Form 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Form 6-K

 


REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2007

 


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    

 



Non-Consolidated Audit Report and Consolidated Operating Results for the Fiscal year 2006

On March 14, 2007, Kookmin Bank received the audit report for the fiscal year 2006 from its independent auditor, which includes non-consolidated financial statements for the years ended December 31, 2006 and 2005 and the related notes to those statements.

On March 14, 2007, Kookmin Bank disclosed its summary of consolidated operating results prepared in accordance with Korean GAAP for the fiscal year 2006.

Kookmin Bank plans to issue Kookmin Bank and Its Subsidiaries Consolidated Audit Report with full financial statements and the related notes in English as of and for the years ended 2006 and 2005 by no later than the end of March 2007.

Exhibit 99.1_ Non-Consolidated Audit Report for FY 2006

Exhibit 99.2_Consolidated Operating Results for FY 2006


SIGNATURES

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

 

 

Kookmin Bank

  (Registrant)

Date: March 14, 2007

  By:  

/s/ Kap Shin

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


Exhibit 99.1

KOOKMIN BANK

NON-CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 AND INDEPENDENT AUDITORS’ REPORT


Independent Auditors’ Report

English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of Kookmin Bank:

We have audited the accompanying non-consolidated balance sheets of Kookmin Bank (the “Bank”) as of December 31, 2006 and 2005, and the related non-consolidated statements of income, appropriations of retained earnings and cash flows for the years then ended, all expressed in Korean Won. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Bank as of December 31, 2006 and 2005, and the results of its operations, the changes in its retained earnings, and cash flows for the years then ended in conformity with accounting principles generally accepted in the Republic of Korea.

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

March 2, 2007

Notice to Readers

This report is effective as of March 2, 2007, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying financial statements and may result in modifications to the auditors’ report.


KOOKMIN BANK

NON-CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2006 AND 2005

 

     Korean Won
     2006    2005
     (In millions)

ASSETS

  

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

   (Won) 6,568,306    (Won) 5,867,417

Securities (Notes 4, 20 and 21)

     29,382,480      30,550,299

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

     149,867,182      135,738,407

Fixed assets (Note 8)

     2,509,374      2,436,702

Other assets (Note 9)

     6,879,139      5,000,824
             
   (Won) 195,206,481    (Won) 179,593,649
             

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

LIABILITIES:

     

Deposits (Notes 10, 20 and 21)

   (Won) 130,019,916    (Won) 126,281,232

Borrowings (Notes 11, 20 and 21)

     14,060,178      13,737,336

Debentures (Notes 12, 20 and 21)

     24,982,506      16,547,987

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

     11,088,924      10,653,494
             
     180,151,524      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)2,472,111 million for the year ended December 31, 2006 and (Won)2,252,218 million for the year ended December 31, 2005)

     6,215,222      3,929,948

Capital adjustments

     899,542      506,970
             
     15,054,957      12,373,600
             
   (Won) 195,206,481    (Won) 179,593,649
             

See accompanying notes to non-consolidated financial statements.


KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

 

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

OPERATING REVENUE:

     

Interest income:

     

Interest on due from banks (Note 21)

   (Won) 27,973    (Won) 26,274

Interest on securities (Note 21)

     1,350,319      1,127,393

Interest on loans (Note 21)

     10,652,569      10,101,036

Other interest income

     32,026      28,258
             
     12,062,887      11,282,961
             

Commission income

     1,341,814      1,177,697
             

Other operating income:

     

Gain on disposal of trading securities

     53,231      93,736

Gain on valuation of trading securities (Note 4)

     6,922      —  

Dividends on trading securities

     2,858      4,869

Dividends on available-for-sale securities

     4,634      3,281

Foreign exchange trading income

     245,068      254,101

Fees and commissions from trust accounts (Note 26)

     97,141      137,666

Gain on financial derivatives trading

     4,419,007      3,652,414

Gain on valuation of financial derivatives (Note 19)

     935,487      1,152,891

Gain on valuation of fair value hedged items (Notes 10, 12 and 19)

     35,828      56,144

Other operating income

     103,727      39,498
             
     5,903,903      5,394,600
             

Total operating revenues

     19,308,604      17,855,258
             

OPERATING EXPENSES:

     

Interest expenses:

     

Interest on deposits (Note 21)

     3,433,480      3,209,746

Interest on borrowings (Note 21)

     656,936      384,332

Interest on debentures (Note 21)

     1,139,073      1,034,471

Other interest expenses

     54,991      35,026
             
     5,284,480      4,663,575
             

Commission expenses

     464,400      352,546
             

Other operating expenses:

     

Loss on disposal of trading securities

     48,085      79,525

Loss on valuation of trading securities (Note 4)

     —        14,550

Provision for possible loan losses (Note 7)

     1,009,498      1,053,088

Provision for acceptances and guarantees losses

     8,931      9,008

Foreign exchange trading losses

     295,881      237,323

Loss on financial derivatives trading (Note 19)

     4,080,808      3,575,745

Loss on valuation of financial derivatives (Note 19)

     1,015,821      1,097,056

Loss on valuation of fair value hedged items(Notes 10, 12 and 19)

     31,517      1,336

Other operating expenses

     785,354      779,922
             
     7,275,895      6,847,553
             

General and administrative expenses (Note 22)

     3,212,114      2,975,762
             

Total operating expenses

     16,236,889      14,839,436
             

(Continued)


KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

 

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

OPERATING INCOME

   (Won) 3,071,715    (Won) 3,015,822

NON-OPERATING INCOME (Note 23)

     689,085      734,695

NON-OPERATING EXPENSES (Note 23)

     336,714      522,264
             

ORDINARY INCOME

     3,424,086      3,228,253

EXTRA ORDINARY ITEM

     —        —  
             

INCOME BEFORE INCOME TAX

     3,424,086      3,228,253

INCOME TAX EXPENSE (Note 24)

     951,975      976,035
             

NET INCOME

   (Won) 2,472,111    (Won) 2,252,218
             

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

   (Won) 7,349    (Won) 6,977
             

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

   (Won) 7,349    (Won) 6,977
             

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

   (Won) 7,349    (Won) 6,973
             

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

   (Won) 7,349    (Won) 6,973
             

See accompanying notes to non-consolidated financial statements.


KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF APPROPRIATIONS OF RETAINED EARNINGS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

 

     Korean Won  
     2006     2005  
     (In millions)  

RETAINED EARNINGS BEFORE APPROPRIATIONS:

    

Retained earnings (accumulated deficit) carried forward from prior years

   (Won) 59     (Won) (194,772 )

Effect on valuation of securities using the equity method

     (1,582 )     —    

Net income

     2,472,111       2,252,218  
                
     2,470,588       2,057,446  
                

APPROPRIATIONS:

    

Legal reserve (Note 17)

     247,300       225,300  

Voluntary reserve

     994,900       1,646,500  

Dividend (Note 17)

     1,227,784       184,889  

Other reserve

     509       698  
                
     2,470,493       2,057,387  
                

UNAPPROPRIATED RETAINED EARNINGS TO BE CARRIED FORWARD TO SUBSEQUENT YEARS

   (Won) 95     (Won) 59  
                

See accompanying notes to non-consolidated financial statements.


KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

 

     Korean Won  
     2006     2005  
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   (Won) 2,472,111     (Won) 2,252,218  
                

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

    

Loss on disposal of trading securities

     48,085       79,525  

Loss on valuation of trading securities

     —         14,550  

Provision for possible loan losses

     1,009,498       1,053,088  

Loss on financial derivatives trading

     4,080,808       3,575,745  

Loss on valuation of financial derivatives

     1,015,821       1,097,056  

Loss on valuation of fair value hedged items

     31,517       1,336  

Loss on valuation of securities accounted for using the equity method

     2,813       6,466  

Provision for severance benefits

     165,533       129,897  

Depreciation and amortization

     324,373       347,121  

Loss on disposal of available-for-sale securities

     15,283       19,199  

Loss on impairment of available-for-sale securities

     124,266       98,025  

Loss on disposal of tangible assets

     2,687       4,197  

Loss on sale of loans

     17,222       16,396  

Gain on disposal of trading securities

     (53,231 )     (93,736 )

Gain on valuation of trading securities

     (6,922 )     —    

Gain on financial derivatives trading

     (4,419,007 )     (3,652,414 )

Gain on valuation of financial derivatives

     (935,487 )     (1,152,891 )

Gain on valuation of fair value hedged items

     (35,828 )     (56,144 )

Gain on valuation of securities accounted for using the equity method

     (111,407 )     (98,812 )

Gain on disposal of available-for-sale securities

     (182,325 )     (319,534 )

Gain on disposal of tangible assets

     (10,470 )     (11,377 )

Gain on sale of loans

     (36,311 )     (81,743 )

Others, net

     140,697       414,827  
                
     1,187,615       1,390,777  
                

(Continued)


KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

 

     Korean Won  
     2006     2005  
     (In millions)  

Changes in assets and liabilities resulting from operations:

    

Net decrease in trading securities

   (Won) 977,608     (Won) 83,746  

Net decrease (increase) in accounts receivable

     (1,706,151 )     1,886,896  

Net increase in accrued income

     (168,609 )     (27,184 )

Net increase in prepaid expenses

     (36,596 )     (9,726 )

Net decrease (increase) in deferred income tax assets

     322,584       (23,224 )

Net increase (decrease) in accounts payable

     1,523,331       (1,888,528 )

Net increase (decrease) in accrued expenses

     (779,384 )     690,859  

Net increase (decrease) in advances from customers

     (170,191 )     169,124  

Payment of severance benefits

     (16,664 )     (62,332 )

Increase in severance insurance deposits

     (98,450 )     (43,204 )

Others, net

     163,308       174,067  
                
     10,786       950,494  
                

Net cash provided by operating activities

     3,670,512       4,593,489  
                

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Net increase in restricted due from banks

     (1,037,901 )     (418,580 )

Net decrease in available-for-sale securities

     1,567,538       1,492,570  

Net increase in held-to-maturity securities

     (704,763 )     (3,939,317 )

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

     (20,613 )     11,944  

Net increase in loans

     (15,364,066 )     (1,005,348 )

Disposal of fixed assets

     23,706       28,641  

Purchase of fixed assets

     (364,345 )     (170,149 )

Net increase in other assets

     (291,470 )     (86,240 )
                

Net cash used in investing activities

     (16,191,914 )     (4,086,479 )
                

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net increase (decrease) in deposits

     3,734,898       (726,037 )

Net increase (decrease) in debentures

     8,388,146       (5,304,797 )

Net increase in borrowings

     421,790       4,214,085  

Net increase (decrease) in other liabilities

     (186,170 )     526,640  

Others, net

     (174,274 )     1,088,581  
                

Net cash provided by (used in) financing activities

     12,184,390       (201,528 )
                

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS

     (337,012 )     305,482  

CASH AND DUE FROM BANKS, BEGINNING OF YEAR

     3,624,831       3,319,349  
                

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

   (Won) 3,287,819     (Won) 3,624,831  
                

See accompanying notes to non-consolidated financial statements.


KOOKMIN BANK

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

 

1. GENERAL:

Kookmin Bank (the “Bank”) was established in 1963 under the Citizens National Bank Act to provide and administer funds for financing to the general public and small businesses. Pursuant to the repeal of the Citizens National Bank Act, effective January 5, 1995, the Bank has conducted its operations in accordance with the provisions of the General Banking Act.

The Bank merged with Korea Long Term Credit Bank on December 31, 1998 and with Daegu, Busan, Jeonnam Kookmin Mutual Savings & Finance Co., Ltd. on August 22, 1999. Also, under the decision of the Financial Supervisory Commission in accordance with the Structural Improvement of the Financial Industry Act, the Bank purchased certain assets, including loans classified as normal or precautionary, and assumed most of the liabilities of Daedong Bank on June 29, 1998. Also, the Bank completed the legal consolidation with Housing and Commercial Bank (“H&CB”) on October 31, 2001 and merged with Kookmin Credit Card Co., Ltd., a majority-owned subsidiary, on December 31, 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 Depository 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 December 31, 2006, the Bank’s paid-in capital is (Won)1,681,896 million.

The Bank is engaged in the banking, trust, credit card and other relevant businesses according to the provisions of the General Banking Act, Trust Business Act, and Specialized Credit Financial Business Act, respectively. The Bank operates through 1,132 domestic branches and offices (excluding 216 automated teller machine stations) and three overseas branches (excluding two subsidiaries and one office) as of December 31, 2006.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Non-consolidated Financial Statement Presentation

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

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


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 the cash basis in accordance with the banking industry accounting standards. As of December 31, 2006 and 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)6,052,684 million and (Won)7,875,123 million, respectively, and the related accrued interest income not recognized amounted to (Won)527,528 million and (Won)462,799 million, respectively.

Classification of Securities

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

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

Valuation of Securities

 

(1) Valuation of Trading Securities

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

 

(2) Valuation of Available-for-sale Securities

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

 

- 2 -


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 gain or loss from the disposal of equity securities of certain consolidated subsidiaries is 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 and face

 

- 3 -


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 control of the securities, 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 0.7 ~ 6.9 percent for normal, 7.0 ~ 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 1.0 ~ 9.9 percent and 1.5 ~ 14.9 percent for normal, 10 ~19.9 percent and 15 ~ 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.

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 notes endorsed based on the credit classification, minimum rate of loss provision prescribed by the Financial Supervisory Service and the cash conversion factor. In addition, the Bank provides other allowances 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 the Financial Supervisory Service.

 

- 4 -


Pursuant to the amended Supervisory Regulation, the Bank increased the minimum rate of loss provision for loans, confirmed acceptances and guarantees, unconfirmed acceptances and guarantees, notes endorsed, and unused credit line classified as normal and precautionary in 2006. The Bank also extended the scope of other allowances for the unused credit limit of credit card to the extent of the unused credit line of card holders with no record of credit card transaction for the past 1 year. Due to these changes, allowance for possible loan losses, allowance for possible losses on acceptances and guarantees, and other allowances for unused credit limit increased by (Won)397.6 billion, (Won)4.3 billion and (Won)227.9 billion, respectively, as of December 31, 2006, and net income for the year then ended decreased by (Won)456.6 billion.

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.

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 to be used in assessing its historical loss rate and recovery ratio.

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.

 

- 5 -


Tangible Assets and Related Depreciation

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

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

 

Tangible assets

  

Depreciation method

   Estimated useful life

Buildings and structures

   Straight-line    40 years

Leasehold improvements

   Declining balance    4-5 years

Equipment and vehicles

   Declining balance    4-5 years

Intangible Assets and Related Amortization

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

 

Intangible assets

  

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 such agreements.

 

- 6 -


Contingent Liabilities

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

Accrued Severance Benefits

Employees and directors and temporary employees with at least one year of service as of December 31, 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 stock options, the Bank records stock compensation costs as a capital adjustment in cases where the Bank can choose to settle the vested stock option by issuing new shares or treasury stock, or payment of cash or cash equivalents 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).

 

- 7 -


National Housing Fund

The Bank, as designated by the Korean government under the Housing Law (former Housing Construction Promotion Law), manages the sources and uses of funds of the National Housing Fund (the “NHF”) and records the related NHF account in other liabilities. In addition, the Bank pays interest to NHF, which is computed by multiplying the average balance of the NHF account by the passbook deposit interest rate.

Accounting for Trust Accounts

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

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

Income Tax Expense

Income tax expense is the amount currently payable for the period added to or deducted from the changes in deferred income taxes. However, deferred income tax assets are recognized only if the future tax benefits from accumulated temporary differences and any tax loss carryforwards are realizable. The difference between the amount currently payable for the period and income tax expense is accounted for as deferred income tax assets or liabilities, which will be charged or credited to income tax expense in the period the related 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 basic 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 (?929.60 and ?1,013.00 to US$ 1.00 at December 31, 2006 and 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 year were reclassified to conform to the current year’s presentation for comparative purposes; however, such reclassifications had no effect on the previously reported prior year’s net income or shareholders’ equity of the Bank.

 

- 8 -


3. CASH AND DUE FROM BANKS:

 

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

 

     2006    2005

Cash and checks

   (Won) 2,725,644    (Won) 2,683,479

Foreign currencies

     151,406      150,402

Due from banks in Won

     3,210,607      2,495,595

Due from banks in foreign currencies

     480,649      537,941
             
   (Won) 6,568,306    (Won) 5,867,417
             

 

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

 

Financial institution

   Interest (%)    2006    2005

Due from banks in Won:

        

BOK

   —      (Won) 3,195,224    (Won) 2,189,339

Citibank Korea Inc. and others

   0.00~2.20      9,377      302,873

Good Morning Shinhan Securities Co., Ltd and others

   0.00~0.30      6,006      3,383
                
      (Won) 3,210,607    (Won) 2,495,595
                

Due from banks in foreign currencies:

        

BOK

   —      (Won) 75,026    (Won) 46,501

JP Morgan Chase Bank, N.A and others

   0.00~5.37      87,235      78,136

Qingdao International and others

   5.47~5.81      318,388      413,304
                
      (Won) 480,649    (Won) 537,941
                

 

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

 

Financial institution

   2006    2005    Reason for restriction

Due from banks in Won:

        

BOK

   (Won) 3,195,224    (Won) 2,189,339    BOK Act

Woori Bank

     4,605      4,029    Escrow account

KB Futures Co., Ltd. and others

     4,492      1,909    Futures margin accounts/others

Korea Exchange

     250      328    Market entry due

Due from banks in foreign currencies:

        

BOK

     75,026      46,501    BOK Act

J.P. Morgan Futures Inc. and others

     890      480    Futures margin accounts/others
                
   (Won) 3,280,487    (Won) 2,242,586   
                

 

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

 

Financial institution

   2006    2005

Due from banks in Won:

     

BOK

   (Won) 3,195,224    (Won) 2,189,339

Banks

     9,377      302,873

Others

     6,006      3,383
             
     3,210,607      2,495,595
             

Due from banks in foreign currencies:

     

BOK

     75,026      46,501

Banks

     404,733      490,960

Others

     890      480
             
     480,649      537,941
             
   (Won) 3,691,256    (Won) 3,033,536
             

 

- 9 -


Term structure of due from banks as of December 31, 2006 was as follows (Unit: In millions):

 

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

Due from banks in Won

   (Won) 3,206,002    (Won) 4,029    (Won) 475    (Won) 101    (Won) —      (Won) 3,210,607

Due from banks in foreign currencies

     429,521      51,128      —        —        —        480,649
                                         
   (Won) 3,635,523    (Won) 55,157    (Won) 475    (Won) 101    (Won) —      (Won) 3,691,256

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

 

4. SECURITIES:

 

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

 

     2006    2005

Trading securities

   (Won) 2,589,719    (Won) 3,551,425

Available-for-sale securities

     15,113,898      16,180,784

Held-to-maturity securities

     10,939,331      10,228,573

Securities accounted for using the equity method

     739,532      589,517
             
   (Won) 29,382,480    (Won) 30,550,299
             

 

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

 

Classification

   Face value   

Acquisition

cost (*)

   Adjusted by
effective
interest rate
method
   Book value

Trading securities:

           

Equity securities

   (Won) —      (Won) 55,871    (Won) —      (Won) 57,196

Beneficiary certificates

     100,285      100,737      —        103,488

Government and public bonds

     387,598      375,518      369,206      376,597

Finance bonds

     1,961,888      1,953,158      1,955,278      1,951,106

Corporate bonds

     101,311      100,947      101,705      101,332
                           
   (Won) 2,551,082    (Won) 2,586,231    (Won) 2,426,189    (Won) 2,589,719
                           

 

- 10 -


Classification

   Face value   

Acquisition

cost (*)

   Adjusted by
effective
interest rate
method
   Book value

Available-for-sale securities:

           

Equity securities

   (Won) —      (Won) 1,337,214    (Won) —      (Won) 1,975,847

Equity investments

     —        510      —        3,840

Beneficiary certificates

     601,394      601,194      —        608,242

Government and public bond

     3,130,037      3,117,853      3,120,855      3,105,038

Finance bonds

     7,830,928      7,767,030      7,793,953      7,782,194

Corporate bonds

     1,000,411      965,657      950,345      950,200

Asset-backed securities

     991,092      927,660      672,357      671,827

Other debt securities

     18,412      8,843      —        16,710
                           
   (Won) 13,572,274    (Won) 14,725,961    (Won) 12,537,510    (Won) 15,113,898
                           

Held-to-maturity securities:

           

Government and public bonds

   (Won) 6,708,303    (Won) 6,633,496    (Won) 6,644,907    (Won) 6,644,907

Finance bonds

     2,208,000      2,208,271      2,208,185      2,208,185

Corporate bonds

     1,879,779      1,887,352      1,881,270      1,881,270

Asset-backed securities

     205,000      204,906      204,969      204,969
                           
   (Won) 11,001,082    (Won) 10,934,025    (Won) 10,939,331    (Won) 10,939,331
                           
 
  (*) 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
                           

 

- 11 -


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)6,922 million of valuation gain and (Won)14,550 million of valuation loss for the years ended December 31, 2006 and 2005, respectively.

The fair values of trading and available-for sale debt securities in Won were assessed by applying the average of base prices as of December 31, 2006, provided by the bond pricing service institutions.

The fair value of the available-for-sale non-marketable equity securities such as Korea Housing Guarantee Co., Ltd. and 13 others, and the restricted available-for-sale marketable equity securities such as Hyundai Engineering and Construction Co. and 5 others were reliably measured by an independent appraisal institute using reasonable judgment. The fair value was determined based on more than one valuation models such as Discounted Cash Flow (DCF) Model, Imputed Market Value(IMV) Model, Discounted Free Cash Flow to Equity (FCFE) Model, Dividend Discount Model (DDM) and Risk Adjusted Discounted Cash Flow Model depending on the equity securities.

 

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

 

Company

   2006    2005

Bad Bank Harmony (preferred stock)

   (Won) 58,848    (Won) 12,279

Korea Asset Management Corp.

     15,667      15,667

Samsung Life Insurance Co., Ltd.

     7,479      7,479

Korea Highway Corp.

     6,248      6,248

CLS

     5,128      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

     908      989

Others

     12,696      17,281
             
   (Won) 111,453    (Won) 69,613
             

 

(4) The impairment loss and the reversal of impairment loss on available-for-sale securities recognized for the years ended December 31, 2006 and 2005 were as follows (Unit: In millions):

 

     2006    2005
     Impairment    Reversal    Impairment    Reversal

Equity securities

   (Won) 16,953    (Won) 83,485    (Won) 2,694    (Won) 7,422

Equity investments

     1      —        3      —  

Corporate bonds

     —        958      448      —  

Asset-backed securities

     107,312      —        94,880      —  
                           
   (Won) 124,266    (Won) 84,443    (Won) 98,025    (Won) 7,422
                           

 

- 12 -


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

 

     Won   

Foreign

currencies

   Total

Structured notes relating to stock:

        

Convertible bonds

   (Won) —      (Won) 24,121    (Won) 24,121
                    

Structured notes relating to interest rate:

        

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

     378,840      —        378,840

Dual indexed FRN

     19,931      —        19,931

Inverse FRN

     20,115      —        20,115

Others

     110,236      —        110,236
                    
     529,122      —        529,122
                    

Structured notes relating to Credit

Synthetic CDO

     —        9,290      9,290
                    

Bonds with embedded call option

     20,000      —        20,000
                    
   (Won) 549,122    (Won) 33,411    (Won) 582,533
                    

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
                    

 

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

 

     2006    2005

Stocks

   (Won) 90,874    (Won) 7,353

Government and public bonds

     115,929      38,018

Finance bonds

     359,282      1,340,390

Corporate bonds

     27,943      32,622

Asset-backed debt securities

     10,000      —  

Call loans

     48,091      203,892

Others

     59,878      412,962
             

Assets

     711,997      2,035,237

Liabilities

     2,504      11,081
             
   (Won) 709,493    (Won) 2,024,156
             

 

- 13 -


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

 

     2006    2005

By industry type

   Amount    Percentage (%)    Amount    Percentage (%)

Trading securities:

           

Government and government-invested public companies

   (Won) 479,367    18.51    (Won) 1,764,476    49.68

Financial institutions

     2,063,151    79.67      1,631,869    45.95

Others

     47,201    1.82      155,080    4.37
                       
   (Won) 2,589,719    100.00    (Won) 3,551,425    100.00
                       

Available-for-sale securities:

           

Government and government-invested public companies

   (Won) 3,662,749    24.24    (Won) 3,347,229    20.69

Financial institutions

     10,413,843    68.90      12,027,488    74.33

Others

     1,037,306    6.86      806,067    4.98
                       
   (Won) 15,113,898    100.00    (Won) 16,180,784    100.00
                       

Held-to-maturity securities:

           

Government and government-invested public companies

   (Won) 8,406,232    76.84    (Won) 6,298,716    61.58

Financial institutions

     2,503,154    22.88      3,899,922    38.13

Others

     29,945    0.28      29,935    0.29
                       
   (Won) 10,939,331    100.00    (Won) 10,228,573    100.00
                       

 

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

 

     2006    2005

By security type

   Amount    Percentage (%)    Amount    Percentage (%)

Trading securities:

           

Stocks

   (Won) 57,196    2.21    (Won) 200,147    5.63

Fixed rate bonds

     2,328,953    89.93      3,230,737    90.97

Floating rate bonds

     100,082    3.86      120,285    3.39

Beneficiary certificates

     103,488    4.00      256    0.01
                       
   (Won) 2,589,719    100.00    (Won) 3,551,425    100.00
                       

Available-for-sale securities:

           

Stocks

   (Won) 1,975,847    13.07    (Won) 1,156,629    7.15

Fixed rate bonds

     11,215,054    74.20      11,201,802    69.23

Floating rate bonds

     579,663    3.84      861,368    5.32

Subordinated bonds

     690,028    4.57      872,813    5.39

Convertible bonds

     24,121    0.16      60    0.00

Beneficiary certificates

     608,242    4.02      2,075,933    12.83

Others

     20,943    0.14      12,179    0.08
                       
   (Won) 15,113,898    100.00    (Won) 16,180,784    100.00
                       

Held-to-maturity securities:

           

Fixed rate bonds

   (Won) 10,879,331    99.45    (Won) 10,038,573    98.14

Floating rate bonds

     60,000    0.55      60,000    0.59

Subordinated bonds

     —      0.00      130,000    1.27
                       
   (Won) 10,939,331    100.00    (Won) 10,228,573    100.00
                       

 

- 14 -


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

 

     2006    2005

By country type

   Amount    Percentage (%)    Amount    Percentage (%)

Trading securities:

           

Korea

   (Won) 2,589,719    100.00    (Won) 3,551,425    100.00
                   

Available-for-sale securities:

           

Korea

   (Won) 15,019,533    99.38    (Won) 16,066,362    99.29

Russia

     33,573    0.22      28,527    0.18

USA

     27,794    0.18      46,876    0.29

India

     9,685    0.07      393    0.00

Ireland

     9,290    0.06      —      —  

Switzerland

     5,128    0.03      5,191    0.03

Philippines

     378    0.00      9,675    0.06

The Republic of South Africa

     —      —        6,240    0.04

Others

     8,517    0.06      17,520    0.11
                       
   (Won) 15,113,898    100.00    (Won) 16,180,784    100.00
                       

Held-to-maturity securities:

           

Korea

   (Won) 10,939,331    100.00    (Won) 10,228,573    100.00
                       

 

(10) Term structure of securities (except for stocks and equity investments) in available-for-sale and held-to-maturity securities as of December 31, 2006 was as follows (Unit: In millions):

 

     Due in 1 year
or less
   Due after 1
year through
5 years
   Due after 5
years through
10 years
   More than
10 years
   Total

Available-for-sale securities:

              

Fair value

   (Won) 5,150,081    (Won) 7,685,231    (Won) 261,419    (Won) 37,480    (Won) 13,134,211

Held-to-maturity securities:

              

Book value

     3,211,790      5,276,939      2,450,602      —        10,939,331

Fair value

     3,207,704      5,229,016      2,440,235      —        10,876,955

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

 

- 15 -


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

 

    

No. of

shares

   Ownership
(%)
   Acquisition
cost
   Net asset
value
   Book value

Domestic stocks:

              

KB Investment Co., Ltd.

   8,951,293    99.99    (Won) 155,384    (Won) 94,443    (Won) 94,443

KB Futures Co., Ltd.

   3,999,200    99.98      19,996      28,077      28,077

KB Data System Co., Ltd.

   799,960    99.99      8,001      17,603      14,609

KB Real Estate Trust

   15,999,930    99.99      76,103      99,539      99,544

KB Asset Management

   6,134,040    80.00      39,015      65,271      65,271

KB Credit Information

   1,249,040    99.73      14,291      35,314      34,735

KB Life Insurance Co., Ltd.

   3,060,000    51.00      15,426      16,271      —  

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 Co., Ltd.

   1,400,000    20.00      21,769      123,587      123,587

Balhae Infrastructure Fund (*2)

   4,486,305    12.61      45,126      45,589      45,589

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

   180,000    9.00      4,500      3,297      3,297
                          
           433,921      528,991      509,152
                          

Foreign stocks:

              

Kookmin Bank Singapore Ltd. (*1)

   30,000,000    100.00      18,173      —        1,614

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

   700,000    100.00      7,420      —        226

Kookmin Bank Int'l Ltd. (London)

   20,000,000    100.00      35,900      56,496      56,496

Kookmin Bank Hong Kong Ltd.

   2,000,000    100.00      49,326      72,130      72,130

Sorak Financial Holdings PTE Ltd.

   1,422,216    25.00      73,947      87,299      87,299
                          
           184,766      215,925      217,765
                          

Equity investments:

              

Pacific IT Investment Partnership (*1)

   700    50.00      6,252      1,958      1,958

NPC02-4 Kookmin Venture Fund

   70    33.33      7,000      8,204      8,204

KB06-1 Venture Investment Partnership

   50    50.00      2,500      2,453      2,453
                          
           15,752      12,615      12,615
                          
         (Won) 634,439    (Won) 757,531    (Won) 739,532
                          

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

 

    

No. of

shares

   Ownership
(%)
   Acquisition
cost
   Net asset
value
   Book value

Domestic stocks:

              

KB Investment Co., Ltd.

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

KB Futures Co., Ltd.

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

KB Data System Co., Ltd.

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

KB Real Estate Trust

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

KB Asset Management

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

KB Credit Information

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

KB Life Insurance Co., Ltd.

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

KLB Securities Co., Ltd. (*1)

   4,854,713    36.41      10,316      —        —  

Jooeun Industrial Co., Ltd. (*1)

   1,999,910    99.99      23,994      —        —  

ING Life Insurance Korea

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

Foreign stocks:

              

Kookmin Bank Singapore Ltd. (*1)

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

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

   700,000    100.00      8,086      —        246

Kookmin Bank Int'l Ltd. (London)

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

Kookmin Bank Hong Kong Ltd.

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

Sorak Financial Holdings PTE Ltd.

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

 

- 16 -


    

No. of

shares

   Ownership
(%)
   Acquisition
cost
   Net asset
value
   Book value

Equity investments:

              

KICO No. 2 Venture Investment Partnership (*4)

   250    55.56    (Won) —      (Won) 130    (Won) 130

KICO No. 3 Venture Investment Partnership (*4)

   —      69.23      —        147      147

Pacific IT Investment Partnership (*1)

   700    50.00      7,000      4,950      4,950

NPC02-4 Kookmin Venture Fund

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

(*1) KLB Securities Co., Ltd., Jooeun Industrial Co., Ltd., Kookmin Bank Singapore Ltd., Kookmin Finance Asia, Ltd. and Pacific IT Investment Partnership are all in the process of liquidation as of December 31, 2006.
(*2) The Bank may exercise its voting right at the board meeting or at an equally significant decision making body of the investee.
(*3) The Bank has significant influence in electing the board member who may participate in the decision making process relating to the financial and business policy of the investee.
(*4) The liquidation of KICO No. 2 Venture Investment Partnership and KICO No. 3 Venture Investment Partnership has been finalized in the current fiscal year

 

(12) The valuation of securities accounted for using the equity method for the year ended December 31, 2006 was as follows (Unit: In millions):

 

     Book value
before
valuation
  

Increase

(Decrease)

   Dividend     Foreign
currency
translation
gain (loss)
  

Equity gain

(loss) on
investment

   

Capital

adjustments

   

Retained

earnings

    Book value
after
valuation

Domestic stocks:

                   

KB Investment Co., Ltd.

   (Won) 85,462    (Won) —      (Won) (2,238 )   (Won) —      (Won) 10,974     (Won) 245     (Won) —       (Won) 94,443

KB Futures Co., Ltd.

     27,312      —        (1,000 )     —        1,823       (58 )     —         28,077

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

     15,582      —        (2,399 )     —        1,426       —         —         14,609

KB Real Estate Trust

     81,068      —        —         —        18,337       139       —         99,544

KB Asset Management

     52,485      —        (6,134 )     —        18,909       11       —         65,271

KB Credit Information (*1)

     27,837      —        (624 )     —        7,522       —         —         34,735

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

     —        —        —         —        —         1,582       (1,582 )     —  

KLB Securities Co., Ltd. (*2)

     —        —        —         —        —         —         —         —  

Jooeun Industrial Co., Ltd. (*2)

     —        —        —         —        —         —         —         —  

ING Life Insurance Korea

     77,529      —        —         —        31,308       14,750       —         123,587

Balhae Infrastructure Fund

     —        45,126      (11 )     —        474       —         —         45,589

Korea Credit Bureau Co., Ltd.

     —        4,500      —         —        (1,203 )     —         —         3,297
                                                           
     367,275      49,626      (12,406 )     —        89,570       16,669       (1,582 )     509,152
                                                           

 

- 17 -


    

Book

value

before
valuation

  

Increase

(Decrease)

    Dividend     Foreign
currency
translation
gain (loss)
   

Equity

gain

(loss) on
investment

   

Capital

adjustments

   

Retained

earnings

   

Book

value

after
valuation

Foreign stocks

                 

Kookmin Bank Singapore Ltd.

   (Won) 1,759    (Won) —       (Won) —       (Won) (145 )   (Won) —       (Won) —       (Won) —       (Won) 1,614

Kookmin Finance Asia Ltd. (HK)

     246      —         —         (20 )     —         —         —         226

Kookmin Bank Int'l Ltd. (London)

     50,523      —         —         2,237       4,262       (526 )     —         56,496

Kookmin Bank Hong Kong Ltd.

     69,958      —         —         (5,760 )     8,044       (112 )     —         72,130

Sorak Financial Holdings PTE Ltd.

     82,401      —         (6,009 )     (438 )     7,065       4,280       —         87,299
                                                             
     204,887      —         (6,009 )     (4,126 )     19,371       3,642       —         217,765
                                                             

Equity Securities

                 

KICO No. 2 Venture Investment Partnership

     130      (93 )     —         —         (37 )     —         —         —  

KICO No. 3 Venture Investment Partnership

     147      (117 )     —         —         (30 )     —         —         —  

Pacific IT Investment Partnership

     4,950      (1,496 )     —         —         (1,496 )     —         —         1,958

NPC02-4 Kookmin Venture Fund

     12,128      (3,000 )     (2,129 )     —         1,263       (58 )     —         8,204

KB06-1 Venture Investment Partnership

     —        2,500       —         —         (47 )     —         —         2,453
                                                             
     17,355      (2,206 )     (2,129 )     —         (347 )     (58 )     —         12,615
                                                             
   (Won) 589,517    (Won) 47,420     (Won) (20,544 )   (Won) (4,126 )   (Won) 108,594     (Won) 20,253     (Won) (1,582 )   (Won) 739,532
                                                             

(*1) Differences amounting to (Won)1,128 million between the purchase price and the Bank’s proportionate ownership of the net book value of KB Credit Information resulting from an additional purchase of 342,844 shares in October 2004 are credited to gain on valuation of securities accounted for using the equity method equally for five years. The Bank credited (Won)226 million to current operation for the year ended December 31, 2006 and the balance was (Won)620 million as of December 31, 2006.
(*2) The equity method is no longer applied to securities of KLB Securities Co., Ltd. and Jooeun Industrial Co., Ltd. due to accumulated deficit, and to securities of KB Life Insurance Co., Ltd. due to unrealized income elimination, which led to a decrease in the book value to below zero. The unrecognized accumulated deficit and change due to the equity method as of December 31, 2006 (Unit: In millions):

 

     Deficit    Change due to
equity method
   Total

KLB Securities Co., Ltd.

   (Won) 4,148    (Won) —      (Won) 4,148

Jooeun Industrial Co., Ltd.

     41,010      —        41,010

KB Life Insurance Co., Ltd.

     27,217      3,436      30,653
                    
   (Won) 72,375    (Won) 3,436    (Won) 75,811
                    

 

- 18 -


(*3) The significant unrealized income eliminated for the year ended December 31, 2006 was as follows (Unit: In millions):

 

    

Related accounts

   Amount

KB Data System Co., Ltd.

   Tangible assets (sales)    (Won) 914

KB Life Insurance Co., Ltd.

   Commissions (deferred acquisition cost)      3,730
         
      (Won) 4,644
         

 

(13) Significant financial data of companies of which stocks were accounted for using the equity method as of and for the year ended December 31, 2006 were as follows (Unit: In millions):

 

     Assets    Liabilities    Sales    Net income
(loss)
 

KB Investment Co., Ltd.

   (Won) 96,296    (Won) 1,848    (Won) 20,030    (Won) 10,974  

KB Futures Co., Ltd.

     67,145      39,062      11,487      1,824  

KB Data System Co., Ltd.

     33,471      15,868      67,588      2,277  

KB Real Estate Trust

     206,392      106,853      66,122      18,424  

KB Asset Management

     92,220      10,631      44,826      23,636  

KB Credit Information

     43,938      8,529      71,532      7,329  

KB Life Insurance Co., Ltd.

     700,438      668,535      409,302      4,187  

Jooeun Industrial Co., Ltd.

     110,193      182,882      64,404      2,253  

ING Life Insurance Korea

     9,635,249      9,017,312      3,149,367      156,539  

Balhae Infrastructure Fund

     362,440      4,410      6,404      3,765  

Korea Credit Bureau Co., Ltd.

     42,826      6,193      13,963      (5,645 )

Kookmin Bank Int'l Ltd. (London)

     315,938      259,442      20,634      3,736  

Kookmin Bank Hong Kong Ltd.

     395,935      323,805      27,568      7,963  

Sorak Financial Holdings PTE Ltd.

     5,197,633      4,848,437      680,311      33,189  

Pacific IT Investment Partnership

     1,986      28      —        (1,496 )

NPC02-4 Kookmin Venture Fund

     24,852      240      5,459      3,790  

KB06-1 Venture Investment Partnership

     5,067      162      67      (95 )

Unaudited financial statements as of December 31, 2006 were used for the equity method valuation. There was no material exception as a result of analytical review, such as analysis of major accounts to assess reliability of those financial statements. However, in case of ING Life Insurance Korea and Sorak Financial Holdings PTE Ltd., the unaudited financial statements as of November 30, 2006 were used for the equity method valuation. The significant events from the closing dates of the investees to that of the Bank were properly reflected in applying the equity method.

 

(14) Changes in the gain (loss) on valuation of available-for-sale securities, held-to-maturity securities and securities accounted for using the equity method reflected in capital adjustments for the year ended December 31, 2006 were as follows (Unit: In millions):

 

     Beginning    Increase
(Decrease)
    Disposal     Ending

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

         

Equity securities

   (Won) 454,250    (Won) 470,552     (Won) (78,679 )   (Won) 846,123

Debt securities in Won

     32,614      (3,203 )     (6,742 )     22,669

Debt securities in foreign currencies

     5,867      1,671       (3,528 )     4,010

Beneficiary certificates

     16,858      4,894       (16,702 )     5,050

Others

     1,779      3,925       —         5,704
                             
   (Won) 511,368    (Won) 477,839     (Won) (105,651 )   (Won) 883,556
                             

Gain on valuation of held-to-maturity securities:

         

Debt securities in Won

   (Won) 426    (Won) —       (Won) (328 )   (Won) 98
                             

Gain on valuation of securities accounted for using the equity method

   (Won) 948    (Won) 15,522     (Won) (582 )   (Won) 15,888
                             

 

- 19 -


(15) Securities provided as collateral as of December 31, 2006 were as follows (Unit: In millions):

 

Provided to

   Book value    Collateral
amount
  

Provided for

Korea Securities Depository & others

   (Won) 7,070,657    (Won) 7,100,000    Bonds sold under repurchase agreements

BOK

     725,902      725,700    Borrowings from BOK

BOK

     330,294      330,600    Overdrafts and settlement risk

Samsung Futures & others

     294,760      307,500    Derivative settlement

Other

     402      1,628    Other
                
   (Won) 8,422,015    (Won) 8,465,428   
                

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

 

Provided to

   Book value    Collateral
amount
  

Provided for

Korea Securities Depository & others

   (Won) 6,571,036    (Won) 6,570,000    Bonds sold under repurchase agreements

BOK

     953,153      950,000    Borrowings from BOK

BOK

     183,994      183,200    Overdrafts and settlement risk

Samsung Futures & others

     260,571      269,500    Derivative settlement

Other

     1,628      1,628    Other
                
   (Won) 7,970,382    (Won) 7,974,328   
                

 

(16) Securities lent as of December 31, 2006 and 2005 were as follows (Unit: In millions):

 

     2006    2005   

Provided to

Government and public bonds

   (Won) 119,614    (Won) 98,625    Korea Securities Depository & Others

Finance bonds

     23,671      35,241    Korea Securities Depository
                
   (Won) 143,285    (Won) 133,866   
                

 

5. LOANS:

 

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

 

     2006     2005  

Loans in Won

   (Won) 125,574,817     (Won) 118,565,341  

Loans in foreign currencies

     7,261,811       5,314,883  

Call loans

     1,247,109       1,518,948  

Bills bought in Won

     16,587       18,563  

Bills bought in foreign currencies

     1,270,314       1,377,085  

Advances for customers

     19,209       11,321  

Credit card receivables

     8,667,740       7,571,605  

Private placed bonds

     7,499,208       3,729,867  

Factoring receivables

     30,948       32,044  

Loans for debt-equity swap

     1,968       —    

Bonds Purchased under Repurchase Agreements

     500,000       —    
                
     152,089,711       138,139,657  

Allowance for possible loan losses

     (2,360,867 )     (2,453,275 )

Deferred loan origination fees and costs

     138,338       52,025  
                
   (Won) 149,867,182     (Won) 135,738,407  
                

 

- 20 -


(2) Loans in Won and loans in foreign currencies as of December 31, 2006 and 2005 were as follows (Unit: In millions):

 

          2006    2005
Loans in Won:         

Commercial

   Working capital loans      
  

General purpose loans

   (Won) 27,161,083    (Won) 24,575,874
  

Notes discounted

     697,235      1,106,112
  

Overdraft accounts

     286,724      279,864
  

Trading notes

     612,305      671,421
  

Others

     4,297,074      3,865,057
                
        33,054,421      30,498,328
                
   Facilities loans      
  

General facilities loans

     5,107,519      3,985,218
  

Others

     995,730      1,087,832
                
        6,103,249      5,073,050
                
        39,157,670      35,571,378
                

Households

   General purpose loans      45,946,145      42,082,535
   Housing loans      39,007,176      39,535,441
   Remunerations on mutual installment savings      147,672      232,556
   Others      416,103      456,173
                
        85,517,096      82,306,705
                

Public sector

   Public operation loans      894,178      643,141
   Public facilities loans      3,687      34,157
                
        897,865      677,298
                

Other

   Property formation loans      1,013      6,748
   Inter-bank loans      —        1,274
   Others      1,173      1,938
                
        2,186      9,960
                
      (Won) 125,574,817    (Won) 118,565,341
                
Loans in foreign currencies:      
   Domestic funding loans    (Won) 4,441,975    (Won) 2,208,125
   Overseas funding loans      429,836      551,049
   Inter-bank loans      1,133,253      1,229,064
   Domestic usance bills      1,256,747      1,326,629
   Government funding loans      —        16
                
      (Won) 7,261,811    (Won) 5,314,883
                

 

(3) Loans in Won and loans in foreign currencies, classified by borrower type, as of December 31, 2006 were as follows (Unit: In millions):

 

By borrower type

   Loans in Won    Loans in foreign
currencies
   Total   

Percentage

(%)

Large corporations

   (Won) 2,783,921    (Won) 4,437,045    (Won) 7,220,966    5.44

Small and medium corporations

     36,373,749      1,420,308      37,794,057    28.45

Households

     85,519,282      —        85,519,282    64.38

Others

     897,865      1,404,458      2,302,323    1.73
                         
   (Won) 125,574,817    (Won) 7,261,811    (Won) 132,836,628    100.00
                         

 

- 21 -


Loans in Won and loans in foreign currencies, classified by borrower type, as of December 31, 2005 were as follows (Unit: In millions):

 

By borrower type

   Loans in Won    Loans in foreign
currencies
   Total   

Percentage

(%)

Large corporations

   (Won) 3,510,892    (Won) 2,332,245    (Won) 5,843,137    4.72

Small and medium corporations

     32,061,760      1,487,584      33,549,344    27.08

Households

     82,315,391      —        82,315,391    66.46

Others

     677,298      1,495,054      2,172,352    1.74
                         
   (Won) 118,565,341    (Won) 5,314,883    (Won) 123,880,224    100.00
                         

(4) Loans classified by borrower’s country or region as of December 31, 2006 were as follows (Unit: In millions):

 

By country

   Loans in Won    Loans in
foreign
currencies
   Others    Total    Percentage(%)

Korea

   (Won) 125,574,817    (Won) 7,006,258    (Won) 19,174,054      \151,755,129    99.78

Southeast Asia

     —        25,525      1      25,526    0.02

China

     —        7,019      —        7,019    0.01

Japan

     —        172,447      78      172,525    0.11

Central and South

America

     —        4,142      1      4,143    0.00

USA

     —        84      2,438      2,522    0.00

Others

     —        46,336      76,511      122,847    0.08
                                
   (Won) 125,574,817    (Won) 7,261,811    (Won) 19,253,083    (Won) 152,089,711    100.00
                                

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

 

By country

   Loans in Won    Loans in
foreign
currencies
   Others    Total    Percentage(%)

Korea

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

Southeast Asia

     —        77,018      —        77,018    0.05

China

     —        362,468      5,065      367,533    0.27

Japan

     —        270,131      72      270,203    0.19

Central and South

America

     —        7,524      19      7,543    0.01

Others

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

 

(5) Loans classified by industry as of December 31, 2006 were as follows (Unit: In millions):

 

By industry

   Loans in Won    Loans in
foreign
currencies
   Others    Total   

Percentage

(%)

Corporations:

              

Finance and insurance

   (Won) 622,860    (Won) 1,181,790    (Won) 2,726,763    (Won) 4,531,413    2.98

Manufacturing

     11,148,580      2,521,963      3,474,130      17,144,673    11.27

Services

     16,337,444      1,030,318      1,735,734      19,103,496    12.56

Others

     11,779,703      2,520,990      3,433,721      17,734,414    11.66

Households

     85,519,282      —        7,505,000      93,024,282    61.17

Public sector

     166,948      6,750      377,735      551,433    0.36
                                
   (Won) 125,574,817    (Won) 7,261,811    (Won) 19,253,083    (Won) 152,089,711    100.00
                                

 

- 22 -


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

 

By industry

  

Loans in

Won

   Loans in
foreign
currencies
   Others    Total   

Percentage

(%)

Corporations:

              

Finance and insurance

   (Won) 1,083,695    (Won) 1,286,271    (Won) 2,130,624    (Won) 4,500,590    3.26

Manufacturing

     11,370,692      1,713,587      2,467,194      15,551,473    11.26

Services

     12,845,575      904,042      1,025,982      14,775,599    10.70

Others

     10,738,576      1,400,538      2,110,284      14,249,398    10.32

Households

     82,315,391      —        6,525,160      88,840,551    64.31

Public sector

     211,412      10,445      189      222,046    0.15
                                
   (Won) 118,565,341    (Won) 5,314,883    (Won) 14,259,433    (Won) 138,139,657    100.00
                                

 

(6) Loans to financial institutions as of December 31, 2006 were as follows (Unit: In millions):

 

     Bank    Other financial
institutions
   Total

Loans in Won

   (Won) —      (Won) 622,860    (Won) 622,860

Loans in foreign currencies

     1,133,253      48,537      1,181,790

Others

     1,780,151      946,612      2,726,763
                    
   (Won) 2,913,404    (Won) 1,618,009    (Won) 4,531,413
                    

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

 

     Bank    Other financial
institutions
   Total

Loans in Won

   (Won) 1,274    (Won) 1,082,421    (Won) 1,083,695

Loans in foreign currencies

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

Others

     1,549,523      581,101      2,130,624
                    
   (Won) 2,779,861    (Won) 1,720,729    (Won) 4,500,590
                    

 

(7) The classification of asset quality for loans as of December 31, 2006 is summarized as follows (Unit: In millions):

 

     Normal    Precautionary    Substandard    Doubtful   

Estimated

loss

   Total

Loans in Won

   (Won) 122,782,925    (Won) 1,433,346    (Won) 663,162    (Won) 455,430    (Won) 239,954    (Won) 125,574,817

Loans in foreign currencies

     7,138,780      67,041      31,024      22,426      2,540      7,261,811

Call loans

     1,247,109      —        —        —        —        1,247,109

Bills bought

     1,283,897      2,338      283      297      86      1,286,901

Advances for customers

     133      508      8,753      1,833      7,982      19,209

Credit card receivables

     8,341,239      215,089      648      71,227      39,537      8,667,740

Privately placed bonds

     7,498,067      —        650      —        491      7,499,208

Factoring receivables

     30,948      —        —        —        —        30,948

Loans to be swapped to equity

     —        —        —        1,968      —        1,968

Bond purchased under repurchase agreements

     500,000      —        —        —        —        500,000
                                         
   (Won) 148,823,098    (Won) 1,718,322    (Won) 704,520    (Won) 553,181    (Won) 290,590    (Won) 152,089,711
                                         

 

- 23 -


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

 

     Normal    Precautionary    Substandard    Doubtful   

Estimated

loss

   Total

Loans in Won

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

Loans in foreign currencies

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

Call loans

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

Bills bought

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

Advances for customers

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

Credit card receivables

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

Privately placed bonds

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

Factoring receivables

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

 

(8) The term structure of loans as of December 31, 2006 was as follows (Unit: In millions):

 

     Loans in Won   

Loans in foreign

currencies

   Others    Total
Due in 3 months or less    (Won) 15,122,967    (Won) 2,254,326    (Won) 9,226,195    (Won) 26,603,488

Due after 3 months through 6 months

     14,837,648      1,309,033      1,226,601      17,373,282
Due after 6 months through 1 year      30,049,634      946,209      2,374,525      33,370,368
Due after 1 year through 2 years      10,138,015      347,781      2,653,540      13,139,336
Due after 2 years through 3 years      11,764,066      1,177,131      2,494,252      15,435,449
Due after 3 years through 4 years      4,847,371      200,535      226,555      5,274,461
Due after 4 years through 5 years      2,399,378      647,661      706,345      3,753,384
More than 5 years      36,415,738      379,135      345,070      37,139,943
                           
   (Won) 125,574,817    (Won) 7,261,811    (Won) 19,253,083    (Won) 152,089,711
                           

 

- 24 -


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

 

     Loans in Won   

Loans in foreign

currencies

   Others    Total

Due in 3 months or less

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

Due after 3 months through 6 months

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

Due after 6 months through 1 year

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

Due after 1 year through 2 years

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

Due after 2 years through 3 years

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

Due after 3 years through 4 years

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

Due after 4 years through 5 years

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

More than 5 years

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

 

(9) Disposal of loans

The Bank disposed loans amounting to (Won)324,052 million of principal to KB 7th Securitization Specialty Co., Ltd., and recognized a gain of (Won)36,311 million for the year ended December 31, 2006. In addition, the Bank disposed loans amounting to (Won)210,589 million of principal to KB 8th Securitization Specialty Co., Ltd., and recognized a gain of (Won)17,222 million for the year ended December 31, 2006.

 

(10) Credit card receivables as collateral

The Bank offers the credit card receivables amounting to (Won)253,591 million (before deducting the allowance) as collateral for the transaction of credit card receivables to SPC as of December 31, 2006.

 

(11) The changes in loan origination costs for the year ended December 31, 2006 were as follows (Unit: In millions):

 

     Beginning    Increase    Decrease    Ending

Loan origination costs

   (Won) 52,025    (Won) 113,141    (Won) 26,828    (Won) 138,338
                           

 

6. RESTRUCTURED LOANS:

 

(1) The loans that were restructured by means of principal reduction, debt-equity swap, interest reduction because of workouts for the year ended December 31, 2006 were as follows (Unit: In millions):

 

     Amount before
restructuring
   Principal
exemption
   Conversion to
equity securities
  

Interest

reduction

  

Extension

of maturity

Composition

   (Won) 6,178    (Won)  —      (Won) —      (Won) —      (Won) 6,178

Workout plan

     236,287      301      4,083      25,374      206,529

Debt restructuring (*)

     894      —        —        —        894
                                  
     243,359      301      4,083      25,374      213,601
                                  

(*) In accordance with the Bankruptcy and Debt Restructuring Act

 

- 25 -


Changes in the present value discounts relating to the outstanding restructured loans for the year ended December 31, 2006 were as follows (Unit: In millions):

 

          Present value discounts
     Amount    Beginning
balance
   Addition    Deduction    Ending
balance
Court receivership    (Won) 9,336    (Won) 2,035    (Won) 1,034    (Won) 2,035    (Won) 1,034
Composition      13,143      2,238      1,689      2,652      1,275
Workout plan      111,064      11,371      11,206      15,710      6,867
Others      32,470      4,371      —        1,534      2,837
                                  
   (Won) 166,013    (Won) 20,015    (Won) 13,929    (Won) 21,931    (Won) 12,013
                                  

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

 

7. ALLOWANCE FOR POSSIBLE LOAN LOSSES:

(1) The allowance for possible loan losses as of December 31, 2006 is summarized as follows (Unit: In millions):

 

     Normal    Precautionary    Substandard    Doubtful    Estimated
loss
   Total

Loans in Won

   (Won) 1,112,842    (Won) 164,947    (Won) 143,050    (Won) 296,148    (Won) 239,954    (Won) 1,956,941

Loans in foreign currencies

     42,163      5,739      13,582      14,811      2,540      78,835

Bills bought

     8,987      259      57      182      86      9,571

Advances for customers

     1      36      4,096      1,124      7,982      13,239

Credit card receivables

     129,619      32,263      130      42,736      39,537      244,285

Privately placed bonds

     52,486      —        161      —        491      53,138

Factoring receivables

     2,910      —        —        —        —        2,910

Loans for debt-equity swap

     —        —        —        1,948      —        1,948
                                         
   (Won) 1,349,008    (Won) 203,244    (Won) 161,076    (Won) 356,949    (Won) 290,590    (Won) 2,360,867
                                         

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

 

     Normal    Precautionary    Substandard    Doubtful    Estimated
loss
   Total

Loans in Won

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

Loans in foreign currencies

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

Bills bought

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

Advances for customers

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

Credit card receivables

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

Privately placed bonds

     18,635      217      918      —        —        19,770

Factoring receivables

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

Pursuant to the amended Supervisory Regulation, the Bank increased the minimum rate of loss provision for loans classified as normal and precautionary in 2006. Due to the change, allowance for possible loan losses increased by (Won)397.6 billion as of December 31, 2006.

 

- 26 -


(2) The changes in allowance for possible loan losses for the years ended December 31, 2006 and 2005 were as follows (Unit: In millions):

 

     2006     2005  

Beginning balance (*1)

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

Provision for possible loan losses

     1,009,498       1,053,088  

Reclassification from other allowances (*2)

     304,954       17,501  

Collection of previously written-off loans

     474,278       452,959  

Repurchase of NPLs sold

     5,897       15,863  

Sales of loans

     (115,222 )     (217,875 )

Loans written-off

     (1,693,468 )     (1,978,875 )

Conversion to equity securities

     —         (11,444 )

Exemption of loans

     (4,582 )     (9,570 )

Changes in exchange rates and others

     (19,053 )     (6,967 )
                

Ending balance (*1)

   (Won) 2,463,079     (Won) 2,500,777  
                

(*1) Allowance for possible loan losses includes present value discounts amounting to (Won)12,013 million and (Won)20,015 million as of December 31, 2006 and 2005, respectively, and allowances for other assets amounting to (Won)102,212 million and (Won) 47,502 million, respectively.

(*2)

Other allowances for credit lines to Kookmin Card 16th Securitization Specialty Co., Ltd. and FNSTAR 3rd Securitization Special Co., Ltd. amounting to (Won)159,888 million and (Won)145,066 million, respectively, were transferred to allowances for loan losses for the year ended December 31, 2006. Other allowances for credit lines to Kookmin Card 16th Securitization Specialty Co., Ltd. amounting to (Won)17,501 million were transferred to allowances for loan losses for the year ended December 31, 2005.

 

(3) The allowance for possible losses on other assets as of December 31, 2006 and 2005 is summarized as follows (Unit: In millions):

 

     2006    2005

Suspense receivables

   (Won) 7,425    (Won) 20,447

Uncollected guarantee deposits for rent

     4,847      8,269

Settlement costs for financial accident

     87,122      15,844

Derivative instruments

     2,597      2,283

Others

     221      659
             
   (Won) 102,212    (Won) 47,502
             

 

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

 

     Loans   

Allowance for

possible loan losses

  

Percentage

(%)

December 31, 2006

   (Won) 152,089,711    (Won) 2,360,867    1.55

December 31, 2005

     138,139,657      2,453,275    1.78

December 31, 2004

     138,839,212      3,118,775    2.25

 

- 27 -


8. FIXED ASSETS:

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

 

     2006     2005  

Tangible assets

   (Won) 3,855,268     (Won) 3,670,603  

Less: accumulated depreciation

     (1,702,001 )     (1,620,892 )

accumulated impairment loss

     (15,535 )     (11,466 )

Intangible assets

     371,312       398,104  

Non-business use property

     499       583  

Less: valuation allowance

     (169 )     (230 )
                
   (Won) 2,509,374     (Won) 2,436,702  
                

 

(2) Tangible assets as of December 31, 2006 consisted of (Unit: In millions):

 

     Acquisition cost    Accumulated
depreciation
   Accumulated
impairment losses
   Book value

Land

   (Won) 984,270    (Won) —      (Won) 7,115    (Won) 977,155

Buildings

     986,420      181,228      8,420      796,772

Leasehold improvements

     233,156      177,676      —        55,480

Equipment and vehicles

     1,648,763      1,343,097      —        305,666

Construction in progress

     2,659      —        —        2,659
                           
   (Won) 3,855,268    (Won) 1,702,001    (Won) 15,535    (Won) 2,137,732
                           

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

 

     Acquisition cost    Accumulated
depreciation
   Accumulated
impairment losses
   Book value

Land

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

Buildings

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

Leasehold improvements

     190,109      145,746      —        44,363

Equipment and vehicles

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

Construction in progress

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

 

(3) The changes in book value of tangible assets for the year ended December 31, 2006 were as follows (Unit: In millions):

 

     Beginning    Acquisition    Replacement     Disposal    Depreciation    Impairment     Change in
foreign
currencies
    Ending
Land    (Won) 979,413    (Won) 3,349    (Won) 2,873     (Won) 8,151    (Won) —      (Won) (290 )   (Won) (39 )   (Won) 977,155
Buildings      774,519      5,745      49,422       6,289      22,059      (4,449 )     (117 )     796,772

Leasehold improvements

     44,363      113      45,504       142      34,337      —         (21 )     55,480

Equipment and vehicles

     239,795      254,835      —         22,915      165,986      —         (63 )     305,666

Construction in progress

     155      100,303      (97,799 )     —        —        —         —         2,659
                                                          
   (Won) 2,038,245    (Won) 364,345    (Won) —       (Won) 37,497    (Won) 222,382    (Won) (4,739 )   (Won) (240 )   (Won) 2,137,732
                                                          

 

(4) The published value of the land was (Won)1,307,078 million and (Won) 1,059,377 million as of December 31, 2006 and 2005, respectively, based on the Laws on Disclosure of Land Price and Valuation of Land

 

- 28 -


(5) Tangible assets, which have been insured as of December 31, 2006, were as follows (Unit: In millions):

 

Type of insurance

  

Asset insured

   Insured
amount
  

Insurance company

Property composite    Buildings    (Won) 829,507    Samsung Fire & Marine
   Leasehold improvements      120,043   

Insurance Co., Ltd. & others

   Equipment and vehicles      196,152   
            
      (Won) 1,145,702   
            

 

(6) Intangible assets as of December 31, 2006 consisted of (Unit: In millions):

 

     Acquisition cost    Accumulated
amortization
   Book value

Goodwill

   (Won) 705,108    (Won) 404,784    (Won) 300,324

Others

     125,502      54,514      70,988
                    
   (Won) 830,610    (Won) 459,298    (Won) 371,312
                    

 

(7) The changes in intangible assets for the year ended December 31, 2006 were as follows (Unit: In millions):

 

     Beginning    Increase    Amortization    Ending

Goodwill

   (Won) 378,669    (Won) —      (Won) 78,345    (Won) 300,324

Others

     19,435      75,199      23,646      70,988
                           
   (Won) 398,104    (Won) 75,199    (Won) 101,991    (Won) 371,312
                           

 

(8) Non-business use properties as of December 31, 2006 consisted of (Unit: In millions):

 

     Acquisition
cost
   Valuation
allowance
   Book value

Non-business use land

   (Won) 18    (Won) 12    (Won) 6

Non-business use building

     481      157      324
                    
   (Won) 499    (Won) 169    (Won) 330
                    

 

9. OTHER ASSETS:

 

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

 

     2006     2005  

Guarantee deposits paid

   (Won) 1,166,454     (Won) 1,164,533  

Accounts receivable

     2,172,569       466,442  

Accrued income

     1,166,963       998,354  

Prepaid accounts

     114,684       65,519  

Prepaid expenses

     79,862       43,266  

Deferred income tax assets (Note 24)

     23,886       353,214  

Derivatives assets

     1,260,748       1,202,063  

Domestic exchange settlement debits

     962,250       720,433  

Sundry assets

     33,935       34,502  

Allowances for possible loan losses

     (102,212 )     (47,502 )
                
   (Won) 6,879,139     (Won) 5,000,824  
                

 

- 29 -


(2) Sundry assets as of December 31, 2006 and 2005 consisted of (Unit: In millions):

 

     2006    2005

Receivables on cash sent to other banks

   (Won) 410