Form 6-K

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of March 2004

 

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


Kookmin Bank’s 2003 Audit Report

 

On March 3, 2004, Kookmin Bank released audit report for the fiscal year of 2003, which includes comparative non-consolidated financial statements for the years ended December 31, 2003 and 2002 and related notes to the statements.

 

Exhibit 99.1_ Kookmin Bank’s 2003 Audit Report

 

2


SIGNATURES

 

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

 

       

Kookmin Bank

       

(Registrant)

Date: March 3, 2004

     

By: /s/ Ki-Sup Shin

         
           

(Signature)

           

Name:

 

Ki-Sup Shin

           

Title:

 

Executive Vice President & Chief Financial Officer

 

3


Exhibit 99.1

 

Kookmin Bank

Non-Consolidated Financial Statements

December 31, 2003 and 2002

 


Kookmin Bank

Contents

December 31, 2003 and 2002

 

     Page(s)

Report of Independent Auditors

   1–3

Non-Consolidated Financial Statements

    

Balance Sheets

   4

Statements of Operations

   5

Statements of Appropriations of Retained Earnings (Dispositions of Accumulated Deficit)

   6

Statements of Cash Flows

   7–8

Notes to Financial Statements

   9–57

 


LOGO

 

     Samil PricewaterhouseCoopers
Kukje Center Building
191 Hankangro 2ga, Yongsanku
Seoul 140-702, KOREA
(Yongsan P.O. Box 266, 140-600)

 

Report of Independent Auditors

 

To the Board of Directors and Shareholders of

Kookmin Bank

 

We have audited the accompanying non-consolidated balance sheet of Kookmin Bank (“the Bank”) as of December 31, 2003 and 2002, and the related non-consolidated statements of operations, appropriations of retained earnings (dispositions of accumulated deficit) and cash flows for the year then ended, expressed in Korean Won. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

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

 

In our opinion, the non-consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kookmin Bank as of December 31, 2003 and 2002, and the results of its operations, the changes in its retained earnings (accumulated deficit), and its cash flows for the year then ended in conformity with accounting principles generally accepted in the Republic of Korea.

 

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

 

As discussed in Note 33 to the 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 minority shareholders of the Subsidiary as of July 24, 2003, who received 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 were (Won)10,595,409 million and (Won)9,391,897 million, respectively.

 


LOGO

 

As discussed in Note 2 to the 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 December 31, 2003 are greater by (Won)336,265 million for consumer loans and (Won)314,701 million for credit card loans compared to the amounts that which would have been recorded under the previous rates.

 

As discussed in Note 20 to the financial statements, in accordance with the resolution made by the Board of Directors on December 26, 2003, the Bank acquired 27,423,761 of its own shares previously owned by the Korean government at (Won)43,700 per share through public bidding and intends to sell these shares of treasury stock depending on certain market conditions. As a result of the acquisition, the Bank holds 8.92 percent of the total common stock issued as treasury stock.

 

As discussed in Note 16 to the financial statements, the Bank’s total exposure (including debt securities, beneficiary certificates, and loans) related to domestic credit card companies and capital companies amounts to (Won)2,055,663 million as of December 31, 2003. 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 financial statements.

 

As discussed in Note 16 to the financial statements, in accordance with the agreement with the creditors’ committee of LG Card Co., Ltd. on November 24, 2003, the Bank provided additional loans of (Won)437.0 billion to LG Card Co., Ltd., which is currently experiencing a liquidity crisis. Also, on January 9, 2004, the Bank has agreed to a debt-equity swap of (Won)312.7 billion, to provide additional loans of (Won)205.9 billion (to be included in the debt-equity swap), and to extend the maturity of loans that will mature in 2004. The ability of LG Card Co., Ltd. to continue as a going concern depends on the effective execution of its restructuring plan and debt restructuring as well as the availability of financial aid from its financial institutional creditors. 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 financial statements.

 

2


LOGO

 

Accounting principles and auditing 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 audit 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 auditing standards and their application in practice.

 

Seoul, Korea

March 3, 2004

 

This report is effective as of March 3, 2004, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying non-consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

 

3


Kookmin Bank

Non-Consolidated Balance Sheets

December 31, 2003 and December 31, 2002

 

(in millions of Won)           
     2003

    2002

Assets

              

Cash and due from banks (Note 3)

   (Won) 6,526,345     (Won) 4,599,356

Securities (Note 4)

     28,101,845       30,940,750

Loans (Notes 5 and 6)

     139,920,521       126,730,561

Fixed assets (Note 7)

     3,019,556       3,092,616

Other assets (Note 8)

     6,484,239       6,135,558
    


 

Total assets

   (Won) 184,052,506     (Won) 171,498,841
    


 

Liabilities and Shareholders’ Equity

              

Deposits (Note 9)

   (Won) 132,180,272     (Won) 123,109,653

Borrowings (Note 10)

     10,902,800       10,690,754

Debentures (Note 11)

     19,192,581       17,539,007

Other liabilities (Note 13)

     13,362,339       9,784,798
    


 

Total liabilities

     175,637,992       161,124,212
    


 

Commitments and contingencies (Notes 14 and 16)

              

Common stock (5,000 Won par value per share, authorized 1 billion shares and 336,379,116 shares outstanding in 2003) (Notes 1 and 17)

     1,681,896       1,641,293

Capital surplus (Note 18)

     6,230,738       5,864,752

Retained earnings (Note 19)

     1,662,119       2,742,335

Capital adjustments (Note 20)

     (1,160,239 )     126,249
    


 

Total shareholders’ equity

     8,414,514       10,374,629
    


 

Total liabilities and shareholders’ equity

   (Won) 184,052,506     (Won) 171,498,841
    


 

 

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

 

4


Kookmin Bank

Non-Consolidated Statements of Operations

Years ended December 31, 2003 and 2002

 

(in millions of Won except per share amounts)             
     2003

    2002

 

Interest income

                

Interest on due from banks

   (Won) 10,433     (Won) 51,580  

Interest on trading securities

     116,142       95,576  

Interest on available-for-sale securities

     958,665       652,423  

Interest on held-to-maturity securities

     626,552       834,895  

Interest on loans

     9,814,835       9,251,849  

Other interest income

     98,923       102,735  
    


 


       11,625,550       10,989,058  
    


 


Interest expenses

                

Interest on deposits

     4,280,290       4,770,967  

Interest on borrowings

     410,746       415,938  

Interest on debentures

     1,143,228       830,219  

Other interest expenses

     68,570       58,068  
    


 


       5,902,834       6,075,192  
    


 


Net interest income

     5,722,716       4,913,866  

Provision for loan losses (Note 6)

     4,040,536       1,593,479  
    


 


Net interest income after provision for loan losses

     1,682,180       3,320,387  
    


 


Non-interest income

                

Fees & commission income

     1,636,171       1,345,669  

Dividends on trading securities

     1,633       1,123  

Dividends on available-for-sale securities

     5,580       12,186  

Gain on foreign currency transactions

     287,501       202,367  

Gain on derivatives transactions (Note 15)

     1,131,711       1,760,743  

Others (Note 22)

     868,840       1,273,355  
    


 


       3,931,436       4,595,443  
    


 


Non-interest expenses

                

Fees and commission expenses

     270,405       330,385  

General and administrative expenses (Note 23)

     2,704,148       2,551,426  

Loss on foreign currency transactions

     200,109       245,232  

Loss on derivatives transactions (Note 15)

     1,053,990       1,594,025  

Others (Note 22)

     1,308,880       928,997  
    


 


       5,537,532       5,650,065  
    


 


Operating income

     76,084       2,265,765  

Non-operating expenses, net (Note 24)

     (1,222,528 )     (372,147 )
    


 


Net (loss) income before income tax expense

     (1,146,444 )     1,893,618  
    


 


Income tax (benefit) expense (Note 25)

     (393,096 )     583,327  
    


 


Net (loss) income

   (Won) (753,348 )   (Won) 1,310,291  
    


 


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

   (Won) (2,311 )   (Won) 4,123  
    


 


 

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

 

5


Kookmin Bank

Non-Consolidated Statements of Appropriations of Retained Earnings

(Dispositions of Accumulated Deficit)

Years ended December 31, 2003 and 2002

(Date of Disposition : March 23, 2004 for the year ended December 31, 2003

Date of Appropriation : March 21, 2003 for the year ended December 31, 2002)

 

(in millions of Won)       
     2003

    2002

 

Retained earnings (accumulated deficit) before appropriations (dispositions)

                

Unappropriated retained earnings carried over from prior year

   (Won) 410     (Won) 5,117  

Adjustment on investment in associates (Note 19)

     (1,917 )     4,562  

Net income (loss)

     (753,348 )     1,310,291  
    


 


       (754,855 )     1,319,970  
    


 


Transferred from prior years’ reserve (Note 19)

                

Reserves for overseas investment losses

     —         5,417  
    


 


       —         5,417  
    


 


Dispositions (appropriations) (Note 19)

                

Transfer from (appropriations for) voluntary reserves

     754,900       (867,000 )

Other reserves

     —         (744 )

Legal reserves

     —         (132,000 )

Cash dividends (20.0% for common stock in 2002)

     —         (325,233 )
    


 


       754,900       (1,324,977 )
    


 


Unappropriated retained earnings carried over to the subsequent year

   (Won) 45     (Won) 410  
    


 


 

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

 

6


Kookmin Bank

Non-Consolidated Statements of Cash Flows

Years ended December 31, 2003 and 2002

 

(in millions of Won)       
     2003

    2002

 

Cash flows from operating activities

                

Net (loss) income

   (Won) (753,348 )   (Won) 1,310,291  
    


 


Adjustments to reconcile net (loss) income to net cash provided by operating activities

                

Realized gain on trading securities, net

     (71,899 )     (87,802 )

Unrealized gain on trading securities, net

     (70,976 )     (167,366 )

Provision for loan losses due to merger

     1,652,264       —    

Gain (loss) on foreign currency transactions, net

     (87,392 )     42,865  

Provision for loan losses

     4,040,536       1,593,479  

Reversal of losses from guarantees and acceptances

     (1,209 )     (37,436 )

Gain on derivatives transactions, net

     (77,721 )     (166,718 )

Loss (gain) on valuation of derivatives, net

     18,788       (41,884 )

Gain (loss) on fair value hedged items

     (10,715 )     9,213  

Retirement benefits

     109,766       100,198  

Depreciation and amortization

     466,856       389,931  

Loss on disposal of fixed assets, net

     33,058       6,288  

Impairment loss on fixed assets

     22,228       —    

Realized gain on available-for-sale securities, net

     (493,993 )     (210,112 )

Impairment loss on available-for-sale securities, net

     133,754       272,393  

Realized gain on held-to-maturity securities

     (2,771 )     (733 )

Unrealized gain (loss) on investment in associates, net

     (267,870 )     273,620  

Loss (gain) on sale of loans, net

     31,340       (6,475 )

Stock compensation expense

     12,130       11,333  

Others, net

     22,755       (33,116 )

Changes in assets and liabilities resulting from operations

                

Accrued income

     118,796       3,238  

Prepaid expenses

     (255,957 )     14,037  

Deferred tax assets

     (399,310 )     (51,181 )

Other assets

     (166 )     5,639  

Accrued expenses

     (593,967 )     (90,475 )

Unearned income

     (28,019 )     (1,070 )

Withholding taxes

     36,095       (54,343 )

Other liabilities

     587,179       45,215  

Retirement benefits

     (18,637 )     (19,130 )

Accounts payable

     (66,349 )     (60,268 )

Account for agency business

     —         33  

Deferred tax liabilities

     (35,111 )     141,532  
    


 


Net cash provided by operating activities

     4,050,135       3,191,196  
    


 


 

7


Kookmin Bank

Non-Consolidated Statements of Cash Flows

Years ended December 31, 2003 and 2002

 

(in millions of Won)       
     2003

    2002

 

Cash flows from investing activities

                

Increase (decrease) in due from banks

   (Won) (1,247,467 )   (Won) 2,839,245  

Decrease in trading securities

     1,336,940       992,343  

Increase (decrease) in available-for-sale securities

     (1,198,423 )     1,606,941  

Decrease in held-to-maturity securities

     5,119,423       —    

Acquisition of investment in associates

     (71,295 )     —    

Dividend from investment in associates

     11,392       —    

Increase in loans granted, net

     (12,580,451 )     (20,439,846 )

Proceeds from disposal of fixed assets

     101,599       14,049  

Acquisition of fixed assets

     (316,890 )     (578,828 )

Acquisition of intangible assets

     (705 )     (502 )

Proceeds from disposal of foreclosed assets

     162       978  

Acquisition of foreclosed assets

     (166 )     —    

Increase in guarantee deposits

     (8,865 )     (56,619 )

Decrease (increase) in other accounts receivable

     166,101       (338,569 )

Increase (decrease) in payments in advance

     (28,328 )     55,723  

Decrease in derivative assets, net

     145,924       67,591  

Collection of domestic exchange receivables

     474,995       403,014  

Collection of loans to trust accounts

     37,882       229,452  
    


 


Net cash used in investing activities

     (8,058,172 )     (15,205,028 )
    


 


Cash flows from financing activities

                

Increase in deposits, net

     9,076,415       7,948,349  

Decrease in borrowings, net

     (2,248,706 )     (2,846,629 )

Decrease (increase) in debentures, net

     (3,278,588 )     8,697,080  

Increase (decrease) in borrowings from trust accounts

     3,248,649       (931,874 )

Decrease in dividend payable

     (325,188 )     (29,967 )

Decrease (increase) in other accounts payable

     (273,080 )     499,769  

Increase (decrease) in advances received from customers

     19,325       (57,825 )

Decrease in guarantee deposits received

     (623 )     (41,516 )

Decrease in domestic exchange payables

     (173,865 )     (901,723 )

Decrease in liabilities incurred by agency relationships

     (171,172 )     (219,313 )

Stock options exercised

     (35 )     (26,741 )

Acquisition of treasury stock

     (1,227,876 )     (149,704 )

Sale of treasury stock

     826       1,928  

Increase in stock issuance cost

     (212 )     (737 )
    


 


Net cash provided by financing activities

     4,645,870       11,941,097  
    


 


Net increase (decrease) in cash and cash equivalents

     637,833       (72,735 )

Increase due to merger

     33,343       —    

Cash and cash equivalents, Beginning of year

     3,100,581       3,173,316  
    


 


End of year (Note 34)

   (Won) 3,771,757     (Won) 3,100,581  
    


 


 

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

 

8


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

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 December 31, 2003, the Bank’s paid-in capital amounts to (Won)1,681,896 million and 35,000,566 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 1,136 domestic branches and offices (excluding ATMs) and three overseas branches as of December 31, 2003.

 

2. Summary of Significant Accounting Policies

 

The Bank has adopted Statements of Korean Financial Accounting Standards (“SKFAS”) No. 1 as of January 1, 2001 and No. 2 to No. 9 as of January 1, 2002 to present its financial statements. Except for the adoption of these SKFAS, the same accounting policies are applied for the fiscal years 2002 and 2003. 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 accounting records in Korean Won and prepares statutory financial statements in the Korean language in conformity with accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Bank that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and translated into English from the Korean language non-consolidated financial statements. Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Company’s financial position, results of operations, or cash flows, is not presented in the accompanying non-consolidated financial statements.

 

Accounting Estimates

 

The preparation of the non-consolidated financial statements 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 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.

 

9


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

Recognition of Interest Income

 

The Bank recognizes interest income on loans and debt securities on an accrual basis. However, interest income on delinquent and dishonoured loans and debt securities, other than those collateralized with security deposits or guaranteed by financial institutions, is recognized on a cash basis. As of December 31, 2003, the Bank has non-accrual loans and securities of (Won)10,677,822 million and (Won)620,929 million, respectively, with related foregone interest of (Won)638,079 million and (Won)150,492 million, respectively.

 

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.

 

Securities are recognized initially at their fair value plus transaction costs that are directly attributable to the acquisition and the Bank uses the moving average method and specific identification method for determining the carrying value of equity securities and debt securities, respectively.

 

Trading and available-for-sale debt securities are carried at fair value using the average of quoted prices provided by bond pricing service institutions. Held-to-maturity debt securities are carried at amortized cost.

 

Marketable equity securities are carried at market prices and beneficiary certificates are carried at quoted prices provided by the beneficiary certificate dealers. However, non-marketable equity securities are carried at fair value only if the fair value is reasonably measurable and if otherwise, are carried at cost.

 

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. 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 there is evidence of impairment and recoverable amounts of available-for-sale securities or held-to-maturity securities are less than the acquisition cost of equity securities or the amortized cost of debt securities. Unrealized holding gains or losses on available-for-sale or held-to-maturity securities that had not been recognized through income are realized when the related securities are disposed.

 

Investments in Associates

 

Investments in associate, 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 of the associates 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 an appropriate method and the resulting amortization is 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.

 

Deferred loan origination fees and costs

 

The Bank defers loan origination fees associated with originating loans and loan origination costs that have future economic benefits. Loan balances are reported net of these loan origination fees and costs, and the deferred loan origination fees and costs are amortized using the effective interest method with the amortization recognized as adjustments to other interest income.

 

10


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

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. According to the credit rating criteria, the allowance is determined according to the credit risk of corporate borrowers, which is evaluated based on financial and non-financial risks. The credit rating criteria is categorized into 12 categories (AAA, AA, A, BBB, BB, BB-, B, B-, CCC, CC, C, D) 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 under each credit risk classification:

 

Credit Risk Classification


   Credit
Ratings


   Allowance
Rates


 

Normal

   AAA~B    0.5 %

Precautionary

   B-~CCC    2 %

Sub-standard

   CC    20 %

Doubtful

   C    50 %

Estimated loss

   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 of borrowers including delinquencies, 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


 
     Consumer

    Credit Card

 

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 December 31, 2003 are greater by (Won)336,265 million for consumer loans and (Won)314,701 million for credit card loans compared to the amounts which would have been recorded under the previous rates.

 

The Bank applies the credit risk classification used for loans to outstanding guarantees and acceptances, and provides allowances for losses of 20 percent, 50 percent and 100 percent of the outstanding guarantees and acceptances classified as sub-standard, doubtful, and estimated loss, respectively. In addition, the Bank provides allowances for losses of 19 percent of certain outstanding guarantees and acceptances classified as precautionary.

 

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 nominal value and the present value of the restructured loan is significant. 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. The difference between the nominal value and the present value is recorded as present value discount, which is shown as a deduction from the loan nominal value. These present value discounts are amortized using the effective interest method and are recognized as interest income. Allowances for loan losses on the restructured loans are provided for based on the loan balances, net of present value discounts.

 

11


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

Receivables and payables arising from long-term installment transactions, long-term cash loans or borrowings and other similar transactions shall be stated at present value, if the difference between nominal value and present value is material. The difference is accounted for as a present value discount and is deducted from the nominal value of the related receivable or payable. Present value discounts are amortized or reversed using the effective interest method, and the amortization is included in interest income or expense.

 

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 related assets are capitalized as additions to tangible assets. Routine maintenance and repairs are recognized as expenses when 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 assets


 

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   5-30 years

 

The Bank estimated the useful life of endowment assets that are beneficial upon usage, classified under other intangible assets, to be 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 impaired book value is recognized, to the extent of the original book value before impairment, as a reversal of fixed asset impairment losses. For the year ended December 31, 2003, the Bank recognized an impairment loss of (Won)22,228 million for the difference between the book value of (Won)48,388 million and net realizable value of (Won)26,160 million of assets related to the expected closures of certain branch offices.

 

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.

 

12


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

Accrued Retirement Benefits

 

Employees and directors with more than one year of service and temporary employees with a one-year contract, as of December 31, 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, as contra accounts of accrued retirement benefits.

 

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 income 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.

 

Derivative 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

 

Compensation costs for stock options granted to employees and executives are recognized using the fair value method. Under the fair value method, compensation costs for stock option plans are determined using an option-pricing model and are recognized over the vesting period (Note 21).

 

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.

 

13


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

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 percent (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 incurred are 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 years ended December 31, 2003 and 2002.

 

Foreign Currency Translation

 

All assets and liabilities denominated in foreign currencies are translated into Korean Won at the rates in effect at the balance sheet date (2003: (Won)1,197.8:US$1, 2002: (Won)1,200.4:US$1), and resulting translation gains and losses are recognized in the current period.

 

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 the balance sheet dates.

 

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.

 

Application of Korean Financial Accounting Standard No. 6

 

The Bank has adopted Statements of Korean Financial Accounting Standards (“SKFAS”) No. 6 ‘Subsequent Events’, for the fiscal year 2003 and presented retained earnings (accumulated deficit) as before appropriations (disposition) on the balance sheet. Accordingly, retained earnings as of December 31, 2002 were restated to amounts before appropriations, and the restatement resulted in a decrease in liabilities and an increase in net assets of (Won)325,233 million.

 

14


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

3. Cash and Due from Banks

 

Cash and due from banks as of December 31, 2003 and 2002 are summarized as follows:

 

(in millions of Won)         2003

    2002

 

Cash on hand

                     

Cash in Won

        (Won) 2,945,921     (Won) 2,392,346  

Cash in foreign currencies

          228,153       186,780  
         


 


            3,174,074       2,579,126  
         


 


Due from banks in Won

                     

Bank of Korea

   Reserve deposits in the Bank of Korea      2,612,248       1,340,482  
         


 


Other banks

   Time deposits      810       41,192  
     Passbook deposits      8,185       392  
         


 


            8,995       41,584  
         


 


Other financial institutions

   Deposits at Mutual Savings      140,000       140,000  
         


 


Others

   Futures margin accounts      1,560       1,336  
     Market participation margin      454       458  
     KOSPI futures margin accounts      200       —    
     Other deposits      —         8,319  
         


 


            2,214       10,113  
         


 


            2,763,457       1,532,179  
     Present value discounts 1*      (12,810 )     (21,156 )
         


 


            2,750,647       1,511,023  
         


 


Due from banks in foreign currencies

                     

Bank of Korea

   Demand deposits      12,415       25,677  
         


 


Other banks

   Demand deposits      71,879       104,073  
     Time deposits      —         15,193  
         


 


            71,879       119,266  
         


 


Off-shore

   Demand deposits      3,354       5,064  
         


 


Others

   Other deposits      513,976       359,200  
         


 


            601,624       509,207  
         


 


          (Won) 6,526,345     (Won) 4,599,356  
         


 



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

 

 

 

 

 

 

The maturities of the due from banks as of December 31, 2003 are as follows:

 

(in millions of Won)

 

  

Due from
Banks

in Won


   Due from
Banks in
Foreign
Currencies


   Total

Due in 3 months or less

   (Won) 2,622,647    (Won) 523,767    (Won) 3,146,414

Due after 3 months through 6 months

     —        77,857      77,857

Due after 6 months through 1 year

     50,154      —        50,154

Due after 1 year through 2 years

     90,000      —        90,000

Due after 2 years through 3 years

     —        —        —  

Due after 5 years

     656      —        656
    

  

  

     (Won) 2,763,457    (Won) 601,624    (Won) 3,365,081
    

  

  

 

15


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

Included in cash and due from banks as of December 31, 2003 and 2002 are the following restricted deposits:

 

(in millions of Won)    2003

    2002

   

Restrictions


Reserve deposits in the Bank of Korea

   (Won) 2,612,248     (Won) 1,340,482     General Banking Act

Deposits at Hansol Mutual Savings & Finance Co., Ltd.

     140,000       140,000     Withdrawal at maturity

Due from banks in foreign currency

     12,415       37,409     General Banking Act

Other deposits

     2,735       2,040     Futures guarantee deposits
    


 


   
       2,767,398       1,519,931      
    


 


   

Present value discounts

     (12,810 )     (21,156 )    
    


 


   
     (Won) 2,754,588     (Won) 1,498,775      
    


 


   

 

4. Securities

 

Securities as of December 31, 2003 and 2002 are as follows:

 

(in millions of Won)    2003

   2002

Trading

   (Won) 4,482,948    (Won) 5,676,973

Available-for-sale

     17,088,357      13,173,700

Held-to-maturity

     5,979,341      10,986,915

Investment in associates

     551,199      1,103,162
    

  

     (Won) 28,101,845    (Won) 30,940,750
    

  

 

Trading, available-for-sale, and held-to-maturity securities as of December 31, 2003 are as follows:

 

(in millions of Won)    Unrealized

         
     Gain

   Loss

   Book Value

   Fair value

Trading

                           

Equity securities

   (Won) 12,760    (Won) 767    (Won) 113,171    (Won) 113,171

Beneficiary certificates

     69,554      240      1,686,754      1,686,754

Government and municipal bonds

     1,164      3,621      1,076,427      1,076,427

Corporate bonds

     929      7,953      1,365,060      1,365,060

Asset-backed securities

     197      1,047      241,536      241,536
    

  

  

  

     (Won) 84,604    (Won) 13,628    (Won) 4,482,948    (Won) 4,482,948
    

  

  

  

 

(in millions of Won)    Impairment

   Capital Adjustments

         
     Reversal of

   Loss

   Gain

   Loss

   Book Value

   Fair value1*

Available-for-Sale

                                         

Equity securities

   (Won) —      (Won) 45,214    (Won) 25,292    (Won) 14,873    (Won) 439,791    (Won) 439,791

Investment in funds

     —        3      3,513      —        30,872      30,872

Beneficiary certificates

     47,730      271,019      67,839      43      5,569,200      5,569,200

Government and municipal bonds

     —        —        7,532      22,906      2,322,889      2,322,889

Foreign government bonds

     —        —        2,402      —        28,153      28,153

Corporate bonds

     5,364      42,267      90,629      21,768      8,228,640      8,228,640

Asset-backed securities

     22,459      56,006      370      —        468,669      468,669

Other debt securities

     —        —        —        —        143      143
    

  

  

  

  

  

     (Won) 75,553    (Won) 414,509    (Won) 197,577    (Won) 59,590    (Won) 17,088,357    (Won) 17,088,357
    

  

  

  

  

  

 

16


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

(in millions of Won)    Impairment

   Unrealized Holding

         
     Reversal of

   Loss

   Gain

   Loss

   Book Value

   Fair value

Held-to-Maturity

                                         

Government and municipal bonds

   (Won) —      (Won) —      (Won) 87,993    (Won) 4,061    (Won) 2,489,998    (Won) 2,573,930

Corporate bonds

     —        —        76,464      3,510      3,163,020      3,235,974

Asset-backed securities

     —        —        3,307      90      326,323      329,540
    

  

  

  

  

  

     (Won) —      (Won) —      (Won) 167,764    (Won) 7,661    (Won) 5,979,341    (Won) 6,139,444
    

  

  

  

  

  


1* Non-marketable equity securities and investment in funds are included at book value.

 

Due to the merger with Kookmin Credit Card Co., Ltd. on September 30, 2003, the above impairment loss on available-for-sale securities includes (Won)2,178 million of impairment loss recognized before the merger date as part of ‘net unrealized gain on investments in associates’, and (Won)203,024 million of impairment loss recognized as ‘provision for loan losses due to merger’ as of the merger date.

 

Beneficiary certificates classified as available-for-sale include (Won)2,402 million of beneficiary certificates that have been reclassified from trading securities due to restrictions on redemption. (Won)413 million of unrealized gain on these beneficiary certificates that has been recognized as of the reclassification date is included in the unrealized gain on trading beneficiary certificates.

 

Trading, available-for-sale, and held-to-maturity securities as of December 31, 2002 are as follows:

 

(in millions of Won)    Unrealized

         
     Gain

   Loss

   Book Value

   Fair value

Equity securities

   (Won) 545    (Won) 4,002    (Won) 55,674    (Won) 55,674

Beneficiary certificates

     166,078      5,429      3,844,380      3,844,380

Government and municipal bonds

     5,600      —        644,435      644,435

Corporate bonds

     5,136      562      1,092,674      1,092,674

Asset-backed securities

     —        —        39,810      39,810
    

  

  

  

     (Won) 177,359    (Won) 9,993    (Won) 5,676,973    (Won) 5,676,973
    

  

  

  

 

(in millions of Won)    Impairment

   Capital Adjustments

         
     Reversal of

   Loss

   Gain

   Loss

   Book Value

   Fair value1*

Available-for-Sale

                                         

Equity securities

   (Won) 15,318    (Won) 222,309    (Won) 20,317    (Won) 34,416    (Won) 646,114    (Won) 646,114

Investment in funds

     —        —        —        —        36,152      36,152

Beneficiary certificates

     —        —        62,246      5,662      3,231,853      3,231,853

Government and municipal bonds

     —        —        40,609      184      2,278,144      2,278,144

Foreign government bonds

     —        —        2,864      374      20,007      20,007

Corporate bonds

     —        68,468      103,710      10,325      6,441,979      6,441,979

Asset-backed securities

     12,380      9,314      1,664      —        519,371      519,371

Other debt securities

     —        —        —        —        80      80
    

  

  

  

  

  

     (Won) 27,698    (Won) 300,091    (Won) 231,410    (Won) 50,961    (Won) 13,173,700    (Won) 13,173,700
    

  

  

  

  

  

 

17


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

(in millions of Won)    Impairment

   Unrealized Holding

         
     Reversal of

   Loss

   Gain

   Loss

   Book Value

   Fair value

Held-to-Maturity

                                         

Government and municipal bonds

   (Won) —      (Won) —      (Won) 108,236    (Won) 92    (Won) 2,381,372    (Won) 2,489,516

Foreign government bonds

     —        —        —        —        19,143      19,143

Corporate bonds

     —        —        176,778      2,082      7,461,864      7,636,560

Asset-backed securities

     —        —        14,693      —        1,124,536      1,139,229
    

  

  

  

  

  

     (Won) —      (Won) —      (Won) 299,707    (Won) 2,174    (Won) 10,986,915    (Won) 11,284,448
    

  

  

  

  

  


1* Non-marketable equity securities and investment in funds are included at book value.

 

As of December 31, 2003 and 2002, investments in associates are as follows:

 

(in millions of Won)   

Owner-

ship (%)


  

Acquisition

Cost


  

Beginning

Balance1*


   Equity Method2*

    Book Value

              N/I

    R/E

    C/A

    2003

   2002

Domestic Associates

                                                        

Kookmin Credit Card3*

   74.27    (Won) 272,274    (Won) 681,960    (Won) 211,202     (Won) —       (Won) —       (Won) —      (Won) 681,960

KB Investment

   99.89      155,311      67,289      5,295       (2,334 )     7,023       77,273      67,289

Kookmin Data System

   99.98      7,998      13,616      1,031       —         —         14,647      14,416

Kookmin Futures

   99.98      19,996      24,093      1,428       —         —         25,521      25,092

KLB Securities

   36.41      10,316      —        —         —         —         —        —  

KB Investment Trust Mgt.

   80.00      39,015      36,667      8,336       —         48       45,051      45,868

Jooeun Industrial

   99.99      23,994      —        —         —         —         —        —  

KB Real Estate Trust

   99.99      76,103      87,727      10,402       (336 )     336       98,129      87,727

KB Credit Information

   66.34      8,444      9,106      2,746       —         11       11,863      8,991

ING Life Korea

   20.00      21,769      21,613      22,278       —         (46 )     43,845      21,613

Korea Mortgage

   26.67      30,629      33,566      2,475       (57 )     (196 )     35,788      33,566
         

  

  


 


 


 

  

            665,849      975,637      265,193       (2,727 )     7,176       352,117      986,522
         

  

  


 


 


 

  

Foreign Associates

                                                        

KB Int’l Ltd. (London)

   100.00      42,585      52,803      3,264       —         688       56,755      47,739
         

  

  


 


 


 

  

KB Luxembourg S.A

   100.00      26,295      6,102      (1,275 )     —         1,123       5,950      5,106
         

  

  


 


 


 

  

Kookmin Singapore Ltd.

   100.00      14,096      2,080      —         —         —         2,080      2,084
         

  

  


 


 


 

  

Kookmin Finance Asia Ltd.

   100.00      8,385      279      7       —         —         286      279
         

  

  


 


 


 

  

Kookmin Finance HK Ltd.

   100.00      23,956      61,299      681       —         736       62,716      61,432
         

  

  


 


 


 

  

Sorak Financial Holdings

   25.00      71,295      71,295      —         —         —         71,295      —  
         

  

  


 


 


 

  

            186,612      193,858      2,677       —         2,547       199,082      116,640
         

  

  


 


 


 

  

          (Won) 852,461    (Won) 1,169,495    (Won) 267,870     (Won) (2,727 )   (Won) 9,723     (Won) 551,199    (Won) 1,103,162
         

  

  


 


 


 

  


1* The beginning balance is the prior year’s book value adjusted by dividends, changes in foreign exchange rates, and acquisition during current year.

 

2* The investment in associates are accounted for under the equity method and changes in net assets of the associates are recognized in net income (N/I), retained earnings (R/E), and/or in capital adjustment (C/A) according to the source of the changes in net assets.

 

3* As a result of the merger with Kookmin Credit Card Co., Ltd. on September 30, 2003, there is no balance for investments in associates related to Kookmin Credit Card Co., Ltd as of December 31,2003.

 

The Bank sold to Sun Capital Inc., 70.46 percent of its 85.43 percent 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 percent of its investment in Alpha Capital Corp. to Sun Capital Inc. for (Won)900 million on October 28, 2002. The Bank sold its 87.00 percent 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 percent investment in Kookmin Leasing Co., Ltd. to Sun Capital Inc. on December 27, 2002.

 

18


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

KB Investment Co., Ltd. merged with Frontier Investment Corp. and Kookmin Investment Co., Ltd., on December 31, 2001 and June 27, 2002, respectively. KB Credit Information Co., Ltd. merged with KM Credit Information Co., Ltd., effective as of May 2, 2002.

 

KLB Securities Co., Ltd., Jooeun Industrial Co., Ltd., Kookmin Singapore (Merchant Bank), Ltd. and Kookmin Finance Asia, Ltd. (HK) are in the process of liquidation. Consequently, accounting under the equity method is no longer applied to investments in KLB Securities Co., Ltd. and Jooeun Industrial Co., Ltd. due to accumulated deficits resulting to a decrease of the investment value below zero . Accordingly, the total accumulative estimated loss that has not been recognized by the Bank amounts to (Won)43,695 million.

 

The Bank applies the equity method accounting to a subsidiary based on its adjusted financial statements that are, in turn, based on most recent available audited or reviewed financial statements adjusted for changes in net assets using the unaudited financial statements as of December 31, 2003. In the case of ING Life Korea Co., Ltd., adjustment for income tax expenses of (Won)37,609 million has been additionally made to the adjusted financial statements.

 

As a means to create a Pan-Asian strategic management, in accordance with the resolution of the Board of Directors on October 24, 2003, the Bank invested (Won)71,295 million for a 25 percent ownership of Sorak Financial Holdings in connection with the acquisition of Bank Internasional Indonesia (“BII”). Sorak Financial Holdings entered into a contract to purchase 51 percent equity interest in BII from Indonesian Bank Restructuring Agency (IBRA). BII’s total assets and total liabilities reported under Indonesian GAAP as of September 30, 2003 translated into Korean Won at year-end rates, amounts to (Won)4,910,369 million and (Won)4,439,624 million, respectively.

 

Due to its determination to maximize efficient asset management, certain assets, comprising mostly of securities and loans, held by overseas subsidiaries with a total book value of (Won)118,720 million were purchased by the Bank for a total acquisition cost of (Won)115,046 million.

 

The maturities of the available-for-sale and held-to-maturity debt securities except for equity securities and investment in funds as of December 31, 2003 are summarized as follows:

 

(in millions of Won)    Available-for-sale

   Held-to-maturity

     Book Value

   Fair value

   Book Value

   Fair value

Maturities

                           

Due in 1 year or less

   (Won) 9,622,944    (Won) 9,622,944    (Won) 1,815,377    (Won) 1,827,931

Due after 1 year through 5 years

     6,534,806      6,534,806      3,911,985      4,043,934

Due after 5 years through 10 years

     445,043      445,043      251,979      267,579

Thereafter

     14,901      14,901      —        —  
    

  

  

  

     (Won) 16,617,694    (Won) 16,617,694    (Won) 5,979,341    (Won) 6,139,444
    

  

  

  

 

Investment securities risk concentrations as of December 31, 2003 and 2002 are as follows:

 

(in millions of Won)    2003

   2002

     Book Value

   Ratio(%)

   Book Value

   Ratio(%)

By Country

                       

Korea

   (Won) 27,784,440    98.87    (Won) 30,684,000    99.17

Singapore

     79,309    0.28      9,892    0.03

USA

     63,920    0.23      66,826    0.22

Philippines

     45,921    0.16      63,323    0.20

Germany

     29,961    0.11      30,010    0.10

Others

     98,294    0.35      86,699    0.28
    

  
  

  
     (Won) 28,101,845    100.00    (Won) 30,940,750    100.00
    

  
  

  

 

19


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

(in millions of Won)    2003

   2002

     Book Value

   Ratio(%)

   Book Value

   Ratio(%)

By Type

                       

Fixed rate bonds

   (Won) 16,114,291    57.34    (Won) 15,860,479    51.26

Floating rate bonds

     2,397,728    8.53      5,443,478    17.59

Subordinated bonds

     767,418    2.73      574,727    1.86

Convertible bonds

     422,278    1.51      142,817    0.46

Beneficiary certificates

     7,255,954    25.82      7,076,233    22.87

Equity securities

     1,104,161    3.93      1,804,950    5.84

Others

     40,015    0.14      38,066    0.12
    

  
  

  
     (Won) 28,101,845    100.00    (Won) 30,940,750    100.00
    

  
  

  
(in millions of Won)    2003

   2002

     Book Value

   Ratio(%)

   Book Value

   Ratio(%)

By Industry

                       

Government and municipalities

   (Won) 9,870,850    35.13    (Won) 13,582,679    43.90

Financial institutions

     16,670,041    59.32      13,465,699    43.52

Manufacturing industries

     583,986    2.08      245,255    0.79

Others

     976,968    3.47      3,647,117    11.79
    

  
  

  
     (Won) 28,101,845    100.00    (Won) 30,940,750    100.00
    

  
  

  

 

Available-for-sale equity securities of which the fair value cannot reasonably be measured as of December 31, 2003 are as follows:

 

(in millions of Won)

 

   Acquisition
Cost


   Net Asset
Value 1*


   Book Value

Korea Housing Guarantee Co., Ltd.

   (Won) 68,648    (Won) 119,991    (Won) 68,648

Dongbu Electronics Co., Ltd.

     30,000      22,059      22,059

Mastercard, Inc.

     11,118      6,524      11,118

The Korea Securities Finance Corp.

     8,160      11,003      8,160

Asia Credit

     11,978      8,014      8,014

Korea Asset Management Corp.

     7,827      12,436      7,827

Samsung Life Insurance Co., Ltd.

     7,479      9,062      7,479

Daewoo Electronics Corp.

     9,862      7,293      7,109

Korea Highway Corp.

     6,248      5,892      6,248

BC Card Co., Ltd.

     5,738      7,630      5,738

Daewoo Motor Co., Ltd.

     5,633      11,768      5,633

E Mirae Asset Securities Co., Ltd.

     5,000      8,302      5,000

Hanwha Investment Trust Management Co., Ltd.

     3,487      3,503      3,487

Korea Vilene Co., Ltd.

     3,000      3,662      3,000

Hyundai Home Shopping Network Corp.

     2,680      915      2,680

National Information & Credit Evaluation, Inc.

     2,668      4,209      2,668

Nanjing Kumho Tire Co., Ltd.

     2,548      2,678      2,548

Baring Communication

     5,588      2,282      2,282

Korea Digital Satellite Broadcasting Co., Ltd.

     2,157      550      2,157

Kyobo Investment Trust Management Co., Ltd.

     2,100      3,417      2,100

Others

     90,866      67,123      38,235
    

  

  

     (Won) 292,785    (Won) 318,313    (Won) 222,190
    

  

  


1* Net asset values are calculated using the unaudited financial statements of the investees as of December 31, 2003 when available, otherwise, the most recent financial information is used.

 

20


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

As of December 31, 2003, the following investment securities are pledged at various institutions:

 

Restrictions


    Restricted securities

Related Transactions


  

Placed with


   Amount

    Book Value

   Pledge Value

Bonds sold under REPO agreements

  

Customers

   (Won) 3,623,156     (Won) 4,224,282    (Won) 4,188,660

Leased securities

  

KCFC

             4,626      4,500

Borrowings from the Bank of Korea

  

Bank of Korea

     992,433       1,229,621      1,214,400

Bank of Korea settlements

  

Bank of Korea

     (balance limits )     170,200      170,200

Derivatives transactions

  

Samsung Futures, etc.

     (balance limits )     112,069      120,500

Securities Finance Funds

  

Korea Securities Finance Corp.

             998      1,000

ADB collateral

  

KDB

             1,894      1,900
                 

  

                  (Won) 5,743,690    (Won) 5,701,160
                 

  

 

21


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

5. Loans

 

Loans as of December 31, 2003 and 2002 are summarized as follows:

 

(in millions of Won)         2003

    2002

 

Loans in Won

                     

Corporate loans

  

Operation loans

                
    

General operation loans

   (Won) 28,884,554     (Won) 28,904,621  
    

Notes discounted

     1,415,445       1,851,133  
    

Overdraft accounts

     447,992       568,702  
    

Trading notes

     809,921       814,759  
    

Other operation loans

     3,793,594       3,229,851  
         


 


            35,351,506       35,369,066  
         


 


    

Facility loans

                
    

General facility loans

     5,413,333       4,676,506  
    

Other facility loans

     1,218,370       1,287,125  
         


 


            6,631,703       5,963,631  
         


 


            41,983,209       41,332,697  
         


 


Consumer loans

  

General consumer loans

     41,951,219       39,713,543  
    

Consumer housing loans

     38,199,290       33,731,435  
    

Remunerations on mutual installment savings

     297,868       131,768  
    

Other consumer loans

     635,218       632,172  
         


 


            81,083,595       74,208,918  
         


 


Public loans

  

Public operation loans

     526,227       738,632  
    

Public facility loans

     42,473       39,414  
         


 


            568,700       778,046  
         


 


Other loans

  

Property formation loans

     62,963       95,252  
    

Inter-bank loans

     12,815       20,941  
    

Others

     3,962       5,449  
         


 


            79,740       121,642  
         


 


            123,715,244       116,441,303  
         


 


Loans in foreign currencies

  

Domestic funding loans

     1,165,988       1,052,800  
    

Overseas funding loans

     887,018       933,010  
    

Inter-bank loans

     767,884       1,094,119  
    

Domestic usance bills

     1,197,563       1,334,006  
    

Government funding loans

     1,477       3,241  
         


 


            4,019,930       4,417,176  
         


 


Call loans

  

In Won

     1,640,000       33,600  
    

In foreign currencies

     5,351       248,857  
    

Inter-bank reconciliation funds

     —         89,287  
         


 


            1,645,351       371,744  
         


 


Privately placed debentures

          1,787,131       1,276,080  
         


 


Other loans

          12,457,419       6,633,396  
         


 


Allowances for loan losses (Note 6)

          (3,690,341 )     (2,378,696 )
         


 


Present value discounts

          (22,780 )     (30,442 )
         


 


Net deferred loan origination fees and costs

          8,567       —    
         


 


          (Won) 139,920,521     (Won) 126,730,561  
         


 


 

22


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

As of December 31, 2003, restructured loans due to workout plans or other similar restructuring programs are as follows:

 

(in millions of Won)

 

  

Period

(years)


   Balances
Before
Restructuring


   Exemption

   Equity
Conversion


   CB
Conversion


  

Restructured

Amount


   Present
Value
Discounts


Workout

   1 - 6    (Won) 696,945    (Won) —      (Won) —      (Won) 581,075    (Won) 115,870    (Won) 6,229

Court receivership

   5 -10      41,426      154      —        27,009      14,263      3,502

Court mediation

   5 - 6      40,750      —        —        —        40,750      2,391

Others1*

   2 - 7      520,873      326,456      134      3,668      190,615      10,658
         

  

  

  

  

  

          (Won) 1,299,994    (Won) 326,610    (Won) 134    (Won) 611,752    (Won) 361,498    (Won) 22,780
         

  

  

  

  

  


1* The Bank wrote off (Won)237,316 million of loans to SK Networks, (formerly, SK Global) in expectation of a cash buy out restructuring. The resulting SK Networks loan balances as of December 31, 2003 amounts to (Won)88,960 million.

 

The loans, or portions thereof, that are approved for debt restructuring by issuance or grant of equity are separately classified as loans due for equity conversion as of the agreement date. The loans due for equity conversion are stated at the lower of nominal amount or the fair value of the to-be-converted equity interest. The difference between the nominal amount and the fair value of the equity interest is adjusted in the related allowance for loan losses.

 

The movements in present value discounts and net deferred loan origination fees and costs for the year ended December 31, 2003 are as follows :

 

(in millions of Won)

 

   WACC(%)

   Beginning
Balance


    Increase

    Decrease

    Ending
Balance


 

Present value discounts

   6.10 - 17.00    (Won) (30,442 )   (Won) (11,767 )   (Won) (19,429 )   (Won) (22,780 )

Deferred loan incidental income

          —         9,161       594       8,567  
         


 


 


 


          (Won) (30,442 )   (Won) (2,606 )   (Won) (18,835 )   (Won) (14,213 )
         


 


 


 


 

The maturities of loans as of December 31, 2003 are as follows:

 

(in millions of Won)

 

   Loans in
Won


   Loans in
Foreign
Currencies


   Bills
Bought


   Credit Card

   Call Loans

   Privately
placed
Debentures


   Others

   Total

Due in 3 months or less

   (Won) 16,278,866    (Won) 1,123,619    (Won) 496,406    (Won) 6,549,874    (Won) 1,645,351    (Won) 561,682    (Won) 1,600,828    (Won) 28,256,626

Due after 3 months through 6 months

     15,567,961      905,409      53,382      1,098,040      —        166,238      37      17,791,067

Due after 6 months through 1 year

     30,819,742      432,113      7,589      1,280,289      —        295,587      606      32,835,926

Due after 1 year through 2 years

     26,540,976      178,374      7,153      615,736      —        502,979      4,594      27,849,812

Due after 2 years through 3 years

     19,012,065      332,104      6,191      334,413      —        259,995      —        19,944,768

Due after 3 years through 4 years

     2,758,133      116,051      —        15,051      —        650      30,802      2,920,687

Due after 4 years through 5 years

     2,533,010      103,718      —        318,037      —        —        —        2,954,765

Thereafter

     10,204,491      828,542      —        38,391      —        —        —        11,071,424
    

  

  

  

  

  

  

  

     (Won) 123,715,244    (Won) 4,019,930    (Won) 570,721    (Won) 10,249,831    (Won) 1,645,351    (Won) 1,787,131    (Won) 1,636,867    (Won) 143,625,075
    

  

  

  

  

  

  

  

 

23


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

Loan risk concentrations by country as of December 31, 2003 are as follows:

 

(in millions of Won)

 

   Loans in Won

   Loans in
Foreign
Currencies


   Others

   Total

   Percentage(%)

Korea

   (Won) 123,715,244    (Won) 2,770,237    (Won) 15,847,217    (Won) 142,332,698    99.10

Southeast Asia

     —        636,560      304      636,864    0.45

Russia

     —        131,758      —        131,758    0.09

China

     —        29,466      1      29,467    0.02

Japan

     —        278,109      42      278,151    0.19

Others

     —        173,800      42,337      216,137    0.15
    

  

  

  

  
     (Won) 123,715,244    (Won) 4,019,930    (Won) 15,889,901    (Won) 143,625,075    100.00
    

  

  

  

  

 

Loan risk concentrations by industry as of December 31, 2003 are as follows:

 

(in millions of Won)

 

   Loans in Won

   Loans in
Foreign
Currencies


   Others

   Total

   Percentage(%)

Industrial loans

                                

Financial institutions

   (Won) 620,339    (Won) 817,750    (Won) 2,355,417    (Won) 3,793,506    2.64

Manufacturing companies

     13,900,021      1,575,108      1,177,859      16,652,988    11.59

Service companies

     23,068,546      568,034      557,602      24,194,182    16.85

Others

     4,850,951      124,443      1,397,943      6,373,337    4.44
    

  

  

  

  
       42,439,857      3,085,335      5,488,821      51,014,013    35.52
    

  

  

  

  

Household loans

     81,150,520      914,545      8,897,467      90,962,532    63.33
    

  

  

  

  

Public and other loans

     124,867      20,050      1,503,613      1,648,530    1.15
    

  

  

  

  
     (Won) 123,715,244    (Won) 4,019,930    (Won) 15,889,901    (Won) 143,625,075    100.00
    

  

  

  

  

 

6. Allowances for Loan Losses

 

As of December 31, 2003 and 2002, allowances for loan losses are as follows:

 

(in millions of Won)    2003

   2002

Loans in Won

   (Won) 2,271,198    (Won) 1,905,065

Loans in foreign currencies

     68,045      103,838

Bills bought in Won and foreign currencies

     16,928      20,213

Payments on guarantees

     19,967      18,382

Factoring receivable

     16,486      143

Credit card accounts

     1,187,616      284,491

Privately placed debentures

     87,513      28,210

Loans due for equity conversion

     —        5,373

Suspense receivables

     17,186      11,022

Others

     5,402      1,959
    

  

     (Won) 3,690,341    (Won) 2,378,696
    

  

 

24


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

As of December 31, 2003, allowances for loan losses by credit risk classification are as follows:

 

(in millions of Won)

 

      Normal

  Pre-cautionary

  Substandard

  Doubtful

  Estimated
Loss


  Total

Loans in Won

 

Balance

  (Won) 114,948,955   (Won) 5,342,015   (Won) 2,264,071   (Won) 935,330   (Won) 206,411   (Won) 123,696,782
   

Allowances

    773,958     297,883     491,148     501,798     206,411     2,271,198
       

 

 

 

 

 

   

Ratio (%)

    0.67     5.58     21.69     53.65     100.00     1.84
       

 

 

 

 

 

Loans in foreign
currencies

 

Balance

    3,681,484     263,168     40,037     31,500     803     4,016,992
   

Allowances

    14,568     17,072     16,252     19,350     803     68,045
       

 

 

 

 

 

   

Ratio (%)

    0.40     6.49     40.59     61.43     100.00     1.69
       

 

 

 

 

 

Bills bought

 

Balance

    507,729     54,354     1,850     3,030     3,757     570,720
   

Allowances

    2,539     8,687     430     1,515     3,757     16,928
       

 

 

 

 

 

   

Ratio (%)

    0.50     15.98     23.24     50.00     100.00     2.97
       

 

 

 

 

 

Payments on guarantees

 

Balance

    42,754     6,347     19,539     10,903     9,896     89,439
   

Allowances

    214     498     3,908     5,451     9,896     19,967
       

 

 

 

 

 

   

Ratio (%)

    0.50     7.85     20.00     50.00     100.00     22.32
       

 

 

 

 

 

Credit card accounts

 

Balance

    7,239,554     1,626,508     400     1,158,525     224,844     10,249,831
   

Allowances

    72,396     195,181     80     695,115     224,844     1,187,616
       

 

 

 

 

 

   

Ratio (%)

    1.00     12.00     20.00     60.00     100.00     11.59
       

 

 

 

 

 

Bonds purchased under resale agreements

 

Balance

    1,500,000     —       —       —       —       1,500,000
   

Allowances

    —       —       —       —       —       —  
       

 

 

 

 

 

   

Ratio (%)

    0.00     0.00     0.00     0.00     0.00     0.00
       

 

 

 

 

 

Call loans

 

Balance

    1,645,351     —       —       —       —       1,645,351
   

Allowances

    —       —       —       —       —       —  
       

 

 

 

 

 

   

Ratio (%)

    0.00     0.00     0.00     0.00     0.00     0.00
       

 

 

 

 

 

Privately placed
debentures

 

Balance

    1,363,209     409,352     7,555     6,811     168     1,787,095
   

Allowances

    6,816     75,048     2,064     3,417     168     87,513
       

 

 

 

 

 

   

Ratio (%)

    0.50     18.33     27.32     50.17     100.00     4.90
       

 

 

 

 

 

Factoring receivables

 

Balance

    29,685     —       —       125     16,275     46,085
   

Allowances

    148     —       —       63     16,275     16,486
       

 

 

 

 

 

   

Ratio (%)

    0.50     0.00     0.00     50.40     100.00     35.77
       

 

 

 

 

 

Total

 

Balance 1*

  (Won) 130,958,721   (Won) 7,701,744   (Won) 2,333,452   (Won) 2,146,224   (Won) 462,154   (Won) 143,602,295
   

Allowances 2*

    870,639     594,369     513,882     1,226,709     462,154     3,667,753
       

 

 

 

 

 

   

Ratio (%)

    0.66     7.72     22.02     57.16     100.00     2.55
       

 

 

 

 

 


1* The above amounts of loan balances are net of present value discounts.

 

2* The above amounts of allowances for loan losses do not include the allowances for suspense receivables and other allowances

 

For the years ended December 31, 2003 and 2002, the movements in allowances for loan losses are as follows:

 

(in millions of Won)    2003

    2002

 

Beginning balance

   (Won) 2,378,696     (Won) 2,271,179  

Provision for loan losses

     4,040,536       1,593,479  

Increase due to merger with Kookmin Credit Card Co., Ltd. (Note 33)

     1,388,854       —    

Collection of written-off loans

     767,718       269,533  

Repurchase of loans sold

     327,921       6,424  

Sale of loans

     (388,322 )     (65,174 )

Write-off of loans

     (4,509,979 )     (1,527,311 )

Conversion of loans into equity securities

     (43,996 )     (136,185 )

Exemption of loans

     (263,233 )     (8,364 )

Offset with present value discounts from troubled debt restructuring

     (7,482 )     (165 )

Changes in exchange rates and others

     (372 )     (24,720 )
    


 


Ending balance

   (Won) 3,690,341     (Won) 2,378,696  
    


 


 

25


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

As of December 31, 2003, 2002 and 2001, the ratios of allowances for loan losses to loans are as follows:

 

     2003

   2002

   2001

Loans 1*

   (Won) 143,602,295    (Won) 129,109,257    (Won) 109,301,138

Allowances for loan losses2*

     3,667,753      2,365,715      2,235,801
    

  

  

Ratio (%)

     2.55      1.83      2.05
    

  

  


1* The above amounts of loans are net of present value discounts.

 

2* The above amounts of allowances for loan losses do not include the allowances for suspense receivables and other allowances.

 

7. Fixed Assets

 

Fixed assets as of December 31, 2003 and 2002 are as follows:

 

     2003

   2002

Tangible assets

   (Won) 2,469,353    (Won) 2,477,147

Intangible assets

     549,427      614,457

Foreclosed and other properties

     776      1,012
    

  

     (Won) 3,019,556    (Won) 3,092,616
    

  

 

Movements in tangible assets for the year ended December 31, 2003 are as follows:

 

(in millions of Won)

 

   Land

    Buildings and
structures


    Leasehold
improvement


    Equipment
and vehicle


    Construction
in-progress


    Total

 

Acquisition cost

                                                

Beginning balances

   (Won) 1,175,682     (Won) 848,746     (Won) 98,117     (Won) 1,043,969     (Won) 1,195     (Won) 3,167,709  

Acquisition

     3,350       8,898       6,898       201,254       97,112       317,512  

Transfer

     —         37,466       48,517       —         (85,983 )     —    

Increase due to merger

     55,529       71,024       4,805       263,897       —         395,255  

Disposal

     (128,692 )     (2,838 )     (1,106 )     (60,058 )     —         (192,694 )
    


 


 


 


 


 


Ending balances

     1,105,869       963,296       157,231       1,449,062       12,324       3,687,782  
    


 


 


 


 


 


Accumulated depreciation

                                                

Beginning balances

     —         108,723       48,164       533,675       —         690,562  

Depreciation expense

     —         20,583       40,594       326,248       —         387,425  

Increase due to merger

     —         12,976       2,786       160,380       —         176,142  

Disposal

     —         (179 )     (736 )     (57,013 )     —         (57,928 )
    


 


 


 


 


 


Ending balances

     —         142,103       90,808       963,290       —         1,196,201  
    


 


 


 


 


 


Impairment

     —         22,228       —         —         —         22,228  
    


 


 


 


 


 


Book Value

   (Won) 1,105,869     (Won) 798,965     (Won) 66,423     (Won) 485,772     (Won) 12,324     (Won) 2,469,353  
    


 


 


 


 


 


 

Tangible assets covered by insurance policies as of December 31, 2003 are as follows:

 

(in millions of Won)

 

   Amount
Insured


  

Insurance Company


  

Type of Insurance


Buildings and structures

   (Won) 655,890    Samsung Fire & Marine Insurance Co., Ltd    General property insurance

Leasehold improvement

     52,612    Samsung Fire & Marine Insurance Co., Ltd    General property insurance

Equipment and vehicles

     274,671    Samsung Fire & Marine Insurance Co., Ltd    General property insurance

Construction in-progress

     9,860    Samsung Fire & Marine Insurance Co., Ltd    General property insurance
    

         
     (Won) 993,033          
    

         

 

26


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

Movements in intangible assets for the year ended December 31, 2003 are as follows:

 

(in millions of Won)

 

   Goodwill

  

Development

Costs


  

Rights to

Income on

Donated
Asset


   Store
Possessory
Right


   Trademarks

   Others

   Total

Beginning balances

   (Won) 613,705    (Won) —      (Won) 110    (Won) 161    (Won) 11    (Won) 470    (Won) 614,457

Acquisition

     —        —        —        —        96      609      705

Increase due to merger

     —        13,634      —        —        62      —        13,696

Amortization

     78,345      872      8      22      19      165      79,431
    

  

  

  

  

  

  

Ending balances

   (Won) 535,360    (Won) 12,762    (Won) 102    (Won) 139    (Won) 150    (Won) 914    (Won) 549,427
    

  

  

  

  

  

  

 

The Bank recorded (Won)106,844 million and (Won)158,895 million of current development costs under general and administrative expenses for the years ended December 31, 2003 and 2002.

 

The total government-posted prices of land, used for tax imposition and compensation for confiscation, as of December 31, 2003 and 2002 are as follows:

 

(in millions of Won)    2003

   2002

     Book Value

   Appraisal
Value


   Book Value

   Appraisal
Value


Lands included in tangible assets

   (Won) 1,105,869    (Won) 986,382    (Won) 1,175,681    (Won) 986,885

Lands included in foreclosed assets

     1,315      591      1,923      931
    

  

  

  

     (Won) 1,107,184    (Won) 986,973    (Won) 1,177,604    (Won) 987,816
    

  

  

  

 

8. Other Assets

 

Other assets as of December 31, 2003 and 2002 are as follows:

 

(in millions of Won)    2003

   2002

Guarantee deposits paid

   (Won) 1,336,639    (Won) 1,235,362

Accounts receivable

     1,715,100      1,877,645

Accrued income

     1,080,057      981,141

Payments in advance

     92,217      48,390

Prepaid expenses

     307,154      12,646

Deferred tax assets (Note 25)

     552,133      170,624

Derivative assets (Note 15)

     751,252      660,791

Unsettled domestic exchange assets

     612,592      1,087,587

Loans to trust accounts

     —        37,882

Others

     36,592      23,490
    

  

     (Won) 6,483,736    (Won) 6,135,558
    

  

 

27


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

9. Deposits

 

Deposits as of December 31, 2003 and 2002 are as follows:

 

(in millions of Won)

 

   Annual interest (%)
December 31, 2003


   2003

   2002

Deposits in Won

                  

Demand deposits

                  

- Checking deposits

   —      (Won) 125,533    (Won) 134,222

- Household checking deposits

   0.10      476,132      469,866

- Passbook deposits

   0.10      10,001,043      8,586,219

- Temporary deposits

   —        3,292,770      3,577,243

- Public fund deposits

   0.10      190,593      207,695

- Others

   0.10      24,218      12,497
         

  

            14,110,289      12,987,742
         

  

Time deposits and savings deposits

                  

- Time deposits

   2.90 - 4.40      62,247,870      58,187,286

- Installment savings deposits

   3.60 - 4.30      1,306,793      1,422,532

- Property formation savings

   8.50      1,870      2,221

- Time and savings deposits of non-residents in Won

   2.90 - 4.40      340,388      151,124

- General savings deposits

   0.10 - 3.30      21,644,066      21,346,223

- Corporate free savings deposits

   0.10 - 3.20      7,800,122      6,556,979

- Long-term savings deposits for workers

   8.79      69,031      297,272

- Long-term housing savings deposits

   5.00      983,684      538,782

- Long-term savings for households

   4.89      494,606      2,250,457

- Worker’s preferential savings deposits

   5.35      2,728,236      2,877,467

- Worker’s savings for housing

   2.50      81      79

- Mutual installment deposits

   3.20 - 4.50      7,054,752      7,491,115

- Mutual installment for housing

   2.95 - 4.30      5,423,853      4,872,637
         

  

            110,095,352      105,994,174
         

  

            124,205,641      118,981,916
         

  

Deposits in foreign currencies

                  

Demand deposits

                  

- Checking deposits

   0.00 - 1.32      40,778      29,629

- Passbook deposits

   0.08 - 0.11      787,798      549,646

- Notice deposits

   0.00 - 0.22      410      2,725

- Temporary deposits

   —        1,049      3,796
         

  

            830,035      585,796
         

  

Time deposits and savings deposits

                  

- Time deposits

   0.16 - 1.57      642,039      496,359

- Others

   0.00 - 4.45      3,299      1,493
         

  

            645,338      497,852
         

  

            1,475,373      1,083,648
         

  

Certificates of deposit

   3.45 - 3.95      6,499,258      3,044,089
         

  

          (Won) 132,180,272    (Won) 123,109,653
         

  

 

28


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

The maturities of deposits as of December 31, 2003 are as follows:

 

(in millions of Won)

 

   Deposits in Won

  

Deposits in

foreign
currencies


  

Certificates of

deposit


   Total

Due in 3 months or less

   (Won) 68,329,205    (Won) 1,241,166    (Won) 4,011,260    (Won) 73,581,631

Due after 3 months through 6 months

     13,002,110      123,327      1,634,701      14,760,138

Due after 6 months through 1 year

     31,128,277      61,249      853,297      32,042,823

Due after 1 year through 2 years

     7,566,819      47,095      —        7,613,914

Due after 2 years through 3 years

     2,832,771      2,463      —        2,835,234

Due after 3 years through 4 years

     483,407      73      —        483,480

Due after 4 years through 5 years

     298,259      —        —        298,259

Thereafter

     564,793      —        —        564,793
    

  

  

  

     (Won) 124,205,641    (Won) 1,475,373    (Won) 6,499,258    (Won) 132,180,272
    

  

  

  

 

10. Borrowings

 

Borrowings as of December 31, 2003 and 2002 are as follows:

 

(in millions of Won)

 

   Annual Interest (%)
December 31, 2003


   2003

   2002

Borrowings in Won

                  

Borrowings from the Bank of Korea

   2.50    (Won) 992,433    (Won) 671,854

Borrowings from the government

   0.00 - 8.00      920,589      1,056,480

Borrowings from banking institutions

   3.54 - 8.55      253,822      318,702

Borrowings from National Housing Fund

   8.00      8,553      9,192

Borrowings from other financial institutions

   2.00 - 5.00      5,688      6,211

Other borrowings

   2.00 - 7.00      1,173,284      1,129,305
         

  

            3,354,369      3,191,744
         

  

Borrowings in foreign currencies

                  

Due to banks

   —        189,976      528,991

Borrowings from domestic banks

   0.09 - 7.40      2,360,652      1,875,119

Borrowings from other financial institutions

   5.13      19,486      23,092

Borrowings from foreign banks

   —        752,803      981,328
         

  

            3,322,917      3,408,530
         

  

Bonds sold under repurchase agreements

                  

In Won

   2.50 - 4.10      3,613,505      3,050,179

In foreign currencies

   1.54      9,651      23,982
         

  

            3,623,156      3,074,161
         

  

Bills sold

   3.40 - 3.85      44,239      72,860
         

  

Due to the Bank of Korea in foreign currencies

   —        12,608      37,493
         

  

Call money

                  

In Won

   3.25 - 3.40      55,800      829,300

In foreign currencies

   0.88 - 5.15      193,700      76,666

Inter-bank borrowings

   —        296,011      —  
         

  

            545,511      905,966
         

  

          (Won) 10,902,800    (Won) 10,690,754
         

  

 

29


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

The maturities of borrowings as of December 31, 2003 are as follows:

 

(in millions of Won)

 

   Borrowings in
Won


  

Borrowings in

Foreign
Currencies


   Others

   Total

Due in 3 months or less

   (Won) 1,178,738    (Won) 429,162    (Won) 2,372,717    (Won) 3,980,617

Due after 3 months through 6 months

     149,891      1,264,287      762,272      2,176,450

Due after 6 months through 1 year

     203,153      861,126      1,080,874      2,145,153

Due after 1 year through 2 years

     409,384      417,546      9,651      836,581

Due after 2 years through 3 years

     372,400      256,541      —        628,941

Due after 3 years through 4 years

     304,801      —        —        304,801

Due after 3 years through 4 years

     254,063      50,773      —        304,836

Thereafter

     481,939      43,482      —        525,421
    

  

  

  

     (Won) 3,354,369    (Won) 3,322,917    (Won) 4,225,514    (Won) 10,902,800
    

  

  

  

 

11. Debentures

 

Debentures as of December 31, 2003 and 2002 are as follows:

 

(in millions of Won)

 

       

Annual Interest
(%)

December 31,
2003


   2003

    2002

 

In Won

   Hybrid debentures    6.00 - 7.00    (Won) 903,668     (Won) —    
     Subordinated fixed rate debentures    6.07 - 15.66      4,896,072       4,753,285  
     Fixed rate debentures    2.25 - 8.15      3,970,000       —    
     Floating rates debentures    3.92 - 8.71      8,609,663       12,269,023  
              


 


                 18,379,403       17,022,308  
     Discounts on debentures           (83,443 )     (270,924 )
              


 


                 18,295,960       16,751,384  
              


 


In foreign currencies

   Floating rates debentures    0.60 - 1.99      196,211       350,589  
     Fixed rates debentures    1.08 - 4.63      613,549       438,538  
          1.82 - 1.92      78,695       —    
              


 


                 888,455       789,127  
     Premiums on debentures           9,639       —    
     Discounts on debentures           (1,473 )     (1,504 )
              


 


                 896,621       787,623  
              


 


               (Won) 19,192,581     (Won) 17,539,007  

1* The hybrid debenture are perpetual type debts in which the Bank retains the early redemption option after 5 years from issuance date and the term extending option on maturity date. Hybrid debentures are senior to common stock but subordinated to other subordinated debentures.

 

30


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

As of December 31, 2003, subordinated debentures and hybrid debentures comprise the following:

 

(In hundred millions of Won)                    

Type

 

   Issue date

   Amount

   Annual interest (%)

   Maturity

Subordinated fixed rate debentures

   97.12.29 - 98.8.27    (Won) 2,653    15.02 - 16.00    03.01.27 - 09.11.15
     2000.03.27      2,000    9.65    2005.03.27

   2000.06.28      2,540    9.04 - 9.10    2006.01.28

   2000.09.27      3,000    8.99    2006.01.27

   2000.09.28      1,500    8.79 - 8.85    2006.01.28

   2000.11.28      1,000    8.65 - 8.71    2006.02.28

   2000.11.28      1,620    9.57 - 9.65    2010.11.28

   2000.12.27      2,000    8.71    2006.01.27

   2001.05.28      2,000    7.60 - 7.65    2007.02.28

   2001.06.27      1,600    7.68    2008.03.27

   2001.06.27      2,175    7.86    2009.03.27

   2001.08.28      1,000    6.69 - 6.73    2007.08.28

   2001.09.28      1,500    6.69 - 6.73    2008.03.28

   2002.03.27      2,417    7.06 - 7.10    2008.01.27

   2002.07.27      3,024    6.96 - 7.00    2008.01.27

   2002.09.27      2,574    6.27 - 6.30    2008.03.27

   2002.09.27      1,500    6.51 - 6.55    2010.03.27

   2002.09.27      926    6.66 - 6.70    2013.03.27

   2002.11.27      4,007    6.07 - 6.10    2008.05.27

   2002.11.27      578    6.27 - 6.30    2010.05.27

   2002.11.27      1,003    6.51 - 6.55    2013.05.27

   2002.12.18      1,100    8.00    2008.01.18

   2002.12.27      304    6.55    2014.12.27

   2002.12.27      100    6.20    2008.06.27

   2002.12.27      900    6.40    2010.06.27

   2002.12.27      500    6.65    2013.06.27

   2003.01.21      500    7.65    2008.02.21

   2003.03.10      450    7.10    2008.04.10

   2003.10.27      3,565    5.18 - 5.20    2009.01.27

   2003.10.27      888    5.33 - 5.35    2011.01.27

   2003.10.27      37    5.58 -5.60    2014.01.27
         

         
            48,961          
         

         

Hybrid debentures

   2003.06.27      1,051    6.00    2033.06.27

   2003.08.27      5,334    7.00    2033.08.27

   2003.10.27      2,652    6.80    2033.10.27
         

         
            9,037          
         

         
          (Won) 57,998          
         

         

 

31


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

 

The maturities of debentures as of December 31, 2003 are as follows:

 

(in millions of Won)    Won

   Foreign
currencies


   Total

Due in 3 months or less

   (Won) 4,441,531    (Won) —      (Won) 4,441,531

Due after 3 months through 6 months

     1,825,241      85,044      1,910,285

Due after 6 months through 1 year

     3,956,555      80,566      4,037,121

Due after 1 year through 2 years

     2,078,640      87,627      2,166,267

Due after 2 years through 3 years

     1,327,851      —        1,327,851

Due after 3 years through 4 years

     374,712      597,377      972,089

Due after 4 years through 5 years

     2,049,213      37,841      2,087,054

Thereafter

     2,325,660      —        2,325,660