Form 6-K
Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Form 6-K

 


REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

For the month of August 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

 



Table of Contents

Index

1. Summary of 2007 First Half Business Report

2. Exhibit 99.1-Kookmin Bank Review Report for the First Half of 2007


Table of Contents

TABLE OF CONTENTS

 

1.    Introduction to the Bank    5
1.1.    Business Purposes    5
1.2.    History    5
1.3.    Capital Structure    7
1.4.    Dividend    8
2.    Business    9
2.1.    Source and Use of Funds    9
2.2.    Principal Banking Activities    12
2.3.    Branch Networks    16
2.4.    Other Information for Investment Decision    17
3.    Financial Information    19
3.1.    Non-Consolidated Condensed Financial Statements    19
3.2.    Other Financial Information    19
4.    Independent Public Accountants    20
4.1.    Audit & Audit related Fees    20
4.2.    Non-Audit Services    20
5.    Corporate Governance and Affiliated Companies    21
5.1.    Board of Directors & Committees under the Board    21
5.2.    Audit Committee    21
5.3.    Compensation to Directors    22
5.4.    Affiliated Companies    29
6.    Directors, Senior Management and Employees    30
6.1.    Executive Directors    30
6.2.    Non-Executive Directors    30
6.3.    Senior Management    31
6.4.    Employees    31
7.    Major Stockholders and Related Party Transactions    32
7.1.    Major Stockholders    32
7.2.    Investments in Affiliates    33
7.3.    Related Party Transactions    34
8.    Other Important Information for Investors    35
8.1.    Progress Relating to Regulatory Filing    35


Table of Contents

Summary of 2007 First Half Business Report

On August 14, 2007, Kookmin Bank filed its business report for the first half of 2007 (the “Business Report”) with the Financial Supervisory Commission of Korea and the Korea Exchange. This is a summary of the Business Report translated into English.

In effect from January 1, 2007, we have adopted SKAS1 No. 21 (“Preparation and Presentation of Financial Statements I”) and SKAS No. 24 (“Preparation and Presentation of Financial Statements II (Financial Industry)”), pursuant to which the presentation and order of certain line items, including gain/loss on disposal of available-for-sale securities, have been reclassified from non-operating income to operating income. We have revised our financial statements for prior periods to reflect this change.

Financial information contained in this summary (and in the attached review report) have been prepared in accordance with generally accepted accounting principles in Korea, which differ in certain important respects from generally accepted accounting principles in the United States.

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

 


1

SKAS: Statement of Korean Accounting Standards

 

4


Table of Contents

1. Introduction to the Bank

1.1. Business Purposes

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

 

  n  

The banking business as prescribed by the Banking Act,

 

  n  

The trust business as prescribed by the Banking Trust Act,

 

  n  

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

 

  n  

Other businesses permitted by other relevant Korean laws and regulations

1.2. History

 

  n  

November 1, 2001

Incorporated and listed on the New York Stock Exchange

 

  n  

November 9, 2001

Listed on the Korea Stock Exchange

 

  n  

September 23, 2002

Integrated IT platforms of former Kookmin Bank and H&CB

 

  n  

December 4, 2002

Entered into a strategic alliance agreement with ING Bank N.V. Amsterdam

 

  n  

September 30, 2003

Completed the merger with Kookmin Credit Card

 

  n  

December 16, 2003

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

 

  n  

December 19, 2003

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

 

  n  

April 29, 2004

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

 

  n  

July 22, 2004

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

 

  n  

August 31, 2004

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

 

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Table of Contents
  n  

October 29, 2004

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

 

  n  

December 31, 2004

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

 

  n  

January 01, 2005

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

 

  n  

March 02, 2005

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

 

  n  

March 21, 2005

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

 

  n  

June 16, 2005

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

 

  n  

July 26, 2005

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

 

  n  

October 14, 2005

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

 

  n  

February 2, 2006

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

 

  n  

April 3, 2006

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

 

  n  

September 8, 2006

Implemented SOD (Segregation of Duties)

 

  n  

December 11, 2006

Ranked Number 1 among banks in the National Customer Satisfaction Index(NCSI) by Korea Productivity Center

 

  n  

April 27, 2007

Commenced principal stage of the Next Generation System development and new IT center construction

 

6


Table of Contents

1.3. Capital Structure

1.3.1. Common Shares

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

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

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

With respect to the merger between Kookmin Bank and Kookmin Credit Card on September 30, 2003, Kookmin Bank issued an additional 8,120,431 common shares on October 1, 2003. Accordingly, as of June 30, 2007, a total of 336,379,116 common shares were issued.

 

Number of Shares

(Unit: shares)

 

     Type
     Common Stock    Total

Share Issued (A)

   336,379,116    336,379,116

Treasury Stock (B)

   —      —  

Share Outstanding (A-B)

   336,379,116    336,379,116

 

Capital Increase

(Unit: Won, shares)

 

Issue Date

 

Type

   Number    Face Value    Issue Price   

Remarks

2001.10.31

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

2002.3.22

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

2002.11.30

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

2003.10.01

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

1.3.2. Treasury Stock

(Unit: shares)

 

Date

  

Details

   Number of shares

December 31, 2005

   Outstanding Treasury Shares    217,935

January 13, 2006

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

June 30, 2007

   Outstanding Treasury Shares    0

 

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Table of Contents

1.3.3. Employee Stock Ownership Association

(Unit: shares)

 

Type

  

Beginning
Balance

(January 1, 2007)

   Increase    Decrease   

Ending

Balance

(June 30, 2007)

   Remarks

Registered common stock

   2,790,281    —      38,409    2,751,872    —  
                        

Total

   2,790,281    —      38,409    2,751,872    —  
                        

1.4. Dividend

The following table shows our dividend related information for the last three years. The Board of Directors of Kookmin Bank passed a resolution to pay a dividend for fiscal year of 2006, and shareholders of Kookmin Bank approved of the dividend payout for that year at the general shareholders’ meeting held on March 23, 2007.

(Unit: in millions of Won unless indicated otherwise)

 

     June 30, 2007    2006     2005

Net (loss) income for the period

   —      2,472,111     2,252,218

Diluted (loss) earnings per share (Won)

   —      7,349 1   6,977

Total dividend amount

   —      1,227,784     184,889

Dividend payout ratio (%)

   —      49.67 2   8.21

Cash dividend per common share (Won)

   —      3,650     550

Stock dividend per common share (%)

   —      —       —  

Dividend per preferred share (Won)

   —      —       —  

Dividend yield ratio (%)

   —      4.90 3   0.72

 


1

Earnings per share = net income (2,472,111 million Won) / weighted average number of shares (336,373,095 shares).

2

Dividend payout ratio = total dividend amount for common shares (1,227,784 million Won) / net income (2,472,111 million Won).

3

Dividend yield ratio = dividend per share (3,650 Won) / average closing price for a week based on business day prior to market closing date of December 31, 2006 (74,525 Won).

 

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Table of Contents

2. Business

2.1. Source and Use of Funds

2.1.1. Source of Funds

[Bank Account]

(Unit: in millions of Won)

 

          June 30, 2007    December 31, 2006    December 31, 2005
          Average
balance
   Interest rate
(%)
   Average
balance
   Interest rate
(%)
   Average
balance
   Interest rate
(%)

Won currency

  

Deposits

   110,666,403    3.12    111,324,234    2.91    114,394,983    2.82
  

Certificate of deposit

   12,108,449    4.95    8,408,753    4.53    5,008,378    3.69
  

Borrowings

   2,480,492    3.51    2,533,547    3.36    2,674,268    3.02
  

Call money

   888,610    4.51    2,300,768    4.09    931,968    3.24
  

Other

   34,292,282    5.40    28,332,243    5.13    24,315,388    5.08
                                

Subtotal

      160,436,236    3.76    152,899,545    3.43    147,324,985    3.23
                                

Foreign currency

  

Deposits

   1,657,143    2.79    1,489,895    2.37    1,473,811    1.61
  

Borrowings

   4,024,828    3.75    3,635,918    3.41    3,231,480    2.06
  

Call money

   500,005    5.12    527,600    4.74    285,573    3.48
  

Debentures

   2,616,163    5.35    1,530,941    4.49    765,723    4.09
  

Other

   89,035    —      59,296    —      52,592    —  
                                

Subtotal

      8,887,174    4.08    7,243,650    3.50    5,809,179    2.26
                                

Other

  

Total Shareholders Equity

   15,460,367    —      14,251,498    —      11,369,246    —  
  

Allowances

   962,042    —      1,004,895    —      677,036    —  
  

Other

   10,720,402    —      11,935,765    —      12,041,392    —  
                                

Subtotal

      27,142,811    —      27,192,158    —      24,087,674    —  
                                

Total

      196,466,221    3.25    187,335,353    2.94    177,221,838    2.76
                                

 

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Table of Contents

2.1.2. Use of Funds

[Bank Account]

(Unit: in millions of Won)

 

          June 30, 2007    December 31, 2006    December 31, 2005
          Average
balance
   Interest
rate (%)
   Average
balance
   Interest
rate (%)
   Average
balance
   Interest rate
(%)

Won currency

  

Due from banks

   31,328    1.60    190,902    3.66    304,662    2.97
  

Securities

   29,541,351    4.51    31,437,266    4.25    27,676,964    4.58
  

Loans

   128,748,838    6.55    120,688,857    6.44    120,539,476    6.24
  

Advances for customers

   27,282    1.27    13,122    2.27    23,947    8.64
  

Call loan

   802,862    4.69    823,293    4.25    1,473,725    3.43
  

Private placement corporate bonds

   7,901,843    5.35    5,702,726    5.43    1,887,514    6.95
  

Credit card accounts

   8,854,268    22.75    7,855,415    24.46    7,321,906    26.93
  

Other

   315,763    —      328,681    —      267,061    —  
  

Allowance for credit losses ( - )

   -2,340,176    —      -2,377,086    —      -3,034,841    —  
                                

Subtotal

      173,883,359    7.09    164,663,176    6.96    156,460,414    7.06
                                

Foreign currency

  

Due from banks

   403,122    4.12    486,764    4.31    598,015    2.88
  

Securities

   886,680    4.13    793,181    6.78    858,565    6.15
  

Loans

   7,482,847    4.48    6,561,903    4.06    4,745,013    2.97
  

Call loan

   497,972    4.65    261,483    4.77    132,210    3.24
  

Bills bought

   1,341,788    5.93    1,326,578    5.51    1,037,144    4.64
  

Other

   2,142    —      1,798    —      2,209    —  
  

Allowance for credit losses ( - )

   -84,495    —      -65,952    —      -64,290    —  
                                

Subtotal

      10,530,056    4.71    9,365,755    4.61    7,308,866    3.68
                                

Other

  

Cash

   1,062,337    —      966,002    —      956,471    —  
  

Fixed assets held for business

   2,518,313    —      2,397,111    —      2,508,879    —  
  

Other

   8,472,156    —      9,943,309    —      9,987,208    —  
                                

Subtotal

      12,052,806    —      13,306,422    —      13,452,558    —  
                                

Total

      196,466,221    6.52    187,335,353    6.35    177,221,838    6.38
                                

 

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Table of Contents

2.1.3. Fee Transactions

(Unit: in millions of Won)

 

          June 30, 2007    June 30, 2006    December 31, 2006

Fee Revenue (A)

        

Won currency

   Guarantees    3,323    2,739    6,245
   Commissions received    529,420    466,252    950,789
   Credit card    73,536    64,237    129,615
   National Housing Fund Mgt.    82,561    86,852    171,811

Foreign currency

   Guarantees    3,369    2,638    5,662
   Others    38,576    40,462    77,673
                 

Subtotal

      730,785    663,180    1,341,795
                 

Fee Expense (B)

        

Won & foreign currency

   Commissions paid in Won    92,059    77,581    178,499
   Credit card    152,471    105,328    254,041
   Others    19,095    13,970    31,860
                 

Subtotal

      263,625    196,879    464,400
                 

Fee Income (A-B)

      467,160    466,301    877,395
                 

 

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2.2. Principal Banking Activities

2.2.1. Deposits

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

(Unit: in millions of Won)

 

         June 30, 2007    December 31, 2006    December 31, 2005
         Average
balance
   Ending
balance
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance

Deposits in Won

 

Demand deposits

   17,935,375    18,486,508    16,896,730    20,179,569    14,985,812    17,946,067
 

Time & savings deposits

   89,854,754    88,876,959    89,613,715    91,155,183    92,463,027    91,863,790
 

Mutual installment deposits

   3,658,259    3,494,910    4,302,015    3,833,573    5,674,807    5,120,668
 

Mutual installment for housing

   3,660,409    3,477,864    4,221,249    3,842,727    4,942,334    4,582,031
 

Certificate of deposit

   12,108,449    15,433,787    8,408,753    9,579,701    5,008,378    5,389,543
                               

Subtotal

     127,217,246    129,770,028    123,442,462    128,590,753    123,074,358    124,902,099
                               

Deposits in foreign currency

     1,657,143    1,792,285    1,489,895    1,427,557    1,473,811    1,379,133
                               

Trust deposits

 

Money trust

   9,371,656    8,949,823    9,047,669    9,627,037    7,114,352    7,405,675
 

Property trust

   5,632,893    5,386,537    8,491,099    6,631,376    11,032,320    9,854,012
                               

Subtotal

     15,004,549    14,336,360    17,538,768    16,258,413    18,146,672    17,259,687
                               

Total

     143,878,938    145,898,673    142,471,125    146,276,723    142,694,841    143,540,919
                               

2.2.2. Average Deposit per Domestic Branch

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

(Unit: in millions of Won)

 

     June 30, 2007    December 31, 2006    December 31, 2005

Deposits

   124,912    124,123    123,532

Deposits in Won

   123,545    122,904    122,358
              

 

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2.2.3. Average Deposit per Employee

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

(Unit: in millions of Won)

 

     June 30, 2007    December 31, 2006    December 31, 2005

Deposits

   7,921    7,799    7,725

Deposits in Won

   7,834    7,722    7,652

2.2.4. Loan Balances

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

(Unit: in millions of Won)

 

     June 30, 2007    December 31, 2006    December 31, 2005
     Average
balance
   Ending
balance
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance

Loans in Won

   128,741,026    133,783,595    120,680,825    125,574,817    120,532,216    118,565,341

Loans in foreign currency

   7,482,847    8,142,551    6,561,903    7,261,811    4,745,013    5,314,883

Advances for customers

   27,282    27,119    13,122    19,209    23,947    11,321

Subtotal

   136,251,155    141,953,265    127,255,850    132,855,837    125,301,176    123,891,545
                             

Trust account loans

   395,659    404,600    351,880    403,552    334,404    328,127
                             

Total

   136,646,814    142,357,865    127,607,730    133,259,389    125,635,580    124,219,672
                             

2.2.5. Loan Balances as of June 30, 2007 by Maturity

(Unit: in millions of Won)

 

     1 year or less    More than 1 year
to 3 years
  

More than 3 years

to 5 years

   More than 5 years    Total

Loans in Won

   61,090,445    26,540,186    5,755,222    40,397,742    133,783,595

Loans in foreign currency

   5,164,139    1,720,258    779,114    479,041    8,142,551

 

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2.2.6. Loan Balances by Types

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

(Unit: in millions of Won)

 

           June 30, 2007    December 31, 2006    December 31, 2005

Loans to enterprise

   Loans for operations    38,223,508    33,054,421    30,498,328
   Loans for facility    8,818,452    6,103,249    5,073,050

Loans to households

      46,782,629    46,509,920    42,771,264

Loans to public sector & others

   Loans for operations    1,049,522    894,178    643,141
   Loans for facility    8,802    3,687    34,157

Loans on property formation savings

   822    1,013    6,748

Loans for housing

   38,898,950    39,007,176    39,535,441

Inter-bank loans

   —      —      1,274

Others

   910    1,173    1,938
                 

Total

   133,783,595    125,574,817    118,565,341
                 

2.2.7. Loan to Deposit Ratio1

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

(Unit: in millions of Won, %)

 

     June 30, 2007    December 31, 2006    December 31, 2005

Loans (A)

   128,741,026    120,680,825    120,532,216

Deposits (B)

   127,217,246    123,442,462    123,074,358
              

Loan to deposit ratio (A/B)

   101.19    97.76    97.93
              

2.2.8. Guarantees

(Unit: in millions of Won)

 

     June 30, 2007    December 31, 2006    December 31, 2005

Determined

   4,023,959    2,704,307    1,789,560

Contingent

   2,856,457    2,304,434    1,972,192
              

Total

   6,880,416    5,008,741    3,761,752
              

1

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

 

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Table of Contents

2.2.9. Securities Investment

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

(Unit: in millions of Won)

 

          June 30, 2007    December 31, 2006    December 31, 2005
          Average
balance
   Ending
balance
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance

Securities in Won (Bank account)

  

Monetary stabilization bonds

   8,236,829    7,478,152    11,803,683    8,534,765    10,667,229    11,570,306
  

Government and public bonds

   10,882,650    11,792,480    10,035,180    10,117,416    6,950,886    8,933,401
  

Debentures

   16,015,716    16,587,406    11,847,016    14,140,083    7,334,555    9,184,403
  

Stocks

   1,989,053    1,657,738    1,575,806    2,515,385    1,243,781    1,707,816
  

Others

   318,945    585,051    1,878,308    744,895    3,368,027    2,105,353
                                

Subtotal

      37,443,193    38,100,827    37,139,993    36,052,544    29,564,478    33,501,279
                                

Securities in Won (Trust account)

  

Monetary stabilization bonds

   1,426,923    1,005,132    1,247,444    1,524,511    999,522    981,949
  

Government and public bonds

   1,294,604    1,415,959    1,090,228    1,216,613    993,450    1,013,355
  

Debentures

   1,823,186    1,731,842    1,937,309    1,815,093    1,979,588    2,017,298
  

Stocks

   650,157    510,994    756,900    769,212    514,568    542,731
  

Others

   2,677,506    2,677,546    3,837,714    2,873,202    2,745,143    3,311,235
                                

Subtotal

      7,872,376    7,341,473    8,869,595    8,198,631    7,232,271    7,866,568
                                

Securities in foreign currency (Trust account)

      30,913    25,797    110,472    32,661    289,665    184,115
                                

Securities in foreign currency (Bank account)

  

Foreign securities

   633,989    682,037    559,343    613,078    579,561    525,892
  

Off-shore foreign securities

   250,575    291,323    233,838    216,066    279,003    252,994
                                

Subtotal

      884,564    973,360    793,181    829,144    858,565    778,886
                                

Total

      46,231,046    46,441,457    46,913,241    45,112,980    37,944,979    42,330,848
                                

2.2.10. Trust Account

(Unit: in millions of Won)

 

     June 30, 2007    December 31, 2006    December 31, 2005
    

Average

amount trusted

   Trust
fees
  

Average

amount trusted

   Trust
fees
  

Average

amount trusted

   Trust
fees

Return-guaranteed trust

   311    7,308    325    11,295    335    43,088

Performance trust

   15,004,238    29,339    17,538,443    67,209    18,146,337    77,756
                             

Total

   15,004,549    36,647    17,538,768    78,504    18,146,672    120,844
                             

 

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Table of Contents

2.2.11. Credit Card

(Unit: in millions of Won unless indicated otherwise)

 

                  As of or for the years ended of indicated dates
                  June 30, 2007    December 31, 2006    December 31, 2005

Number of card

  Corporate        170,407    173,190    159,047

holders (Person)

  Individual        8,636,197    8,883,738    9,342,552

Number of merchants

         1,670,348    1,610,446    1,506,979

Sales volume1

         32,867,538    63,929,192    62,475,085

Fee revenue

         1,074,500    2,189,014    2,090,253

2.3. Branch Networks

As of June 30, 2007, we had 1,076 branches (including the head office) and 74 sub-branches in Korea. 443 of our branches are located in Seoul.

Also as of June 30, 2007, we had three overseas branches, in Tokyo, New York and Auckland, and two overseas offices, in Guangzhou, China and Almaty, Kazakhstan.

 


1

Includes lump-sum and installment purchases, cash advances, and check card and purchasing card transactions.

 

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Table of Contents

2.4. Other Information for Investment Decision

2.4.1. BIS Risk-adjusted Capital Ratios

(Unit: in millions of Won, %)

 

      June 30, 20071    December 31, 2006    December 31, 2005

Risk-adjusted capital (A)

   18,976,466    18,751,151    15,682,535

Risk-weighted assets (B)

   141,414,574    132,373,478    121,072,676

BIS ratios (A/B)

   13.42    14.17    12.95

2.4.2. Non-Performing Loans

(Unit: in millions of Won unless indicated otherwise)

 

June 30, 2007

  December 31, 2006   Change

Amount

   NPL to total loans   Amount    NPL to total loans   Amount    NPL to total loans

1,077,297

   0.66%   1,295,915    0.85%   -218,618    -0.19%p

2.4.3. Loan Loss Allowances

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

(Unit: in millions of Won)

 

                         June 30, 2007    December 31, 2006    December 31, 2005

Loan losses

  Domestic             2,379,800    2,458,307    2,496,655

allowance

  Foreign             4,659    4,772    4,122
                           
  Total             2,384,459    2,463,079    2,500,777
                           

Write-Off

              475,175    1,693,468    1,978,875

 


1

The figures for the first half of 2007 are preliminary estimates and are subject to change.

 

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Table of Contents

2.4.4. Changes of Loan Loss Allowances for Recent Three Years1

(Unit: in millions of Won)

 

      June 30, 2007     December 31, 2006     December 31, 2005  

Beginning balance

   2,360,867     2,453,275     3,118,775  
                  

Net Write-Off

   (266,409 )   (1,034,059 )   (1,726,632 )

Write-Off

   (471,360 )   (1,680,331 )   (2,002,336 )

Recovery

   258,122     474,278     452,235  

Other

   (53,171 )   171,994     (176,531 )
                  

Provision for loan losses

   170,069     941,651     1,061,132  
                  

Ending balance

   2,264,527     2,360,867     2,453,275  

 


1

Loan loss allowance includes present value discounts and excludes allowance for other assets.

 

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Table of Contents

3. Financial Information

3.1. Non-Consolidated Condensed Financial Statements

(Unit: in millions of Won)

 

     As of or for the year ended    As of or for the year ended
     June 30, 2007    December 31, 2006

Cash and due from banks

   5,336,482    6,568,306

Securities

   31,315,296    29,382,480

Loans

   159,318,249    149,867,182

Fixed assets

   2,185,023    2,137,732

Other assets

   8,711,718    7,250,781
         

Total assets

   206,866,768    195,206,481
         

Deposits

   131,562,312    130,019,916

Borrowings

   46,808,443    39,042,684

Other liabilities

   13,745,139    11,088,924
         

Total liabilities

   192,115,894    180,151,524
         

Capital stocks

   1,681,896    1,681,896

Capital surplus

   6,258,297    6,258,297

Capital Adjustment

   0    0

Other comprehensive income

   412,252    899,542

Retained earnings

   6,398,429    6,215,222
         

Total shareholders’ equity

   14,750,874    15,054,957
         

Liabilities and Shareholders’ Equity

   206,866,768    195,206,481
         

Operating revenue

   10,182,155    19,618,874

Operating income

   2,572,373    3,204,982

Income before income tax

   2,159,876    3,424,086
         

Net income

   1,418,798    2,472,111
         

3.2. Other Financial Information

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

 

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Table of Contents

4. Independent Public Accountants

4.1. Audit & Audit related Fees

Deloitte Anjin LLC has reviewed our financial statements for the first half 2007. The aggregate contract fee for the audit and review fees for the year 2007 is 1,420 million Won.

4.2. Non-Audit Services

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

(Unit: in millions of Won unless indicated otherwise)

 

Year

  

Service description

   Amount of payment

1H 2007

  

-   Agreement for Issuance of comfort letter with respect to RMBS1

   50

2006

  

-   Issuance of comfort letter

   40
  

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

   10

2005

  

-   Issuance of comfort letter

   30

 


1

The execution of the letter has been deferred as the RMBS issuance has been delayed.

 

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Table of Contents

5. Corporate Governance and Affiliated Companies

5.1. Board of Directors & Committees under the Board

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

The board of directors resolves following matters:

 

  n  

Matters relating to general meeting of shareholders

 

  n  

Matters relating to general management

 

  n  

Matters relating to organization and directors of the company

 

  n  

Matters relating to funding and capital

 

  n  

Other related matters

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

 

  n  

The Board Steering Committee

 

  n  

The Management Strategy Committee

 

  n  

The Risk Management Committee

 

  n  

The Audit Committee

 

  n  

The Evaluation & Compensation Committee

 

  n  

The Non Executive Director Nominating Committee

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

5.2. Audit Committee

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

 

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Table of Contents

5.3. Compensation to Directors

5.3.1. Compensation to Directors

The following table shows information regarding the remuneration paid to the Directors in the first half of 2007.

(Unit: in millions of Won)

 

     The aggregate
remuneration paid
(From January to
June 2007)
   Limit for the remuneration
resolved by shareholders’
meeting (For the
year 2007)
   Average amount of the
payment per person
(From January to June
2007)

1) Executive Directors

(Except Chief Audit Executive and Non-executive Directors)

   2,782       927

2) Non-executive Directors

(Except members of Audit Committee)

   150    8,000    33

3) Members of Audit Committee (Including Chief Audit Executive)

   716       143
              

Total

   3,648    8,000    284
              

 

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Table of Contents

5.3.2. Stock Option

The following table is the breakdown of stock options Kookmin Bank has granted to the directors and employees as of June 30, 2007.

(Unit: in Won, shares)

 

Grant date

  

Name of the grantee

  

Position when granted

   Exercise period    Exercise
price
   Number of
granted
options1
   Number of
exercised
options
   Number of
exercisable
options
         From    To            

15-Mar-01

   Young Seok Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027    1,870    0    1,870

15-Mar-01

   In Kie Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Ji Hong Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Se Woong Lee    Non Executive Director    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Jong Min Lee    Chief Audit Executive    16-Mar-04    15-Mar-09    28,027    14,807    2,807    12,000

15-Mar-01

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

15-Mar-01

   Duk Hyun Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    4,845    7,000

15-Mar-01

   Byung Sang Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    11,845    0

15-Mar-01

   Byung Jin Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    11,845    0

15-Mar-01

   Bock Woan Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    0    11,845

15-Mar-01

   Yoo Hwan Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    0    11,845

15-Mar-01

   Ok Hyun Yoon    Executive Vice President    16-Mar-04    15-Mar-09    28,027    11,845    7,845    4,000

15-Mar-01

   Hoo Sang Jang    Employee    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Sang Hoon Lee    Employee    16-Mar-04    15-Mar-09    28,027    2,961    2,461    500

15-Mar-01

   Jae In Suh    Employee    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Sung Hyun Chung    Employee    16-Mar-04    15-Mar-09    28,027    2,961    2,961    0

15-Mar-01

   Jong Hwa Lee    Employee    16-Mar-04    15-Mar-09    28,027    2,961    2,461    500

15-Mar-01

   Sang Won Lee    Employee    16-Mar-04    15-Mar-09    28,027    2,961    0    2,961

15-Mar-01

   Joon Ho Park    Employee    16-Mar-04    15-Mar-09    28,027    592    0    592

15-Mar-01

   Sung Wan Choi    Employee    16-Mar-04    15-Mar-09    28,027    370    370    0

15-Mar-01

   Jeong Haing Lee    Employee    16-Mar-04    15-Mar-09    28,027    592    0    592

15-Mar-01

   Tae Joo Yoon    Employee    16-Mar-04    15-Mar-09    28,027    10    0    10

15-Mar-01

   Si An Her    Employee    16-Mar-04    15-Mar-09    28,027    370    0    370

15-Mar-01

   Seok Won Choi    Employee    16-Mar-04    15-Mar-09    28,027    592    0    592

15-Mar-01

   Yong Soo Shin    Employee    16-Mar-04    15-Mar-09    28,027    370    0    370

15-Mar-01

   Sung Shin Cho    Employee    16-Mar-04    15-Mar-09    28,027    592    0    592

15-Mar-01

   Young Mo Lee    Employee    16-Mar-04    15-Mar-09    28,027    592    0    592

15-Mar-01

   Sung Gil Lee    Employee    16-Mar-04    15-Mar-09    28,027    370    0    370

22-Mar-01

   Cheol Ho Kim    Former KCC Officer    23-Mar-04    22-Mar-11    71,538    4,429    0    4,429

22-Mar-01

   Jun Chae Song    Former KCC Officer    23-Mar-04    22-Mar-11    71,538    6,644    0    6,644

22-Mar-01

   Myoung Woo Lee    Former KCC Officer    23-Mar-04    22-Mar-11    71,538    4,429    0    4,429

22-Mar-01

   Han Kyoung Lee    Former KCC Officer    23-Mar-04    22-Mar-11    71,538    6,644    0    6,644

24-Mar-01

   Jae Kyu Lee    Non Executive Director    25-Mar-04    24-Mar-07    25,100    2,318    2,318    0

24-Mar-01

   Jong In Park    Executive Vice President    25-Mar-04    24-Mar-07    25,100    19,333    19,333    0

16-Nov-01

   Sang Hoon Kim    Chairman    17-Nov-04    16-Nov-09    51,200    150,000    50,000    100,000

22-Mar-02

   Sun Jin Kim    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,000    0    3,000

22-Mar-02

   Ji Hong Kim    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,321    0    3,321

22-Mar-02

   Keun Shik Oh    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,321    1,021    2,300

22-Mar-02

   Kyung Hee Yoon    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,000    0    3,000

22-Mar-02

   Dong Soo Chung    Non Executive Director    23-Mar-05    22-Mar-10    57,100    10,000    0    10,000

22-Mar-02

   Henry Cornell    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,321    0    3,321

22-Mar-02

   Timothy Hartman    Non Executive Director    23-Mar-05    22-Mar-10    57,100    3,321    0    3,321

 


1

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

 

23


Table of Contents

Grant date

  

Name of the grantee

  

Position when granted

   Exercise period    Exercise
price
   Number of
granted
options1
   Number of
exercised
options
   Number of
exercisable
options
         From    To            

22-Mar-02

   Byung Sang Kim    Executive Vice President    23-Mar-05    22-Mar-10    57,100    9,498    0    9,498

22-Mar-02

   Bock Woan Kim    Executive Vice President    23-Mar-05    22-Mar-10    57,100    13,339    0    13,339

22-Mar-02

   Ki Sup Shin    Executive Vice President    23-Mar-05    22-Mar-10    57,100    26,405    16,405    10,000

22-Mar-02

   Jong Kyoo Yoon    Executive Vice President    23-Mar-05    22-Mar-10    57,100    20,522    0    20,522

22-Mar-02

   Sung Hyun Chung    Executive Vice President    23-Mar-05    22-Mar-10    57,100    19,525    0    19,525

22-Mar-02

   Bong Hwan Cho    Executive Vice President    23-Mar-05    22-Mar-10    57,100    9,498    0    9,498

22-Mar-02

   Bum Soo Choi    Executive Vice President    23-Mar-05    22-Mar-10    57,100    13,339    13,339    0

22-Mar-02

   Ki Taek Hong    Executive Vice President    23-Mar-05    22-Mar-10    57,100    19,525    0    19,525

22-Mar-02

   Jong Young Yoon    Employee    23-Mar-05    22-Mar-10    57,100    14,712    5,000    9,712

22-Mar-02

   Jae Il Song    Employee    23-Mar-05    22-Mar-10    57,100    9,762    0    9,762

22-Mar-02

   Hyung Goo Sim    Employee    23-Mar-05    22-Mar-10    57,100    14,712    0    14,712

22-Mar-02

   Jeong Haing Lee    Employee    23-Mar-05    22-Mar-10    57,100    9,762    0    9,762

22-Mar-02

   Joon Sup Chang    Employee    23-Mar-05    22-Mar-10    57,100    9,762    0    9,762

22-Mar-02

   Young No Lee    Employee    23-Mar-05    22-Mar-10    57,100    14,712    14,712    0

22-Mar-02

   Sung Bin Kim    Employee    23-Mar-05    22-Mar-10    57,100    9,762    0    9,762

22-Mar-02

   Sung Bok Park    Employee    23-Mar-05    22-Mar-10    57,100    14,712    0    14,712

22-Mar-02

   Yun Keun Jung    Employee    23-Mar-05    22-Mar-10    57,100    15,000    0    15,000

22-Mar-02

   Man Soo Song    Employee    23-Mar-05    22-Mar-10    57,100    9,762    0    9,762

22-Mar-02

   Jeong Young Kim    Employee    23-Mar-05    22-Mar-10    57,100    5,000    5,000    0

22-Mar-02

   Hack Yeon Jeong    Employee    23-Mar-05    22-Mar-10    57,100    5,000    0    5,000

22-Mar-02

   Jong Hwan Byun    Employee    23-Mar-05    22-Mar-10    57,100    5,000    0    5,000

22-Mar-02

   Jae Han Kim    Employee    23-Mar-05    22-Mar-10    57,100    2,500    0    2,500

22-Mar-02

   Jong Ok Na    Employee    23-Mar-05    22-Mar-10    57,100    2,500    0    2,500

29-Mar-02

   Byoung Hak Kim    Former KCC Officer    30-Mar-04    29-Mar-11    129,100    3,330    0    3,330

29-Mar-02

   Jang Ok Kim    Former KCC Officer    30-Mar-04    29-Mar-11    129,100    3,330    0    3,330

29-Mar-02

   Sun Lee    Former KCC Officer    30-Mar-04    29-Mar-11    129,100    3,330    0    3,330

26-Jul-02

   Donald H. MacKenzie    Executive Vice President    27-Jul-05    26-Jul-10    58,800    23,899    0    23,899

21-Mar-03

   Ki Hong Kim    Non Executive Director    22-Mar-06    21-Mar-11    58,600    10,000    0    10,000

21-Mar-03

   Sun Jin Kim    Non Executive Director    22-Mar-06    21-Mar-11    43,800    6,678    0    6,678

21-Mar-03

   Eun Joo Park    Non Executive Director    22-Mar-06    21-Mar-11    42,200    3,351    0    3,351

21-Mar-03

   Kyung Bae Suh    Non Executive Director    22-Mar-06    21-Mar-11    42,200    3,351    3,351    0

21-Mar-03

   Kyung Hee Yoon    Non Executive Director    22-Mar-06    21-Mar-11    43,800    6,678    0    6,678

21-Mar-03

   Bernard S. Black    Non Executive Director    22-Mar-06    21-Mar-11    43,800    6,678    0    6,678

21-Mar-03

   Richard Elliott Lint    Non Executive Director    22-Mar-06    21-Mar-11    43,800    6,678    0    6,678

21-Mar-03

   Sung Chul Kim    Executive Vice President    22-Mar-06    21-Mar-11    35,500    9,443    4,443    5,000

21-Mar-03

   See Young Lee    Executive Vice President    22-Mar-06    21-Mar-11    35,500    7,024    4,024    3,000

21-Mar-03

   Won Suk Oh    Employee    22-Mar-06    21-Mar-11    35,500    9,730    0    9,730

21-Mar-03

   Sung Dae Min    Employee    22-Mar-06    21-Mar-11    35,500    9,730    0    9,730

21-Mar-03

   Kyong Jae Jeong    Employee    22-Mar-06    21-Mar-11    35,500    9,730    0    9,730

21-Mar-03

   Chul Hee Kim    Employee    22-Mar-06    21-Mar-11    35,500    14,343    0    14,343

21-Mar-03

   In Do Lee    Employee    22-Mar-06    21-Mar-11    35,500    9,730    0    9,730

21-Mar-03

   Maeng Soo Ryang    Employee    22-Mar-06    21-Mar-11    35,500    9,730    0    9,730

27-Aug-03

   Jin Baek Cheong    Executive Vice President    28-Aug-06    27-Aug-11    40,500    5,091    0    5,091

09-Feb-04

   Young Il Kim    Senior Executive Vice President    10-Feb-07    09-Feb-12    46,100    7,125    0    7,125

09-Feb-04

   Sang Jin Lee    Senior Executive Vice President    10-Feb-07    09-Feb-12    46,100    7,125    0    7,125

09-Feb-04

   Jeung Lak Lee    Senior Executive Vice President    10-Feb-07    09-Feb-12    46,100    7,452    7,452    0

09-Feb-04

   Yun Keun Jung    Senior Executive Vice President    10-Feb-07    09-Feb-12    46,100    5,000    0    5,000

09-Feb-04

   Kuk Shin Kang    Employee    10-Feb-07    09-Feb-12    46,100    5,000    0    5,000

09-Feb-04

   Kyung Soo Kang    Employee    10-Feb-07    09-Feb-12    46,100    3,837    3,000    837

09-Feb-04

   Yang Jin Kim    Employee    10-Feb-07    09-Feb-12    46,100    5,000    5,000    0

 

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Table of Contents

Grant date

  

Name of the grantee

  

Position when granted

   Exercise period    Exercise
price
  Number of
granted
options1
   Number of
exercised
options
   Number of
exercisable
options
         From    To           

09-Feb-04

  

Dong Hwan Cho

  

Employee

   10-Feb-07    09-Feb-12    46,100   5,000    0    5,000

09-Feb-04

  

Dong Sook Kang

  

Employee

   10-Feb-07    09-Feb-12    46,100   5,000    0    5,000

09-Feb-04

  

Young Han Kim

  

Employee

   10-Feb-07    09-Feb-12    46,100   5,000    0    5,000

09-Feb-04

  

De Oak Shin

  

Employee

   10-Feb-07    09-Feb-12    46,100   5,000    0    5,000

09-Feb-04

  

Chang Ho Kim

  

Employee

   10-Feb-07    09-Feb-12    46,100   5,000    0    5,000

09-Feb-04

  

Dal Soo Lee

  

Employee

   10-Feb-07    09-Feb-12    46,100   5,000    0    5,000

09-Feb-04

  

Byong Doo Ahn

  

Employee

   10-Feb-07    09-Feb-12    46,100   5,000    0    5,000

23-Mar-04

  

Young Soon Cheon

  

Non Executive Director

   24-Mar-07    23-Mar-12    48,500   5,000    0    5,000

23-Mar-04

  

Dong Soo Chung

  

Non Executive Director

   24-Mar-07    23-Mar-12    48,500   5,000    0    5,000

23-Mar-04

  

Wang Ha Cho

  

Non Executive Director

   24-Mar-07    23-Mar-12    48,800   5,000    0    5,000

23-Mar-04

  

Woon Youl Choi

  

Non Executive Director

   24-Mar-07    23-Mar-12    48,800   5,000    0    5,000

23-Mar-04

  

Jung Young Kang

  

Senior Executive Vice President

   24-Mar-07    23-Mar-12    47,200   10,000    10,000    0

01-Nov-04

  

Chung Won Kang

  

President & CEO

   02-Nov-07    01-Nov-12    X2   700,000    0    700,000

18-Mar-05

  

Hyung Duk Chang

  

Chief Audit Executive

   19-Mar-08    18-Mar-13    X2   30,000    0    30,000

18-Mar-05

  

Kap Shin

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   30,000    0    30,000

18-Mar-05

  

Dong Won Kim

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   30,000    0    30,000

18-Mar-05

  

Yun Keun Jung

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   8,759    0    8,759

18-Mar-05

  

Nam Sik Yang

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   18,750    0    18,750

18-Mar-05

  

Hyo Sung Won

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   30,000    0    30,000

18-Mar-05

  

Yong Kook Oh

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   30,000    0    30,000

18-Mar-05

  

Sang Jin Lee

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   8,759    0    8,759

18-Mar-05

  

Ahn Sook Koo

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   8,759    0    8,759

18-Mar-05

  

Jung Young Kang

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   18,750    0    18,750

18-Mar-05

  

Young Han Choi

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   30,000    0    30,000

18-Mar-05

  

Dong Soo Choe

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   18,750    0    18,750

18-Mar-05

  

Seong Kyu Lee

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   8,759    0    8,759

18-Mar-05

  

Jun Bo Cho

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   8,759    0    8,759

18-Mar-05

  

Jeong Min Kim

  

Senior Executive Vice President

   19-Mar-08    18-Mar-13    46,800   30,000    0    30,000

18-Mar-05

  

Sung Soo Jung

  

Employee

   19-Mar-08    18-Mar-13    46,800   4,379    0    4,379

 


2

Exercise price = (Base Price) Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4).

( Base Price ) Won is the arithmetic mean of the following three numbers: the sum of the daily closing price multiplied by the daily trading volume divided by the daily trading volume for the common shares during each of the following periods: (i) two months prior to, but excluding, the grant date; (ii) one month prior to, but excluding, the grant date; and (iii) one week prior to, but excluding, the grant date.

The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.

 

25


Table of Contents

Grant date

  

Name of the grantee

  

Position when granted

   Exercise period    Exercise
price
  Number of
granted
options1
   Number of
exercised
options
   Number of
exercisable
options
         From    To           

18-Mar-05

  

Hye Young Kim

  

Employee

   19-Mar-08    18-Mar-13    46,800   4,379    0    4,379

18-Mar-05

  

Ki Hyun Kim

  

Employee

   19-Mar-08    18-Mar-13    46,800   4,379    0    4,379

18-Mar-05

  

Jae Sam Jung

  

Employee

   19-Mar-08    18-Mar-13    46,800   15,000    0    15,000

18-Mar-05

  

Chang Ho Kim

  

Employee

   19-Mar-08    18-Mar-13    46,800   4,379    0    4,379

18-Mar-05

  

Dong Sook Kang

  

Employee

   19-Mar-08    18-Mar-13    46,800   4,379    0    4,379

18-Mar-05

  

De Oak Shin

  

Employee

   19-Mar-08    18-Mar-13    46,800   15,000    0    15,000

18-Mar-05

  

Dal Soo Lee

  

Employee

   19-Mar-08    18-Mar-13    46,800   15,000    0    15,000

18-Mar-05

  

Byong Doo Ahn

  

Employee

   19-Mar-08    18-Mar-13    46,800   4,379    0    4,379

18-Mar-05

  

Byung Kun Oh

  

Employee

   19-Mar-08    18-Mar-13    46,800   15,000    0    15,000

18-Mar-05

  

Won Sik Yeo

  

Employee

   19-Mar-08    18-Mar-13    46,800   15,000    0    15,000

18-Mar-05

  

Dong Su Yeo

  

Employee

   19-Mar-08    18-Mar-13    46,800   15,000    0    15,000

18-Mar-05

  

Kyoung Ho Lee

  

Employee

   19-Mar-08    18-Mar-13    46,800   9,375    0    9,375

18-Mar-05

  

Jeung Ho Lee

  

Employee

   19-Mar-08    18-Mar-13    46,800   15,000    0    15,000

18-Mar-05

  

Kwang Suk Lee

  

Employee

   19-Mar-08    18-Mar-13    46,800   9,375    0    9,375

18-Mar-05

  

Tae Gon Kim

  

Employee

   19-Mar-08    18-Mar-13    46,800   15,000    0    15,000

18-Mar-05

  

Hyeog Kwan Kwon

  

Employee

   19-Mar-08    18-Mar-13    46,800   15,000    0    15,000

18-Mar-05

  

Kyu Hyung Jung

  

Employee

   19-Mar-08    18-Mar-13    46,800   15,000    0    15,000

18-Mar-05

  

Dong Hwan Cho

  

Employee

   19-Mar-08    18-Mar-13    46,800   9,375    0    9,375

18-Mar-05

  

Man Hee Lee

  

Employee

   19-Mar-08    18-Mar-13    46,800   9,375    0    9,375

18-Mar-05

  

Il Soo Moon

  

Employee

   19-Mar-08    18-Mar-13    46,800   15,000    0    15,000

18-Mar-05

  

Yong Seung Lee

  

Employee

   19-Mar-08    18-Mar-13    46,800   9,375    0    9,375

18-Mar-05

  

Suk Yong Cha

  

Non Executive Director

   19-Mar-08    18-Mar-13    61,000   5,091    0    5,091

18-Mar-05

  

Ki Hong Kim

  

Non Executive Director

   19-Mar-08    18-Mar-13    60,300   5,077    0    5,077

18-Mar-05

  

Young Soon Cheon

  

Non Executive Director

   19-Mar-08    18-Mar-13    63,600   10,072    0    10,072

18-Mar-05

  

Dong Soo Chung

  

Non Executive Director

   19-Mar-08    18-Mar-13    X2   15,000    0    15,000

18-Mar-05

  

Chang Kyu Lee

  

Non Executive Director

   19-Mar-08    18-Mar-13    X2   15,000    0    15,000

18-Mar-05

  

Hun Namkoong

  

Non Executive Director

   19-Mar-08    18-Mar-13    61,000   5,091    0    5,091

18-Mar-05

  

Doo Hwan Song

  

Non Executive Director

   19-Mar-08    18-Mar-13    63,800   10,031    0    10,031

18-Mar-05

  

Dam Cho

  

Non Executive Director

   19-Mar-08    18-Mar-13    X2   15,000    0    15,000

18-Mar-05

  

Nobuya Takasugi

  

Non Executive Director

   19-Mar-08    18-Mar-13    X2   15,000    0    15,000

27-Apr-05

  

Kyung Wook Kang

  

Employee

   28-Apr-08    27-Apr-13    45,700   8,827    0    8,827

22-Jul-05

  

Donald H. MacKenzie

  

Senior Executive Vice President

   23-Jul-08    22-Jul-13    49,200   30,000    0    30,000

23-Aug-05

  

Youn Soo Kim

  

Employee

   24-Aug-08    23-Aug-13    53,000   7,212    0    7,212

24-Mar-06

  

Dong Soo Chung

  

Non Executive Director

   25-Mar-09    24-Mar-14    X3   20,000    0    20,000

24-Mar-06

  

Doo Hwan Song

  

Non Executive Director

   25-Mar-09    24-Mar-14    X3   0    0    0

24-Mar-06

  

Chang Kyu Lee

  

Non Executive Director

   25-Mar-09    24-Mar-14    X3   10,000    0    10,000

24-Mar-06

  

Dam Cho

  

Non Executive Director

   25-Mar-09    24-Mar-14    X3   10,000    0    10,000

 


3

Exercise price = (Base Price) Won x (1 + TRS of the three major competitors x 0.4)

( Base Price ) Won is the arithmetic mean of the following three numbers: the sum of the daily closing price multiplied by the daily trading volume divided by the daily trading volume for the common shares during each of the following periods: (i) two months prior to, but excluding, the grant date; (ii) one month prior to, but excluding, the grant date; and (iii) one week prior to, but excluding, the grant date.

TRS of the three major competitors shall mean (the sum of each of the three major competitor’s Total Market Cap at the expected exercise price confirmation date less the sum of each of the three major competitor’s Total Market Cap at the grant date) divided by the sum of each of the three major competitor’s Total Market Cap at the grant date.

 

26


Table of Contents

Grant date

  

Name of the grantee

  

Position when granted

   Exercise period    Exercise
price
  Number of
granted
options1
   Number of
exercised
options
   Number of
exercisable
options
         From    To           

24-Mar-06

  

Nobuya Takasugi

  

Non Executive Director

   25-Mar-09    24-Mar-14    X3   10,000    0    10,000

24-Mar-06

  

Young Soon Cheon

  

Non Executive Director

   25-Mar-09    24-Mar-14    85,100   5,000    0    5,000

24-Mar-06

  

Kee Young Chung

  

Non Executive Director

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Bo Kyung Byun

  

Non Executive Director

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Bae Kin Cha

  

Non Executive Director

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Hyung Duk Chang

  

Chief Audit Executive

   25-Mar-09    24-Mar-14    X3   20,000    0    20,000

24-Mar-06

  

Ki Hong Kim

  

Chief Executive Vice President

   25-Mar-09    24-Mar-14    X3   210,000    0    210,000

24-Mar-06

  

Kap Joe Song

  

Senior Executive Vice President

   25-Mar-09    24-Mar-14    X3   45,000    0    45,000

24-Mar-06

  

Dal Soo Lee

  

Senior Executive Vice President

   25-Mar-09    24-Mar-14    X3   20,000    0    20,000

24-Mar-06

  

Won Sik Yeo

  

Senior Executive Vice President

   25-Mar-09    24-Mar-14    X3   20,000    0    20,000

24-Mar-06

  

De Oak Shin

  

Senior Executive Vice President

   25-Mar-09    24-Mar-14    X3   20,000    0    20,000

24-Mar-06

  

Choong Won Cho

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Yook Sang Kwon

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Haing Hyun Choi

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

In Gyu Choi

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Kwang Chun Shon

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Han Mok Cho

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Soon Hyun Kim

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Seung Joo Baik

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Kwang Mook Park

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Se Yoon Hong

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Sang Rak Jang

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Jin Sun Paeng

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Shin Og Joo

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Young Hee Jeon

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

24-Mar-06

  

Bae Young Lee

  

Employee

   25-Mar-09    24-Mar-14    X3   30,000    0    30,000

28-Apr-06

  

Young Mo Lee

  

Employee

   29-Apr-09    28-Apr-14    X3   30,000    0    30,000

27-Oct-06

  

Dong Hyun Ji

  

Employee

   28-Oct-09    27-Oct-14    X3   20,000    0    20,000

08-Feb-07

  

Dong Su Yeo

  

Senior Executive Vice President

   09-Feb-10    08-Feb-15    X3   10,000    0    10,000

08-Feb-07

  

Hyeog Kwan Kwon

  

Senior Executive Vice President

   09-Feb-10    08-Feb-15    X3   10,000    0    10,000

08-Feb-07

  

Jeung Ho Lee

  

Senior Executive Vice President

   09-Feb-10    08-Feb-15    X3   10,000    0    10,000

08-Feb-07

  

Kyoung Woo Nam

  

Senior Executive Vice President

   09-Feb-10    08-Feb-15    X3   45,000    0    45,000

08-Feb-07

  

Gi Eui Choi

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Chung Wook Kim

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Kyung Hak Lee

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Jae Gon Kim

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Heung Un Kim

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Woo Shick Lee

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Young Hwan Sohn

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Young Gu Joo

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Han Ok Kim

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

 

27


Table of Contents

Grant date

  

Name of the grantee

  

Position when granted

   Exercise period    Exercise
price
  Number of
granted
options1
   Number of
exercised
options
   Number of
exercisable
options
         From    To           

08-Feb-07

  

Yong Shin Kim

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Kyung Gu Lee

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Kyun Shin

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Hwa Jung Kim

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Tae Sung Hwang

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Myung Heun You

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Nam Cheol Shin

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

In Byung Park

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Kun Soo Kang

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Kwang Won Jee

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Youn Dong Kim

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Chan Bon Park

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Jong Bum Kim

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Byong Duk Min

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Hye Seok Seo

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Bou Hwan Sim

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Yong Soo Seok

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

08-Feb-07

  

Sang Hun Choi

  

Employee

   09-Feb-10    08-Feb-15    X3   30,000    0    30,000

23-Mar-07

  

Jacques P.M. Kemp

  

Non Executive Director

   24-Mar-10    23-Mar-15    X3   30,000    0    30,000

Total

  4,170,094    211,838    3,958,256

 

28


Table of Contents

5.4. Affiliated Companies

5.4.1. List of Affiliates1

Affiliated companies of Kookmin Bank and its ownership as of June 30, 2007 are as follows.

 

  n  

KB Investment Co., Ltd. (99.99%)

 

  n  

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

 

  n  

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

 

  n  

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

 

  n  

KB Data Systems Corporation (99.99%)

 

  n  

KB Futures Co., Ltd. (99.98%)

 

  n  

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

 

  n  

ING Life Korea Ltd. (20.00%)

 

  n  

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

 

  n  

Kookmin Bank Hong Kong Ltd. (100.00%)

 

  n  

Sorak Financial Holdings Pte. Ltd. (25.00%)

 


1

Excludes Jooeun Industrial and KLB Securities, which are under liquidation procedures. Kookmin Singapore Ltd. and Kookmin Finance Asia Limited are also under liquidation procedures.

 

29


Table of Contents

6. Directors, Senior Management and Employees

6.1. Executive Directors

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

The names and positions of our directors, and the number of shares of Kookmin Bank’s common stock they own are set forth below as of June 30, 2007.

 

Name

    

Date of Birth

    

Position

   Common Shares Owned

Chung Won Kang

     12/19/1950     

President & CEO

   —  

Hyung Duk Chang

     08/13/1950     

Chief Audit Executive

   —  

Ki Hong Kim

     01/10/1957     

Chief Executive Vice President

   —  

Kap Shin

     09/04/1955     

CFO & Senior EVP

   —  

6.2. Non-Executive Directors

Our non-executive directors are selected based on the candidates’ talents and skills in diverse areas, such as law, finance, economy, management and accounting.

Our current non-executive directors and the number of shares of Kookmin Bank’s common stock they own are as follows.

 

Name

    

Date of Birth

    

Position

   Common Shares Owned

Dong Soo Chung

     09/24/1945     

Non-Executive Director

   2,690

Nobuya Takasugi

     09/03/1942     

Non-Executive Director

   —  

Kee Young Chung

     09/07/1948     

Non-Executive Director

   —  

Jacques P.M. Kemp

     05/15/1949     

Non-Executive Director

   —  

Chang Kyu Lee

     05/20/1950     

Non-Executive Director

   —  

Dam Cho

     08/01/1952     

Non-Executive Director

   —  

Bo Kyung Byun

     08/09/1953     

Non-Executive Director

   —  

Baek In Cha

     07/23/1958     

Non-Executive Director

   —  

 

30


Table of Contents

6.3. Senior Management

In addition to the executive directors who are also our executive officers, we currently have the following 14 executive officers as of June 30, 2007.

 

Name

     Date of Birth   

Position

   Common Shares Owned

Dal Soo Lee

     02/15/1952   

Senior Executive Vice President

   152

Won Sik Yeo

     01/30/1953   

Senior Executive Vice President

   —  

Dong Su Yeo

     02/17/1956   

Senior Executive Vice President

   —  

Hyeog Kwan Kwon

     12/10/1953   

Senior Executive Vice president

   40

Yong Kook Oh

     09/30/1949   

Senior Executive Vice President

   —  

Hyo Sung Won

     07/29/1960   

Senior Executive Vice President

   —  

De Oak Shin

     01/09/1951   

Senior Executive Vice President

   8,963

Kyoung Woo Nam

     04/01/1951   

Senior Executive Vice President

   —  

Young Han Choi

     09/24/1958   

Senior Executive Vice President

   —  

Jeung Ho Lee

     08/15/1952   

Senior Executive Vice President

   38

Jeong Min Kim

     05/08/1951   

Senior Executive Vice President

   94

Donald H. MacKenzie

     12/20/1948   

Senior Executive Vice President

   —  

Kap Joe Song

     07/20/1947   

Senior Executive Vice President

   —  

Dong Won Kim

     03/01/1953   

Senior Executive Vice President

   —  

6.4. Employees

The following table shows the breakdown of our employees as of June 30, 2007.

(Unit: in millions of Won)

 

      Number of Employees1   

Average Tenure of

the Full-time

Employees (years)2

   Total Payment
for the first half
of 20073
   Average Payment
per Person
     Full-time    Contractual    Total         

Male

   12,883    1,501    14,384   

17 years and 7 months

   493,261    34.3

Female

   4,579    6,802    11,381   

13 years and 10 months

   253,558    22.3

Total

   17,462    8,303    25,765   

16 years and 7 months

   746,819    29.0

 


1

Numbers of employees are calculated based on an arithmetic mean from January 31, 2007 to June 30, 2007, and do not include executive vice presidents, local employees in overseas branches and persons engaged in outsourced services.

2

Based on only full-time employees as of June 30, 2007

3

Based on personnel expense and welfare cost as of June 30, 2007

 

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7. Major Stockholders and Related Party Transactions

7.1. Major Stockholders1

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

(Unit: Shares, %)

 

Name

   Number of Shares of Common Stock    Percentage of Total Issued Shares

Citibank, N. A.2

   49,470,643    14.71

Euro-Pacific Growth Fund

   18,377,910    5.46

 


1

As of December 31, 2006

2

Depositary under our ADR and GDR programs

 

32


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7.2. Investments in Affiliates1

(Unit: in millions of Won)

 

Name

   Relation with
the Bank
  

Account

   Beginning
Balance
(Jan 1, 2007)
   Increase    Decrease   

Ending

Balance
(June 30, 2007)

KB Real Estate Trust

   Affiliate   

Equity Securities of Affiliate

   79,999    —      —      79,999

KB Investment

   Affiliate   

Equity Securities of Affiliate

   44,756    —      —      44,756

KB Asset Management

   Affiliate   

Equity Securities of Affiliate

   30,670    —      —      30,670

KB Futures

   Affiliate   

Equity Securities of Affiliate

   19,996    —      —      19,996

KB Data Systems Corp.

   Affiliate   

Equity Securities of Affiliate

   7,999    —      —      7,999

KB Credit Information

   Affiliate   

Equity Securities of Affiliate

   6,245    —      —      6,245

KB Life Insurance

   Affiliate   

Equity Securities of Affiliate

   15,300    7,650    —      22,950

Jooeun Industrial1

   Affiliate   

Equity Securities of Affiliate

   9,999    —      —      9,999

KLB Securities1

   Affiliate   

Equity Securities of Affiliate

   24,274    —      —      24,274

ING Life Korea

  

Subsidiary

  

Equity Securities

   14,000    —      —      14,000

Kookmin Bank Hong Kong Ltd.

   Affiliate   

Equity Securities of Affiliate

   18,592       56    18,536

Kookmin Bank International (London) Ltd.

   Affiliate   

Equity Securities of Affiliate

   36,482    624    —      37,106

LOGO Based on par value

 


1

Jooeun Industrial and KLB Securities are under liquidation procedures.

 

33


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7.3. Related Party Transactions

(Unit: in millions of Won unless indicated otherwise)

 

Name

 

Relation with the Bank

  

Transactions

    

Account

   Purchase    Disposal    Volume    Gains
/Losses

LG International

 

Related party of Non-executive director, Kee Young Chung

   Equity securities    8,908    9,098    18,006    451

DSME Co.

 

Related party of Non-executive director, Dong Soo Chung

   Equity securities    2,155    2,318    4,473    188
                        
  Total       11,063    11,416    22,479    639
                        

 

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8. Other Important Information for Investors

8.1. Progress Relating to Regulatory Filing

 

  1. On July 13, 2007, we submitted a current report on Form 6-K relating to a second notice of additional tax assessment from the Seoul Regional Tax Office in respect of the periodic tax audit for the years 2002 to 2005. This second assessment was in the amount of KRW 268,791,041,795, and in addition to an earlier assessment in the amount of KRW 173,189,962,460. The amount payable in respect of the second assessment was subsequently reduced by KRW 3,006,280,175, in part due to early payment of the assessed amounts. We paid such reduced amount on August 13, 2007.

 

  2. On August 6, 2007 and August 13, 2007, we appealed the tax assessments in two separate proceedings, distinguished in part by type of tax. The amount of assessment being appealed is KRW 438,862,802,150.

 

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SIGNATURES

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

 

        Kookmin Bank
    (Registrant)

Date: August 14, 2007

    By:  

/s/ Kap Shin

      (Signature)
    Name:   Kap Shin
    Title:  

CFO / Senior EVP

Executive Director

 

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KOOKMIN BANK

NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

AND INDEPENDENT ACCOUNTANTS’ REVIEW REPORT


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Independent Accountants’ Review Report

English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of

Kookmin Bank:

We have reviewed the accompanying non-consolidated balance sheet of the Bank accounts of Kookmin Bank (the “Bank”) as of June 30, 2007, and the related non-consolidated statements of income, cash flows and changes in shareholders’ equity for the six months ended June 30, 2007 and 2006, all expressed in Korean Won. These financial statements are the responsibility of the Bank’s management. Our responsibility is to issue a report on these financial statements based on our reviews.

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

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

We have previously audited, in accordance with auditing standards generally accepted in the Republic of Korea, the non-consolidated balance sheet of the Bank as of December 31, 2006, and the related non-consolidated statements of income, appropriations of retained earnings and cash flows for the year then ended (not presented herein) and in our report dated March 2, 2007, we expressed an unqualified opinion on those non-consolidated financial statements.


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

August 3, 2007

Notice to Readers

This report is effective as of August 3, 2007, the accountants’ review report date. Certain subsequent events or circumstances may have occurred between the accountants’ review report date and the time the accountants’ review report is read. Such events or circumstances could significantly affect the accompanying financial statements and may result in modifications to the accountants’ review report.


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KOOKMIN BANK

NON-CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2007 AND DECEMBER 31, 2006

 

     Korean Won
     2007    2006
     (In millions)

ASSETS

  

Cash and due from banks (Notes 3 and 20)

   (Won) 5,336,482    (Won) 6,568,306

Securities (Notes 4 and 20)

     31,315,296      29,382,480

Loans (Notes 5, 6, 7 and 20)

     159,318,249      149,867,182

Tangible assets (Note 8)

     2,185,023      2,137,732

Other assets (Note 9)

     8,711,718      7,250,781
             
   (Won) 206,866,768    (Won)  195,206,481
             

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

LIABILITIES:

     

Deposits (Notes 10 and 20)

   (Won) 131,562,312    (Won) 130,019,916

Borrowings (Notes 11 and 20 )

     46,808,443      39,042,684

Other liabilities (Notes 12, 13, 14, 15 and 16)

     13,745,139      11,088,924
             
     192,115,894      180,151,524
             

SHAREHOLDERS’ EQUITY (Note 17):

     

Common stock

     1,681,896      1,681,896

Capital surplus

     6,258,297      6,258,297

Accumulated other comprehensive income

     412,252      899,542

Retained earnings

     6,398,429      6,215,222
             
     14,750,874      15,054,957
             
   (Won) 206,866,768    (Won) 195,206,481
             

See accompanying notes to non-consolidated financial statements.


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KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

 

     Korean Won
     2007    2006
     (In millions except per share amounts)

OPERATING REVENUE:

     

Interest income:

     

Interest on due from banks (Note 21)

   (Won) 8,482    (Won) 17,171

Interest on securities (Note 21)

     677,298      652,207

Interest on loans (Note 21)

     5,763,172      5,125,798

Other interest income

     17,934      14,473
             
     6,466,886      5,809,649
             

Gain on valuation and disposal of securities:

     

Gain on valuation of trading securities

     10,202      16,854

Gain on disposal of trading securities

     39,621      25,083

Gain on disposal of available-for-sale securities

     736,741      85,828

Reversal of impairment loss on available-for-sale securities (Note 4)

     23,726      83,725
             
     810,290      211,490
             

Gain on disposal of loans

     23,112      36,311
             

Foreign exchange trading income

     205,882      138,405
             

Commission income

     730,796      663,197
             

Fees and commissions from trust accounts (Note 27)

     46,649      49,137
             

Dividends income

     9,920      6,767
             

Other operating income:

     

Gain on derivatives trading

     1,137,855      2,205,091

Gain on valuation of derivatives (Note 19)

     578,579      970,234

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

     91,160      18,347

Other operating income

     81,026      31,478
             
     1,888,620      3,225,150
             

Total operating revenues

     10,182,155      10,140,106
             

OPERATING EXPENSES:

     

Interest expenses:

     

Interest on deposits (Note 21)

     1,924,147      1,602,371

Interest on borrowings (Note 21)

     1,101,816      801,238

Other interest expenses

     34,624      23,717
             
     3,060,587      2,427,326
             

Loss on valuation and disposal of securities:

     

Loss on valuation of trading securities

     21,646      3,653

Loss on disposal of trading securities

     17,491      36,798

Loss on disposal of available-for-sale securities

     9,940      8,519

Impairment loss on available-for-sale securities (Note 4)

     44,706      13,362
             
     93,783      62,332
             

Provision for possible loan losses (Note 7)

     191,606      198,141
             

Foreign exchange trading losses

     159,738      153,073
             

Commission expenses

     263,625      196,879
             

General and administrative expenses (Note 22)

     1,782,631      1,604,470
             

Other operating expenses:

     

Provision for acceptances and guarantees losses

     5,573      860

Loss on derivatives trading

     1,127,008      2,129,687

Loss on valuation of derivatives (Note 19)

     607,066      943,807

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

     20,364      25,429

Other operating expenses

     297,801      299,030
             
     2,057,812      3,398,813
             

Total operating expenses

     7,609,782      8,041,034
             


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KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

 

     Korean Won
     2007    2006
     (In millions except per share amounts)

OPERATING INCOME

   (Won) 2,572,373    (Won) 2,099,072

NON-OPERATING REVENUE (Note 23)

     128,619      149,695

NON-OPERATING EXPENSES (Note 23)

     541,116      66,881
             

INCOME BEFORE INCOME TAX

     2,159,876      2,181,886

INCOME TAX EXPENSE (Note 24)

     741,078      601,916
             

NET INCOME

   (Won) 1,418,798    (Won) 1,579,970
             

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

   (Won) 4,218    (Won) 4,697
             

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

   (Won) 4,209    (Won) 4,697
             

See accompanying notes to non-consolidated financial statements.


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KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

 

     Korean Won  
     2007     2006  
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   (Won) 1,418,798     (Won) 1,579,970  
                

Adjustments to reconcile net income to net cash used in operating activities:

    

Loss on valuation of trading securities

     21,646       3,653  

Impairment loss on available-for-sale securities

     44,706       13,362  

Loss on valuation of securities accounted for using the equity method

     387       1,856  

Provision for possible loan losses

     191,606       198,141  

Depreciation and amortization

     186,774       137,599  

Loss on disposal of tangible assets

     714       550  

Loss on valuation of derivatives

     607,066       943,807  

Loss on valuation of fair value hedged items

     20,364       25,429  

Provision for severance benefits

     83,003       71,372  

Gain on valuation of trading securities

     (10,202 )     (16,854 )

Reversal of impairment loss on available-for-sale securities

     (23,726 )     (83,725 )

Gain on valuation of securities accounted for using the equity method

     (56,930 )     (51,053 )

Gain on disposal of tangible assets

     (281 )     (223 )

Gain on valuation of derivatives

     (578,579 )     (970,234 )

Gain on valuation of fair value hedged items

     (91,160 )     (18,347 )

Others, net

     179,188       110,114  
                
     574,576       365,447  
                

Changes in assets and liabilities resulting from operations:

    

Net decrease (increase) in trading securities

     (3,141,808 )     143,468  

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

     26,192       (3,271,307 )

Net decrease (increase) in held-to-maturity securities

     713,682       (851,531 )

Net increase in loans

     (9,640,833 )     (5,266,232 )

Net increase in accounts receivable

     (1,496,466 )     (4,407,428 )

Net increase in accrued income

     (112,454 )     (86,243 )

Net increase in prepaid expenses

     (26,519 )     (29,536 )

Net decrease (increase) in deferred income tax assets

     (148,042 )     115,243  

Net increase in accounts payable

     1,408,325       4,068,470  

Net increase (decrease) in accrued expenses

     681,878       (641,375 )

Net increase in unearned revenues

     9,613       11,949  

Payment of severance benefits

     (15,521 )     (9,360 )

Net increase in severance insurance deposits

     (2,688 )     (3,362 )

Others, net

     122,123       373,708  
                
     (11,622,518 )     (9,853,536 )
                

Net cash used in operating activities

     (9,629,144 )     (7,908,119 )
                


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KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

 

     Korean Won  
     2007     2006  
     (In millions)  

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Net decrease in restricted due from banks

   (Won) 630,716     (Won) 222,308  

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

     14,187       (1,261 )

Disposal of tangible assets

     5,801       345  

Purchase of tangible assets

     (187,579 )     (82,508 )

Disposal of intangible assets

     75       —    

Disposal of non-business use properties

     —         27  

Purchase of intangible assets

     (14,152 )     (17,060 )

Net increase in guarantee deposits paid

     (94,385 )     (6,912 )

Net decrease in domestic exchange settlement debits

     235,795       270,159  
                

Net cash provided by investing activities

     590,458       385,098  
                

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net increase (decrease) in deposits

     1,544,059       (870,205 )

Net increase in borrowings

     7,685,776       7,828,843  

Net increase (decrease) in other liabilities

     435,527       (16,331 )

Exercise of stock options

     —         10,620  

Dividend

     (1,227,784 )     (184,889 )
                

Net cash provided by financing activities

     8,437,578       6,768,038  
                

NET DECREASE IN CASH AND DUE FROM BANKS

     (601,108 )     (754,983 )

CASH AND DUE FROM BANKS, BEGINNING OF PERIOD

     3,287,819       3,624,831  
                

CASH AND DUE FROM BANKS, END OF PERIOD (Note 31)

   (Won) 2,686,711     (Won) 2,869,848  
                

See accompanying notes to non-consolidated financial statements.


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KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

 

     Capital stock    Capital surplus    Capital
adjustments
    Accumulated
other
comprehensive
income
    Retained
earnings
    Total  
     (In millions)  

January 1, 2006

   (Won) 1,681,896    (Won) 6,254,786    (Won) (5,772 )   (Won) 512,742     (Won) 3,929,948     (Won) 12,373,600  

Dividend

     —        —        —         —         (184,889 )     (184,889 )
                          

Retained earnings after appropriations

     —        —        —         —         3,745,059       12,188,711  

Net income

     —        —        —         —         1,579,970       1,579,970  

Valuation of available-for-sale securities

     —        —        —         59,858       —         59,858  

Valuation of held-to-maturity securities

     —        —        —         (211 )     —         (211 )

Valuation of securities using the equity method

     —        —        —         4,556       —         4,556  

Exercise of stock option

     —        —        (3,888 )     —         —         (3,888 )

Disposal of treasury stocks

     —        3,511      9,660       —         —         13,171  

Others

     —        —        —         —         (121 )     (121 )
                                              

June 30, 2006

   (Won) 1,681,896    (Won) 6,258,297    (Won) —       (Won) 576,945     (Won) 5,324,908     (Won) 13,842,046  
                                              

January 1, 2007

   (Won) 1,681,896    (Won) 6,258,297    (Won) —       (Won) 899,542     (Won) 6,215,222     (Won) 15,054,957  

Dividend

     —        —        —         —         (1,227,784 )     (1,227,784 )
                          

Retained earnings after appropriations

     —        —        —         —         4,987,438       13,827,173  

Net income

     —        —        —         —         1,418,798       1,418,798  

Valuation of available-for-sale securities

     —        —        —         (481,623 )     —         (481,623 )

Valuation of held-to-maturity securities

     —        —        —         (38 )     —         (38 )

Valuation of securities using the equity method

     —        —        —         (5,629 )     (7,650 )     (13,279 )

Others

     —        —        —         —         (157 )     (157 )
                                              

June 30, 2007

   (Won) 1,681,896    (Won) 6,258,297    (Won) —       (Won) 412,252     (Won) 6,398,429     (Won) 14,750,874  
                                              

See accompanying notes to non-consolidated financial statements.


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KOOKMIN BANK

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

 

1. GENERAL:

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

The Bank merged with Korea Long Term Credit Bank on December 31, 1998 and with Daegu, Busan, Jeonnam Kookmin Mutual Savings & Finance Co., Ltd. on August 22, 1999. Also, under the decision of the Financial Supervisory Commission in accordance with the Structural Improvement of the Financial Industry Act, the Bank purchased certain assets, including loans classified as normal or precautionary, and assumed most of the liabilities of Daedong Bank on June 29, 1998. Also, the Bank completed the legal consolidation with Housing and Commercial Bank (“H&CB”) on October 31, 2001 and merged with Kookmin Credit Card Co., Ltd., a majority-owned subsidiary, on September 30, 2003.

The Bank’s shares have been listed on the Korea Stock Exchange since September 1994. As a result of the business combination with H&CB, the former shareholders of the Bank and H&CB received new common shares of the Bank on the basis of a pre-determined ratio. The new common shares of the Bank were listed on the Korea Stock Exchange on November 9, 2001. In addition, the Bank listed its American 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 June 30, 2007, 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 1,149 domestic branches and offices (excluding 228 automated teller machine stations) and three overseas branches (excluding two subsidiaries and two offices) as of June 30, 2007.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Non-consolidated Financial Statement Presentation

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

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


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Interest Income Recognition

The Bank applies the accrual basis in recognizing interest income related to deposits, loans and securities, except for non-secured uncollectible receivables. Interest on loans, whose principal or interest is past due at the balance sheet date, is generally not accrued, with the exception of interest on certain loans secured by guarantee of governments or government agencies, or collateralized by bank deposits. When a loan is placed on non-accrual status, previously accrued interest is generally reversed and deducted from current interest income; and future interest income is recognized on the cash basis in accordance with the banking industry accounting standards. As of June 30, 2007 and December 31, 2006, 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)4,918,722 million and (Won)6,031,676 million, respectively, and the related accrued interest income not recognized amounted to (Won)577,234 million and (Won)525,475 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 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 accumulated other comprehensive income. Accumulated other comprehensive income of securities are charged to current operations in a lump sum at the time of disposal or impairment recognition. Non-marketable equity securities are stated at acquisition cost on the financial statements if the fair value of the securities is not reliably determinable.

 

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If the fair value of equity securities (net asset fair value in case of non-marketable equity securities stated at acquisition cost) is below the acquisition cost and the pervasive evidence of impairment exists, the carrying value is adjusted to fair value and the resulting valuation loss is charged to current operations. If the collectible value of debt securities is below the amortized cost and the pervasive evidence of impairment exists, the carrying value is adjusted to collectible value and the resulting valuation loss is charged to current operations. With respect to impaired securities, any unrealized valuation gain or loss of securities previously included in the accumulated other comprehensive income 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, capital adjustments or accumulated other comprehensive income of investee are reflected as gain or loss on valuation of securities accounted for using the equity method in accumulated other comprehensive income.

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 accumulated other comprehensive income 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 Impairment Loss on Available-for-sale Securities and Held-to-maturity Securities

If the reasons for impairment losses on available-for-sale securities no longer exist, the recovery is recorded in current operations under operating revenue up to amount of the previously recognized impairment loss as reversal of impairment loss on available-for-sale securities and any excess is included in accumulated other comprehensive income 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 accumulated other comprehensive income. 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 operating revenue 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 impairment loss on held-to-maturity securities.

 

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(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 accumulated other comprehensive income 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 accumulated other comprehensive income 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 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 accumulated other comprehensive income 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 collateralized by bank deposits, real estate or 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 17 grades from AAA to D (AAA, AA+, AA, A, BBB+, BBB, BBB-, BB+, BB, BB-, B+, 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 ~ 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 ~ 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.

 

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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.

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.

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.

 

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Tangible Assets and Related Depreciation

Tangible 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 other 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 other 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.

 

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Contingent Liabilities

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

Accrued Severance Benefits

Employees and directors and temporary employees with at least one year of service as of June 30, 2007 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 accumulated other comprehensive income and the ineffective portion is recorded in current operations. The effective portion of gain or loss recorded as a accumulated other comprehensive income 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 accumulated other comprehensive income is added to or deducted from the asset or the liability.

Accounting for Share-based Payment

The terms of the arrangement for share-based payment transactions provide the Bank with a choice of whether the transaction is settled in cash or by issuing equity instruments. In accordance with the resolution of the Board of Directors on August 23, 2005 to settle the transaction in cash, the compensation cost is recorded in other liabilities (accrued expense). The compensation cost of stock options granted before and after the effective date of the Statements of Korea Accounting Standards No. 22 (Share-based Payment) was measured using the intrinsic value method in accordance with the Interpretations on Financial Accounting Standards 39-35 “Accounting for Stock Options,” and the fair value method, respectively.

 

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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 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 ((Won)926.80 and (Won)929.60 to US$ 1.00 at June 30, 2007 and December 31, 2006, 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.

Discontinued Operation

A discontinued operation refers to a component of the Bank that is capable of being distinguished operationally for financial reporting purposes and is capable of being identified as a major line of business or geographical area of operations, and that the Bank, pursuant to a single plan of discontinuance, substantially disposes in its entirety, such as by selling it in a single transaction; sells off its assets and settles its liabilities individually or in small groups; or terminates it through abandonment. The income (loss) from continuing operation and discontinued operation was not distinguished and separately presented as there was no discontinued operation in the prior year and current period.

 

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Application of the Statement of Korea Accounting Standards

The Korea Accounting Standard Board (KASB) under the Korea Accounting Institute (KAI) issued the Statements of Korea Accounting Standards (SKAS) for achieving a set of Korean accounting standards that should be internationally acceptable and comparable based on SKAS Act 92. The Bank adopted SKAS No.1 (Accounting Changes and Error Corrections) through SKAS No. 20 (Related Party Disclosures) (excluding SKAS No. 11 and No. 14) as of or before December 31, 2006, and SKAS No. 11 (Discontinued Operation) and SKAS No. 21 (Preparation and Presentation of Financial Statements I) through SKAS No. 25 (Consolidated Financial Statements) have been adopted since January 1, 2007.

With the adoption of SKAS No. 21 (Preparation and Presentation of Financial Statements I) and SKAS No. 24 (Preparation and Presentation of Financial Statements II [Financial Industry]), the Bank included the statement of changes in shareholders’ equity in the financial statements, and reclassified the components of the balance sheets as follows:

 

Classification

  

Before

  

After

Assets   

- Cash and due from banks

- Securities

- Loans

- Fixed assets

- Other assets

  

- Cash and due from banks

- Securities

- Loans

- Tangible assets

- Other assets

Liabilities   

- Deposits

- Borrowings

- Debentures

- Other liabilities

  

- Deposits

- Borrowings

- Other liabilities

Shareholders’ Equity   

- Common stock

- Capital surplus

- Retained earnings

- Capital adjustments

  

- Common stock

- Capital surplus

- Capital adjustments

- Accumulated other comprehensive income

- Retained earnings

In addition, a discontinued operation is separately presented in the income statements and extraordinary items are no longer reported separately. The Bank has reclassified the components of the income statements; such as, gains or losses relating to available-for-sale securities and sale of loans that were presented under non-operating revenue (expenses) are currently presented under operating revenue (expenses). The effect of the changes in the classification of the income statement for the six months ended June 30, 2007 is as follows (Unit: In millions):

 

Classification

   Before    After    Effect  

Operating Revenue

   (Won) 9,387,615    (Won) 10,182,155    (Won) 794,540  

Operating Expenses

     7,544,176      7,609,782      65,606  
                      

Operating Income

     1,843,439      2,572,373      728,934  

Non-operating Revenue

     912,198      128,619      (783,579 )

Non-operating Expenses

     595,761      541,116      (54,645 )
                      

Income before Income Tax

     2,159,876      2,159,876      —    

Income Tax Expense

     741,078      741,078      —    
                      

Net Income

   (Won) 1,418,798    (Won) 1,418,798    (Won) —    
                      

Basic Net Income per Share (In currency units)

   (Won) 4,218    (Won) 4,218    (Won) —    
                      

Diluted Net Income per Share (In currency units)

   (Won) 4,209    (Won) 4,209    (Won) —    
                      

(*) Income from continuing operation was not separately presented as there was no gain (loss) from discontinued operation.

 

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The financial statements for the prior period were restated for comparative purposes due to the application of SKAS No. 21 and No. 24. The restatement did not affect the previously reported prior period’s net income or shareholders’ equity. The effect of the restatement on the income statement for the six months ended June 30, 2006 is as follows (Unit: In millions):

 

Classification

   Before    After    Effect  

Operating Revenue

   (Won) 9,930,518    (Won) 10,140,106    (Won) 209,588  

Operating Expenses

     8,013,405      8,041,034      27,629  
                      

Operating Income

     1,917,113      2,099,072      181,959  

Non-operating Revenue

     355,559      149,695      (205,864 )

Non-operating Expenses

     90,786      66,881      (23,905 )
                      

Income before Income Tax

     2,181,886      2,181,886      —    

Income Tax Expense

     601,916      601,916      —    
                      

Net Income

   (Won) 1,579,970    (Won) 1,579,970    (Won) —    
                      

Basic Net Income per Share (In currency units)

   (Won) 4,697    (Won) 4,697    (Won) —    
                      

Diluted Net Income per Share (In currency units)

   (Won) 4,697    (Won) 4,697    (Won) —    
                      

(*) Income from continuing operation was not separately presented as there was no gain (loss) from discontinued operation.

In addition, the Bank has reclassified the components of the cash flows; such as, changes in available-for-sale securities, held-to-maturity securities and loans that were presented under cash flows from investing activities are currently presented under cash flows from operating activities. The accompanying non-consolidated statement of cash flows for the six months ended June 30, 2006, which is presented for comparative purpose, was restated due to the application of SKAS No. 21 and No. 24.

The prior period financial statements were neither restated nor the earnings per share adjusted to reflect the effect of the application of SKAS No. 22 (Share-based Payment) and No. 23 (Earnings per Share), which is in accordance with the transition provision.

 

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3. CASH AND DUE FROM BANKS:

 

(1) Cash and due from banks as of June 30, 2007 and December 31, 2006 consisted of (Unit: In millions):

 

     2007    2006

Cash and checks

   (Won) 2,283,002    (Won) 2,725,644

Foreign currencies

     183,030      151,406

Due from banks

     2,870,450      3,691,256
             
   (Won) 5,336,482    (Won) 6,568,306
             

 

(2) Due from banks as of June 30, 2007 and December 31, 2006 consisted of (Unit: In millions):

 

Financial institution

   Interest (%)    2007    2006

Due from banks in Won:

        

BOK

   —      (Won)