Form 6-K
Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Form 6-K

 


REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

For the month of May 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    

 



Table of Contents

Index

1. Summary of 2006 1st Quarter Business Report

2. Exhibit 99.1_Kookmin Bank Review Report for the 1st Quarter of 2006

 

2


Table of Contents

TABLE OF CONTENTS

 

Summary of 2006 1st Quarter Business Report

   4

1.

   Introduction to the Bank    5

1.1.

   Business Purposes    5

1.2.

   History    5

1.3.

   Capital Structure    7

1.4.

   Employee Stock Ownership Association    12

1.5.

   Dividend    12

2.

   Business    13

2.1.

   Sources and Uses of Fund    13

2.2.

   Principal Banking Activities    16

2.3.

   Branch Networks    20

2.4.

   Other Information for Investment Decision    21

3.

   Financial Information    23

3.1.

   Non-Consolidated Condensed Financial Statements    23

3.2.

   Other Financial Information    23

4.

   Independent Accountant Fees and Services    24

4.1.

   Audit & Review Fees    24

4.2.

   Non-Audit Services    24

5.

   Corporate Governance and Affiliated Companies    25

5.1.

   Board of Directors & Committees under the Board    25

5.2.

   Audit Committee    25

5.3.

   Compensation to Directors    26

5.4.

   Voting Rights of Shareholders    26

5.5.

   Share Ownership    26

5.6.

   Affiliated Companies    27

6.

   Directors, Senior Management and Employees    28

6.1.

   Executive Directors    28

6.2.

   Non-Executive Directors    28

6.3.

   Senior Management    29

6.4.

   Employees    29

7.

   Related Party Transactions    30

7.1.

   Transactions with the Largest Shareholders or Affiliates    30

7.2.

   Transactions with related parties other than the Largest Shareholders or Affiliates    31

 

3


Table of Contents

S ummary of 2006 1st Quarter Business Report

On May 15, 2006, pursuant to the Securities and Exchange Act of Korea, Kookmin Bank filed its business report for the first quarter of 2006 (the “Business Report”) to the Financial Supervisory Commission of Korea and the Korea Exchange. This is the summary of the Business Report translated into English.

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

 

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Table of Contents

1. Introduction to the Bank

1.1. Business Purposes

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

 

  n The banking business as prescribed by the Bank Act,

 

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

 

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

 

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

1.2. History

 

  n November 1, 2001

Incorporated and listed on the New York Stock Exchange

 

  n November 9, 2001

Listed on the Korea Stock Exchange

 

  n September 23, 2002

Integrated IT platforms of old Kookmin Bank and H&CB

 

  n December 4, 2002

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

 

  n May 30, 2003

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

 

  n September 30, 2003

Completed small-scale merger with Kookmin Credit Card

 

  n December 16, 2003

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

 

  n December 19, 2003

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

 

  n April 29, 2004

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

 

  n July 22, 2004

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

 

  n August 31, 2004

ING Bank N.V. made a contract with KB for the strategic investment in KB Life

 

5


Table of Contents
  n October 29, 2004

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

 

  n December 31, 2004

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

 

  n January 01, 2005

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

 

  n March 02, 2005

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

 

  n March 21, 2005

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

 

  n June 16, 2005

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

 

  n July 26, 2005

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

 

  n October 14, 2005

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

 

  n February 2, 2006

Established “Basel II system to calculate credit risk weighted asset and New BIS Capital adequacy ratio” for the first time among domestic financial institutions

 

  n March 24, 2006

Selected as preferred bidder for the acquisition of Korea Exchange Bank

 

6


Table of Contents

1.3. Capital Structure

1.3.1. Common Shares

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

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

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

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

1.3.2. Treasury Stock

The acquisition and disposition of our treasury stock during the first quarter of 2006 are as follows.

(Units: in thousand of Won unless indicated otherwise)

 

Date

  

Details

   (Units: shares)
December 31, 2005    Outstanding Treasury Shares    217,935
January 13, 2006    Disposition due to exercise of stock option by grantees    217.935
March 31, 2006    Outstanding Treasury Shares    0

 

7


Table of Contents

1.3.3. Stock Option

The following table is the breakdown of stock options Kookmin Bank has granted to the directors and employees as of March 31, 2006.

(Units: in Won, shares)

 

                Exercise period    Exercise
price
  

Number

of granted
options1

   Number of
exercised
options
   Number of
exercisable
options

Grant date

  

Name of the grantee

  

Position when granted

   From    To            
28-Feb-00    Jan Op de Beeck   

Director&Executive Vice

President

   01-Mar-03    28-Feb-06    27,600    22,490    22,490    0
28-Feb-00    Kuk Ju Kwon    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,800    4,800    0
28-Feb-00    Joon Park    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,800    4,800    0
28-Feb-00    Moon Soul Chung    Non Executive Director    01-Mar-03    28-Feb-06    27,600    7,000    7,000    0
28-Feb-00    Heung Soon Chang    Non Executive Director    01-Mar-03    28-Feb-06    27,600    2,486    2,486    0
28-Feb-00    Sung Hee Jwa    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,800    4,800    0
28-Feb-00    Sung Cheon Hong & 9 others    Employees    01-Mar-03    28-Feb-06    27,600    67,283    67,283    0
24-Mar-01    Young Il Kim    Executive Vice President    25-Mar-04    24-Mar-07    25,100    30,000    30,000    0
24-Mar-01    Jong In Park    Executive Vice President    25-Mar-04    24-Mar-07    25,100    19,333    3,500    15,833
24-Mar-01    Jae Kyu Lee    Non Executive Director    25-Mar-04    24-Mar-07    25,100    2,318    1,518    800
24-Mar-01    Jae Han Kim & 2 others    Employees    25-Mar-04    24-Mar-07    25,100    16,491    14,916    1,575
15-Mar-01    Sang Hoon Kim    Chairman&CEO    16-Mar-04    15-Mar-09    28,027    29,614    15,000    14,614
15-Mar-01    Jong Min Lee    Chief Audit Executive    16-Mar-04    15-Mar-09    28,027    14,807    2,807    12,000
15-Mar-01    In Kie Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961
15-Mar-01    Ji Hong Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961
15-Mar-01    Seung Heon Han    Non Executive Director    16-Mar-04    15-Mar-09    28,027    1,870    0    1,870
15-Mar-01    Young Seok Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027    1,870    0    1,870
15-Mar-01    Se Woong Lee    Non Executive Director    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961
15-Mar-01    Bock Woan Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    0    11,845
15-Mar-01    Yoo Hwan Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    0    11,845
15-Mar-01    Duk Hyun Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    2,845    9,000
15-Mar-01    Ok Hyun Yoon    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    5,845    6,000
15-Mar-01    Byung Sang Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    5,845    6,000
15-Mar-01    Byung Jin Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    6,845    5,000
15-Mar-01    Han Koo Ji & 36 others    Employees    16-Mar-04    15-Mar-09    28,027    39,092    16,469    22,623
16-Nov-01    Jung Tae Kim    President & CEO    17-Nov-04    16-Nov-09    51,200    500,000    500,000    0
16-Nov-01    Sang Hoon Kim    Chairman    17-Nov-04    16-Nov-09    51,200    150,000    0    150,000
22-Mar-02    Choul Ju Lee    Chief Audit Executive    23-Mar-05    22-Mar-10    57,100    9,963    0    9,963
22-Mar-02    Henry Cornell    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,321    0    3,321
22-Mar-02    Keun Shik Oh    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,321    421    2,900
22-Mar-02    Dong Soo Chung    Non Executive Director    23-Mar-05    22-Mar-10    57,100    10,000    0    10,000
22-Mar-02    Ji Hong Kim    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,321    0    3,321
22-Mar-02    Timothy Hartman    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,321    0    3,321
22-Mar-02    Sun Jin Kim    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,000    0    3,000
22-Mar-02    Moon Soul Chung    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,000    0    3,000
22-Mar-02    Kyung Hee Yoon    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,000    0    3,000
22-Mar-02    Jong Kyoo Yoon    Executive Vice President    23-Mar-05    22-Mar-10    57,100    20,522    0    20,522
22-Mar-02    Bong Hwan Cho    Executive Vice President    23-Mar-05    22-Mar-10    57,100    9,498    0    9,498
22-Mar-02    Bum Soo Choi    Executive Vice President    23-Mar-05    22-Mar-10    57,100    13,339    3,339    10,000
22-Mar-02    Bock Woan Kim    Executive Vice President    23-Mar-05    22-Mar-10    57,100    13,339    0    13,339

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

 

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Table of Contents
             Exercise period   Exercise
price
 

Number

of granted
options1

  Number of
exercised
options
  Number of
exercisable
options

Grant date

 

Name of the grantee

 

Position when granted

  From   To        
22-Mar-02   Ki Taek Hong   Executive Vice President   23-Mar-05   22-Mar-10   57,100   19,525   0   19,525
22-Mar-02   Sung Hyun Chung   Executive Vice President   23-Mar-05   22-Mar-10   57,100   19,525   0   19,525
22-Mar-02   Ki Sup Shin   Executive Vice President   23-Mar-05   22-Mar-10   57,100   26,405   2,405   24,000
22-Mar-02   Byung Sang Kim   Executive Vice President   23-Mar-05   22-Mar-10   57,100   9,498   0   9,498
22-Mar-02   Jong Young Yoon & 15 others   Employees   23-Mar-05   22-Mar-10   57,100   147,658   0   147,658
26-Jul-02   Donald H. MacKenzie   Executive Vice President   27-Jul-05   26-Jul-10   58,800   23,899   0   23,899
21-Mar-03   Suk Yong Cha   Non Executive director   22-Mar-06   21-Mar-11   58,600   10,000   10,000   0
21-Mar-03   Ki Hong Kim   Non Executive director   22-Mar-06   21-Mar-11   58,600   10,000   0   10,000
21-Mar-03   Moon Soul Chung   Non Executive director   22-Mar-06   21-Mar-11   43,800   6,678   0   6,678
21-Mar-03   Sun Jin Kim   Non Executive director   22-Mar-06   21-Mar-11   43,800   6,678   0   6,678
21-Mar-03   Richard Elliott Lint   Non Executive director   22-Mar-06   21-Mar-11   43,800   6,678   0   6,678
21-Mar-03   Kyung Hee Yoon   Non Executive director   22-Mar-06   21-Mar-11   43,800   6,678   0   6,678
21-Mar-03   Bernard S. Black   Non Executive director   22-Mar-06   21-Mar-11   43,800   6,678   0   6,678
21-Mar-03   Eun Joo Park   Non Executive director   22-Mar-06   21-Mar-11   42,200   3,351   0   3,351
21-Mar-03   Cheol Soo Ahn   Non Executive director   22-Mar-06   21-Mar-11   42,200   3,351   0   3,351
21-Mar-03   Kyung Bae Suh   Non Executive director   22-Mar-06   21-Mar-11   42,200   3,351   0   3,351
21-Mar-03   Sung Chul Kim   Executive Vice President   22-Mar-06   21-Mar-11   35,500   9,443   0   9,443
21-Mar-03   Woo Jung Lee   Executive Vice President   22-Mar-06   21-Mar-11   35,500   9,443   0   9,443
21-Mar-03   See Young Lee   Executive Vice President   22-Mar-06   21-Mar-11   35,500   7,024   0   7,024
21-Mar-03   Won Suk Oh & 5 others   Employees   22-Mar-06   21-Mar-11   35,500   62,993   0   62,993
27-Aug-03   Jin Baek Cheong   Executive Vice President   28-Aug-03   27-Aug-11   40,500   5,091   0   5,091
22-Mar-01   Han Kyoung Lee   Former KCC Officer   23-Mar-04   22-Mar-11   71,538   6,644   0   6,644
22-Mar-01   Jun Chae Song   Former KCC Officer   23-Mar-04   22-Mar-11   71,538   6,644   0   6,644
22-Mar-01   Cheol Ho Kim   Former KCC Officer   23-Mar-04   22-Mar-11   71,538   4,429   0   4,429
22-Mar-01   Myoung Woo Lee   Former KCC Officer   23-Mar-04   22-Mar-11   71,538   4,429   0   4,429
29-Mar-02   Boung Hak Kim   Former KCC Officer   30-Mar-04   29-Mar-11   129,100   3,330   0   3,330
29-Mar-02   Sun Lee   Former KCC Officer   30-Mar-04   29-Mar-11   129,100   3,330   0   3,330
29-Mar-02   Jang Ok Kim   Former KCC Officer   30-Mar-04   29-Mar-11   129,100   3,330   0   3,330
09-Feb-04   Young Il Kim   Senior Executive Vice President   10-Feb-07   09-Feb-12   46,100   7,125   0   7,125
09-Feb-04   Jeung Lak Lee   Senior Executive Vice President   10-Feb-07   09-Feb-12   46,100   7,452   0   7,452
09-Feb-04   Sang Jin Lee   Senior Executive Vice President   10-Feb-07   09-Feb-12   46,100   7,125   0   7,125
09-Feb-04   Yun Keun Jung   Senior Executive Vice President   10-Feb-07   09-Feb-12   46,100   5,000   0   5,000
09-Feb-04   Kuk Shin Kang & 9 others   Employees   10-Feb-07   09-Feb-12   46,100   48,837   0   48,837
23-Mar-04   Dong Soo Chung   Non Executive Director   24-Mar-07   23-Mar-12   48,500   5,000   0   5,000
23-Mar-04   Woon Youl Choi   Non Executive Director   24-Mar-07   23-Mar-12   48,800   5,000   0   5,000
23-Mar-04   Wang Ha Cho   Non Executive Director   24-Mar-07   23-Mar-12   48,800   5,000   0   5,000
23-Mar-04   Young Soon Cheon   Non Executive Director   24-Mar-07   23-Mar-12   48,500   5,000   0   5,000
23-Mar-04   Jung Young Kang   Senior Executive Vice President   24-Mar-07   23-Mar-12   47,200   10,000   0   10,000

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

 

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Table of Contents
             Exercise period   Exercise price  

Number

of granted
options1

  Number of
exercised
options
  Number of
exercisable
options

Grant date

 

Name of the grantee

 

Position when granted

  From   To        
01-Nov-04   Chung Won Kang   President & CEO   02-Nov-07   01-Nov-12   X3   700,000   0   700,000
18-Mar-05   Hyung Duk Chang   Chief Audit Executive   19-Mar-08   18-Mar-13   X4   30,000   0   30,000
18-Mar-05   Kap Shin   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   30,000   0   30,000
18-Mar-05   Dong Won Kim   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   30,000   0   30,000
18-Mar-05   Yun Keun Jung   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   8,759   0   8,759
18-Mar-05   Nam Sik Yang   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   30,000   0   30,000
18-Mar-05   Hyo Sung Won   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   30,000   0   30,000
18-Mar-05   Yong Kook Oh   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   30,000   0   30,000
18-Mar-05   Sang Jin Lee   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   8,759   0   8,759
18-Mar-05   Ahn Sook Koo   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   8,759   0   8,759
18-Mar-05   Jung Young Kang   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   30,000   0   30,000
18-Mar-05   Young Han Choi   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   30,000   0   30,000
18-Mar-05   Dong Soo Choe   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   30,000   0   30,000
18-Mar-05   Seong Kyu Lee   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   8,759   0   8,759
18-Mar-05   Jun Bo Cho   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   8,759   0   8,759
18-Mar-05   Jeong Min Kim   Senior Executive Vice President   19-Mar-08   18-Mar-13   46,800   30,000   0   30,000
18-Mar-05   Sung Soo Jung & 22 others   Employees   19-Mar-08   18-Mar-13   46,800   281,274   0   281,274
18-Mar-05   Suk Yong Cha   Non Executive director   19-Mar-08   18-Mar-13   61,000   5,091   0   5,091
18-Mar-05   Ki Hong Kim   Non Executive director   19-Mar-08   18-Mar-13   60,300   5,077   0   5,077
18-Mar-05   Young Soon Cheon   Non Executive director   19-Mar-08   18-Mar-13     15,000   0   15,000
18-Mar-05   Dong Soo Chung   Non Executive director   19-Mar-08   18-Mar-13   X4   15,000   0   15,000
18-Mar-05   Chang Kyu Lee   Non Executive director   19-Mar-08   18-Mar-13     15,000   0   15,000
18-Mar-05   Hun Namkoong   Non Executive director   19-Mar-08   18-Mar-13   61,000   5,091   0   5,091
18-Mar-05   Doo Hwan Song   Non Executive director   19-Mar-08   18-Mar-13     15,000   0   15,000
18-Mar-05   Dam Cho   Non Executive director   19-Mar-08   18-Mar-13   X4   15,000   0   15,000
18-Mar-05   Nobuya Takasugi   Non Executive director   19-Mar-08   18-Mar-13     15,000   0   15,000
27-Apr-05   Kyung Wook Kang   Employee   28-Apr-08   27-Apr-13   45,700   15,000   0   15,000

3 Exercise price = 37,600 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period—KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.
4 Exercise price = 46,800 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period—KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.

 

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Table of Contents
             Exercise period   Exercise price  

Number

of granted
options1

  Number of
exercised
options
  Number of
exercisable
options

Grant date

 

Name of the grantee

 

Position when granted

  From   To        
22-Jul-05   Donald H. MacKenzie   Senior Executive Vice President   23-Jul-08   22-Jul-13   49,200   30,000   0   30,000
23-Aug-05   Youn Soo Kim   Executive Vice President   24-Aug-08   23-Aug-13   53,000   15,000   0   15,000
24-Mar-06   Dong Soo Chung   Non Executive director   25-Mar-09   24-Mar-14     20,000   0   20,000
24-Mar-06   Doo Hwan Song   Non Executive director   25-Mar-09   24-Mar-14     10,000   0   10,000
24-Mar-06   Chang Kyu Lee   Non Executive director   25-Mar-09   24-Mar-14     10,000   0   10,000
24-Mar-06   Dam Cho   Non Executive director   25-Mar-09   24-Mar-14     10,000   0   10,000
24-Mar-06   Nobuya Takasugi   Non Executive director   25-Mar-09   24-Mar-14     10,000   0   10,000
24-Mar-06   Young Soon Cheon   Non Executive director   25-Mar-09   24-Mar-14     5,000   0   5,000
24-Mar-06   Kee Young Chung   Non Executive director   25-Mar-09   24-Mar-14     30,000   0   30,000
24-Mar-06   Bo Kyung Byun   Non Executive director   25-Mar-09   24-Mar-14     30,000   0   30,000
24-Mar-06   Bae Kin Cha   Non Executive director   25-Mar-09   24-Mar-14     30,000   0   30,000
24-Mar-06   Hyung Duk Chang   Chief Audit Executive   25-Mar-09   24-Mar-14   X5   20,000   0   20,000
24-Mar-06   Ki Hong Kim   Chief Executive Vice President   25-Mar-09   24-Mar-14     210,000   0   210,000
24-Mar-06   Kap Joe Song   Senior Executive Vice President   25-Mar-09   24-Mar-14     45,000   0   45,000
24-Mar-06   Dal Soo Lee   Senior Executive Vice President   25-Mar-09   24-Mar-14     20,000   0   20,000
24-Mar-06   Won Sik Yeo   Senior Executive Vice President   25-Mar-09   24-Mar-14     20,000   0   20,000
24-Mar-06   De Oak Shin   Senior Executive Vice President   25-Mar-09   24-Mar-14     20,000   0   20,000
24-Mar-06   Chung Won Cho & 14 others   Employees   25-Mar-09   24-Mar-14     450,000   0   450,000
    Total         4,069,902   735,414   3,334,488

5 Exercise price = 75,200 Won x (1 + TRS of the three major competitors x 0.4)
- The detail condition of stock option granted on March 24, 2006 can be found on the Current Report on Form 6-K, which was submitted via EDGAR to the U.S. Securities and Exchange Commission on March 8, 2006 and March 24, 2006
- The number of stock options granted on February 9, 2004 and March 23, 2004 is the stock options granted over 1 year.
- The number of stock options granted on November 11, 2004, March 18, 2005, July 22, 2005 and August 23, 2005 is the stock options granted over 3 years.
- The number of stock options granted on March 24, 2006 is the stock options granted over 1 year, 2 years and 3 years

 

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Table of Contents

1.4. Employee Stock Ownership Association1

 

    

Beginning
balance

(January 1, 2006)

   Increase    Decrease   

Ending

Balance

(March 31, 2006)

   Remarks

Registered common stock

   2,868,596    —      32,298    2,836,298    —  

Total

   2,868,596    —      32,298    2,836,298    —  

1.5. Dividend

The following table shows dividend policy and the related information for the last three years. The Board of Directors of Kookmin Bank made a resolution to pay dividend for the fiscal year of 2005, and shareholders of Kookmin Bank approved of the dividend payout for the year at the general shareholders’ meeting held on March 24, 2006

(Units: in millions of Won unless indicated otherwise)

 

     March
2006
   2005   2004

Net (loss) income for the period

   —      2,252,218   360,454

Diluted (loss) earnings per share (Won)

   —      6,9772   1,176

Total dividend amount

   —      184,889   168,574

Dividend payout ratio (%)

   —      8.213   46.77

Cash dividend per common share (Won)

   —      550   550

Stock dividend per common share (%)

   —      —     —  

Dividend per preferred share (Won)

   —      —     —  

Dividend yield ratio (%)

   —      0.724   1.42

1 Disposed 2,000,000 shares of Treasury stock for the purpose of contribution to ESOP on February 23, 2005 and April 12, 2005.
2 Earnings per share = net income (2,252,218,097,725 Won) / weighted average number of shares (322,785,751 shares).
3 Dividend payout ratio = total dividend amount for common shares (184,888,649,550 Won) / net income (2,252,218,097,725 Won).
4 Dividend yield ratio = dividend per share (550 Won) / average closing price for a week based on business day prior to market closing date of December 31, 2005 (76,000 Won).

 

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Table of Contents

2. Business

2.1. Sources and Uses of Fund

2.1.1. Sources of Fund

 

(Unit: in millions of Won)    March 31, 2006    December 31, 2005    December 31, 2004
     Average
balance
   Interest
rate (%)
   Average
balance
   Interest
rate (%)
   Average
balance
   Interest
rate (%)

Won currency

                 

Deposits

   112,163,939    2.75    114,394,983    2.82    118,017,849    3.29

Certificate of deposit

   5,925,941    4.12    5,008,378    3.69    6,108,179    4.06

Borrowings

   2,844,767    3.17    2,674,268    3.02    3,053,890    3.43

Call money

   2,119,277    3.72    931,968    3.24    1,117,576    3.55

Other

   24,224,663    4.94    24,315,388    5.08    23,376,439    5.61
                             

Subtotal

   147,278,587    3.19    147,324,985    3.23    151,673,933    3.68
                             

Foreign currency

                 

Deposits

   1,429,416    1.94    1,473,811    1.61    1,777,402    0.61

Borrowings

   2,907,134    2.55    3,231,480    2.06    2,796,300    0.94

Call money

   944,686    4.46    285,573    3.48    145,809    1.43

Finance debentures issued

   1,159,312    4.44    765,723    4.09    824,745    2.28

Other

   60,777    —      52,592    —      40,383    —  
                             

Subtotal

   6,501,325    3.01    5,809,179    2.26    5,584,639    1.04
                             

Other

                 

Total Shareholders Equity

   12,972,085    —      11,369,246    —      9,284,477    —  

Allowances

   1,027,109    —      677,036    —      459,124    —  

Other

   11,919,118    —      12,041,392    —      12,773,040    —  

Subtotal

   25,918,312    —      24,087,674    —      22,516,641    —  
                             

Total

   179,698,224    2.72    177,221,838    2.76    179,775,213    3.14
                             

 

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Table of Contents

2.1.2. Uses of Fund

 

(Unit: in millions of Won)    March 31, 2006    December 31, 2005    December 31, 2004
     Average
balance
   Interest
rate (%)
   Average
balance
   Interest
rate (%)
   Average
balance
   Interest
rate (%)

Won currency

                 

Due from banks

   53,751    1.04    304,662    2.97    184,593    0.83

Securities

   30,262,771    4.47    27,676,964    4.58    23,930,678    5.14

Loans

   118,306,537    6.32    120,539,476    6.24    125,504,672    6.64

Advances for customers

   15,230    1.50    23,947    8.64    71,213    2.01

Call loan

   1,246,709    3.95    1,473,725    3.43    1,661,772    3.78

Private placement corporate bonds

   3,941,815    6.24    1,887,514    6.95    1,322,470    6.58

Credit card accounts

   7,379,259    25.60    7,321,906    27.46    9,581,330    26.80

Other

   317,399    —      267,061    —      172,783    —  

Allowance for credit losses ( - )

   2,435,278    —      3,034,841    —      3,844,940    —  
                             

Subtotal

   159,088,193    6.97    156,460,414    7.08    158,584,571    7.81
                             

Foreign currency

                 

Due from banks

   501,519    3.88    598,015    2.88    632,526    1.34

Securities

   772,002    7.09    858,565    6.15    1,208,124    3.88

Loans

   3,989,757    4.06    4,745,013    2.97    4,011,351    2.73

Call loan

   449,615    4.52    132,210    3.24    114,606    1.63

Bills bought

   2,580,980    3.54    1,037,144    4.64    568,502    4.07

Other

   1,712    —      2,209    —      4,812    —  

Allowance for credit losses ( - )

   56,984    —      64,290    —      94,501    —  
                             

Subtotal

   8,238,601    4.28    7,308,866    3.68    6,445,420    3.03
                             

Other

                 

Cash

   987,497    —      956,471    —      965,852    —  

Fixed assets held for business

   2,411,715    —      2,508,879    —      3,084,589    —  

Other

   8,972,218    —      9,987,209    —      10,694,781    —  
                             

Subtotal

   12,371,430    —      13,452,558    —      14,745,222    —  
                             

Total

   179,698,224    6.37    177,221,838    6.40    179,775,213    7.00
                             

 

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Table of Contents

2.1.3. Fee Transactions

(Unit: in millions of Won)

 

     March 31,
2006
   March 31,
2005
   December 31,
2005

Fee Revenue (A)

        

Won currency

        

Guarantees

   1,368    1,319    5,336

Commissions received

   227,051    196,459    804,934

Credit card

   16,265    15,587    66,484

NHF

   47,468    41,428    179,540
              

Foreign currency

        

Guarantees

   1,365    880    4,227

Others

   19,408    18,539    78,715
              

Subtotal

   312,925    274,212    1,139,236
              

Fee Expense (B)

  

Won & foreign currency

  

Commissions paid in Won

   35,405    19,952    119,539

Credit card

   47,120    53,278    210,315

Others

   5,610    4,760    22,692
              

Subtotal

   88,135    77,990    352,546
              

Fee Income (A-B)

   224,790    196,222    786,690
              

 

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Table of Contents

2.2. Principal Banking Activities

2.2.1. Deposits

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

(Unit: in millions of Won)

 

     March 31, 2006    December 31, 2005    December 31, 2004
     Average
balance
   Ending
balance
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance

Deposits in Won

                 

Demand deposits

   16,466,101    17,036,926    14,985,812    17,946,067    12,994,946    14,338,784

Time & savings deposits

   90,084,768    89,054,422    92,463,027    91,863,790    96,637,551    94,723,601

Mutual installment deposits

   4,839,088    4,570,549    5,674,807    5,120,668    6,682,928    6,306,923

Mutual installment for housing

   4,490,882    4,395,947    4,942,334    4,582,031    5,453,713    5,295,274

Certificates of deposits

   5,925,941    7,609,810    5,008,378    5,389,543    6,108,179    4,911,891
                             

Subtotal

   121,806,780    122,667,654    123,074,358    124,902,099    127,877,317    125,576,473
                             

Deposits in foreign currency

   1,429,416    1,425,814    1,473,811    1,379,133    1,769,828    1,434,061
                             

Trust deposits

                 

Money trust

   7,561,247    8,101,742    7,114,352    7,405,675    7,701,447    7,028,835

Property trust

   9,146,023    8,442,118    11,032,320    9,854,012    16,297,382    12,534,329
                             

Subtotal

   16,707,270    16,543,860    18,146,672    17,259,687    23,998,829    19,563,164
                             

Total

   139,943,466    140,637,328    142,694,841    143,540,919    153,645,974    146,573,698
                             

2.2.2. Average Deposit per Domestic Branch

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

(Unit: in millions of Won)

 

     March 31,
2006
   December 31,
2005
   December 31,
2004

Deposits

   123,429    123,532    123,945

Deposits in Won

   122,276    122,358    122,585

 

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Table of Contents

2.2.3. Average Deposit per Employee

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

(Unit: in millions of Won)

 

     March 31,
2006
   December 31,
2005
   December 31,
2004

Deposits

   7,624    7,725    7,232

Deposits in Won

   7,553    7,652    7,152

2.2.4. Loan Balances

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

(Unit: in millions of Won)

 

     March 31, 2006    December 31, 2005    December 31, 2004
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance

Loans in Won

   118,300,428    117,860,232    120,532,216    118,565,341    125,496,237    122,721,898

Loans in foreign currency

   5,286,070    5,354,020    4,745,013    5,314,883    4,011,351    3,860,828

Advances for customers

   15,230    10,354    23,947    11,321    73,801    32,120
                             

Subtotal

   123,601,728    123,224,606    125,301,176    123,891,545    129,581,389    126,614,846
                             

Trust account loans

   327,732    331,769    334,404    328,127    429,054    361,906
                             

Total

   123,929,460    123,556,375    125,635,580    124,219,672    130,010,443    126,976,752
                             

2.2.5. Loan Balances as of March 31, 2006 by Maturity

(Unit: in millions of Won)

 

     1 year & Less    More than 1 year~
3 years
   More than 3 years~
5 years
   More than 5
years
   Total

Loans in Won

   63,377,718    22,859,610    9,385,464    22,237,440    117,860,232

Loans in foreign currency

   4,147,062    609,811    298,942    298,204    5,354,019

 

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Table of Contents

2.2.6. Loan Balances by Types

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

(Unit: in millions of Won)

 

     March 31,
2006
   December 31,
2005
   December 31,
2004

Loans to enterprise

        

Loans for operations

   31,003,457    30,498,328    31,678,117

Loans for facility

   5,005,285    5,073,050    6,286,747

Loans to households

   42,709,628    42,771,264    42,790,337

Loans to public sector & others

        

Loans for operations

   504,407    643,141    673,456

Loans for facility

   33,873    34,157    40,383

Loans on property formation savings

   6,595    6,748    9,719

Loans for housing

   38,594,647    39,535,441    41,234,086

Inter-bank loans

   578    1,274    6,114

Others

   1,762    1,938    2,939
              

Total

   117,860,232    118,565,341    122,721,898
              

2.2.7. Loan to Deposit Ratio1

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

(Units: in millions of Won, %)

 

     March 31,
2006
   December 31,
2005
   December 31,
2004

Loans (A)

   118,300,428    120,532,216    125,496,237

Deposits (B)

   121,806,780    123,074,358    127,877,317
              

Loan to deposit ratio (A/B)

   97.12    97.93    98.14
              

2.2.8. Acceptances and Guarantees

(Unit: in millions of Won)

 

     March 31,
2006
   December 31,
2005
   December 31,
2004

Determined

   1,847,386    1,789,560    975,788

Contingent

   1,945,415    1,972,192    1,311,774
              

Total

   3,792,801    3,761,752    2,287,562
              

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

 

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Table of Contents

2.2.9. Breakdown of Securities Investment

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

(Unit: in millions of Won)

 

     March 31, 2006    December 31, 2005    December 31, 2004
     Average
balance
   Ending
balance
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance

Securities in Won (Banking account)

                 

Monetary stabilization bonds

   11,716,100    12,436,186    10,667,229    11,570,306    7,150,535    10,524,835

Government and public bonds

   9,424,429    10,248,258    6,950,886    8,933,401    4,753,135    4,675,093

Debentures

   9,466,220    9,971,180    7,334,555    9,184,403    7,013,765    6,152,749

Stocks

   1,583,904    1,602,709    1,243,781    1,707,816    1,003,131    1,282,050

Others

   2,013,932    2,244,487    3,368,027    2,105,353    5,332,583    5,583,539
                             

Subtotal

   34,204,585    36,502,820    29,564,478    33,501,279    25,253,149    28,218,266
                             

Securities in Won (Trust account)

                 

Monetary stabilization bonds

   953,001    995,651    999,522    981,949    1,222,004    1,152,621

Government and public bonds

   1,054,730    1,094,889    993,450    1,013,355    922,790    837,080

Debentures

   2,015,785    1,977,711    1,979,588    2,017,298    2,363,630    2,312,459

Stocks

   569,881    636,611    514,568    542,731    564,538    510,650

Others

   3,391,036    3,771,515    2,745,143    3,311,235    2,101,832    2,324,393
                             

Securities in foreign currency (Trust Account)

   181,130    178,145    289,665    184,115    662,549    449,415
                             

Subtotal

   8,165,563    8,654,522    7,521,936    8,050,683    7,837,343    7,586,618
                             

Securities in foreign currency (Banking account)

                 

Foreign securities

   516,761    527,845    579,561    525,892    894,722    745,352

Off-shore foreign securities

   255,240    234,578    279,003    252,994    313,402    205,455
                             

Subtotal

   772,001    762,423    858,564    778,886    1,208,124    950,807
                             

Total

   43,142,149    45,919,765    37,944,978    42,330,848    34,298,616    36,755,691
                             

2.2.10. Trust Account

(Unit: in millions of Won)

 

     March 31, 2006    December 31, 2005    December 31, 2004
     Average
amount trusted
   Trust
fees
   Average
amount trusted
   Trust
fees
   Average
amount trusted
   Trust
fees

Return-guaranteed trust

   330    249    335    43,088    369    8,365

Performance trust

   16,706,940    17,248    18,146,337    77,756    23,998,460    93,856
                             

Total

   16,707,270    17,497    18,146,672    120,844    23,998,829    102,221
                             

 

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Table of Contents

2.2.11. Credit Card

(Unit: in millions of Won unless indicated otherwise)

 

     As of or for the years ended of indicated dates
     March 31,
2006
   December 31,
2005
   December 31,
2004

Number of card holders (Person)

        

Corporate

   166,088    159,047    182,109

Individual

   9,121,217    9,342,552    11,362,173
              

Number of merchants

   1,529,297    1,506,979    1,491,730

Sales volume1

   14,992,215    62,475,085    66,918,805

Fee revenue

   525,796    2,085,866    2,807,557

2.3. Branch Networks

As of March 31, 2006, we have 1,056 branches and 50 sub-branches in Korea, the largest number of branches among Korean commercial banks. Approximately 41% of our branches and sub-branches are located in Seoul.

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

 


1. Includes lump-sum & installment purchase, cash advances, check card & purchasing card

 

20


Table of Contents

2.4. Other Information for Investment Decision

2.4.1. BIS Risk-adjusted Capital Ratios

(Units: in millions of Won, %)

 

     March 31,
20061
   December 31,
2005
   December 31,
2004

Risk-adjusted capital (A)

   18,066,743    15,682,535    13,334,531

Risk-weighted assets (B)

   119,212,758    121,072,676    121,081,735
              

BIS ratios (A/B)

   15.16    12.95    11.01
              

2.4.2. Non-Performing Loans2

(Units: in millions of Won unless indicated otherwise)

 

March 31, 2006     December 31, 2005     Change  
Amount    NPL to total loans     Amount    NPL to total loans     Amount    NPL to total loans  
1,868,949    1.36 %   1,946,362    1.42 %   -77,413    -0.06 %p

2.4.3. Loan Loss Allowances

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

(Units: in millions of Won)

 

     March 31,
2006
   December 31,
2005
   December 31,
2004

Loan losses allowance

        

Loans in Won

   2,335,818    2,496,655    3,181,433

Loans in foreign currencies

   3,711    4,122    4,662
              

Total

   2,339,529    2,500,777    3,186,095
              

Provision for loan losses

   422,402    2,014,834    3,382,130
              

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

 

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Table of Contents

2.4.4. Changes of Loan Loss Allowances for Recent Three Years

(Unit: in millions of Won)

 

     March 31,
20061
    December 31,
20052
    December 31,
20043
 

Beginning balance

   2,500,777     3,186,095     3,948,736  
                  

Net Write-Off

   (313,663 )   (1,738,406 )   (3,830,889 )

Write-Off

   (422,402 )   (2,014,834 )   (3,382,130 )

Recovery

   119,054     452,959     286,464  

Other

   (10,315 )   (176,531 )   (735,223 )
                  

Provision for loan losses

   152,415     1,053,088     3,068,248  
                  

Ending balance

   2,339,529     2,500,777     3,186,095  
                  

1 Includes present value discounts and allowance for other assets amounting to 17,192 million Won and 45,180 million Won, respectively as of March 31, 2006
2 Includes present value discounts and allowances for other assets amounting to 20,015 million Won and 47,502 million Won, respectively that had been recorded as of December 31, 2005
3 Includes present value discounts and allowance for other assets amounting to 22,111 million Won and 67,320 million Won, respectively that had been recorded as of December 31, 2004 and includes present value discounts and allowance for other assets amounting to 22,780 million Won and 38,692 million Won, respectively that had been recorded as of January 1, 2004

 

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3. Financial Information

3.1. Non-Consolidated Condensed Financial Statements

(Unit: in millions of Won)

 

     As of or for the years ended of
indicated dates
     March 31,
2006
   December 31,
2005

Cash and due from banks

   6,495,872    5,867,417

Securities

   32,945,800    30,550,229

Loans

   136,479,820    135,738,407

Fixed assets

   2,391,874    2,436,702

Other assets

   7,995,828    5,000,824
         

Total assets

   186,309,194    179,593,649
         

Deposits

   124,093,468    126,281,232

Borrowings

   15,433,018    13,737,336

Debentures

   19,493,616    16,547,987

Other liabilities

   14,255,334    10,653,494
         

Total liabilities

   173,275,436    167,220,049
         

Capital stocks

   1,681,896    1,681,896

Capital surplus

   6,258,297    6,254,786

Retained earnings

   4,547,909    3,929,948

Capital adjustments

   545,656    506,970
         

Total shareholders’ equity

   13,033,758    12,373,600
         

Liabilities and Shareholders’ Equity

   186,309,194    179,593,649
         

Operating revenue

   4,980,785    17,855,258

Operating income

   1,046,147    3,015,822

Continuing (loss) income before income taxes

   1,124,349    3,228,253
         

Net (loss) income

   802,981    2,252,218
         

3.2. Other Financial Information

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

 

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4. Independent Accountant Fees and Services

4.1. Audit & Review Fees

Deloitte Anjin LLC has reviewed our financial statements for the first quarter of 2006. The aggregate contract fee for the audit and review fees for the fiscal year 2006 is 1,350 million Won.

4.2. Non-Audit Services

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

(Units: in millions of Won unless indicated otherwise)

 

Year   

Service description

   Amount of payment
1Q 2006    —      —  
2005    -     LOC (Letter of Comfort)    30
2004    -    Refinancing    230
   -    Due Diligence regarding the possible acquisition of DITC/ KITC    300
   -    US GAAP calculation of provision for the third quarter of 2004    100
   -    US GAAP conversion for 2004    USD 3,600 thousand

 

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5. Corporate Governance and Affiliated Companies

5.1. Board of Directors & Committees under the Board

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

 

  n Matters relating to business objectives and performance evaluation;

 

  n Matters relating to amendments of the Articles of Incorporation;

 

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

 

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

 

  n Matters relating to internal control standards; or

 

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

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

 

  n The Board Steering Committee;

 

  n The Management Strategy Committee;

 

  n The Risk Management Committee;

 

  n The Audit Committee;

 

  n The Evaluation & Compensation Committee; and

 

  n The Non Executive Director Nominating Committee.

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

5.2. Audit Committee

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

 

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Table of Contents

5.3. Compensation to Directors

The following table shows information regarding the remuneration paid to the Directors in the first quarter of 2006.

(Units: in millions of Won)

 

    

The aggregate
remuneration paid

(From Jan to Mar)

   Limit for the remuneration
resolved by shareholders’
meeting (For the year 2006)
   Average amount of the
payment per person
(From Jan to Mar)

1) Executive Directors
(Except chief audit executive and non-executive directors)

   2,123       708

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

   89    8,000    18

3) Members of Audit Committee
(Including chief audit executive)

   509       127
              

Total

   2,721    8,000    227
              

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

5.4. Voting Rights of Shareholders

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

5.5. Share Ownership1

The following table presents information regarding the selected major ownership of our shares as of March 31, 2006.

(Unit: Shares, %)

 

Name

   Number of Shares
of Common Stock
   Percentage of Total
Issued Shares

The Bank of New York2

   51,175,814    15.21

Euro-Pacific Growth Fund

   16,659,610    4.95

1 Information based on December 31, 2005
2 Depositary of ADRs

 

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Table of Contents

5.6. Affiliated Companies

5.6.1. List of Affiliates1

Affiliated companies of Kookmin Bank and its ownership as of March 31, 2006 are as follows.

 

  n KB Investment Co., Ltd. (99.99%)

 

  n KB Asset Management Co., Ltd. (80.00%)

 

  n KB Real Estate Trust Co., Ltd. (99.99%)

 

  n KB Credit Information Co., Ltd. (99.73%)

 

  n KB Data Systems Corporation (99.99%)

 

  n KB Futures Co., Ltd. (99.98%)

 

  n KB Life Co., Ltd. (51.00%)

 

  n ING Life Korea Ltd. (20.00%)

 

  n Kookmin Bank International (London) Ltd. (100.00%)

 

  n Kookmin Bank Hong Kong Ltd. (100.00%)

 

  n Sorak Financial Holdings (25.00%)

 


1 Excluding Jooeun Industry and Jangeun Securities which have been under liquidation procedures. Also excluded as follows; Kookmin Bank Luxembourg.S.A has been completed liquidation procedures on November 2004. Kookmin Singapore Ltd. and Kookmin Finance Asia Limited have been under liquidation procedures.

 

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Table of Contents

6. Directors, Senior Management and Employees

6.1. Executive Directors

Our 4 executive directors consist of the President & CEO, Chief Audit Executive, Chief Executive Vice President and Senior Executive Vice President.

The names and positions of our directors with Kookmin Bank’s common stocks owned are set forth below as of March 31, 2006.

 

Name

   Date of Birth     

Position

  

Common Stocks

Owned

Chung Won Kang

   12/19/1950      President & CEO    —  

Hyung Duk Chang

   08/13/1950      Chief Audit Executive    —  

Ki Hong Kim

   01/10/1957      Chief Executive Vice President    —  

Kap Shin

   09/04/1955      CFO & SEVP    —  

6.2. Non-Executive Directors

Our non-executive directors are selected based on the candidates’ talents and skills in diverse areas, such as law, finance, economy, management and accounting. As of March 31, 2006, 9 non-executive directors are in office.

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

 

Name

   Date of Birth     

Position

  

Common Stocks

Owned

Dong Soo Chung

   09/24/1945      Non-Executive Director    1,890

Nobuya Takasugi

   09/03/1942      Non-Executive Director    —  

Kee Young Chung

   09/07/1948      Non-Executive Director    —  

Doo Hwan Song

   05/29/1949      Non-Executive Director    —  

Chang Kyu Lee

   05/20/1950      Non-Executive Director    —  

Dam Cho

   08/01/1952      Non-Executive Director    —  

Bo Kyung Byun

   08/09/1953      Non-Executive Director    —  

Baek In Cha

   07/23/1958      Non-Executive Director    —  

Young Soon Cheon

   02/01/1961      Non-Executive Director    1,790

 

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6.3. Senior Management

In addition to the executive directors who are also our executive officers, we currently have the following 13 executive officers as of March 31, 2006.

 

Name

   Date of Birth     

Position

   Common Shares Owned

Nam Sik Yang

   05/08/1954      Senior Executive Vice President    582

Won Sik Yeo

   01/30/1953      Senior Executive Vice President    —  

Dal Soo Lee

   02/15/1952      Senior Executive Vice President    —  

Yong Kook Oh

   09/30/1949      Senior Executive Vice President    —  

Hyo Sung Won

   07/29/1960      Senior Executive Vice President    —  

De Oak Shin

   01/09/1951      Senior Executive Vice President    8,618

Jung Young Kang

   01/29/1951      Senior Executive Vice President    —  

Young Han Choi

   09/24/1958      Senior Executive Vice President    —  

Dong Soo Choe

   03/10/1955      Senior Executive Vice President    —  

Jeong Min Kim

   05/08/1951      Senior Executive Vice President    94

Donald H. MacKenzie

   12/20/1948      Senior Executive Vice President    —  

Kap Joe Song

   07/20/1947      Senior Executive Vice President    —  

Dong Won Kim

   03/01/1953      Senior Executive Vice President    —  

6.4. Employees

The following table shows the breakdown of our employees as of March 31, 2006.

(Unit: in millions of Won)

 

     Number of Employees1    Average Tenure of
the Full-time
Employees (years)2
   Total Payment
for the first
quarter of 20063
  

Average Monthly
Payment

per Person

   Full-time    Contractual    Total         

Male

   12,792    1,366    14,158    16 years and
11 months
   215,003    5.1

Female

   4,324    5,683    10,007    14 years    106,848    3.6
                             

Total

   17,116    7,049    24,165    16 years and
2 months
   321,851    4.4
                             

1 Number of employees are calculated based on an arithmetic mean from January 31, 2006 to March 31, 2006 and local employees in overseas branches are excluded
2 Only based on full-time employees as of March 31, 2006
3 Based on personnel expense and welfare cost as of March 31, 3006

 

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7. Related Party Transactions

7.1. Transactions with the Largest Shareholders or Affiliates

7.1.1. Investments in Affiliates1

(Unit: in millions of Won)

 

Name

  

Relation

with the
Bank

  

Account

   Beginning
Balance
(January 1, 2006)
   Increase    Decrease   

Ending

Balance
(March 31, 2006)

KB Real Estate Trust

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

KB Investment

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

KB Asset Management

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

KB Futures

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

KB Data Systems Corp.

   Affiliate    Equity Securities of Affiliate    8,000    —      —      8,000

KB Credit Information

   Affiliate    Equity Securities of Affiliate    6,245    —      —      6,245

KB Life

   Affiliate    Equity Securities of Affiliate    15,300    —      —      15,300

ING Life Korea

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

Kookmin Bank Hong Kong Ltd.

   Affiliate    Equity Securities of Affiliate    20,260    —      742    19,518

Kookmin Bank International (London) Ltd.

   Affiliate    Equity Securities of Affiliate    34,935    —      836    34,099
                         

Total

         274,161    —      1,578    272,583
                         

1 Excluding Jooeun Industry and Jangeun Securities which have been under liquidation procedures

 

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Table of Contents

7.2. Transactions with related parties other than the Largest Shareholders or Affiliates

7.2.1. Securities Transactions

(Units: in millions of Won unless indicated otherwise)

 

Name

  

Relation with the Bank

  

Transactions

 
     

Account

   Purchase    Disposal    Volume    Gains
/Losses
 

DSME Co.

  

Related party of Non-executive director, Dong Soo Chung

   Equity securities    642    —      642    0  

LG International

  

Related party of Non-executive director, Kee Young Chung

   Equity securities    2,083    456    2,539    (34 )
                           

Total

   2,725    456    3,181    (34 )
                           

 

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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: May 15, 2006   By:  

/s/ Kap Shin

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

 

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Table of Contents

Exhibit 99.1

KOOKMIN BANK

NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

AND INDEPENDENT ACCOUNTANTS’ REVIEW REPORT


Table of Contents

Independent Accountants’ Review Report

English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of

Kookmin Bank:

We have reviewed the accompanying non-consolidated balance sheets of the Bank accounts of Kookmin Bank (the “Bank”) as of March 31, 2006, and the related non-consolidated statements of income and cash flows for the three months ended March 31, 2006 and 2005, all expressed in Korean Won. These financial statements are the responsibility of the Bank’s management. Our responsibility is to issue a report on these financial statements based on our reviews. .

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

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

We have previously audited, in accordance with auditing standards generally accepted in the Republic of Korea, the non-consolidated balance sheet of 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 then ended (not presented herein) and in our report dated February 24, 2006, we expressed an unqualified opinion on those non-consolidated financial statements. The accompanying balance sheet as of December 31, 2005, which is comparatively presented, does not differ in material respects from such audited non-consolidated balance sheet.

April 28, 2006

/s/ Deloitte Anjin LLC

Notice to Readers

This report is effective as of April 28, 2006, review report date. Certain subsequent events or circumstances may have occurred between the review report date and the time the review report is read. Such events or circumstances could significantly affect the accompanying financial statements and may result in modifications to the review report.


Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2006 AND DECEMBER 31, 2005

 

     Korean Won
     2006    2005
     (In millions)

ASSETS

     

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

   (Won) 6,495,872    (Won) 5,867,417

Securities (Notes 4, 20 and 21)

     32,945,800      30,550,299

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

     136,479,820      135,738,407

Fixed assets (Note 8)

     2,391,874      2,436,702

Other assets (Note 9)

     7,995,828      5,000,824
             
   (Won) 186,309,194    (Won) 179,593,649
             

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

LIABILITIES:

     

Deposits (Notes 10, 20 and 21)

   (Won) 124,093,468    (Won) 126,281,232

Borrowings (Notes 11, 20 and 21)

     15,433,018      13,737,336

Debentures (Notes 12, 20 and 21)

     19,493,616      16,547,987

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

     14,255,334      10,653,494
             
     173,275,436      167,220,049
             

SHAREHOLDERS’ EQUITY (Notes 17 and 18):

     

Common stock

     1,681,896      1,681,896

Capital surplus

     6,258,297      6,254,786

Retained earnings (Net income of (Won)802,981 million for three months ended March 31, 2006 and (Won)2,252,218 million for the year ended December 31, 2005)

     4,547,909      3,929,948

Capital adjustments

     545,656      506,970
             
     13,033,758      12,373,600
             
   (Won) 186,309,194    (Won) 179,593,649
             

See accompanying notes to non-consolidated financial statements.


Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

 

     Korean Won
     2006    2005
     (In millions except per share amounts)

OPERATING REVENUE:

     

Interest income:

     

Interest on due from banks (Note 21)

   (Won) 5,011    (Won) 6,186

Interest on securities (Note 21)

     316,842      239,201

Interest on loans (Note 21)

     2,544,672      2,528,297

Other interest income

     7,034      7,150
             
     2,873,559      2,780,834
             

Commission income

     312,931      274,219
             

Other operating income:

     

Gain on disposal of trading securities

     13,971      21,431

Gain on valuation of trading securities (Note 4)

     12,150      4,184

Dividends on trading securities

     2,634      4,658

Dividends on available-for-sale securities

     1,696      1,823

Foreign exchange trading income

     61,605      43,982

Fees and commissions from trust accounts (Note 26)

     22,029      44,352

Gain on financial derivatives trading

     1,016,030      890,997

Gain on valuation of financial derivatives (Note 19)

     632,356      759,327

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

     2,654      22,635

Other operating income

     29,170      4,502
             
     1,794,295      1,797,891
             

Total operating revenues

     4,980,785      4,852,944
             

OPERATING EXPENSES:

     

Interest expenses:

     

Interest on deposits (Note 21)

     784,922      831,707

Interest on borrowings (Note 21)

     145,090      74,990

Interest on debentures (Note 21)

     227,432      291,211

Other interest expenses

     10,832      8,629
             
     1,168,276      1,206,537
             

Commission expenses

     88,135      77,990
             

Other operating expenses:

     

Loss on disposal of trading securities

     23,247      30,737

Provision for possible loan losses (Note 7)

     152,415      337,125

Provision for acceptances and guarantees losses

     —        856

Foreign exchange trading losses

     108,225      64,550

Loss on financial derivatives trading (Note 19)

     962,567      773,882

Loss on valuation of financial derivatives (Note 19)

     603,487      840,445

Other operating expenses

     133,347      115,234
             
     1,983,288      2,162,829
             

General and administrative expenses (Note 22)

     694,939      734,640
             

Total operating expenses

     3,934,638      4,181,996
             

(Continued)


Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

 

     Korean Won
     2006    2005
     (In millions except per share amounts)

OPERATING INCOME

   (Won) 1,046,147    (Won) 670,948

NON-OPERATING INCOME (Note 23)

     121,870      148,963

NON-OPERATING EXPENSES (Note 23)

     43,668      297,249
             

ORDINARY INCOME

     1,124,349      522,662

EXTRAORDINARY ITEM

     —        —  
             

INCOME BEFORE INCOME TAX

     1,124,349      522,662

INCOME TAX EXPENSE (Note 24)

     321,368      182,393
             

NET INCOME

   (Won) 802,981    (Won) 340,269
             

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

   (Won) 2,387    (Won) 1,109
             

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

   (Won) 2,387    (Won) 1,109
             

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

   (Won) 2,387    (Won) 1,104
             

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

   (Won) 2,387    (Won) 1,104
             

See accompanying notes to non-consolidated financial statements.


Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

 

     Korean Won  
     2006     2005  
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   (Won) 802,981     (Won) 340,269  
                

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

    

Loss on disposal of trading securities

     23,247       30,737  

Provision for possible loan losses

     152,415       337,125  

Loss on financial derivatives trading

     962,567       773,882  

Loss on valuation of financial derivatives

     603,487       840,445  

Loss on valuation of securities accounted for using the equity method

     942       7,692  

Provision for severance benefits

     38,556       38,424  

Depreciation and amortization

     65,617       77,086  

Loss on disposal of available-for-sale securities

     4,738       9,135  

Loss on impairment of available-for-sale securities

     3,335       4,629  

Loss on disposal of tangible assets

     147       1,347  

Loss on sale of loans

     —         26  

Gain on disposal of trading securities

     (13,971 )     (21,431 )

Gain on valuation of trading securities

     (12,150 )     (4,184 )

Gain on financial derivatives trading

     (1,016,030 )     (890,997 )

Gain on valuation of financial derivatives

     (632,356 )     (759,327 )

Gain on valuation of fair value hedged items

     (2,654 )     (22,635 )

Gain on valuation of securities accounted for using the equity method

     (22,997 )     (25,629 )

Gain on disposal of available-for-sale securities

     (38,421 )     (75,039 )

Gain on disposal of tangible assets

     (46 )     (68 )

Gain on sale of loans

     —         (62 )

Others, net

     88,240       112,126  
                
     204,666       433,282  
                

(Continued)


Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

 

     Korean Won  
     2006     2005  
     (In millions)  

Changes in assets and liabilities resulting from operations:

    

Net decrease in trading securities

   (Won) 661,027     (Won) 270,887  

Net increase in accounts receivable

     (2,959,701 )     (4,453,600 )

Net decrease (increase) in accrued income

     5,772       (16,517 )

Net decrease (increase) in prepaid expenses

     (36,868 )     110,554  

Net decrease in deferred income tax assets

     4,834       42,769  

Net increase in accounts payable

     2,871,969       4,366,207  

Net increase (decrease) in accrued expenses

     (557,227 )     23,935  

Net increase (decrease) in advances from customers

     (53,936 )     314,291  

Payment of severance benefits

     (6,244 )     (50,936 )

Decrease (increase) in severance insurance deposits

     (1,224 )     28,019  

Others, net

     1,866,465       1,783,944  
                
     1,794,867       2,419,553  
                

Net cash provided by operating activities

     2,802,514       3,193,104  
                

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Net increase in restricted due from banks

     (1,358,849 )     (434,393 )

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

     (2,763,432 )     1,476,011  

Net increase in held-to-maturity securities

     (218,973 )     (1,773,272 )

Net decrease (increase) in securities accounted for using the equity method

     (1,261 )     14,339  

Net decrease (increase) in loans

     (884,601 )     1,897,082  

Disposal of fixed assets

     143       244  

Purchase of fixed assets

     (25,552 )     (14,951 )

Net decrease in other assets

     (20,769 )     321,147  
                

Net cash provided by (used in) investing activities

     (5,273,294 )     1,486,207  
                

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net decrease in deposits

     (2,187,807 )     (4,495,947 )

Net increase (decrease) in debentures

     2,878,675       (729,606 )

Net increase in borrowings

     1,695,682       892,518  

Net decrease in other liabilities

     (646,164 )     (295,204 )
                

Net cash provided by (used in) financing activities

     1,740,386       (4,628,239 )
                

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS

     (730,394 )     51,072  

CASH AND DUE FROM BANKS, BEGINNING OF PERIOD

     3,624,831       3,319,349  
                

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

   (Won) 2,894,437     (Won) 3,370,421  
                

See accompanying notes to non-consolidated financial statements.


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KOOKMIN BANK

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

 

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. In addition, the Bank listed its American Depositary Shares (“ADS”) on the New York Stock Exchange (“NYSE”) as of November 1, 2001 following the consolidation with H&CB. H&CB listed its ADS on the NYSE as of October 3, 2000 prior to the business combination. As of March 31, 2006, the Bank’s paid-in capital amounts to (Won)1,681,896 million.

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 1,105 domestic branches and offices (excluding 200 automated teller machine stations) and three overseas branches (excluding 2 subsidiaries and 1 office) as of March 31, 2006.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Non-consolidated Financial Statement Presentation

The Bank maintains its official accounting records in Korean Won and prepares statutory non-consolidated financial statements in the Korean language (Hangul) in conformity with the accounting principles and banking accounting standards generally accepted in the Republic of Korea. Certain accounting principles and banking accounting standards applied by the Bank that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles and banking accounting practices in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language financial statements. Certain information included in the Korean language financial statements, but not required for a fair presentation of the Bank’s financial position, results of operations or cash flows, is not presented in the accompanying financial statements.

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


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Interest Income Recognition

The Bank applies the accrual basis in recognizing interest income related to deposits, loans and securities, except for non-secured uncollectible receivables. Interest on loans, whose principal or interest is past due at the balance sheet date, is generally not accrued, with the exception of interest on certain loans secured by guarantee of governments or government agencies, or collateralized by bank deposits. When a loan is placed on non-accrual status, previously accrued interest is generally reversed and deducted from current interest income; and future interest income is recognized on cash basis in accordance with the accounting standards of the banking industry. As of March 31, 2006 and December 31, 2005, 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)6,970,403 million and (Won)7,875,123 million, respectively, and the related accrued interest income not recognized amounted to (Won)480,583 million and (Won)462,799 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 more than 15 percent of the total 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.

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.


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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.

Pursuant to the Supervisory Regulation of Banking Business, the Bank provides allowance for possible losses on note endorsed, unconfirmed acceptances and guarantees, and confirmed acceptances and guarantees based on the credit classification, minimum rate of loss provision prescribed by Financial Supervisory Service and the cash conversion factor. In addition, the Bank provides other allowance for the unused credit limit of credit card and unused credit line of consumer and corporate loans based on the cash conversion factor and minimum rate of loss provision prescribed by Financial Supervisory Service.

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.

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.


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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.

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


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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 March 31, 2006 are entitled to receive a lump-sum payment upon termination of their employment with the Bank, based on their length of service and rate of pay at the time of termination. The accrued severance benefits that would be payable assuming all eligible employees and directors were to resign are included in other liabilities.

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

Accounting for Derivative Instruments

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

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

Accounting for Stock Options

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


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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)975.90 and (Won)1,013.00 to US$ 1.00 at March 31, 2006 and December 31, 2005, respectively) announced by Seoul Money Brokerage Service, Ltd. or cross rates for other currencies other than U.S. Dollars at the balance sheet dates. Translation gains and losses are credited or charged to operations. Financial statements of overseas branches are translated based on the basic rate at balance sheet dates.

Application of the Statement of Korea Accounting Standards

The Korea Accounting Standard Board (KASB) under the Korea Accounting Institute (KAI) issued the Statements of Korea Accounting Standards (SKAS) for achieving a set of Korean accounting standards that should be internationally acceptable and comparable based on SKAS Act 92. The Bank adopted SKAS No.1 (Accounting Changes and Error Corrections) through SKAS No. 17 (Provisions, Contingent Liabilities and Contingent Assets) (SKAS No. 11 and No. 14 excluded) as of or before December 31, 2005. SKAS No. 18 (Interests in Joint Ventures), No. 19 (Lease) and No. 20 (Related Party Disclosures) have been adopted since January 1, 2006.

Reclassification

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


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3. CASH AND DUE FROM BANKS:

 

(1) Cash and due from banks in Won and foreign currencies as of March 31, 2006 and December 31, 2005 consisted of (Unit: In millions):

 

     2006    2005

Cash and checks

   (Won) 2,290,291    (Won) 2,683,479

Foreign currencies

     162,046      150,402

Due from banks in Won

     3,549,339      2,495,595

Due from banks in foreign currencies

     494,196      537,941
             
   (Won) 6,495,872    (Won) 5,867,417
             

 

(2) Due from banks as of March 31, 2006 and December 31, 2005 consisted of (Unit: In millions):

 

Financial institution

   Interest (%)    2006    2005

Due from banks in Won

        

BOK

   —      (Won) 3,536,748    (Won) 2,189,339

Woori Bank and others

   0.00~2.20      6,260      304,019

Korea Stock Exchange and others

   —        6,331      2,237
                
      (Won) 3,549,339    (Won) 2,495,595
                

Due from banks in foreign currencies

        

BOK

   —      (Won) 53,585    (Won) 46,501

Korea Exchange Bank and others

   0.00~4.86      35,613      78,136

Woori Bank and others

   4.64~5.17      404,998      413,304
                
      (Won) 494,196    (Won) 537,941
                

 

(3) Restricted due from banks in Won and foreign currencies as of March 31, 2006 and December 31, 2005 consisted of (Unit: In millions):

 

Financial institution

   2006    2005   

Reason for restriction

Due from banks in Won

        

BOK

   (Won) 3,536,748    (Won) 2,189,339    BOK Act

Woori Bank

     4,029      4,029    Escrow account

Korea Stock Exchange and others

     6,331      2,237    Futures margin accounts/others

Due from banks in foreign currencies

        

BOK

     53,585      46,501    BOK Act

J.P.Morgan Chase & Co. and others

     742      480    Futures margin accounts
                
   (Won) 3,601,435    (Won) 2,242,586   
                

 

(4) Due from banks by financial institution as of March 31, 2006 and December 31, 2005 consisted of (Unit: In millions):

 

Financial institution

   2006    2005

Due from banks in Won

     

BOK

   (Won) 3,536,748    (Won) 2,189,339

Banks

     6,260      304,019

Others

     6,331      2,237
             
     3,549,339      2,495,595
             

Due from banks in foreign currencies

     

BOK

     53,585      46,501

Banks

     439,869      490,960

Others

     742      480
             
     494,196      537,941
             
   (Won) 4,043,535    (Won) 3,033,536
             


Table of Contents
(5) Term structure of due from banks as of March 31, 2006 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) 3,545,310    (Won) —      (Won) —      (Won) 4,029    (Won) —      (Won) 3,549,339

Due from banks in foreign currencies

     464,919      29,277      —        —        —        494,196
                                         
   (Won) 4,010,229    (Won) 29,277    (Won) —      (Won) 4,029    (Won) —      (Won) 4,043,535
                                         

 

4. SECURITIES:

 

(1) Securities as of March 31, 2006 and December 31, 2005 consisted of (Unit: In millions):

 

     2006    2005

Trading securities

   (Won) 2,893,272    (Won) 3,551,425

Available-for-sale securities

     18,997,841      16,180,784

Held-to-maturity securities

     10,442,910      10,228,573

Securities accounted for using the equity method

     611,777      589,517
             
   (Won) 32,945,800    (Won) 30,550,299
             

 

(2) The valuation of securities excluding securities accounted for using the equity method as of March 31, 2006 consisted of (Unit: In millions):

 

Classification

   Face value   

Acquisition

cost (*)

   Adjusted by
effective
interest rate
method
   Book value

Trading securities

           

Equity securities

   (Won) —      (Won) 68,604    (Won) —      (Won) 70,529

Beneficiary certificates

     40,116      40,118      —        40,189

Government and public bonds

     1,130,108      1,107,403      1,094,657      1,100,399

Finance bonds

     1,567,950      1,561,226      1,557,397      1,561,940

Corporate bonds

     120,000      119,407      120,346      120,215
                           
   (Won) 2,858,174    (Won) 2,896,758    (Won) 2,772,400    (Won) 2,893,272
                           

Available-for-sale securities

           

Equity securities

   (Won) —      (Won) 1,137,159    (Won) —      (Won) 1,154,538

Equity investments

     —        3,723      —        3,735

Beneficiary certificates

     2,160,310      2,152,680      —        2,181,428

Government and public bonds

     3,495,370      3,484,361      3,478,542      3,468,664

Finance bonds

     10,406,164      10,304,267      10,320,819      10,319,643

Foreign government bonds

     8,783      9,773      8,953      8,905


Table of Contents

Classification

   Face value   

Acquisition

cost (*)

   Adjusted by
effective
interest rate
method
   Book value

Corporate bonds

     1,126,533      1,089,930      1,068,000      1,068,194

Asset-backed securities

     997,000      933,568      785,595      784,647

Other debt securities

     40,835      5,633      —        8,087
                           
   (Won) 18,234,995    (Won) 19,121,094    (Won) 15,661,909    (Won) 18,997,841
                           

Held-to-maturity securities

           

Government and public bonds

   (Won) 5,730,541    (Won) 5,674,844    (Won) 5,679,196    (Won) 5,679,196

Finance bonds

     3,015,500      3,010,822      3,014,955      3,014,955

Corporate bonds

     1,409,779      1,418,903      1,413,817      1,413,817

Asset-backed securities

     335,000      334,906      334,942      334,942
                           
   (Won) 10,490,820    (Won) 10,439,475    (Won) 10,442,910    (Won) 10,442,910
                           

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

 

(3) 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
   Book value

Trading securities

           

Equity securities

   (Won) —      (Won) 179,074    (Won) —      (Won) 200,147

Beneficiary certificates

     197      256      —        256

Government and public bonds

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

Finance bonds

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

Corporate bonds

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

Available-for-sale securities

           

Equity securities

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

Equity investments

     —        511      —        3,723

Beneficiary certificates

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

Government and public bonds

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

Finance bonds

     8,324,183      8,246,513      8,248,052      8,232,310

Foreign government bonds

     9,117      10,144      9,382      9,328

Corporate bonds

     1,181,077      1,137,245      1,112,467      1,115,995

Asset-backed securities

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

Other debt securities

     40,835      5,633      —        8,087
                           
   (Won) 15,436,760    (Won) 15,994,184    (Won) 12,968,506    (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) 4,609,832

Finance bonds

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

Corporate bonds

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

Asset-backed securities

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

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


Table of Contents

As a result of the fair valuation of trading securities, the Bank recognized (Won)12,150 million and (Won)4,184 million of valuation gain for the three months ended March 31, 2006 and 2005, 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.


Table of Contents
(4) Available-for-sale securities, which were not valuated at fair value as of March 31, 2006 and December 31, 2005, were as follows (Unit: In millions) :

 

Company

   2006    2005

Korea Asset Management Corp.

   (Won) 15,667    (Won) 15,667

Bad Bank Harmony (preferred stock)

     8,852      12,279

Samsung Life Insurance Co., Ltd.

     7,479      7,479

Korea Highway Corp.

     6,248      6,248

Mastercard Inc.

     5,301      5,502

CLS

     5,070      5,191

Koda Development Co., Ltd.

     3,195      2,881

Kyobo Investment Trust Management Co., Ltd.

     2,100      2,100

Korea Money Broker Corp.

     1,291      1,291

Mercury

     1,088      1,088

Tianjin Samsung Opto Electronics

     953      989

Others

     14,411      17,281
             
   (Won) 71,655    (Won) 77,996
             

The impairment loss and the reversal of impairment loss on available-for-sale securities recognized for the three months ended March 31, 2006 and 2005 were shown below (Unit: In millions).

 

     2006    2005
     Impairment    Reversal    Impairment    Reversal

Equity securities

   (Won) 3,333    (Won) —      (Won) 4,628    (Won) —  

Equity investments

     1      —        1      —  

Corporate bonds

     1      2,317      —        —  
                           
   (Won) 3,335    (Won) 2,317    (Won) 4,629    (Won) —  
                           

 

(5) Structured notes relating to stock and interest rate and credit risk as of March 31, 2006 were as follows (Unit: In millions):

 

     Won   

Foreign

currencies

   Total

Structured notes relating to stock

        

Convertible bonds

   (Won) —      (Won) 57    (Won) 57
                    

Structured notes relating to interest rate

        

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

     563,942      —        563,942

Dual indexed FRN

     19,900      —        19,900

Inverse FRN

     20,645      —        20,645

Others

     110,299      —        110,299
                    
     714,786      —        714,843
                    

Bonds with call option

     20,000      —        20,000
                    
   (Won) 734,786    (Won) 57    (Won) 734,843
                    


Table of Contents

Structured notes relating to stock, interest rate and credit risk 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 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      —        715,368
                    

Credit linked notes

     —        40,559      40,559
                    

Bonds with call option

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

 

(6) Private beneficiary certificates included in beneficiary certificates of available-for-sale securities as of March 31, 2006 and December 31, 2005 were composed of (Unit: In millions):

 

     2006    2005

Stocks

   (Won) 40,615    (Won) 7,353

Government and public bonds

     256,318      38,018

Finance bonds

     1,559,679      1,340,390

Corporate bonds

     76,829      32,622

Asset-backed debt securities

     19,985      —  

Call loans

     172,292      203,892

Others

     138,953      412,962
             

Assets

     2,264,671      2,035,237

Liabilities

     94,973      11,081
             
   (Won) 2,169,698    (Won) 2,024,156
             

 

(7) The portfolio of securities excluding securities accounted for using the equity method, by industry, as of March 31, 2006 and December 31, 2005 were as follows (Unit: In millions):

 

     2006    2005

By industry

   Amount    Percentage(%)    Amount   

Percentage

(%)

Trading securities

           

Government and government-invested public companies

   (Won) 1,222,451    42.25    (Won) 1,764,476    49.68

Financial institutions

     1,615,764    55.85      1,631,869    45.95

Others

     55,057    1.90      155,080    4.37
                       
   (Won) 2,893,272    100.00    (Won) 3,551,425    100.00
                       

Available-for-sale securities

           

Government and government-invested public companies

   (Won) 4,102,889    21.60    (Won) 3,347,229    20.69

Financial institutions

     14,121,022    74.33      12,027,488    74.33

Others

     773,930    4.07      806,067    4.98
                       
   (Won) 18,997,841    100.00    (Won) 16,180,784    100.00
                       

Held-to-maturity securities

           

Government and government-invested public companies

   (Won) 7,063,075    67.63    (Won) 6,298,716    61.58

Financial institutions

     3,349,897    32.08      3,899,922    38.13

Others

     29,938    0.29      29,935    0.29
                       
   (Won) 10,442,910    100.00    (Won) 10,228,573    100.00
                       


Table of Contents
(8) The portfolio of securities excluding securities accounted for using the equity method, by security type, as of March 31, 2006 and December 31, 2005 were as follows (Unit: In millions):

 

     2006    2005

By type

   Amount    Percentage
(%)
   Amount    Percentage
(%)

Trading securities

           

Stocks

   (Won) 70,529    2.44    (Won) 200,147    5.64

Fixed rate bonds

     2,662,339    92.02      3,230,737    90.97

Floating rate bonds

     120,215    4.15      120,285    3.39

Beneficiary certificates

     40,189    1.39      256    0.00
                       
   (Won) 2,893,272    100.00    (Won) 3,551,425    100.00
                       

Available-for-sale securities

           

Stocks

   (Won) 1,154,538    6.08    (Won) 1,156,629    7.15

Fixed rate bonds

     14,079,665    74.11      11,201,802    69.23

Floating rate bonds

     785,257    4.13      861,368    5.32

Subordinated bonds

     784,698    4.13      872,813    5.39

Convertible bonds

     57    0.00      60    0.00

Beneficiary certificates

     2,181,428    11.48      2,075,933    12.83

Others

     12,198    0.07      12,179    0.08
                       
   (Won) 18,997,841    100.00    (Won) 16,180,784    100.00
                       

Held-to-maturity securities

           

Fixed rate bonds

   (Won) 10,252,910    98.18    (Won) 10,038,573    98.14

Floating rate bonds

     60,000    0.57      60,000    0.59

Subordinated bonds

     130,000    1.25      130,000    1.27
                       
   (Won) 10,442,910    100.00    (Won) 10,228,573    100.00
                       

 

(9) The portfolio of securities excluding securities accounted for using the equity method, by country, as of March 31, 2006 and December 31, 2005 were as follows (Unit: In millions):

 

     2006    2005
     Amount   

Percentage

(%)

   Amount    Percentage
(%)

Trading securities

           

Korea

   (Won) 2,893,272    100.00    (Won) 3,551,425    100.00
                       

Available-for-sale securities

           

Korea

   (Won) 18,909,176    99.53    (Won) 16,066,362    99.29

Russia

     37,219    0.20      28,527    0.18

India

     10,024    0.05      393    0.00

Philippines

     9,303    0.05      9,675    0.06

USA

     6,086    0.03      46,876    0.29

The Republic of South Africa

     5,955    0.03      6,240    0.04

Switzerland

     5,070    0.03      5,191    0.03

Others

     15,008    0.08      17,520    0.11
                       
   (Won) 18,997,841    100.00    (Won) 16,180,784    100.00
                       

Held-to-maturity securities

           

Korea

   (Won) 10,442,910    100.00    (Won) 10,228,573    100.00
                       


Table of Contents
(10) Term structure of securities (except for stocks and equity investments) in available-for-sale and held-to-maturity securities as of March 31, 2006 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) 10,583,506    (Won) 7,095,219    (Won) 152,321    (Won) 8,522    (Won) 17,839,568

Held-to-maturity securities

              

Book value

     2,079,466      6,918,062      1,445,382      —        10,442,910

Fair value

     2,074,369      6,851,914      1,400,397      —        10,326,680

 

(11) Securities accounted for using the equity method as of March 31, 2006 were summarized as follows (Unit: In millions):

 

    

No. of

shares

   Ownership
(%)
   Acquisition
cost
   Net asset
value
   Book value

Domestic stocks

              

KB Investment Co., Ltd.

   8,951,293    99.99    (Won) 155,384    (Won) 84,443    (Won) 84,443

KB Futures Co., Ltd.

   3,999,200    99.98      19,996      27,785      27,785

KB Data System Co., Ltd.

   799,960    99.99      8,001      15,757      13,076

KB Real Estate Trust

   15,999,930    99.99      76,103      84,751      84,889

KB Asset Management

   6,134,040    80.00      39,015      56,579      56,579

KB Credit Information

   1,249,040    99.73      14,291      29,680      28,942

KB Life Insurance Co., Ltd.

   3,060,000    51.00      15,426      13,913      —  

KLB Securities Co., Ltd. (*1)

   4,854,713    36.41      10,316      —        —  

Jooeun Industrial Co., Ltd. (*1)

   1,999,910    99.99      23,994      —        —  

ING Life Insurance Korea

   1,400,000    20.00      21,769      92,080      92,080

Balhae Infrastructure Fund (*2)

   126,050    12.61      1,261      1,267      1,267

Korea Credit Bureau Co., Ltd. (*3)

   180,000    9.00      4,500      3,699      3,699
                          
           390,056      409,954      392,760
                          

Foreign stocks

              

Kookmin Bank Singapore Ltd. (*1)

   30,000,000    100.00      18,084      —        1,695

Kookmin Finance Asia Ltd. (HK) (*1)

   700,000    100.00      7,790      —        237

Kookmin Bank Int’l Ltd. (London)

   20,000,000    100.00      33,555      49,966      49,966

Kookmin Bank Hong Kong Ltd.

   2,000,000    100.00      51,782      69,197      69,246

Sorak Financial Holdings PTE Ltd.

   1,422,216    25.00      73,586      86,825      86,825
                          
           184,797      205,988      207,969
                          

Equity investments

              

KICO No. 2 Venture Investment Partnership (*1)

   5,000    55.56      —        134      134

KICO No. 3 Venture Investment Partnership (*1)

   9,000    69.23      —        113      113

Pacific IT Investment Partnership (*1)

   700    50.00      7,000      3,507      3,507

NPC02-4 Kookmin Venture Fund

   100    33.33      10,000      7,294      7,294
                          
           17,000      11,048      11,048
                          
         (Won) 591,853    (Won) 626,990    (Won) 611,777
                          


Table of Contents

Securities accounted for using the equity method as of December 31, 2005 were summarized as follows (Unit: In millions):

 

    

No. of

shares

   Ownership
(%)
   Acquisition
cost
   Net asset
value
   Book value

Domestic stocks

              

KB Investment Co., Ltd.

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

KB Futures Co., Ltd.

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

KB Data System Co., Ltd.

   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

   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.

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

KLB Securities Co., Ltd. (*1)

   4,854,713    36.41      10,316      —        —  

Jooeun Industrial Co., Ltd. (*1)

   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. (*1)

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

Kookmin Finance Asia Ltd. (HK) (*1)

   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.

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