Form 6-K
Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

Form 6-K

 


 

REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of August 2005

 


 

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    

 



Table of Contents

TABLE OF CONTENTS

 

Summary of 2005 1st Quarter Business Report    4
1.    Introduction to the Bank    5
1.1.    Business Purposes    5
1.2.    History    5
1.3.    Capital Structure    7
1.4.    Employee Stock Ownership Association    13
1.5.    Dividend    13
2.    Business    14
2.1.    Sources and Uses of Fund    14
2.2.    Principal Banking Activities    17
2.3.    Branch Networks    21
2.4.    Other Information for Investment Decision    22
3.    Financial Information    24
3.1.    Non-Consolidated Condensed Financial Statements    24
3.2.    Other Financial Information    24
4.    Independent Accountant Fees and Services    25
4.1.    Audit & Review Fees    25
4.2.    Non-Audit Services    25
5.    Corporate Governance and Affiliated Companies    26
5.1.    Board of Directors & Committees under the Board    26
5.2.    Audit Committee    26
5.3.    Compensation to Directors    27
5.4.    Voting Rights of Shareholders    27
5.5.    Share Ownership    27
5.6.    Affiliated Companies    28
6.    Directors, Senior Management and Employees    29
6.1.    Executive Directors    29
6.2.    Non-Executive Directors    29
6.3.    Senior Management    30
6.4.    Employees    30
7.    Related Party Transactions    31
7.1.    Transactions with the Largest Shareholders or Affiliates    31
7.2.    Transactions with Other than the Largest Shareholders or Affiliates    32

 

2


Table of Contents

Index

 

1. Summary of Business Report for the 1st Half of 2005

 

2. Exhibit 99.1_Kookmin Bank Review Report for the 1st Half of 2005

 

3


Table of Contents

Summary of Business Report for the 1st Half of 2005

 

On August 16, 2005, Kookmin Bank filed its business report for the first half of 2005 (the “Business Report”) with the Financial Supervisory Commission of Korea pursuant to the Securities and Exchange Act of Korea. This is the summary of the Business Report translated into English.

 

All references to “Kookmin Bank” mean Kookmin Bank on a non-consolidated basis, and all references to “we”, “us” or “the Bank” mean Kookmin Bank and, as the context may require, its subsidiaries. In addition, all references to “Won” or “W” in this document are to the currency of the Republic of Korea.

 

Accounting policy with respect to the private funds in which we hold interest in the form of wholly–owned beneficiary certificates, or WOBCs, was changed in April 2005. Before the change, unrealized Gain or Loss on WOBCs was recognized as non-interest income from beneficiary certificates in the income statement. However, it should be recognized as a capital adjustment in owner’s equity section of balance sheet after the change. The financial statements for the years 2002 and 2003, respectively, do not require adjustment because unrealized gain or loss on WOBCs was already reflected as a capital adjustment for those periods.

 

4


Table of Contents

1. Introduction to the Bank

 

1.1. Business Purposes

 

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

 

  The banking business as prescribed by the Bank Act,

 

  The trust business as prescribed by the Banking Trust Act,

 

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

 

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

 

1.2. History

 

  November 1, 2001

Incorporated and listed on the New York Stock Exchange

 

  November 9, 2001

Listed on the Korea Stock Exchange

 

  September 23, 2002

Integrated two brand operations onto a single information technology platform

 

  December 4, 2002

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

 

  May 30, 2003

Entered into a merger agreement with Kookmin Credit Card, one of our major subsidiaries, and officially submitted Merger Statement to Financial Supervisory Commission

 

  September 30, 2003

Completed small-scale merger with Kookmin Credit Card

 

  December 16, 2003

Completed strategic investment in Bank International Indonesia (BII) through the Consortium of Sorak Financial Holdings, of which we hold 25% stake

 

  December 19, 2003

Fully privatized through the entire disposition of Korean government’s stake in Kookmin Bank

 

  April 29, 2004

Established a subsidiary, KB Life Co. Ltd., to engage in insurance business

 

  July 22, 2004

Made an alliance with China Construction Bank for the foreign currency business

 

  August 31, 2004

Made a contract with ING for the strategic investment on KB Life

 

5


Table of Contents
  October 29, 2004

Appointed Mr. Chung Won Kang as the President & CEO in Extraordinary General Shareholders’ Meeting

 

  November 09, 2004

Integrated three labor unions (former Kookmin Bank, former H&CB, former Kookmin Credit Card) into a single KB labor union

 

  December 31, 2004

The largest shareholder of Kookmin Bank changed from ING Bank N.V. Amsterdam to Euro-Pacific Growth Fund

 

  March 02, 2005

Open LOGO  KB Satellite Broad Casting System   LOGO for the first time in the world

 

  March 21, 2005

The largest shareholder of Kookmin Bank changed from Euro-Pacific Growth Fund to ING Bank N.V. Amsterdam

 

  June 16, 2005

Disposed 27,423,761 shares of treasury stock by means of the combination of domestic over-the-counter-sales and an international issuance of depository receipts

 

6


Table of Contents

1.3. Capital Structure

 

1.3.1. Common Shares

 

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

 

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

 

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

 

With regard to the merger between Kookmin Bank and Kookmin Credit Card on September 30, 2003, Kookmin Bank issued additional 8,120,431 shares on October 1, 2003. Accordingly, as of June 30, 2005, total 336,379,116 shares were issued with 1,681,896 million Won of paid-in capital.

 

7


Table of Contents

1.3.2. Treasury Stock1

 

The following table shows the acquisition and disposition of our treasury stock as of June 30, 2005. (Units: in millions of Won unless indicated otherwise)

 

Date


 

Transaction


  

Number of

share


  

Acquisition/

Disposition
amount


  

Average
cost

per one
share (Won)


November 15, 2001

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

December 24, 2001

  Disposition due to exercise of stock option by a grantee    10,000    432,003    43,200

April 3, 2002

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

May 14, 2002

  Disposition pursuant to the Bank Act of Korea    31,548    1,601,944    50,788

July 30 ~ October 23, 2002

  Acquisition pursuant to the Securities and Exchange Act of Korea    3,000,000    147,632,489    49,210

December 24, 2002

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

January 15, 2003

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

September 4 ~ 9, 2003

  Acquisition pursuant to the Securities and Exchange Act of Korea    650,000    29,094,064    44,760

October 16, 2003

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

4th quarter, 2003

  Disposition due to exercise of stock option by grantees    78,322    3,792,977    48,428

December 17, 2003

  Acquisition from the sale of Korean government shares of the Bank    27,423,761    1,198,568,158    43,700

December 26, 2003

  Disposition due to contribution to ESOP account    1,000,000    44,252,000    44,252

1st quarter, 2004

  Disposition due to exercise of stock option by grantees    30,855    1,365,396    44,252

2nd quarter, 2004

  Disposition due to exercise of stock option by grantees    55,593    2,460,101    44,252

3rd quarter, 2004

  Disposition due to exercise of stock option by grantees    592    26,197    44,252

4th quarter, 2004

  Disposition due to exercise of stock option by grantees    48,374    2,140,646    44,252

1st quarter, 2005

  Disposition due to contribution to ESOP account and exercise of stock option by grantees    1,095,038    48,457,622    44,252

2nd quarter, 20042

  Disposition due to domestic over the counter sales and an international issuance of depository receipts and exercise of stock option by grantees    28,473,662    1,260,016,491    44,252
        
  
  

Total

  —      312,509    13,845,442    —  
        
  
  

1 Disposed 2,000,000 shares of Treasury stock for the purpose of contribution to ESOP on February 23, 2005 and April 12, 2005.
2 On June 16, 2005, KB disposed 27,423,761 shares of Treasury Stock pursuant to the decision of BOD on April 27, 2005 for the purpose of the improvement of capital structure.

 

8


Table of Contents

1.3.3. Stock Option

 

The following table is the breakdown of stock options Kookmin Bank has granted to the directors and employees as of June 30, 2005.

 

(Units: in Won, shares)

 

Grant date


  

Name of the grantee


  

Position when granted


  

Exercise period


   Exercise
price


   Number of
granted
options*


   Number of
exercised
options


   Number of
exercisable
options


        

From


  

To


           

28-Feb-00

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

28-Feb-00

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

28-Feb-00

   Woo Jung Lee    Executive Vice President    01-Mar-03    28-Feb-06    27,600    30,000    20,000    10,000

28-Feb-00

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

28-Feb-00

   Sun Jin Kim    Non Executive Director    01-Mar-03    28-Feb-06    27,600    7,000    4,100    2,900

28-Feb-00

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

28-Feb-00

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

28-Feb-00

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

28-Feb-00

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

28-Feb-00

   Sung Hee Jwa    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,800    1,093    3,707

28-Feb-00

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

28-Feb-00

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

28-Feb-00

   Sung Cheon Hong & 9 others    Employees    01-Mar-03    28-Feb-06    27,600    67,283    35,975    31,308

24-Mar-01

   Young Il Kim    Executive Vice President    25-Mar-04    24-Mar-07    25,100    30,000    7,000    23,000

24-Mar-01

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

24-Mar-01

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

24-Mar-01

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

24-Mar-01

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

24-Mar-01

   Jae Han Kim & 2 others    Employees    25-Mar-04    24-Mar-07    25,100    16,491    13,216    3,275

18-Mar-00

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

18-Mar-00

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

18-Mar-00

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

18-Mar-00

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

18-Mar-00

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

18-Mar-00

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

15-Mar-01

   Sang Hoon Kim    Chairman&CEO    16-Mar-04    15-Mar-09    28,027    29,614    1,000    28,614

15-Mar-01

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

15-Mar-01

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

15-Mar-01

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

15-Mar-01

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

15-Mar-01

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

15-Mar-01

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

15-Mar-01

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

15-Mar-01

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

15-Mar-01

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

15-Mar-01

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

15-Mar-01

   Duk Hyun Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    2,845    9,000

15-Mar-01

   Ok Hyun Yoon    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    2,845    9,000

15-Mar-01

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

15-Mar-01

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

15-Mar-01

   Byung Jin Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    3,845    8,000

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

 

9


Table of Contents
Grant date

  

Name of the grantee


  

Position when granted


   Exercise period

   Exercise
price


    Number of
granted
options*


   Number of
exercised
options


   Number of
exercisable
options


         From

   To

          
15-Mar-01    Han Koo Ji & 36 others    Employees    16-Mar-04    15-Mar-09    28,027     39,092    10,067    29,025
                        

             
16-Nov-01    Jung Tae Kim    President & CEO    17-Nov-04    16-Nov-09    X1     500,000    0    500,000
16-Nov-01    Sang Hoon Kim    Chairman    17-Nov-04    16-Nov-09      150,000    0    150,000
                        

             
22-Mar-02    Choul Ju Lee    Auditor&Executive Director    23-Mar-05    22-Mar-10    Y2     9,963    0    9,963
22-Mar-02    Henry Cornell    Non Executive Director    23-Mar-05    22-Mar-10      3,321    0    3,321
22-Mar-02    Keun Shik Oh    Non Executive Director    23-Mar-05    22-Mar-10      3,321    0    3,321
22-Mar-02    Dong Soo Chung    Non Executive Director    23-Mar-05    22-Mar-10      10,000    0    10,000
22-Mar-02    Ji Hong Kim    Non Executive Director    23-Mar-05    22-Mar-10      3,321    0    3,321
22-Mar-02    Timothy Hartman    Non Executive Director    23-Mar-05    22-Mar-10      3,321    0    3,321
22-Mar-02    Sun Jin Kim    Non Executive Director    23-Mar-05    22-Mar-10      3,000    0    3,000
22-Mar-02    Moon Soul Chung    Non Executive Director    23-Mar-05    22-Mar-10      3,000    0    3,000
22-Mar-02    Kyung Hee Yoon    Non Executive Director    23-Mar-05    22-Mar-10      3,000    0    3,000
                        

             
22-Mar-02    Jong Kyoo Yoon    Executive Vice President    23-Mar-05    22-Mar-10    57,100     20,522    0    20,522
22-Mar-02    Bong Hwan Cho    Executive Vice President    23-Mar-05    22-Mar-10    57,100     9,498    0    9,498
22-Mar-02    Bum Soo Choi    Executive Vice President    23-Mar-05    22-Mar-10    57,100     13,339    0    13,339
22-Mar-02    Bock Woan Kim    Executive Vice President    23-Mar-05    22-Mar-10    57,100     13,339    0    13,339
22-Mar-02    Ki Taek Hong    Executive Vice President    23-Mar-05    22-Mar-10    57,100     19,525    0    19,525
22-Mar-02    Sung Hyun Chung    Executive Vice President    23-Mar-05    22-Mar-10    57,100     19,525    0    19,525
22-Mar-02    Ki Sup Shin    Executive Vice President    23-Mar-05    22-Mar-10    57,100     26,405    0    26,405
22-Mar-02    Seong Kyu Lee    Executive Vice President    23-Mar-05    22-Mar-10    57,100     30,000    0    30,000
22-Mar-02    Byung Sang Kim    Executive Vice President    23-Mar-05    22-Mar-10    57,100     9,498    0    9,498
22-Mar-02    Jong Young Yoon & 15 others    Employees    23-Mar-05    22-Mar-10    57,100     147,658    0    147,658
26-Jul-02    Donald H. MacKenzie    Executive Vice President    27-Jul-05    26-Jul-10    58,800     30,000    0    30,000
                        

             
21-Mar-03    Moon Soul Chung    Non Executive director    22-Mar-06    21-Mar-11    Y 3   6,678    0    6,678
21-Mar-03    Sun Jin Kim    Non Executive director    22-Mar-06    21-Mar-11      6,678    0    6,678
21-Mar-03    Richard Elliott Lint    Non Executive director    22-Mar-06    21-Mar-11      6,678    0    6,678
21-Mar-03    Kyung Hee Yoon    Non Executive director    22-Mar-06    21-Mar-11      6,678    0    6,678
21-Mar-03    Suk Yong Cha    Non Executive director    22-Mar-06    21-Mar-11      10,000    0    10,000
21-Mar-03    Bernard S. Black    Non Executive director    22-Mar-06    21-Mar-11      6,678    0    6,678
21-Mar-03    Ki Hong Kim    Non Executive director    22-Mar-06    21-Mar-11      10,000    0    10,000
21-Mar-03    Eun Joo Park    Non Executive director    22-Mar-06    21-Mar-11      3,351    0    3,351
21-Mar-03    Cheol Soo Ahn    Non Executive director    22-Mar-06    21-Mar-11      3,351    0    3,351
21-Mar-03    Kyung Bae Suh    Non Executive director    22-Mar-06    21-Mar-11      3,351    0    3,351
                        

             
21-Mar-03    Sung Chul Kim    Executive Vice President    22-Mar-06    21-Mar-11    35,500     9,443    0    9,443
21-Mar-03    Woo Jung Lee    Executive Vice President    22-Mar-06    21-Mar-11    35,500     9,443    0    9,443
21-Mar-03    See Young Lee    Executive Vice President    22-Mar-06    21-Mar-11    35,000     7,024    0    7,024
21-Mar-03    Won Suk Oh & 5 others    Employees    22-Mar-06    21-Mar-11    35,500     63,650    0    63,650
27-Aug-03    Jin Baek Cheong    Executive Vice President    28-Aug-03    27-Aug-11    40,500     5,091    0    5,091

1. Exercise price = 51,200 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - 207.25) / 207.25 x 100.
2. Exercise price = 57,100 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.
3 Exercise price = 35,500 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.

 

10


Table of Contents

Grant date


  

Name of the grantee


  

Position when granted


   Exercise period

   Exercise price

    Number of
granted
options*


   Number of
exercised
options


   Number of
exercisable
options


         From

   To

          

22-Mar-01

   Han Kyoung Lee    Former KCC Officer    23-Mar-04    22-Mar-11    71,538     6,644    0    6,644

22-Mar-01

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

22-Mar-01

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

22-Mar-01

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

             

29-Mar-02

   Boung Hak Kim    Former KCC Officer    30-Mar-04    29-Mar-11    Y 4   3,330    0    3,330

29-Mar-02

   Sun Lee    Former KCC Officer    30-Mar-04    29-Mar-11      3,330    0    3,330

29-Mar-02

   Jang Ok Kim    Former KCC Officer    30-Mar-04    29-Mar-11      3,330    0    3,330
                        

             

09-Feb-04

   Young Il Kim    Senior Executive Vice President    10-Feb-07    09-Feb-12    46,100     7,125    0    7,125

09-Feb-04

   Jeung Lak Lee    Senior Executive Vice President    10-Feb-07    09-Feb-12    46,100     7,452    0    7,452

09-Feb-04

   Sang Jin Lee    Senior Executive Vice President    10-Feb-07    09-Feb-12    46,100     7,125    0    7,125

09-Feb-04

   Yun Keun Jung    Senior Executive Vice President    10-Feb-07    09-Feb-12    46,100     5,000    0    5,000

09-Feb-04

   Kuk Shin Kang & 9 others    Employees    10-Feb-07    09-Feb-12    46,100     48,837    0    48,837
                        

             

23-Mar-04

   Dong Soo Chung    Non Executive Director    24-Mar-07    23-Mar-12    Y 5   5,000    0    5,000

23-Mar-04

   Woon Youl Choi    Non Executive Director    24-Mar-07    23-Mar-12      5,000    0    5,000

23-Mar-04

   Wang Ha Cho    Non Executive Director    24-Mar-07    23-Mar-12      5,000    0    5,000

23-Mar-04

   Young Soon Cheon    Non Executive Director    24-Mar-07    23-Mar-12      5,000    0    5,000
                        

             

23-Mar-04

   Jung Young Kang    Senior Executive Vice President    24-Mar-07    23-Mar-12    47,200     10,000    0    10,000

01-Nov-04

   Chung Won Kang    President & CEO    02-Nov-07    01-Nov-12    X 6   700,000    0    700,000

18-Mar-05

   Hyung Duk Chang    Auditor & Executive Director    19-Mar-08    18-Mar-13    X 7   30,000    0    30,000

18-Mar-05

   Kap Shin    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000

18-Mar-05

   Dong Won Kim    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000

18-Mar-05

   Yun Keun Jung    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000

18-Mar-05

   Nam Sik Yang    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000

18-Mar-05

   Hyo Sung Won    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000

18-Mar-05

   Yong Kook Oh    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000

4 Exercise price = 129,100 Won x (1 + the increase rate of Comparative Industry Index x 0.4).

If negative index produced, the factor is not to be considered.

The increase rate of Comparative Industry Index = (B-A)/A

A : KOSPI as of the grant date x 0.5 + KOSPI Banking Industry Index as of the grant date x 0.5

B : KOSPI as of the exercise date x 0.5 + KOSPI Banking Industry Index as of the exercise date x 0.5

5 Exercise price = 47,200 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.
6 Exercise price = 37,600 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.
7 Exercise price = 46,800 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.

 

11


Table of Contents
Grant date

  

Name of the grantee


  

Position when granted


   Exercise period

   Exercise
price


    Number of
granted
options*


   Number of
exercised
options


   Number of
exercisable
options


         From

   To

          
18-Mar-05    Sang Jin Lee    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000
18-Mar-05    Ahn Sook Koo    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000
18-Mar-05    Jung Young Kang    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000
18-Mar-05    Young Han Choi    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000
18-Mar-05    Dong Soo Choe    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000
18-Mar-05    Seong Kyu Lee    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000
18-Mar-05    Jun Bo Cho    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000
18-Mar-05    Jung Min Kim    Senior Executive Vice President    19-Mar-08    18-Mar-13    46,800     30,000    0    30,000
18-Mar-05    Sung Soo Jung & 21 others    Employees    19-Mar-08    18-Mar-13    46,800     345,000    0    345,000
                        

             
18-Mar-05    Suk Yong Cha    Non Executive director    19-Mar-08    18-Mar-13    X 7   15,000    0    15,000
18-Mar-05    Ki Hong Kim    Non Executive director    19-Mar-08    18-Mar-13      15,000    0    15,000
18-Mar-05    Young Soon Cheon    Non Executive director    19-Mar-08    18-Mar-13      15,000    0    15,000
18-Mar-05    Dong Soo Chung    Non Executive director    19-Mar-08    18-Mar-13      15,000    0    15,000
18-Mar-05    Chang Kyu Lee    Non Executive director    19-Mar-08    18-Mar-13      15,000    0    15,000
18-Mar-05    Hun Namkoong    Non Executive director    19-Mar-08    18-Mar-13      15,000    0    15,000
18-Mar-05    Doo Hwan Song    Non Executive director    19-Mar-08    18-Mar-13      15,000    0    15,000
18-Mar-05    Dam Cho    Non Executive director    19-Mar-08    18-Mar-13      15,000    0    15,000
18-Mar-05    Nobuya Takasugi    Non Executive director    19-Mar-08    18-Mar-13      15,000    0    15,000
                        

             
27-Apr-05    Kyung Wook Kang    Employee    28-Apr-08    27-Apr-13    45,700     15,000    0    15,000
22-Jul-05    Donald H. MacKenzie    Senior Executive Vice President    23-Jul-08    22-Jul-13    49,200     30,000    0    30,000
                              
  
  
Total     3,524,689    229,220    3,295,469
                              
  
  

 

12


Table of Contents

1.4. Employee Stock Ownership Association1

 

    

Beginning
balance

(January 1, 2005)


   Increase

   Decrease

  

Ending

Balance

(June 30, 2005)


   Remarks

Registered common stock

   1,944,211    1,584,931    103,852    3,425,290    —  

Total

   1,944,211    1,584,931    103,852    3,425,290    —  

 

1.5. Dividend

 

The following table shows dividend policy and the related information for the last three years. The Board of Directors of Kookmin Bank made a resolution to pay dividend for the fiscal year of 2004, and shareholders of Kookmin Bank approved of the dividend payout for the year at the general shareholders’ meeting held on March 18, 2005

 

(Units: in millions of Won unless indicated otherwise)

 

     2004

  2003

    2002

Net (loss) income for the period

   360,454   (930,356 )   1,310,291

Diluted (loss) earnings per share (Won)

   1,1762   (2,854 )   4,123

Total dividend amount

   168,574   —       325,232

Dividend payout ratio (%)

   46.773   —       24.82

Cash dividend per common share (Won)

   550   —       1,000

Stock dividend per common share (%)

   —     —       —  

Dividend per preferred share (Won)

   —     —       —  

Dividend yield ratio (%)

   1.424   —       2.19

1 Disposed 2,000,000 shares of Treasury stock for the purpose of contribution to ESOP on February 23, 2005 and April 12, 2005.
2 Earnings per share = net income (360,454,000,000 Won) / weighted average number of shares (306,529,707 shares).
3 Dividend payout ratio = total dividend amount for common shares (168,574,000,000 Won) / net income (360,454,000,000 Won).
4 Dividend yield ratio = dividend per share (550 Won) / average closing price for a week based on business day prior to market closing date of December 31, 2004 (38,720 Won).

 

13


Table of Contents

2. Business

 

2.1. Sources and Uses of Fund

 

2.1.1. Sources of Fund

 

(Unit: in millions of Won)


  

June 30, 2005


  

December 31, 2004


  

December 31, 2003


   Average
balance


   Interest
rate (%)


   Average
balance


   Interest
rate (%)


   Average
balance


   Interest
rate (%)


Won currency

                             

Deposits

   115,050,961    2.87    118,017,849    3.29    117,045,837    3.69

Certificate of deposit

   4,594,957    3.59    6,108,179    4.06    4,068,327    4.45

Borrowings

   2,732,933    2.94    3,053,890    3.43    3,625,926    3.89

Call money

   794,561    3.10    1,117,576    3.55    1,315,639    3.93

Other

   25,391,198    5.05    23,376,439    5.61    23,311,299    5.91
    
  
  
  
  
  

Subtotal

   148,564,610    3.27    151,673,933    3.68    149,367,028    4.06
    
  
  
  
  
  

Foreign currency

                             

Deposits

   1,382,236    1.30    1,777,402    0.61    1,276,952    0.84

Borrowings

   2,859,785    1.69    2,796,300    0.94    3,462,883    1.01

Call money

   206,693    2.79    145,809    1.43    150,609    1.07

Finance debentures issued

   694,390    3.58    824,745    2.28    773,840    2.11

Other

   48,871    —      40,383    —      26,491    —  
    
  
  
  
  
  

Subtotal

   5,191,795    1.86    5,584,639    1.04    5,690,775    1.12
    
  
  
  
  
  

Other

                             

Total Shareholders Equity

   9,819,232    —      9,284,477    —      12,053,112    —  

Allowances

   694,653    —      459,124    —      98,422    —  

Other

   12,890,624    —      12,773,040    —      9,509,283    —  
    
  
  
  
  
  

Subtotal

   23,404,509    —      22,516,641    —      21,660,817    —  
    
  
  
  
  
  

Total

   177,161,094    2.80    179,775,213    3.14    176,718,620    3.47
    
  
  
  
  
  

 

14


Table of Contents

2.1.2. Uses of Fund

 

(Unit: in millions of Won)


   June 30, 2005

   December 31, 2004

   December 31, 2003

   Average
balance


   Interest
rate (%)


   Average
balance


   Interest
rate (%)


   Average
balance


   Interest
rate (%)


Won currency

                             

Due from banks

   228,147    2.39    184,593    0.83    165,358    1.37

Securities

   27,020,409    4.23    23,930,678    5.17    30,069,922    7.26

Loans

   121,553,513    6.21    125,504,672    6.64    121,725,298    7.10

Advances for customers

   31,063    1.48    71,213    2.01    96,547    5.79

Call loan

   1,606,450    3.37    1,661,772    3.78    685,953    3.92

Private placement corporate bonds

   1,475,635    7.21    1,322,470    6.58    1,287,623    10.26

Credit card accounts

   7,299,631    14.20    9,581,330    10.83    6,698,954    10.44

Other

   58,554    —      172,783    —      298,858    —  

Allowance for credit losses (-)

   3,193,893    —      3,844,941    —      1,823,976    —  
    
  
  
  
  
  

Subtotal

   156,079,509    6.40    158,584,570    6.86    159,204,537    7.41
    
  
  
  
  
  

Foreign currency

                             

Due from banks

   662,623    2.61    632,526    1.34    612,862    1.33

Securities

   863,302    5.54    1,208,124    3.88    1,269,538    5.23

Loans

   3,010,846    3.33    2,675,293    3.61    2,785,091    3.11

Call loan

   155,708    2.89    114,606    1.63    84,803    1.28

Bills bought

   2,211,349    2.45    1,904,560    1.88    1,983,368    1.83

Other

   2,221    —      4,812    —      12,391    —  

Allowance for credit losses (-)

   67,151    —      94,501    —      132,105    —  
    
  
  
  
  
  

Subtotal

   6,838,898    3.29    6,445,420    2.97    6,615,948    3.03
    
  
  
  
  
  

Other

                             

Cash

   972,484    —      965,852    —      968,815    —  

Fixed assets held for business

   2,566,117    —      3,084,589    —      3,210,463    —  

Other

   10,704,086    —      10,694,782    —      6,718,857    —  
    
  
  
  
  
  

Subtotal

   14,242,687    —      14,745,223    —      10,898,135    —  
    
  
  
  
  
  
Total    177,161,094    5.76    179,775,213    6.16    176,718,620    6.79
    
  
  
  
  
  

 

15


Table of Contents

2.1.3. Fee Transactions

 

(Unit: in millions of Won)

 

     June 30, 2005

   June 30, 2004

   December 31, 2004

Fee Revenue

              

Won currency

              

Guarantees

   2,640    2,295    4,957

Commissions received

   389,623    372,258    776,852

Credit card

   534,339    634,014    1,599,205

NHF

   85,739    78,843    160,874
    
  
  

Foreign currency

              

Guarantees

   1,853    1,248    2,593

Others

   38,115    36,422    75,016
    
  
  

Subtotal

   1,052,309    1,125,080    2,619,497
    
  
  

Fee Expense

              

Won & foreign currency

              

Commissions paid in Won

   37,829    31,112    78,681

Credit card

   102,282    210,912    353,324

Others

   10,770    9,601    20,169
    
  
  

Subtotal

   150,881    251,625    452,174
    
  
  

Fee Income

   901,428    873,455    2,167,323
    
  
  

 

16


Table of Contents

2.2. Principal Banking Activities

 

2.2.1. Deposits

 

The following table shows the average balances of our deposits for the periods ended and ending balances as of the dates indicated.

 

(Unit: in millions of Won)

 

    

June 30, 2005


  

December 31, 2004


  

December 31, 2003


     Average
balance


   Ending
balance


   Average
balance


   Ending
balance


   Average
balance


   Ending
balance


Deposits in Won

                             

Demand deposits

   14,404,444    16,016,643    12,994,946    14,338,784    12,192,971    14,110,288

Time & savings deposits

   93,260,633    90,706,956    96,637,551    94,723,601    96,668,084    97,616,747

Mutual installment deposits

   5,929,539    5,653,125    6,682,928    6,306,923    6,958,043    7,054,753

Mutual installment for housing

   5,121,688    4,936,287    5,453,713    5,295,274    5,161,535    5,423,853

Certificates of deposits

   4,594,957    5,728,886    6,108,179    4,911,891    4,068,327    6,499,258
    
  
  
  
  
  

Subtotal

   123,311,261    123,041,897    127,877,317    125,576,473    125,048,960    130,704,899
    
  
  
  
  
  

Deposits in foreign currency

   1,382,236    1,553,583    1,769,828    1,434,061    1,276,952    1,475,374

Trust deposits

                             

Money trust

   7,008,327    6,626,723    7,701,447    7,028,835    13,064,749    10,278,357

Property trust

   11,500,321    10,601,391    16,297,382    12,534,329    24,512,746    21,453,761
    
  
  
  
  
  

Subtotal

   18,508,648    17,228,114    23,998,829    19,563,164    37,577,495    31,732,118
    
  
  
  
  
  

Total

   143,202,145    141,823,594    153,645,974    146,573,698    163,903,407    163,912,390
    
  
  
  
  
  

 

2.2.2. Average Deposit per Domestic Branch

 

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

 

(Unit: in millions of Won)

 

     June 30,
2005


   December 31,
2004


   December 31,
2003


Deposits

   121,275    123,945    119,593

Deposits in Won

   120,221    122,585    118,756

 

17


Table of Contents

2.2.3. Average Deposit per Employee

 

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

 

(Unit: in millions of Won)

 

     June 30,
2005


   December 31,
2004


   December 31,
2003


Deposits

   7,673    7,232    7,487

Deposits in Won

   7,606    7,152    7,434

 

2.2.4. Loan Balances

 

The following table shows the average balances of our loans for the periods ended and ending balances as of the dates indicated.

 

(Unit: in millions of Won)

 

     June 30, 2005

   December 31, 2004

   December 31, 2003

     Average
balance


   Ending
balance


   Average
balance


   Ending
balance


   Average
balance


   Ending
balance


Loans in Won

   121,546,312    119,731,431    125,496,237    122,721,898    121,705,493    123,715,244

Loans in foreign currency

   4,354,074    5,195,260    4,011,351    3,860,828    4,160,185    4,019,930

Advances to customers

   31,063    14,933    73,801    32,120    107,091    89,665
    
  
  
  
  
  

Subtotal

   125,931,449    124,941,624    129,581,389    126,614,846    125,972,769    127,824,839
    
  
  
  
  
  

Trust account loans

   341,554    323,870    429,054    361,906    531,500    489,788
    
  
  
  
  
  

Total

   126,273,003    125,265,494    130,010,443    126,976,752    126,504,269    128,314,627
    
  
  
  
  
  

 

2.2.5. Loan Balances as of June 30, 2005 by Maturity

 

(Unit: in millions of Won)

 

     1 year & Less

  

More than 1 year~

3 years


  

More than 3 years~

5 years


   More than 5 years

   Total

Loans in Won

   67,357,397    29,397,497    8,153,229    14,823,308    119,731,431

Loans in foreign currencies

   4,239,875    532,789    191,162    231,434    5,195,260

 

18


Table of Contents

2.2.6. Loan Balances by Types

 

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

 

(Unit: in millions of Won)

 

    

June 30,

2005


   December 31,
2004


   December 31,
2003


Loans to enterprise

              

Loans for operations

   30,329,268    31,678,117    35,351,506

Loans for facility

   5,727,731    6,286,747    6,631,703

Loans to households

   42,536,279    42,790,337    42,884,305

Loans to public sector & others

              

Loans for operations

   575,267    673,456    526,227

Loans for facility

   36,926    40,383    42,473

Loans on property formation savings

   7,675    9,719    62,963

Loans for housing

   40,512,600    41,234,086    38,199,290

Inter-bank loans

   3,219    6,114    12,815

Others

   2,466    2,939    3,962
    
  
  

Total

   119,731,431    122,721,898    123,715,244
    
  
  

 

2.2.7. Loan to Deposit Ratio

 

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

 

(Units: in millions of Won, %)

 

    

June 30,

2005


  

December 31,

2004


  

December 31,

2003


Loans1 (A)

   121,546,312    125,496,237    121,705,493

Deposits2 (B)

   123,311,261    127,877,317    125,048,960

Loan to deposit ratio (A/B)

   98.57    98.14    97.33

 

2.2.8. Acceptances and Guarantees

 

(Unit: in millions of Won)

 

    

June 30,

2005


  

December 31,

2004


  

December 31,

2003


Determined

   1,295,600    975,788    800,297

Contingent

   1,823,288    1,311,774    1,281,518

Total

   3,118,888    2,287,562    2,081,815

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

 

19


Table of Contents

2.2.9. Breakdown of Securities Investment

 

The following table shows the average balances of our securities for the periods ended and ending balances as of the indicated dates.

 

(Unit: in millions of Won)

 

    

June 30, 2005


  

December 31, 20041


  

December 31, 2003


     Average
balance


   Ending
balance


   Average
balance


   Ending
balance


   Average
balance


   Ending
balance


Securities in Won (Banking account)

                             

Monetary stabilization bonds

   10,265,060    9,400,394    7,150,535    10,524,835    4,343,978    5,540,598

Government and public bonds

   5,621,524    7,015,224    4,753,135    4,675,093    5,630,422    5,885,595

Debentures

   6,528,972    7,191,591    7,013,765    6,152,749    12,315,840    8,936,220

Stocks

   1,282,570    1,380,149    1,003,131    1,282,050    1,380,254    877,013

Others

   4,797,918    3,952,202    5,332,583    5,583,538    7,687,051    7,299,404
    
  
  
  
  
  

Subtotal

   28,496,044    28,939,560    25,253,149    28,218,265    31,357,545    28,538,830
    
  
  
  
  
  

Securities in Won (Trust account)

                             

Monetary stabilization bonds

   1,013,789    978,834    1,222,004    1,152,621    984,380    878,077

Government and public bonds

   1,011,025    868,999    922,790    837,080    1,182,165    1,252,419

Debentures

   2,035,267    2,094,828    2,363,630    2,312,459    5,876,064    4,080,362

Stocks

   517,919    513,192    564,538    510,650    763,277    592,379

Others

   2,576,973    2,613,888    2,101,832    2,324,393    3,208,160    2,106,262
    
  
  
  
  
  

Securities in foreign currency (Trust Account)

   358,901    251,415    662,549    449,415    868,819    767,675
    
  
  
  
  
  

Subtotal

   7,513,874    7,321,156    7,837,343    7,586,618    12,882,865    9,677,174
    
  
  
  
  
  

Securities in foreign currency (Banking account)

                             

Foreign securities

   564,942    610,715    894,722    745,352    999,806    1,072,483

Off-shore foreign securities

   298,360    272,022    313,402    205,455    269,732    277,663
    
  
  
  
  
  

Subtotal

   863,302    882,737    1,208,124    950,807    1,269,538    1,350,146
    
  
  
  
  
  

Total

   36,873,220    37,143,453    34,298,616    36,755,690    45,509,948    39,566,150
    
  
  
  
  
  

 

2.2.10. Trust Account

 

(Unit: in millions of Won)

 

     June 30, 2005

   December 31, 2004

   December 31, 2003

     Total amount
trusted


   Trust
fees


   Total amount
trusted


   Trust
fees


   Total amount
trusted


   Trust
fees


Return-guaranteed trust

   336    26,921    369    8,365    559    45,682

Performance trust

   18,508,312    38,485    23,998,460    93,856    37,576,936    186,851
    
  
  
  
  
  

Total

   18,508,648    65,406    23,998,829    102,221    37,577,495    232,533
    
  
  
  
  
  

1 Restated due to the change in accounting treatment for Wholly Owned Beneficiary Certificates by FSS

 

20


Table of Contents

2.2.11. Credit Card

 

(Unit: in millions of Won unless indicated otherwise)

 

     As of or for the years ended of indicated dates

     June 30,
2005


   December 31,
2004


   December 31,
2003


Number of card holders (Person)

              

Corporate

   169,369    182,109    147,813

Individual

   10,824,897    11,362,173    10,990,703

Number of merchants

   1,490,674    1,491,730    1,528,872

Sales volume1

   30,094,450    66,348,465    92,535,500

Fee revenue

   1,174,198    2,800,901    4,012,017

 

2.3. Branch Networks

 

As of June 30, 2005, we have 1,079 branches and 45 sub-branches in Korea, the largest number of branches among Korean commercial banks. Approximately 41% of our branches and sub-branches are located in Seoul.

 

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

 


1. Includes lump-sum & installment purchase and cash advances.

 

21


Table of Contents

2.4. Other Information for Investment Decision

 

2.4.1. BIS Risk-adjusted Capital Ratios

 

(Units: in millions of Won, %)

 

     June 30, 20051

   December 31, 2004

   December 31, 2003

Risk-adjusted capital (A)

   14,651,210    13,334,531    12,499,543

Risk-weighted assets (B)

   119,561,616    121,081,735    127,370,180

BIS ratios (A/B)

   12.25    11.01    9.81

 

2.4.2. Non-Performing Loans2

 

(Units: in millions of Won unless indicated otherwise)

 

June 30, 2005

    December 31, 2004

    Change

 
Amount

   NPL to total loans

    Amount

   NPL to total loans

    Amount

   NPL to total loans

 
3,058,060    2.27 %   3,207,190    2.35 %   -149,130    -0.08 %p

 

2.4.3. Loan Loss Allowances

 

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

 

(Units: in millions of Won)

 

     June 30, 2005

   December 31, 2004

   December 31, 2003

Loan losses allowance

              

Loans in Won

   3,218,797    3,181,433    3,946,059

Loans in foreign currencies

   4,764    4,662    2,677
    
  
  

Total

   3,223,561    3,186,095    3,948,736
    
  
  

Provision for loan losses

   896,065    3,068,248    1,431,181

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

 

22


Table of Contents

2.4.4. Changes of Loan Loss Allowances for Recent Three Years

 

(Unit: in millions of Won)

 

     June 30, 20051

    December 31, 20042

    December 31, 20033

 

Beginning balance

   3,186,095     3,948,736     2,420,410  

Net Write-Off

   (858,599 )   (3,830,889 )   97,145  

Write-Off

   (944,898 )   (5,260,962 )   (4,509,979 )

Recovery

   171,873     286,464     270,422  

Other

   (85,574 )   1,143,609     4,336,702  

Provision for loan losses

   896,065     3,068,248     1,431,181  

Ending balance

   3,223,561     3,186,095     3,948,736  

1 Includes present value discounts and allowance for other assets amounting to 22,417 million won and 59,583 million won, respectively as of June 30, 2005
2 Includes present value discounts, allowances for trusted credit card, allowances for reserved assets, allowances for other assets amounting to 22,780 million won, 192,221 million won, 27,291 million won, 38, 692 million won, respectively as of December 31, 2004
3 Includes present value discounts and allowance for other assets amounting to 30,442 million won and 24,252 million won, respectively, that had been recorded as of December 31, 2003

 

23


Table of Contents

3. Financial Information

 

3.1. Non-Consolidated Condensed Financial Statements

 

(Unit: in millions of Won)

 

     As of or for the years ended of indicated dates

 
     June 30, 2005

   December 31, 20041

 

Cash and due from banks

   6,232,879    5,139,604  

Securities

   28,164,695    27,965,441  

Loans

   133,750,474    135,769,326  

Fixed assets

   2,501,472    2,633,218  

Other assets

   10,313,770    8,296,164  
    
  

Total assets

   180,963,290    179,803,753  
    
  

Deposits

   124,595,480    127,010,534  

Borrowings

   11,708,560    9,634,296  

Debentures

   18,589,743    21,874,695  

Other liabilities

   15,080,263    12,105,686  
    
  

Total liabilities

   169,974,046    170,625,211  
    
  

Capital stocks

   1,681,896    1,681,896  

Capital surplus

   6,255,029    6,230,738  

Retained earnings

   2,567,934    1,846,895  

Capital adjustments

   484,385    (580,987 )
    
  

Total shareholders’ equity

   10,989,244    9,178,542  
    
  

Liabilities and Shareholders’ Equity

   180,963,290    179,803,753  
    
  

Operating revenue

   9,085,563    20,532,036  

Operating income

   1,240,499    1,740,380  

Continuing (loss) income before income taxes

   1,310,120    629,911  
    
  

Net (loss) income

   889,951    360,454  
    
  

 

3.2. Other Financial Information

 

See the Exhibit 99.1 Kookmin Bank Review Report by our independent auditors for our full- financial statements and relevant notes. The Report is also available at our website www.kbstar.com.

 


1 Restated due to the change in accounting treatment for Wholly Owned Beneficiary Certificates by FSS

 

24


Table of Contents

4. Independent Accountant Fees and Services

 

4.1. Audit & Review Fees

 

Deloitte Hana Anjin LLC has reviewed our financial statements for the first half of 2005. The aggregate contract fee for the audit and review fees for the fiscal year 2005 is 1,350 million Won.

 

4.2. Non-Audit Services

 

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

 

(Units: in millions of Won unless indicated otherwise)

 

Year  

    

Service description


   Amount of payment

2005     

         —

   —  
2004     

-        Refinancing

   230
    

-        Due Diligence regarding the possible acquisition of DITC/ KITC

   300
    

-        US GAAP calculation of provision for the third quarter of 2004

   100
    

-        US GAAP conversion for 2004

   USD 3,600 thousand
2003     

-        US GAAP conversion for 2003

   USD 3,950 thousand
    

-        Refinancing

   275
    

-        Due Diligence on Bank International Indonesia

   SGD 313 thousand
    

-        US GAAP conversion for 2002

   USD 3,800 thousand
    

-        Due Diligence on Kookmin Credit Card

   250
    

-        SEC Filing regarding the proposed merger with Kookmin Credit Card

   USD 30 thousand

 

25


Table of Contents

5. Corporate Governance and Affiliated Companies

 

5.1. Board of Directors & Committees under the Board

 

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

 

    Matters relating to business objectives and performance evaluation;

 

    Matters relating to amendments of the Articles of Incorporation;

 

    Matters relating to budget and accounting including salaries of directors and employees;

 

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

 

    Matters relating to internal control standards; or

 

    Other matters determined by law and the board of directors regulations.

 

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

 

    The Board Steering Committee;

 

    The Management Strategy Committee;

 

    The Risk Management Committee;

 

    The Audit Committee;

 

    The Compensation Committee; and

 

    The Non Executive Director Nominating Committee.

 

Each committee member is appointed by the board of directors, except for members of the Audit Committee, who are elected at the general shareholders’ meeting. For list of our directors, see 6. Directors, Senior Management and Employees / 6.1. Executive Directors and 6.2. Non-Executive Directors.

 

5.2. Audit Committee

 

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

 

26


Table of Contents

5.3. Compensation to Directors

 

For the 6 months period ended June 30, 2005, the aggregate of the remuneration paid to the directors is 1,539 million Won.

 

(Units: in millions of Won)

 

     The aggregate
remuneration paid


   Limit for the remuneration
resolved by shareholders’
meeting


   Average amount of the
payment per person


1) Executive Directors (Except auditor & executive director and non-executive directors)

   1,067    8,000    357

2) Non Executive Directors (Except members of audit committee)

   205         31

3) Members of Audit Committee

   267         49
    
  
  

Total

   1,539    8,000    104
    
  
  

 

As part of remuneration, Kookmin Bank also granted stock options to directors. See 1.3.3. Stock Option.

 

5.4. Voting Rights of Shareholders

 

Each outstanding share of our common stock is entitled to one vote per share. If the method of written resolution at the general shareholders’ meeting is adopted by resolution of the board of directors, at which the convening of the general shareholders’ meeting is determined, the shareholders may exercise their voting rights in writing without participating the meeting in person. In this case, the Bank is required to send the documents and references necessary for exercise of voting rights, together with the convening notice. If a shareholder intends to exercise his/her voting rights in writing, the shareholder is required to fill in a certain form and submit it to the Bank one day before the date set for the general shareholders’ meeting.

 

5.5. Share Ownership1

 

The following table presents information regarding the selected major ownership of our shares as of June 30, 2005.

 

(Unit: Shares, %)

 

Name  


   Number of Shares of
Common Stock


   Percentage of Total
Issued Shares


The Bank of New York2

   47,503,730    14.12

ING Bank N.V Amsterdam

   13,650,001    4.06

1 Information based on December 31, 2004
2 Depositary of ADRs

 

27


Table of Contents

5.6. Affiliated Companies

 

5.6.1. List of Affiliates1

 

As of June 30, 2005, we have following affiliates.

 

    KB Investment Co., Ltd.

 

    KB Asset Management Co., Ltd.

 

    KB Real Estate Trust Co., Ltd.

 

    KB Credit Information Co., Ltd.

 

    KB Data Systems Corporation

 

    KB Futures Co., Ltd.

 

    KB Life Co., Ltd.

 

    ING Life Korea Ltd.

 

    Kookmin Bank International (London) Ltd.

 

    Kookmin Hong Kong Ltd.

 

    Sorak Financial Holdings

 

5.6.2. Operating Results of Affiliates

 

(Unit: in millions of Won)

 

            Operating results

 

Company name  


    

Closing date  


   Total
Assets


   Total
Liabilities


   Total
Equities


   Sales

  

Net

Income


 
KB Investment2      December 31, 2004    87,307    8,523    78,784    21,002    1,709  

KB Asset Management3

     March 31, 2005    69,929    6,372    63,557    31,948    13,881  

KB Real Estate Trust2

     December 31, 2004    201,221    143,150    58,071    51,693    (40,058 )

KB Credit Information2

     December 31, 2004    27,847    6,760    21,087    37,793    2,425  

KB Data Systems Corp. 2

     December 31, 2004    22,257    6,426    15,831    40,076    1,579  

KB Futures3

     March 31, 2005    37,358    10,740    26,618    8,638    1,199  

ING Life Korea3

     March 31, 2005    5,624,538    5,174,566    449,972    2,637,377    145,773  

KB Life Co.,Ltd. 3

     March 31, 2005    183,793    157,843    25,950    94,267    (4,245 )

Kookmin Bank International (London)4

     December 31, 2004    306,764    254,608    52,156    6,922    972  

Kookmin HK Ltd.4

     December 31, 2004    491,546    424,673    66,873    8,488    3,442  

Sorak Financial Holdings4

     December 31, 2004    302,317    219    302,098    14,885    13,376  

1 Excluding Jooeun Industry and Jangeun Securities which have been under liquidation procedures. Also excluded as follows; Kookmin Bank Luxembourg.S.A has been completed liquidation procedures on November. Kookmin Singapore Ltd. and Kookmin Finance Asia Limited have been under liquidation procedures.
2 Operating results based on December 31, 2004
3 Operating results based on March 31, 2005
4 Operating results based on June 30, 2005

 

28


Table of Contents

6. Directors, Senior Management and Employees

 

As of June 30, 2005, our board of directors, which consists of 4 executive directors and 9 non-executive directors, has the ultimate responsibility for the management of our affairs.

 

6.1. Executive Directors

 

Our 4 executive directors consist of the President & CEO, Auditor and two Senior Executive Vice Presidents.

 

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

 

Name  


   Date of Birth

  

Position  


  

Common Stocks

Owned


Chung Won Kang

   12/19/1950    President & CEO    —  

Hyung Duk Chang

   08/13/1950    Auditor & Executive Director    —  

Kap Shin

   09/04/1955    Executive Director & SEVP    —  

Donald H. MacKenzie

   12/20/1948    Executive Director & SEVP    —  

 

6.2. Non-Executive Directors

 

Our non-executive directors are selected based on the candidates’ talents and skills in diverse areas, such as law, finance, economy, management and accounting. As of June 30, 2005, 9 non-executive directors are in office.

 

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

 

Name  


   Date of Birth

  

Position  


  

Common Stocks

Owned


Nobuya Takasugi

   09/03/1942    Non-Executive Director    —  

Dong Soo Chung

   09/24/1945    Non-Executive Director    1,550

Hoon Namkoong

   06/26/1947    Non-Executive Director    —  

Suk Yong Cha

   06/09/1953    Non-Executive Director    2,210

Doo Hwan Song

   05/29/1949    Non-Executive Director    —  

Ki Hong Kim

   01/10/1957    Non-Executive Director    2,320

Chang Kyu Lee

   05/20/1951    Non-Executive Director    —  

Dam Cho

   08/01/1952    Non-Executive Director    —  

Young Soon Cheon

   02/01/1961    Non-Executive Director    1,310

 

29


Table of Contents

6.3. Senior Management

 

In addition to the executive directors who are also our executive officers, we currently have the following 13 executive officers as of June 30, 2005.

 

Name  


   Date of Birth

  

Position  


   Common Shares
Owned


Dong Won Kim

   03/01/1953    Senior Executive Vice President    0

Yun Keun Jung

   07/01/1951    Senior Executive Vice President    2,416

Nam Sik Yang

   05/08/1954    Senior Executive Vice President    582

Hyo Sung Won

   07/29/1960    Senior Executive Vice President    —  

Yong Kook Oh

   09/30/1949    Senior Executive Vice President    —  

Sang Jin Lee

   05/21/1955    Senior Executive Vice President    1,078

Ahn Sook Koo

   03/16/1955    Senior Executive Vice President    —  

Jung Young Kang

   01/29/1951    Senior Executive Vice President    —  

Young Han Choi

   09/24/1958    Senior Executive Vice President    —  

Dong Soo Choe

   03/10/1955    Senior Executive Vice President    —  

Seung Kyo Lee

   10/25/1959    Senior Executive Vice President    —  

Jun Bo Cho

   09/15/1951    Senior Executive Vice President    906

Jung Min Kim

   05/08/1951    Senior Executive Vice President    94

 

6.4. Employees

 

The following table shows the breakdown of our employees as of June 30, 2005.

 

(Unit: in millions of Won)

 

     Number of Employees1

   Average Tenure
of the Full-time
Employees


   Total Payment for
the 1st half of 20052


  

Average Monthly
Payment

per Person


     Full-time

   Contractual

   Total

        

Male

   12,906    1,219    14,125    16.43    509,037    6.0

Female

   4,255    6,716    10,971    14.04    234,517    3.6
    
  
  
  
  
  

Total

   17,161    7,935    25,096    15.85    743,554    4.9
    
  
  
  
  
  

1 Number of employees are calculated based on an arithmetic mean from January 31, 2005 to June 30, 2005 and local employees in overseas branches are excluded
2 Only based on personnel expense and welfare cost

 

30


Table of Contents

7. Related Party Transactions

 

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

 

7.1. Transactions with the Largest Shareholders or Affiliates

 

7.1.1. Investments in Affiliates1

 

(Unit: in millions of Won)

 

Name  


  

Relation with the Bank  


  

Account    


   Beginning
Balance
(January 1, 2005)


   Increase

   Decrease

  

Ending

Balance
(June 30, 2005)


KB Real Estate Trust

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

KB Investment

   Affiliate    Equity Securities of Affiliate    44,708    48    —      44,756

KB Asset Management

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

KB Futures

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

KB Data Systems Corp.

   Affiliate    Equity Securities of Affiliate    7,998    2    —      8,000

KB Credit Information

   Affiliate    Equity Securities of Affiliate    5,868    —      —      5,868

KB Life2

   Affiliate    Equity Securities of Affiliate    30,000    —      14,700    15,300

ING Life Korea

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

Kookmin Hong Kong Ltd.

   Affiliate    Equity Securities of Affiliate    20,876    —      390    20,486

Kookmin Bank International (London) Ltd.

   Affiliate    Equity Securities of Affiliate    40,180    —      1,683    38,497
              
  
  
  

Total

   294,295    50    16,773    277,572
              
  
  
  

1 Excluding Jooeun Industry and Jangeun Securities which have been under liquidation procedures
2 Established on 29 April, 2004

 

31


Table of Contents

7.2. Transactions with Other than the Largest Shareholders or Affiliates

 

7.2.1. Loans and Guarantees

 

(Unit: in millions of Won)

 

Name  


  

Relation with the Bank  


  

Account  


  

Beginning Balance

(January 1, 2005


   Ending Balance
(June 30, 2005)


   Increase /
(Decrease) for the
period


 

Ki Hong Kim

   Non executive director    Housing loans    18    18    0  

Kyung Namkoong

  

Related party of

Non executive director, Hoon Namkoong

   Housing loans    170    213    43  

Samsung Electro-Mechanics

  

Related party of

Non executive director,

Hoon Namkoong

   Loans for working capital    0    50,000    50,000  

Hyun Duk Shin

  

Related party of

Executive director and Senior executive Vice President,

Kap Shin

   Household loans    50    50    0  

Young Sin Yoon

  

Related party of

Executive director and Senior executive Vice President,

Kap Shin

   Household loans    2    1    (1 )

Chan Jung Lee

  

Related party of

Non executive director, Dong Soo Chung

   Household loans    93    0    (93 )

Yong Jin Kim

  

Related Party of Auditor & Executive Director,

Hyung Duk Chang

   Household loans    0    140    140  

Seo Young Chung

  

Related Party of

Non-executive director,

Dong Soo Chung

   Household loans    0    1    1  
              
  
  

Total

   333    50,423    50,090  
              
  
  

 

32


Table of Contents

7.2.2. Securities Transactions

 

(Units: in millions of Won unless indicated otherwise)

 

Name


  

Relation with the Bank  


   Transactions

      Account

   Purchase

   Disposal

   Volume

  

Gains /

Losses


DSME Co.

  

Related party of

Non executive director, Dong Soo Chung

   Equity
securities
   3,682    6,762    10,444    768

Samsung Electro-Mechanics

  

Related party of

Non executive director,

Hoon Namkoong

   Equity
securities
   885    885    1,770    33
              
  
  
  

Total

   4,567    7,647    12,214    801
              
  
  
  

 

33


Table of Contents

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: August 16, 2005

   By:  

/s/ Kap Shin


         (Signature)
     Name:   Kap Shin
     Title:   Executive Director / Senior Executive Vice President &
         Chief Financial Officer

 

34


Table of Contents

Exhibit 99.1

 

KOOKMIN BANK

 

NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2005

AND INDEPENDENT ACCOUNTANTS’ REVIEW REPORT


Table of Contents

Independent Accountants’ Review Report

 

English Translation of a Report Originally Issued in Korean

 

To the Shareholders and Board of Directors of

Kookmin Bank:

 

We have reviewed the accompanying non-consolidated balance sheet of the Bank accounts of Kookmin Bank (the “Bank”) as of June 30, 2005 and the related non-consolidated statements of income and cash flows for the six months ended June 30, 2005, all expressed in Korean Won. These financial statements are the responsibility of the Bank’s management. Our responsibility is to issue a report on these financial statements based on our review. The accompanying non-consolidated statements of income and cash flows for the six months ended June 30, 2004, which are presented for comparative purposes, were reviewed by other accountants, whose report dated July 15, 2004 stated that nothing came to their attention that caused them to believe that these financial statements were not presented fairly, in all material respects, in accordance with financial accounting standards in the Republic of Korea.

 

We conducted our review in accordance with standards for review of interim financial statements in the Republic of Korea. Those standards require that we plan and perform the review to obtain moderate assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data, and this provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

 

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

 

The accompanying non-consolidated balance sheet as of December 31, 2004 and the related non-consolidated statements of income, appropriations of retained earnings and cash flows for the year then ended (not presented herein) were audited in accordance with auditing standards generally accepted in the Republic of Korea by other auditors, and in their report dated February 4, 2005, they expressed an unqualified opinion on those financial statements. As explained in Note 2, their reports for the year ended December 31, 2004 were prepared before reflecting the changes in accounting principles, and the accompanying balance sheet as of December 31, 2004, which is comparatively presented, was restated to reflect the changes in accounting principles.

 

Without affecting our conclusion, we draw attention to the following:

 

As explained in Note 2 to non-consolidated financial statements, the Bank recorded all assets and liabilities comprising of private beneficiary certificates as their original accounts, and all gains and losses from all private beneficiary certificates as income from beneficiary certificates as of and for the year ended December 31, 2004. However, in accordance with the new interpretation by the Financial Supervisory Service, a private beneficiary certificate on which management, as an investor, agrees to have no interference and is not managing, is regarded as an ordinary beneficiary certificate and recorded as securities. Due to this change, the Bank restated the accompanying financial statements as of December 31, 2004, which increased total assets, total liabilities and capital adjustments by (Won)76,568 million, (Won)2,668 million and (Won)268,696 million, respectively, and decreased retained earnings before appropriations by (Won)194,796 million. In addition, total assets, total liabilities and capital adjustments as of June 30, 2005 decreased by (Won)24,056 million, (Won)24,056 million and (Won)48,164 million, respectively, and net income for the six months then ended increased by (Won)48,164 million due to the above accounting change.


Table of Contents

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

 

Deloitte HanaAnjin LLC

 

 

Seoul, Korea

July 29, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notice to Readers

 

This report is effective as of July 29, 2005, the accountants’ review report date. Certain subsequent events or circumstances may have occurred between the accountant’s review report date and the time the accountants’ review report is read. Such events or circumstances could significantly affect the accompanying financial statements and may result in modifications to the accountants’ review report.


Table of Contents

KOOKMIN BANK

 

NON-CONSOLIDATED BALANCE SHEETS

 

AS OF JUNE 30, 2005 AND DECEMBER 31, 2004

 

     Korean Won

 
     2005

  

(Restated)

2004


 
     (In millions)  

ASSETS

               

Cash and due from banks (Notes 3, 20 and 21)

   (Won) 6,232,879    (Won) 5,139,604  

Securities (Notes 4, 20 and 21)

     28,164,695      27,965,441  

Loans (Notes 5, 6, 7, 20 and 21)

     133,750,474      135,769,326  

Fixed assets (Note 8)

     2,501,472      2,633,218  

Other assets (Note 9)

     10,313,770      8,296,164  
    

  


     (Won) 180,963,290    (Won) 179,803,753  
    

  


LIABILITIES AND SHAREHOLDERS’ EQUITY

               

LIABILITIES:

               

Deposits (Notes 10, 20 and 21)

   (Won) 124,595,480    (Won) 127,010,534  

Borrowings (Notes 11, 20 and 21)

     11,708,560      9,634,296  

Debentures (Notes 12, 20 and 21)

     18,589,743      21,874,695  

Other liabilities (Notes 13, 14, 15 and 16)

     15,080,263      12,105,686  
    

  


       169,974,046      170,625,211  
    

  


SHAREHOLDERS’ EQUITY (Notes 17 and 18):

               

Common stock

     1,681,896      1,681,896  

Capital surplus

     6,255,029      6,230,738  

Retained earnings before appropriations (Net income of (Won)889,951 million for the six months ended June 30, 2005 and (Won)360,454 million for the year ended December 31, 2004)

     2,567,934      1,846,895  

Capital adjustments

     484,385      (580,987 )
    

  


       10,989,244      9,178,542  
    

  


     (Won) 180,963,290    (Won) 179,803,753  
    

  


 

See accompanying notes to non-consolidated financial statements.


Table of Contents

KOOKMIN BANK

 

NON-CONSOLIDATED STATEMENTS OF INCOME

 

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

 

     Korean Won

     2005

   (Restated)
2004


     (In millions except per share amounts)

OPERATING REVENUE:

             

Interest income:

             

Interest on due from banks (Note 21)

   (Won) 11,363    (Won) 4,138

Interest on securities (Note 21)

     495,915      528,510

Interest on loans (Note 21)

     4,542,051      5,273,398

Other interest income

     40,981      50,698
    

  

       5,090,310      5,856,744
    

  

Commission income

     1,052,318      1,125,132
    

  

Other operating income:

             

Gain on disposal of trading securities

     39,854      96,699

Gain on valuation of trading securities (Note 4)

     2,167      33,134

Dividends on trading securities

     4,770      2,965

Dividends on available-for-sale securities

     3,236      7,614

Foreign exchange trading income

     124,588      121,769

Fees and commissions from trust accounts (Note 26)

     73,891      58,974

Gain on financial derivatives trading

     1,720,345      1,459,391

Gain on valuation of financial derivatives (Note 19)

     894,154      677,777

Gain on valuation of fair value hedged items (Note 19)

     19,604      12,263

Other operating income

     60,326      43,477
    

  

       2,942,935      2,514,063
    

  

Total operating revenues

     9,085,563      9,495,939
    

  

OPERATING EXPENSES:

             

Interest expenses:

             

Interest on deposits (Note 21)

     1,633,482      2,018,923

Interest on borrowings (Note 21)

     157,534      179,322

Interest on debentures (Note 21)

     559,368      530,500

Other interest expenses

     15,806      38,280
    

  

       2,366,190      2,767,025
    

  

Commission expense

     150,881      251,625
    

  

Other operating expenses:

             

Loss on disposal of trading securities

     42,529      48,605

Provision for possible loan losses (Note 7)

     896,065      1,608,382

Provision for acceptance and guarantee losses (Note 14)

     1,424      219

Foreign exchange trading losses

     134,131      79,894

Loss on financial derivatives trading

     1,518,833      1,418,054

Loss on valuation of financial derivatives (Note 19)

     1,002,760      700,201

Other operating expenses

     265,377      505,689
    

  

       3,861,119      4,361,044
    

  

General and administrative expenses (Note 22)

     1,466,874      1,316,370
    

  

Total operating expenses

     7,845,064      8,696,064
    

  

 

(Continued)


Table of Contents

KOOKMIN BANK

 

NON-CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

 

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

 

     Korean Won

     2005

   (Restated)
2004


     (In millions except per share amounts)

OPERATING INCOME

   (Won) 1,240,499    (Won) 799,875

NON-OPERATING INCOME (Note 23)

     407,515      248,420

NON-OPERATING EXPENSES (Note 23)

     337,894      692,983
    

  

ORDINARY INCOME

     1,310,120      355,312

EXTRAORDINARY ITEM

     —        —  
    

  

INCOME BEFORE INCOME TAX

     1,310,120      355,312

INCOME TAX EXPENSE (Note 24)

     420,169      114,489
    

  

NET INCOME

   (Won) 889,951    (Won) 240,823
    

  

ORDINARY INCOME PER SHARE (In currency units) (Note 25)

   (Won) 2,878    (Won) 786
    

  

NET INCOME PER SHARE (In currency units) (Note 25)

   (Won) 2,878    (Won) 786
    

  

DILUTED ORDINARY INCOME PER SHARE (In currency units) (Note 25)

   (Won) 2,877    (Won) 786
    

  

DILUTED NET INCOME PER SHARE (In currency units) (Note 25)

   (Won) 2,877    (Won) 786
    

  

 

See accompanying notes to non-consolidated financial statements.


Table of Contents

KOOKMIN BANK

 

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS

 

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

 

     Korean Won

 
     2005

   

(Restated)

2004


 
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

                

Net income

   (Won) 889,951     (Won) 240,823  
    


 


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

                

Loss on disposal of trading securities

     42,529       48,605  

Provision for possible loan losses

     896,065       1,608,382  

Loss on financial derivatives trading

     1,518,833       1,418,054  

Loss on valuation of financial derivatives

     1,002,760       700,201  

Loss on valuation of securities accounted for using the equity method

     8,916       4,407  

Provision for severance benefits

     66,806       55,163  

Depreciation and amortization

     156,635       201,979  

Loss on disposal of available-for-sale securities

     9,666       9,893  

Loss on impairment of available-for-sale securities

     6,085       59,759  

Loss on disposal of tangible assets

     1,827       1,537  

Loss on sale of loans

     1,417       511,267  

Gain on disposal of trading securities

     (39,854 )     (96,699 )

Gain on valuation of trading securities

     (2,167 )     (33,134 )

Gain on financial derivatives trading

     (1,720,345 )     (1,459,391 )

Gain on valuation of financial derivatives

     (894,154 )     (677,777 )

Gain on valuation of fair value hedged items

     (19,604 )     (12,263 )

Gain on valuation of securities accounted for using the equity method

     (53,152 )     (20,886 )

Gain on disposal of available-for-sale securities

     (168,122 )     (100,192 )

Gain on disposal of tangible assets

     (8,644 )     (1,688 )

Gain on sale of loans

     (71,593 )     (23,769 )

Others, net

     162,095       205,893  
    


 


       895,999       2,399,341  
    


 


 

(Continued)


Table of Contents

KOOKMIN BANK

 

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

 

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

 

     Korean Won

 
     2005

   

(Restated)

2004


 
     (In millions)  

Changes in assets and liabilities resulting from operations:

                

Net increase in other receivables

   (Won) (3,300,153 )   (Won) (3,453,043 )

Net decrease (increase) in accrued income

     (27,840 )     53,106  

Net decrease in prepaid expenses

     99,090       162,773  

Net decrease (increase) in deferred income tax assets

     (105,779 )     37,291  

Net increase in other payables

     2,809,638       3,610,823  

Net increase (decrease) in accrued expenses

     220,874       (96,165 )

Net increase in advances from customers

     110,429       272,337  

Payment of severance benefits

     (54,210 )     (30,174 )

Decrease in severance insurance deposits

     28,297       14,448  

Others, net

     144,724       29,431  
    


 


       (74,930 )     600,827  
    


 


Net cash provided by operating activities

     1,711,020       3,240,991  
    


 


CASH FLOWS FROM INVESTING ACTIVITIES:

                

Net increase in restricted due from banks

     (1,042,562 )     (1,621,484 )

Net decrease in trading securities

     988,642       246,950  

Net decrease in available-for-sale securities

     3,052,671       2,036,918  

Net decrease (increase) in held-to-maturity securities

     (4,156,494 )     385,906  

Net decrease in securities accounted for using the equity method

     31,297       2,932  

Net decrease (increase) in loans

     1,187,221       (1,020,915 )

Disposal of fixed assets

     21,461       4,095  

Purchase of fixed assets

     (39,570 )     (87,315 )

Net decrease in other assets

     487,045       320,372  
    


 


Net cash provided by investing activities

     529,711       267,459  
    


 


CASH FLOWS FROM FINANCING ACTIVITIES:

                

Net decrease in deposits

     (2,415,054 )     (2,261,326 )

Net increase (decrease) in debentures

     (3,344,508 )     475,716  

Net increase (decrease) in borrowings

     2,074,264       473,073  

Net increase (decrease) in other liabilities

     1,492,686       (2,523,847 )
    


 


Net cash used in financing activities

     (2,192,612 )     (3,836,384 )
    


 


NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS

     48,119       (327,934 )

CASH AND DUE FROM BANKS, BEGINNING OF PERIOD

     3,319,349       3,771,757  
    


 


CASH AND DUE FROM BANKS, END OF PERIOD (Note 30)

   (Won) 3,367,468     (Won) 3,443,823  
    


 


 

See accompanying notes to non-consolidated financial statements.


Table of Contents

KOOKMIN BANK

 

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

 

1. GENERAL:

 

Kookmin Bank (“the Bank”) was established in 1963 under the Citizens National Bank Act to provide and administer funds for financing to 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 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 on June 29, 1998. Also, the Bank completed the legal consolidation with Housing and Commercial Bank (“H&CB”) on October 31, 2001 and merged with Kookmin Credit Card Co., Ltd., a majority-owned subsidiary, on September 30, 2003.

 

The Bank’s shares have been 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 listed on the Korea Stock Exchange on November 9, 2001. As of June 30, 2005, the Bank’s paid-in capital amounts to (Won)1,681,896 million and its 49,034,558 shares are listed on the New York Stock Exchange as American Depositary Shares (“ADS”).

 

The Bank is engaged in the banking and trust businesses according to the provisions of the General Banking Act and the Trust Business Act, and operates through 1,103 domestic branches and offices (with 195 automated teller machines) and three overseas branches (excluding 2 subsidiaries and 1 office) as of June 30, 2005.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

Basis of Non-consolidated Financial Statement Presentation

 

The Bank maintains its official accounting records in Korean Won and prepares statutory non-consolidated financial statements in the Korean language (Hangul) in conformity with the accounting principles and banking accounting standards generally accepted in the Republic of Korea. Certain accounting principles and banking accounting standards 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 and banking accounting practices 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 (with certain expanded descriptions) from the Korean language financial statements. Certain information included in the Korean language financial statements, but not required for a fair presentation of the Bank’s financial position, results of operations or cash flows, is not presented in the accompanying financial statements.

 

The significant accounting policies followed by the Bank in preparing the accompanying non-consolidated financial statements are summarized below.


Table of Contents

Interest Income Recognition

 

The Bank applies the accrual basis in recognizing interest income related to deposits, loans and securities, except for non-secured uncollectible receivables. Interest on loans, whose principal or interest is past due at the balance sheet date, is generally not accrued, with the exception of interest on certain loans secured by guarantee of governments or government agencies, or collateralized by bank deposits. When a loan is placed on non-accrual status, previously accrued interest is generally reversed and deducted from current interest income; future interest income is recognized on cash basis in accordance with the accounting standards of the banking industry. As of June 30, 2005 and December 31, 2004, the principal amount of loans and securities of which the accrued interest income was not recorded in the accompanying financial statements based on the above criteria amounted to (Won)7,767,375 million and (Won)8,600,175 million, respectively, and the related accrued interest income not recognized amounted to (Won)615,876 million and (Won)551,683 million, respectively.

 

Classification of Securities

 

At acquisition, the Bank classifies securities into one of the following categories: trading, available-for-sale, held-to-maturity and securities accounted for using the equity method, depending on marketability, purpose of acquisition and ability to hold. Debt and equity securities that are bought and held for the purpose of selling them in the near term and actively traded are classified as trading securities. Debt securities with fixed and determinable payments and fixed maturity that the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity securities. Securities that should be accounted for under the equity method are classified as securities accounted for using the equity method. Debt and equity securities not classified as the above are categorized as available-for-sale securities.

 

If the objective and ability to hold securities of the Bank change, available-for-sale securities can be reclassified to held-to-maturity securities and held-to-maturity securities can be reclassified to available-for-sale securities. Whereas, if the Bank sells held-to-maturity securities or exercises early redemption right of securities to issuer in the current year or the proceeding two years, and if it reclassifies held-to-maturity securities to available-for-sale securities, all debt securities that are owned or purchased cannot be classified as held-to-maturity securities. On the other hand, trading securities cannot be recategorized to available-for-sale securities or held-to-maturity securities and vice versa. Nevertheless, trading securities are reclassified to available-for-sale securities only when the trading securities lose their marketability.

 

Valuation of Securities

 

(1) Valuation of Trading Securities

 

Trading equity and debt securities are initially recognized at acquisition cost plus incidental expenses determined by the individual moving average method (the specified identification method for debt securities). When the face value of trading debt securities differs from their acquisition cost, the effective interest method is applied to amortize the difference over the remaining term of the securities. After initial recognition, if the fair value of trading securities differs from the book value, trading securities are stated at fair value and the resulting valuation gain or loss is included in current operations.

 

(2) Valuation of Available-for-sale Securities

 

Available-for-sale securities are initially recognized at acquisition cost plus incidental expenses, determined by the individual moving average method (the specified identification method for debt securities). The effective interest method is applied to amortize the difference between the face value and the acquisition cost over the remaining term of the debt security. After initial recognition, available-for-sale securities are stated at fair value, with the net unrealized gain or loss presented as gain or loss on valuation of available-for-sale securities in capital adjustments. Accumulated capital adjustments of securities are charged to current operations in a lump sum at the time of disposal or impairment recognition. Non-marketable equity securities are stated at acquisition cost on the financial statements if the fair value of the securities is not reliably determinable.

 

- 2 -


Table of Contents

If the fair value of equity securities (net asset fair value in case of non-marketable equity securities stated at acquisition cost) is below the acquisition cost and the pervasive evidence of impairment exists, the carrying value is adjusted to fair value and the resulting valuation loss is charged to current operations. If the collectible value of debt securities is below the amortized cost and the pervasive evidence of impairment exists, the carrying value is adjusted to collectible value and the resulting valuation loss is charged to current operations. With respect to impaired securities, any unrealized valuation gain or loss of securities previously included in the capital adjustment account is reversed.

 

(3) Valuation of Held-to-maturity Securities

 

Held-to-maturity securities are stated at acquisition cost plus incidental expenses, determined by the specific identification method. When the face value of held-to-maturity securities differs from its acquisition cost, the effective interest method is applied to amortize the difference over the remaining term of the securities. If collectible value is below the amortized cost and the pervasive evidence of impairment exists, the carrying value is adjusted to collectible value and the resulting valuation loss is charged to current operations.

 

(4) Valuation of Securities Accounted for using the Equity Method

 

Equity securities held for investment in companies in which the Bank is able to exercise significant influence over the investees (in accordance with the Banking Act, if the Bank holds 15 percent or more of the issued shares, the Bank is considered being able to exercise significant influence) are accounted for using the equity method. The Bank’s share in net income or net loss of investees is included in current operations. Changes in the retained earnings of the investee are reflected in the retained earnings. Changes in the capital surplus or other capital accounts of the investee are reflected as gain or loss on valuation of securities accounted for using the equity method in capital adjustments.

 

(5) Reversal of Loss on Impairment of Available-for-sale Securities and Held-to-maturity Securities

 

If the reasons for impairment losses of available-for-sale securities no longer exist, the recovery is recorded in current operations under non-operating income up to amount of the previously recognized impairment loss as reversal of loss on impairment of available-for-sale securities and any excess is included in capital adjustments as gain on valuation of available-for-sale securities. However, if the increases in the fair value of the impaired securities are not regarded as the recovery of the impairment, the increases in the fair value are recorded as gain on valuation of available-for-sale securities in capital adjustments. For non-marketable equity securities, which were impaired based on the net asset fair value, the recovery is recorded up to their acquisition cost.

 

For held-to-maturity securities, the recovery is recorded in current operations under non-operating income within the amount of amortized cost that would have been recorded according to the original schedule if the impairment losses had not been recognized as reversal of loss on impairment of held-to-maturity securities.

 

(6) Reclassification of Securities

 

When held-to-maturity securities are reclassified to available-for-sale securities, those securities are accounted for at fair value on the reclassification date and the difference between the fair value and book value is reported in capital adjustment as gain or loss on valuation of available-for-sale securities. When available-for-sale securities are reclassified to held-to-maturity securities, gain or loss on valuation of available-for-sale securities, which had been recorded until the reclassification date, continue to be included in capital adjustments and be amortized using the effective interest rate method and the amortized amount is charged to interest income or expense until maturity. The difference between the fair value at the reclassification date and face value of the reclassified securities to held-to-maturity securities is amortized using effective interest rate method and the amortized amount is charged to interest income or expense.

 

Transfer of Securities

 

When the realization, expiration or sale of the right to obtain the economic benefits arises and the control of securities is lost from the sale of the securities, the unrealized valuation gain or loss of securities included in the capital adjustment account is added to or deducted from the gain or loss on disposal of securities. The gain or loss is the difference between the net proceeds receivable or received and its carrying value. When securities are transferred without losing the control, the transaction is recorded as secured borrowing transaction.

 

- 3 -


Table of Contents

Allowance for Possible Losses on Credits

 

The Supervisory Regulation of Banking Business (the “Supervisory Regulation”) legislated by the Financial Supervisory Commission (FSC) requires the Bank to classify all credits into five categories as normal, precautionary, substandard, doubtful, or estimated loss based on borrowers’ repayment capability and historical financial transaction records. The Supervisory Regulation also requires the Bank to provide the minimum rate of loss provision for each category balance using the prescribed minimum percentages as described below.

 

As required by the Supervisory Regulation, the Bank classifies corporate credits (loans, confirmed acceptances and guarantees) based on borrowers’ capability to repay in consideration of borrowers’ business operation, financial position and future cash flows (Forward Looking Criteria) as well as past due period and status of any bankruptcy proceedings (Historical Repayment Criteria). However, credits to small companies and to households are classified not by evaluating the debt repayment capability of a borrower or customer but by past due period and status of bankruptcy proceedings. The Bank generally classifies all credits to a single borrower in the same category of classification but credits guaranteed or credits collateralized by bank deposits, real estate and other assets may be classified differently based on the guarantor’s capability to service such guarantee or based on the value of collateral securing such credits.

 

Based on the Bank’s corporate credit evaluation model, credits to a borrower are classified into 12 grades from AAA to D (AAA, AA, A, BBB, BB, BB -, B, B -, CCC, CC, C and D). Credits of grades of AAA to B are classified as normal, credits of grade B- to CCC as precautionary, credits of grade CC as substandard, credits of grade C as doubtful and credits of grade D as estimated loss. Credits are finally classified reflecting past due period and bankruptcy considerations. An allowance is then calculated on the category balances using the prescribed percentages of 0.5 ~ 1.9 percent for normal, 2 ~ 19.9 percent for precautionary, 20 ~ 49.9 percent for substandard, 50 ~ 99.9 percent for doubtful and 100 percent for estimated loss. However, the Bank does not provide allowances for call loans, bonds bought under resale agreements and inter-bank loans that are classified as normal, as it is not required by the Accounting Standards for the Banking Industry.

 

In addition, as required by the Supervisory Regulation, based on the classification of household loans and credit card receivables by past due period and status of bankruptcy proceedings, allowance for household loans and credit card receivables are calculated on the category balances using the prescribed minimum percentages of 0.75 percent and 1 percent for normal, 8 percent and 12 percent for precautionary, 20 percent for substandard, 55 percent and 60 percent for doubtful, and 100 percent for estimated loss. Furthermore, as required by the Financial Supervisory Service, for the secured household loans newly placed after September 9, 2002, if the ratio of loans to collateral value (loan to value; LTV) exceeds 70 percent, the Bank provides an allowance for possible loan losses of 1 percent for normal and 10 percent for precautionary, instead of providing 0.75 percent for normal and 8 percent for precautionary.

 

The Bank partially changed the accounting estimation in providing allowance for household loans in accordance with the Supervisory Regulation during the current year. The Bank extended the scope of borrowers classified as normal and precautionary for the secured household loans and applied the same overdue principal for general consumer loans to the secured household loans. Additionally, the Bank newly applied the economic recovery value method in estimating the expected recovery value of the collateral assets pledged as secured loans. The change in accounting estimate above is to reflect economic substantiality based on historical experience, and the effect of changes has been applied prospectively.

 

In addition, when an allowance for possible loan losses materially differs from the expected loss, which is calculated through objective and reasonable method in accordance with the accounting principle in the Republic of Korea, expected loss is reflected in the provision for possible loan losses since 2004.

 

The rates used for determining the allowances for losses based on historical loss rate by the Bank’s lending portfolios are determined as follows:

 

Lending
portfolios


   Methodology

  

Period of historical

loss rate


  

Period of

recovery ratio


Impaired corporate loans

   Discounted cash flows    N/A    N/A

Non-impaired corporate loans

   Migration analysis    1 year    5 years

Consumer loans

   Migration analysis    2 years    5 years

Credit card loans

   Roll-rate analysis    1 year    5 years

 

- 4 -


Table of Contents

Based on the loan portfolios’ nature, lending period, recovery period and other economic factors, the Bank determines the appropriate data period used in assessing its historical loss rate and recovery ratio.

 

The Bank also provides an allowance for possible losses on confirmed acceptances and guarantees. The confirmed acceptances and guarantees are classified in accordance with the same loan classification criteria as of the balance sheet date, and an allowance is then estimated by applying 20 to 49.9 percent for substandard, 50 to 99.9 percent for doubtful and 100 percent for loss, and is recorded in other liabilities. No allowance is provided for the confirmed acceptances and guarantees classified as normal and precautionary.

 

In addition, as required by the Financial Supervisory Service, the Bank provides an additional 1 percent of other allowance for certain portions of the unused cash advance facility (75 percent of the facility less used balance) of active credit card accounts with transaction records during the recent one year.

 

Restructuring of Loans

 

The equity interest in the debtors, net of real estates and/or other assets received as full or partial satisfaction of the Bank’s loans, collected through reorganization proceedings, court mediation or debt restructuring agreements of parties concerned, is recorded at fair value at the time of the restructuring. In cases where the fair value of the assets received are less than the book value of the loan (book value before allowances), the Bank offsets first the book value against allowances for loans and then recognizes provisions for loans. Impairment losses for loans that were restructured in a troubled debt restructuring involving a modification of terms are computed by the difference between the present value of future cash flows under debt restructuring agreements discounted at effective interest rates at the time when loans are originated and the book value before allowances for loans. If the amount of allowances already established is less than the impairment losses under the workout plans, the Bank establishes additional allowances for the difference. Otherwise, the Bank reverses the allowances for loan losses.

 

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. The deferred loan origination fees and costs are amortized using the effective interest method with the amortization recognized as adjustments to other interest income.

 

Valuation of Receivables and Payables at Present Value

 

Receivables and payables incurred through long-term installment transactions, long-term borrowing and lending transactions, and other similar transactions are stated at the present value of expected future cash flows, and the gain or loss on valuation of related receivables and payables is reflected in current operations, unless the difference between nominal value and present value is immaterial. Present value discount or premium is amortized using the effective interest rate method and credited or charged to interest income or interest expense.

 

Tangible Assets and Related Depreciation

 

Tangible assets included in fixed assets are recorded at cost or production cost including the incidental expenses. Routine maintenance and repairs are expensed as incurred. Expenditures that result in the enhancement of the value or the extension of the useful lives of the facilities involved are capitalized as additions to tangible assets.

 

Depreciation is computed by using the declining-balance method (Straight-line method for building and structures) based on the estimated useful lives of the assets as follows:

 

Tangible assets


 

Depreciation method


 

Estimated useful life


Buildings and structures

  Straight-line   40 years

Leasehold improvements

  Declining balance   4-5 years

Equipment and vehicles

  Declining balance   4-5 years

 

 

- 5 -


Table of Contents

Intangible Assets and Related Amortization

 

Intangible assets included in fixed assets are recorded at the production costs or purchase costs plus incidental expenses less accumulated amortization. Intangible assets are amortized using the straight-line method over the estimated economic useful lives of the related assets or the activity method as follows:

 

Intangible assets


   Estimated useful life

Goodwill

   9 years

Development costs

   5 years

Trademarks

   5-20 years

Others

   5-30 years

 

The Bank records goodwill as a result of the merger with H&CB, as the cost of the merger exceeded the fair value of the net assets acquired. Expenditures incurred in conjunction with the development of new products or technology and others, in which the elements of costs can be individually identified and future economic benefits are probably exerted, are capitalized as development costs. The Bank estimates the useful life of endowment assets that are beneficial upon usage based on the term of the contract and are classified under other intangible assets.

 

Valuation Allowance for Non-Business Use Property

 

Non-business use property included in fixed assets is recorded when the Bank acquires collateral by foreclosure on the mortgage for loans. If the latest auction price is lower than book value, the difference is provided as a valuation allowance and the valuation loss is charged to current operations. In addition, the difference between the selling price and book value is recorded as a disposition gain or loss.

 

Recognition of Impairment of Assets

 

When the book value of assets (other than securities and assets valued at present value) exceeds the recoverable value of the assets due to obsolescence, physical damage or a sharp decrease in market value and the difference is material, those book value of assets are adjusted to recoverable value in the balance sheet and the resulting impairment loss is charged to current operations. If the recoverable value of the assets increases in subsequent years, the increase in value is credited to operations as gain until the recoverable value equals the book value of the assets that would have been determined had no impairment loss been recognized. The Bank assessed the recoverable value based on expected selling price or appraisal value.

 

Amortization of Discounts (Premiums) on Debentures

 

Discounts or premiums on debentures issued are amortized over the period from issuance to maturity using the effective interest rate method. Amortization of discounts or premiums is recognized as interest expense or interest income on the debentures.

 

Bonds under Resale or Repurchase Agreements

 

Bonds purchased under resale agreements are recorded as loans and bonds sold under repurchase agreements are recorded as borrowings when the Bank purchases or sells securities under resale or repurchase agreements.

 

Contingent Liabilities

 

A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank is recognized as contingent liabilities as it is probable that an outflow of resources embodying economic benefits required and the amount of the obligation can be measured with sufficient reliability. Where the effect of the time value of money is material, the amount of the liabilities is the present value of the expenditures expected to be required to settle the obligation. In addition, as some or all of the expenditures required to settle a provision is expected to be reimbursed by another party, the reimbursement is recognized as separate assets the in balance sheet and related income may be offset against the expense in the income statement.

 

- 6 -


Table of Contents

Accrued Severance Benefits

 

Employees and directors and temporary employees with at least one year of service as of June 30, 2005 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. The accrued severance benefits that would be payable assuming all eligible employees and directors were to resign are included in other liabilities.

 

The Bank has purchased severance benefits insurance, which meets the funding requirement for tax purposes, and made deposits with Kyobo Life Insurance Co., Ltd and others. Withdrawal of these deposits is restricted to the payment of severance benefits. These are presented as a deduction from the accrued severance benefits.

 

Accounting for Derivative Instruments

 

The Bank accounts for derivative instruments pursuant to the Interpretations on Financial Accounting Standards 53-70 on accounting for derivative instruments. Derivative instruments are classified as used for trading activities or for hedging activities according to their transaction purpose. All derivative instruments are accounted for at fair value with the valuation gain or loss recorded as an asset or liability. If the derivative instrument is not part of a transaction qualifying as a hedge, the adjustment to fair value is reflected in current operations.

 

The accounting for derivative transactions that are part of a qualified hedge based both on the purpose of the transaction and on meeting the specified criteria for hedge accounting differs depending on whether the transaction is a fair value hedge or a cash flow hedge. Fair value hedge accounting is applied to a derivative instrument designated as hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment (hedged item) that is attributable to a particular risk. The gain or loss both on the hedging derivative instruments 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 designated as 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 gain or loss on a derivative instrument designated as a cash flow hedge is recorded as a capital adjustment and the ineffective portion is recorded in current operations. The effective portion of gain or loss recorded as a capital adjustment is reclassified to current earnings 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 in capital adjustment is added to or deducted from the asset or the liability.

 

Accounting for Stock Options

 

Stock options are valued at fair value pursuant to the Interpretations on Financial Accounting Standards 39-35 on accounting for stock options. The fair value of stock options is charged to operating expense in the statement of income and credited to capital adjustments as stock option cost over the contractual term of the services provided.

 

National Housing Fund

 

The Bank, as designated by the Korean Government under the Housing Law (former 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 to NHF, which is computed by multiplying the average balance of the NHF account by the passbook deposit interest rate.

 

Accounting for Trust Accounts

 

The Bank separately maintains the books of accounts and financial statements in connection with the trust operations (the trust accounts) from those of the bank accounts in accordance with the Trust Business Act. When surplus funds are generated through the management of trust assets, such funds are deposited with the Bank and are recorded as due to trust accounts of the bank accounts. Also, the borrowings from the bank account are recorded as due from trust accounts of the bank accounts. The Bank receives fees for operation and management of the trust business and accounts for them as fees and commissions from trust accounts.

 

With respect to certain trust account products, the Bank guarantees the repayment of the principal of the trust accounts and, in certain cases, a fixed rate of return. If income from such trust accounts is insufficient to pay the guaranteed amount, such a deficiency is satisfied by using special reserves maintained in the trust accounts,

 

- 7 -


Table of Contents

offsetting trust fee payable to bank accounts and receiving compensation contributions from the bank accounts of the Bank. If the Bank pays compensating contributions to the guaranteed return trusts to cover such deficiencies, these contributions are reflected as other operating expense of the bank accounts and as other income of the trust accounts.

 

Income Tax Expense

 

Income tax expense is the amount currently payable for the period added to or deducted from the changes in deferred income taxes. However, deferred income tax assets are recognized only if the future tax benefits from accumulated temporary differences and any tax loss carryforwards are realizable. The difference between the amount currently payable for the period and income tax expense is accounted for as deferred income tax assets or liabilities, which will be charged or credited to income tax expense in the period each temporary difference reverses in the future. Deferred income tax assets or liabilities are calculated based on the expected tax rate which is applied to the reverse period of the related assets or liabilities. Tax payable and deferred income tax assets or liabilities regarding to certain items are charged or credited directly to related components of shareholders’ equity

 

Accounting for Foreign Currency Transactions and Translation

 

The Bank maintains its accounts in Korean Won. Transactions in foreign currencies are recorded in Korean Won based on the prevailing rate of exchange on the transaction date. The Korean Won equivalent of assets and liabilities denominated in foreign currencies are translated in these financial statements based on the basic rate ((Won)1,024.30 and (Won)1,043.80 to US$ 1.00 at June 30, 2005 and December 31,2004, respectively) announced by Seoul Money Brokerage Service, Ltd. or cross rates for other currencies other than U.S. Dollars at the balance sheet dates. Translation gains and losses are credited or charged to operations. Financial statements of overseas branches are translated based on the basic rate at balance sheet dates.

 

Application of the Statement of Korea Accounting Standards

 

The Korea Accounting Standard Board (KASB) under the Korea Accounting Institute (KAI) issued the Statements of Korea Accounting Standards (SKAS) for achieving a set of Korean accounting standards that should be internationally acceptable and comparable. The Statements supersede the relative articles of existing accounting standards and constitute generally accepted accounting standards of the Republic of Korea. The Bank has implemented SKAS No.1 (Accounting Changes and Correction of Errors) since January 1, 2002 and adopted SKAS from No.2 (Interim Financial Statements) through No.9 (Convertible Securities), since January 1, 2003. Also, the Bank has implemented SKAS No.13 (Troubled Debt Restructurings), since January 1, 2004 and adopted SKAS No.15 (Investment in Associates), No. 16 (Income Taxes) and No. 17 (Provisions, Contingent Liabilities and Contingent Assets), since January 1, 2005.

 

Restatement of Prior Period Financial Statements

 

The Bank recorded all assets and liabilities comprising of private beneficiary certificates as their original accounts, and all gains and losses from all private beneficiary certificates as income from beneficiary certificates as of and for the year ended December 31, 2004. However, in accordance with the new interpretation by the Financial Supervisory Service, a private beneficiary certificate on which management, as an investor, agrees to have no interference and is not managing, is regarded as an ordinary beneficiary certificate and recorded as securities. Due to this change, the Bank restated the accompanying financial statements as of December 31, 2004, which increased total assets, total liabilities and capital adjustments by (Won)76,568 million, (Won)2,668 million and (Won)268,696 million, respectively, and decreased retained earnings before appropriations by (Won)194,796 million. In addition, total assets, total liabilities and capital adjustments as of June 30, 2005 decreased by (Won)24,056 million, (Won)24,056 million and (Won)48,164 million, respectively, and net income for the six months then ended increased by (Won)48,164 million due to the accounting change.

 

The Bank reclassified certain interest income from credit card account into commission income. With respect to this change, commission income increased and interest income decreased by (Won) 15,972 million for the six months ended June 30, 2005, compared to those accounted for using the previous classification. The financial statements for the six months ended June 30, 2004, which are presented for comparative purposes, were restated

 

- 8 -


Table of Contents

to reflect the above change, which increased commission income and decreased interest income by (Won)12,662 million. Such restatement has no effect on the net assets and net income as of and for the six months ended June 30, 2004.

 

The Bank has changed its accounting on the gains or losses from the sale of loans. Previously, with respect to the sale of loans that were completely written-off, the proceeds from the sale were deducted directly from the allowance of the loans sold and the gains from the sale were not recognized in the income statement. However with regard to the sale of loans that were not completely written-off, the gains or losses were calculated based on the book value at the date of sale and the gains or losses were recognized in the income statement. Currently, under the newly changed accounting method, the gains or losses from the sale of loans regardless of write-offs are calculated based the prior year balance of book value and the gains or losses are consistently recognized in the income statement. In connection with the change, losses on sale of loans increased by (Won)1,363 million and gains on sale of loans and allowance for loan losses decreased by (Won)24,128 million and (Won)25,491 million, respectively, for the six months ended June 30, 2005. The financial statements as of and for the six months ended June 30, 2004, which are presented for comparative purposes, were restated to reflect the above accounting change, which increased losses on sale of loans by (Won)511,112 million, and decreased gains on sale of loans allowance for loan losses by (Won)43,041 million and (Won)554,153 million, respectively. Such restatement has no effect on the net assets and net income as of and for the six months ended June 30, 2004.

 

Reclassification

 

Certain accounts of the prior period were reclassified to conform to the current period’s presentation for comparative purposes; however, reclassifications had no effect on the previously reported prior period net income or shareholders’ equity of the Bank.

 

3. CASH AND DUE FROM BANKS:

 

(1) Cash and due from banks in local currency and foreign currencies as of June 30, 2005 and December 31, 2004 consisted of (Unit: In millions):

 

     2005

    2004

 

Cash and checks

   (Won) 2,488,696     (Won) 2,380,578  

Foreign currencies

     160,725       124,735  

Due from banks in local currency

     2,929,351       2,030,595  

Due from banks in foreign currencies

     655,264       607,447  

Present value discount

     (1,157 )     (3,751 )
    


 


     (Won) 6,232,879     (Won) 5,139,604  
    


 


 

Due from banks as of June 30, 2005 and December 31, 2004 included (Unit: In millions):

 

Financial institution


   Interest (%)

   2005

   2004

Due from banks in local currency

                  

BOK

   —      (Won) 2,762,547    (Won) 1,685,105

Woori Bank and others

   2.20~3.61      107,108      254,537

Hansol Mutual Savings

   1.00      45,000      90,000

Samsung Futures and others

   2.00      14,696      953
         

  

            2,929,351      2,030,595
         

  

Due from banks in foreign currencies

                  

BOK

   —        39,838      43,631

Korea Exchange Bank and others

   —        100,665      74,274

Woori Bank and others

   3.47~4.01      514,761      489,542
         

  

            655,264      607,447
         

  

          (Won) 3,584,615    (Won) 2,638,042
         

  

 

- 9 -


Table of Contents
(2) Restricted due from banks in local currency and foreign currencies as of June 30, 2005 and December 31, 2004 consisted of (Unit: In millions):

 

Financial institution


   2005

   2004

  

Reason for restriction


Due from banks in local currency

                  

BOK

   (Won) 2,762,547    (Won) 1,685,105    BOK Act

Hansol Mutual Savings

     45,000      90,000    Withdrawal at maturity

Woori Bank and others

     4,029      4,029    Escrow account

Samsung Futures and others

     14,696      953    Futures margin accounts/others

Due from banks in foreign currencies

                  

BOK

     39,838      43,631    BOK Act

J.P.Morgan Chase & Co.

     458      288    Futures margin accounts
    

  

    
     (Won) 2,866,568    (Won) 1,824,006     
    

  

    

 

(3) Due from banks by financial institution as of June 30, 2005 and December 31, 2004 included (Unit: In millions):

 

Financial institution


   2005

   2004

Due from banks in local currency

             

BOK

   (Won) 2,762,547    (Won) 1,685,105

Banks

     107,108      254,537

Others

     59,696      90,953
    

  

       2,929,351      2,030,595
    

  

Due from banks in foreign currencies

             

BOK

     39,838      43,631

Banks

     567,916      558,771

Others

     47,510      5,045
    

  

       655,264      607,447
    

  

     (Won) 3,584,615    (Won) 2,638,042
    

  

 

(4) Term structure of due from banks as of June 30, 2005 were as follows (Unit: In millions):

 

     Less than 3
months


   Less than 6
months


   Less than 1
year


   Less than 3
years


   More than 3
years


   Total

Due from banks in local currency

   (Won) 2,902,822    (Won) 22,500    (Won) —      (Won) 4,029    (Won) —      (Won) 2,929,351

Due from banks in foreign currencies

     564,093      91,171      —        —        —        655,264

 

4. SECURITIES:

 

(1) Securities as of June 30, 2005 and December 31, 2004 consisted of (Unit: In millions):

 

     2005

   2004

Trading securities

   (Won) 2,646,360    (Won) 3,635,510

Available-for-sale securities

     14,552,838      17,555,764

Held-to-maturity securities

     10,386,702      6,229,435

Securities accounted for using the equity method

     578,795      544,732
    

  

     (Won) 28,164,695    (Won) 27,965,441
    

  

 

- 10 -


Table of Contents
(2) The valuation of securities excluding securities accounted for using the equity method as of June 30, 2005 consisted of (Unit: In millions):

 

Classification


   Face value

  

Acquisition

cost (*)


   Adjusted by
effective
interest rate
method


  

Fair value

(Net asset
value)


   Book value

Trading securities

                                  

Equity securities

   (Won) —      (Won) 128,520    (Won) —      (Won) 139,857    (Won) 139,857

Beneficiary certificates

     7,546      7,675      —        7,679      7,679

Government and public bonds

     870,000      732,495      873,100      869,372      869,372

Finance bonds

     1,500,000      989,628      1,500,281      1,494,540      1,494,540

Corporate bonds

     130,000      129,407      129,610      129,912      129,912

Asset-backed securities

     5,000      5,000      5,007      5,000      5,000
    

  

  

  

  

     (Won) 2,512,546    (Won) 1,992,725    (Won) 2,507,998    (Won) 2,646,360    (Won) 2,646,360
    

  

  

  

  

Available-for-sale

                                  

Equity securities

   (Won) —      (Won) 834,004    (Won) —      (Won) 950,316    (Won) 899,402

Equity investments

     —        513      —        5,377      3,748

Beneficiary certificates

     3,877,385      3,738,046      —        3,904,582      3,904,582

Government and public bonds

     1,659,670      1,668,207      1,665,326      1,662,306      1,662,306

Finance bonds

     6,126,022      6,048,517      6,047,504      6,035,811      6,035,811

Foreign government bonds

     19,261      20,448      26,047      19,729      19,729

Corporate bonds

     1,476,348      1,426,924      1,377,809      1,404,841      1,404,841

Asset-backed securities

     720,800      720,903      603,491      603,110      603,110

Other debt securities

     20,037      19,306      19,305      19,309      19,309
    

  

  

  

  

     (Won) 13,899,523    (Won) 14,476,868    (Won) 9,739,482    (Won) 14,605,381    (Won) 14,552,838
    

  

  

  

  

Held-to-maturity

                                  

Government and public bonds

   (Won) 4,495,778    (Won) 4,478,504    (Won) 4,483,546    (Won) 4,516,105    (Won) 4,483,546

Finance bonds

     3,543,564      3,506,341      3,507,432      3,491,810      3,507,432

Corporate bonds

     2,071,405      2,066,660      2,075,808      2,106,073      2,075,808

Asset-backed securities

     320,000      319,906      319,916      325,121      319,916
    

  

  

  

  

     (Won) 10,430,747    (Won) 10,371,411    (Won) 10,386,702    (Won) 10,439,109    (Won) 10,386,702
    

  

  

  

  


(*) Acquisition cost of equity securities in available-for-sale is the book value before valuation.

 

The valuation of securities excluding securities accounted for using the equity method as of December 31, 2004 consisted of (Unit: In millions):

 

Classification


   Face value

  

Acquisition

cost (*)


   Adjusted by
effective
interest rate
method


  

Fair value

(Net asset
value)


   Book value

Trading securities

                                  

Equity securities

   (Won) —      (Won) 176,191    (Won) —      (Won) 184,545    (Won) 184,545

Beneficiary certificates

     10,663      10,883      —        10,884      10,884

Government and public bonds

     740,000      752,941      751,894      756,658      756,658

Finance bonds

     2,380,000      2,368,468      2,356,576      2,370,577      2,370,577

Corporate bonds

     170,000      169,470      169,731      169,242      169,242

 

- 11 -


Table of Contents

Classification


   Face value

  

Acquisition

cost (*)


   Adjusted by
effective
interest rate
method


  

Fair value

(Net asset
value)


   Book value

Asset-backed securities

     45,000      44,909      44,860      44,963      44,963

Other debt securities

     100,000      98,632      98,630      98,641      98,641
    

  

  

  

  

     (Won) 3,445,663    (Won) 3,621,494    (Won) 3,421,691    (Won) 3,635,510    (Won) 3,635,510
    

  

  

  

  

Available-for-sale

                                  

Equity securities

   (Won) —      (Won) 579,017    (Won) —      (Won) 886,390    (Won) 799,737

Equity investment

     —        512      —        5,094      3,711

Beneficiary certificates

     5,302,303      5,145,408      —        5,414,250      5,414,250

Government and public bonds

     809,670      820,371      818,892      837,886      837,886

Finance bonds

     6,186,665      6,121,244      6,112,439      6,144,095      6,144,095

Foreign government bonds

     30,736      33,381      31,424      32,638      32,638

Corporate bonds

     3,634,994      3,550,118      3,507,631      3,538,819      3,538,819

Asset-backed securities

     881,800      881,903      758,217      765,231      765,231

Other debt securities

     20,093      19,363      19,363      19,397      19,397
    

  

  

  

  

     (Won) 16,866,261    (Won) 17,151,317    (Won) 11,247,966    (Won) 17,643,800    (Won) 17,555,764
    

  

  

  

  

Held-to-maturity

                                  

Government and public bonds

   (Won) 3,071,424    (Won) 3,090,636    (Won) 3,080,549    (Won) 3,214,041    (Won) 3,080,549

Finance bonds

     1,226,073      1,213,768      1,215,034      1,219,712      1,215,034

Corporate bonds

     1,734,727      1,733,922      1,734,696      1,808,349      1,734,696

Asset-backed securities

     180,000      180,000      180,000      189,936      180,000

Other debt securities

     20,000      19,157      19,156      19,156      19,156
    

  

  

  

  

     (Won) 6,232,224    (Won) 6,237,483    (Won) 6,229,435    (Won) 6,451,194    (Won) 6,229,435
    

  

  

  

  


(*) Acquisition cost of equity securities in available-for-sale is the book value before valuation.

 

The Bank recognized gain on valuation of trading securities of (Won) 2,167 million and (Won) 33,134 million for the six months ended June 30, 2005 and 2004, respectively.

 

The fair values of trading debt securities in local currency were assessed by applying the average of base prices of the latest trading day from the balance sheet date, provided by the bond pricing service institutions.

 

(3) Available-for-sale securities, which were not valuated at fair value as of June 30, 2005, were as follows (Unit: In millions, shares in thousands) :

 

Company


   No. of
shares


  

Percentage of
ownership

(%)


   Net asset
value


   Book value

Bad Bank Harmony (preferred stock)

   13    0.46    (Won) 37,441    (Won)