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 November 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 Business Report for the 3rd quarter of 2005    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 3rd quarter of 2005

 

2. Exhibit 99.1_Kookmin Bank Review Report for the 3rd quarter of 2005

 

3


Table of Contents

Summary of Business Report for the 3rd quarter of 2005

 

On November 14, 2005, Kookmin Bank filed its business report for the third quarter 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.

 

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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:

 

  n The banking business as prescribed by the Bank Act,

 

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

 

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

 

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

 

1.2. History

 

  n November 1, 2001

Incorporated and listed on the New York Stock Exchange

 

  n November 9, 2001

Listed on the Korea Stock Exchange

 

  n September 23, 2002

Integrated IT platforms of old Kookmin Bank and H&CB

 

  n December 4, 2002

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

 

  n May 30, 2003

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

 

  n September 30, 2003

Completed small-scale merger with Kookmin Credit Card

 

  n December 16, 2003

Completed strategic investment in Bank International Indonesia (BII) by investing in 25% stake of the Consortium of Sorak Financial Holdings

 

  n December 19, 2003

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

 

  n April 29, 2004

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

 

  n July 22, 2004

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

 

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Table of Contents
  n August 31, 2004

ING made a contract with KB for the strategic investment in KB Life

 

  n October 29, 2004

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

 

  n November 09, 2004

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

 

  n December 31, 2004

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

 

  n March 02, 2005

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

 

  n March 21, 2005

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

 

  n 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

 

  n July 26, 2005

Obtained an approval from FSS to use Market Risk Internal Model for the first time among domestic financial institutions

 

  n October 14, 2005

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

 

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 September 30, 2005, total 336,379,116 shares were issued with 1,681,896 million Won of paid-in capital.

 

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Table of Contents

1.3.2. Treasury Stock

 

The following table shows the acquisition and disposition of our treasury stock as of September 30, 2005.

 

(Units: in thousand 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, 20051

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

2nd quarter, 20052

   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

3rd quarter, 2005

   Disposition due to exercise of stock option by grantees    42,771    1,892,702    44,252
         
  
  

Total

   -    269,738    11,952,740    —  
         
  
  

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.

 

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Table of Contents

1.3.3. Stock Option1

 

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

 

(Units: in Won, shares)

 

Grant date


  

Name of the grantee


  

Position when granted


   Exercise period

  

Exercise

price


  

Number of

granted

options2


  

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    30,000    0

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    49,141    18,142

24-Mar-01

   Young Il Kim    Executive Vice President    25-Mar-04    24-Mar-07    25,100    30,000    13,000    17,000

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    2,318    0

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    2,961    0

15-Mar-01

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

1 Total exercisable amount of stock options for CEOs depends on performance evaluation scores, tenure of office and KOSPI Banking Industry Index. Performance evaluation scores and tenure of office determine the number of exercisable options and Banking Industry Index determines the exercise prices.

 

Total exercisable amount of stock options for the Auditor & Executive Director and Non-Executive Directors depends on their tenure of office and Banking Industry Index. Their tenure of office determines the number of exercisable options and Banking Industry Index determines the exercise prices.

 

Total exercisable amount of stock options for the SEVPs and other employees depends on performance evaluation scores and tenure of office. Their performance evaluation scores and tenure of office determine the number of exercisable options and the exercise prices are fixed as of the dates they granted stock options.

 

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

 

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Table of Contents

Grant date


  

Name of the grantee


  

Position when granted


   Exercise period

  

Exercise

price


 

Number of

granted

options2


  

Number of

exercised

options


  

Number of

exercisable

options


         From

   To

          

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    5,845    6,000

15-Mar-01

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

15-Mar-01

   Han Koo Ji & 36 others    Employees    16-Mar-04    15-Mar-09    28,027   39,092    12,548    26,544
                        
             

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   23,899    0    23,899
                        
             

21-Mar-03

   Moon Soul Chung    Non Executive director    22-Mar-06    21-Mar-11    Y3   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

 


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

options2


  

Number of

exercised

options


  

Number of

exercisable

options


         From

   To

          

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

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    Y4   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    Y5   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    X6   700,000    0    700,000

18-Mar-05

   Hyung Duk Chang    Auditor & Executive Director    19-Mar-08    18-Mar-13    X7   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

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

options2


  

Number of

exercised

options


  

Number of

exercisable

options


         From

   To

          

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

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    X8   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

23-Aug-05

   Youn Soo Kim    Executive Vice President    24-Aug-08    23-Aug-13    53,000   15,000    0    15,000
         
                
  
  

Total

  3,533,588    271,991    3,261,597
         
                
  
  

 


8 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.
* Stock options for some of grantees are not determined those number of exercisable options or those exercise prices yet.

 

12


Table of Contents

1.4. Employee Stock Ownership Association1

 

    

Beginning
balance

(January 1, 2005)


   Increase

   Decrease

  

Ending

Balance

(September 30,

2005)


   Remarks

Registered common stock

   1,944,211    1,562,906    581,378    2,925,739    —  
    
  
  
  
  

Total

   1,944,211    1,562,906    581,378    2,925,739    —  
    
  
  
  
  

 

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)

 

     20042

  2003

    2002

Net (loss) income for the period

   360,454   (930,356 )   1,310,291

Diluted (loss) earnings per share (Won)

   1,1763   (2,854 )   4,123

Total dividend amount

   168,574   —       325,232

Dividend payout ratio (%)

   46.774   —       24.82

Cash dividend per common share (Won)

   550   —       1,000

Stock dividend per common share (%)

   —     —       —  

Dividend per preferred share (Won)

   —     —       —  

Dividend yield ratio (%)

   1.425   —       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 Due to the accounting treatment change with respect to WOBCs, net income, EPS, and dividend payout ratio have changed and these amounts differ from those in Business Report for the fiscal year of 2004.
3 Earnings per share = net income (360,454,000,000 Won) / weighted average number of shares (306,529,707 shares).
4 Dividend payout ratio = total dividend amount for common shares (168,574,000,000 Won) / net income (360,454,000,000 Won).
5 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)

 

   September 30, 2005

   December 31, 2004

   December 31, 2003

   Average
balance


   Interest
rate (%)


   Average
balance


   Interest
rate (%)


   Average
balance


   Interest
rate (%)


Won currency

                             

Deposits

   114,621,438    2.84    118,017,849    3.29    117,045,837    3.69

Certificate of deposit

   4,936,451    3.63    6,108,179    4.06    4,068,327    4.45

Borrowings

   2,723,026    2.96    3,053,890    3.43    3,625,926    3.89

Call money

   801,235    3.12    1,117,576    3.55    1,315,639    3.93

Other

   24,698,107    5.06    23,376,439    5.61    23,311,299    5.91
    
  
  
  
  
  

Subtotal

   147,780,257    3.24    151,673,933    3.68    149,367,028    4.06
    
  
  
  
  
  

Foreign currency

                             

Deposits

   1,473,799    1.51    1,777,402    0.61    1,276,952    0.84

Borrowings

   3,069,886    1.88    2,796,300    0.94    3,462,883    1.01

Call money

   254,443    3.17    145,809    1.43    150,609    1.07

Finance debentures issued

   723,230    3.89    824,745    2.28    773,840    2.11

Other

   50,187    —      40,383    —      26,491    —  
    
  
  
  
  
  

Subtotal

   5,571,545    2.08    5,584,639    1.04    5,690,775    1.12
    
  
  
  
  
  

Other

                             

Total Shareholders Equity

   10,725,885    —      9,284,477    —      12,053,112    —  

Allowances

   685,092    —      459,124    —      98,422    —  

Other

   12,434,582    —      12,773,040    —      9,509,283    —  
    
  
  
  
  
  

Subtotal

   23,845,559    —      22,516,641    —      21,660,817    —  
    
  
  
  
  
  

Total

   177,197,361    2.77    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)

 

   September 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

   259,139    2.65    184,593    0.83    165,358    1.37

Securities

   27,300,727    4.69    23,930,678    5.14    30,069,922    7.26

Loans

   120,920,793    6.24    125,504,672    6.64    121,725,298    7.10

Advances for customers

   26,095    1.56    71,213    2.01    96,547    5.79

Call loan

   1,637,697    3.38    1,661,772    3.78    685,953    3.92

Private placement corporate bonds

   1,611,228    6.98    1,322,470    6.58    1,287,623    10.26

Credit card accounts

   7,314,057    13.88    9,581,330    15.04    6,698,954    10.44

Other

   264,159    —      172,783    —      298,858    —  

Allowance for credit losses ( - )

   3,041,746    —      3,844,941    —      1,823,976    —  
    
  
  
  
  
  

Subtotal

   156,292,149    6.46    158,584,570    7.10    159,204,537    7.41
    
  
  
  
  
  

Foreign currency

                             

Due from banks

   633,059    2.80    632,526    1.34    612,862    1.33

Securities

   867,135    5.78    1,208,124    3.88    1,269,538    5.23

Loans

   3,174,772    3.51    2,675,293    3.61    2,785,091    3.11

Call loan

   136,494    3.00    114,606    1.63    84,803    1.28

Bills bought

   2,340,797    2.59    1,904,560    1.88    1,983,368    1.83

Other

   2,186    —      4,812    —      12,391    —  

Allowance for credit losses ( - )

   66,310    —      94,501    —      132,105    —  
    
  
  
  
  
  

Subtotal

   7,088,133    3.46    6,445,420    2.97    6,615,948    3.03
    
  
  
  
  
  

Other

                             

Cash

   959,993    —      965,852    —      968,815    —  

Fixed assets held for business

   2,542,855    —      3,084,589    —      3,210,463    —  

Other

   10,314,231    —      10,694,782    —      6,718,857    —  

Subtotal

   13,817,079    —      14,745,223    —      10,898,135    —  
    
  
  
  
  
  

Total

   177,197,361    5.84    179,775,213    6.37    176,718,620    6.79
    
  
  
  
  
  

 

15


Table of Contents

2.1.3. Fee Transactions1

 

(Unit: in millions of Won)

 

    

September 30,

2005


  

September 30,

2004


  

December 31,

2004


Fee Revenue (A)

              

Won currency

              

Guarantees

   3,975    3,600    4,957

Commissions received

   590,669    565,103    776,852

Credit card

   799,057    910,716    1,196,083

NHF

   128,703    116,233    160,874

Foreign currency

              

Guarantees

   3,005    1,825    2,592

Others

   57,790    54,668    75,015
    
  
  

Subtotal

   1,583,199    1,652,145    2,216,373
    
  
  

Fee Expense (B)

              

Won & foreign currency

              

Commissions paid in Won

   77,934    73,909    98,392

Credit card

   152,885    286,504    352,194

Others

   16,281    13,839    20,169
    
  
  

Subtotal

   247,100    374,252    470,755
    
  
  

Fee Income (A-B)

   1,336,099    1,277,893    1,745,618
    
  
  

1 Reflected the effect caused by re-classification of credit card ABS in Seller Interest Trust Certificate and excluded early payment fee in trust account

 

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)

 

     September 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

   14,736,875    16,263,265    12,994,946    14,338,784    12,192,971    14,110,288

Time & savings deposits

   92,713,659    91,187,249    96,637,551    94,723,601    96,668,084    97,616,747

Mutual installment deposits

   5,802,306    5,445,696    6,682,928    6,306,923    6,958,043    7,054,753

Mutual installment for housing

   5,030,226    4,772,060    5,453,713    5,295,274    5,161,535    5,423,853

Certificates of deposits

   4,936,451    5,360,040    6,108,179    4,911,891    4,068,327    6,499,258
    
  
  
  
  
  

Subtotal

   123,219,517    123,028,310    127,877,317    125,576,473    125,048,960    130,704,899
    
  
  
  
  
  

Deposits in foreign currency

   1,473,799    1,447,412    1,769,828    1,434,061    1,276,952    1,475,373

Trust deposits

                             

Money trust

   6,972,815    7,381,224    7,701,447    7,028,835    13,064,749    10,278,357

Property trust

   11,158,403    10,838,914    16,297,382    12,534,329    24,512,746    21,453,761
    
  
  
  
  
  

Subtotal

   18,131,218    18,220,138    23,998,829    19,563,164    37,577,495    31,732,118
    
  
  
  
  
  

Total

   142,824,534    142,695,860    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)
    

September 30,

2005


  

December 31,

2004


  

December 31,

2003


Deposits

   122,942    123,945    119,593

Deposits in Won

   121,789    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)
     September 30, 2005

   December 31, 2004

   December 31, 2003

Deposits

   7,708    7,232    7,487

Deposits in Won

   7,636    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)

 

     September 30, 2005

   December 31, 2004

   December 31, 2003

     Average
balance


   Ending
balance


   Average
balance


   Ending
balance


   Average
balance


   Ending
balance


Loans in Won

   120,913,488    118,936,662    125,496,237    122,721,898    121,705,493    123,715,244

Loans in foreign currency

   4,558,950    5,117,304    4,011,351    3,860,828    4,160,185    4,019,930

Advances to customers

   26,095    15,513    73,801    32,120    107,091    89,665
    
  
  
  
  
  

Subtotal

   125,498,533    124,069,478    129,581,389    126,614,846    125,972,769    127,824,839
    
  
  
  
  
  

Trust account loans

   336,556    325,002    429,054    361,906    531,500    489,788
    
  
  
  
  
  

Total

   125,835,089    124,394,480    130,010,443    126,976,752    126,504,269    128,314,627
    
  
  
  
  
  

 

2.2.5. Loan Balances as of September 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

   66,927,100    26,464,400    8,788,598    16,756,564    118,936,662

Loans in foreign currencies

   4,063,378    554,659    211,865    287,401    5,117,303

 

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)

 

    

September 30,

2005


  

December 31,

2004


  

December 31,

2003


Loans to enterprise

              

Loans for operations

   30,231,855    31,678,117    35,351,506

Loans for facility

   5,379,454    6,286,747    6,631,703

Loans to households

   42,568,166    42,790,337    42,884,305

Loans to public sector & others

              

Loans for operations

   469,381    673,456    526,227

Loans for facility

   34,573    40,383    42,473

Loans on property formation savings

   7,094    9,719    62,963

Loans for housing

   40,241,805    41,234,086    38,199,290

Inter-bank loans

   2,098    6,114    12,815

Others

   2,236    2,939    3,962
    
  
  

Total

   118,936,662    122,721,898    123,715,244
    
  
  

 

2.2.7. Loan to Deposit Ratio1

 

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

 

 

     (Units: in millions of Won, %)
     September 30, 2005

   December 31, 2004

   December 31, 2003

Loans (A)

   120,913,488    125,496,237    121,705,493

Deposits (B)

   123,219,517    127,877,317    125,048,960
    
  
  

Loan to deposit ratio (A/B)

   98.13    98.14    97.33
    
  
  

 

2.2.8. Acceptances and Guarantees

 

     (Unit: in millions of Won)
     September 30, 2005

   December 31, 2004

   December 31, 2003

Determined

   1,545,720    975,788    800,297

Contingent

   1,999,559    1,311,774    1,281,518
    
  
  

Total

   3,545,279    2,287,562    2,081,815
    
  
  

1 Average balance of loans in won / (average balance of deposits in won + average balance of 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)

 

     September 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

   10,486,797    10,993,502    7,150,535    10,524,835    4,343,978    5,540,598

Government and public bonds

   6,411,801    8,604,647    4,753,135    4,675,093    5,630,422    5,885,595

Debentures

   6,916,380    7,806,642    7,013,765    6,152,749    12,315,840    8,936,220

Stocks

   1,268,682    1,316,847    1,003,131    1,282,050    1,380,254    877,013

Others

   3,828,294    1,756,143    5,332,582    5,583,539    7,687,051    7,299,404
    
  
  
  
  
  

Subtotal

   28,911,954    30,477,781    25,253,148    28,218,266    31,357,545    28,538,830
    
  
  
  
  
  

Securities in Won (Trust account)

                             

Monetary stabilization bonds

   1,007,749    1,011,638    1,222,004    1,152,621    984,380    878,077

Government and public bonds

   987,530    874,422    922,790    837,080    1,182,165    1,252,419

Debentures

   2,054,753    2,040,033    2,363,630    2,312,459    5,876,064    4,080,362

Stocks

   504,551    533,166    564,538    510,650    763,277    592,379

Others

   2,601,934    3,136,116    2,101,832    2,324,393    3,208,160    2,106,262

Securities in foreign currency (Trust Account)

   317,646    221,849    662,549    449,415    868,819    767,675
    
  
  
  
  
  

Subtotal

   7,474,163    7,817,224    7,837,343    7,586,618    12,882,865    9,677,174
    
  
  
  
  
  

Securities in foreign currency (Banking account)

                             

Foreign securities

   579,645    601,364    894,722    745,352    999,806    1,072,483

Off-shore foreign securities

   287,489    261,956    313,402    205,455    269,732    277,663
    
  
  
  
  
  

Subtotal

   867,134    863,320    1,208,124    950,807    1,269,538    1,350,146
    
  
  
  
  
  

Total

   37,253,251    39,158,325    34,298,615    36,755,691    45,509,948    39,566,150
    
  
  
  
  
  

 

2.2.10. Trust Account

 

(Unit: in millions of Won)

 

     September 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    33,676    369    8,365    559    45,682

Performance trust

   18,130,882    56,932    23,998,460    93,856    37,576,936    186,851
    
  
  
  
  
  

Total

   18,131,218    90,608    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

 

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2.2.11. Credit Card

 

(Unit: in millions of Won unless indicated otherwise)

 

          As of or for the years ended of indicated dates

          September 30,
2005


   December 31,
2004


   December 31,
2003


Number of card holders (Person)

              
     Corporate    162,438    182,109    147,813
     Individual    9,678,364    11,362,173    10,990,703

Number of merchants

   1,496,831    1,491,730    1,528,872

Sales volume1

   45,179,122    66,348,465    92,535,500

Fee revenue

   1,699,315    2,800,901    4,012,017

 

2.3. Branch Networks

 

As of September 30, 2005, we have 1,040 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

 

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Table of Contents

2.4. Other Information for Investment Decision

 

2.4.1. BIS Risk-adjusted Capital Ratios

 

(Units: in millions of Won, %)

 

     September 30,
20051


   December 31,
2004


   December 31,
2003


Risk-adjusted capital (A)

   15,216,746    13,334,531    12,499,543

Risk-weighted assets (B)

   120,213,907    121,081,735    127,370,180
    
  
  

BIS ratios (A/B)

   12.66    11.01    9.81
    
  
  

 

2.4.2. Non-Performing Loans2

 

(Units: in millions of Won unless indicated otherwise)

 

September 30, 2005

    December 31, 2004

    Change

 
Amount

  NPL to total loans

    Amount

  NPL to total loans

    Amount

  NPL to total loans

 
2,356,998   1.75 %   3,207,190   2.35 %   -850,192   -0.6 %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)

 

     September 30,
2005


   December 31,
2004


   December 31,
2003


Loan losses allowance               

Loans in Won

   2,804,526    3,181,433    3,946,059

Loans in foreign currencies

   3,940    4,662    2,677
    
  
  

Total

   2,808,466    3,186,095    3,948,736
    
  
  

Provision for loan losses

   967,867    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.

 

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Table of Contents

2.4.4. Changes of Loan Loss Allowances for Recent Three Years

 

(Unit: in millions of Won)

 

     September 30,
20051


    December 31,
20042


    December 31,
20033


 

Beginning balance

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

Net Write-Off

   (1,345,496 )   (3,830,889 )   97,145  

Write-Off

   (1,511,058 )   (5,260,962 )   (4,509,979 )

Recovery

   339,756     286,464     270,422  

Other

   (174,194 )   1,143,609     4,336,702  

Provision for loan losses

   967,867     3,068,248     1,431,181  

Ending balance

   2,808,466     3,186,095     3,948,736  

1 Includes present value discounts and allowance for other assets amounting to 18,781 million won and 53,884 million won, respectively as of September 30, 2005
2 Includes present value discounts and allowances for other assets amounting to 22,110 million won, 67,320 million won, respectively that had been recorded as of December 31, 2004
3 Includes present value discounts and allowance for other assets amounting to 22,780 million won and 38,692 million won, respectively, that had been recorded as of December 31, 2003 and includes present discounts and allowance for other assets amounting to 30,442 million won and 24,252 million won, respectively that had been recorded as of January 1, 2003

 

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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


 
     September 30,
2005


   December 31,
20041


 

Cash and due from banks

   6,497,051    5,139,604  

Securities

   29,326,198    27,965,441  

Loans

   134,189,935    135,769,326  

Fixed assets

   2,457,452    2,633,218  

Other assets

   8,492,563    8,296,164  

Total assets

   180,963,199    179,803,753  

Deposits

   124,475,722    127,010,534  

Borrowings

   14,233,309    9,634,296  

Debentures

   16,521,447    21,874,695  

Other liabilities

   13,947,080    12,105,686  

Total liabilities

   169,177,558    170,625,211  

Capital stocks

   1,681,896    1,681,896  

Capital surplus

   6,254,958    6,230,738  

Retained earnings

   3,506,458    1,846,895  

Capital adjustments

   342,329    (580,987 )

Total shareholders’ equity

   11,785,641    9,178,542  

Liabilities and Shareholders’ Equity

   180,963,199    179,803,753  

Operating revenue

   13,471,117    20,532,036  

Operating income

   2,375,103    1,740,380  

Continuing (loss) income before income taxes

   2,602,894    629,911  

Net (loss) income

   1,828,519    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

 

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Table of Contents

4. Independent Accountant Fees and Services

 

4.1. Audit & Review Fees

 

Deloitte Anjin LLC has reviewed our financial statements for the third quarter 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   

-        LOC (Letter of Comfort)

   30
2004   

-        Refinancing

-        Due Diligence regarding the possible acquisition of DITC/ KITC

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

-        US GAAP conversion for 2004

  

230

300

100

USD 3,600 thousand

     
     

2003

  

-        US GAAP conversion for 2003

-        Refinancing

-        Due Diligence on Bank International Indonesia

-        US GAAP conversion for 2002

-        Due Diligence on Kookmin Credit Card

-        SEC Filing regarding the proposed merger with Kookmin Credit Card

  

USD 3,950 thousand

275

SGD 313 thousand

USD 3,800 thousand

250

USD 30 thousand

 

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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:

 

  n Matters relating to business objectives and performance evaluation;

 

  n Matters relating to amendments of the Articles of Incorporation;

 

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

 

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

 

  n Matters relating to internal control standards; or

 

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

 

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

 

  n The Board Steering Committee;

 

  n The Management Strategy Committee;

 

  n The Risk Management Committee;

 

  n The Audit Committee;

 

  n The Compensation Committee; and

 

  n The Non Executive Director 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.

 

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Table of Contents

5.3. Compensation to Directors

 

For the 9 months period ended September 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)

   1,424         475

2) Non Executive Directors

(Except members of audit committee)

   282    8,000    46

3) Members of Audit Committee

   401         76
    
  
  

Total

   2,107    8,000    148
    
  
  

 

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 September 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 Amsterdam3

   13,650,001    4.06

1 Information based on December 31, 2004
2 Depositary of ADRs
3 Changed the largest shareholder of Kookmin Bank from ING Bank N.V Amsterdam to Euro-Pacific Growth Fund (4.79%) on October 14, 2005

 

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Table of Contents

5.6. Affiliated Companies

 

5.6.1. List of Affiliates1

 

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

 

  n KB Investment Co., Ltd.

 

  n KB Asset Management Co., Ltd.

 

  n KB Real Estate Trust Co., Ltd.

 

  n KB Credit Information Co., Ltd.

 

  n KB Data Systems Corporation

 

  n KB Futures Co., Ltd.

 

  n KB Life Co., Ltd.

 

  n ING Life Korea Ltd.

 

  n Kookmin Bank International (London) Ltd.

 

  n Kookmin Hong Kong Ltd.

 

  n Sorak Financial Holdings

 

5.6.2. Operating Results of Affiliates

 

(Unit: in millions of Won)

 

Company name


  

Closing date


   Operating results

 
      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    294,734    242,738    51,996    10,652    1,534  

Kookmin HK Ltd.4

   December 31, 2004    406,880    337,111    69,769    13,940    5,622  

Sorak Financial Holdings4

   December 31, 2004    305,520    241    305,279    14,779    13,258  

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 September 30, 2005

 

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Table of Contents

6. Directors, Senior Management and Employees

 

As of September 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 September 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    1,660

Hoon Namkoong

   06/26/1947    Non-Executive Director    —  

Suk Yong Cha

   06/09/1953    Non-Executive Director    2,490

Doo Hwan Song

   05/29/1949    Non-Executive Director    —  

Ki Hong Kim

   01/10/1957    Non-Executive Director    2,600

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    1,590

 

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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 September 30, 2005.

 

Name


  

Date of Birth


  

Position


   Common Shares Owned

Dong Won Kim

   03/01/1953    Senior Executive Vice President    —  

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 September 30, 2005.

 

(Unit: in millions of Won)

 

     Number of Employees1

   Average Tenure
of the Full-time
Employees2


   Total Payment for
the 3rd quarter of
20053


  

Average Monthly
Payment

per Person


     Full-time

   Contractual

   Total

        

Male

   12,845    1,227    14,072    16.6    701,006    5.5

Female

   4,232    6,503    10,735    13.9    330,680    3.4
    
  
  
  
  
  

Total

   17,077    7,730    24,807    15.9    1,031,686    4.6
    
  
  
  
  
  

1 Number of employees are calculated based on an arithmetic mean from January 31, 2005 to September 30, 2005 and local employees in overseas branches are excluded
2 Only based on full-time employees as of September 30, 2005
3 Based on personnel expense and welfare cost as of September 30, 2005

 

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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
(September 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    377    —      6,245

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    —      116    20,760

Kookmin Bank International (London) Ltd.

   Affiliate    Equity Securities of Affiliate    40,180    —      3,688    36,492
              
  
  
  

Total

   294,295    427    18,504    276,218
              
  
  
  

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

 

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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
(September 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    0    (2 )

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    50,422    50,089  
              
  
  

 

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Table of Contents

7.2.2. Securities Transactions

 

(Units: in millions of Won unless indicated otherwise)

 

          Transactions

Name


   Relation with the Bank

   Account

   Purchase

   Disposal

   Volume

   Gains
/Losses


DSME Co.

   Related party of
Non executive director,
Dong Soo Chung
   Equity securities    6,587    9,667    16,254    925

Samsung Electro-Mechanics

   Related party of
Non executive
director,
Hoon Namkoong
   Equity securities    5,199    3,160    8,359    22
              
  
  
  

Total

             11,786    12,827    24,613    947
              
  
  
  

 

 

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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: November 14, 2005

  By:  

/s/ Kap Shin


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

 

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Table of Contents

Exhibit 99.1

 

KOOKMIN BANK

 

NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 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 September 30, 2005 and the related non-consolidated statements of income and cash flows for the nine months ended September 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 nine months ended September 30, 2004, which are presented for comparative purposes, were reviewed by other accountants, whose report dated October 14, 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.

 

As explained in Note 2 to the 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 September 30, 2005 decreased by (Won)62,749 million, (Won)62,749 million and (Won)113,220 million, respectively, and net income for the nine months then ended increased by (Won)113,220 million due to the above accounting change.


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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 procedures and review standards and their application in practice.

 

October 31, 2005

 

/s/ Deloitte Anjin LLC

 

Notice to Readers

 

This report is effective as of October 31, 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.


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KOOKMIN BANK

 

NON-CONSOLIDATED BALANCE SHEETS

 

AS OF SEPTEMBER 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) 6,497,051    (Won) 5,139,604  

Securities (Notes 4, 20 and 21)

     29,326,198      27,965,441  

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

     134,189,935      135,769,326  

Fixed assets (Note 8)

     2,457,452      2,633,218  

Other assets (Note 9)

     8,492,563      8,296,164  
    

  


     (Won) 180,963,199    (Won) 179,803,753  
    

  


LIABILITIES AND SHAREHOLDERS’ EQUITY

               

LIABILITIES:

               

Deposits (Notes 10, 20 and 21)

   (Won) 124,475,722    (Won) 127,010,534  

Borrowings (Notes 11, 20 and 21)

     14,233,309      9,634,296  

Debentures (Notes 12, 20 and 21)

     16,521,447      21,874,695  

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

     13,947,080      12,105,686  
    

  


       169,177,558      170,625,211  
    

  


SHAREHOLDERS’ EQUITY (Notes 17 and 18):

               

Common stock

     1,681,896      1,681,896  

Capital surplus

     6,254,958      6,230,738  

Retained earnings before appropriations (Net income of (Won)1,828,519 million for the nine months ended September 30, 2005 and (Won)360,454 million for the year ended December 31, 2004)

     3,506,458      1,846,895  

Capital adjustments

     342,329      (580,987 )
    

  


       11,785,641      9,178,542  
    

  


     (Won) 180,963,199    (Won) 179,803,753  
    

  


 

See accompanying notes to non-consolidated financial statements.


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KOOKMIN BANK

 

NON-CONSOLIDATED STATEMENTS OF INCOME

 

FOR THE NINE MONTHS ENDED SEMPEMBER 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) 18,432    (Won) 7,038

Interest on securities (Note 21)

     808,414      766,457

Interest on loans (Note 21)

     6,812,797      7,803,562

Other interest income

     55,887      71,452
    

  

       7,695,530      8,648,509
    

  

Commission income

     1,583,210      1,652,208
    

  

Other operating income:

             

Gain on disposal of trading securities

     75,779      148,292

Gain on valuation of trading securities (Note 4)

     —        42,442

Dividends on trading securities

     4,821      3,289

Dividends on available-for-sale securities

     3,259      7,709

Foreign exchange trading income

     203,246      203,995

Fees and commissions from trust accounts (Note 26)

     103,113      92,119

Gain on financial derivatives trading

     2,822,447      2,049,392

Gain on valuation of financial derivatives (Note 19)

     891,765      786,141

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

     43,449      2,838

Other operating income

     44,498      42,188
    

  

       4,192,377      3,378,405
    

  

Total operating revenues

     13,471,117      13,679,122
    

  

OPERATING EXPENSES:

             

Interest expenses:

             

Interest on deposits (Note 21)

     2,422,243      2,986,152

Interest on borrowings (Note 21)

     260,151      254,163

Interest on debentures (Note 21)

     801,698      818,822

Other interest expenses

     25,001      50,009
    

  

       3,509,093      4,109,146
    

  

Commission expense

     247,100      374,252
    

  

Other operating expenses:

             

Loss on disposal of trading securities

     54,457      61,490

Loss on valuation of trading securities (Note 4)

     13,258      —  

Provision for possible loan losses (Note 7)

     967,867      2,245,698

Provision for acceptance and guarantee losses (Note 14)

     1,415      —  

Foreign exchange trading losses

     175,267      124,779

Loss on financial derivatives trading

     2,708,392      2,008,046

Loss on valuation of financial derivatives (Note 19)

     922,694      761,926

Other operating expenses

     406,128      371,156
    

  

       5,249,478      5,573,095
    

  

General and administrative expenses (Note 22)

     2,090,343      1,951,849
    

  

Total operating expenses

     11,096,014      12,008,342
    

  

 

(Continued)


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KOOKMIN BANK

 

NON-CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

 

FOR THE NINE MONTHS ENDED SEMPEMBER 30, 2005 AND 2004

 

     Korean Won

     2005

   (Restated)
2004


     (In millions except per share
amounts)

OPERATING INCOME

   (Won) 2,375,103    (Won) 1,670,780

NON-OPERATING INCOME (Note 23)

     617,247      303,019

NON-OPERATING EXPENSES (Note 23)

     389,456      1,137,056
    

  

ORDINARY INCOME

     2,602,894      836,743

EXTRAORDINARY ITEM

     —        —  
    

  

INCOME BEFORE INCOME TAX

     2,602,894      836,743

INCOME TAX EXPENSE (Note 24)

     774,375      273,834
    

  

NET INCOME

   (Won) 1,828,519    (Won) 562,909
    

  

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

   (Won) 5,745    (Won) 1,837
    

  

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

   (Won) 5,745    (Won) 1,837
    

  

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

   (Won) 5,741    (Won) 1,837
    

  

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

   (Won) 5,741    (Won) 1,837
    

  

 

See accompanying notes to non-consolidated financial statements.


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KOOKMIN BANK

 

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

 

     Korean Won

 
     2005

   

(Restated)

2004


 
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

                

Net income

   (Won) 1,828,519     (Won) 562,909  
    


 


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

                

Loss on disposal of trading securities

     54,457       61,490  

Provision for possible loan losses

     967,867       2,245,698  

Loss on financial derivatives trading

     2,708,392       2,008,046  

Loss on valuation of financial derivatives

     922,694       761,926  

Loss on valuation of securities accounted for using the equity method

     8,466       28,841  

Provision for severance benefits

     89,090       81,200  

Depreciation and amortization

     244,280       304,041  

Loss on disposal of available-for-sale securities

     17,210       22,875  

Loss on impairment of available-for-sale securities

     26,144       55,058  

Loss on disposal of tangible assets

     3,764       2,368  

Loss on sale of loans

     2,096       864,609  

Gain on disposal of trading securities

     (75,779 )     (148,292 )

Gain on valuation of trading securities

     —         (42,442 )

Gain on financial derivatives trading

     (2,822,447 )     (2,049,392 )

Gain on valuation of financial derivatives

     (891,765 )     (786,141 )

Gain on valuation of fair value hedged items

     (43,449 )     (2,838 )

Gain on valuation of securities accounted for using the equity method

     (71,700 )     (38,930 )

Gain on disposal of available-for-sale securities

     (282,431 )     (121,598 )

Gain on disposal of tangible assets

     (9,475 )     (1,861 )

Gain on sale of loans

     (79,935 )     (23,770 )

Others, net

     321,676       (59,336 )
    


 


       1,089,155       3,161,552  
    


 


 

(Continued)


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KOOKMIN BANK

 

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

 

FOR THE NINE MONTHS ENDED SEPTEMBER 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) (1,900,734 )   (Won) (2,063,443 )

Net decrease in accrued income

     13,869       27,782  

Net decrease in prepaid expenses

     160,132       132,056  

Net (increase) decrease in deferred income tax assets

     (87,652 )     197,525  

Net increase in other payables

     1,338,980       2,659,765  

Net increase (decrease) in accrued expenses

     505,420       (110,868 )

Net increase in advances from customers

     307,114       320,692  

Payment of severance benefits

     (58,379 )     (34,466 )

Decrease in severance insurance deposits

     23,726       14,759  

Others, net

     490,914       1,485,768  
    


 


       793,390       2,629,570  
    


 


Net cash provided by operating activities

     3,711,064       6,354,031  
    


 


CASH FLOWS FROM INVESTING ACTIVITIES:

                

Net increase in restricted due from banks

     (1,061,711 )     (1,891,166 )

Net decrease in available-for-sale securities

     3,669,749       891,513  

Net increase in held-to-maturity securities

     (4,881,838 )     —    

Net decrease in securities accounted for using the equity method

     24,047       —    

Net decrease in loans

     671,960       —    

Disposal of fixed assets

     22,304       4,942  

Purchase of fixed assets

     (85,449 )     (134,022 )

Net decrease (increase) in other assets

     1,598,108       (3,156,652 )
    


 


Net cash used in investing activities

     (42,830 )     (4,285,385 )
    


 


CASH FLOWS FROM FINANCING ACTIVITIES:

                

Net decrease in deposits

     (2,534,016 )     (2,073,242 )

Net (decrease) increase in debentures

     (5,463,311 )     2,243,564  

Net increase (decrease) in borrowings

     4,600,693       (239,208 )

Net increase (decrease) in other liabilities

     20,777       (1,916,611 )
    


 


Net cash used in financing activities

     (3,375,857 )     (1,985,497 )
    


 


NET INCREASE IN CASH AND DUE FROM BANKS

     292,377       83,149  

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) 3,611,726     (Won) 3,854,906  
    


 


 

See accompanying notes to non-consolidated financial statements.


Table of Contents

KOOKMIN BANK

 

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE NINE MONTHS ENDED SEPTEMBER 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 September 30, 2005, the Bank’s paid-in capital amounts to (Won) 1,681,896 million and its 50,871,519 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 1,063 domestic branches and offices (excluding 196 automated teller machine stations) and three overseas branches (excluding 2 subsidiaries and 1 office) as of September 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.


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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; and future interest income is recognized on cash basis in accordance with the accounting standards of the banking industry. As of September 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)7,117,983 million and (Won)8,600,175 million, respectively, and the related accrued interest income not recognized amounted to (Won)510,491 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 -


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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 investee are reflected in the retained earnings. Changes in the capital surplus or other capital accounts of 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 -


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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, A-, BBB, 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

 

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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

 

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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 lives 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, the book value 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 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 when 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 expenditures required to settle a provision is expected to be reimbursed by another party, the reimbursement is recognized as separate assets in the balance sheet and related income may be offset against expense in the income statement.

 

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Accrued Severance Benefits

 

Employees and directors and temporary employees with at least one year of service as of September 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,

 

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offsetting trust fee payable to the 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 to be applied at the reversal 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)1,038.00 and (Won)1,043.80 to US$ 1.00 at September 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 September 30, 2005 decreased by (Won)62,749 million, (Won)62,749 million and (Won)113,220 million, respectively, and net income for the nine months then ended increased by (Won)113,220 million due to the accounting change.

 

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.

 

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3. CASH AND DUE FROM BANKS:

 

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

 

     2005

    2004

 

Cash and checks

   (Won) 2,347,767     (Won) 2,380,578  

Foreign currencies

     147,800       124,735  

Due from banks in local currency

     3,428,826       2,030,595  

Due from banks in foreign currencies

     573,050       607,447  

Present value discount

     (392 )     (3,751 )
    


 


     (Won) 6,497,051     (Won) 5,139,604  
    


 


 

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

 

Financial institution


   Interest
(%)


   2005

    2004

 

Due from banks in local currency

                     

BOK

   —      (Won) 2,796,835     (Won) 1,685,105  

Woori Bank and others

   3.46~4.06      600,496       254,537  

Hansol Mutual Savings

   1.00      22,500       90,000  

Korea Stock Exchange and others

   2.00      8,995       953  

Present value discount

   —        (392 )     (3,751 )
         


 


            3,428,434       2,026,844  
         


 


Due from banks in foreign currencies

                     

BOK

   —        52,664       43,631  

Korea Exchange Bank and others

   —        66,780       74,274  

Woori Bank and others

   3.8~4.41      453,606       489,542  
         


 


          (Won) 573,050     (Won) 607,447  
         


 


 

(2) Restricted due from banks in local currency and foreign currencies as of September 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) 2,796,835    (Won) 1,685,105    BOK Act

Hansol Mutual Savings

     22,500      90,000    Withdrawal
at maturity

Woori Bank and others

     4,029      4,029    Escrow
account

Korea Stock Exchange and others

     1,595      953    Futures
margin
accounts/
others

Due from banks in foreign currencies

                  

BOK

     52,664      43,631    BOK Act

J.P.Morgan Chase & Co.

     8,094      288    Futures
margin
accounts
    

  

    
     (Won) 2,885,717    (Won) 1,824,006     
    

  

    

 

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

 

Financial institution


   2005

   2004

Due from banks in local currency

             

BOK

   (Won) 2,796,835    (Won) 1,685,105

Banks

     600,496      254,537

Others

     31,495      90,953
    

  

       3,428,826      2,030,595
    

  

Due from banks in foreign currencies

             

BOK

     52,664      43,631

Banks

     515,574      558,771

Others

     4,812      5,045
    

  

       573,050      607,447
    

  

     (Won) 4,001,876    (Won) 2,638,042
    

  

 

(4) Term structure of due from banks as of September 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) 3,128,064    (Won) 296,733    (Won) —      (Won) 4,029    (Won) —      (Won) 3,428,826

Due from banks in foreign currencies

     541,910      31,140      —        —        —        573,050
    

  

  

  

  

  

     (Won) 3,669,974    (Won) 327,873    (Won) —      (Won) 4,029    (Won) —      (Won) 4,001,876
    

  

  

  

  

  

 

4. SECURITIES:

 

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

 

     2005

   2004

Trading securities

   (Won) 3,807,312    (Won) 3,635,510

Available-for-sale securities

     13,764,013      17,555,764

Held-to-maturity securities

     11,171,318      6,229,435

Securities accounted for using the equity method

     583,555      544,732
    

  

     (Won) 29,326,198    (Won) 27,965,441
    

  

 

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(2) The valuation of securities excluding securities accounted for using the equity method as of September 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) 84,844    (Won) —      (Won) 98,491    (Won) 98,491

Beneficiary certificates

     6,147      6,305      —        6,308      6,308

Government and public bonds

     1,970,000      1,951,827      1,951,723      1,935,205      1,935,205

Finance bonds

     1,650,000      1,644,508      1,645,607      1,634,358      1,634,358

Corporate bonds

     127,266      126,805      127,085      127,950      127,950

Asset-backed securities

     5,000      5,000      5,006      5,000      5,000
    

  

  

  

  

     (Won) 3,758,413    (Won) 3,819,289    (Won) 3,729,421    (Won) 3,807,312    (Won) 3,807,312
    

  

  

  

  

Available-for-sale

                                  

Equity securities

   (Won) —      (Won) 799,649    (Won) —      (Won) 950,288    (Won) 873,585

Equity investments

     —        3,711      —        3,757      3,764

Beneficiary certificates

     1,553,356      1,553,234      —        1,560,547      1,560,547

Government and public bonds

     2,135,370      2,123,718      2,122,983      2,123,455      2,123,455

Finance bonds

     7,084,479      7,003,531      6,992,932      7,010,554      7,010,554

Foreign government bonds

     10,121      11,031      10,494      10,435      10,435

Corporate bonds

     1,480,277      1,419,117      1,411,204      1,416,252      1,416,252

Asset-backed securities

     885,942      822,510      747,129      746,164      746,164

Other debt securities

     20,000      19,270      19,302      19,257      19,257
    

  

  

  

  

     (Won) 13,169,545    (Won) 13,755,771    (Won) 11,304,044    (Won) 13,840,709    (Won) 13,764,013
    

  

  

  

  

Held-to-maturity

                                  

Government and public bonds

   (Won) 4,554,876    (Won) 4,542,222    (Won) 4,545,986    (Won) 4,502,944    (Won) 4,545,986

Finance bonds

     4,143,495      4,105,326      4,129,710      4,094,874      4,129,710

Corporate bonds

     2,023,730      2,011,729      2,027,378      2,027,361      2,027,378

Asset-backed securities

     320,000      319,906      319,925      321,052      319,925

Other debt securities

     150,000      148,328      148,319      149,495      148,319
    

  

  

  

  

     (Won) 11,192,101    (Won) 11,127,511    (Won) 11,171,318    (Won) 11,095,726    (Won) 11,171,318
    

  

  

  

  


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

 

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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

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