Form 6-K
Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Form 6-K

 


REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

For the month of August 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 First Half Business Report

2. Exhibit 99.1-Kookmin Bank Review Report for the First Half of 2006

 

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Table of Contents

TABLE OF CONTENTS

 

1.

   Introduction to the Bank    5

1.1.

   Business Purposes    5

1.2.

   History    5

1.3.

   Capital Structure    7

1.4.

   Dividend    8

2.

   Business    9

2.1.

   Source and Use of Funds    9

2.2.

   Principal Banking Activities    12

2.3.

   Branch Networks    16

2.4.

   Other Information for Investment Decision    17

3.

   Financial Information    19

3.1.

   Non-Consolidated Condensed Financial Statements    19

3.2.

   Other Financial Information    19

4.

   Independent Public Accountant    20

4.1.

   Audit & Audit related Fees    20

4.2.

   Non-Audit Services    20

5.

   Corporate Governance and Affiliated Companies    21

5.1.

   Board of Directors & Committees under the Board    21

5.2.

   Compensation    22

5.3.

   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.

   Major Stockholders and Related Party Transactions    30

7.1.

   Major Stockholders    30

7.2.

   Investments in Affiliates    31

7.3.

   Related Party Transactions    32

 

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Table of Contents

Summary of 2006 First Half Business Report

On August 14, 2006, pursuant to the Securities and Exchange Act of Korea, Kookmin Bank filed its business report for the first half 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 financial information contained in this summary (and in the attached review report) have been prepared in accordance with generally accepted accounting principles in Korea, which differ in certain important respects from generally accepted accounting principles in the United States.

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” 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:

 

    The banking business as prescribed by the Banking Act,

 

    The trust business as prescribed by the Banking Trust Act,

 

    The credit card business as prescribed by the Specialized Credit Financial Business Act, and

 

    Other business permitted by the Bank Act or other relevant Korean laws and regulations

1.2. History

 

    November 1, 2001

Incorporated and listed on the New York Stock Exchange

 

    November 9, 2001

Listed on the Korea Stock Exchange

 

    September 23, 2002

Integrated IT platforms of old Kookmin Bank and H&CB

 

    December 4, 2002

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

 

    September 30, 2003

Completed the merger with Kookmin Credit Card

 

    December 16, 2003

Completed a strategic investment in Bank Internasional Indonesia (BII) by investing in a 25% stake in Sorak Financial Holdings, a consortium with other investors

 

    December 19, 2003

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

 

    April 29, 2004

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

 

    July 22, 2004

Entered into an alliance with China Construction Bank in connection with the foreign currency business

 

    August 31, 2004

ING Bank N.V. Amsterdam entered into a contract with KB for a strategic investment in KB Life Insurance

 

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Table of Contents
    October 29, 2004

Appointed Mr. Chung Won Kang as the President & CEO in an extraordinary general shareholders’ meeting

 

    December 31, 2004

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

 

    January 01, 2005

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

 

    March 02, 2005

Opened “KB Satellite Broad Casting System” for the first time in Korea

 

    March 21, 2005

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

 

    June 16, 2005

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

 

    July 26, 2005

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

 

    October 14, 2005

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

 

    February 2, 2006

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

 

    March 24, 2006

Selected as the preferred bidder for the acquisition of Korea Exchange Bank

 

    April 3, 2006

Established 100% computerization of bank accounts for the first time among domestic financial institutions

 

    May 19, 2006

Entered into a share purchase agreement with respect to acquiring Korea Exchange Bank stock

 

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Table of Contents

1.3. Capital Structure

1.3.1. Common Shares

Kookmin Bank has the 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 Kookmin Bank’s issued and outstanding shares of common stock. Upon completion of the merger between the former Kookmin Bank and H&CB, Kookmin Bank issued 299,697,462 common shares.

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

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 respect to the merger between Kookmin Bank and Kookmin Credit Card on September 30, 2003, Kookmin Bank issued an additional 8,120,431 common shares on October 1, 2003. Accordingly, as of June 30, 2006, a total of 336,379,116 common shares were issued.

Number of Shares

(Unit: share)

 

      Type
     Common Stock    Total

Share Issued (A)

   336,379,116    336,379,116

Treasury Stock (B)

   —      —  
         

Share Outstanding (A-B)

   336,379,116    336,379,116
         

Capital Increase

(Unit: Won, share)

 

Issue Date

  

Type

  

Number

  

Face Value

  

Issue Price

  

Remarks

2001.10.31

   Common Stock    299,697,462    5,000    —      M&A into a new entity

2002.3.22

   Common Stock    17,979,954    5,000    5,000    Stock dividend

2002.11.30

   Common Stock    10,581,269    5,000    22,124    CB conversion

2003.10.01

   Common Stock    8,120,431    5,000    38,100    M&A with KCC

1.3.2. Treasury Stock

(Unit: share)

 

Date

  

Details

   Number of shares

December 31, 2005

   Outstanding Treasury Shares    217,935

January 13, 2006

   Disposition due to exercise of stock option by grantees    217,935
       

June 30, 2006

   Outstanding Treasury Shares    0
       

 

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1.3.3. Employee Stock Ownership Association

(Unit: share)

 

Type

  

Beginning
Balance

(January 1, 2006)

   Increase    Decrease   

Ending

Balance

(June 30, 2006)

   Remarks

Registered common stock

   2,868,596    —      56,528    2,812,068    —  
                        

Total

   2,868,596    —      56,528    2,812,068    —  
                        

1.4. Dividend

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

(Unit: in millions of Won unless indicated otherwise)

 

     June 2006    2005     2004

Net (loss) income for the period

   —      2,252,218     360,454

Diluted (loss) earnings per share (Won)

   —      6,977 1   1,176

Total dividend amount

   —      184,889     168,574

Dividend payout ratio (%)

   —      8.21 2   46.77

Cash dividend per common share (Won)

   —      550     550

Stock dividend per common share (%)

   —      —       —  

Dividend per preferred share (Won)

   —      —       —  

Dividend yield ratio (%)

   —      0.72 3   1.42
               

1 Earnings per share = net income (2,252,218,097,725 Won) / weighted average number of shares (322,785,751 shares).
2 Dividend payout ratio = total dividend amount for common shares (184,888,649,550 Won) / net income (2,252,218,097,725 Won).
3 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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2. Business

2.1. Source and Use of Funds

2.1.1. Source of Funds

(Unit: in millions of Won)

 

          June 30, 2006    December 31, 2005    December 31, 2004
          Average
balance
  

Interest

rate (%)

   Average
balance
  

Interest

rate (%)

   Average
balance
  

Interest

rate (%)

Won currency    Deposits    111,424,919    2.81    114,394,983    2.82    118,017,849    3.29
   Certificate of deposit    6,677,125    4.29    5,008,378    3.69    6,108,179    4.06
   Borrowings    2,782,062    3.26    2,674,268    3.02    3,053,890    3.43
   Call money    2,514,803    3.89    931,968    3.24    1,117,576    3.55
   Other    25,493,738    5.03    24,315,388    5.08    23,376,439    5.61
                                
Subtotal       148,892,647    3.29    147,324,985    3.23    151,673,933    3.68
                                
Foreign currency    Deposits    1,452,745    2.10    1,473,811    1.61    1,777,402    0.61
   Borrowings    3,277,360    3.07    3,231,480    2.06    2,796,300    0.94
   Call money    821,497    4.56    285,573    3.48    145,809    1.43
   Finance debentures issued    1,248,154    4.34    765,723    4.09    824,745    2.28
   Other    58,303    —      52,592    —      40,383    —  
                                
Subtotal       6,858,059    3.25    5,809,179    2.26    5,584,639    1.04
                                
Other    Total Shareholders Equity    13,363,149    —      11,369,246    —      9,284,477    —  
   Allowances    1,019,437    —      677,036    —      459,124    —  
   Other    11,958,394    —      12,041,392    —      12,773,040    —  
                                
Subtotal       26,340,980    —      24,087,674    —      22,516,641    —  
                                
Total       182,091,686    2.81    177,221,838    2.76    179,775,213    3.14
                                

 

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Table of Contents

2.1.2. Use of Funds

(Unit: in millions of Won)

 

          June 30, 2006    December 31, 2005    December 31, 2004
          Average
balance
  

Interest

rate (%)

   Average
balance
  

Interest

rate (%)

   Average
balance
  

Interest

rate (%)

Won currency    Due from banks    360,822    3.90    304,662    2.97    184,593    0.83
   Securities    30,961,918    4.40    27,676,964    4.58    23,930,678    5.14
   Loans    118,427,363    6.42    120,539,476    6.24    125,504,672    6.64
   Advances for customers    13,830    1.90    23,947    8.64    71,213    2.01
   Call loan    1,066,303    4.06    1,473,725    3.43    1,661,772    3.78
   Private placement corporate bonds    4,517,592    5.66    1,887,514    6.95    1,322,470    6.58
   Credit card accounts    7,451,943    25.23    7,321,906    26.93    9,581,330    26.80
   Other    303,056    —      267,061    —      172,783    —  
   Allowance for credit losses ( - )    -2,381,100    —      -3,034,841    —      -3,844,940    —  
                                
Subtotal       160,721,727    7.00    156,460,414    7.06    158,584,571    7.81
                                
Foreign currency    Due from banks    499,731    4.11    598,015    2.88    632,526    1.34
   Securities    772,807    8.28    858,565    6.15    1,208,124    3.88
   Loans    5,664,157    3.70    4,745,013    2.97    4,011,351    2.73
   Call loan    384,259    4.59    132,210    3.24    114,606    1.63
   Bills bought    1,320,680    5.35    1,037,144    4.64    568,502    4.07
   Other    1,839    —      2,209    —      4,812    —  
   Allowance for credit losses ( - )    -57,215    —      -64,290    —      -94,501    —  
                                
Subtotal       8,586,258    4.51    7,308,866    3.68    6,445,420    3.03
                                
Other    Cash    967,712    —      956,471    —      965,852    —  
   Fixed assets held for business    2,399,906    —      2,508,879    —      3,084,589    —  
   Other    9,416,083    —      9,987,208    —      10,694,781    —  
                                
Subtotal       12,783,701    —      13,452,558    —      14,745,222    —  
                                
Total       182,091,686    6.40    177,221,838    6.38    179,775,213    7.00
                                

 

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2.1.3. Fee Transactions

(Unit: in millions of Won)

 

          June 30, 2006    June 30, 2005    December 31, 2005
Fee Revenue (A)         
Won currency    Guarantees    2,739    2,640    5,336
   Commissions received    466,252    389,622    804,933
   Credit card    64,237    48,064    104,930
   National Housing Fund Mgt.    86,852    85,739    179,540
                 
Foreign currency    Guarantees    2,638    1,853    4,227
   Others    40,462    38,115    78,715
                 
Subtotal       663,180    566,033    1,177,681
                 
Fee Expense (B)         
Won & foreign currency    Commissions paid in Won    77,581    43,996    119,539
   Credit card    105,328    102,282    210,315
   Others    13,970    10,770    22,692
                 
Subtotal       196,879    157,048    352,546
                 
Fee Income (A-B)    466,301    408,985    825,135
                 

 

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2.2. Principal Banking Activities

2.2.1. Deposits

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

(Unit: in millions of Won)

 

          June 30, 2006    December 31, 2005    December 31, 2004
          Average
balance
   Ending
balance
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance

Deposits in Won

   Demand deposits    16,596,581    17,874,575    14,985,812    17,946,067    12,994,946    14,338,784
   Time & savings deposits    89,488,441    90,013,677    92,463,027    91,863,790    96,637,551    94,723,601
   Mutual installment deposits    4,613,991    4,197,941    5,674,807    5,120,668    6,682,928    6,306,923
   Mutual installment for housing    4,403,419    4,236,506    4,942,334    4,582,031    5,453,713    5,295,274
   Certificate of deposit    6,677,125    7,673,066    5,008,378    5,389,543    6,108,179    4,911,891
                                

Subtotal

      121,779,557    123,995,765    123,074,358    124,902,099    127,877,317    125,576,473
                                

Deposits in foreign currency

   1,452,745    1,412,445    1,473,811    1,379,133    1,769,828    1,434,061
                                

Trust deposits

   Money trust    8,212,140    9,764,445    7,114,352    7,405,675    7,701,447    7,028,835
   Property trust    8,940,988    8,574,585    11,032,320    9,854,012    16,297,382    12,534,329
                                

Subtotal

      17,153,128    18,339,030    18,146,672    17,259,687    23,998,829    19,563,164
                                

Total

      140,385,430    143,747,240    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)

 

     June 30, 2006    December 31, 2005    December 31, 2004

Deposits

   120,741    123,532    123,945

Deposits in Won

   119,588    122,358    122,585

 

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2.2.3. Average Deposit per Employee

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

(Unit: in millions of Won)

 

     June 30, 2006    December 31, 2005    December 31, 2004

Deposits

   7,679    7,725    7,232

Deposits in Won

   7,605    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)

 

     June 30, 2006    December 31, 2005    December 31, 2004
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance

Loans in Won

   118,420,847    119,843,425    120,532,216    118,565,341    125,496,237    122,721,898

Loans in foreign currency

   5,664,157    6,631,880    4,745,013    5,314,883    4,011,351    3,860,828

Advances for customers

   13,830    8,776    23,947    11,321    73,801    32,120
                             

Subtotal

   124,098,834    126,484,081    125,301,176    123,891,545    129,581,389    126,614,846
                             

Trust account loans

   335,897    352,434    334,404    328,127    429,054    361,906
                             

Total

   124,434,731    126,836,515    125,635,580    124,219,672    130,010,443    126,976,752
                             

2.2.5. Loan Balances as of June 30, 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

   61,298,315    22,139,472    8,976,677    27,428,961    119,843,425

Loans in foreign currency

   5,149,402    757,962    405,301    319,215    6,631,880

 

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2.2.6. Loan Balances by Types

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

(Unit: in millions of Won)

 

     June 30, 2006    December 31, 2005    December 31, 2004

Loans to enterprise

    

        Loans for operations

   31,787,272    30,498,328    31,678,117
    

        Loans for facility

   5,161,903    5,073,050    6,286,747

Loans to households

   43,966,643    42,771,264    42,790,337

Loans to public sector & others

    

        Loans for operations

   695,023    643,141    673,456
    

        Loans for facility

   4,971    34,157    40,383

Loans on property formation savings

   6,111    6,748    9,719

Loans for housing

   38,219,793    39,535,441    41,234,086

Inter-bank loans

   157    1,274    6,114

Others

   1,552    1,938    2,939
                   

Total

   119,843,425    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.

(Unit: in millions of Won, %)

 

     June 30, 2006    December 31, 2005    December 31, 2004

Loans (A)

   118,420,847    120,532,216    125,496,237

Deposits (B)

   121,779,557    123,074,358    127,877,317
              

Loan to deposit ratio (A/B)

   97.24    97.93    98.14
              

2.2.8. Guarantees

(Unit: in millions of Won)

 

     June 30, 2006    December 31, 2005    December 31, 2004

Determined

   2,017,483    1,789,560    975,788

Contingent

   2,237,444    1,972,192    1,311,774
              

Total

   4,254,927    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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2.2.9. Securities Investment

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

(Unit: in millions of Won)

 

          June 30, 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

   11,922,788    13,407,107    10,667,229    11,570,306    7,150,535    10,524,835
  

Government and public bonds

   9,779,283    10,605,204    6,950,886    8,933,401    4,753,135    4,675,093
  

Debentures

   10,160,968    12,347,840    7,334,555    9,184,403    7,013,765    6,152,749
  

Stocks

   1,571,253    1,709,780    1,243,781    1,707,816    1,003,131    1,282,050
  

Others

   2,045,219    2,212,008    3,368,027    2,105,353    5,332,583    5,583,539
                                

Subtotal

      35,479,511    40,281,939    29,564,478    33,501,279    25,253,149    28,218,266
                                

Securities in Won (Trust account)

  

Monetary stabilization bonds

   1,000,480    1,217,208    999,522    981,949    1,222,004    1,152,621
  

Government and public bonds

   1,072,560    1,108,283    993,450    1,013,355    922,790    837,080
  

Debentures

   2,003,492    1,916,602    1,979,588    2,017,298    2,363,630    2,312,459
  

Stocks

   658,641    880,482    514,568    542,731    564,538    510,650
  

Others

   3,827,659    4,761,236    2,745,143    3,311,235    2,101,832    2,324,393
                                

Securities in foreign currency

    (Trust Account)

   176,205    163,815    289,665    184,115    662,549    449,415
                                

Subtotal

      8,739,037    10,047,626    7,521,936    8,050,683    7,837,343    7,586,618
                                

Securities in foreign currency (Banking account)

  

Foreign securities

   526,311    568,564    579,561    525,892    894,722    745,352
  

Off-shore foreign securities

   246,496    237,732    279,003    252,994    313,402    205,455
                                

Subtotal

      772,807    806,296    858,564    778,886    1,208,124    950,807
                                

Total

      44,991,355    51,135,861    37,944,978    42,330,848    34,298,616    36,755,691
                                

2.2.10. Trust Account

(Unit: in millions of Won)

 

     June 30, 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

   328    6,369    335    43,088    369    8,365

Performance trust

   17,152,800    33,452    18,146,337    77,756    23,998,460    93,856
                             

Total

   17,153,128    39,821    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
          June 30, 2006    December 31, 2005    December 31, 2004
Number of card holders (Person)    Corporate    170,229    159,047    182,109
   Individual    9,007,679    9,342,552    11,362,173
Number of merchants       1,555,973    1,506,979    1,491,730
Sales volume1       31,480,169    62,475,085    66,918,805
Fee revenue       1,050,919    2,085,866    2,807,557

2.3. Branch Networks

As of June 30, 2006, we have 1,063 branches and 50 sub-branches in Korea, the largest number of branches among Korean commercial banks. 439 branches out of the total branches are located in Seoul.

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

 


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

 

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Table of Contents

2.4. Other Information for Investment Decision

2.4.1. BIS Risk-adjusted Capital Ratios

(Unit: in millions of Won, %)

 

     June 30, 20061    December 31, 2005    December 31, 2004

Risk-adjusted capital (A)

   18,688,067    15,682,535    13,334,531

Risk-weighted assets (B)

   123,209,107    121,072,676    121,081,735
              

BIS ratios (A/B)

   15.17    12.95    11.01
              

2.4.2. Non-Performing Loans2

(Unit: in millions of Won unless indicated otherwise)

 

June 30, 2006     December 31, 2005     Change  
Amount   NPL to total loans     Amount   NPL to total loans     Amount   NPL to total loans  
1,629,322   1.14 %   1,946,362   1.42 %   -317,040   -0.28 %p

2.4.3. Loan Loss Allowances

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

(Unit: in millions of Won)

 

         June 30, 2006    December 31, 2005    December 31, 2004
Loan losses allowance   Domestic    2,278,177    2,496,655    3,181,433
  Foreign    4,802    4,122    4,662
                
  Total    2,282,979    2,500,777    3,186,095
                
Write-Off      704,701    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)

 

     June 30, 2006     December 31, 2005     December 31, 2004  

Beginning balance

   2,500,777     3,186,095     3,948,7364  

Net Write-Off

   (415,939 )   (1,738,406 )   (3,830,889 )

Write-Off

   (704,701 )   (2,014,834 )   (3,382,130 )

Recovery

   234,172     452,959     286,464  

Other

   54,590     (176,531 )   (735,223 )

Provision for loan losses

   198,141     1,053,088     3,068,248  

Ending balance

   2,282,979 1   2,500,777 2   3,186,095 3

1 Includes present value discounts and allowance for other assets amounting to 15,103 million Won and 42,964 million Won respectively
2 Includes present value discounts and allowances for other assets amounting to 20,015 million Won and 47,502 million Won respectively
3 Includes present value discounts and allowance for other assets amounting to 22,111 million Won and 67,320 million Won respectively
4 Include present value discounts and allowance for other assets amounting to 22,780 million Won and 38,692 million Won respectively

 

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Table of Contents

3. Financial Information

3.1. Non-Consolidated Condensed Financial Statements

(Unit: in millions of Won)

 

     As of or for the years ended of indicated dates
     June 30, 2006    December 31, 2005

Cash and due from banks

   4,890,126    5,867,417

Securities

   34,715,230    30,550,299

Loans

   140,682,565    135,738,407

Fixed assets

   2,393,469    2,436,702

Other assets

   9,269,012    5,000,824
         

Total assets

   191,950,402    179,593,649
         

Deposits

   125,408,211    126,281,232

Borrowings

   16,080,443    13,737,336

Debentures

   22,051,969    16,547,987

Other liabilities

   14,567,733    10,653,494
         

Total liabilities

   178,108,356    167,220,049
         

Capital stocks

   1,681,896    1,681,896

Capital surplus

   6,258,297    6,254,786

Retained earnings

   5,324,908    3,929,948

Capital adjustments

   576,945    506,970
         

Total shareholders’ equity

   13,842,046    12,373,600
         

Liabilities and Shareholders’ Equity

   191,950,402    179,593,649
         

Operating revenue

   9,930,518    17,855,258

Operating income

   1,917,113    3,015,822

Continuing (loss) income before income taxes

   2,181,886    3,228,253

Net (loss) income

   1,579,970    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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Table of Contents

4. Independent Public Accountant

4.1. Audit & Audit related Fees

Deloitte Anjin LLC has reviewed our financial statements for the first half of 2006. The aggregate contract fee for the audit and review fees for the 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.

(Unit: in millions of Won unless indicated otherwise)

 

Year

  

Service description

   Amount of payment

1H 2006

  

-   Confirmation of BIS ratio and confirmation affirming that Kookmin Bank is not a Non-Financial Operator

   10

2005

  

-   LOC (Letter of Comfort)

   30

2004

  

-   Tax compliance

   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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Table of Contents

5. Corporate Governance and Affiliated Companies

5.1. Board of Directors & Committees under the Board

The board of directors, currently consisting of executive directors and non-executive directors, holds regular meetings quarterly. Additional extraordinary meetings may also be convened at the request of any director or any committee that serves under the board of directors.

The board of directors resolves following matters:

 

    Matters relating to general shareholders meeting

 

    Matters relating to general management

 

    Matters relating to organization and directors of the company

 

    Matters relating to funding and capital

 

    Other related matters

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

 

    The Board Steering Committee

 

    The Management Strategy Committee

 

    The Risk Management Committee

 

    The Audit Committee

 

    The Evaluation & Compensation Committee

 

    The Non Executive Director Nominating Committee

For the list of our directors, see 6. Directors, Senior Management and Employees, 6.1. Executive Directors and 6.2. Non-Executive Directors.

 

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Table of Contents

5.2. Compensation

5.2.1. Compensation to Directors

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

(Unit: in millions of Won)

 

    

The aggregate

remuneration paid

(From Jan to Jun)

  

Limit for the remuneration

resolved by shareholders’
meeting (For the year 2006)

  

Average amount of the

payment per person

(From Jan to Jun)

1) Executive Directors

(Except chief audit executive and

non-executive directors)

   2,496       832

2) Non Executive Directors

(Except members of audit committee)

   172    8,000    34

3) Members of Audit Committee

(Including chief audit executive)

   670       159
              
Total    3,338    8,000    274
              

 

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Table of Contents

5.2.2. Stock Option

The following table is the breakdown of stock options Kookmin Bank has granted to the directors and employees as of June 30, 2006.

(Unit: in Won, share)

 

Grant date   

Name of the grantee

  

Position when granted

   Exercise period    Exercise
price
  

Number of

granted

options1

  

Number of

exercised
options

  

Number of

exercisable
options

         From    To            
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    Heung Soon Chang    Non Executive Director    01-Mar-03    28-Feb-06    27,600    2,486    2,486    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    Sung Hee Jwa    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,800    4,800    0
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    Sung Cheon Hong & 9 others    Employees    01-Mar-03    28-Feb-06    27,600    67,283    67,283    0
15-Mar-01    Sang Hoon Kim    Chairman&CEO    16-Mar-04    15-Mar-09    28,027    29,614    29,614    0
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    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    Se Woong Lee    Non Executive Director    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961
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    Seung Heon Han    Non Executive Director    16-Mar-04    15-Mar-09    28,027    1,870    0    1,870
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    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    9,845    2,000
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    Ok Hyun Yoon    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    7,845    4,000
15-Mar-01    Han Koo Ji & 36 others    Employees    16-Mar-04    15-Mar-09    28,027    39,092    18,837    20,255
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    Jun Chae Song    Former KCC Officer    23-Mar-04    22-Mar-11    71,538    6,644    0    6,644
22-Mar-01    Myoung Woo Lee    Former KCC Officer    23-Mar-04    22-Mar-11    71,538    4,429    0    4,429
22-Mar-01    Han Kyoung Lee    Former KCC Officer    23-Mar-04    22-Mar-11    71,538    6,644    0    6,644
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    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    11,500    7,833
24-Mar-01    Jae Han Kim & 2 others    Employees    25-Mar-04    24-Mar-07    25,100    16,491    16,491    0
16-Nov-01    Sang Hoon Kim    Chairman    17-Nov-04    16-Nov-09    51,200    150,000    0    150,000
16-Nov-01    Jung Tae Kim    President & CEO    17-Nov-04    16-Nov-09    51,200    500,000    500,000    0
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    Ji Hong Kim    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    Kyung Hee Yoon    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,000    0    3,000
22-Mar-02    Choul Ju Lee    Chief Audit Executive    23-Mar-05    22-Mar-10    57,100    9,963    9,963    0

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
Grant date   

Name of the grantee

  

Position when granted

   Exercise period    Exercise
price
  

Number of

granted

options1

  

Number of

exercised
options

  

Number of

exercisable
options

         From    To            
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    Moon Soul Chung    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,000    3,000    0
22-Mar-02    Henry Cornell    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    Byung Sang Kim    Executive Vice President    23-Mar-05    22-Mar-10    57,100    9,498    0    9,498
22-Mar-02    Bock Woan Kim    Executive Vice President    23-Mar-05    22-Mar-10    57,100    13,339    0    13,339
22-Mar-02    Ki Sup Shin    Executive Vice President    23-Mar-05    22-Mar-10    57,100    26,405    2,405    24,000
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    Sung Hyun Chung    Executive Vice President    23-Mar-05    22-Mar-10    57,100    19,525    0    19,525
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    Ki Taek Hong    Executive Vice President    23-Mar-05    22-Mar-10    57,100    19,525    0    19,525
22-Mar-02    Jong Young Yoon & 15 others    Employees    23-Mar-05    22-Mar-10    57,100    147,658    0    147,658
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    Jang Ok 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
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    Ki Hong Kim    Non Executive director    22-Mar-06    21-Mar-11    58,600    10,000    0    10,000
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    Eun Joo Park    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    Cheol Soo Ahn    Non Executive director    22-Mar-06    21-Mar-11    42,200    3,351    3,351    0
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    Moon Soul Chung    Non Executive director    22-Mar-06    21-Mar-11    43,800    6,678    6,678    0
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    Bernard S. Black    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    Sung Chul Kim    Executive Vice President    22-Mar-06    21-Mar-11    35,500    9,443    4,443    5,000
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    Woo Jung Lee    Executive Vice President    22-Mar-06    21-Mar-11    35,500    9,443    9,443    0
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-06    27-Aug-11    40,500    5,091    0    5,091
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    Sang Jin Lee    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    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    Young Soon Cheon    Non Executive Director    24-Mar-07    23-Mar-12    48,500    5,000    0    5,000
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    Wang Ha Cho    Non Executive Director    24-Mar-07    23-Mar-12    48,800    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    Jung Young Kang    Senior Executive Vice President    24-Mar-07    23-Mar-12    47,200    10,000    0    10,000

 

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Table of Contents
Grant date  

Name of the grantee

 

Position when granted

  Exercise period   Exercise
price
   

Number of

granted

options1

 

Number of

exercised
options

 

Number of

exercisable
options

      From   To        
01-Nov-04   Chung Won Kang   President & CEO   02-Nov-07   01-Nov-12   X 1   700,000   0   700,000
18-Mar-05   Hyung Duk Chang   Chief Audit Executive   19-Mar-08   18-Mar-13   X 2   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     266,274   0   266,274
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   X 2   15,000   0   15,000
18-Mar-05   Dong Soo Chung   Non Executive director   19-Mar-08   18-Mar-13     15,000   0   15,000
18-Mar-05   Chang Kyu Lee   Non Executive director   19-Mar-08   18-Mar-13     15,000   0   15,000
18-Mar-05   Hun Namkoong   Non Executive director   19-Mar-08   18-Mar-13   61,000     5,091   0   5,091
18-Mar-05   Doo Hwan Song   Non Executive director   19-Mar-08   18-Mar-13   X 2   15,000   0   15,000
18-Mar-05   Dam Cho   Non Executive director   19-Mar-08   18-Mar-13     15,000   0   15,000
18-Mar-05   Nobuya Takasugi   Non Executive director   19-Mar-08   18-Mar-13     15,000   0   15,000
27-Apr-05   Kyung Wook Kang   Employee   28-Apr-08   27-Apr-13   45,700     15,000   0   15,000
22-Jul-05   Donald H. MacKenzie   Senior Executive Vice President   23-Jul-08   22-Jul-13   49,200     30,000   0   30,000
23-Aug-05   Youn Soo Kim   Executive Vice President   24-Aug-08   23-Aug-13   53,000     15,000   0   15,000

1 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.
2 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.

 

25


Table of Contents
Grant date   

Name of the grantee

  

Position when granted

   Exercise period    Exercise
price
   

Number of

granted

options1

  

Number of

exercised
options

  

Number of

exercisable
options

         From    To           
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    X 3   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      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
28-Apr-06    Young Mo Lee    Employee    29-Apr-09    28-Apr-14    X 4   30,000    0    30,000
     

Total

           4,084,902    803,849    3,281,053

3 Exercise price = 75,200 Won x (1 + TRS of the three major competitors x 0.4)
4 Exercise price = 81,900 Won x (1 + TRS of the three major competitors x 0.4)

 

26


Table of Contents

5.3. Affiliated Companies

5.3.1. List of Affiliates1

Affiliated companies of Kookmin Bank and its ownership as of June 30, 2006 are as follows.

 

    KB Investment Co., Ltd. (99.99%)

 

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

 

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

 

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

 

    KB Data Systems Corporation (99.99%)

 

    KB Futures Co., Ltd. (99.98%)

 

    KB Life Insurance Co., Ltd. (51.00%)

 

    ING Life Korea Ltd. (20.00%)

 

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

 

    Kookmin Bank Hong Kong Ltd. (100.00%)

 

    Sorak Financial Holdings Pte. Ltd. (25.00%)

 


1 Excludes Jooeun Industry and Jangeun Securities which are under liquidation procedures. Also excluded as follows: Kookmin Bank Luxembourg, S.A . completed liquidation procedures on November 2004. Kookmin Singapore Ltd. and Kookmin Finance Asia Limited are also under liquidation procedures.

 

27


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, and Kookmin Bank’s common stocks they own are set forth below as of June 30, 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 & Senior EVP    —  

 

6.2. Non-Executive Directors

 

Our non-executive directors are selected based on the candidates’ talents and skills in diverse areas, such as law, finance, economy, management and accounting. As of June 30, 2006, there are 9 non-executive directors.

 

Our current non-executive directors, and Kookmin Bank’s shares they own are as follows.

 

Name

   Date of Birth    Position    Common Stocks Owned
Dong Soo Chung    09/24/1945    Non-Executive Director    2,090
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    1,850

 

28


Table of Contents

6.3. Senior Management

In addition to the executive directors who are also our executive officers, we currently have the following 13 executive officers as of June 30, 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 June 30, 2006.

(Unit: in millions of Won)

 

     Number of Employees1   

Average Tenure

of the Full-time
Employees (years)2

   Total Payment
for the first half
of 20063
  

Average Payment

per Person

     Full-time    Contractual    Total         

Male

   12,778    1,354    14,132    17 years and 2 months    442,844    31.3

Female

   4,321    5,883    10,204    14 years and 3 months    214,258    21.0
                             

Total

   17,099    7,237    24,336    16 years and 5 months    657,102    27.0
                             

1 Number of employees are calculated based on an arithmetic mean from January 31, 2006 to June 30, 2006 and local employees in overseas branches are excluded
2 Based on only full-time employees as of June 30, 2006
3 Based on personnel expense and welfare cost as of June 30, 2006

 

29


Table of Contents

7. Major Stockholders and Related Party Transactions

7.1. Major Stockholders1

The following table presents information regarding the selected major ownership of our shares.

(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

 

30


Table of Contents

7.2. Investments in Affiliates1

(Unit: in millions of Won)

 

Name

   Relation with
the Bank
   Account    Beginning
Balance
(January 1,
2006)
   Increase    Decrease   

Ending

Balance
(June 30,
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    7,999    —      —      7,999
KB Credit Information    Affiliate    Equity Securities of Affiliate    6,245    —      —      6,245
KB Life Insurance    Affiliate    Equity Securities of Affiliate    15,300    —      —      15,300
Jooeun Industry1    Affiliate    Equity Securities of Affiliate    9,999    —      —      9,999
Jangeun Securities1    Affiliate    Equity Securities of Affiliate    24,274    —      —      24,274
ING Life Korea    Affiliate    Equity Securities of Affiliate    14,000    —      —      14,000
Kookmin Bank Hong Kong Ltd.    Affiliate    Equity Securities of Affiliate    20,260    —      1,054    19,206
Kookmin Bank International (London) Ltd.    Affiliate    Equity Securities of Affiliate    34,935    177    —      35,112

1 Jooeun Industry and Jangeun Securities are under liquidation procedures

 

31


Table of Contents

7.3. Related Party Transactions

(Unit: 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    1,775    1,775    3,550    33  
LG International   

Related party of

Non-executive director, Kee Young Chung

   Equity securities    4,019    4,019    8,038    (303 )
                           
           Total       5,794    5,794    11,588    (270 )
                           

 

32


Table of Contents

SIGNATURES

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

 

 

Kookmin Bank

  (Registrant)

Date: August 14, 2006

  By:  

/s/ Kap Shin

    (Signature)
  Name:   Kap Shin
  Title:  

CFO / Senior EVP

Executive Director

 

33


Table of Contents

Exhibit 99.1-Kookmin Bank Review Report for the First Half of 2006

 

34


Table of Contents

Exhibit 99.1

KOOKMIN BANK

NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 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 sheet of the bank accounts of Kookmin Bank (the “Bank”) as of June 30, 2006, and the related non-consolidated statements of income and cash flows for the six months ended June 30, 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 reviews 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 reviews, 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.

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

July 28, 2006

Notice to Readers

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


Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2006 AND DECEMBER 31, 2005

 

     Korean Won
     2006    2005
     (In millions)
ASSETS     

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

   (Won) 4,890,126    (Won) 5,867,417

Securities (Notes 4, 20 and 21)

     34,715,230      30,550,299

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

     140,682,565      135,738,407

Fixed assets (Note 8)

     2,393,469      2,436,702

Other assets (Note 9)

     9,269,012      5,000,824
             
   (Won) 191,950,402    (Won) 179,593,649
             
LIABILITIES AND SHAREHOLDERS’ EQUITY      

LIABILITIES:

     

Deposits (Notes 10, 20 and 21)

   (Won) 125,408,211    (Won) 126,281,232

Borrowings (Notes 11, 20 and 21)

     16,080,443      13,737,336

Debentures (Notes 12, 20 and 21)

     22,051,969      16,547,987

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

     14,567,733      10,653,494
             
     178,108,356      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)1,579,970 million for the six months ended June 30, 2006 and (Won)2,252,218 million for the year ended December 31, 2005)

     5,324,908      3,929,948

Capital adjustments

     576,945      506,970
             
     13,842,046      12,373,600
             
   (Won) 191,950,402    (Won) 179,593,649
             

See accompanying notes to non-consolidated financial statements.


Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 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) 17,171    (Won) 11,363

Interest on securities (Note 21)

     652,207      495,915

Interest on loans (Note 21)

     5,125,798      5,051,655

Other interest income

     14,473      14,277
             
     5,809,649      5,573,210
             

Commission income

     663,197      566,044
             

Other operating income:

     

Gain on disposal of trading securities

     25,084      39,854

Gain on valuation of trading securities (Note 4)

     13,200      2,167

Dividends on trading securities

     2,807      4,770

Dividends on available-for-sale securities

     3,960      3,236

Foreign exchange trading income

     138,405      124,588

Fees and commissions from trust accounts (Note 26)

     49,137      73,891

Gain on financial derivatives trading

     2,205,090      1,720,345

Gain on valuation of financial derivatives (Note 19)

     970,234      894,154

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

     18,347      19,604

Other operating income

     31,408      60,326
             
     3,457,672      2,942,935
             

Total operating revenues

     9,930,518      9,082,189
             

OPERATING EXPENSES:

     

Interest expenses:

     

Interest on deposits (Note 21)

     1,602,371      1,633,482

Interest on borrowings (Note 21)

     314,114      157,534

Interest on debentures (Note 21)

     487,124      559,368

Other interest expenses

     23,717      15,864
             
     2,427,326      2,366,248
             

Commission expenses

     196,879      157,048
             

Other operating expenses:

     

Loss on disposal of trading securities

     36,798      42,529

Provision for possible loan losses (Note 7)

     198,141      896,065

Provision for acceptances and guarantees losses

     790      1,424

Foreign exchange trading losses

     153,073      134,131

Loss on financial derivatives trading (Note 19)

     2,129,687      1,518,833

Loss on valuation of financial derivatives (Note 19)

     943,807      1,002,760

Other operating expenses

     324,459      265,377
             
     3,786,755      3,861,119
             

General and administrative expenses (Note 22)

     1,602,445      1,460,707
             

Total operating expenses

     8,013,405      7,845,122
             

(Continued)


Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005

 

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

OPERATING INCOME

   (Won) 1,917,113    (Won) 1,237,067

NON-OPERATING INCOME(Note 23)

     355,559      410,889

NON-OPERATING EXPENSES(Note 23)

     90,786      337,836
             

ORDINARY INCOME

     2,181,886      1,310,120

EXTRA ORDINARY ITEM

     —        —  
             

INCOME BEFORE INCOME TAX

     2,181,886      1,310,120

INCOME TAX EXPENSE(Note 24)

     601,916      420,169
             

NET INCOME

   (Won) 1,579,970    (Won) 889,951
             

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

   (Won) 4,697    (Won) 2,878
             

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

   (Won) 4,697    (Won) 2,878
             

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

   (Won) 4,697    (Won) 2,877
             

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

   (Won) 4,697    (Won) 2,877
             

See accompanying notes to non-consolidated financial statements.


Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005

 

     Korean Won  
     2006     2005  
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   (Won) 1,579,970     (Won) 889,951  
                

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

    

Loss on disposal of trading securities

     36,798       42,529  

Provision for possible loan losses

     198,141       896,065  

Loss on financial derivatives trading

     2,129,687       1,518,833  

Loss on valuation of financial derivatives

     943,807       1,002,760  

Loss on valuation of fair value hedged items

     25,429       —    

Loss on valuation of securities accounted for using the equity method

     1,856       8,916  

Provision for severance benefits

     71,372       66,806  

Depreciation and amortization

     137,599       156,635  

Loss on disposal of available-for-sale securities

     8,518       9,666  

Loss on impairment of available-for-sale securities

     13,362       6,085  

Loss on disposal of tangible assets

     550       1,827  

Loss on sale of loans

     —         1,417  

Gain on disposal of trading securities

     (25,084 )     (39,854 )

Gain on valuation of trading securities

     (13,200 )     (2,167 )

Gain on financial derivatives trading

     (2,205,090 )     (1,720,345 )

Gain on valuation of financial derivatives

     (970,234 )     (894,154 )

Gain on valuation of fair value hedged items

     (18,347 )     (19,604 )

Gain on valuation of securities accounted for using the equity method

     (51,053 )     (53,152 )

Gain on disposal of available-for-sale securities

     (85,828 )     (168,122 )

Gain on disposal of tangible assets

     (223 )     (8,644 )

Gain on sale of loans

     (36,311 )     (71,593 )

Others, net

     26,388       162,095  
                
     188,137       895,999  
                

(Continued)


Table of Contents

KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005

 

     Korean Won  
     2006     2005  
     (In millions)  

Changes in assets and liabilities resulting from operations:

    

Net decrease in trading securities

   (Won) 131,754     (Won) 988,642  

Net increase in accounts receivable

     (4,407,428 )     (3,300,153 )

Net increase in accrued income

     (86,243 )     (27,840 )

Net decrease (increase) in prepaid expenses

     (29,536 )     99,090  

Net decrease (increase) in deferred income tax assets

     115,243       (105,779 )

Net increase in accounts payable

     4,068,470       2,809,638  

Net increase (decrease) in accrued expenses

     (641,375 )     220,874  

Net increase in advances from customers

     74,869       110,429  

Payment of severance benefits

     (9,360 )     (54,210 )

Decrease (increase) in severance insurance deposits

     (3,362 )     28,297  

Others, net

     397,561       445,957  
                
     (389,407 )     1,214,945  
                

Net cash provided by operating activities

     1,378,700       3,000,895  
                

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Net decrease (increase) in restricted due from banks

     222,308       (1,042,562 )

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

     (3,193,997 )     3,052,671  

Net increase in held-to-maturity securities

     (851,531 )     (4,156,494 )

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

     (1,261 )     31,297  

Net decrease (increase) in loans

     (5,229,921 )     1,187,221  

Disposal of fixed assets

     345       21,396  

Purchase of fixed assets

     (82,508 )     (39,227 )

Net decrease in other assets

     246,214       185,534  
                

Net cash used in investing activities

     (8,890,351 )     (760,164 )
                

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net decrease in deposits

     (870,205 )     (2,415,054 )

Net increase (decrease) in debentures

     5,483,080       (3,344,508 )

Net increase in borrowings

     829,052       551,276  

Net increase in other liabilities

     1,489,010       1,931,764  

Others, net

     (174,269 )     1,083,910  
                

Net cash provided by (used in) financing activities

     6,756,668       (2,192,612 )
                

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS

     (754,983 )     48,119  

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) 2,869,848     (Won) 3,367,468  
                

See accompanying notes to non-consolidated financial statements.


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KOOKMIN BANK

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 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 June 30, 2006, the Bank’s paid-in capital amounts to (Won)1,681,896 million.

The Bank is engaged in the banking, trust and other relevant businesses according to the provisions of the General Banking Act and the Trust Business Act, and operates through 1,112 domestic branches and offices (excluding 214 automated teller machine stations) and three overseas branches (excluding 2 subsidiaries and 1 office) as of June 30, 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 June 30, 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)6,629,980 million and (Won)7,875,123 million, respectively, and the related accrued interest income not recognized amounted to (Won)501,894million 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 until maturity. The difference between the fair value at the reclassification date

 

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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. 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 confirmed acceptances and guarantees, unconfirmed acceptances and guarantees, and note endorsed 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

  

Depreciation method

  

Estimated useful life

Goodwill

  

Straight-line

  

9 years

Trademarks

  

Straight-line

  

5-20 years

Others

  

Straight-line

  

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 collective 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 collective value in the balance sheet and the resulting impairment loss is charged to current operations. If the collective value of the assets increases in subsequent years, the increase in value is credited to operations as gain until the collective value equals the book value of assets that would have been determined had no impairment loss been recognized. The Bank assessed the collective 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 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.

 

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Contingent Liabilities

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

Accrued Severance Benefits

Employees and directors and temporary employees with at least one year of service as of June 30, 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.

 

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Accounting for Trust Accounts

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

With respect to certain trust account products, the Bank guarantees the repayment of the principal of the trust accounts and, in certain cases, a fixed rate of return. If income from such trust accounts is insufficient to pay the guaranteed amount, such a deficiency is satisfied by using special reserves maintained in the trust accounts, offsetting trust fee payable to the bank accounts and receiving compensation contributions from the bank accounts of the Bank. If the Bank pays compensating contributions to the guaranteed return trusts to cover such deficiencies, these contributions are reflected as other operating expense of the bank accounts and as other income of the trust accounts.

Income Tax Expense

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

Accounting for Foreign Currency Transactions and Translation

The Bank maintains its accounts in Korean Won. Transactions in foreign currencies are recorded in Korean Won based on the prevailing rate of exchange on the transaction date. The Korean Won equivalent of assets and liabilities denominated in foreign currencies are translated in these financial statements based on the basic rate ((Won)960.30 and (Won)1,013.00 to US$ 1.00 at June 30, 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 June 30, 2006 and December 31, 2005 consisted of (Unit: In millions):

 

     2006    2005

Cash and checks

   (Won) 2,271,681    (Won) 2,683,479

Foreign currencies

     162,919      150,402

Due from banks in Won

     1,972,687      2,495,595

Due from banks in foreign currencies

     482,839      537,941
             
   (Won) 4,890,126    (Won) 5,867,417
             

 

(2) Due from banks as of June 30, 2006 and December 31, 2005 consisted of (Unit: In millions):

 

Financial institution

   Interest (%)    2006    2005

Due from banks in Won:

        

BOK

   —      (Won) 1,961,907    (Won) 2,189,339

Woori Bank and others

   0.00~2.20      7,038      304,019

Korea Stock Exchange and others

   —        3,742      2,237
                
      (Won) 1,972,687    (Won) 2,495,595
                

Due from banks in foreign currencies:

        

BOK

   —      (Won) 49,915    (Won) 46,501

Korea Exchange Bank and others

   0.00~5.34      52,645      78,136

Woori Bank and others

   4.90~5.85      380,279      413,304
                
      (Won) 482,839    (Won) 537,941
                

 

(3) Restricted due from banks in Won and foreign currencies as of June 30, 2006 and December 31, 2005 consisted of (Unit: In millions):

 

Financial institution

   2006    2005   

Reason for restriction

Due from banks in Won:

        

BOK

   (Won) 1,961,907    (Won) 2,189,339    BOK Act

Woori Bank

     4,029      4,029    Escrow account

Korea Stock Exchange and others

     3,742      2,237    Futures margin accounts/others

Due from banks in foreign currencies:

        

BOK

     49,915      46,501    BOK Act

J.P. Morgan Chase & Co. and others

     685      480    Futures margin accounts/others
                
   (Won) 2,020,278    (Won) 2,242,586   
                

 

(4) Due from banks by financial institution as of June 30, 2006 and December 31, 2005 consisted of (Unit: In millions):

 

Financial institution

   2006    2005

Due from banks in Won:

     

BOK

   (Won) 1,961,907    (Won) 2,189,339

Banks

     7,038      304,019

Others

     3,742      2,237
             
     1,972,687      2,495,595
             

Due from banks in foreign currencies:

     

BOK

     49,915      46,501

Banks

     427,437      490,960

Others

     5,487      480
             
     482,839      537,941
             
   (Won) 2,455,526    (Won) 3,033,536
             

 

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(5) Term structure of due from banks as of June 30, 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) 1,968,658    (Won) —      (Won) 4,029    (Won) —      (Won) —      (Won) 1,972,687

Due from banks in foreign currencies

     406,975      75,864      —        —        —        482,839
                                         
   (Won) 2,375,633    (Won) 75,864    (Won) 4,029    (Won) —      (Won) —      (Won) 2,455,526
                                         

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

 

     Due in 3
months or less
  

Due after

3 months
through

6 months

  

Due after

6 months
through

1 year

  

Due after

1 year

through

3 years

  

More than

3 years

   Total

Due from banks in Won

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

Due from banks in foreign currencies

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

 

4. SECURITIES:

 

(1) Securities as of June 30, 2006 and December 31, 2005 consisted of (Unit: In millions):

 

     2006    2005

Trading securities

   (Won) 3,421,247    (Won) 3,551,425

Available-for-sale securities

     19,585,905      16,180,784

Held-to-maturity securities

     11,079,934      10,228,573

Securities accounted for using the equity method

     628,144      589,517
             
   (Won) 34,715,230    (Won) 30,550,299
             

 

(2) The valuation of securities excluding securities accounted for using the equity method as of June 30, 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) 55,116    (Won) —      (Won) 56,232

Beneficiary certificates

     40,222      40,198      —        40,785

Government and public bonds

     1,288,990      1,266,440      1,256,621      1,266,985

Finance bonds

     1,938,672      1,938,185      1,935,704      1,937,275

Corporate bonds

     120,000      119,407      120,408      119,970
                           
   (Won) 3,387,884    (Won) 3,419,346    (Won) 3,312,733    (Won) 3,421,247
                           

 

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Classification

   Face value   

Acquisition

cost (*)

   Adjusted by
effective
interest rate
method
   Book value

Available-for-sale securities:

           

Equity securities

   (Won) —      (Won) 1,105,669    (Won) —      (Won) 1,260,487

Equity investments

     —        511      —        3,771

Beneficiary certificates

     2,108,380      2,102,667      —        2,142,800

Government and public bonds

     2,864,370      2,852,872      2,848,236      2,836,168

Finance bonds

     11,552,807      11,454,222      11,484,057      11,474,165

Foreign government bonds

     8,643      9,617      8,726      8,693

Corporate bonds

     1,137,491      1,096,273      1,075,850      1,072,228

Asset-backed securities

     985,643      922,211      774,232      773,327

Other debt securities

     17,380      5,673      —        14,266
                           
   (Won) 18,674,714    (Won) 19,549,715    (Won) 16,191,101    (Won) 19,585,905
                           

Held-to-maturity securities:

           

Government and public bonds

   (Won) 6,565,237    (Won) 6,495,582    (Won) 6,502,049    (Won) 6,502,049

Finance bonds

     2,860,000      2,857,831      2,859,978      2,859,978

Corporate bonds

     1,379,779      1,387,560      1,382,956      1,382,956

Asset-backed securities

     335,000      334,906      334,951      334,951
                           
   (Won) 11,140,016    (Won) 11,075,879    (Won) 11,079,934    (Won) 11,079,934
                           

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

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

     1,171,960      1,128,128      1,103,350      1,106,282

Asset-backed securities

     1,114,117      1,050,685      901,878      900,821

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
                           

 

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Classification

   Face value   

Acquisition

cost (*)

   Adjusted by
effective
interest rate
method
   Book value

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 costs of equity securities in available-for-sale are the book value before valuation.

As a result of the fair valuation of trading securities, the Bank recognized (Won)13,200 million and (Won)2,167 million of valuation gain for the six months ended June 30, 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.

 

(3) Available-for-sale securities, which were not valuated at fair value as of June 30, 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

CLS

     5,231      5,191

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

     938      989

Others

     13,702      17,281
             
   (Won) 62,596    (Won) 69,613
             

The impairment loss and the reversal of impairment loss on available-for-sale securities recognized for the six months ended June 30, 2006 and 2005 were shown below (Unit: In millions).

 

     2006    2005
     Impairment    Reversal    Impairment    Reversal

Equity securities

   (Won) 13,361    (Won) 81,408    (Won) 5,564    (Won) —  

Equity investments

     1      —        1      —  

Corporate bonds

     —        2,317      520      —  
                           
   (Won) 13,362    (Won) 83,725    (Won) 6,085    (Won) —  
                           

 

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(4) Structured notes relating to stock and interest rate and credit risk as of June 30, 2006 were as follows (Unit: In millions):

 

     Won    Foreign
currencies
   Total

Structured notes relating to stock:

        

Convertible bonds

   (Won) —      (Won) 19,614    (Won) 19,614
                    

Structured notes relating to interest rate:

        

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

     562,946      —        562,946

Dual indexed FRN

     19,823      —        19,823

Inverse FRN

     20,438      —        20,438

Others

     110,195      —        110,195
                    
     713,402      —        713,402
                    

Bonds with call option

     20,000      —        20,000
                    
   (Won) 733,402    (Won) 19,614    (Won) 753,016
                    

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      —        715,308
                    

Credit linked notes

     —        40,559      40,559
                    

Bonds with call option

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

 

(5) Private beneficiary certificates included in beneficiary certificates of available-for-sale securities as of June 30, 2006 and December 31, 2005 were composed of (Unit: In millions):

 

     2006    2005

Stocks

   (Won) 35,754    (Won) 7,353

Government and public bonds

     290,528      38,018

Finance bonds

     1,434,842      1,340,390

Corporate bonds

     48,720      32,622

Asset-backed debt securities

     9,968      —  

Call loans

     162,168      203,892

Others

     171,418      412,962
             

Assets

     2,153,398      2,035,237

Liabilities

     71,771      11,081
             
   (Won) 2,081,627    (Won) 2,024,156
             

 

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(6) The portfolio of securities excluding securities accounted for using the equity method, by industry, as of June 30, 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) 1,386,955    40.54    (Won) 1,764,476    49.68

Financial institutions

     1,986,886    58.07      1,631,869    45.95

Others

     47,406    1.39      155,080    4.37
                       
   (Won) 3,421,247    100.00    (Won) 3,551,425    100.00
                       

Available-for-sale securities:

           

Government and government-invested public companies

   (Won) 3,489,071    17.81    (Won) 3,347,229    20.69

Financial institutions

     15,267,320    77.95      12,027,488    74.33

Others

     829,514    4.24      806,067    4.98
                       
   (Won) 19,585,905    100.00    (Won) 16,180,784    100.00
                       

Held-to-maturity securities:

           

Government and government-invested public companies

   (Won) 7,855,065    70.89    (Won) 6,298,716    61.58

Financial institutions

     3,194,929    28.84      3,899,922    38.13

Others

     29,940    0.27      29,935    0.29
                       
   (Won) 11,079,934    100.00    (Won) 10,228,573    100.00
                       

 

(7) The portfolio of securities excluding securities accounted for using the equity method, by security type, as of June 30, 2006 and December 31, 2005 were as follows (Unit: In millions):

 

     2006    2005

By security type

   Amount    Percentage
(%)
   Amount    Percentage
(%)

Trading securities:

           

Stocks

   (Won) 56,232    1.64    (Won) 200,147    5.64

Fixed rate bonds

     3,199,457    93.52      3,230,737    90.97

Floating rate bonds

     124,773    3.65      120,285    3.39

Beneficiary certificates

     40,785    1.19      256    0.00
                       
   (Won) 3,421,247    100.00    (Won) 3,551,425    100.00
                       

Available-for-sale securities:

           

Stocks

   (Won) 1,260,487    6.44    (Won) 1,156,629    7.15

Fixed rate bonds

     14,603,349    74.56      11,201,802    69.23

Floating rate bonds

     751,373    3.84      861,368    5.32

Subordinated bonds

     780,310    3.98      872,813    5.39

Convertible bonds

     19,614    0.10      60    0.00

Beneficiary certificates

     2,142,800    10.94      2,075,933    12.83

Others

     27,972    0.14      12,179    0.08
                       
   (Won) 19,585,905    100.00    (Won) 16,180,784    100.00
                       

Held-to-maturity securities:

           

Fixed rate bonds

   (Won) 10,889,934    98.29    (Won) 10,038,573    98.14

Floating rate bonds

     60,000    0.54      60,000    0.59

Subordinated bonds

     130,000    1.17      130,000    1.27
                       
   (Won) 11,079,934    100.00    (Won) 10,228,573    100.00
                       

 

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The portfolio of securities excluding securities accounted for using the equity method, by country, as of June 30, 2006 and December 31, 2005 were as follows (Unit: In millions):

 

     2006    2005

By country type

   Amount    Percentage
(%)
   Amount    Percentage
(%)

Trading securities:

           

Korea

   (Won) 3,421,247    100.00    (Won) 3,551,425    100.00
                       

Available-for-sale securities:

           

Korea

   (Won) 19,492,310    99.52    (Won) 16,066,362    99.29

Russia

     34,348    0.18      28,527    0.18

USA

     17,397    0.09      46,876    0.29

India

     9,664    0.05      393    0.00

Philippines

     9,049    0.05      9,675    0.06

The Republic of South Africa

     5,807    0.03      6,240    0.04

Switzerland

     5,231    0.03      5,191    0.03

Others

     12,099    0.05      17,520    0.11
                       
   (Won) 19,585,905    100.00    (Won) 16,180,784    100.00
                       

Held-to-maturity securities:

           

Korea

   (Won) 11,079,934    100.00    (Won) 10,228,573    100.00
                       

 

(8) Term structure of securities (except for stocks and equity investments) in available-for-sale and held-to-maturity securities as of June 30, 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)  10,202,700    (Won)  7,890,058    (Won) 210,957    (Won)  17,932    (Won)  18,321,647

Held-to-maturity securities:

              

Book value

     2,983,904      6,119,722      1,976,308      —        11,079,934

Fair value

     2,973,872      6,062,934      1,954,296      —        10,991,102

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

 

     Due in 1 year
or less
  

Due after

1 year through
5 years

  

Due after

5 years through
10 years

   More than
10 years
   Total

Available-for-sale securities:

              

Fair value

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

Held-to-maturity securities:

              

Book value

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

Fair value

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

 

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(9) Securities accounted for using the equity method as of June 30, 2006 were summarized as follows (Unit: In millions):

 

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

Domestic stocks:

              

KB Investment Co., Ltd.

   8,951,293    99.99    (Won) 155,384    (Won) 85,527    (Won) 85,527

KB Futures Co., Ltd.

   3,999,200    99.98      19,996      27,157      27,157

KB Data System Co., Ltd.

   799,960    99.99      8,001      15,437      13,061

KB Real Estate Trust

   15,999,930    99.99      76,103      87,161      87,205

KB Asset Management

   6,134,040    80.00      39,015      55,152      55,152

KB Credit Information

   1,249,040    99.73      14,291      31,759      31,065

KB Life Insurance Co., Ltd.

   3,060,000    51.00      15,426      14,713      —  

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      105,847      105,847

Balhae Infrastructure Fund (*2)

   126,050    12.61      1,261      1,272      1,272

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

   180,000    9.00      4,500      3,684      3,684
                          
           390,056      427,709      409,970
                          

Foreign stocks:

              

Kookmin Bank Singapore Ltd. (*1)

   30,000,000    100.00      18,101      —        1,667

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

   700,000    100.00      7,665      —        233

Kookmin Bank Int’l Ltd. (London)