Form 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

For the month of May 2008

 

 

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 2008 First Quarter Business Report

2. Exhibit 99.1-Kookmin Bank Review Report for the First Quarter of 2008


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    8

1.4.

   Dividend    9

2.

   Business    10

2.1.

   Source and Use of Funds    10

2.2.

   Principal Banking Activities    13

2.3.

   Branch Networks    17

2.4.

   Other Information for Investment Decision    18

3.

   Financial Information    20

3.1.

   Non-Consolidated Condensed Financial Statements    20

3.2.

   Consolidated Condensed Financial Statements    20

3.3.

   Other Financial Information    21

4.

   Independent Public Accountants    22

4.1.

   Audit & Audit related Fees    22

4.2.

   Non-Audit Services    22

5.

   Corporate Governance and Affiliated Companies    23

5.1.

   Board of Directors & Committees under the Board    23

5.2.

   Audit Committee    23

5.3.

   Compensation to Directors    24

5.4.

   Affiliated Companies    30

6.

   Directors, Senior Management and Employees    31

6.1.

   Executive Directors    31

6.2.

   Non-Executive Directors    31

6.3.

   Senior Management    32

6.4.

   Employees    33

7.

   Major Stockholders and Related Party Transactions    34

7.1.

   Major Stockholders    34

7.2.

   Changes in the Largest Shareholder for the Recent Three Years    34

7.3.

   Investments in Affiliates    34

7.4.

   Related Party Transactions    35

8.

   Other Important Information for Investors    36

8.1.

   Progress Relating to Regulatory Filing    36


Table of Contents

Summary of 2008 First Quarter Business Report

On May 15, 2008, Kookmin Bank filed its business report for the first quarter of 2008 (the “Business Report”) with the Financial Services Commission of Korea and the Korea Exchange. This is a summary of the Business Report translated into English.

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. 25 (Consolidated Financial Statements) (excluding SKAS No. 14) as of or before December 31, 2007.

In addition, according to the amended SKAS No. 15 (Investments in Associates), the Bank applied the equity method making current earnings and net assets reported in the non-consolidated financial statements of the Bank coincide with its share of current earnings and net assets of an associate included in the consolidated financial statements. However the Bank ceases to apply the equity method when the balance of the investment in the associate has become zero. The financial statements for the prior period were restated for comparative purposes due to the application of SKAS No.15 (revision).

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.


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 Trust Business 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 Co., Ltd.

 

  n October 29, 2004


Table of Contents

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

 

  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 KB Satellite Broadcasting System, the first combined broadcasting system 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 10, 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

 

  n October 31, 2007

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

 

  n November 14, 2007

Entered into a share purchase agreement to acquire a 95.8% stake in Hannuri Investment & Securities Co., Ltd.


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  n December 11, 2007

Ranked Number 1 among banks for the second consecutive year and Number 1 among credit card businesses in the National Customer Satisfaction Index(NCSI) by Korea Productivity Center

 

  n December 31, 2007

Became the first Korean bank to obtain approval from the FSS to use a “Foundation Internal Ratings-based Approach” for credit risks under Basel II.

 

  n February 20, 2008

The largest shareholder of Kookmin Bank changed from Euro-Pacific Growth Fund to the Korean National Pension Service.

 

  n March 11, 2008

Acquired a 95.8% stake in Hannuri Investment & Securities Co., Ltd., which was renamed KB Investment & Securities Co., Ltd.

 

  n March 14, 2008

Entered into agreements to acquire up to 50.1% of the shares of Joint Stock Company Bank CenterCredit, a Kazakhstan Bank.

 

  n March 20, 2008

Application for preliminary authorization to establish a financial holding company


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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 Kookmin Bank 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 March 31, 2008, a total of 336,379,116 common shares were issued.

 

Number of Shares    (Unit: shares) as of March 31, 2008
     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 )

As of March 31, 2008

   Outstanding Treasury Shares    0  


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1.3.3. Employee Stock Ownership Association

(Unit: shares)

 

Type

   Beginning
Balance

(January 1, 2008)
   Increase    Decrease    Ending
Balance
(March 31, 2008)
   Remarks

Registered common stock

   2,729,756    —      145,408    2,584,348    —  
                        

Total

   2,729,756    —      145,408    2,584,348    —  
                        

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 2007, and shareholders of Kookmin Bank approved of the dividend payout for fiscal year 2007 at the general meeting of shareholders held on March 20, 2008.

 

     (Unit: in millions of Won unless indicated otherwise)
     March 2008    2007     2006

Net (loss) income for the period

   —      2,773,843     2,472,111

Diluted (loss) earnings per share (Won)

   —      8,246 1   7,349

Total dividend amount

   —      824,129     1,227,784

Dividend payout ratio (%)

   —      29.71 2   49.67

Cash dividend per common share (Won)

   —      2,450     3,650

Stock dividend per common share (%)

   —      —       —  

Dividend per preferred share (Won)

   —      —       —  

Dividend yield ratio (%)

   —      3.48 3   4.90

 

1

Earnings per share = net income (Won 2,773,843,133,424) / weighted average number of shares (336,379,116 shares).

2

Dividend payout ratio = total dividend amount for common shares (Won 824,128,834,200) / net income (Won 2,773,843,133,424).

3

Dividend yield ratio = dividend per share (Won 2,450) / average closing price for a week based on business day prior to market closing date of December 31, 2007 (Won 70,475).


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2. Business

2.1. Source and Use of Funds

2.1.1. Source of Funds

 

[Bank Account]    (Unit: in millions of Won, %)
     March 31, 2008    December 31, 2007    December 31, 2006
     Average
balance
   Interest
rate (%)
   Average
balance
   Interest
rate (%)
   Average
balance
   Interest
rate (%)
Won currency                  

Deposits

   118,762,256    3.88    109,901,995    3.23    111,324,234    2.91

Certificate of deposit

   21,264,844    5.92    14,683,182    5.19    8,408,753    4.53

Borrowings

   2,537,409    4.04    2,474,036    3.64    2,533,547    3.36

Call money

   548,925    4.89    1,553,396    4.79    2,300,768    4.09

Other

   39,494,374    5.87    36,902,539    5.52    28,332,243    5.13
                             

Subtotal

   182,607,808    4.55    165,515,148    3.93    152,899,545    3.43
                             
Foreign currency                  

Deposits

   1,799,900    2.56    1,723,594    2.80    1,489,895    2.37

Borrowings

   5,804,784    3.86    4,415,317    3.81    3,635,918    3.41

Call money

   914,917    3.45    538,081    5.04    527,600    4.74

Debentures

   2,691,110    3.95    2,820,166    5.18    1,530,941    4.49

Other

   140,168    —      91,227    —      59,296    —  
                             

Subtotal

   11,350,879    3.59    9,588,385    4.06    7,243,650    3.50
                             
Other                  

Total Shareholders Equity

   16,424,954    —      16,064,310    —      14,251,498    —  

Allowances

   986,609    —      924,317    —      1,004,895    —  

Other

   12,582,110    —      11,036,268    —      11,935,765    —  
                             

Subtotal

   29,993,673    —      28,024,895    —      27,192,158    —  
                             

Total

   223,952,360    3.89    203,128,428    3.40    187,335,353    2.94
                             


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2.1.2. Use of Funds

[Bank Account]

(Unit: in millions of Won, %)

 

     March 31, 2008    December 31, 2007    December 31, 2006
     Average
balance
   Interest
rate (%)
   Average
balance
   Interest
rate (%)
   Average
balance
   Interest
rate (%)

Won currency

                 

Due from banks

   15,207    0.13    27,232    0.99    190,902    3.66

Securities

   32,668,414    5.32    29,795,474    4.66    31,437,266    4.25

Loans

   149,786,010    6.89    134,549,458    6.60    120,688,857    6.44

Advances for customers

   18,188    19.19    28,717    1.51    13,122    2.27

Call loan

   1,810,510    5.02    646,821    4.81    823,293    4.25

Private placement corporate bonds

   6,101,763    5.73    7,599,124    5.42    5,702,726    5.43

Credit card accounts

   10,436,373    20.36    9,232,452    22.20    7,855,415    24.46

Other

   1,486,129    —      355,868    —      328,681    —  

Allowance for credit losses ( - )

   -2,554,153    —      -2,340,182    —      -2,377,086    —  
                             

Subtotal

   199,768,441    7.40    179,894,964    7.14    164,663,176    6.96
                             

Foreign currency

                 

Due from banks

   193,156    1.43    323,370    3.94    486,764    4.31

Securities

   1,223,789    12.44    993,119    4.60    793,181    6.78

Loans

   7,824,680    4.09    7,610,703    4.51    6,561,903    4.06

Call loan

   276,057    3.73    424,043    4.84    261,483    4.77

Bills bought

   1,680,490    5.07    1,421,642    5.95    1,326,578    5.51

Other

   1,094    —      1,815    —      1,798    —  

Allowance for credit losses ( - )

   -101,439    —      -84,723    —      -65,952    —  
                             

Subtotal

   11,097,827    5.17    10,689,969    4.78    9,365,755    4.61
                             

Other

                 

Cash

   1,125,635    —      1,079,189    —      966,002    —  

Fixed assets held for business

   2,599,657    —      2,540,601    —      2,397,111    —  

Other

   9,360,800    —      8,923,705    —      9,943,309    —  
                             

Subtotal

   13,086,092    —      12,543,495    —      13,306,422    —  
                             

Total

   223,952,360    6.86    203,128,428    6.58    187,335,353    6.35
                             


Table of Contents

2.1.3. Fee Transactions

(Unit: in millions of Won)

 

     March 31, 2008    March 31, 2007    December 31, 2007

Fee Revenue (A)

        

Won currency

        

Guarantees

   2,485    1,593    7,535

Commissions received

   270,070    253,498    1,202,814

Credit card

   39,768    37,710    153,876

National Housing Fund Mgt.

   31,356    42,141    121,700
              

Foreign currency

        

Guarantees

   3,970    1,572    8,315

Others

   22,938    17,960    76,842
              

Subtotal

   370,587    354,474    1,571,082
              

Fee Expense (B)

        

Won & foreign currency

        

Commissions paid in Won

   60,599    43,218    208,494

Credit card

   84,118    68,739    350,889

Others

   9,789    9,640    33,740
              

Subtotal

   154,506    121,597    593,123
              

Fee Income (A-B)

   216,081    232,877    977,959
              


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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)

 

         March 31, 2008    December 31, 2007    December 31, 2006
         Average
balance
   Ending
balance
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance

Deposits

 

Demand deposits

   18,244,188    19,156,986    18,027,342    19,759,190    16,896,730    20,179,568

in Won

 

Time & savings deposits

   99,468,150    99,142,326    89,417,348    93,809,636    89,613,715    91,156,790
 

Mutual installment deposits

   2,835,473    2,649,149    3,474,443    3,038,971    4,302,015    3,833,573
 

Mutual installment for housing

   2,856,839    2,747,798    3,425,419    2,973,115    4,221,249    3,842,727
 

Certificate of deposit

   21,264,844    22,876,773    14,683,182    17,617,643    8,408,753    9,579,701
                               

Subtotal

     144,669,494    146,573,032    129,027,734    137,198,555    123,442,462    128,592,359
                               

Deposits in foreign currency

   1,799,900    1,672,804    1,723,594    1,660,136    1,489,895    1,427,557
                               

Trust

 

Money trust

   8,209,052    8,915,967    8,906,983    8,363,610    9,047,669    9,627,037

deposits

 

Property trust

   4,731,005    3,895,182    5,556,671    5,365,233    8,491,099    6,631,376
                               

Subtotal

     12,940,057    12,811,149    14,463,654    13,728,843    17,538,768    16,258,413
                               

Total

     159,409,451    161,056,985    145,214,982    152,587,534    142,471,125    146,278,329
                               

2.2.2. Average Deposit per Domestic Branch

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

(Unit: in millions of Won)

 

     March 31, 2008    December 31, 2007    December 31, 2006

Deposits

   133,210    124,446    124,123

Deposits in Won

   131,830    123,055    122,904


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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)

 

     March 31, 2008    December 31, 2007    December 31, 2006

Deposits

   8,574    7,901    7,799

Deposits in Won

   8,485    7,812    7,722

2.2.4. Loan Balances

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

(Unit: in millions of Won)

 

     March 31, 2008    December 31, 2007    December 31, 2006
     Average
balance
   Ending
balance
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance

Loans in Won

   149,776,067    153,437,568    134,539,050    146,260,926    120,680,825    125,574,817

Loans in foreign currency

   7,824,680    8,698,903    7,610,703    7,498,780    6,561,902    7,261,811

Advances for customers

   18,188    16,505    28,717    28,695    13,122    19,209
                             

Subtotal

   157,618,935    162,152,976    142,178,470    153,788,401    127,255,849    132,855,837
                             

Trust account loans

   420,080    430,563    408,301    415,786    351,880    403,552
                             

Total

   158,039,015    162,583,539    142,586,771    154,204,187    127,607,729    133,259,389
                             

2.2.5. Loan Balances as of March 31, 2008 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

   66,948,699    33,645,785    5,618,715    47,224,369    153,437,568

Loans in foreign currency

   4,596,153    2,375,794    984,662    742,294    8,698,903


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2.2.6. Loan Balances by Type

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

(Unit: in millions of Won)

 

     March 31, 2008    December 31, 2007    December 31, 2006

Loans to enterprise

        

Loans for operations

   46,433,643    43,508,536    33,054,421

Loans for facility

   13,585,250    12,401,652    6,103,249

Loans to households

   48,978,129    47,705,207    46,509,920

Loans to public sector & others

        

Loans for operations

   1,769,287    1,430,050    894,178

Loans for facility

   33,945    24,450    3,687

Loans on property formation savings

   646    702    1,013

Loans for housing

   42,636,093    41,189,639    39,007,176

Others

   575    690    1,173
              

Total

   153,437,568    146,260,926    125,574,817
              

2.2.7. Loan to Deposit Ratio1

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

(Unit: in millions of Won, %)

 

     March 31, 2008    December 31, 2007    December 31, 2006

Loans (A)

   149,776,067    134,539,050    120,680,825

Deposits (B)

   144,669,494    129,027,734    123,442,462
              

Loan to deposit ratio (A/B)

   103.53    104.27    97.76
              

2.2.8. Guarantees

(Unit: in millions of Won)

 

     March 31, 2008    December 31, 2007    December 31, 2006

Determined

   6,139,931    5,297,910    2,704,307

Contingent

   5,184,895    3,944,524    2,304,434
              

Total

   11,324,826    9,242,434    5,008,741
              

 

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


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2.2.9. Securities Investment

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

(Unit: in millions of Won)

 

     March 31, 2008    December 31, 2007    December 31, 2006
     Average
balance
   Ending
balance
   Average
balance
   Ending
balance
   Average
balance
   Ending
balance

Securities in Won (Bank account)

                 

Monetary stabilization bonds

   6,865,409    6,241,232    7,736,322    6,075,608    11,803,683    8,534,765

Government and public bonds

   11,509,199    11,840,601    11,225,989    11,216,456    10,035,180    10,117,416

Debentures

   17,349,656    18,107,956    16,342,485    16,350,155    11,847,016    14,140,083

Stocks

   1,854,417    2,057,313    1,740,024    1,750,678    1,575,806    2,515,385

Others

   1,191,496    1,504,578    349,777    370,240    1,878,308    744,896
                             

Subtotal

   38,770,177    39,751,680    37,394,597    35,763,137    37,139,993    36,052,545
                             

Securities in Won (Trust account)

                 

Monetary stabilization bonds

   930,498    948,680    1,235,530    980,810    1,247,444    1,524,511

Government and public bonds

   1,097,753    1,041,356    1,252,644    1,123,819    1,090,228    1,216,613

Debentures

   1,309,376    1,236,787    1,707,174    1,374,010    1,937,309    1,815,093

Stocks

   502,161    480,955    567,221    490,118    756,900    769,212

Others

   2,535,718    2,837,142    2,585,637    2,538,954    3,837,714    2,873,202
                             

Subtotal

   6,375,506    6,544,920    7,348,206    6,507,711    8,869,595    8,198,631
                             

Securities in foreign currency (Trust account)

   12,449    12,449    22,154    12,449    110,472    32,661
                             

Securities in foreign currency (Bank account)

                 

Foreign securities

   945,861    1,072,565    720,035    927,610    559,343    613,078

Off-shore foreign securities

   277,928    282,960    273,084    273,188    233,838    216,066
                             

Subtotal

   1,223,789    1,355,525    993,119    1,200,798    793,181    829,144
                             

Total

   46,381,921    47,664,574    45,758,076    43,484,095    46,913,241    45,112,981
                             

2.2.10. Trust Account

(Unit: in millions of Won)

 

     March 31, 2008    December 31, 2007    December 31, 2006
     Average
amount trusted
   Trust
fees
   Average
amount trusted
   Trust
fees
   Average
amount trusted
   Trust
fees

Return-guaranteed trust

   279    6,545    296    12,928    325    11,295

Performance trust

   12,939,778    11,373    14,463,358    57,384    17,538,443    67,209
                             

Total

   12,940,057    17,918    14,463,654    70,312    17,538,768    78,504
                             


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2.2.11. Credit Card

(Unit: in millions of Won, number of individuals and merchants)

 

     As of or for the years ended
of indicated dates
     March 31, 2008    December 31, 2007    December 31, 2006

Number of card holders

        

Corporate

   189,951    173,122    173,190

Individual

   8,715,145    8,518,930    8,883,738
              

Number of merchants

   1,776,519    1,751,826    1,610,446
              

Sales volume1

   18,055,803    68,516,441    63,929,192

Fee revenue

   570,152    2,207,975    2,189,014

2.3. Branch Networks

As of March 31, 2008, we had 1,119 branches (including the head office) and 89 sub-branches in Korea; 479 of our branches and sub-branches are located in Seoul.

We also have four overseas branches and three overseas representative offices. The overseas branches are located in Tokyo, Japan; New York, U.S.A.; Auckland, New Zealand; and Guangzhou, People’s Republic of China. The overseas representative offices located are in Almaty, Kazakhstan; Ho Chi Minh City, Vietnam; and Kyiv, Ukraine.

We plan to open a total of 56 new domestic branches and sub-branches during 2008 (including 7 branches and sub-branches opened during the first quarter of 2008). These plans are subject to change depending on market conditions and other factors.

We also plan to establish overseas branches in Harbin and Suzhou, People’s Republic of China, during 2008. These plans are subject to change depending on regulatory approvals and other factors.

 

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


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2.4. Other Information for Investment Decision

2.4.1. BIS Risk-adjusted Capital Ratios

(Unit: in millions of Won, %)

 

     March 31, 20081    December 31, 2007    December 31, 2006

Risk-adjusted capital (A)

   18,505,343    19,634,235    18,751,151

Risk-weighted assets (B)

   150,474,970    155,598,835    132,373,478
              

BIS ratio (A/B)

   12.30    12.62    14.17

2.4.2. Non-Performing Loans

(Unit: in millions of Won, %)

 

March 31, 2008     December 31, 2007     Change  
Amount    Ratio of NPL to
total loans
    Amount    Ratio of NPL to
total loans
    Amount    Ratio of NPL to
total loans
 
1,324,173    0.71 %   1,096,470    0.62 %   227,703    0.09 %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)

 

     March 31, 2008    December 31, 2007    December 31, 2006

Loan losses allowance

        

Domestic

   2,753,961    2,609,414    2,458,307

Foreign

   8,411    6,583    4,772
              

Total

   2,762,372    2,615,997    2,463,079
              

Write-Off

   218,115    822,794    1,693,468

 

1

The figures for March 31, 2008 are calculated based on Basel II and they are preliminary estimates that are subject to change.

The preliminary estimates calculated based on Basel I are as follows:

 

   

Risk-adjusted capital: Won 19,832,817 million

 

   

Risk-weighted assets: Won 165,643,855 million

 

   

BIS ratio: 11.97%

 

   

Tier 1 ratio: 9.51%


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2.4.4. Changes in Loan Loss Allowances for Recent Three Years1

(Unit: in millions of Won)

 

     March 31, 2008     December 31, 2006     December 31, 2006  

Beginning balance

   2,501,865     2,360,867     2,453,275  
                  

Net Write-Off

   (97,701 )   (375,598 )   (1,034,059 )

Write-Off

   (217,399 )   (817,358 )   (1,680,331 )

Recovery

   115,658     530,637     474,278  

Other

   4,040     (88,877 )   171,994  
                  

Provision for loan losses

   239,534     516,596     941,651  
                  

Ending balance

   2,643,698     2,501,865     2,360,867  
                  

 

1

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


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3. Financial Information

3.1. Non-Consolidated Condensed Financial Statements

(Unit: in millions of Won)

 

     As of or for the period ended
     March 31, 2008    December 31, 2007

Cash and due from banks

   5,891,515    6,544,754

Securities

   35,132,177    30,777,359

Loans

   179,358,710    171,549,993

Tangible assets

   2,257,005    2,298,743

Other assets

   10,439,544    7,695,189
         

Total assets

   233,078,951    218,866,038
         

Deposits

   148,245,835    138,858,691

Borrowings

   50,810,063    50,250,481

Other liabilities

   18,067,383    13,719,105
         

Total liabilities

   217,123,281    202,828,277
         

Common stock

   1,681,896    1,681,896

Capital surplus

   6,274,831    6,269,263

Capital Adjustments

   0    0

Accumulated other comprehensive income

   454,210    345,446

Retained earnings

   7,544,733    7,741,156
         

Total shareholders’ equity

   15,955,670    16,037,761
         

Liabilities and Shareholders’ Equity

   233,078,951    218,866,038
         

Operating revenue

   8,275,721    21,281,826

Operating income

   839,232    4,233,386

Income (loss) before income tax

   869,723    4,529,870

Net (loss) income

   631,503    2,773,843


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3.2. Consolidated Condensed Financial Statements

(Unit: in millions of Won, number of subsidiaries)

 

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

Cash and due from banks

   6,727,411    6,688,977

Securities

   34,239,723    32,588,135

Loans

   171,730,131    150,017,861

Tangible assets

   2,301,464    2,139,486

Other assets

   8,045,715    7,478,977
         

Total assets

   223,044,444    198,913,436
         

Deposits

   142,100,520    133,296,975

Borrowings

   50,170,776    38,786,899

Other liabilities

   14,666,041    11,701,501
         

Total liabilities

   206,937,337    183,785,375
         

Common stock

   1,681,896    1,681,896

Capital surplus

   6,274,535    6,274,831

Retained earnings

   7,775,285    6,241,912

Capital Adjustments

   0    0

Accumulated other comprehensive income

   331,159    885,141

Minority interests

   44,232    44,281
         

Total shareholders’ equity

   16,107,107    15,128,061
         

Liabilities and Shareholders’ Equity

   223,044,444    198,913,436
         

Operating revenue

   22,154,335    20,319,778

Operating income

   4,280,654    3,250,034

Income (loss) before income tax

   4,544,746    3,424,562

Net (loss) income

   2,762,198    2,467,006

Controlling company interests, gain (loss)

   2,757,316    2,458,260
         

No. of subsidiaries included in the consolidation

   10    11

3.3. Other Financial Information

See Exhibit 99.1 Kookmin Bank Review Report by our independent auditors for our full financial statements and relevant notes, which have been prepared in accordance with generally accepted accounting principles in Korea. The Review Report will also be available on our website, www.kbstar.com.


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4. Independent Public Accountants

4.1. Audit & Audit related Fees

Deloitte Anjin LLC has reviewed our financial statements for the first quarter of 2008. The aggregate contracted amount of such firm’s audit and review fees for the year 2008 is Won 1,490 million.

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

1Q 2008

   -    —  

2007

  

- Issuance of comfort letter

- Issuance of comfort letter

- Agreement for issuance of comfort letter1

   90

70

50

2006

  

- Issuance of comfort letter

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

   40

10

 

1

The Agreement for issuance of comfort letter has been terminated.


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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

The following committees currently serve under our board of directors:

 

  n The Board Steering Committee

 

  n The Management Strategy Committee

 

  n The Risk Management Committee

 

  n The Evaluation & Compensation Committee

 

  n The Audit 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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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 quarter of 2008.

(Unit: in millions of Won)

 

     The aggregate
remuneration
paid

(From January to
March 2008)
   Limit for the
remuneration resolved
by shareholders’
meeting (For the year
2008)
   Average amount
of the payment per
person

(From January to
March 2008)
    Total fair
value of stock
option1
   Weight
(%)

1) Executive Directors
(Except Chief Audit Executive and Non-executive Directors)

   2,297       747     —      —  

2) Non-executive Directors
(Except members of Audit Committee)

   93    8,000    18 2   —      —  

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

   601       120 2   —      —  
                         

Total

   2,991    8,000    223     —      —  
                         

 

1

For those portions of stock options granted on or before December 31, 2006, we used the intrinsic value model to calculate the total fair value of stock option. For those portions of stock options granted on or after January 1, 2007, we adopted the Black-Scholes option pricing model to calculate the total fair value of stock option.

The following negative values, resulting from calculation according to the intrinsic value method, are excluded from this table: (-9,018) million Won (Executive Directors (except Chief Audit Executive and Non-executive Directors)), (-434) million Won (Non-executive Directors (except members of Audit Committee)), (-226) million Won (Members of Audit Committee (including Chief Audit Executive)).

 

2

Reflects the changes made to the number of non-executive directors in March of 2008.


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5.3.2. Stock Options

The following table is the breakdown of stock options Kookmin Bank has granted to the directors and employees as of March 31, 2008.

(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

   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

   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

   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

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

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

   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

16-Nov-01

   Sang Hoon Kim    Chairman    17-Nov-04     16-Nov-09     51,200     150,000    75,000    75,000

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

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

   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

   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

 

1

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


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

   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

   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

   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

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 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    7,024    0

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

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

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

01-Nov-04

   Chung Won Kang    President & CEO    02-Nov-07     01-Nov-12     50,600     610,000    0    610,000

18-Mar-05

   Hyung Duk Chang    Chief Audit Executive    19-Mar-08     18-Mar-13     51,600     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     28,330    0    28,330


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

   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     28,056    0    28,056

18-Mar-05

   Sung Soo Jung    Employee    19-Mar-08     18-Mar-13     46,800     4,379    0    4,379

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     14,986    0    14,986

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     14,165    0    14,165

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     14,165    0    14,165

18-Mar-05

   Dong Su Ryo    Employee    19-Mar-08     18-Mar-13     46,800     13,973    0    13,973

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     13,973    0    13,973

18-Mar-05

   Kyu Hyung Jung    Employee    19-Mar-08     18-Mar-13     46,800     14,165    0    14,165

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     51,600     15,000    0    15,000

18-Mar-05

   Chang Kyu Lee    Non Executive Director    19-Mar-08     18-Mar-13     51,600     15,000    0    15,000


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

   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     51,600     15,000    0    15,000

18-Mar-05

   Nobuya Takasugi    Non Executive Director    19-Mar-08     18-Mar-13     51,600     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     77,900     19,917    0    19,917

24-Mar-06

   Chang Kyu Lee    Non Executive Director    25-Mar-09     24-Mar-14     77,900     9,958    0    9,958

24-Mar-06

   Dam Cho    Non Executive Director    25-Mar-09     24-Mar-14     77,800     10,000    0    10,000

24-Mar-06

   Nobuya Takasugi    Non Executive Director    25-Mar-09     24-Mar-14     77,900     9,958    0    9,958

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     X2     30,000    0    30,000

24-Mar-06

   Bo Kyung Byun    Non Executive Director    25-Mar-09     24-Mar-14     X2     30,000    0    30,000

24-Mar-06

   Bae Kin Cha    Non Executive Director    25-Mar-09     24-Mar-14     X2     30,000    0    30,000

24-Mar-06

   Hyung Duk Chang    Chief Audit Executive    25-Mar-09     24-Mar-14     77,900     19,917    0    19,917

24-Mar-06

   Ki Hong Kim    Chief Executive Vice President    25-Mar-09     24-Mar-14     X2     210,000    0    210,000

24-Mar-06

   Kap Joe Song    Senior Executive Vice President    25-Mar-09     24-Mar-14     80,000     27,878    0    27,878

24-Mar-06

   Dal Soo Lee    Senior Executive Vice President    25-Mar-09     24-Mar-14     77,800     20,000    0    20,000

24-Mar-06

   Won Sik Yeo    Senior Executive Vice President    25-Mar-09     24-Mar-14     80,300     18,166    0    18,166

24-Mar-06

   De Oak Shin    Senior Executive Vice President    25-Mar-09     24-Mar-14     80,300     18,166    0    18,166

24-Mar-06

   Choong Won Cho    Employee    25-Mar-09     24-Mar-14     X2     30,000    0    30,000

24-Mar-06

   Yook Sang Kwon    Employee    25-Mar-09     24-Mar-14     80,300     18,175    0    18,175

24-Mar-06

   Haing Hyun Choi    Employee    25-Mar-09     24-Mar-14     X2     30,000    0    30,000

24-Mar-06

   In Gyu Choi    Employee    25-Mar-09     24-Mar-14     X2     30,000    0    30,000

24-Mar-06

   Kwang Chun Shon    Employee    25-Mar-09     24-Mar-14     X2     30,000    0    30,000

24-Mar-06

   Han Mok Cho    Employee    25-Mar-09     24-Mar-14     80,300     18,175    0    18,175

24-Mar-06

   Soon Hyun Kim    Employee    25-Mar-09     24-Mar-14     X2     30,000    0    30,000

24-Mar-06

   Seung Joo Baik    Employee    25-Mar-09     24-Mar-14     X2     30,000    0    30,000

24-Mar-06

   Kwang Mook Park    Employee    25-Mar-09     24-Mar-14     80,300     18,175    0    18,175

24-Mar-06

   Sai Yoon Hong    Employee    25-Mar-09     24-Mar-14     X2     30,000    0    30,000

24-Mar-06

   Sang Rak Jang    Employee    25-Mar-09     24-Mar-14     80,300     18,175    0    18,175

24-Mar-06

   Jin Sun Paeng    Employee    25-Mar-09     24-Mar-14     80,300     18,175    0    18,175

24-Mar-06

   Shin Og Joo    Employee    25-Mar-09     24-Mar-14     80,300     18,175    0    18,175

24-Mar-06

   Young Hee Jeon    Employee    25-Mar-09     24-Mar-14     X2     30,000    0    30,000

 

2

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


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

   Bae Young Lee    Employee    25-Mar-09        24-Mar-14       

80,300    

  18,175    0    18,175

28-Apr-06

   Young Mo Lee    Employee    29-Apr-09     28-Apr-14     X2   30,000    0    30,000

27-Oct-06

   Dong Hyun Ji    Employee    28-Oct-09     27-Oct-14     X2   20,000    0    20,000

08-Feb-07

   Dong Su Yeo    Senior Executive Vice President    09-Feb-10     08-Feb-15     77,100   9,013    0    9,013

08-Feb-07

   Hyeog Kwan Kwon    Senior Executive Vice President    09-Feb-10     08-Feb-15     77,100   9,013    0    9,013

08-Feb-07

   Jeung Ho Lee    Senior Executive Vice President    09-Feb-10     08-Feb-15     77,100   10,000    0    10,000

08-Feb-07

   Kyung Woo Nam    Senior Executive Vice President    09-Feb-10     08-Feb-15     X2   45,000    0    45,000

08-Feb-07

   Gi Eui Choi    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Chung Wook Kim    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Kyung Hak Lee    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Jae Gon Kim    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Heung Woon Kim    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Woo Shick Lee    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Young Hwan Sohn    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Young Gu Joo    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Han Ok Kim    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Yong Shin Kim    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Kyung Gu Lee    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Kyun Shin    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Hwa Jung Kim    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Tae Sung Hwang    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Myung Heun You    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Nam Cheol Shin    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   In Byung Park    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Kun Soo Kang    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Kwang Won Jee    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Youn Dong Kim    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Chan Bon Park    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Jong Bum Kim    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Byong Duk Min    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Hye Seok Seo    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Bou Hwan Sim    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Yong Soo Seok    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

08-Feb-07

   Sang Hun Choi    Employee    09-Feb-10     08-Feb-15     X2   30,000    0    30,000

23-Mar-07

   Jacques P.M. Kemp    Non Executive Director    24-Mar-10     23-Mar-15     X2   30,000    0    30,000
     

Total

         3,823,180    129,904    3,693,276

(The weighted average exercise price of exercisable options is Won 63,504)

 

29


Table of Contents

5.4. Affiliated Companies

5.4.1. List of Affiliates1

Affiliated companies of Kookmin Bank and its ownership as of March 31, 2008 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 Kookmin Bank International (London) Ltd. (100.00%)

 

  n Kookmin Bank Hong Kong Ltd. (100.00%)

 

  n Sorak Financial Holdings Pte. Ltd. (25.00%)

 

  n KB Investment & Securities Co., Ltd.2 (95.80%)

 

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.
2 On March 11, 2008, KB Investment & Securities Co., Ltd. (formerly Hannuri Investment & Securities Co., Ltd.) was added as a new affiliate.


Table of Contents

6. Directors, Senior Management and Employees

6.1. Executive Directors

Our five executive directors consist of the President & CEO, Chief Audit Executive and Senior Executive Vice Presidents as of March 31, 2008.

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 March 31, 2008.

 

Name

  

Date of Birth

  

Position

   Common Shares Owned

Chung Won Kang

   12/19/1950    President & CEO    —  

Yong Hwa Cheong

   07/12/1952    Chief Audit Executive    —  

In Gyu Choi

   12/23/1955    Senior EVP    39

Donald H. MacKenzie

   12/20/1948    CFO & Senior EVP    —  

Ki Hong Kim

   01/10/1957    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 as of March 31, 2008 are as follows.

 

Name

  

Date of Birth

  

Position

   Common Shares Owned

Kee Young Chung

   09/07/1948    Non-Executive Director    —  

Jacques P.M. Kemp

   05/15/1949    Non-Executive Director    —  

Dam Cho

   08/01/1952    Non-Executive Director    —  

Suk Sig Lim

   07/17/1953    Non-Executive Director    —  

Bo Kyung Byun

   08/09/1953    Non-Executive Director    860

Sang Moon Hahm

   02/02/1954    Non-Executive Director    —  

Han Kim

   02/17/1954    Non-Executive Director    —  

Chee Joong Kim

   12/11/1955    Non-Executive Director    —  

Baek In Cha

   07/23/1958    Non-Executive Director    —  

Chan Soo Kang

   11/23/1961    Non-Executive Director    —  


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6.3. Senior Management

In addition to the executive directors who are also our executive officers, we had the following 11 executive officers as of March 31, 2008.

 

Name

  

Date of Birth

  

Position

   Common Shares Owned

Hyung Goo Sim

   10/24/1953    Senior Executive Vice President    —  

Dal Soo Lee

   02/15/1952    Senior Executive Vice President    192

Jeung Ho Lee

   08/15/1952    Senior Executive Vice President    78

Yong Kook Oh

   09/30/1949    Senior Executive Vice President    —  

Hyo Sung Won

   07/29/1960    Senior Executive Vice President    —  

Kyung Woo Nam

   04/01/1951    Senior Executive Vice President    —  

Young Han Choi

   09/24/1958    Senior Executive Vice President    —  

Byung Kun Oh

   01/06/1953    Senior Executive Vice President    155

Sai Yoon Hong

   04/11/1954    Senior Executive Vice President    78

Heung Woon Kim

   07/20/1957    Senior Executive Vice President    1,600

Kwang Chun Shon

   07/21/1956    Senior Executive Vice President    41


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6.4. Employees

The following table shows the breakdown of our employees as of March 31, 2008.

(Unit: in millions of Won)

 

     Number of Employees1   

Average Tenure of
the Full-time
Employees (years)2

   Total Payment
for the first
quarter of 20083
   Average Payment
per Person
   Full-time    Contractual    Total         

Male

   13,030    1,474    14,504    18 years and 1 month    246,742    17.0
                             

Female

   4,971    6,970    11,941    13 years and 10 months    140,257    11.7
                             

Total

   18,001    8,444    26,445    16 years and 11 months    386,999    14.6
                             

 

1

Number of employees is calculated as the arithmetic mean of the number of employees as of the end of each month from January 31, 2008 to March 31, 2008, and does 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 March 31, 2008

3

Based on labor expense and employee benefit / welfare costs paid as of March 31, 2008


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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

   55,868,485    16.61

Euro-Pacific Growth Fund

   18,377,910    5.46

7.2. Changes in the Largest Shareholder for the Recent Three Years

(Unit: Shares, %)

 

Name

  

Date of Change/

Date of Change in
Ownership Level3

   Number of Shares of
Common Stock
    Percentage of Total
Issued Shares
 

National Pension Services

   February 20, 2008    14,951,343 4   4.44 4

Euro-Pacific Growth Fund

   February 20, 2008    11,629,660     3.46  

Euro-Pacific Growth Fund

   October 10, 2005    16,099,940     4.79  

ING Bank N.V. Amsterdam

   March 21, 2005    13,650,001     4.06  

Euro-Pacific Growth Fund

   January 17, 2005    14,326,220     4.26  

7.3. Investments in Affiliates5

(Unit: in millions of Won)

 

Name

   Relation with
the Bank
  

Account

   Beginning
Balance
(Jan 1, 2008)
   Increase    Decrease    Ending
Balance
(March 31, 2008)

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

 

1

As of December 31, 2007

2

Depositary under our ADR and GDR programs

3

The date of change / change in ownership level is the date as indicated on the public filing disclosing changes in the largest shareholder, etc.

4

As of December 31, 2007

5

Jooeun Industrial and KLB Securities are under liquidation procedures.


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Name

   Relation with
the Bank
  

Account

   Beginning
Balance
(Jan 1, 2008)
   Increase    Decrease    Ending
Balance
(March 31, 2008)

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    35,700    —      —      35,700

KB Investment & Securities Co., Ltd.

   Affiliate    Equity Securities of Affiliate    —      47,900    —      47,900

Jooeun Industrial

   Affiliate    Equity Securities of Affiliate    9,999    —      —      9,999

KLB Securities

   Affiliate    Equity Securities of Affiliate    24,274    —      —      24,274

Kookmin Bank Hong Kong Ltd.

   Affiliate    Equity Securities of Affiliate    18,764    1,070    —      19,834

Kookmin Bank International (London) Ltd.

   Affiliate    Equity Securities of Affiliate    37,482    2,064    —      39,546

LOGO Based on par value

7.4. Related Party Transactions

(Unit: in millions of Won unless indicated otherwise)

 

Name

  

Relation with the Bank

   Transactions
      Account    Purchase    Disposal    Volume    Gains
/Losses

SK Corporation

   Related party of Non-executive director, Chan Soo Kang    Equity securities    26,372    16,461    42,833    -1,152
                         

Total

         26,372    16,461    42,833    -1,152
                         


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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.

 

  3. On September 12, 2007, we disclosed that we were reviewing the establishment of a new securities company and/or the acquisition of an existing securities company in pursuit of a possible entry into the securities business. In connection therewith, on March 11, 2008, we acquired 95.8% of Hannuri Investment & Securities Co., Ltd, which was added as a new affiliate of Kookmin Bank and changed its name to KB Investment & Securities Co., Ltd.

 

  4. On November 6, 2007, we disclosed that we were reviewing internally a possible entry into Central Asian markets (including Kazakhstan) and South East Asian markets through potential acquisitions as part of our overseas expansion strategy. On March 14, 2008, we entered into an agreement to acquire 29.99% of the outstanding shares of Joint Stock Company Bank CenterCredit (“CenterCredit”). We plan to increase our equity stake in CenterCredit to 50.1% or more within 30 months from the closing date of this acquisition.


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SIGNATURES

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

 

  Kookmin Bank
  (Registrant)
Date: May 15, 2008   By:  

/s/ Donald H. MacKenzie

  (Signature)
  Name:   Donald H. MacKenzie
  Title:  

Senior EVP / CFO

Executive Director


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KOOKMIN BANK

NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

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 March 31, 2008, and the related non-consolidated statements of income, changes in shareholders’ equity and cash flows for the three months ended March 31, 2008 and 2007, 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, 2007, 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 3, 2008, we expressed an unqualified opinion on those non-consolidated financial statements. The accompanying non-consolidated balance sheet as of December 31, 2007, which is comparatively presented, does not differ in material respects from such audited non-consolidated balance sheet.


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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, changes in shareholders’ equity and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to review such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying financial statements are for use by those knowledgeable about Korean accounting procedures and review standards and their application in practice.

May 2, 2008

Notice to Readers

This report is effective as of May 2, 2008, 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 MARCH 31, 2008 AND DECEMBER 31, 2007

 

     Korean Won
     2008    2007
     (In millions)

ASSETS

     

Cash and due from banks (Notes 3 and 20)

   (Won) 5,891,515    (Won) 6,544,754

Securities (Notes 4 and 20)

     35,132,177      30,777,359

Loans (Notes 5, 6, 7 and 20)

     179,358,710      171,549,993

Tangible assets (Note 8)

     2,257,005      2,298,743

Other assets (Note 7 and 9)

     10,439,544      7,695,189
             
   (Won) 233,078,951    (Won) 218,866,038
             

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

LIABILITIES:

     

Deposits (Notes 10 and 20)

   (Won) 148,245,835    (Won) 138,858,691

Borrowings (Notes 11 and 20 )

     50,810,063      50,250,481

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

     18,067,383      13,719,105
             
     217,123,281      202,828,277
             

SHAREHOLDERS’ EQUITY (Note 17):

     

Common stock

     1,681,896      1,681,896

Capital surplus

     6,274,831      6,269,263

Accumulated other comprehensive income

     454,210      345,446

Retained earnings

     7,544,733      7,741,156
             
     15,955,670      16,037,761
             
   (Won) 233,078,951    (Won) 218,866,038
             

See accompanying notes to non-consolidated financial statements


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KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

 

     Korean Won
     2008    2007
     (In millions except per share amounts)

OPERATING REVENUE:

     

Interest income:

     

Interest on due from banks (Note 21)

   (Won) 692    (Won) 4,513

Interest on securities (Note 21)

     404,336      321,963

Interest on loans (Note 21)

     3,423,629      2,821,622

Other interest income

     9,911      8,837
             
     3,838,568      3,156,935
             

Gain on valuation and disposal of securities:

     

Gain on valuation of trading securities

     38,438      12,365

Gain on disposal of trading securities

     54,363      4,173

Gain on disposal of available-for-sale securities

     47,585      666,420

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

     3,944      23,650
             
     144,330      706,608
             

Gain on disposal of loans

     2,203      —  
             

Foreign exchange trading income

     147,942      137,191
             

Commission income

     370,618      354,480
             

Fees and commissions from trust accounts (Note 27)

     24,691      21,012
             

Dividends income

     9,957      9,123
             

Other operating income:

     

Gain on derivatives trading

     1,435,782      527,689

Gain on valuation of derivatives (Note 19)

     2,247,375      438,196

Gain on valuation of fair value hedged items (Notes 10, 11 and 19)

     35,937      21,908

Other operating income

     18,318      22,572
             
     3,737,412      1,010,365
             

Total operating revenues

     8,275,721      5,395,714
             

OPERATING EXPENSES:

     

Interest expenses:

     

Interest on deposits (Note 21)

     1,420,034      928,769

Interest on borrowings (Note 21)

     675,922      522,933

Other interest expenses

     21,301      15,327
             
     2,117,257      1,467,029
             

Loss on valuation and disposal of securities:

     

Loss on valuation of trading securities

     7,850      1,085

Loss on disposal of trading securities

     21,531      4,798

Loss on disposal of available-for-sale securities

     9,336      5,542

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

     22,474      20,018
             
     61,191      31,443
             

Loss on valuation and disposal of loans:

     

Provision for possible loan losses (Note 7)

     244,793      115,588

Loss on disposal of loans

     31      —  
             
     244,824      115,588
             

Foreign exchange trading losses

     121,437      48,654
             

Commission expenses

     154,506      121,596
             

General and administrative expenses (Note 22)

     883,898      856,127
             

(Continued)


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KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

 

     Korean Won
     2008    2007
     (In millions except per share amounts)

Other operating expenses:

     

Provision for acceptances and guarantees losses

   (Won) 8,049    (Won) 5,299

Loss on derivatives trading

     1,289,741      541,132

Loss on valuation of derivatives (Note 19)

     2,230,916      416,164

Loss on valuation of fair value hedged items (Notes 10, 11 and 19)

     154,424      40,356

Other operating expenses

     170,246      126,705
             
     3,853,376      1,129,656
             

Total operating expenses

     7,436,489      3,770,093
             

OPERATING INCOME

     839,232      1,625,621

NON-OPERATING REVENUE (Note 23)

     61,878      52,249

NON-OPERATING EXPENSES (Note 23)

     31,387      31,324
             

INCOME BEFORE INCOME TAX

     869,723      1,646,546

INCOME TAX EXPENSE (Note 24)

     238,220      464,055
             

NET INCOME (Note 26)

   (Won) 631,503    (Won) 1,182,491
             

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

   (Won) 1,877    (Won) 3,515
             

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

   (Won) 1,876    (Won) 3,508
             

See accompanying notes to non-consolidated financial statements.


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KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

 

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

January 1, 2007

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

Cumulative effect for accounting changes

     —        10,966      —        (10,966 )     —         —    
                                             
     1,681,896      6,269,263      —        888,576       6,215,222       15,054,957  

Dividend

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

Retained earnings after appropriations

                4,987,438       13,827,173  

Net income

     —        —        —        —         1,182,491       1,182,491  

Valuation of available-for-sale securities

     —        —        —        (489,552 )     —         (489,552 )

Valuation of held-to-maturity securities

     —        —        —        (39 )     —         (39 )

Valuation of securities using the equity method

     —        —        —        (459 )     (902 )     (1,361 )

Others

     —        —        —        —         81       81  
                                             

March 31, 2007

   (Won) 1,681,896    (Won) 6,269,263    (Won) —      (Won) 398,526     (Won) 6,169,108     (Won) 14,518,793  
                                             

January 1, 2008

   (Won) 1,681,896    (Won) 6,258,297    (Won) —      (Won) 356,412     (Won) 7,741,156     (Won) 16,037,761  

Cumulative effect for accounting changes

     —        16,534      —        (10,966 )     (4,784 )     784  
                                             
     1,681,896      6,274,831      —        345,446       7,736,372       16,038,545  

Dividend

                (824,129 )     (824,129 )
                           

Retained earnings after appropriations

                6,912,243       15,214,416  

Net income

     —        —        —        —         631,503       631,503  

Valuation of available-for-sale securities

     —        —        —        97,581       —         97,581  

Valuation of held-to-maturity securities

     —        —        —        (4 )     —         (4 )

Valuation of securities using the equity method

     —        —        —        11,187       —         11,187  

Others

     —        —        —        —         987       987  
                                             

March 31, 2008

   (Won) 1,681,896    (Won) 6,274,831    (Won) —      (Won) 454,210     (Won) 7,544,733     (Won) 15,955,670  
                                             

See accompanying notes to non-consolidated financial statements.


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KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

 

     Korean Won  
     2008     2007  
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   (Won) 631,503     (Won) 1,182,491  
                

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

    

Loss on valuation of trading securities

     7,850       1,085  

Impairment loss on available-for-sale securities

     22,474       20,018  

Loss on valuation of securities accounted for using the equity method

     1,297       251  

Provision for possible loan losses

     244,793       115,588  

Depreciation and amortization

     100,458       87,627  

Loss on disposal of tangible assets

     177       302  

Loss on valuation of derivatives

     2,230,916       416,164  

Loss on valuation of fair value hedged items

     154,424       40,356  

Provision for severance benefits

     41,580       43,927  

Gain on valuation of trading securities

     (38,438 )     (12,365 )

Reversal of impairment loss on available-for-sale securities

     (3,944 )     (23,650 )

Gain on valuation of securities accounted for using the equity method

     (16,259 )     (22,205 )

Gain on disposal of tangible assets

     (211 )     (163 )

Gain on valuation of derivatives

     (2,247,375 )     (438,196 )

Gain on valuation of fair value hedged items

     (35,937 )     (21,908 )

Others, net

     184,466       112,923  
                
     646,271       319,754  
                

Changes in assets and liabilities resulting from operations:

    

Net decrease (increase) in trading securities

     102,897       (2,425,970 )

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

     (3,055,916 )     601,681  

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

     (868,753 )     530,033  

Net increase in loans

     (8,065,311 )     (2,965,769 )

Net increase in accounts receivable

     (1,710,361 )     (1,614,513 )

Net decrease (increase) in accrued income

     (37,144 )     40,939  

Net increase in prepaid expenses

     (40,381 )     (24,212 )

Net decrease (increase) in deferred income tax assets

     1,630       (132,541 )

Net increase in accounts payable

     1,789,270       1,636,384  

Net increase in accrued expenses

     208,915       164,379  

Net increase (decrease) in unearned revenues

     (4,006 )     2,152  

Payment of severance benefits

     (10,867 )     (8,433 )

Net increase in severance insurance deposits

     (1,148 )     (1,416 )

Others, net

     1,740,291       268,610  
                
     (9,950,884 )     (3,928,676 )
                

Net cash used in operating activities

     (8,673,110 )     (2,426,431 )
                

(Continued)


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KOOKMIN BANK

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

 

     Korean Won  
     2008     2007  
     (In millions)  

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Net decrease in restricted due from banks

   (Won) 888,061     (Won) 6,058  

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

     (245,808 )     15,663  

Disposal of tangible assets

     1,970       2,916  

Purchase of tangible assets

     (31,991 )     (115,542 )

Purchase of intangible assets

     (5,921 )     (7,489 )

Net increase in guarantee deposits paid

     (19,187 )     (18,170 )

Net decrease (increase) in domestic exchange settlement debits

     (2,032 )     384,166  
                

Net cash provided by investing activities

     585,092       267,602  
                

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net increase (decrease) in deposits

     9,385,944       (852,554 )

Net increase in borrowings

     170,970       3,883,108  

Net decrease in other liabilities

     (409,945 )     (302,921 )

Dividend

     (824,129 )     (1,227,784 )
                

Net cash provided by financing activities

     8,322,840       1,499,849  
                

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS

     234,822       (658,980 )

CASH AND DUE FROM BANKS, BEGINNING OF PERIOD

     2,533,763       3,287,819  
                

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

   (Won) 2,768,585     (Won) 2,628,839  
                

See accompanying notes to non-consolidated financial statements.


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KOOKMIN BANK

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

 

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 March 31, 2008, 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 1,207 domestic branches and offices (excluding 267 automated teller machine stations) and four overseas branches (excluding two subsidiaries and three offices) as of March 31, 2008.

 

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 March 31, 2008 and December 31, 2007, 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)5,664,786 million and (Won)4,917,003 million, respectively, and the related accrued interest income not recognized amounted to (Won)646,269 million and (Won)602,835 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, the Bank applies the equity method making current earnings and net assets reported in the non-consolidated financial statements of the Bank coincide with its share of current earnings and net assets of an associate included in the consolidated financial statements. However the Bank ceases to apply the equity method when the balance of the investment in the associate has become zero.

 

(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 non-operating income 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 non-operating income within the amount of amortized cost that would have been recorded according to the original schedule if the impairment losses had not been recognized as reversal of 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 0.85 (0.9 percent for loans to economy-sensitive industries) ~ 6.9 percent for normal, 7.0 ~ 19.9 percent for precautionary, 20 ~ 49.9 percent for substandard, 50 ~ 99.9 percent for doubtful and 100 percent for estimated loss. However, the Bank does not provide allowances for call loans, bonds bought under resale agreements and inter-bank loans that are classified as normal, as it is not required by the Accounting Standards for the Banking Industry.

In addition, as required by the Supervisory Regulation, based on the classification of household loans and credit card receivables by past due period and status of bankruptcy proceedings, allowance for household loans and credit card receivables are calculated on the category balances using the prescribed percentages of 1.0 ~ 9.9 percent and 1.5 ~ 14.9 percent for normal, 10 ~19.9 percent and 15 ~ 19.9 percent for precautionary, 20 ~ 54.9 and 20 ~ 59.9 percent for substandard, 55 ~ 99.9 percent and 60 ~ 99.9 percent for doubtful, and 100 percent for estimated loss.

 

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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 is expected to be reimbursed by another party, the reimbursement is recognized as separate assets in the balance sheet and related income may be offset against expense in the income statement.

Accrued Severance Benefits

Employees and directors and temporary employees with at least one year of service as of March 31, 2008 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 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 the NHF, which is computed by multiplying the average balance of the NHF account by the passbook deposit interest rate. With the termination of the NHF designation as of March 31, 2008, the Bank is not expected to manage the new operations related to the NHF except for the operations for the existing funds.

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)991.70 and (Won)938.20 to US$ 1.00 at March 31, 2008 and December 31, 2007, 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. 25 (Consolidated Financial Statements) (excluding SKAS No. 14) as of or before December 31, 2007

In addition, according to the amended SKAS No. 15 (Investments in Associates), the Bank applied the equity method making current earnings and net assets reported in the non-consolidated financial statements of the Bank coincide with its share of current earnings and net assets of an associate included in the consolidated financial statements. However the Bank ceases to apply the equity method when the balance of the investment in the associate has become zero. The financial statements for the prior period were restated for comparative purposes due to the application of SKAS No.15 (revision).

 

3. CASH AND DUE FROM BANKS: