Form 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Form 6-K

 


REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2006

 


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    

 



Kookmin Bank’s 2005 Audit Report and Consolidated Operating

Results for the Fiscal year 2005

On March 15, 2006, Kookmin Bank released audit report for the fiscal year of 2005, which includes comparative non-consolidated financial statements for the years ended December 31, 2005 and 2004 and related notes to the statements.

On March 15, 2006, Kookmin Bank also disclosed summary of consolidated operating results prepared in accordance with Korean GAAP for the fiscal year 2005.

Kookmin Bank will disclose Kookmin Bank and Its Subsidiaries Consolidated Audit Report with full financial statements and relevant notes in English as of and for the years ended 2005 and 2004 latest by the end of March 2006.

Exhibit 99.1_Kookmin Bank’s 2005 non-consolidated Audit Report

Exhibit 99.2_Consolidated Operating Results for the Fiscal year 2005

 

2


SIGNATURES

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

 

 

Kookmin Bank

  (Registrant)

Date: March 15, 2006

  By:  

/s/ Kap Shin

  (Signature)
  Name:   Kap Shin
  Title:   CFO / Senior EVP
    Executive Director

 

3


Exhibit 99.1

KOOKMIN BANK

NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

AND INDEPENDENT AUDITORS’ REPORT


Independent Auditors’ Report

English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of

Kookmin Bank:

We have audited the accompanying non-consolidated balance sheet of the Bank accounts of Kookmin Bank (the “Bank”) as of December 31, 2005 and the related non-consolidated statements of income, appropriations of retained earnings and cash flows for the year ended December 31, 2005, all expressed in Korean Won. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements as of December 31, 2004, which are presented for comparative purposes, were audited 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, the financial statements for the year ended December 31, 2004 presented for comparative purpose were restated to reflect the changes in accounting principles made in 2005.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Bank as of December 31, 2005 and the results of its operations, changes in its retained earnings and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the Republic of Korea.

Without qualifying our opinion, we draw attention to the following:

As explained in Note 2 to the non-consolidated financial statements, the Bank recorded individual assets and liabilities comprised in private beneficiary certificates in their respective bank accounts, and net operating results from the private beneficiary certificates were recorded as one line item of income or loss from beneficiary certificates in the income statements by the end of 2004. However, in accordance with the new interpretation on the accounting of private beneficiary certificates 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. As a result of the change of accounting principle, 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. Moreover, total assets and total liabilities increased by (Won)27,486 million, capital adjustments decreased by (Won)101,676 million as of December 31, 2005, and net income for the year then ended increased by (Won)101,676 million due to the above accounting change.


As explained in Notes 2, 14, and 16 to the non-consolidated financial statements, until 2004, the Bank provided allowance for possible losses on confirmed acceptances and guarantees, which were classified as substandard or less than substandard. However, pursuant to the amended Supervisory Regulation of Banking Business, the Bank has extended the scope of allowance for possible losses on acceptances and guarantees to note endorsed, unconfirmed acceptances and guarantees, and confirmed acceptances and guarantees classified as normal and precautionary, and provided allowance for possible losses based on the credit classification and minimum rate of loss provision prescribed by Financial Supervisory Service and the cash conversion factor of the respective exposures as of December 31, 2005. In connection with the amendment of Supervisory Regulation of Banking Business, the Bank has also extended the scope of other allowance for the unused line of credit from the unused cash advance facility of active credit card accounts with transaction records during the recent one year to the unused credit limit for purchase of credit card and unused credit line of consumer and corporate loans, and provided other allowance based on the cash conversion factor and minimum rate of loss provision prescribed by Financial Supervisory Service as of December 31, 2005. Due to these changes, allowance for acceptances and guarantees and other allowances increased by (Won)7,645 million and (Won)296,469 million as of December 31, 2005, respectively, and net income for the year then ended decreased by (Won)220,483 million.

Accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial statements are not intended to present the financial position, results of operations and cash flows in 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 audit 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 auditing standards and their application in practice.

February 24, 2006

/s/ Deloitte Anjin LLC

Notice to Readers

This report is effective as of February 24, 2006, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying financial statements and may result in modifications to the auditors’ report.


KOOKMIN BANK

NON-CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2005 AND 2004

 

     Korean Won  
     2005   

(Restated)

2004

 
     (In millions)  

ASSETS

     

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

   (Won) 5,867,417    (Won) 5,139,604  

Securities (Notes 4, 20 and 21)

     30,550,299      27,965,441  

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

     135,738,407      135,769,326  

Fixed assets (Note 8)

     2,436,702      2,633,218  

Other assets (Note 9)

     5,000,824      8,133,541  
               
   (Won) 179,593,649    (Won) 179,641,130  
               

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

LIABILITIES:

     

Deposits (Notes 10, 20 and 21)

   (Won) 126,281,232    (Won) 127,010,534  

Borrowings (Notes 11, 20 and 21)

     13,737,336      9,634,296  

Debentures (Notes 12, 20 and 21)

     16,547,987      21,874,695  

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

     10,653,494      11,943,063  
               
     167,220,049      170,462,588  
               

SHAREHOLDERS’ EQUITY (Notes 17 and 18):

     

Common stock

     1,681,896      1,681,896  

Capital surplus

     6,254,786      6,230,738  

Retained earnings

     

(Net income of (Won)2,252,218 million for the year ended December 31, 2005 and (Won)360,454 million for the year ended December 31, 2004)

     3,929,948      1,846,895  

Capital adjustments

     506,970      (580,987 )
               
     12,373,600      9,178,542  
               
   (Won) 179,593,649    (Won) 179,641,130  
               

See accompanying notes to non-consolidated financial statements.


KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 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) 26,274    (Won) 9,995

Interest on securities (Note 21)

     1,127,393      1,045,947

Interest on loans (Note 21)

     10,139,482      11,437,600

Other interest income

     28,258      40,542
             
     11,321,407      12,534,084
             

Commission income

     1,139,251      1,085,089
             

Other operating income:

     

Gain on disposal of trading securities

     93,736      184,554

Gain on valuation of trading securities (Note 4)

     —        26,745

Dividends on trading securities

     4,869      3,289

Dividends on available-for-sale securities

     3,281      7,835

Foreign exchange trading income

     254,101      257,039

Fees and commissions from trust accounts (Note 26)

     137,666      117,869

Gain on financial derivatives trading

     3,652,414      4,057,392

Gain on valuation of financial derivatives (Note 19)

     1,152,891      2,196,112

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

     56,144      6,065

Other operating income

     39,498      41,945
             
     5,394,600      6,898,845
             

Total operating revenues

     17,855,258      20,518,018
             

OPERATING EXPENSES:

     

Interest expenses:

     

Interest on deposits (Note 21)

     3,209,746      3,909,204

Interest on borrowings (Note 21)

     384,332      326,586

Interest on debentures (Note 21)

     1,034,471      1,116,110

Other interest expenses

     35,026      60,320
             
     4,663,575      5,412,220
             

Commission expense

     352,546      470,755
             

Other operating expenses:

     

Loss on disposal of trading securities

     79,525      69,815

Loss on valuation of trading securities (Note 4)

     14,550      —  

Provision for possible loan losses (Note 7)

     1,053,088      3,068,248

Provision for acceptance and guarantee losses (Note 14)

     9,008      206

Foreign exchange trading losses

     237,323      305,448

Loss on financial derivatives trading (Note 19)

     3,575,745      3,990,483

Loss on valuation of financial derivatives (Note 19)

     1,097,056      2,050,551

Other operating expenses

     781,258      684,141
             
     6,847,553      10,168,892
             

General and administrative expenses (Note 22)

     2,975,762      2,739,933
             

Total operating expenses

     14,839,436      18,791,800
             

(Continued)


KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

 

     Korean Won
     2005   

(Restated)

2004

    

(In millions except per share

amounts)

OPERATING INCOME

   (Won) 3,015,822    (Won) 1,726,218

NON-OPERATING INCOME (Note 23)

     734,695      464,417

NON-OPERATING EXPENSES (Note 23)

     522,264      1,560,724
             

ORDINARY INCOME

     3,228,253      629,911

EXTRAORDINARY ITEM

     —        —  
             

INCOME BEFORE INCOME TAX

     3,228,253      629,911

INCOME TAX EXPENSE (Note 24)

     976,035      269,457
             

NET INCOME

   (Won) 2,252,218    (Won) 360,454
             

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

   (Won) 6,977    (Won) 1,176
             

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

   (Won) 6,977    (Won) 1,176
             

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

   (Won) 6,973    (Won) 1,176
             

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

   (Won) 6,973    (Won) 1,176
             

See accompanying notes to non-consolidated financial statements.


KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF APPROPRIATIONS OF RETAINED EARNINGS

FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

 

     Korean Won  
     2005    

(Restated)

2004

 
     (In millions)  

RETAINED EARNINGS BEFORE APPROPRIATIONS:

    

Accumulated deficits carried over from prior years

   (Won) (194,772 )   (Won) (176,963 )

Adjustment by the application of equity method

     —         1,614  

Net income

     2,252,218       360,454  
                
     2,057,446       185,105  
                

TRANSFER FROM VOLUNTARY RESERVES:

    

Voluntary reserve

     —         220,100  

Business rationalization reserve (Note 17)

     —         40,760  
                
     —         260,860  
                

APPROPRIATIONS:

    

Legal reserve (Note 17)

     225,300       55,600  

Reserve for financial structure improvement (Note 17)

     —         55,600  

Reserve for losses on sale of treasury stock

     —         359,525  

Voluntary reserve

     1,646,500       —    

Cash dividends (Note 17)

     184,889       168,574  

Other reserve

     698       1,438  
                
     2,057,387       640,737  
                

UNAPPROPRIATED RETAINED EARNINGS (UNDISPOSED DEFICIT) TO BE CARRIED FORWARD TO SUBSEQUENT YEARS

   (Won) 59     (Won) (194,772 )
                

See accompanying notes to non-consolidated financial statements.


KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

 

     Korean Won  
     2005    

(Restated)

2004

 
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   (Won) 2,252,218     (Won) 360,454  
                

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

    

Loss on disposal of trading securities

     79,525       69,815  

Provision for possible loan losses

     1,053,088       3,068,248  

Loss on financial derivatives trading

     3,575,745       3,990,483  

Loss on valuation of financial derivatives

     1,097,056       2,050,551  

Loss on valuation of securities accounted for using the equity method

     6,466       63,760  

Provision for severance benefits

     129,897       124,608  

Depreciation and amortization

     347,121       415,289  

Loss on disposal of available-for-sale securities

     19,199       24,350  

Loss on impairment of available-for-sale securities

     98,025       82,272  

Loss on disposal of tangible assets

     4,197       16,736  

Loss on sale of loans

     16,396       1,183,331  

Gain on disposal of trading securities

     (93,736 )     (184,554 )

Loss (gain) on valuation of trading securities

     14,550       (26,745 )

Gain on financial derivatives trading

     (3,652,414 )     (4,057,392 )

Gain on valuation of financial derivatives

     (1,152,891 )     (2,196,112 )

Gain on valuation of fair value hedged items

     (56,144 )     (6,065 )

Gain on valuation of securities accounted for using the equity method

     (98,812 )     (58,746 )

Gain on disposal of available-for-sale securities

     (319,534 )     (157,924 )

Gain on disposal of tangible assets

     (11,377 )     (29,546 )

Gain on sale of loans

     (81,743 )     (23,770 )

Others, net

     416,163       298,355  
                
     1,390,777       4,646,944  
                

(Continued)


KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

 

     Korean Won  
     2005    

(Restated)

2004

 
     (In millions)  

Changes in assets and liabilities resulting from operations:

    

Net decrease in trading securities

   (Won) 83,746     (Won) 1,373,669  

Net decrease (increase) in accounts receivable

     1,886,896       (634,134 )

Net decrease (increase) in accrued income

     (27,184 )     114,504  

Net decrease (increase) in prepaid expenses

     (9,726 )     101,231  

Net decrease (increase) in deferred income tax assets

     (23,224 )     112,395  

Net increase (decrease) in other payables

     (1,888,528 )     836,594  

Net increase (decrease) in accrued expenses

     690,859       (139,723 )

Net increase in advances from customers

     169,124       81,956  

Payment of severance benefits

     (62,332 )     (39,107 )

Increase in severance insurance deposits

     (43,204 )     (29,975 )

Others, net

     (4,662 )     (430,389 )
                
     771,765       1,347,021  
                

Net cash provided by operating activities

     4,414,760       6,354,419  
                

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Net decrease (increase) in restricted due from banks

     (418,580 )     943,393  

Net decrease (increase) in available-for-sale securities

     1,492,570       (1,243,702 )

Net increase in held-to-maturity securities

     (3,939,317 )     (248,579 )

Net decrease in securities accounted for using the equity method

     11,944       5,894  

Net decrease (increase) in loans

     (1,005,348 )     602,613  

Disposal of fixed assets

     28,948       185,430  

Purchase of fixed assets

     (183,069 )     (218,079 )

Net decrease in other assets

     105,102       242,188  
                

Net cash provided by (used in) investing activities

     (3,907,750 )     269,158  
                

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net decrease in deposits

     (726,037 )     (5,169,738 )

Net increase (decrease) in debentures

     (5,304,797 )     2,682,113  

Net increase (decrease) in borrowings

     4,214,085       (1,268,504 )

Net increase (decrease) in other liabilities

     1,615,221       (3,319,856 )
                

Net cash used in financing activities

     (201,528 )     (7,075,985 )
                

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS

     305,482       (452,408 )

CASH AND DUE FROM BANKS, BEGINNING OF YEAR

     3,319,349       3,771,757  
                

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

   (Won) 3,624,831     (Won) 3,319,349  
                

See accompanying notes to non-consolidated financial statements.


KOOKMIN BANK

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 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 December 31, 2005, the Bank’s paid-in capital amounts to (Won)1,681,896 million and its 51,175,814 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 1,097 domestic branches and offices (excluding 200 automated teller machine stations) and three overseas branches (excluding 2 subsidiaries and 1 office) as of December 31, 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.


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 December 31, 2005 and 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)7,875,123 million and (Won)8,600,175 million, respectively, and the related accrued interest income not recognized amounted to (Won)462,799 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.

 

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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.

When the book value of equity securities accounted for using the equity method is less than zero due to the cumulative losses of the investees, the Bank discontinues applying the equity method and does not provide for additional losses. If the investee subsequently reports net income, the Bank resumes applying the equity method only after its share of that net income equals the share of net losses not recognized during the period that the equity method was suspended.

In addition, any gains or loss from the disposal of equity securities of certain consolidated subsidiaries are accounted for as capital adjustments resulting from applying the equity method in the balance sheets if the subsidiaries are still consolidated even after the Bank disposes of a portion of equity securities.

 

(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

 

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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. In addition, when certain trading securities lose their marketability, such securities are reclassified as available-for-sale securities at fair market value as of reclassification date.

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.

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 percentages of 0.75 ~ 7.9 percent and 1 ~ 11.9 percent for normal, 8 ~19.9 percent and 12 ~ 19.9 percent for precautionary, 20 ~ 54.9 and 20 ~ 59.9 percent for substandard, 55 ~ 99.9 percent and 60 ~99.9 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 principle 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.

 

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In addition, when an allowance for possible loan losses required by the Supervisory Regulation is less than the amount calculated based on the historical loss rate, which is estimated through objective and reasonable method in accordance with the accounting principle in the Republic of Korea, historical loss rate is reflected in the provision for possible loan losses since 2004.

The method and data used for determining the allowances for loan 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

   DCF & Migration    N/A    N/A

Non-impaired corporate loans

   Migration analysis    1 year    5 years

Consumer loans

   Migration analysis    1 year    5 years

Credit card loans

   Roll-rate analysis    1 year    5 years

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.

Until 2004, the Bank provided allowance for possible losses on confirmed acceptances and guarantees, which were classified as substandard or less than substandard. However, pursuant to the amended Supervisory Regulation of Banking Business, the Bank has extended the scope of allowance for possible losses on acceptances and guarantees to note endorsed, unconfirmed acceptances and guarantees, and confirmed acceptances and guarantees classified as normal and precautionary, and provided allowance for possible losses based on the credit classification and minimum rate of loss provision prescribed by Financial Supervisory Service and the cash conversion factor of the respective exposures as of December 31, 2005. In connection with the amendment of Supervisory Regulation of Banking Business, the Bank has also extended the scope of other allowance for the unused line of credit from the unused cash advance facility of active credit card accounts with transaction records during the recent one year to the unused credit limit for purchase of credit card and unused credit line of consumer and corporate loans, and provided other allowance based on the cash conversion factor and minimum rate of loss provision prescribed by Financial Supervisory Service as of December 31, 2005. Due to these changes, allowance for acceptances and guarantees and other allowances increased by (Won)7,645 million and (Won)296,469 million as of December 31, 2005, respectively, and net income for the year then ended decreased by (Won)220,483 million. Since it is impractical to determine the accumulated effect of applying the changes in accounting policies to any prior periods, the new accounting principles were applied prospectively during the current year and the effect of the changes is recognized in the current year’s operations.

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 loan losses and then recognizes provisions for loan losses. 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 loan losses. If the amount of allowances already established is less than the impairment losses, 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.

 

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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

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

Trademarks

   5-20 years

Others

   3-30 years

The Bank recorded 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.

 

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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.

Accrued Severance Benefits

Employees and directors and temporary employees with at least one year of service as of December 31, 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.

 

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Accounting for Stock Options

In accordance with the Interpretations on Financial Accounting Standards 39-35 on the accounting for the stock option, the Bank records stock compensation costs as a capital adjustment in case that the Bank can choose to settle the vested stock option by issuing new shares or treasury stock, or payment of cash equivalent to the difference between the market price and the exercise price at the exercise date. However, the compensation cost of certain options that is certain to be settled by cash payment is recorded in other liabilities (accrued expenses).

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, 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)1,013.00 and (Won)1,043.80 to US$ 1.00 at December 31, 2005 and 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.

 

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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 individual assets and liabilities comprised in private beneficiary certificates in their respective bank accounts, and net operating results from the private beneficiary certificates were recorded as one line item of income or loss from beneficiary certificates in the income statements by the end of 2004. However, in accordance with the new interpretation on the accounting of private beneficiary certificates 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. As a result of the change of accounting principle, 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. Moreover, total assets and total liabilities increased by (Won)27,486 million, capital adjustments decreased by (Won)101,676 million as of December 31, 2005, and net income for the year then ended increased by (Won)101,676 million due to the above accounting change.

In addition, the Bank recorded the commission and fees from credit card receivables from lump sum payment and installment payment and other credit card commission and fees as commission income until 2004. However, pursuant to the amended Supervisory Regulation of Banking Business, those commission and fees from credit card receivables have been reclassified as interest income during the current year. Due to this change, interest income increased by (Won)1,015,115 million and (Won)1,131,358 million, and commission and fee income decreased by the same amount for the years ended December 31, 2005 and 2004, respectively. However, the reclassification has no effect on net income or shareholders’ equity for the years ended and as of December 31, 2005 and 2004.

Reclassification

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

 

3. CASH AND DUE FROM BANKS:

 

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

 

     2005    2004  

Cash and checks

   (Won) 2,683,479    (Won) 2,380,578  

Foreign currencies

     150,402      124,735  

Due from banks in Won

     2,495,595      2,030,595  

Less: Present value discount

     —        (3,751 )

Due from banks in foreign currencies

     537,941      607,447  
               
   (Won) 5,867,417    (Won) 5,139,604  
               

 

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

 

Financial institution

   Interest (%)    2005    2004  

Due from banks in Won

        

BOK

   —      (Won) 2,189,339    (Won) 1,685,105  

Woori Bank and others

   2.20~4.06      304,019      254,537  

Hansol Mutual Savings

   —        —        90,000  

Korea Stock Exchange and others

   —        2,237      953  

Present value discount

   —        —        (3,751 )
                  
      (Won) 2,495,595    (Won) 2,026,844  
                  

Due from banks in foreign currencies

        

BOK

   —      (Won) 46,501    (Won) 43,631  

Korea Exchange Bank and others

   0.00~4.43      78,136      74,274  

Woori Bank and others

   4.05~4.86      413,304      489,542  
                  
      (Won) 537,941    (Won) 607,447  
                  

 

(2) Restricted due from banks in Won and foreign currencies as of December 31, 2005 and 2004 consisted of (Unit: In millions):

 

Financial institution

   2005    2004   

Reason for restriction

Due from banks in Won

        

BOK

   (Won) 2,189,339    (Won) 1,685,105    BOK Act

Hansol Mutual Savings

     —        90,000    Withdrawal at maturity

Woori Bank

     4,029      4,029    Escrow account

Korea Stock Exchange and others

     2,237      953    Futures margin accounts/others

Due from banks in foreign currencies

        

BOK

     46,501      43,631    BOK Act

J.P.Morgan Chase & Co. and others

     480      288    Futures margin accounts
                
   (Won) 2,242,586    (Won) 1,824,006   
                

 

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

 

Financial institution

   2005    2004

Due from banks in Won

     

BOK

   (Won) 2,189,339    (Won) 1,685,105

Banks

     304,019      254,537

Others

     2,237      90,953
             
     2,495,595      2,030,595
             

Due from banks in foreign currencies

     

BOK

     46,501      43,631

Banks

     490,960      563,493

Others

     480      323
             
     537,941      607,447
             
   (Won) 3,033,536    (Won) 2,638,042
             

 

(4) Term structure of due from banks as of December 31, 2005 was as follows (Unit: In millions):

 

     Due in 3
months or less
   Due after 3
months
through 6
months
   Due after 6
months
through 1
year
   Due after 1
year through
3 years
   More than 3
years
   Total

Due from banks in Won

   (Won) 2,491,566    (Won) —      (Won) —      (Won) 4,029    (Won) —      (Won) 2,495,595

Due from banks in foreign currencies

     433,602      104,339      —        —        —        537,941
                                         
   (Won) 2,925,168    (Won) 104,339    (Won) —      (Won) 4,029    (Won) —      (Won) 3,033,536
                                         

 

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4. SECURITIES:

 

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

 

     2005    2004

Trading securities

   (Won) 3,551,425    (Won) 3,635,510

Available-for-sale securities

     16,180,784      17,555,764

Held-to-maturity securities

     10,228,573      6,229,435

Securities accounted for using the equity method

     589,517      544,732
             
   (Won) 30,550,299    (Won) 27,965,441
             

 

(2) The valuation of securities excluding securities accounted for using the equity method as of December 31, 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) 179,074    (Won) —      (Won) 200,147    (Won) 200,147

Beneficiary certificates

     197      256      —        256      256

Government and public bonds

     1,692,298      1,661,025      1,663,369      1,635,898      1,635,898

Finance bonds

     1,607,663      1,601,395      1,603,586      1,594,839      1,594,839

Corporate bonds

     120,000      119,407      119,690      120,285      120,285
                                  
   (Won) 3,420,158    (Won) 3,561,157    (Won) 3,386,645    (Won) 3,551,425    (Won) 3,551,425
                                  

Available-for-sale securities

              

Equity securities

   (Won) —      (Won) 778,421    (Won) —      (Won) 1,240,764    (Won) 1,156,629

Equity investments

     —        511      —        3,718      3,723

Beneficiary certificates

     2,051,178      2,052,680      —        2,075,933      2,075,933

Government and public bonds

     2,725,370      2,721,469      2,705,844      2,687,671      2,687,671

Finance bonds

     8,324,183      8,244,488      8,248,052      8,232,310      8,232,310

Foreign government bonds

     9,117      10,078      9,382      9,328      9,328

Corporate bonds

     1,181,077      1,067,741      1,112,467      1,115,995      1,115,995

Asset-backed securities

     1,105,000      1,041,568      892,761      891,108      891,108

Other debt securities

     40,835      5,633      —        8,087      8,087
                                  
   (Won) 15,436,760    (Won) 15,922,589    (Won) 12,968,506    (Won) 16,264,914    (Won) 16,180,784
                                  

Held-to-maturity securities

              

Government and public bonds

   (Won) 4,621,429    (Won) 4,605,400    (Won) 4,609,832    (Won) 4,495,326    (Won) 4,609,832

Finance bonds

     3,570,159      3,543,074      3,564,988      3,523,461      3,564,988

Corporate bonds

     1,714,780      1,705,750      1,718,819      1,697,135      1,718,819

Asset-backed securities

     335,000      334,906      334,934      333,890      334,934
                                  
   (Won) 10,241,368    (Won) 10,189,130    (Won) 10,228,573    (Won) 10,049,812    (Won) 10,228,573
                                  

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

 

- 11 -


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

     2,390,000      2,378,075      2,366,183      2,380,214      2,380,214

Corporate bonds

     160,000      159,863      160,124      159,605      159,605

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 investments

     —        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

     8,111,665      8,011,814      8,003,009      8,037,124      8,037,124

Foreign government bonds

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

Corporate bonds

     1,709,994      1,659,548      1,617,061      1,645,790      1,645,790

Asset-backed securities

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

Other debt securities

     20,093      19,363      19,363      19,397      19,397
                                  
   (Won) 16,866,261    (Won) 17,151,317    (Won) 11,247,966    (Won) 17,643,800    (Won) 17,555,764
                                  

Held-to-maturity

              

Government and public bonds

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

Finance bonds

     1,220,000      1,207,696      1,208,961      1,213,619      1,208,961

Corporate bonds

     1,740,800      1,739,994      1,740,769      1,814,442      1,740,769

Asset-backed securities

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

Other debt securities

     20,000      19,157      19,156      19,156      19,156
                                  
   (Won) 6,232,224    (Won) 6,237,483    (Won) 6,229,435    (Won) 6,451,194    (Won) 6,229,435
                                  

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

As a result of the fair valuation of trading securities, the Bank recognized (Won)14,550 million of valuation loss and (Won)26,745 million of valuation gain for the years ended December 31, 2005 and 2004, respectively.

The fair values of trading and available-for sale debt securities in Won were assessed by applying the average of base prices of the latest trading day from the balance sheet date, provided by the bond pricing service institutions.

 

- 12 -


(3) Available-for-sale securities, which were not valuated at fair value as of December 31, 2005, were as follows (Unit: In millions, shares in thousands) :

 

Company

   No. of
shares
  

Percentage of
ownership

(%)

   Net asset
value
   Book value

Bad Bank Harmony (preferred stock)

   13    0.46    (Won) 52,565    (Won) 12,279

Korea Asset Management Corp.

   3,074    5.91      19,427      15,667

Samsung Life Insurance Co., Ltd.

   23    0.11      8,617      7,479

Korea Highway Corp.

   573    0.03      5,897      6,248

Kyobo Investment Trust Management Co., Ltd.

   420    7.00      3,324      2,100

Korea Smart Card Co., Ltd.

   326    4.44      1,268      1,628

Korea Money Broker Corp.

   119    5.97      2,746      1,291

Mercury

   1,632    12.13      2,392      1,088

Tianjin Samsung Opto Electronics

   1,000    10.00      1,281      989

Others

           64,609      29,227
                   
         (Won) 162,126    (Won) 77,996
                   

Available-for-sale securities, which were not valuated at fair value as of December 31, 2004, were as follows (Unit: In millions, shares in thousands):

 

Company

   No. of
shares
  

Percentage of
ownership

(%)

   Net asset
value
   Book value

Bad Bank Harmony (preferred stock)

   13    0.46    (Won) 37,327    (Won) 12,267

Korea Asset Management Corp.

   1,506    5.38      12,783      7,827

Samsung Life Insurance Co., Ltd.

   23    0.11      8,993      7,479

Korea Highway Corp.

   573    0.03      5,897      6,248

Kyobo Investment Trust Management Co., Ltd.

   420    7.00      3,574      2,100

Baring Communications Equity

   4,665    6.73      1,957      1,957

Pan Asia Paper

   1,275    2.94      1,642      1,642

Korea Smart Card Co., Ltd.

   326    4.44      1,268      1,628

Korea Money Broker Corp.

   119    5.97      2,514      1,291

Mercury

   1,632    12.13      1,088      1,088

Tianjin Samsung Opto Electronics

   1,000    10.00      1,241      1,020

Others

           130,738      76,439
                   
         (Won) 209,022    (Won) 120,986
                   

The impairment loss and the reversal of impairment loss on available-for-sale securities recognized for the years ended December 31, 2005 and 2004 were shown below (Unit: In millions).

 

     2005    2004
     Impairment    Reversal    Impairment    Reversal

Equity securities

   (Won) 2,694    (Won) 7,422    (Won) 14,912    (Won) —  

Equity investments

     3      —        3      —  

Corporate bonds

     448      —        2,317      —  

Asset-backed securities

     94,880      —        65,040      —  
                           
   (Won) 98,025    (Won) 7,422    (Won) 82,272    (Won) —  
                           

 

- 13 -


(4) Structured notes relating to stock, interest rate and credit linked notes (“CLN”) as of December 31, 2005 were as follows (Unit: In millions):

 

     Won    Foreign
currencies
   Total

Structured notes relating to stock

        

Convertible bonds

   (Won) —      (Won) 60    (Won) 60
                    

Structured notes relating to interest rate

        

Long-term government bond floating rates notes (“FRN”)

     564,456      —        564,456

Dual indexed FRN

     19,874      —        19,874

Inverse FRN

     20,753      —        20,753

Others

     110,225      —        110,225
                    
     715,308      60      715,368
                    

CLN

     —        40,559      40,559
                    

Bonds with call option

     20,000      —        20,000
                    
   (Won) 735,308    (Won) 40,619    (Won) 775,927
                    

Structured notes relating to stock, interest rate and CLN as of December 31, 2004 were as follows (Unit: In millions):

 

     Won    Foreign
currencies
   Total

Structured notes relating to stock

        

Convertible bonds

   (Won) —      (Won) 15,321    (Won) 15,321

Exchangeable bonds

     137,871      15,654      153,525

Bonds with stock purchase warrants

     —        762      762

Equity linked securities

     49,721      —        49,721
                    
     187,592      31,737      219,329
                    

Structured notes relating to interest rate

        

Long-term government bond FRN

     837,744      —        837,744

Dual indexed FRN

     50,140      —        50,140

Inverse FRN

     22,533      —        22,533

Others

     90,367      —        90,367
                    
     1,000,784      —        1,000,784
                    

CLN

     —        41,544      41,544
                    

Bonds with call option

     20,000      —        20,000
                    
   (Won) 1,208,376    (Won) 73,281    (Won) 1,281,657
                    

 

(5) Private beneficiary certificates included in beneficiary certificates of available-for-sale securities as of December 31, 2005 and 2004 were composed of (Unit: In millions):

 

     2005    2004

Stocks

   (Won) 7,353    (Won) 6,062

Government and public bonds

     38,018      1,384,645

Finance bonds

     1,340,390      2,464,128

Corporate bonds in Won

     32,622      794,397

Asset-backed debt securities

     —        87,428

Call loans

     203,892      264,997

Others

     412,962      276,936
             

Assets

     2,035,237      5,278,593

Liabilities

     11,081      16,884
             
   (Won) 2,024,156    (Won) 5,261,709
             

 

- 14 -


(6) The portfolio of securities excluding securities accounted for using the equity method, by industry, as of December 31, 2005 and 2004 was as follows (Unit: In millions):

 

     2005    2004

By industry

   Amount   

Percentage

(%)

   Amount   

Percentage

(%)

Trading securities

           

Government and government-invested public companies

   (Won) 1,764,476    49.68    (Won) 916,323    25.20

Financial institutions

     1,631,869    45.95      2,556,558    70.32

Others

     155,080    4.37      162,629    4.48
                       
   (Won) 3,551,425    100.00    (Won) 3,635,510    100.00
                       

Available-for-sale securities

           

Government and government-invested public companies

   (Won) 3,347,229    20.69    (Won) 1,732,924    9.87

Financial institutions

     12,027,488    74.33      14,969,783    85.27

Others

     806,067    4.98      853,057    4.86
                       
   (Won) 16,180,784    100.00    (Won) 17,555,764    100.00
                       

Held-to-maturity securities

           

Government and government-invested public companies

   (Won) 6,298,716    61.58    (Won) 4,748,398    76.23

Financial institutions

     3,899,922    38.13      1,426,591    22.90

Others

     29,935    0.29      54,446    0.87
                       
   (Won) 10,228,573    100.00    (Won) 6,229,435    100.00
                       

 

(7) The portfolio of securities excluding securities accounted for using the equity method, by security type, as of December 31, 2005 and 2004 was as follows (Unit: In millions):

 

     2005    2004

By type

   Amount    Percentage
(%)
   Amount    Percentage
(%)

Trading securities

           

Stocks

   (Won) 200,147    5.64    (Won) 184,545    5.08

Fixed rate bonds

     3,230,737    90.97      3,260,607    89.69

Floating rate bonds

     120,285    3.39      179,474    4.94

Beneficiary certificates

     256    0.00      10,884    0.29
                       
   (Won) 3,551,425    100.00    (Won) 3,635,510    100.00
                       

Available-for-sale securities

           

Stocks

   (Won) 1,156,629    7.15    (Won) 799,737    4.56

Fixed rate bonds

     11,201,802    69.23      9,569,665    54.51

Floating rate bonds

     861,368    5.32      901,040    5.13

Subordinated bonds

     872,813    5.39      851,947    4.85

Convertible bonds

     60    0.00      15,321    0.09

Beneficiary certificates

     2,075,933    12.83      5,414,250    30.84

Others

     12,179    0.08      3,804    0.02
                       
   (Won) 16,180,784    100.00    (Won) 17,555,764    100.00
                       

Held-to-maturity securities

           

Fixed rate bonds

   (Won) 10,038,573    98.14    (Won) 5,869,731    94.23

Floating rate bonds

     60,000    0.59      229,704    3.69

Subordinated bonds

     130,000    1.27      130,000    2.08
                       
   (Won) 10,228,573    100.00    (Won) 6,229,435    100.00
                       

 

- 15 -


(8) The portfolio of securities excluding securities accounted for using the equity method, by country, as of December 31, 2005 and 2004 were as follows (Unit: In millions):

 

     2005    2004
     Amount   

Percentage

(%)

   Amount   

Percentage

(%)

Trading securities

           

Korea

   (Won) 3,551,425    100.00    (Won) 3,635,510    100.00
                       

Available-for-sale securities

           

Korea

   (Won) 16,066,362    99.29    (Won) 17,421,092    99.23

USA

     46,876    0.29      50,284    0.29

Russia

     28,527    0.18      —      0.00

Philippines

     9,675    0.06      25,703    0.15

Indonesia

     4,363    0.03      13,516    0.08

The Republic of South Africa

     6,240    0.04      6,742    0.04

Others

     18,741    0.11      38,427    0.21
                       
   (Won) 16,180,784    100.00    (Won) 17,555,764    100.00
                       

Held-to-maturity securities

           

Korea

   (Won) 10,228,573    100.00    (Won) 6,229,435    100.00
                       

 

(9) Term structure of securities (except for stocks and equity investments) in available-for-sale and held-to-maturity securities as of December 31, 2005 was as follows (Unit: In millions):

 

    

Due in 1

year or less

   Due after 1
year through
5 years
   Due after 5
years through
10 years
   More than
10 years
   Total

Available-for-sale securities

              

Fair value

   (Won) 7,864,997    (Won) 6,962,888    (Won) 184,008    (Won) 8,539    (Won) 15,020,432

Held-to-maturity securities

              

Book value

     2,268,137      6,701,400      1,259,036      —        10,228,573

Fair value

     2,264,029      6,589,801      1,195,982      —        10,049,812

 

(10) Pursuant to the management’s operating plan of investment assets, the Bank disposed of held-to maturity securities with the maturity date of October 23, 2005 on September 12 and 14, 2005. Under the Statement of Korean Accounting Standard No. 8 – “Investments in Securities”, the disposal of held-to maturity securities, which have maturities less than 3 months from the disposal date, does not affect the status of held-to maturity of the other held-to maturity securities. The face value and the book value of the disposed securities were (Won)120,000 million and (Won)120,006 million, respectively, and the Bank recognized (Won)216 million of gain on disposal of held-to-maturity securities for the year ended December 31, 2005.

 

- 16 -


(11) Stocks and equity investments accounted for using the equity method as of December 31, 2005 are summarized as follows (Unit: In millions):

 

    

No. of

shares

   Owner-
ship (%)
   Acquisition
cost
   Net asset
value
   Book value

Domestic stocks

              

KB Investment Co., Ltd. (*1)

   8,951,293    99.99    (Won) 155,384    (Won) 85,462    (Won) 85,462

KB Futures Co., Ltd. (*1)

   3,999,200    99.98      19,996      27,312      27,312

KB Data System Co., Ltd. (*1)

   799,960    99.99      8,001      17,726      15,582

KB Real Estate Trust

   15,999,930    99.99      76,103      80,975      81,068

KB Asset Management (*1)

   6,134,040    80.00      39,015      52,485      52,485

KB Credit Information

   1,249,040    99.73      14,291      28,629      27,837

KB Life Insurance Co., Ltd. (*2)

   3,060,000    51.00      15,426      12,541      —  

KLB Securities Co., Ltd. (*3)

   4,854,713    36.41      10,316      —        —  

Jooeun Industrial Co., Ltd. (*3)

   1,999,910    99.99      23,994      —        —  

ING Life Insurance Korea

   1,400,000    20.00      21,769      77,529      77,529
                          
           384,295      382,659      367,275
                          

Foreign stocks

              

Kookmin Bank Singapore Ltd. (*3)

   30,000,000    100.00      18,254      —        1,759

Kookmin Finance Asia Ltd. (HK) (*3)

   700,000    100.00      8,086      —        246

Kookmin Bank Int’l Ltd. (London)

   20,000,000    100.00      34,378      50,523      50,523

Kookmin Bank Hong Kong Ltd. (*1)

   2,000,000    100.00      53,751      69,907      69,958

Sorak Financial Holdings PTE Ltd.

   1,422,216    25.00      74,277      82,401      82,401
                          
           188,746      202,831      204,887
                          

Equity investments

              

KICO No. 2 Venture Investment Partnership (*3)

   5,000    55.56      —        130      130

KICO No. 3 Venture Investment Partnership (*3)

   9,000    69.23      —        147      147

Pacific IT Investment Partnership

   700    50.00      7,000      4,950      4,950

NPC02-4 Kookmin Venture Fund

   100    33.33      10,000      12,128      12,128
                          
           17,000      17,355      17,355
                          
         (Won) 590,041    (Won) 602,845    (Won) 589,517
                          

Stocks and equity investments accounted for using the equity method as of December 31, 2004 are summarized as follows (Unit: In millions):

 

    

No. of

shares

   Owner-
ship (%)
   Acquisition
cost
   Net asset
value
   Book value

Domestic stocks

              

KB Investment Co., Ltd. (*1)

   8,941,587    99.89    (Won) 155,311    (Won) 78,695    (Won) 78,695

KB Futures Co., Ltd. (*1)

   3,999,200    99.98      19,996      26,010      26,010

KB Data System Co., Ltd. (*1)

   799,800    99.98      7,998      15,827      15,827

KB Real Estate Trust

   15,999,930    99.99      76,103      58,071      58,071

KB Asset Management (*1)

   6,134,040    80.00      39,015      47,288      47,288

KB Credit Information

   1,173,640    93.71      12,553      19,742      18,670

KB Life Insurance Co., Ltd. (*2)

   6,000,000    100.00      30,246      24,389      8,572

KLB Securities Co., Ltd. (*3)

   4,854,713    36.41      10,316      —        —  

Jooeun Industrial Co., Ltd. (*3)

   1,999,910    99.99      23,994      —        —  

ING Life Insurance Korea

   1,400,000    20.00      21,769      69,145      69,145
                          
           397,301      339,167      322,278
                          

Foreign stocks

              

Kookmin Bank Singapore Ltd. (*3)

   30,000,000    100.00      19,123      —        1,812

Kookmin Finance Asia Ltd. (HK) (*3)

   700,000    100.00      8,332      —        254

Kookmin Bank Int’l Ltd. (London)

   20,000,000    100.00      39,539      55,707      55,707

Kookmin Bank Hong Kong Ltd. (*1)

   2,000,000    100.00      55,385      65,028      65,028

Sorak Financial Holdings PTE Ltd.

   1,422,216    25.00      77,810      82,153      82,153
                          
           200,189      202,888      204,954
                          

 

- 17 -


     No. of
shares
   Owner-
ship (%)
   Acquisition
cost
   Net asset
value
   Book value

Equity investments

              

KICO No. 2 Venture Investment Partnership (*3)

   5,000    55.56      —        213      213

KICO No. 3 Venture Investment Partnership (*3)

   9,000    69.23      —        149      149

Pacific IT Investment Partnership

   700    50.00      7,000      3,479      6,959

NPC02-4 Kookmin Venture Fund

   100    33.33      10,000      10,179      10,179
                          
           17,000      14,020      17,500
                          
         (Won) 614,490    (Won) 556,075    (Won) 544,732
                          

(*1) Kookmin Investment Co., Ltd., Kookmin Futures Co., Ltd., Kookmin Data System Co., Ltd., Kookmin Assent Management and Kookmin Finance HK Ltd. changed their names into KB Investment Co., Ltd., KB Futures Co., Ltd., KB Data System Co., Ltd., KB Asset Management and Kookmin Bank Hong Kong Ltd., respectively, during 2004.
(*2) On April 29, 2004, in order to establish the insurance business for diversification of revenues, the Bank invested (Won)30,246 million (including acquisition costs) to KB Life Insurance Co., Ltd., which acquired the assets and the liabilities of Hanil Life Insurance Co., Ltd. The Bank disposed of 49 percent shares of KB Life Insurance Co., Ltd. to ING Insurance International B.V. for (Won)14,782 million. The difference between the disposal amount and the book value of (Won)10,582 million was reflected in the accumulative effect of equity method.
(*3) KLB Securities Co., Ltd., Jooeun Industrial Co., Ltd., Kookmin Bank Singapore Ltd., Kookmin Finance Asia, Ltd., KICO No. 2 Venture Investment Partnership and KICO No. 3 Venture Investment Partnership are all in the process of liquidation.

 

(12) The valuation of securities accounted for using the equity method as of December 31, 2005 was as follows (Unit: In millions):

 

    

Book

value

before
valuation

  

Acquisition

(disposal)

    Dividend     Foreign
currency
translation
gain (loss)
   Equity gain
(loss)on
investment
    Capital
adjust-
ments
    Book
value after
valuation

Domestic stocks

                

KB Investment Co., Ltd.

   (Won) 78,695    (Won) 73     (Won) (447 )   (Won) —      (Won) 7,663     (Won) (522 )   (Won) 85,462

KB Futures Co., Ltd.

     26,010      —         (400 )     —        1,643       59       27,312

KB Data System Co., Ltd. (*3)

     15,827      3       (640 )     —        389       3       15,582

KB Real Estate Trust

     58,071      —         —         —        22,997       —         81,068

KB Asset Management

     47,288      —         (6,134 )     —        11,145       186       52,485

KB Credit Information (*1)

     18,670      1,738       (587 )     —        7,988       28       27,837

KB Life Insurance Co., Ltd. (*2, 3 and 4)

     8,572      (4,200 )     —         —        (4,372 )     —         —  

KLB Securities Co., Ltd. (*2)

     —        —         —         —        —         —         —  

Jooeun Industrial Co., Ltd. (*2)

     —        —         —         —        —         —         —  

ING Life Insurance Korea

     69,145      —         (7,000 )     —        23,252       (7,868 )     77,529
                                                    
     322,278      (2,386 )     (15,208 )     —        70,705       (8,114 )     367,275
                                                    

 

- 18 -


    

Book

value

before
valuation

  

Acquisition

(disposal)

    Dividend     Foreign
currency
translation
gain (loss)
    Equity gain
(loss)on
investment
    Capital
adjust-
ments
   

Book

value after
valuation

Foreign stocks

               

Kookmin Bank Singapore Ltd.

     1,812      —         —         (53 )     —         —         1,759

Kookmin Finance Asia Ltd. (HK)

     254      —         —         (8 )     —         —         246

Kookmin Bank Int’l Ltd. (London)

     55,707      —         —         (7,271 )     2,213       (126 )     50,523

Kookmin Bank Hong Kong Ltd.

     65,028      —         —         (1,918 )     7,465       (617 )     69,958

Sorak Financial Holdings PTE Ltd.

     82,153      —         —         (3,730 )     11,909       (7,931 )     82,401
                                                     
     204,954      —         —         (12,980 )     21,587       (8,674 )     204,887
                                                     

Equity Securities

               

KICO No. 2 Venture Investment Partnership

     213      —         —         —         (83 )     —         130

KICO No. 3 Venture Investment Partnership

     149      —         —         —         (2 )     —         147

Pacific IT Investment Partnership

     6,959      —         —         —         (2,009 )     —         4,950

NPC02-4 Kookmin Venture Fund

     10,179      —         (199 )     —         2,148       —         12,128
                                                     
     17,500      —         (199 )     —         54       —         17,355
                                                     
   (Won) 544,732    (Won) (2,386 )   (Won) (15,407 )   (Won) (12,980 )   (Won) 92,346     (Won) (16,788 )   (Won) 589,517
                                                     

(*1) Differences amounting to (Won)1,128 million between the purchase price and the Bank’s proportionate ownership of the net book value of KB Credit Information resulting from an additional purchase of 342,844 shares in October 2004 are credited to gain on valuation of securities accounted for using the equity method equally for five years. The Bank credited (Won)226 million to current operation for the year ended December 31, 2005 and the balance was (Won)846 million as of December 31, 2005.
(*2) The equity method is no longer applied to securities of KLB Securities Co., Ltd., KB Life Insurance Co., Ltd and Jooeun Industrial Co., Ltd. due to accumulated deficit resulting to the decrease of their book values below zero. The accumulated deficit, which was not recorded, is as follows (Unit: In millions):

 

     Amount

KLB Securities Co., Ltd.

   (Won) 4,148

Jooeun Industrial Co., Ltd.

     56,688

KB Life Insurance Co., Ltd.

     12,781
      
   (Won) 73,617
      

 

(*3) The significant unrealized income eliminated for the year ended December 31, 2005 was as follows (Unit: In millions):

 

    

Related accounts

   Amount

KB Data System Co., Ltd.

   Tangible assets (sales)    (Won) 2,169

KB Life Insurance Co., Ltd.

   Commissions (deferred acquisition cost)      7,910
         
      (Won) 10,079
         

 

- 19 -


(13) Significant financial data of companies of which stocks were accounted for using the equity method as of and for the year ended December 31, 2005 were as follows (Unit: In millions):

 

     Assets    Liabilities    Sales    Net income
(loss)
 

KB Investment Co., Ltd.

   (Won) 88,105    (Won) 2,639    (Won) 19,206    (Won) 7,665  

KB Futures Co., Ltd.

     43,207      15,889      10,231      1,646  

KB Data System Co., Ltd.

     24,615      6,888      46,817      2,533  

KB Real Estate Trust

     188,998      108,022      56,444      22,905  

KB Asset Management

     70,377      4,770      32,196      13,931  

KB Credit Information

     39,966      11,260      77,723      8,246  

KB Life Insurance Co., Ltd.

     361,811      337,221      253,269      6,939  

ING Life Insurance Korea

     6,836,864      6,449,219      2,852,510      116,258  

Kookmin Bank Int’l Ltd. (London)

     345,126      294,603      14,284      2,213  

Kookmin Bank Hong Kong Ltd.

     380,132      310,225      19,600      7,339  

Sorak Financial Holdings PTE Ltd.

     5,037,007      4,707,402      518,170      43,486  

KICO No. 2 Venture Investment Partnership

     233      —        8      (150 )

KICO No. 3 Venture Investment Partnership

     212      —        8      (4 )

Pacific IT Investment Partnership

     5,100      150      120      (288 )

NPC02-4 Kookmin Venture Fund

     36,690      304      9,553      6,387  

The audited or reviewed financial statements of the investees as of December 31, 2005 except the financials for the ING Life Insurance Korea, Sorak Financial Holdings PTE Ltd, KICO No. 2 Venture Investment Partnership, KICO No. 3 Venture Investment Partnership and Kookmin Bank Hong Kong Ltd., were used for applying the equity method. The subsequent events from the closing dates of investees’ financial statements to the Bank’s balance sheet date were properly reflected in applying the equity method.

 

(14) Changes in the gain (loss) on valuation of available-for-sale securities, held-to-maturity securities and securities accounted for using the equity method reflected in capital adjustments for the year ended December 31, 2005 were as follows (Unit: In millions):

 

     Beginning
of year
  

Increase

(Decrease)

    Disposal     Deferred
income tax
   

Ending

of year

Gain (loss) on valuation of available-for-sale securities

           

Equity securities

   (Won) 276,539    (Won) 380,348     (Won) (33,555 )   (Won) (171,416 )   (Won) 451,916

Debt securities in Won

     140,767      (1,198 )     (115,613 )     8,658       32,614

Debt securities in foreign currencies

     16,658      (784 )     (7,781 )     (2,226 )     5,867

Beneficiary certificates

     268,842      21,886       (267,476 )     (6,394 )     16,858

Others

     4,681      1,025       (33 )     (1,560 )     4,113
                                     
   (Won) 707,487    (Won) 401,277     (Won) (424,458 )   (Won) (172,938 )   (Won) 511,368
                                     

Gain (loss) on valuation of held-to- maturity securities

           

Debt securities in Won

   (Won) —      (Won) 952     (Won) (526 )   (Won) —       (Won) 426
                                     

Gain (loss) on valuation of securities accounted for using the equity method

   (Won) 5,692    (Won) (16,788 )   (Won) 10,719     (Won) 1,325     (Won) 948
                                     

For the year ended December 31, 2005, the Bank received cash and securities in connection with the liquidation of certain private beneficiary certificates, which were classified as available-for-sale securities. With respect to the classification of the securities received amounting to (Won)60,091 million, the Bank initially classified the securities into available-for-sale securities; however, the Bank’s management determined to hold the securities up to the maturity date. In accordance with the change of management intention for the securities, the Bank reclassified the securities into held-to-maturity securities along with the fair market valuation at the classification date. As part of this reclassification, the Bank also reclassified

 

- 20 -


unrealized gains and losses recognized from the acquisition date to the reclassification date in the capital adjustments into unrealized gain and losses of held-to maturity securities, and amortized that amount using the effective interest rate method. The amortized amount is charged to interest income or expense for the remaining period until maturity.

 

(15) Securities provided as collateral as of December 31, 2005 were as follows (Unit: In millions):

 

Provided to

   Book value    Collateral
amount
  

Provided for

Korea Securities Depository & others

   (Won) 6,571,036    (Won) 6,570,000   

Bonds sold under repurchase agreements

BOK

     953,153      950,000    Borrowings from BOK

BOK

     183,994      183,200    Overdrafts and settlement risk

Samsung Futures & others

     260,571      269,500    Derivative settlement

Korea Securities Depository

     133,866      137,000    Others
                
   (Won) 8,102,620    (Won) 8,109,700   
                

 

5. LOANS:

 

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

 

     2005     2004  

Loans in Won

   (Won) 118,565,341     (Won) 122,721,898  

Loans in foreign currencies

     5,314,883       3,860,828  

Bills bought in Won

     18,563       27,096  

Bills bought in foreign currencies

     1,377,085       574,785  

Advances for customers

     11,321       32,120  

Factoring receivables

     32,044       32,335  

Credit card receivables

     7,571,605       7,643,990  

Private placed bonds

     3,729,867       1,203,631  

Call loans

     1,518,948       2,741,783  

Loans to be swapped to equity

     —         746  
                
     138,139,657       138,839,212  

Allowance for possible loan losses

     (2,453,275 )     (3,118,775 )

Deferred loan origination fees and costs

     52,025       48,889  
                
   (Won) 135,738,407     (Won) 135,769,326  
                

 

- 21 -


(2) Loans in Won and loans in foreign currencies as of December 31, 2005 and 2004 were as follows (Unit: In millions):

 

     2005    2004

Loans in Won

     

Commercial

     

Working capital loans

     

General purpose loans

   (Won) 24,575,874    (Won) 25,475,710

Notes discounted

     1,106,112      1,197,606

Overdraft accounts

     279,864      401,369

Trading notes

     671,421      740,580

Others

     3,865,057      3,862,852
             
     30,498,328      31,678,117
             

Facilities loans

     

General facilities loans

     3,985,218      5,139,091

Others

     1,087,832      1,147,656
             
     5,073,050      6,286,747
             
     35,571,378      37,964,864
             

Households

     

General purpose loans

     42,082,535      41,957,690

Housing loans

     39,535,441      41,234,086

Remunerations on mutual installment savings

     232,556      300,032

Others

     456,173      532,615
             
     82,306,705      84,024,423
             

Public sector loans

     

Public operation loans

     643,141      673,456

Public facilities loans

     34,157      40,383
             
     677,298      713,839
             

Other loans

     

Property formation loans

     6,748      9,719

Inter-bank loans

     1,274      6,114

Others

     1,938      2,939
             
     9,960      18,772
             
   (Won) 118,565,341    (Won) 122,721,898
             

Loans in foreign currencies

     

Domestic funding loans

   (Won) 2,208,125    (Won) 1,000,004

Overseas funding loans

     551,049      489,437

Inter-bank loans

     1,229,064      1,092,174

Domestic usance bills

     1,326,629      1,278,793

Government funding loans

     16      420
             
   (Won) 5,314,883    (Won) 3,860,828
             

 

(3) Loans classified by borrower type, as of December 31, 2005 were as follows (Unit: In millions):

 

     Loans in Won    Loans in foreign
currencies
   Total   

Percentage

(%)

Large corporations

   (Won) 3,510,892    (Won) 3,070,368    (Won) 6,581,260    5.31

Small and medium corporations

     32,061,760      1,737,745      33,799,505    27.29

Households

     82,315,391      56,889      82,372,280    66.49

Others

     677,298      449,881      1,127,179    0.91
                         
   (Won) 118,565,341    (Won) 5,314,883    (Won) 123,880,224    100.00
                         

 

- 22 -


Loans classified by borrower type, as of December 31, 2004 were as follows (Unit: In millions):

 

     Loans in Won    Loans in foreign
currencies
   Total   

Percentage

(%)

Large corporations

   (Won) 2,842,731    (Won) 2,299,149    (Won) 5,141,880    4.06

Small and medium corporations

     35,128,247      1,115,049      36,243,296    28.63

Households

     84,037,081      69,441      84,106,522    66.45

Others

     713,839      377,189      1,091,028    0.86
                         
   (Won) 122,721,898    (Won) 3,860,828    (Won) 126,582,726    100.00
                         

 

(4) Loans classified by borrower’s country, as of December 31, 2005 were as follows (Unit: In millions):

 

     Loans in Won    Loans in foreign
currencies
   Others    Total   

Percentage

(%)

Korea

   (Won) 118,565,341    (Won) 4,343,365    (Won) 14,134,599    (Won) 137,043,305    99.21

Southeast Asia

     —        362,468      5,065      367,533    0.27

China

     —        77,018      —        77,018    0.05

Japan

     —        270,131      72      270,203    0.19

Central and South America

     —        7,524      19      7,543    0.01

Others

     —        254,377      119,678      374,055    0.27
                                
   (Won) 118,565,341    (Won) 5,314,883    (Won) 14,259,433    (Won) 138,139,657    100.00
                                

Loans classified by borrower’s country, as December 31, 2004 were as follows (Unit: In millions):

 

     Loans in Won    Loans in foreign
currencies
   Others    Total   

Percentage

(%)

Korea

   (Won) 122,721,898    (Won) 2,622,653    (Won) 12,060,578    (Won) 137,405,129    98.96

Southeast Asia

     —        700,600      186,753      887,353    0.64

China

     —        135,118      —        135,118    0.10

Japan

     —        278,971      —        278,971    0.20

Central and South America

     —        53,452      45      53,497    0.04

Others

     —        70,034      9,110      79,144    0.06
                                
   (Won) 122,721,898    (Won) 3,860,828    (Won) 12,256,486    (Won) 138,839,212    100.00
                                

 

(5) Loans classified by industry, as of December 31, 2005 were as follows (Unit: In millions):

 

     Loans in Won    Loans in foreign
currencies
   Others    Total   

Percentage

(%)

Corporations

              

Finance and insurance

   (Won) 1,071,914    (Won) 1,286,271    (Won) 2,155,247    (Won) 4,513,432    3.27

Manufacturing

     11,468,385      1,825,795      2,469,266      15,763,446    11.41

Services

     19,163,721      1,057,966      1,630,228      21,851,915    15.82

Others

     4,127,593      1,069,625      979,344      6,176,562    4.47

Households

     82,315,391      56,889      6,525,160      88,897,440    64.35

Public sector

     418,337      18,337      500,188      936,862    0.68
                                
   (Won) 118,565,341    (Won) 5,314,883    (Won) 14,259,433    (Won) 138,139,657    100.00
                                

 

- 23 -


Loans classified by industry, as of December 31, 2004 were as follows (Unit: In millions):

 

     Loans in Won    Loans in foreign
currencies
   Others    Total   

Percentage

(%)

Corporations

              

Finance and insurance

   (Won) 689,007    (Won) 1,150,426    (Won) 3,837,500    (Won) 5,676,933    4.09

Manufacturing

     12,315,767      1,146,217      1,721,775      15,183,759    10.94

Services

     21,240,715      1,422,823      487,968      23,151,506    16.68

Others

     4,114,250      71,921      94,863      4,281,034    3.08

Households

     84,037,081      69,441      6,114,380      90,220,902    64.98

public sector

     325,078      —        —        325,078    0.23
                                
   (Won) 122,721,898    (Won) 3,860,828    (Won) 12,256,486    (Won) 138,839,212    100.00
                                

 

(6) Loans to financial institutions as of December 31, 2005 were as follows (Unit: In millions):

 

     Bank    Other financial
institutions
   Total

Loans in Won

   (Won) 1,274    (Won) 1,070,640    (Won) 1,071,914

Loans in foreign currencies

     1,229,064      57,207      1,286,271

Others

     1,599,471      555,776      2,155,247
                    
   (Won) 2,829,809    (Won) 1,683,623    (Won) 4,513,432
                    

Loans to financial institutions as of December 31, 2004 were as follows (Unit: In millions):

 

     Bank    Other financial
institutions
   Total

Loans in Won

   (Won) 6,114    (Won) 682,893    (Won) 689,007

Loans in foreign currencies

     1,092,174      58,252      1,150,426

Others

     2,806,712      1,030,788      3,837,500
                    
   (Won) 3,905,000    (Won) 1,771,933    (Won) 5,676,933
                    

 

(7) Loans to LG Card Co., Ltd.

The Bank has supported LG Card Co., Ltd. with new loans, debt-equity swap, extending maturity and capital reduction in accordance with the agreement of the Financial Institution Creditors (“FIC”). As a result, the Bank has loans of (Won)237,900 million and securities of (Won)504,313 million to LG Card Co., Ltd. as of December 31, 2005. The Bank has provided (Won)45,201 million of allowance for possible loan losses to the loans extended to LG Card Co. Ltd and (Won)305,134 million of valuation gain on the securities is recorded in capital adjustments, net of tax, as of December 31, 2005. The expected losses from loans to LG Card Co., Ltd. are fully dependent on the rehabilitation plan and an effective funding support from the FIC. Therefore, actual credit losses from this credit exposure may differ from management’s current assessment. The accompanying financial statements do not include any possible adjustments that may result from this uncertainty.

 

(8) Loans applicable to the Corporate Restructuring Promotion Act

As of December 31, 2005, the Bank has loans of (Won)152,748 million to companies under the Corporate Restructuring Promotion Act, including Hyundai Engineering & Construction Co., Ltd., and has provided an allowance of (Won)22,034 million for possible loan losses. The actual collection amounts from those loans may differ from management’s current estimation.

 

- 24 -


(9) The classification of asset quality for loans as of December 31, 2005 is summarized as follows (Unit: In millions):

 

     Normal    Precautionary    Substandard    Doubtful    Loss    Total

Loans in Won

   (Won) 113,720,332    (Won) 2,784,972    (Won) 937,477    (Won) 758,344    (Won) 364,216    (Won) 118,565,341

Loans in foreign currencies

     5,197,617      60,553      24,285      31,648      780      5,314,883

Bills bought

     1,388,538      5,009      136      288      1,677      1,395,648

Advances for customers

     1,201      439      1,394      2,049      6,238      11,321

Credit card receivables

     7,068,006      337,624      895      122,365      42,715      7,571,605

Call loans

     1,518,948      —        —        —        —        1,518,948

Privately placed bonds

     3,727,026      967      1,874      —        —        3,729,867

Factoring receivables

     30,990      —        1,054      —        —        32,044
                                         
   (Won) 132,652,658    (Won) 3,189,564    (Won) 967,115    (Won) 914,694    (Won) 415,626    (Won) 138,139,657
                                         

The classification of asset quality for loans as of December 31, 2004 is summarized as follows (Unit: In millions):

 

     Normal    Precautionary    Substandard    Doubtful    Loss    Total

Loans in Won

   (Won) 114,439,619    (Won) 5,222,736    (Won) 1,710,889    (Won) 1,019,763    (Won) 328,891    (Won) 122,721,898

Loans in foreign currencies

     3,645,049      158,672      25,015      30,199      1,893      3,860,828

Bills bought

     585,927      9,569      650      2,698      3,037      601,881

Advances for customers

     964      2,978      883      6,669      20,626      32,120

Credit card receivables

     6,609,976      686,457      539      298,093      48,925      7,643,990

Call loans

     2,741,783      —        —        —        —        2,741,783

Privately placed bonds

     1,195,825      826      3,076      3,836      68      1,203,631

Factoring receivables

     30,802      —        516      992      25      32,335

Loans to be swapped to equity securities

     —        —        —        746      —        746
                                         
   (Won) 129,249,945    (Won) 6,081,238    (Won) 1,741,568    (Won) 1,362,996    (Won) 403,465    (Won) 138,839,212
                                         

 

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(10) The term structure of loans as of December 31, 2005 was as follows (Unit: In millions):

 

     Loans in Won   

Loans in foreign

currencies

   Others    Total

Due in 3 months or less

   (Won) 16,824,261    (Won) 2,032,241    (Won) 8,176,341    (Won) 27,032,843

Due after 3 months through 6 months

     16,013,982      1,133,825      731,058      17,878,865

Due after 6 months through 1 year

     32,977,463      978,607      1,379,070      35,335,140

Due after 1 year through 2 years

     13,682,894      236,590      1,038,570      14,958,054

Due after 2 years through 3 years

     10,237,525      327,997      1,499,611      12,065,133

Due after 3 years through 4 years

     4,314,197      77,561      42,542      4,434,300

Due after 4 years through 5 years

     5,254,662      234,017      191,646      5,680,325

More than 5 years

     19,260,357      294,045      1,200,595      20,754,997
                           
   (Won) 118,565,341    (Won) 5,314,883    (Won) 14,259,433    (Won) 138,139,657
                           

The term structure of loans as of December 31, 2004 was as follows (Unit: In millions):

 

     Loans in Won    Loans in foreign
currencies
   Others    Total

Due in 3 months or less

   (Won) 19,085,485    (Won) 874,100    (Won) 8,648,235    (Won) 28,607,820

Due after 3 months through 6 months

     17,430,180      1,047,044      817,269      19,294,493

Due after 6 months through 1 year

     35,029,206      906,882      1,467,543      37,403,631

Due after 1 year through 2 years

     19,972,984      181,903      629,951      20,784,838

Due after 2 years through 3 years

     11,900,101      190,361      480,695      12,571,157

Due after 3 years through 4 years

     2,637,763      85,984      63,633      2,787,380

Due after 4 years through 5 years

     3,956,310      67,973      49,160      4,073,443

More than 5 years

     12,709,869      506,581      100,000      13,316,450
                           
   (Won) 122,721,898    (Won) 3,860,828    (Won) 12,256,486    (Won) 138,839,212
                           

 

(11) Sales of loans

In 2005, under the joint collection program of financial institutions, the Bank has sold (Won)189,473 million of certain loans to Hee Mang Moa Special Purpose Company and has recognized gain and loss of (Won)7,233 million and (Won)391 million, respectively. The Bank has also sold (Won)42,097 million of loans to KAMCO under the credit support program for lower income people and recognized gain and loss of (Won)277 million and (Won)2,055 million, respectively. Moreover, the Bank has sold (Won)3,050 million of loans (Auto loans) to Daewoo Motors Sales and recognized (Won)1,709 million of gain on sale of loans. In addition, the Bank has sold (Won)399,864 million of loans to KB 4th SPC, (Won)512,348 million of loans to KB 5th SPC and (Won)242,483 million of loans to KB 6th SPC and recognized (Won)63,797 million and (Won)8,360 million of gain on sale of loans and (Won)13,924 million of loss on sale of loans, respectively. Furthermore, the Bank has recorded

 

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(Won)367 million of gain on sale of loans and (Won)26 million of loss on sale of loans with respect to the other loan sale transactions. The loan amounts presented in the above are the original principal amount without any deduction of allowance or write-offs.

In connection with the sale of loans, the Bank has changed the accounting policy regarding the recognition of gain or loss from the sale of loans. Previously, for the sale of written-off loans, the Bank offset the proceeds from the sale of the loans directly against allowance for possible loan losses, and for the sale of non-written off loans, the Bank recognized the proceeds in excess or less than the book value of the loans at sales date as gain or loss from the sale of loans. From the third quarter of 2004, the Bank has recognized the proceeds in excess or less than the book value as of prior year end date as gain or loss on sale of loans.

 

(12) Credit card receivables as collateral

The Bank offers the credit card receivables amounting to (Won)859,271 million (before deducting the allowance) as collateral for the transaction of credit card receivables to SPC as of December 31, 2005.

 

(13) The changes in loan origination costs for the year ended December 31, 2005 were as follows (Unit: In millions):

 

     Beginning    Increase    Decrease    Ending

Loan origination costs

   (Won) 48,889    (Won) 20,938    (Won) 17,802    (Won) 52,025
                           

 

6. RESTRUCTURING LOANS:

 

(1) The loans that were restructured by means of principal reduction, debt-equity swap, interest reduction because of court receiverships, compositions and workouts for the year ended December 31, 2005 were as follows (Unit: In millions):

 

     Amount before
restructuring
   Principal
exemption
   Conversion
to equity
securities
   Interest reduction    Extension of
maturity

Court receivership

   (Won) 1,778    (Won) 172    (Won) 313    (Won) —      (Won) 1,293

Composition

     7,167      —        —        —        7,167

Workout plan

     148,823      —        —        8,504      140,319
                                  
   (Won) 157,768    (Won) 172    (Won) 313    (Won) 8,504    (Won) 148,779
                                  

 

(2) Changes in the present value discounts relating to the outstanding restructured loans for the year ended December 31, 2005 were as follows (Unit: In millions):

 

     Discount
rates (%)
   Amount    Present value discounts
         Beginning
balance
   Addition    Deduction     Ending
balance

Court receivership

   5.90~20.98    (Won) 11,661    (Won) 6,126    (Won) 535    (Won) (4,626 )   (Won) 2,035

Composition

   4.90~19.90      12,397      3,200      2,495      (3,457 )     2,238

Workout plan

   6.00~28.89      185,038      6,562      13,946      (9,137 )     11,371

Others

   9.50      30,802      6,223      16      (1,868 )     4,371
                                      
      (Won) 239,898    (Won) 22,111    (Won) 16,992    (Won) (19,088 )   (Won) 20,015
                                      

If the loans are restructured by means of reduction of interest rates, cash flows of fixed rate loans are discounted by effective interest rates originally agreed upon and cash flows of floating rate loans are discounted by interest rates determined by adding a credit risk premium, which is calculated at the restructuring date, assuming that debtors’ credit at the origination date is effective to the restructuring date, to a benchmark interest rate. The difference between the book value and the present value is presented as an allowance for possible loan losses.

 

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7. ALLOWANCE FOR POSSIBLE LOAN LOSSES:

 

(1) The allowance for possible loan losses as of December 31, 2005 is summarized as follows (Unit: In millions):

 

     Normal    Precautionary    Substandard    Doubtful    Estimated
loss
   Total

Loans in Won

   (Won) 777,038    (Won) 293,589    (Won) 198,047    (Won) 493,880    (Won) 364,216    (Won) 2,126,770

Loans in foreign currencies

     20,048      2,665      7,264      19,904      780      50,661

Bills bought

     6,943      228      27      180      1,677      9,055

Advances for customers

     6      9      279      1,469      6,238      8,001

Credit card receivables

     77,680      40,515      179      73,419      42,715      234,508

Privately placed bonds

     18,635      217      918      —        —        19,770

Factoring receivables

     4,299      —        211      —        —        4,510
                                         
   (Won) 904,649    (Won) 337,223    (Won) 206,925    (Won) 588,852    (Won) 415,626    (Won) 2,453,275
                                         

The allowance for possible loan losses as of December 31, 2004 is summarized as follows (Unit: In millions):

 

     Normal    Precautionary    Substandard    Doubtful    Estimated
loss
   Total

Loans in Won

   (Won) 781,650    (Won) 476,391    (Won) 357,321    (Won) 678,256    (Won) 328,891    (Won) 2,622,509

Loans in foreign currencies

     13,061      13,316      8,428      18,413      1,893      55,111

Bills bought

     2,930      393      130      1,990      3,037      8,480

Advances for customers

     5      621      176      4,873      20,626      26,301

Credit card receivables

     66,100      82,375      108      195,214      48,925      392,722

Privately placed bonds

     5,979      189      1,159      3,816      68      11,211

Factoring receivables

     585      —        103      982      25      1,695

Loans to be swapped to equity securities

     —        —        —        746      —        746
                                         
   (Won) 870,310    (Won) 573,285    (Won) 367,425    (Won) 904,290    (Won) 403,465    (Won) 3,118,775
                                         

 

(2) The changes in allowance for possible loan losses for the years ended December 31, 2005 and 2004 were as follows (Unit: In millions):

 

     2005     2004  

Beginning balance

   (Won) 3,186,095     (Won) 3,948,736  

Provision for possible loan losses

     1,053,088       3,068,248  

Reclassification from other allowances (*1)

     17,501       289,919  

Collection of previously written-off loans

     452,959       286,464  

Repurchase of NPLs sold

     15,863       40,571  

Sales of loans

     (181,914 )     (685,161 )

Loans written-off

     (2,014,834 )     (3,382,130 )

Conversion to equity securities

     (11,444 )     (327,816 )

Exemption of loans

     (9,570 )     (32,847 )

Changes in exchange rates and others

     (6,967 )     (19,889 )
                

Ending balance (*2)

   (Won) 2,500,777     (Won) 3,186,095  
                

(*1) Other allowances for credit lines to Kookmin Credit Card 16th ABS Specialty Company amounting to (Won)17,501 million were transferred to allowances for loan losses.
(*2) Allowance for possible loan losses includes present value discounts amounting to (Won)20,015 million and (Won)22,111 million as of December 31, 2005 and 2004, respectively, and allowances for other assets amounting to (Won)47,502 million and (Won)67,320 million, respectively.

 

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(3) The allowance for possible losses on other assets as of December 31, 2005 and 2004 is summarized as follows (Unit: In millions):

 

     2005    2004

Account receivables

   (Won) 659    (Won) 95

Suspense receivables

     20,447      38,952

Uncollected guarantee deposits for rent

     8,269      9,295

Settlement costs for financial accident

     15,844      15,495

Derivative instruments

     2,283      3,209

Other loans of Kookmin Credit Card

     —        274
             
   (Won) 47,502    (Won) 67,320
             

 

(4) The allowance for possible loan losses compared to total loans, net of present value discounts, is summarized as follows (Unit: In millions):

 

     Loans    Allowance for
possible loan
losses
  

Percentage

(%)

December 31, 2005

   (Won) 138,139,657    (Won) 2,453,275    1.78

December 31, 2004

     138,839,212      3,118,775    2.25

December 31, 2003

     145,040,449      3,910,044    2.70

 

8. FIXED ASSETS:

 

(1) Fixed assets as of December 31, 2005 and 2004 consisted of (Unit: In millions):

 

     2005     2004  

Tangible assets

   (Won) 3,670,603     (Won) 3,594,903  

Less: accumulated depreciation

     (1,620,892 )     (1,428,586 )

Accumulated impairment loss

     (11,466 )     (2,296 )

Intangible assets

     398,104       468,958  

Non-business use property

     583       492  

Less: valuation allowance

     (230 )     (253 )
                
   (Won) 2,436,702     (Won) 2,633,218  
                

 

(2) Tangible assets as of December 31, 2005 consisted of (Unit: In millions):

 

     Acquisition cost    Accumulated
depreciation
   Accumulated
impairment losses
   Book value

Land

   (Won) 986,522    (Won) —      (Won) 7,109    (Won) 979,413

Buildings

     939,204      160,328      4,357      774,519

Leasehold improvements

     190,109      145,746      —        44,363

Equipment and vehicles

     1,554,613      1,314,818      —        239,795

Construction in progress

     155      —        —        155
                           
   (Won) 3,670,603    (Won) 1,620,892    (Won) 11,466    (Won) 2,038,245
                           

 

- 29 -


Tangible assets as of December 31, 2004 consisted of (Unit: In millions):

 

     Acquisition cost    Accumulated
depreciation
   Accumulated
impairment losses
   Book value

Land

   (Won) 999,021    (Won) —      (Won) 1,306    (Won) 997,715

Buildings

     914,968      140,114      990      773,864

Leasehold improvements

     174,425      123,907      —        50,518

Equipment and vehicles

     1,505,247      1,164,565      —        340,682

Construction in progress

     1,242      —        —        1,242
                           
   (Won) 3,594,903    (Won) 1,428,586    (Won) 2,296    (Won) 2,164,021
                           

 

(3) The changes in book value of tangible assets for the year ended December 31, 2005 were as follows (Unit: In millions):

 

     Beginning    Acquisition    Replacement     Disposal    Depreciation    Impairment    

Change in

foreign
currencies

    Ending

Land

   (Won) 997,715    (Won) 439    (Won) —       (Won) 12,041    (Won) —      (Won) (6,621 )   (Won) (79 )   (Won) 979,413

Buildings

     773,864      1,551      27,804       4,284      20,829      (3,577 )     (10 )     774,519

Leasehold improvements

     50,518      —        28,938       2,262      32,795      —         (36 )     44,363

Equipment and vehicles

     340,682      111,993      —         2,727      209,723      —         (430 )     239,795

Construction in progress

     1,242      55,655      (56,742 )     —        —        —         —         155
                                                          
   (Won) 2,164,021    (Won) 169,638    (Won) —       (Won) 21,314    (Won) 263,347    (Won) (10,198 )   (Won) (555 )   (Won) 2,038,245
                                                          

 

(4) The published value of land was (Won)1,059,377 million and (Won) 832,294 million as of December 31, 2005 and 2004, respectively, based on the Laws on Disclosure of Land Price and Valuation of Land.

 

(5) Tangible assets, which have been insured as of December 31, 2005, were as follows (Unit: In millions):

 

Type of insurance

  

Asset insured

   Insured
amount
  

Insurance company

Property composite

   Buildings    (Won) 623,428    Samsung Fire & Marine Insurance Co., Ltd. & others
   Leasehold improvements      36,697   
   Equipment and vehicles      105,795   
            
      (Won) 765,920   
            

 

(6) Intangible assets as of December 31, 2005 consisted of (Unit: In millions):

 

     Acquisition cost    Accumulated
amortization
   Book value

Goodwill

   (Won) 705,108    (Won) 326,439    (Won) 378,669

Others

     35,433      15,998      19,435
                    
   (Won) 740,541    (Won) 342,437    (Won) 398,104
                    

 

(7) The changes in intangible assets for the year ended December 31, 2005 were as follows (Unit: In millions):

 

     Beginning    Increase    Amortization    Ending

Goodwill

   (Won) 457,015    (Won) —      (Won) 78,346    (Won) 378,669

Others

     11,943      12,920      5,428      19,435
                           
   (Won) 468,958    (Won) 12,920    (Won) 83,774    (Won) 398,104
                           

 

- 30 -


(8) Non-business use properties as of December 31, 2005 consisted of (Unit: In millions):

 

     Acquisition cost    Valuation
allowance
   Book value

Non-business use properties

   (Won) 583    (Won) 230    (Won) 353
                    

 

9. OTHER ASSETS:

 

(1) Other assets as of December 31, 2005 and 2004 consisted of (Unit: In millions):

 

     2005     2004  

Guarantee deposits paid

   (Won) 1,164,533     (Won) 1,290,891  

Accounts receivable

     466,442       2,353,377  

Accrued income

     998,354       971,170  

Prepaid accounts

     65,519       96,949  

Prepaid expenses

     43,266