 

Number
of
exercised
options

   Number of
exercisable
options
         From    To          

15-Mar-01

   Sangwon Lee    Head of Regional Head Office    16-Mar-04    15-Mar-09    28,027   2,961   0    2,961

15-Mar-01

   Joonsup Chang    Head of Regional Head Office    16-Mar-04    15-Mar-09    28,027   2,961   0    2,961

15-Mar-01

   Dongshin Yang    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Jaekyung Lee    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Yeonkun Chung    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Youngno Lee    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Kitaek Hong    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Soondo Park    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Joonho Park    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Yangjin Kim    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Kwangdae Park    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Sungwan Choi    General Manager    16-Mar-04    15-Mar-09    28,027   370   0    370

15-Mar-01

   Junghaeng Lee    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Anseok Cho    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Sangcheol Lee    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Taejoo Yoon    General Manager    16-Mar-04    15-Mar-09    28,027   10   0    10

15-Mar-01

   Youngman Lee    General Manager    16-Mar-04    15-Mar-09    28,027   520   0    520

15-Mar-01

   Youngsoo Kim    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Jongyoung Yoon    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Jaehong Yoo    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Changhwan Bae    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Sian Heo    General Manager    16-Mar-04    15-Mar-09    28,027   370   0    370

15-Mar-01

   Seokwon Choi    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Gilho Seo    General Manager    16-Mar-04    15-Mar-09    28,027   370   0    370

15-Mar-01

   Youngsoo Shin    General Manager    16-Mar-04    15-Mar-09    28,027   370   0    370

15-Mar-01

   Joonbo Cho    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Kiyoul Seo    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Byungdoo Ahn    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Kookshin Kang    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Ingyu Choi    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Hyungyoung Lee    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Youngrok Han    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Hyeyoung Kim    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Kihyun Kim    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Sungshin Cho    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Youngmo Lee    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Jongik Kim    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Kwangmook Park    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Yongseung Lee    General Manager    16-Mar-04    15-Mar-09    28,027   592   0    592

15-Mar-01

   Sunggil Lee    General Manager    16-Mar-04    15-Mar-09    28,027   370   0    370
                 
           

16-Nov-01

   Jungtae Kim    President & CEO    17-Nov-04    16-Nov-09        500,000   0    500,000

16-Nov-01

   Jungtae Kim    President & CEO    17-Nov-04    16-Nov-09    X1   200,0002   0    200,000

16-Nov-01

   Sanghoon Kim    Chairman    17-Nov-04    16-Nov-09        150,000   0    150,000
                 
           

1.   Exercise price = 51,200 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4) / 100. The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period—207.25) / 207.25 x 100.
2.   Conditional options up to 200,000: Additional shares shall be granted if the average closing price of Kookmin Bank’s stock from August 17, 2004 to November 16, 2004 (or for the three months prior to his resignation, if he resigns earlier than his original tenure) is higher than the stock prices of any other bank listed on the Korea Stock Exchange. The number of options to be granted shall be based on total score, which calculated by the earned total scores of both ROE and market capitalization on November 17, 2004 (or on the date of his resignation, if he resigns earlier than his original tenure). The additional shares will not be exercisable if the CEO works less than 18 months or the earned total score is less than 80 points.

 

8


Table of Contents

Grant date

  

Name of the
grantee

  

Position when granted

   Exercise period

  

Exercise

price

 

Number of
granted
options*

  

Number of
exercised
options

   Number of
exercisable
options
         From    To           

22-Mar-02

   Choulju Lee    Auditor & Executive Director    23-Mar-05    22-Mar-10        9,963    0    9,963

22-Mar-02

   Henry Cornell    Non Executive Director    23-Mar-05    22-Mar-10        3,321    0    3,321

22-Mar-02

   Keunshik Oh    Non Executive Director    23-Mar-05    22-Mar-10        3,321    0    3,321

22-Mar-02

   Dongsoo Chung    Non Executive Director    23-Mar-05    22-Mar-10        10,000    0    10,000

22-Mar-02

   Jihong Kim    Non Executive Director    23-Mar-05    22-Mar-10    Y1   3,321    0    3,321

22-Mar-02

   Timothy Hartman    Non Executive Director    23-Mar-05    22-Mar-10        3,321    0    3,321

22-Mar-02

   Sunjin Kim    Non Executive Director    23-Mar-05    22-Mar-10        3,000    0    3,000

22-Mar-02

   Moonsoul Chung    Non Executive Director    23-Mar-05    22-Mar-10        3,000    0    3,000

22-Mar-02

   Kyunghee Yoon    Non Executive Director    23-Mar-05    22-Mar-10        3,000    0    3,000
                 
           

22-Mar-02

   Jongkyoo Yoon    Executive Vice President    23-Mar-05    22-Mar-10    57,100   30,000    0    30,000

22-Mar-02

   Bonghwan Cho    Executive Vice President    23-Mar-05    22-Mar-10    57,100   30,000    0    30,000

22-Mar-02

   Jaein Suh    Executive Vice President    23-Mar-05    22-Mar-10    57,100   30,000    0    30,000

22-Mar-02

   Bumsoo Choi    Executive Vice President    23-Mar-05    22-Mar-10    57,100   30,000    0    30,000

22-Mar-02

   Bockwoan Kim    Executive Vice President    23-Mar-05    22-Mar-10    57,100   30,000    0    30,000

22-Mar-02

   Kitaek Hong    Executive Vice President    23-Mar-05    22-Mar-10    57,100   30,000    0    30,000

22-Mar-02

   Sunghyun Chung    Executive Vice President    23-Mar-05    22-Mar-10    57,100   30,000    0    30,000

22-Mar-02

   Kisup Shin    Executive Vice President    23-Mar-05    22-Mar-10    57,100   30,000    0    30,000

22-Mar-02

   Sungkyu Lee    Executive Vice President    23-Mar-05    22-Mar-10    57,100   30,000    0    30,000

22-Mar-02

   Byungsang Kim    Executive Vice President    23-Mar-05    22-Mar-10    57,100   9,498    0    9,498

22-Mar-02

   Jongyoung Yoon    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   15,000    0    15,000

22-Mar-02

   Jaeil Song    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   15,000    0    15,000

22-Mar-02

   Hyunggoo Shim    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   15,000    0    15,000

22-Mar-02

   Junghaeng Lee    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   15,000    0    15,000

22-Mar-02

   Joonsup Chang    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   15,000    0    15,000

22-Mar-02

   Youngno Lee    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   15,000    0    15,000

22-Mar-02

   Dongsoon Park    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   15,000    0    15,000

22-Mar-02

   Sungbin Kim    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   15,000    0    15,000

22-Mar-02

   Sungbok Park    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   15,000    0    15,000

22-Mar-02

   Yeonkun Chung    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   15,000    0    15,000

22-Mar-02

   Mahnsoo Song    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   15,000    0    15,000

22-Mar-02

   Jeongyeon Kim    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   5,000    0    5,000

22-Mar-02

   Hakyeon Jeong    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   5,000    0    5,000

22-Mar-02

   Jongwhan Byun    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   5,000    0    5,000

22-Mar-02

   Jaehan Kim    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   5,000    0    5,000

22-Mar-02

   Jongok Na    Head of Regional Head Office    23-Mar-05    22-Mar-10    57,100   5,000    0    5,000

26-Jul-02

   Donald MacKenzie    Executive Vice President    27-Jul-05    26-Jul-10    58,800   30,000    0    30,000
                     
       

1.   Exercise price = 57,100 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period – KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.

 

9


Table of Contents

Grant date

  

Name of the
grantee

  

Position when granted

   Exercise period

  

Exercise

price

 

Number
of
granted
options*

  

Number
of
exercised
options

   Number of
exercisable
options
         From    To           

21-Mar-03

   Sungnam Lee    Auditor & Executive Director    22-Mar-06    21-Mar-11        30,000    0    30,000

21-Mar-03

   Moonsoul Chung    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Sunjin Kim    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Richard Elliott Lint    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Kyunghee Yoon    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Seoungwoo Nam    Non Executive director    22-Mar-06    21-Mar-11    Y1   10,000    0    10,000

21-Mar-03

   Sukyoung Cha    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Bernard S. Black    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Kihong Kim    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Eunjoo Park    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Cheolsoo Ahn    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Kyungbae Suh    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000
                 
           

21-Mar-03

   Sungchul Kim    Executive Vice President    22-Mar-06    21-Mar-11    35,500   30,000    0    30,000

21-Mar-03

   Woojung Lee    Executive Vice President    22-Mar-06    21-Mar-11    35,500   30,000    0    30,000

21-Mar-03

   Seeyoung Lee    Executive Vice President    22-Mar-06    21-Mar-11    35,000   30,000    0    30,000

21-Mar-03

   Wonsuk Oh    Head of Regional Head Office    22-Mar-06    21-Mar-11    35,500   15,000    0    15,000

21-Mar-03

   Sungdae Min    Head of Regional Head Office    22-Mar-06    21-Mar-11    35,500   15,000    0    15,000

21-Mar-03

   Kyungjae Cheong    Head of Regional Head Office    22-Mar-06    21-Mar-11    35,500   15,000    0    15,000

21-Mar-03

   Choulhee Kim    Head of Regional Head Office    22-Mar-06    21-Mar-11    35,500   15,000    0    15,000

21-Mar-03

   Indo Lee    Head of Regional Head Office    22-Mar-06    21-Mar-11    35,000   15,000    0    15,000

21-Mar-03

   Maengsu Yang    Head of Regional Head Office    22-Mar-06    21-Mar-11    35,500   15,000    0    15,000

27-Aug-03

   Jinbaek Cheong    Executive Vice President    28-Aug-03    27-Aug-11    40,500   30,000    0    30,000

22-Mar-01

   Hankyoung Lee2    Former KCC Officer    23-Mar-04    22-Mar-11    71,538   6,644    0    6,644

22-Mar-01

   Junchae Song    Former KCC Officer    23-Mar-04    22-Mar-11    71,538   6,644    0    6,644

22-Mar-01

   Cheolho Kim    Former KCC Officer    23-Mar-04    22-Mar-11    71,538   4,429    0    4,429

22-Mar-01

   Myoungwoo Lee    Former KCC Officer    23-Mar-04    22-Mar-11    71,538   4,429    0    4,429
                 
           

29-Mar-02

   Bounghak Kim    Former KCC Officer    30-Mar-04    29-Mar-11        4,429    0    4,429

29-Mar-02

   Sun Lee    Former KCC Officer    30-Mar-04    29-Mar-11    Y3   4,429    0    4,429

29-Mar-02

   Jangok Kim    Former KCC Officer    30-Mar-04    29-Mar-11        4,429    0    4,429

Total

                 2,883,242    553,069    2,330,173


1   Exercise price = 35,500 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period – KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.
2   Exercise price = 129,100 Won x (1 + the increase rate of Comparative Industry Index x 0.4).
     If negative index produced, the factor is not to be considered.
     The increase rate of Comparative Industry Index = (B-A)/A
     A : KOSPI as of the grant date x 0.5 + KOSPI Banking Industry Index as of the grant date x 0.5
     B : KOSPI as of the exercise date x 0.5 + KOSPI Banking Industry Index as of the exercise date x 0.5
3   The last 7 people in the above stock option table were granted Kookmin Bank stock option retroactively on the indicated dates. Those were originally granted by Kookmin Credit Card (KCC) when they were in office, and due to the Merger between Kookmin Bank and Kookmin Credit Card, those options were converted into stock options of the Bank.

 

10


Table of Contents

1.4.    Dividend

 

The following table shows dividend policy and the related information for the last three years.

 

(Units: in millions of Won unless indicated otherwise)


     2002   2001    2000

Net income for the period

   1,310,291   740,565    719,700

Earnings per share (Won)

   4,1231   3,706    2,403

Maximum amount available for dividend

   1,192,6432   604,984    614,046

Total dividend amount

   325,232   119,866    151,009

Dividend payout ratio (%)

   24.823   16.19    20.76

Cash dividend per common share (Won)

   1,000   100    500

Stock dividend per common share (%)

   —     6    —  

Dividend per preferred share (Won)

   —     —      50

Dividend yield ratio (%)

   2.384   0.80    3.36

Net asset value per common share (Won)

   30,6145   29,742    12,533

Ordinary income per common share (Won)

   4,123   3,706    2,403

 

1.5.    Merger Summary

 

As of September 30, 2003, Kookmin Bank merged Kookmin Credit Card, its former subsidiary about 74% shares owned. Followings are summarized information with regard to the Merger.

 

1.5.1.    Brief Note on Merger Procedures

 

May 30, 2003 :

   Completed merger agreement and officially submitted Merger Statement to FSS.

July 23, 2003 :

   Approved by board of directors of Kookmin Bank

September 5, 2003 :

   Approved by shareholders meeting of Kookmin Credit Card

September 30, 2003 :

   Completed the merger and integrated into single card business unit.

October 7, 2003 :

   Submitted Merger Completion Report to FSS

1.   Earnings per share = net income (1,310,291,195,314 Won) / weighted average number of shares (317,786,872 shares)
2.   Maximum amount available for dividend = retained earnings before appropriations (1,319,970 millions of Won) + transferred from prior years’ reserves (5,417 millions of Won) – appropriated amount pursuant to the relevant rules and regulations (132,744 millions of Won)
3.   Dividend payout ratio = total dividend amount for common shares (325,232,596,000 Won) / net income (1,310,291,195,314 Won).
4.   Dividend yield ratio = dividend per share (1,000 Won) / market closing price of December 31, 2002 (42,000 Won)
5.   Net asset value per common share = total shareholders’ equity (10,049,396 millions of Won) / total issued shares as of December 31, 2002 (328,258,685 shares).

 

11


Table of Contents

1.5.2.    Merger Method

 


Entity    Business    Merger Method

Kookmin Bank (KB)

   Banking    KCC is merged into KB

Kookmin Credit Card (KCC)

   Credit card   

 

1.5.3.    Merger Ratio

 


     KB    KCC

Stock Price

   31,780 Won    14,078 Won

Merger Ratio (Common Stock)

   1    0.442983

 

1.5.4.    Changes in Equity-related factors after Merger

 


          Before Merger    After Merger

Number of Stocks Authorized

   Common stocks    1,000,000,000    1,000,000,000
   Preferred stocks    —      —  

Number of Stocks Issued

   Common stocks    328,258,685    336,379,116
   Preferred stocks    —      —  

Paid-in capital (million Won)

        1,641,293    1,681,896

 

 

12


Table of Contents

2.    Business

 

2.1.     Source and Use of Funds

 

2.1.1.    Source of Funds

 

(Unit: in millions of Won)


          September 30, 2003    December 31, 2002    December 31, 2001
         
          Average
balance
  

Interest

rate
(%)

   Average
balance
  

Interest

rate
(%)

   Average
balance
   Interest
rate (%)

Won currency

   Deposits and Mutual installment    116,492,015    3.78    113,157,719    4.21    63,743,997    5.53
    
     Certificate of deposit    3,561,241    4.60    2,119,900    4.82    2,022,414    6.10
    
     Borrowings    3,384,195    3.91    4,568,873    4.45    3,784,147    4.85
    
     Call money    1,503,361    3.99    1,039,249    4.02    403,937    4.11
    
     Other    22,474,928    5.90    14,254,281    6.70    9,112,858    7.57

Subtotal

        147,415,740    4.13    135,140,022    4.49    79,067,353    5.74

Foreign currency

   Deposits    1,237,424    0.81    1,096,544    1.28    952,701    3.08
    
     Borrowings    3,480,029    1,06    2,269,774    2.45    2,018,537    5.47
    
     Call money    147,883    1.08    293,151    1.65    223,156    3.67
    
     Finance debentures issued    739,912    —      1,071,848    3.57    1,430,804    5.68
    
     Other    25,782    —      23,087    —      15,081    —  

Subtotal

        5,631,030    1.14    4,754,404    2.67    4,640,279    5.32

Other

   Total Shareholders Equity    11,549,211    —      14,586,550    —      7,463,687    —  
    
     Allowances    88,675    —      63,039    —      353,183    —  
    
     Other    9,756,156    —      3,717,379    —      4,065,899    —  

Subtotal

        21,394,042    —      18,366,968    —      11,882,769    —  

Total

        174,440,812    3.52    158,261,394    3.92    95,590,401    5.00

 

13


Table of Contents

2.1.2.    Use of Funds

 

(Unit: in millions of Won)


          September 30, 2003    December 31, 2002    December 31, 2001
         
          Average
balance
  

Interest

rate (%)

   Average
balance
  

Interest

rate (%)

   Average
balance
  

Interest

rate (%)


Won currency

   Due from banks    169,303    1.40    1,041,865    4.62    1,339,572    5.60
    
     Securities    30,730,771    6.33    30,180,305    6.32    23,861,424    6.78
    
     Loans    120,647,990    7.17    105,188,481    7.79    53,575,082    8.87
    
     Advances for customers    90,359    7.62    91,583    4.35    127,704    3.84
    
     Call loan    468,440    3.94    736,571    4.36    1,765,067    4.80
    
     Private placement corporate bonds    1,232,206    8.47    1,631,524    7.32    2,065,179    10.32
    
     Credit card accounts    5,407,667    9.84    5,719,359    10.25    912,210    17.63
    
     Other    295,534    36.49    374,718    —      614,014    —  
    
     Allowance for credit losses (-)    -1,792,386    —      1,437,960    —      1,297,930    —  

Subtotal

        157,249,884    7.23    143,526,446    7.66    82,962,322    8.50

Foreign currency

   Due from banks    593,757    1.35    253,390    1.35    121,994    3.28
    
     Securities    1,281,677    5.90    1,302,214    7.97    1,079,359    9.13
    
     Loans    2,737,718    2.89    3,216,042    3.39    3,870,853    5.66
    
     Call loan    78,238    1.35    188,465    1.98    185,466    4.15
    
     Bills bought    2,073,176    1.78    835,356    4.71    1,045,331    7.60
    
     Other    12,962    16.20    15,739    —      116,454    —  
    
     Allowance for credit losses (-)    -138,506    —      267,194    —      266,613    —  

Subtotal

        6,639,022    3.05    5,544,012    4.95    6,152,844    7.11

Other

   Cash    976,422    —      914,639    —      530,451    —  
    
     Fixed assets held for business    3,136,226    —      3,126,812    —      1,462,413    —  
    
     Other    6,439,258    —      5,149,485    —      4,482,371    —  

Subtotal

        10,551,906    —      9,190,936    —      6,475,235    —  

Total

        174,440,812    6.63    158,261,394    7.12    95,590,401    7.83

 

14


Table of Contents

2.2.    Principal Banking Activities

 

2.2.1.    Deposits

 

The following table shows the average balances of our deposits for the past three years and ending balances as of the dates indicated.

 

(Unit: in millions of Won)


          September 30, 2003    December 31, 2002    December 31, 2001
         
          Average
balance
  

Ending

balance

   Average
balance
   Ending
balance
   Average
balance
   Ending
balance
         

Deposits in Won

   Demand deposits    11,989,488    13,176,682    10,654,651    12,987,742    4,832,281    10,824,005
    
     Time & savings deposits    96,428,974    96,630,311    93,347,999    93,630,423    53,496,908    89,080,935
    
     Mutual installment deposits    6,940,006    7,009,983    8,058,664    7,491,115    6,469,772    8,871,193
    
     Mutual installment for housing    5,094,516    5,291,492    4,463,601    4,872,637    928,398    4,128,489
    
     Certificates of deposits    3,561,241    4,689,250    2,119,900    3,044,089    2,022,414    1,154,056

Subtotal

        124,014,225    126,797,718    118,644,815    122,026,006    67,749,773    114,058,678

Deposits in foreign currency

   1,237,424    1,303,028    1,096,544    1,083,647    952,701    1,102,626

Trust deposits

   Money trust    13,737,752    11,881,479    17,214,936    15,356,285    20,375,456    19,739,709
    
     Property trust    25,291,861    22,047,490    16,783,690    26,852,684    5,409,033    12,559,922

Subtotal

        39,029,613    33,928,969    33,998,626    42,208,969    25,784,489    32,299,631

Total

        164,281,262    162,029,715    153,739,985    165,318,622    94,486,963    147,460,935

 

2.2.2.    Average Deposit per Domestic Branch

 

The following table shows the average balances of our deposits per domestic branch as of the dates indicated.

 

(Unit: in millions of Won)

         

         
     September 30, 2003    December 31, 2002    December 31, 2001          
    
         

Deposits

   117,753    121,137    133,548          

Deposits in Won

   116,937    120,336    132,320          

         

 

15


Table of Contents

2.2.3.    Average Deposit per Employee

 

The following table shows the average balances of our deposits per employee as of the dates indicated.

 

(Unit: in millions of Won)

         

         
     September 30, 2003    December 31, 2002    December 31, 2001          
    
         

Deposits

   7,531    7,256    7,243          

Deposits in Won

   7,479    7,208    7,176          

         

 

2.2.4.    Loan Balances

 

The following table shows the average balances of our loans for the past three years and ending balances as of the dates indicated.

 

(Unit: in millions of Won)


     September 30, 2003    December 31, 2002    December 31, 2001
    
     Average
balance
   Ending
balance
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance
    

Loans in Won

   120,627,480    124,678,337    105,117,047    116,472,105    53,498,087    94,698,769

Loans in foreign currency

   4,180,092    3,832,578    3,228,857    4,417,176    3,924,562    4,174,237

Advances to customers

   101,847    120,535    106,380    52,430    244,158    199,831

Subtotal

   124,909,419    120,631,450    108,452,284    120,941,711    57,666,807    99,072,837

Trust account loans

   536,741    509,530    789,614    575,412    2,194,851    1,117,817

Total

   125,446,160    129,140,980    109,241,898    121,517,123    59,861,658    100,190,654

 

2.2.5.    Loan Balances as of September 30, 2003 by Remaining Years to Maturities

 

(Unit: in millions of Won)


     Less than 1
year
  

More than 1
year -

less than 3
years

  

More than
3 years -

less than 5
years

   More than 5
years
   Total

Loans in Won

   61,309,521    46,935,406    5,744,289    10,689,121    124,678,337

Loans in foreign currencies

   2,431,854    488,000    380,503    532,222    3,832,579

 

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2.2.6.    Loan Balances by Uses

 

The following table shows the banking account balances of our loans in Won by uses as of the dates indicated.

 

(Unit: in millions of Won)


          September 30, 2003    December 31, 2002    December 31, 2001

Loans to enterprise

   Loans for operations    37,215,145    35,369,066    29,286,707
    
     Loans for facility    6,792,781    5,963,631    4,434,447

Loans to households

        42,857,247    40,477,483    34,648,918

Loans to public sector & others

   Loans for operations    500,892    738,632    730,598
    
     Loans for equipment    42,155    39,414    57,211

Loans on property formation savings

        73,734    95,252    154,069

Loans for housing

        37,175,741    33,731,435    25,342,969

Inter-bank loans

        16,412    20,941    36,110

Others

        4,230    5,449    7,740

Total

        124,678,337    116,441,303    94,698,769

 

2.2.7.    Loan to Deposit Ratio

 

The following table shows loan to deposit ratio as of indicated dates.

 

(Units: in millions of Won,        %)


     September 30,
2003
   December 31,
2002
   December 31,
2001
    

Loans1 (A)

   120,627,480    105,117,047    53,498,087

Deposits2 (B)

   124,014,224    118,644,815    67,749,773

Loan to deposit ratio (A/B)

   97.27    88.60    78.96

 

2.2.8.    Acceptances and Guarantees

 

(Unit: in millions of Won)


     September 30,
2003
   December 31,
2002
   December 31,
2001
    

Determined

   794,963    1,031,698    3,521,970

Contingent

   1,189,639    1,306,878    1,369,723

Total

   1,984,602    2,338,576    4,891,693

 

2.2.9.    Breakdown of Securities Investment

 

The following table shows the average balances of our securities for the past three years and ending balances as of indicated dates.


1.   Average balance of loans in each indicated date
2.   Average balance of deposits in each indicated date. The balances include certificate of deposits

 

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Table of Contents

(Unit: in millions of Won)


          September 30, 2003    December 31, 2002    December 31, 2001
         
          Average
balance
   Ending
balance
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance

Securities in Won (Banking account)

   Monetary stabilization bonds    4,069,977    5,083,198    2,834,534    3,269,269    3,571,137    3,139,925
    
     Government and public bonds    5,536,731    6,175,168    4,272,946    5,252,321    4,454,446    4,592,251
    
     Debentures    12,147,001    8,250,618    13,154,258    12,378,717    11,410,904    14,691,304
    
     Stocks    1,593,871    854,395    2,146,149    1,661,682    1,309,134    2,154,449
    
     Others    7,383,192    9,045,467    7,809,012    7,162,134    3,115,803    7,547,153

Subtotal

        30,730,772    29,408,846    30,216,899    29,724,123    23,861,424    32,125,082

Securities in Won (Trust account)

   Monetary stabilization bonds    901,854    1,220,416    1,309,515    583,379    3,228,021    2,725,071
    
     Government and public bonds    1,133,579    1,185,062    2,023,503    1,323,195    2,990,549    3,059,777
    
     Debentures    6,299,382    5,072,127    8,035,960    7,600,794    7,635,765    7,613,829
    
     Stocks    807,425    743,657    904,921    924,514    672,845    890,151
    
     Others    3,510,767    2,795,094    3,945,649    3,821,884    4,340,103    3,913,328

Securities in foreign currency (Trust Account)

        893,720    803,591    559,964    747,253    118,147    370,415

Subtotal

        13,546,727    11,819,947    77,213,310    74,449,265    18,985,430    18,572,571

Securities in foreign currency (Banking account)

   Foreign securities    986,319    935,098    945,199    960,749    736,084    909,730
    
     Off-shore foreign securities    295,358    245,171    320,423    255,878    343,275    382,542

Subtotal

        1,281,677    1,180,269    1,265,622    1,216,627    1,079,359    1,292,272

Total

        45,559,176    42,409,062    48,262,033    45,941,769    43,926,213    51,989,925

 

2.2.10.    Trust Account (money trust)

 

(Unit: in millions of Won)


     September 30, 2003    December 31, 2002    December 31, 2001

     Total amount
trusted
   Trust fees    Total amount
trusted
   Trust fees    Total amount
trusted
   Trust
fees

Return-guaranteed trust

   606    33,403    1,528    59,530    25,551    -17,147

Performance trust

   39,029,007    143,251    33,997,098    241,444    25,758,938    353,890

Total

   39,029,613    176,654    33,998,626    300,974    25,784,489    336,743

 

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Table of Contents

2.2.11.    Credit Card

 

2.2.11.1.    BC Card

 

(Unit: in millions of Won unless indicated otherwise)


          September 30, 2003    2002    2001

Number of card holders (Person)

   Corporate    54,941    58,090    23,811
     Individual    4,056,222    4,748,427    4,017,950
    

Number of merchants

        325,262    262,619    295,668

Profit

   Sales1    16,340,878    27,216,500    22,272,700
    
    

Fee revenue2

  

694,559

  

1,039,710

  

819,399


 

2.2.11.2.    Kookmin Card3

 

(Unit: in millions of Won unless indicated otherwise)


          September 30, 2003    2002    2001

Number of card holders (Person)

   Corporate    152,472    153,425    105,600
     Individual    11,052,024    11,638,968    9,605,946
    

Number of merchants

        1,552,983    1,675,176    1,569,103

Profit

   Sales1    52,143,378    83,860,180    65,382,300
    
     Fee revenue    1,401,711    155,545    142,700

 

2.3.    Property, Plants and Equipment

 

2.3.1.    Branch Network

 

As of September 30, 2003, we had 1,164 branches and 61 sub-branches in Korea, the largest number of branches among Korean commercial banks. Approximately 43% of our branches and sub-branches are located in Seoul.

 

We also have three overseas branches in Tokyo, New York and Auckland, and 1 overseas office in Guangzhou in China

 

2.3.2.    Business Property (Land & Buildings)

 

Our registered office and corporate headquarters are located at 9-1, 2-Ga, Namdaemun-Ro, Jung-Gu, Seoul, Korea. The book value of all the properties owned by us as of September 30, 2003 is 1,611,342 million Won. In addition to the properties owned by us, we also leased 1,095,163 million Won of properties for our branch space.


1.   Includes credit card receivables and cash advances.
2.   Excludes fee related to Kookmin Credit Card
3.   This is the result of former Kookmin Credit Card.

 

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Table of Contents

2.3.3.    Automated Banking Machines

 

We have established an extensive network of automated banking machines, which are installed in branches and in Autobanks (unmanned outlets). These automated banking machines consist of ATMs, cash dispensers and passbook printers. As of September 30, 2003, we had 7,945 ATMs, 1,532 cash dispensers and 767 passbook printers.

 

2.4.    Other Details Relevant to Investment Decision

 

2.4.1.    BIS Risk-adjusted Capital Ratios

 

(Units: in millions of Won,    %)


     September 30, 20031    December 31, 2002    December 31, 2001

Risk-adjusted capital (A)

   13,894,299    14,439,313    11,750,856

Risk-weighted assets (B)

   129,335,550    138,703,021    114,849,227

BIS ratios (A/B)

   10.74    10.41    10.23

 

2.4.2.    Non-performing Loans2

 

(Units: in millions of Won unless indicated otherwise)


September 30, 2003   December 31, 2002   Change

Amount

  NPL to total loans   Amount   NPL to total loans   Amount   NPL to total loans

3,800,519

  2.77%   2,509,073   1.90%   1,291,446   0.87%p


1   Tentative figures
2.   Excluding non-performing loans of former Kookmin Credit Card. Non-performing loans are defined as those loans that are past due more than 90 days or that are placed non-accrual status according to the Financial Supervisory Service’s guidelines.

 

2.4.3. Loan Losses Allowance1

 

The following table shows the balance of our loan losses allowances as of the dates indicated.

 

(Units: in millions of Won)


          September 30, 2003    December 31, 2002    December 31, 2001

Loan losses allowance

   Domestic    4,514,676    2,365,898    2,255,068
    
     Overseas    10,764    12,798    16,111
    
     Total    4,525,440    2,378,696    2,271,179

Write-offs for the Period

        1,963,191    1,527,311    1,090,029


1.   Including 1,388,854 million Won of loan losses allowance of former Kookmin Credit Card

 

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Table of Contents

3.    Financial Information

 

See 9. Exhibits / 9.1. List of Financial Statements.

 

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Table of Contents

4.    Principal Accountant Fees and Services

 

4.1.    Audit & Review Service

 

Our Financial statements for the third quarter, 2003 have been reviewed by Samil Accounting Corporation, the Korean member firm of PricewaterhouseCoopers. The aggregate audit and review service contract amount for the year 2003 is 980 million Won.

 

4.2.    Service Other than Audit & Review

 

The following is a description of non-audit services rendered by our independent auditor for the last three years.

 

(Units: in millions of Won unless indicated otherwise)


Year    Service description    Amount of payment

September 30

2003

  

-   US GAAP conversion for 2002

-   Due Diligence on Kookmin Credit Card

-   SEC Filing regarding the proposed merger with Kookmin Credit Card

  

US$3,800 thousand

250

US$30 thousand


2002

  

-   Project for improving the accounting process

   690
    
    

-   Advisory service for the conversion process in US GAAP

   1,450

2001

  

-   Due diligence on the assets and liabilities in connection with the merger

   2,400
    
    

-   US GAAP conversion for 2000

   US$ 2,700 thousand
    
    

-   US GAAP conversion for New York Stock Exchange listing of New Kookmin Bank

   US$ 7,480 thousand
    
    

-   Advisory service for tax in connection with the merger

   300
    
    

-   US GAAP conversion

   US$ 4,950 thousand

 

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Table of Contents

5.    Corporate Governance and Affiliated Companies

 

5.1.    Board of Directors

 

The board of directors holds regular meetings every quarter. The board of directors consists of directors and resolves each following matter:

 

  n   matters relating to business objectives and performance evaluation;

 

  n   matters relating to amendments of the Articles of Incorporation;

 

  n   matters relating to budget and accounting including salaries of directors and employees;

 

  n   matters relating to major organizational changes such as dissolution, business transfer and merger;

 

  n   matters relating to internal control standards; or

 

  n   other matters determined by law and the board of directors regulations.

 

We currently have six management committees that serve under the board:

 

  n   the Board Steering Committee;

 

  n   the Management Strategy Committee;

 

  n   the Risk Management Committee;

 

  n   the Audit Committee;

 

  n   the Compensation Committee; and

 

  n   the Non Executive Director Nomination Committee.

 

Each committee member is appointed by the board of directors, except for members of the Audit Committee, who are elected at the general meeting of stockholders. For list of our directors, see 7. Directors, Senior Management and Employees / 7.1. Executive Directors and 7.2. Non-Executive Directors.

 

5.2.    Audit Committee

 

Audit Committee oversees our financial reporting and approves the appointment of and interaction with our independent auditors, compliance officers, management personnel and other committee advisors. The committee also reviews our financial information, auditor’s examinations, key financial statement issues and the administration of our financial affairs by the board of directors. In connection with the general meetings of stockholders, the committee examines the agenda for, and financial statements and other reports to be submitted by, the board of directors to each general meeting of stockholders. The committee holds regular meetings every quarter and as-needed basis.

 

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Table of Contents

5.3.    Voting Rights of Shareholders

 

Each outstanding share of our common stock is entitled to one vote per share.

 

If the method of written resolution at the general meeting of shareholders is adopted by resolution of the board of directors, at which the convening of the general meeting of shareholders is determined, the shareholders may exercise their voting rights in writing without participating the meeting in person. In this case, the Bank is required to send the documents and references necessary for exercise of voting rights, together with the convening notice.

 

If a shareholder intends to exercise his/her voting rights in writing, the shareholder is required to fill in a certain form and submit it to the Bank one day before the date set for the general meeting of shareholders.

 

5.4.    Compensation to the Directors

 

For the 9 months ended September 30, 2003, the aggregate of the remuneration paid by us to 1) the Chairman, President & CEO and our other executive directors and 2) our non-executive directors was 2,483 million Won, 389 million Won, respectively. The following table shows the breakdown of the remuneration.

 

(Units: in millions of Won)


     The aggregate
remuneration paid
   Limit for the remuneration
resolved by shareholders’
meeting
   Average amount of the
payment per person

1) Executive Directors

   2,483    —      733

2) Non Executive Directors

   389    —      36

Total

  

2,872

  

8,000

  

769


 

As part of remuneration, Kookmin Bank also granted stock options to directors. See 1. Introduction to the Bank / 1.3. Capital Structure / 1.3.4. Stock Option.

 

5.5.    Affiliated Companies

 

5.5.1.    List of Affiliates

 

As of September 30, 2003, we have following affiliates.

 

  n   KB Investment Co., Ltd.

 

  n   KB Investment Trust Management Co., Ltd.

 

  n   KB Real Estate Trust Co., Ltd.

 

  n   KB Credit Information Co., Ltd.

 

  n   Kookmin Data System Corporation

 

  n   Kookmin Futures Co., Ltd.

 

  n   ING Life Korea Ltd.

 

  n   Kookmin Bank Luxemburg. S.A.

 

  n   Kookmin Bank International (London) Ltd.

 

  n   Kookmin Finance Hong Kong Ltd.

 

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Table of Contents

5.5.2.    Operating Results of Affiliates

 

(Unit: in millions of Won)


Company name    Closing date    Operating results of the latest fiscal year  
     

      Total
Assets
   Total
Liabilities
   Total
Equities
   Sales   

Net

Income

 

KB Investment

   December 31, 2002    99,979    26,206    73,773    18,744    33,883  

Kookmin Credit Card

   December 31, 2002    13,381,247    12,463,020    918,227    3,156,230    260,888  

KB Investment Trust Management

   March 31, 2003    65,086    17,447    47,639    31,474    13,966  

KB Real Estate Trust

   December 31, 2002    300,671    212,943    87,728    59,771    8,915  

KB Credit Information

   December 31, 2002    20,772    6,821    13,951    34,179    3,639  

Kookmin Data System Corporation

   December 31, 2002    18,290    4,671    13,619    43,290    2,008  

Kookmin Futures

   March 31, 2003    45,414    20,652    24,762    12,734    2,333  

ING Life Korea

   March 31, 2003    2,068,192    1,937,761    130,431    1,211,847    78,559  

Kookmin Bank Luxemburg

   September 30, 2003    445,781    445,732    49    11,031    (6,685 )

Kookmin Bank International (London)

   September 30, 2003    253,496    205,721    47,775    7,823    363  

Kookmin Finance Hong Kong

   September 30, 2003    224,841    170,802    54,039    14,196    (4,951 )

 

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Table of Contents

6.    Share Ownership and Stocks

 

6.1.    Major Shareholders

 

The following table presents information regarding the beneficial ownership of our shares as of June 17, 2003 (official record date for the Merger with Kookmin Credit Card) by each person known by us to own beneficially more than 5% of our outstanding shares.

 


Name    Number of Shares of
Common Stock
   Percentage of Total Outstanding
Shares of Common Stock
 

The Government of Korea    30,623,761    9.33 %

Goldman Sachs1    16,831,607    5.13 %

The Bank of New York2    30,875,235    9.41 %

Total    78,330,603    23.87 %

 

6.2.    Market Price Information for the Previous Six Months

 

6.2.1.    Common Stock Traded in the Korea Stock Exchange

 

(Unit: in Won, thousands of shares)


          April    May    June    July    August    September

Registered Common Shares

   High    35,550    34,200    39,900    42,800    42,950    46,200
 
     Low    29,150    29,950    35,150    36,400    37,300    37,300

Trading Volume

        68,520    48,294    37,642    38,874    25,806    38,017

 

6.2.2.    American Depositary Shares Traded in the New York Stock Exchange

 

(Unit: in US$, thousands of shares)


          April    May    June    July    August    September

American Depositary Shares

   High    29.13    28.79    33.73    37.40    37.30    39.65
 
     Low    23.23    24.71    28.70    30.27    31.30    32.43

Trading Volume

        7,333    7,981    7,083    7,926    4,145    13,850


1.   In September, Goldman Sachs disposed about 13,000,000 shares, accordingly, ownership of our shares changed to 1.18% as of September 5, 2003.
2.   As depositary bank of American Depositary Shares of Kookmin Bank

 

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Table of Contents

7.    Directors, Senior Management and Employees

 

As of September 30, 2003, our board of directors, which consists of 4 executive directors and 12 non-executive directors, has the ultimate responsibility for the management of our affairs.

 

7.1.    Executive Directors

 

Our 4 executive directors consist of the chairman, president & CEO, auditor & executive director and one executive director seconded from ING.

 

The names and positions of our directors with Kookmin Bank’s common stocks owned are set forth below.

 


Name    Date of Birth    Position    Common Stocks Owned

Sanghoon Kim

   03/13/1942    Chairman    —  

Jungtae Kim

   08/15/1947    President & CEO    66,581

Sungnam Lee

   11/11/1947    Auditor & Executive Director    —  

Donald H. MacKenzie

   12/20/1948    Executive Director & EVP    —  

 

7.2.    Non-Executive Directors

 

Our non-executive directors are selected based on the candidates’ talents and skills in diverse areas, such as law, finance, economy, management and accounting. As of September 30, 2003, 12 non-executive directors are in office.

 

Our current non-executive directors with Kookmin Bank’s shares owned are as follows.

 


Name    Date of Birth    Position    Common Stocks Owned

Moonsoul Chung

   03/07/1938    Non-Executive Director    4,041

Richard Elliott Lint

   01/04/1946    Non-Executive Director    400

Sunjin Kim

   06/08/1942    Non-Executive Director    2,525

Dongsoo Chung

   09/24/1945    Non-Executive Director    480

Seoungwoo Nam

   05/13/1952    Non-Executive Director    591

Kyunghee Yoon

   01/05/1947    Non-Executive Director    —  

Sukyoung Cha

   06/09/1953    Non-Executive Director    510

Bernard S. Black

   11/13/1953    Non-Executive Director    400

Kihong Kim

   01/10/1957    Non-Executive Director    570

Eunjoo Park

   06/03/1957    Non-Executive Director    510

Cheolsoo Ahn

   01/22/1962    Non-Executive Director    510

Kyungbae Suh

   01/14/1963    Non-Executive Director    510

 

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Table of Contents

7.3.    Senior Management

 

In addition to the executive directors who are also our executive officers, we currently have the following 11 executive officers as of September 30, 2003:

 


Name    Date of Birth    Position    Common Shares Owned

Jongkyoo Yoon

   10/13/1955    Executive Vice President    3,300

Sungchul Kim

   09/10/1951    Executive Vice President    3,498

Youngil Kim

   07/06/1953    Executive Vice President    3,327

Kitaek Hong

   01/16/1948    Executive Vice President    3,931

Sunghyun Chung

   08/10/1947    Executive Vice President    —  

Kisup Shin

   10/29/1955    Executive Vice President    280

Seongkyu Lee

   10/25/1959    Executive Vice President    —  

Seeyoung Lee

   12/25/1952    Executive Vice President    2

Woojung Lee

   07/11/1949    Executive Vice President    —  

Jinbaek Chung

   10/29/1955    Executive Vice President    —  

Bonghwan Cho

   03/30/1950    Executive Vice President    14,581

 

7.4.    Employees1

 

The following table shows the breakdown of our employees as of September 30, 2003.

 

(Unit: in millions of Won)


     Number of Employees

   Average Tenure
of the full-time
employees
   Total Payment for
the 9 Months
Period
  

Average Monthly
Payment per

Person

     Full-time    Contractual    Total         

Male

   13,284    1,218    14,502    15.68    539,993    4.1

Female

   5,005    7,477    12,482    12.33    293,836    2.6

Total

   18,289    8,695    26,984    14.66    833,829    3.4

 

7.5.    Labor Union2

 

Under Korea Financial Industry Union, we currently have two union chapters following the merger. There are 8,363 members in former Kookmin Bank chapter and 6,951 members in former H&CB chapter.


1.   Excluding employees hired in local branches overseas and employees of former Kookmin Credit Card
2.   Excluding employees of former Kookmin Credit Card

 

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Table of Contents

8.    Related Party Transaction

 

A number of banking transactions are entered into with related parties in the ordinary course of business. Generally, these transactions include loans, deposits, debt securities and other arms-length transactions relating to our banking business. These transactions are carried out on commercial terms and conditions and at market rates.

 

8.1.    Transactions with Largest Shareholders and Affiliates

 

8.1.1.    Investments in Affiliates1

 

(Unit: in millions of Won)


Name    Relation
with the
Bank
   Account    Par
Value
   Beginning
Balance
(January 1, 2003)
   Increase    Decrease    Ending Balance
(September 30, 2003)

KB Real Estate Trust

   Affiliate    Equity Securities of Affiliate    79,999    79,999    —      —      79,999

KB Investment

   Affiliate    Equity Securities of Affiliate    44,708    44,708    —      —      44,708

KB Investment Trust Management

   Affiliate    Equity Securities of Affiliate    30,670    30,670    —      —      30,670

Kookmin Futures

   Affiliate    Equity Securities of Affiliate    19,996    19,996    —      —      19,996

Kookmin Data System

   Affiliate    Equity Securities of Affiliate    7,998    7,998    —      —      7,998

KB Credit Information

   Affiliate    Equity Securities of Affiliate    2,520    3,918    —      —      3,918

ING Life Korea

   Affiliate    Equity Securities of Affiliate    14,000    14,000    —      —      14,000

KOMOCO

   Affiliate    Equity Securities of Affiliate    30,000    30,000    —      —      30,000

Total

             229,891    229,891    —      —      229,891


1.   Excluding Jooeun Industry and Jangeun Securities which have been under liquidation procedures Kookmin Credit Card, a former major affiliate, was merged into the Bank as of September 30, 2003.

 

29


Table of Contents

8.1.2.    Real Estate Transactions with Affiliates

 

(Unit: in millions of Won)


Name    Relation
with the
Bank
   Type    Account    Increase    Decrease    Deposits    Rent
Fee

KB Credit Information

   Affiliate    Building    Rental Income    —      —      2,804.35    8.11

KB Real Estate Trust

   Affiliate    Building    Rental Income    —      —      1,738    —  

Kookmin Data System

   Affiliate    Building    Rental Income    —      —      879.36    —  

Kookmin Futures

   Affiliate    Building    Rental Income    —      —      1,363.36    —  

Total

                  —      —      6,785.07    8.11

 

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Table of Contents

8.2.    Transactions with Shareholders (Other than the Largest Shareholders and Etc.), Directors and Employees.

 

8.2.1.    Loans and Guarantees

 

(Unit: in millions of Won)


Name    Relation with the Bank    Account    Beginning
Balance
   Increase    Decrease    Ending
Balance
(September 30,
2003)

Kihong Kim

   Non executive director    Housing Loan    18    —      18    —  

Pulmuone Water Co.

  

Related party of Non

executive director, Seungwoo Nam

   General Corporate Loan    2,000    —      —      2,000
         
          Corporate Overdraft    1,011    1,469    911    1,569
         
          Loan for Working Capital    1,800    —      —      1,800
         
          Loan for Purchasing    343    474    157    660

Pulmuone Co.

   Related party of Non executive director, Seungwoo Nam    General Corporate Loan    4,000    —      4,000    —  
         
          Purchase Card Loan    3,778    —      3,778    —  
         
          Loan for Facility    —      3,300    —      3,300
         
          Facility Finance Loan    1,600    —      1,600-    —  
         
          Purchase Card Loan    —      1,721    —      1,721

Pulmouwon Tech co.

   Related party of Non executive director, Seungwoo Nam    Note Discount    —      1,234    1,234    —  

Food Merce

   Related party of Non executive director, Seungwoo Nam    Loan for Purchasing    362    636    —      998

Pulmouwon Healthy Life

   Related party of Non executive director, Seungwoo Nam    General Corporate Loan    —      978    —      978

Total

             14,912    9,812    11,698    13,026

 

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Table of Contents

8.2.2. Real Estate Transaction

 

(Unit: in millions of Won)


Name   

Relation with

Kookmin Bank

   Type    Account    Deposits    Rent
Fee

Haitai

Confectionary & Foods

  

Related party of

Non executive director, Sukyoung Cha

   Building    Rental Deposit    150    —  

National Pension Corporation

   Shareholder    Building    Rental Income    550    —  

Pulmuone Life Co.

  

Related party of

Non executive director Seoungwoo Nam

   Building    Rental Income    10    0.5

Total

                  710    0.5

 

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Table of Contents

9.    Exhibits

 

9.1.    List of Financial Statements

 

     Page

Kookmin Bank Interim Review Report as of and for the nine-months period ended September 30, 2003 and 2002

    

n       Non-Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002

   4

n       Non-Consolidated Statements of Income for the nine-month period ended September 30, 2003 and 2002

   5

n       Non-Consolidated Statements of Cash Flows for the nine-month period ended September 30, 2003

   6

n       Notes to Non-Consolidated Financial Statements September 30, 2003

   8

 

 

 

33


Table of Contents

KOOKMIN BANK

 

 

 

Interim Financial Statements

 

 

 

As of September 30, 2003 and

 

for the three-month period ended September 30, 2003 and

 

nine-month periods ended September 30, 2003 and 2002


Table of Contents

KOOKMIN BANK

Content

 

September 30, 2003 and 2002

 

     Page(s)

Independent Accountant’s Report

   1–3

Non-Consolidated Financial Statements

    

Balance Sheets

   4

Statements of Operations

   5

Statements of Cash Flows

   6–7

Notes to Financial Statements

   8–56

 

 


Table of Contents

LOGO

 

Report of Independent Accountants

 

To the Board of Directors and Shareholders of

Kookmin Bank

 

We have reviewed the accompanying non-consolidated balance sheet of Kookmin Bank (“the Bank”) as of September 30, 2003, the related non-consolidated statements of operations and cash flows for the three-month and nine-month periods ended September 30, 2003, and statement of operations for the nine-month period ended September 30, 2002, expressed in Korean Won. These financial statements are the responsibility of the Bank’s management. Our responsibility is to issue a report on these financial statements based on our review. We have not performed a review of the statement of operations of the Bank for the three-month period ended September 30, 2002 presented herein for comparative purposes.

 

We conducted our review in accordance with the quarterly and semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. These standards require that we plan and perform the review to obtain moderate assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of the Bank’s personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

 

Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying non-consolidated financial statements are not presented fairly, in all material respects, in accordance with financial accounting standards generally accepted in the Republic of Korea.

 

We previously audited in accordance with auditing standards generally accepted in the Republic of Korea, the non-consolidated balance sheet as of December 31, 2002, and the related non-consolidated statement of operations, appropriations of retained earnings, and of cash flows for the year then ended, not presented herein, and in our report dated February 7, 2003, we expressed an unqualified opinion on those non-consolidated financial statements. In our opinion, except for the restatement made pursuant to the provisions under Statement of Korean Financial Accounting Standards No. 6, the balance sheet as of December 31, 2002 provided herein for comparative purposes does not differ, in all material respects, from the balance sheet from which it has been derived.

 

 

1


Table of Contents

As discussed in Note 2 to the accompanying non-consolidated financial statements, as of December 2002, the Bank changed the rates for determining the allowances for losses from consumer loans and credit card loans, in anticipation of the increasing risk of loan losses due to the increase in consumer loans and credit card loans, 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 above change, the Bank’s allowances for loan losses as of September 30, 2003 are increased by (Won)326,451 million for consumer loans and (Won)381,300 million for credit card loans compared to the amounts that which would have been recorded under the previous rates.

 

As discussed in Note 33 to the accompanying non-consolidated financial statements, on May 30, 2003, the Bank obtained approval from the Board of Directors to enter into a merger agreement with Kookmin Credit Card Co., Ltd. (the “Subsidiary”), its majority-owned subsidiary. According to the resolution of the Board of Directors, the Bank merged with the Subsidiary on September 30, 2003. The merger was effected through an exchange of shares with the shareholders of the Subsidiary as of July 24, 2003, besides the Bank, receiving 0.442983 share of the Bank’s common stock for each share of the Subsidiary. The total assets and liabilities of the Subsidiary as of September 30, 2003 are (Won)10,595,409 million and (Won)9,391,897 million, respectively.

 

As discussed in Note 17 to the accompanying non-consolidated financial statements, the Bank sold to Sun Capital Inc., 65.43% of its 85.43% investment in, and (Won)172,024 million of its loans to, Alpha Capital Corp., 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 17 to the accompanying non-consolidated financial statements, the Bank sold its 87.00% investment in Kookmin Investment Trust Management Co., Ltd. to Morgan Stanley Private Equity (the M&A private funds led by Morgan Stanley Global Emerging Markets Inc. and affiliated funds) on May 29, 2002 and sold its 88.66% investment in Kookmin Leasing Co., Ltd. to Sun Capital Inc. on December 27, 2002.

 

As discussed in Note 4 to the accompanying non-consolidated financial statements, KB Investment Co., Ltd., Frontier Investment Co., Ltd., and Kookmin Investment Co., Ltd. were all previously subsidiaries of the Bank. To avoid duplicate investments, KB Investment Co., Ltd. merged with Frontier Investment Co., Ltd. and Kookmin Investment Co., Ltd. on December 31, 2001 and June 27, 2002, respectively.

 

2


Table of Contents

As discussed in Note 17 to the accompanying non-consolidated financial statements, the operations of the Bank may be directly or indirectly affected by the generally unstable economic conditions, and the impact of the implementation of structural reforms in the Republic of Korea. As of September 30, 2003, the Bank’s total exposure (including debt securities, beneficiary certificates, and loans) to domestic credit card companies and capital companies amount to (Won)3,204,091 million. Currently, securities issued by credit card companies and capital companies, which are experiencing liquidity problems, are not widely traded in the bond market. The ultimate effect of these circumstances on the financial position of the Bank as of the balance sheet date cannot be presently determined, and accordingly, no adjustments related to such uncertainties have been recorded in the accompanying non-consolidated financial statements.

 

Accounting principles and review standards and their application in practice vary among countries. The accompanying financial statements are not intended to present the financial position, results of operations and cash flows in conformity 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 review such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying non-consolidated financial statements are for use by those who are knowledgeable about Korean accounting principles or review standards and their application in practice.

 

Seoul, Korea

October 15, 2003

 

This report is effective as of October 15, 2003, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying non-consolidated financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

 

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

 

 

3


Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED BALANCE SHEETS

September 30, 2003 and December 31, 2002

(Unaudited – See Independent Accountant’s Report)


 

(in millions of Korean Won)          
     2003    2002

Assets

             

Cash and due from banks (Note 3)

   (Won) 7,576,865    (Won) 4,599,356

Securities (Note 4)

     30,589,115      30,940,750

Loans (Notes 5 and 6)

     139,216,049      126,730,561

Fixed assets (Note 7)

     3,069,436      3,092,616

Other assets (Note 8)

     9,738,610      6,135,558
    

  

Total assets

   (Won) 190,190,075    (Won) 171,498,841
    

  

Liabilities and Shareholders’ Equity

             

Deposits (Note 9)

   (Won) 128,100,746    (Won) 123,109,653

Borrowings (Note 10)

     14,152,348      10,690,754

Debentures (Note 11)

     22,113,191      17,539,007

Other liabilities (Note 14)

     15,715,943      9,784,798
    

  

Total liabilities

     180,082,228      161,124,212
    

  

Commitments and Contingencies (Notes 15 and 17)

             

Common stock (5,000 Won par value, authorized 1 billion shares, and 336,379,116 shares outstanding in 2003) (Notes 1 and 18)

     1,681,896      1,641,293

Capital surplus (Note 19)

     6,233,045      5,864,752

Retained earnings (Note 20)

     2,033,159      2,742,335

Capital adjustments (Note 21)

     159,747      126,249
    

  

Total shareholders’ equity

     10,107,847      10,374,629
    

  

Total liabilities and shareholders’ equity

   (Won) 190,190,075    (Won) 171,498,841
    

  

 

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

 

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Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months and nine months ended September 30, 2003 and 2002

Unaudited – See Independent Accountant’s Report)


 

(in millions of Korean Won, except per share amounts)                       
     Three-month period

    Nine-month period

     2003     2002     2003     2002
           (not reviewed)            

Interest income

                              

Interest on due from banks

   (Won) 2,630     (Won) 11,656     (Won) 7,797     (Won) 39,314

Interest on trading securities

     33,698       24,353       85,516       73,560

Interest on available-for-sale securities

     227,041       136,885       571,510       442,571

Interest on held-to-maturity securities

     160,623       194,008       524,120       634,260

Interest on loans

     2,424,887       2,334,540       7,216,208       6,817,728

Other interest income

     23,487       22,632       72,869       80,222
    


 


 


 

       2,872,366       2,724,074       8,478,020       8,087,655
    


 


 


 

Interest expenses

                              

Interest on deposits

     1,074,935       1,196,131       3,257,955       3,581,922

Interest on borrowings

     93,446       95,376       307,758       306,297

Interest on debentures

     257,024       217,401       821,045       578,277

Other interest expenses

     18,141       14,768       50,863       49,507
    


 


 


 

       1,443,546       1,523,676       4,437,621       4,516,003
    


 


 


 

Net interest income

     1,428,820       1,200,398       4,040,399       3,571,652

Provision for loan losses (Note 6)

     965,517       337,860       2,651,281       946,200
    


 


 


 

Net interest income after provision for loan losses

     463,303       862,538       1,389,118       2,625,452
    


 


 


 

Non-interest income

                              

Fees & commission income

     339,278       335,028       1,021,107       1,013,260

Dividends on trading securities

     119       71       1,633       1,123

Dividends on available-for-sale securities

     253       378       5,541       18,832

Gain on foreign currency transactions

     35,177       68,940       201,103       142,416

Gain on derivatives transactions (Note 16)

     485,198       537,473       1,802,395       1,297,454

Others (Note 22)

     659,108       198,944       946,633       1,041,069
    


 


 


 

       1,519,133       1,140,834       3,978,412       3,514,154
    


 


 


 

Non-interest expenses

                              

Fees and commission expenses

     53,966       82,065       146,344       254,248

General and administrative expenses (Note 23)

     646,023       681,928       1,856,802       1,773,528

Loss on foreign currency transactions

     44,988       17,797       174,004       182,178

Loss on derivatives transactions (Note 16)

     486,063       441,130       1,767,507       1,134,410

Others (Note 22)

     569,392       248,325       944,481       800,811
    


 


 


 

       1,800,432       1,471,245       4,889,138       4,145,175
    


 


 


 

Operating income (loss)

     182,004       532,127       478,392       1,994,431

Non-operating income (expenses), net (Note 24)

     (880,416 )     (7,213 )     (1,215,128 )     191,733
    


 


 


 

Net income (loss) before income tax expense

     (698,412 )     524,914       (736,736 )     2,186,164
    


 


 


 

Income tax expense (benefit) (Note 25)

     (356,971 )     176,070       (354,627 )     673,296
    


 


 


 

Net income (loss)

   (Won) (341,441 )   (Won) 348,844     (Won) (382,109 )   (Won) 1,512,868
    


 


 


 

Basic earnings (loss) per share (In Korean Won) (Note 26)

   (Won) (1,050 )   (Won) 1,101     (Won) (1,175 )   (Won) 4,624
    


 


 


 

 

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

 

5


Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASHFLOWS

For the three months and nine months ended September 30, 2003

Unaudited – See Independent Accountant’s Report)


 

(in millions of Korean Won)    2003

 
     Three-month period     Nine-month period  

Cash flows from operating activities

                

Net loss

   (Won) (341,441 )   (Won) (382,109 )
    


 


Adjustments to reconcile net loss to net cash provided by operating activities

                

Realized gain on trading securities, net

     (10,399 )     (64,005 )

Unrealized gain on trading securities, net

     (25,805 )     (71,324 )

Provision for loan losses due to merger

     1,652,264       1,652,264  

Loss (gain) on foreign currency transactions, net

     9,811       (27,099 )

Provision for loan losses

     965,517       2,651,281  

Reversal of losses from guarantees and acceptances

     (122,940 )     (194 )

Gain on derivatives transactions, net

     865       (34,888 )

Gain on valuation of derivatives, net

     (35,755 )     (39,633 )

Gain on fair value hedged items

     (14,405 )     (6,329 )

Retirement benefits

     24,371       70,361  

Depreciation and amortization

     117,430       328,342  

Loss on disposal of fixed assets, net

     (378 )     33,175  

Realized gain on available-for-sale securities, net

     (199,476 )     (280,640 )

Impairment on available-for-sale securities, net

     34,965       68,226  

Realized gain on held-to-maturity securities

     (953 )     (2,221 )

Unrealized gain on investment in associates, net

     (588,380 )     (238,738 )

Loss on sale of loans, net

     —         1,633  

Others, net

     (5,658 )     (18,474 )

Changes in assets and liabilities resulting from operations

                

Accrued income

     (143,020 )     (118,636 )

Prepaid expenses

     (196,205 )     (225,370 )

Deferred tax assets

     (191,059 )     (340,985 )

Other assets

     (165 )     3,002  

Accrued expenses

     (49,707 )     (224,215 )

Unearned income

     (17,496 )     (26,658 )

Withholding taxes

     (9,532 )     2,682  

Other liabilities

     42,987       318,544  

Retirement benefits

     (3,686 )     (10,909 )

Accounts payable

     —         384  

Account for agency business

     (20,572 )     (31,324 )

Deferred tax liabilities

     —         (17,298 )

Stock compensation expense (reversal)

     736       (1,947 )
    


 


Net cash provided by operating activities

     871,914       2,966,898  
    


 


 

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

 

6


Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASHFLOWS

For the three months and nine months ended September 30, 2003

Unaudited – See Independent Accountant’s Report)


 

(in millions of Korean Won)    2003

 
     Three-month period     Nine-month period  

Cash flows from investing activities

                

Increase in due from banks

   (Won) (1,388,617 )   (Won) (2,088,361 )

Decrease in trading securities

     931,748       1,808,666  

Decrease in available-for-sale securities

     3,431,662       839,688  

Increase in loans granted, net

     (3,690,657 )     (10,432,242 )

Proceeds from disposal of fixed assets

     13,640       143,382  

Acquisition of fixed assets

     (78,586 )     (248,530 )

Acquisition of intangible assets

     (55 )     (396 )

Proceeds from disposal of foreclosed assets

     205       338  

Acquisition of foreclosed assets

     (165 )     —    

Increase in guarantee deposits

     (1,270 )     (22,316 )

Increase in other accounts receivable

     (1,210,148 )     (2,902,319 )

Increase in payments in advance

     (10,838 )     (38,521 )

Decrease in derivatives assets, net

     50,073       114,609  

(Payments for) collection of domestic exchange receivables

     (52,541 )     712,147  

Collection of loans to trust accounts

     1,135       37,883  
    


 


Net cash used in investing activities

     (2,004,414 )     (12,075,972 )
    


 


Cash flows from financing activities

                

Increase in deposits, net

     404,390       4,996,889  

(Decrease) increase in borrowings, net

     (1,636,620 )     1,000,842  

Increase (decrease) in debentures, net

     135,781       (357,977 )

Increase in borrowings from trust accounts

     1,363,680       2,098,229  

Decrease in dividend payable

     (3 )     (325,235 )

Increase in other accounts payable

     922,429       2,458,625  

(Decrease) increase in advances received from customers

     (799,923 )     369,692  

(Decrease) increase in guarantee deposits received

     (569 )     (7,798 )

(Decrease) increase in domestic exchange payables

     (114,596 )     (305,948 )

Increase in liabilities incurred by agency relationships

     109,503       59,424  

Stock options exercised

     —         (35 )

Acquisition of treasury stock

     (29,094 )     (29,094 )

Sale of treasury stock

             50  
    


 


Net cash provided by financing activities

     354,978       9,957,664  
    


 


Net increase (decrease) in cash and cash equivalents

     (777,522 )     848,590  
    


 


Cash and cash equivalents, beginning of the period (Note 34)

     4,726,693       3,100,581  

Increase due to merger

     33,343       33,343  
    


 


Cash and cash equivalents, end of the period (Note 34)

   (Won) 3,982,514     (Won) 3,982,514  
    


 


 

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

 

7


Table of Contents

KOOKMIN BANK

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2003 and December 31, 2002 and

for the three-month and nine-month periods ended September 30, 2003 and 2002

(Unaudited - See Independent Accountant’s Report)


 

1. 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 Structural Improvement of the Financial Industry Act, the Bank purchased certain assets, including loans classified as normal or precautionary, and assumed most of the liabilities of Daedong Bank as of June 29, 1998. Also, the Bank completed the legal consolidation with H&CB as of October 31, 2001 (Note 32) and merged with Kookmin Credit Card Co., Ltd. (the “Subsidiary”, its majority-owned subsidiary, on September 30, 2003 (Note 33).

 

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 as of November 9, 2001. As of September 30, 2003, the Bank’s paid-in capital amounts to (Won)1,681,896 million and 35,729,664 shares of the Bank are listed on the New York Stock Exchange as American Depositary Shares (“ADSs”).

 

The Bank engages in the banking and trust businesses according to the provisions of the General Banking Act and the Trust Business Act and operates through 1,255 domestic branches and offices (excluding ATMs) and three overseas branches as of September 30, 2003.

 

2. Summary of Significant Accounting Policies

 

The significant accounting policies followed by the Bank in the preparation of its non-consolidated financial statements are summarized below.

 

Basis of Financial Statement Presentation

 

The Bank maintains its official accounting records in Korean Won and prepares statutory financial statements in the Korean language in conformity with financial accounting standards generally accepted in the Republic of Korea. The accompanying financial statements have been condensed, restructured and translated into English from the Korean language non-consolidated financial statements. 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 preparation of the non-consolidated financial statements in conformity with financial accounting standards requires management to make estimates and assumptions that affect amounts reported therein. Although these estimates are based on management’s best knowledge of current events and actions that the Bank may undertake in the future, actual results may be different from those estimates.

 

Application of the Statements of Korean Financial Accounting Standards

 

The Bank’s non-consolidated interim financial statements were prepared in accordance with financial accounting standards generally accepted in the Republic of Korea and Statements of Korean Financial Accounting Standards No. 2 through No. 9, in effect for the fiscal periods beginning after December 31, 2002.

 

The significant accounting policies adopted by the Bank in the preparation of its interim financial statements are identical to the accounting policies followed by the Bank in the preparation of its annual financial statements for the year ended December 31, 2002, except for the classification of securities. The statements of cash flows for the three months and nine months ended September 30, 2002 are not presented pursuant to the transition provision of Statement of Korean Financial Accounting Standards No. 2.

 

The financial statements of prior periods, presented herein for comparative purposes, were reclassified in accordance with Korean Financial Accounting Standards applicable to the Bank as of September 30, 2003. Such reclassification does not affect either prior year net income or net assets.

 

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KOOKMIN BANK

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2003 and December 31, 2002 and

for the three-month and nine-month periods ended September 30, 2003 and 2002

(Unaudited - See Independent Accountant’s Report)


 

Recognition of Interest Income

 

The Bank 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 collateralized with security deposits or guaranteed by financial institutions, is recognized on a cash basis. As of September 30, 2003, the Bank has non-accrual loans and securities of (Won)10,681,874 million and (Won)380,497 million, respectively, with related foregone interest of (Won)665,046 million and (Won)191,727 million, respectively. However, loan balance of Kookmin Credit Card Co., Ltd. was not included in the above amount.

 

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. (September 30, 2003, USD 1:(Won)1,150.2) at the balance sheet date. The resulting exchange gains or losses are reflected in other operating income or expenses.

 

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 the allowances for loan losses. Effective as of January 1, 2002, the classification of corporate borrowers was 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). The 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 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 card loans. Alternatively, the bank classifies such loans by considering the current financial status including delinquent number of days, bankruptcies and collateral value. As of December 2002, the rates used for determining the allowances for losses from corporate loans, consumer loans, and credit card loans were changed as follows:

 

Credit Risk Classification


  

Allowance Rates

before Changes


    Allowance Rates after Changes

 
     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 above change, the Bank’s allowances for loan losses as of September 30, 2003 are increased by (Won)326,451 million for consumer loans and (Won)381,300 million for credit card loans compared to the amounts which would have been recorded under the previous rates.

 

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KOOKMIN BANK

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2003 and December 31, 2002 and

for the three-month and nine-month periods ended September 30, 2003 and 2002

(Unaudited - See Independent Accountant’s Report)


 

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 Bank 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 other interest income. Allowances for loan losses on the restructured loans are provided for based on the loan balances net of present value discounts.

 

The Bank recorded (Won)13,940 million of present value discounts as of September 30, 2003 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

 

Securities that are bought and held principally for the purpose of generating profits on short-term differences in price, and which are actively and frequently bought and sold, are classified as trading securities. Debt securities with fixed or determinable payments and fixed maturity, and which the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity securities. Investments classified as neither trading securities nor held-to-maturity securities are classified as available-for-sale securities.

 

Trading and available-for-sale securities are carried at fair value, except for non-marketable equity securities classified as available-for-sale securities, which are carried at cost. Trading and available-for-sale debt securities are carried at fair value as provided by private bond pricing institutions.

 

Unrealized holding gains or losses on trading securities are charged to current operations and those resulting from available-for-sale securities are recorded as capital adjustments, the accumulated amount of which shall be charged to operations when the related securities are sold or when an impairment loss on the securities is recognized.

 

Held-to-maturity securities are generally carried at amortized cost. Premiums and discounts on debt securities are amortized over the maturity period using the effective interest method.

 

Impairment losses are recognized in current operations when the recoverable amounts are less than the acquisition cost of equity securities or amortized cost of debt securities.

 

Investments in Associates

 

Investments in associates, over which the Bank exercises significant control or influence, are accounted for under the equity method. Under the equity method, the Bank records changes in its proportionate ownership of the associate in current operations, as capital adjustments or as adjustments to retained earnings, depending on the nature of the underlying change in the book value of the investment in associate.

 

The Bank discontinues the equity method of accounting for investments in associates when the Bank’s share of accumulated losses equals the costs of the investments and until the subsequent cumulative changes in its proportionate net income of the associate equal its cumulative proportionate net losses not recognized during the periods when the equity method was suspended.

 

Differences between the initial purchase price and the Bank’s initial proportionate ownership of the net book value of the associate are amortized or accreted using the reasonable method and are charged to current operations.

 

Gains and losses recorded by the Bank from inter-company transactions with associates are fully eliminated. Gains and losses recorded by the associates from these transactions are proportionately eliminated, based on the Bank’s percentage of ownership.

 

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KOOKMIN BANK

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2003 and December 31, 2002 and

for the three-month and nine-month periods ended September 30, 2003 and 2002

(Unaudited - See Independent Accountant’s Report)


 

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:

 

Tangible assets


   Depreciation Method

   Estimated Useful Life

Buildings and structures

  

Straight-line method

   40 years

Leasehold improvements

  

Declining balance method

   4-5 years

Equipment and vehicles

  

Declining balance method

   4-5 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.

 

Foreclosed assets acquired through, or in lieu of, loan redemption are stated at cost and are not depreciated. A valuation allowance is recorded where 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.

 

Intangible assets are amortized based on the following estimated average useful lives and are presented in the financial statements net of accumulated amortization:

 

Intangible Asset


   Amortization Method

   Estimated Useful Life

Goodwill

  

Straight-line method

   9 years

Development costs

  

Straight-line method

   5 years

Trademarks

  

Straight-line method

   1-10 years

Others

  

Straight-line method

   7-30 years

 

The Bank estimated the useful life of endowment assets that are beneficial upon usage, classified under other intangible assets, as 30 years based on the term of the contract.

 

The Bank 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.

 

Development costs directly related to new technology or new products (including costs related to software development) are capitalized as intangible assets to the extent that the estimated future benefits are probable.

 

The Bank adjusts the book value of a fixed asset to its recoverable amount and recognizes the difference as an impairment loss when the recoverable amount is significantly below the book value due to obsolescence or decline in market value. The subsequent increase in recoverable amount in excess of the book value is recognized, to the extent of the pre-impairment book value, as reversal of fixed asset impairment losses.

 

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 period of the debentures using the effective interest method.

 

Accrued Retirement Benefits-

 

Employees and directors with more than one year of service as of June 30, 2003 are entitled to receive a lump-sum payment upon termination of their employment with the Bank, 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.

 

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KOOKMIN BANK

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2003 and December 31, 2002 and

for the three-month and nine-month periods ended September 30, 2003 and 2002

(Unaudited - See Independent Accountant’s Report)


 

Guarantees and Acceptances

 

The Bank applies the credit risk classification used for loans to outstanding guarantees and acceptances, and provides allowances for losses of 20%, 50% and 100% of the outstanding guarantees and acceptances classified as sub-standard, doubtful, and estimated loss, respectively.

 

Deferred Income Taxes

 

The Bank 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.

 

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. Interest from bonds purchased under resale agreements and bonds sold under repurchase agreements are recognized as interest income on loans and interest expense on borrowings, respectively.

 

Derivatives Instruments

 

Derivative instruments for trading or hedging purpose are recorded at fair value and resulting unrealized gains and 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 derivative instrument with the purpose of hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment 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, is reflected in current operations.

 

Cash flow hedge accounting is applied to a derivative instrument with the purpose of 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 a derivative instrument designated as a cash flow hedge is recorded as a capital adjustment and the ineffective portion is recognized in current operations. The effective portion of the gain or loss recorded as a capital adjustment is reclassified to 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 recognized as a capital adjustment is added to or deducted from the asset or the liability.

 

Stock Options

 

The Bank applies the intrinsic value method, as it expects the settlement of stock options in cash. Accordingly, the Bank recognizes the compensation cost, which is the difference between the exercise price and the stock price as of the balance sheet date, by allocating the amount over the contracted service period ( Note 13).

 

National Housing Fund

 

The Bank, 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.

 

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KOOKMIN BANK

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2003 and December 31, 2002 and

for the three-month and nine-month periods ended September 30, 2003 and 2002

(Unaudited - See Independent Accountant’s Report)


 

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.

 

Under the Trust Business Act, reserves for future losses are set up in the trust accounts for losses related to those trust funds with a guarantee of the principal or of a certain minimum rate of return. The reserves are used to provide for the losses on such trust funds and, if the losses are incurred in excess of the reserves for future losses, the excess losses are compensated by the Bank. Accordingly, the banking accounts recognize the compensation paid as a loss on trust management in other operating expenses and the trust accounts recognize the corresponding compensation as compensation from banking accounts. There were no compensations paid for the nine-month period ended September 30, 2003.

 

Translation of the Foreign Currency Financial Statements of Foreign Entities

 

Accounting records of the overseas branches are maintained in the 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 September 30, 2003.

 

Statement of Cash Flows

 

In the preparation of the statement of cash flows, the Bank has presented net amounts of cash inflows and cash outflows for items where the turnover is quick and the amounts are large.

 

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KOOKMIN BANK

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2003 and December 31, 2002 and

for the three-month and nine-month periods ended September 30, 2003 and 2002

(Unaudited - See Independent Accountant’s Report)


 

3. Cash and Due from Banks

 

Cash and due from banks as of September 30, 2003 and December 31, 2002 are summarized as follows (in millions of Won):

 

          2003

    2002

 

Cash on hand

                     

Cash in Won

        (Won) 3,040,602     (Won) 2,392,346  

Cash in foreign currencies

          208,123       186,780  
         


 


            3,248,725       2,579,126  
         


 


Due from banks in Won

                     

The Bank of Korea

  

Reserve deposits in the Bank of Korea

     3,424,674       1,340,482  
         


 


Other banks

  

Time deposits

     21,346       41,192