Exhibit 99.2

WOORI BANK

SEPARATE FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED

DECEMBER 31, 2017 AND 2016

ATTACHMENT: INDEPENDENT AUDITORS’ REPORT

WOORI BANK

Deloitte Anjin LLC 9F., One IFC, 10, Gukjegeumyung-ro Youngdeungpo-gu, Seoul 07326, Korea   Tel: +82 (2) 6676 1000 Fax: +82 (2) 6674 2114 www.deloitteanjin.co.kr

INDEPENDENT AUDITORS’ REPORT

English Translation of a Report Originally Issued in Korean on March 14, 2018

To the Shareholders and the Board of Directors of Woori Bank

Report on the Separate Financial Statements

We have audited the accompanying separate financial statements of Woori Bank (the “Bank”). The separate financial statements consist of the separate statements of financial position as of December 31, 2017 and 2016, respectively, and the related separate statements of comprehensive income, separate statements of changes in shareholders’ equity and separate statements of cash flows, all expressed in Korean won, for the years ended December 31, 2017 and 2016, respectively, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Separate Financial Statements

The Bank’s management is responsible for the preparation and fair presentation of the accompanying separate financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.

Independent Auditors’ Responsibility

Our responsibility is to express an audit opinion on these separate financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing (“KSAs”). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the separate financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the separate financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the separate financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the separate financial statements to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the separate financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”),

Its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities.

DTTL (also referred to as “Deloitte Global”) does not provide services to clients.

Please see www.deloitte.com/kr/about for a more detailed description of DTTL and its member firms.

Member of Deloitte Touche Tohmatsu Limited

Opinion

In our opinion, the separate financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2017 and 2016, respectively, and its financial performance and its cash flows for the years ended December 31, 2017 and 2016, respectively, in accordance with K-IFRS.

March 14, 2018

Notice to Readers

This report is effective as of March 14, 2018, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the financial statements and may result in modifications to the auditors’ report.

WOORI BANK

SEPARATE FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED

DECEMBER 31, 2017 AND 2016

The accompanying separate financial statements, including all footnote disclosures, were prepared by, and are the responsibility of, the management of Woori Bank.

Tae Seung Sohn

President and Chief Executive Officer

Headquarters:	(Address) 51, Sogong-ro, Jung-gu, Seoul
	(Phone Number)	02-2002-3000

WOORI BANK

SEPARATE STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2017 AND 2016

	December 31, 2017		December 31, 2016
	(Korean won in millions)
ASSETS
Cash and cash equivalents (Notes 6 and 45)		5,328,960		6,104,029
Financial assets at FVTPL (Notes 4, 7, 11, 12, 18 and 26)		4,133,724		4,076,872
AFS financial assets (Notes 4, 8, 11, 12 and 18)		14,186,704		18,105,862
HTM financial assets (Notes 4, 9, 11, 12 and 18)		16,638,727		13,792,266
Loans and receivables (Notes 4, 10, 11, 12, 18 and 45)		248,810,624		241,508,048
Investments in subsidiaries and associates (Note 13)		4,148,795		3,779,169
Investment properties (Note 14)		350,235		348,393
Premises and equipment (Note 15)		2,374,590		2,342,280
Intangible assets (Note 16)		303,325		242,230
Assets held for sale (Note 17)		46,183		2,342
Deferred tax assets (Note 42)		238,543		162,211
Derivative assets (Notes 4,11, 12 and 26)		59,272		140,577
Net defined benefit assets (Note 24)		—		70,938
Other assets (Notes 19 and 45)		117,889		96,926
Total assets		296,737,571		290,772,143
LIABILITIES
Financial liabilities at FVTPL (Notes 4, 11, 12, 20 and 26)		3,416,978		3,793,479
Deposits due to customers (Notes 4, 11, 21 and 45)		224,384,156		211,382,380
Borrowings (Notes 4, 6, 11, 12, 22 and 45)		13,662,984		16,060,821
Debentures (Notes 4, 6, 11 and 22)		21,707,466		18,166,057
Provisions (Notes 23, 44 and 45)		368,027		380,473
Net defined benefit liabilities (Note 24)		14,284		—
Current tax liabilities (Note 42)		212,376		148,672
Derivative liabilities (Notes 4, 11,12 and 26)		12,103		7,221
Other financial liabilities (Notes 4, 11, 12, 25 and 45)		13,029,421		20,827,284
Other liabilities (Notes 25 and 45)		135,686		153,238
Total liabilities		276,943,481		270,919,625

(Continued)

WOORI BANK

SEPARATE STATEMENTS OF FINANCIAL POSITION (CONTINUED)

AS OF DECEMBER 31, 2017 AND 2016

	December 31, 2017			December 31, 2016
	(Korean won in millions)
EQUITY
Capital stock (Note 28)		3,381,392			3,381,392
Hybrid securities (Note 29)		3,017,888			3,574,896
Capital surplus (Note 28)		269,533			269,533
Other equity (Note 30)		(135,282	)		138,542
Retained earnings (Notes 31 and 32) (Regulatory reserve for credit loss as of December 31, 2017 and 2016, is 2,017,342 million won and 1,880,447 million won, respectively. Regulatory reserve for credit loss to be reserved as of December 31, 2017 and 2016, is 74,379 million won and 136,895 million won, respectively. Planned provision of regulatory reserve for credit loss as of December 31, 2017 and 2016, is 74,379 million won and 136,895 million won, respectively.)		13,260,559			12,488,155
Total equity		19,794,090			19,852,518
Total liabilities and equity		296,737,571			290,772,143

See accompanying notes to separate financial statements.

WOORI BANK

SEPARATE STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

	2017			2016
	(Korean won in millions, except for per share data)
Interest income		7,385,721			7,376,713
Interest expense		(2,995,118	)		(3,154,266	)
Net interest income (Notes 34 and 45)		4,390,603			4,222,447
Fees and commissions income		1,072,838			989,806
Fees and commissions expense		(141,817	)		(146,923	)
Net fees and commissions income (Notes 35 and 45)		931,021			842,883
Dividend income (Notes 36 and 45)		125,599			220,015
Net gain on financial instruments at FVTPL (Note 37)		(96,983	)		97,225
Net loss on AFS financial assets (Note 38)		135,003			35,525
Impairment losses due to credit loss (Notes 39 and 45)		(553,204	)		(640,443	)
General and administrative expenses (Notes 40 and 45)		(3,128,725	)		(3,115,371	)
Other net operating expenses (Notes 40 and 45)		(12,756	)		(391,780	)
Operating income		1,790,558			1,270,501
Share of losses on subsidiaries and associates (Note 13)		(133,948	)		(13,970	)
Net other non-operating income		(36,388	)		54,114
Non-operating income (Note 41)		(170,336	)		40,144
Net income before income tax expense		1,620,222			1,310,645
Income tax expense (Note 42)		(344,110	)		(245,043	)
Net income
(Net income after the provision for regulatory reserve for credit loss for the years ended December 31, 2017 and 2016, is 1,201,733 million won and 928,707 million won, respectively) (Note 32)		1,276,112			1,065,602
Remeasurement of the net defined benefit liability		16,566			33,191
Items that will not be reclassified to profit or loss		16,566			33,191
Loss on valuation of AFS financial assets		(48,139	)		(10,026	)
Gain (loss) on foreign currencies translation of foreign operations		(34,093	)		9,361
Items that may be reclassified to profit or loss		(82,232	)		(665	)
Other comprehensive income (loss), net of tax		(65,666	)		32,526
Total comprehensive income		1,210,446			1,098,128
Net income per share (Note 43)
Basic and diluted earnings per common share (in Korean won)		1,648			1,277

See accompanying notes to separate financial statements.

WOORI BANK

SEPARATE STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

	Capital stock		Hybrid securities			Capital surplus		Other equity			Retained earnings			Total
	(Korean won in millions)
January 1, 2016		3,381,392		3,334,002			269,533		106,016			11,798,375			18,889,318
Net income		—		—			—		—			1,065,602			1,065,602
Dividends on common stock		—		—			—		—			(168,317	)		(168,317	)
Loss on valuation of AFS financial assets		—		—			—		(10,026	)		—			(10,026	)
Gain on foreign currency translation of foreign operations		—		—			—		9,361			—			9,361
Remeasurement of the net defined benefit liability		—		—			—		33,191			—			33,191
Dividends to hybrid securities		—		—			—		—			(206,515	)		(206,515	)
Issuance of hybrid securities		—		549,904			—		—			—			549,904
Redemption of hybrid securities		—		(309,010	)		—		—			(990	)		(310,000	)
December 31, 2016		3,381,392		3,574,896			269,533		138,542			12,488,155			19,852,518
January 1, 2017		3,381,392		3,574,896			269,533		138,542			12,488,155			19,852,518
Net income		—		—			—		—			1,276,112			1,276,112
Dividends on common stock		—		—			—		—			(336,636	)		(336,636	)
Loss on valuation of AFS financial assets		—		—			—		(48,139	)		—			(48,139	)
Loss on foreign currency translation of foreign operations		—		—			—		(34,093	)		—			(34,093	)
Remeasurement of the net defined benefit liability		—		—			—		16,566			—			16,566
Dividends to hybrid securities		—		—			—		—			(167,072	)		(167,072	)
Issuance of hybrid securities		—		559,565			—		—			—			559,565
Redemption of hybrid securities		—		(1,116,573	)		—		(208,158	)		—			(1,324,731	)
December 31, 2017		3,381,392		3,017,888			269,533		(135,282	)		13,260,559			19,794,090

See accompanying notes to separate financial statements.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”),

Its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities.

DTTL (also referred to as “Deloitte Global”) does not provide services to clients.

Please see www.deloitte.com/kr/about for a more detailed description of DTTL and its member firms.

Member of Deloitte Touche Tohmatsu Limited

WOORI BANK

SEPARATE STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

	2017			2016
	(Korean won in millions)
Cash flows from operating activities:
Net income		1,276,112			1,065,602
Adjustment to net income:
Income tax expense		344,110			245,043
Interest income		(7,385,721	)		(7,376,713	)
Interest expense		2,995,118			3,154,266
Dividend income		(159,603	)		(264,586	)
		(4,206,096	)		(4,241,990	)
Additions of expenses not involving cash outflows:
Impairment losses due to credit loss		553,204			640,443
Loss on valuation of financial instruments at FVTPL		6,596			—
Share of losses of investments in subsidiaries and associates		133,948			13,970
Loss on transaction of derivatives / valuation of derivatives		52,959			98,962
Loss on fair value hedged items		—			475
Provision for guarantee and loan commitment		51,510			19,238
Retirement benefits		131,334			141,581
Depreciation and amortization		165,095			171,522
Loss on disposal of premises and equipment and other assets		1,714			9,563
Impairment loss on premises and equipment and other assets		184			279
		1,096,544			1,096,033
Deductions of income not involving cash inflows:
Gain on valuation of financial instruments at FVTPL		—			71,226
Gain on AFS financial assets		135,003			35,525
Gain on transaction of derivatives / valuation of derivatives (hedging)		—			130
Gain on fair value hedged items (fair value hedge)		53,532			99,302
Reversal of provisions		2,357			1,395
Gain on disposal of investment in subsidiaries and associates		9,256			3,679
Gain on disposal of premises and equipment and other assets		12,950			1,712
Reversal of impairment loss on premises and equipment and other assets		141			630
		213,239			213,599

(Continued)

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”),

Its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities.

DTTL (also referred to as “Deloitte Global”) does not provide services to clients.

Please see www.deloitte.com/kr/about for a more detailed description of DTTL and its member firms.

Member of Deloitte Touche Tohmatsu Limited

WOORI BANK

SEPARATE STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

	2017			2016
	(Korean won in millions)
Changes in operating assets and liabilities:
Financial instruments at FVTPL		(439,949	)		(90,722	)
Loans and receivables		(8,192,223	)		(11,014,137	)
Other assets		(21,665	)		12,914
Deposits due to customers		13,005,112			10,029,252
Provision		4,788			(72,130	)
Net defined benefit liability		(34,946	)		(214,451	)
Other financial liabilities		(7,675,726	)		4,863,280
Other liabilities		(28,404	)		(7,136	)
		(3,383,013	)		3,506,870
Cash received from (paid for) operating activities:
Interest income received		7,389,513			7,380,611
Interest expense paid		(3,013,602	)		(3,269,267	)
Dividend received		153,401			262,410
Income tax paid		(343,529	)		(173,788	)
Net cash provided by (used in) operating activities		(1,243,909	)		5,412,882
Cash flows from investing activities:
Cash in-flows from investing activities:
Disposal of AFS financial assets		23,119,666			20,060,795
Redemption of HTM financial assets		8,506,982			8,462,346
Disposal of investments in subsidiaries and associates		26,078			73,293
Disposal of premises and equipment		7,238			50
Disposal of intangible assets		383			1,077
Disposal of assets held for sale		21,681			22,723
		31,682,028			28,620,284
Cash out-flows from investing activities:
Acquisition of AFS financial assets		19,287,548			22,141,241
Acquisition of HTM financial assets		11,477,669			8,794,579
Acquisition of investments in subsidiaries and associates		522,906			270,356
Acquisition of investment properties		3,029			718
Acquisition of premises and equipment		134,271			107,097
Acquisition of intangible assets		172,121			159,528
Cash outflow related to derivatives for risk hedge		13,742			42,544
		31,611,286			31,516,063
Net cash provided by (used in) investing activities		70,742			(2,895,779	)

(Continued)

WOORI BANK

SEPARATE STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

	2017			2016
	(Korean won in millions)
Cash flows from financing activities:
Cash in-flows from financing activities:
Increase in borrowings		8,529,590			6,502,596
Issuance of debentures		8,669,476			6,068,723
Issuance of hybrid securities		559,565			549,904
		17,758,631			13,121,223
Cash outflows for financing activities:
Repayment of borrowings		10,475,855			9,203,565
Repayment of debentures		4,680,520			5,100,720
Dividends paid		336,636			168,317
Redemption of hybrid securities		1,323,400			310,000
Dividends paid on hybrid securities		177,730			201,328
		16,994,141			14,983,930
Net cash provided by (used in) financing activities		764,490			(1,862,707	)
Net increase (decrease) in cash and cash equivalents		(408,677	)		654,396
Cash and cash equivalents, beginning of year		6,104,029			5,440,326
Effects of exchange rate changes on cash and cash equivalents		(366,392	)		9,307
Cash and cash equivalents, end of year		5,328,960			6,104,029

(Concluded)

See accompanying notes to separate financial statements.

WOORI BANK

NOTES TO SEPARATE FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

1. GENERAL:

(1) Woori Bank

Woori Bank (the “Bank”) was established in 1899 and is engaged in the commercial banking business under the Banking Act, trust business and foreign exchange business under the Financial Investment Services and Capital Market Act.

Previously, Woori Finance Holdings Co., Ltd., the former holding company of Woori Financial Group, established on March 27, 2001, held a 100% ownership of the Bank. Effective November 1, 2014, Woori Finance Holdings Co., Ltd. completed its merger (the “Merger”) with and into the Bank. Accordingly, the shares of the Bank, 597 million shares, prior to the merger, was reduced to nil in accordance with capital reduction procedure, and then, in accordance with the merger ratio, the Bank newly issued 676 million shares. As a result, as of December 31, 2017, the common stock of the Bank amounts to 3,381,392 million Korean won.

During the year ended December 31, 2016, the Korea Deposit Insurance Corporation (“KDIC”), the majority shareholder of the Bank, sold its 187 million shares in the Bank in accordance with the contract of “Disposal of Woori Bank’s shares to Oligopolistic Shareholders”. In addition to the sale, during the year ended December 31, 2017, KDIC sold additional 33 million shares. As of December 31, 2017 and 2016, KDIC held 125 million shares and 158 million shares (18.43% and 23.37% ownership interest), respectively, of the Bank’s shares issued.

On June 24, 2002, Woori Finance Holdings Co., Ltd. listed its common shares on the Korea Exchange through public offering. In addition, on September 29, 2003, the holding company registered with the Securities and Exchange Commission in the United States of America and, on the same day, listed its American Depositary Shares on the New York Stock Exchange. As Woori Finance Holdings Co., Ltd. was merged into the Bank, the Bank, which is the existing company, succeeded such rights and obligations as a listed company on the Korea Exchange and the New York Stock Exchange.

As a result of such merger, the Bank incorporated Woori Card Co., Ltd., Woori Investment Bank Co., Ltd., Woori FIS Co., Ltd., Woori Private Equity Asset Management Co., Ltd. and Woori Finance Research Institute Co., Ltd. as its subsidiaries.

The headquarters of the Bank is located at 51, Sogong-ro, Jung-gu, Seoul, Korea. The Bank has 876 branches and offices in Korea, and 23 branches and offices overseas as of December 31, 2017.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

(1) Basis of Preparation

The Bank’s separate financial statements are prepared in accordance with Korean International Financial Reporting Standard (“K-IFRS”) 1027, Separate Financial Statements. Separate financial statements are those presented by a parent or an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost or equity method or fair value in accordance with K-IFRS 1039, Financial Instruments: Recognition and Measurement or equity method in accordance with K-IFRS 1028, Investments in Associates and Joint Ventures.

Unless stated below, the accounting policies applied in preparing the accompanying separate financial statements have been applied consistently with the annual separate financial statements as of and for the year ended December 31, 2017.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”),

Its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities.

DTTL (also referred to as “Deloitte Global”) does not provide services to clients.

Please see www.deloitte.com/kr/about for a more detailed description of DTTL and its member firms.

Member of Deloitte Touche Tohmatsu Limited

- 2 -

The separate financial statements have been prepared on the historical cost basis except for certain properties and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period. Historical cost is general based on the fair value of the consideration given in exchange for goods and services.

The separate financial statements of the Bank were approved by the board of directors on March 2, 2018.

- 3 -

1) The Bank has newly adopted the following amendment to K-IFRS that affected the Bank’s accounting policies:

Amendments to K-IFRS 1007 – Statement of Cash Flows

The amendments require that changes in liabilities arising from financial activities are disclosed. The adoption of the amendments has no significant impact on the separate financial statements.

Amendments to K-IFRS 1012 – Income Taxes

The amendments clarify that unrealized losses on fixed-rate debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the holder expects to recover the carrying amount of the debt instrument by sale or by use and that the estimate of probable future taxable profit may include the recovery of some of assets for more than their carrying amount. When the Bank assesses whether there will be sufficient taxable profit, the Bank should compare the deductible temporary differences with future taxable profit that excludes tax deductions resulting from the reversal of those deductible temporary differences. The adoption of the amendments has no significant impact on the separate financial statements.

Other than the amendment stated above, there are several annual improvements in the current period, but the application of the amendments has had no material effect on the Bank’s separate financial statements.

2) The Bank has not applied the following K-IFRSs that have been issued but are not yet effective:

Enactments to K-IFRS 1109 – Financial Instruments

The standards include the requirements for the classification and measurement of financial instruments based on their business model whose objective is achieved both by collecting contractual cash flows and selling financial assets and based on the contractual terms that give rise on specified dates to cash flows, impairment methodology based on the expected credit losses, broadened types of instruments that qualify as hedging instruments, the types of risk components of non-financial items that are eligible for hedge accounting and the change in the hedge effectiveness test. This standard supersedes K-IFRS 1039 - Financial Instruments: Recognition and Measurement, and will be applied for annual periods beginning on or after January 1, 2018.

In principle, K-IFRS 1109 must be applied retrospectively. However, there are certain exemptions to the application of retroactive approach such as presenting comparative information on classification, measurement and impairment of financial instruments. In addition, K-IFRS 1109 is applied prospectively for hedge accounting with exceptions such as accounting for the time value of options.

The Bank has completed the implementation of the design of the internal controls and/or financial reporting processes related to the presentation of financial instruments in order to adopt K-IFRS 1109. The Bank has completed a financial impact analysis on the 2017 separate financial statements based on available information as of year-end in order to determine the impact of adopting K-IFRS 1109 for the first time. The expected financial impact of each key issue on the separate financial statements is as follows.

a) Classification and Measurement of Financial Instruments

When K-IFRS 1109 is adopted, all recognized financial assets that, in scope, are subsequently measured at either amortized cost, fair value through other comprehensive income (“FVTOCI”), or fair value through profit or loss (“FVTPL”) as shown below, based on the business model for managing financial assets and based on the nature of contractual cash flows arising from the financial assets. Also, when a hybrid contract contains financial asset as its host contract, the embedded derivative will not be bifurcated as the whole hybrid contract would be classified as a financial asset.

- 4 -

	Business model
Nature of the contractual cashflow	Collection of the contractual cashflow	Collection of the contractual cashflow and sale of asset	Sale of asset and others
Principal and interest only	Amortized cost (*1)	FVTOCI (*1)	FVTPL
Other than the above		FVTPL (*2)

(*1) An irrevocable election is available to designate a financial asset to be classified as FVTPL for eliminating or reducing accounting discrepancies.

(*2) For equity securities held for purposes other than short-term trading, an irrevocable election is available to designate them as FVTOCI financial assets.

As the requirements to classify a financial asset as either amortized cost or FVTPL are more stringent in K-IFRS 1109 than in K-IFRS 1039, the variability of net income may increase as the amount of FVTPL financial assets is increased due to the adoption of K-IFRS 1109.

As of year-end, the Bank currently holds loans and receivables amounting to 248,810,624 million won, held-to-maturity (“HTM”) financial assets amounting to 16,638,727 million won, available-for-sale (“AFS”) financial assets amounting to 14,186,704 million won and FVTPL financial assets (except derivatives) amounting to 1,034,955 million won.

According to K-IFRS 1109, a financial asset may be measured at amortized cost only when its cash flows are solely principal and interest on specified dates on the contract and when the purpose of holding such asset is only to receive the contractual cash flows. As of year-end, the Bank holds loans and receivables amounting to 248,810,624 million won and HTM financial assets amounting to 16,638,727 million won, which are measured at amortized cost. This amount includes 51,653 million won of hybrid contracts in which the host contract, after separating the embedded derivatives, is a debt security.

The estimated impact on the classification and measurement of Bank’s financial assets (except derivatives) as of year-end is presented as follows. The following information is constructed from the accounting system for financial instruments built for adopting K-IFRS 1109.

			(Unit: Korean won in millions)
Accounts	Classification per K-IFRS 1039	Classification per K-IFRS 1109	Amount per K-IFRS 1039		Amount per K-IFRS 1109
Deposits	Loans and receivables	Amortized cost		7,394,885		7,394,885
Deposits	Financial assets at FVTPL	FVTPL		25,972		25,972
Debt securities	Financial assets at FVTPL	FVTPL		1,008,827		1,008,827
Debt securities	AFS financial assets	FVTOCI		12,247,622		12,247,622
Debt securities	HTM financial assets	Amortized cost		16,638,727		16,638,727
Equity securities	Financial assets at FVTPL	FVTPL		156		156
Equity securities	AFS financial assets	FVTPL		1,254,928		1,256,147
Equity securities	AFS financial assets	FVTOCI		684,153		684,153
Loans	Loans and receivables	FVTPL		51,653		52,853
Loans	Loans and receivables	Amortized cost		236,691,399		236,691,399
Other financial assets	Loans and receivables	Amortized cost		6,233,677		6,233,677
Total financial assets except derivatives				282,231,999		282,234,418

Among the financial assets measured at amortized cost, loans and receivables and AFS financial assets amounting to 51,653 million won and AFS financial assets amounting to 1,254,928 million won would be reclassified to FVTPL financial assets as a result of adopting K-IFRS 1109.

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b) Classification and Measurement of Financial Liabilities

According to the K-IFRS 1109, the amount of changes in the fair value of financial liabilities measured at FVTPL due to changes in credit risk is presented as part of other comprehensive income, and such amount is not recycled subsequently in profit or loss. However, when recognizing the fair value changes in other comprehensive income causes or magnifies accounting discrepancies, the amount is recognized in profit or loss instead.

As of year-end, the Bank holds financial liabilities amounting to 276,275,283 million won, and out of this amount, 251,796 million won has been designated as FVTPL financial liabilities. In relation to these financial liabilities, the increase in fair value amounting to 31,275 million won has been recognized as losses in the current period.

The results of the analysis conducted to determine the financial impact of applying K-IFRS 1109 on FVTPL financial liabilities as of year-end show that the cumulative changes in fair value of FVTPL financial liabilities as a result of changes in credit risk amounted to 133 million won.

c) Impairment: Financial assets and contract assets

K-IFRS 1109 requires the recognition of allowance for expected credit losses for debt instruments, lease receivables, contract assets, loan commitments and financial guarantee contracts measured at either amortized cost or FVTPL.

The allowance to be recognized under K-IFRS 1109 is the amount of expected 12-month credit loss or the expected lifetime credit loss, according to the three stages of credit risk deterioration since initial recognition as shown below.

	Stage 1	Stage 2	Stage 3
	Credit risk has not significantly increased since initial recognition(*)	Credit risk has significantly increased since initial recognition	Credit has been impaired
Allowance for expected credit losses	Expected 12-month credit losses: Expected credit losses due to possible defaults on financial instruments within a 12-month period from the year-end.	Expected lifetime credit losses: Expected credit losses from all possible defaults during the expected lifetime of the financial instruments.

(*) Credit risk may be considered to not have been significantly increased when credit risk is low at year-end.

Meanwhile, for financial assets already impaired at initial recognition, the allowance for expected credit losses per K-IFRS 1109 is the amount of cumulative changes in the expected lifetime credit losses after its initial recognition.

As of year-end the Bank holds loans and receivables (net) amounting to 248,810,624 million won in accordance with K-IFRS 1039. In relation to this amount, the Bank has recognized allowance for credit losses amounting to 1,560,990 million won.

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The expected impact on the allowance for credit losses as of year-end using the Bank’s system for allowances is as follows:

	(Unit: Korean won in millions)
Accounts	Allowance for credit losses per K-IFRS 1039(A)		Allowance for credit losses per K-IFRS 1109 (B)		Increases(B-A)
Deposits		2,080		2,464		384
Debt securities		—		8,774		8,774
AFS debt securities		—		3,778		3,778
HTM debt securities		—		4,996		4,996
Loans receivables and Other financial assets		1,558,910		1,728,959		170,049
Guarantees		185,557		194,997		9,440
Loan commitments		36,031		55,373		19,342
Total		1,782,578		1,990,567		207,989

d) Hedge accounting

The requirements for hedge accounting in K-IFRS 1109 has become more lenient as compared to K-IFRS 1039. That is, more financial instruments may now be considered to be a hedged item and/or a hedging instrument, the quantitative basis for evaluating high hedge effectiveness (80%–125%) has been abolished and the retroactive assessment requirement has also been abolished. These allow the firms to concentrate on hedging activities.

There are no significant impacts to the Bank’s financial statements related to hedge accounting as a result of adopting K-IFRS 1109.

Enactments to K-IFRS 1115 – Revenue from Contracts with Customers

The core principle under K-IFRS 1115 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments introduce a five-step approach to revenue recognition and measurement: 1) Identify the contract with a customer, 2) Identify the performance obligations in the contract, 3) Determine the transaction price, 4) Allocate the transaction price to the performance obligations in the contract and 5) Recognize revenue when (or as) the entity satisfies a performance obligation. This standard will supersede K-IFRS 1011—Construction Contracts, K-IFRS 1018— Revenue, K-IFRS 2113—Customer Loyalty Programmes, K-IFRS 2115—Agreements for the Construction of Real Estate, K-IFRS 2118—Transfers of Assets from Customers, and K-IFRS 2031—Revenue-Barter Transactions Involving Advertising Services. The amendments are effective for annual periods beginning on or after January 1, 2018.

Amendments to K-IFRS 1102 – Share-based Payment

The amendments include: 1) when measuring the fair value of share-based payment, the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payment should be consistent with the measurement of equity-settled share-based payment; 2) Share-based payment transaction in which the Bank settles the share-based payment arrangement net by withholding a specified portion of the equity instruments per statutory tax withholding requirements would be classified as equity settled in its entirety, if otherwise would be classified as equity settled without the net settlement feature; and 3) when a cash-settled share-based payment changes to an equity-settled share-based payment because of modifications of the terms and conditions, the original liability recognized is derecognized and the equity-settled share-based payment is recognized at the modification date fair value. Any difference between the carrying amount of the liability at the modification date and the amount recognized in equity at the same date would be recognized in profit and loss immediately. The amendments are effective for annual periods beginning on or after January 1, 2018.

Amendments to K-IFRS 1040—Transfers of Investment Property

The amendments clarify that a transfer to, or from, investment property necessitates an assessment of whether a property meets, or has ceased to meet, the definition of investment property, supported by observable evidence that a change in use has occurred. The amendments further clarify that situations other than the ones listed in K-IFRS 1040 may evidence a change in use, and that a change in use is possible for properties under construction (i.e., a change in use is not limited to completed properties).

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The amendments are effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. Entities can apply the amendments either retrospectively (if this is possible without the use of hindsight) or prospectively.

Enactments to K-IFRS 2122 – Foreign Currency Transactions and Advance Consideration

The interpretation addresses how to determine the ‘date of transaction’ for the purpose of determining the exchange rate to use on initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance in a foreign currency that resulted in the recognition of a non-monetary asset or non-monetary liability (e.g., a non-refundable deposit or deferred revenue).

The interpretation specifies that the date of transaction is the date on which the entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the interpretation requires an entity to determine the date of transaction for each payment or receipt of advance consideration.

The interpretation is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. Entities can apply the interpretation either retrospectively or prospectively. Specific transition provisions apply to prospective application.

Annual Improvements to K-IFRS 2014-2016 Cycle

The amendments include partial amendments to K-IFRS 1101 ‘First-time Adoption of K-IFRS’ and K-IFRS 1028 ‘Investments in Associates and Joint Ventures.’ Amendments to K-IFRS 1028 provide that an investment company such as a venture capital investment vehicle may selectively designate each of its investment in associates and/or joint ventures to be measured at FVTPL, and that such designation must be made at the time of each investment’s initial recognition. In addition, when non-investment companies apply equity method to investment in associates and/or joint ventures that are investment companies, these companies may apply the same fair value measurement used by the said associates to value their own subsidiaries. This accounting treatment may be selectively applied to each associate. These amendments should be applied retrospectively and are available for early adoption.

The amendments are effective for annual periods beginning on or after January 1, 2018. The Bank is neither a venture capital investment vehicle nor is adopting K-IFRS for the first time; thus, it is expected that the amendments explained above will not affect the Bank’s financial statements. Furthermore, the Bank does not own shares of an associate or a joint venture that are classified as investment companies.

The Bank is in the process of evaluating the impact of the above-mentioned amendments on the separate financial statements.

(2) Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Bank, liabilities assumed by the Bank to the former owners of the acquiree and the equity interests issued by the Bank in exchange for control of the acquiree. Acquisition-related costs are generally recognized in net income as incurred.

At the acquisition date, the acquiree’s identifiable assets, liabilities and contingent liabilities that meet the condition for recognition under K-IFRS 1103 are recognized at their fair value, except that:

• deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with K-IFRS 1012 Income Taxes and K-IFRS 1019 Employee Benefits, respectively;

• liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Bank entered into to replace share-based payment arrangements of the acquiree are measured in accordance with K-IFRS 1102 Share-based Payment at the acquisition date; and

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• non-current assets (or disposal groups) that are classified as held for sale in accordance with K-IFRS 1105 Non-current Assets Held for Sale and Discontinued Operations are measured at the lower of their previous carrying amounts and fair value less costs to sell.

Any excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Bank’s previously held equity interest (if any) in the acquiree over the net of identifiable assets and liabilities assumed of the acquiree at the acquisition date is recognized as goodwill which is included in intangible assets.

If, after reassessment, the Bank’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognized immediately in net income as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another K-IFRS.

When the consideration transferred by the Bank in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement-period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with K-IFRS—1039 Financial Instruments: Recognition and Measurement, or K-IFRS—1037 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognized in profit or loss.

When a business combination is achieved in stages, the Bank’s previously held equity interest in the acquiree is remeasured at fair value at the acquisition date (i.e., the date when the Bank obtains control) and the resulting gain or loss, if any, is recognized in net income. Amounts arising from changes in value of interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to net income where such treatment would be appropriate if that interest were disposed of.

In case where i) a common entity ultimately controls over all participating entities, or businesses, in a business combination transaction, prior to and after the transaction continuously, and ii) the control is not temporary, the transaction meets the definition of “business combination under common control” and it is deemed that the transaction only results in the changes in legal substance, and not economic substance, from the perspective of the ultimate controlling party. Thus, in such transactions, the acquirer recognizes the assets and liabilities of the acquiree in its financial statements at the book values as recognized in the ultimate controlling party’s consolidated financial statements, and the difference between the book value of consideration transferred to and the book value of net assets transferred in is recognized as equity.

(3) Investment in Joint operation

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

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When the Bank operates as a joint operator, it recognizes in relation to its interest in a joint operation:

(a) its assets, including its share of any assets held jointly;

(b) its liabilities, including its share of any liabilities incurred jointly;

(c) its revenue from the sale of its share of the output arising from the joint operation;

(d) its share of the revenue from the sale of the output by the joint operation; and

(e) its expenses, including its share of any expenses incurred jointly.

The Bank accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the K-IFRSs applicable to the particular assets, liabilities, revenues and expenses.

When the Bank enters into a transaction with a joint operation in which it is a joint operator, such as a sale or contribution of assets, it is conducting the transaction with the other parties to the joint operation and, as such, the Bank recognizes gains and losses resulting from such a transaction only to the extent of the other parties’ interests in the joint operation.

When the Bank enters into a transaction with a joint operation in which it is a joint operator, such as a purchase of assets, it does not recognize its share of the gains and losses until it resells those assets to a third party.

(4) Revenue recognition

1) Interest income

Interest income is recognized when earned. Interest income on financial assets that are classified as loans and receivables, AFS or HTM is determined using the effective interest method.

The effective interest method is a method of calculating the amortized cost of a financial asset (or group of financial assets) and of allocating the interest income over the expected life of the asset. The effective interest rate is the rate that exactly discounts estimated future cash flows to the instrument’s initial carrying amount. Calculation of the effective interest rate considers fees payable or receivable that is an integral part of the instrument’s yield, premiums or discounts on acquisition or issue, early redemption fees and transaction costs. All contractual terms of a financial instrument are considered when estimating future cash flows.

2) Loan origination fees and costs

The commission fees earned on loans, which is part of the effective interest rate of loans, is accounted for deferred origination fees. Incremental cost related to the acquisition or disposal is accounted for deferred origination costs, and it is amortized on the effective interest method and included in interest revenues on loans.

3) Fees and commissions income

Commitment and utilization fees are determined as a percentage of the outstanding facility. If it is unlikely that a specific lending arrangement will be entered, such fees are included in net income over the life of the facility; otherwise, they are deferred and included in the effective interest rate on the advance.

4) Trust fees and compensation related to trust accounts

The Bank receives fees for its management of unconsolidated trust assets, which are recognized on an accrual basis when the management services are provided and earned. The Bank also is entitled to receive performance-based fees for certain trust accounts. These performance-based fees are recognized at the end of the performance period. In addition, a certain trust account that the Bank guarantees to repay the principals and minimum interests of the trust account to its beneficiaries shall be included in the separate financial statements. The Bank recognizes income when earned and expenses when interests to be paid to beneficiaries are accrued.

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(5) Accounting for foreign currencies

The Bank’s separate financial statements are presented in Korean won, which is the functional currency of the Bank. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at its prevailing exchange rates at the date. Foreign exchange differences on monetary items that qualify as hedging instruments in a cash flow hedge or that form part of net investment in foreign operations are recognized in equity.

A monetary AFS financial asset is treated as if it were carried at amortized cost in the foreign currency. Accordingly, for such financial assets, exchange differences resulting from retranslating amortized cost are recognized in net income.

Non-monetary items denominated in foreign currencies that are stated at fair value are translated into Korean won at foreign exchange rates at the dates the values were determined. Translation differences arising on non-monetary items measured at fair value are recognized in net income except for differences arising on non-monetary AFS financial assets, for example equity shares, which are included in the AFS reserve in equity unless the asset is the hedged item in a fair value hedge.

The Bank identifies the most appropriate functional currency for each foreign operation based on the foreign operation’s activities. If Korean won is not the foreign operation’s functional currency, its assets and liabilities, including goodwill and fair value adjustments arising on acquisition, are translated into Korean won at foreign exchange rates at the end of each reporting date while the revenues and expenses are translated into Korean won at average exchange rates for the period unless these do not approximate to the foreign exchange rates at the dates of the transactions. Foreign exchange differences arising on the translation of a foreign operation are recognized directly in equity and included in net income on its disposal.

(6) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, demand deposits, interest-earning deposits with original maturities of up to three months of acquisition date and highly liquid investment assets that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value.

(7) Financial assets and financial liabilities

1) Financial assets

A regular way purchase or sale of financial assets is recognized or derecognized on the trade or settlement date. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose term requires delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

On initial recognition, financial assets are classified into financial assets at FVTPL, AFS financial assets, HTM and loans and receivables.

a) Financial assets at FVTPL

A financial asset is classified as held for trading if:

• it has been acquired principally for selling in the near term;

• on initial recognition it is part of a portfolio of identified financial instruments that the Bank manages together and has a recent actual pattern of short-term profit taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

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• the financial asset forms part of a group of financial assets or financial liabilities, or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Bank’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

• it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

b) AFS financial assets:

Financial assets that are not classified as HTM, financial assets at FVTPL or loans and receivables, are classified as AFS. Financial assets can be designated as AFS on initial recognition. AFS financial assets are initially recognized at fair value, plus directly related transaction costs. They are subsequently measured at fair value. Unquoted equity investments whose fair value cannot be measured reliably are carried at cost and classified as AFS financial assets. Impairment losses in monetary and non-monetary AFS financial assets and dividends on non-monetary financial assets are recognized in net income. Interest revenue on monetary financial assets is calculated using the effective interest method. Other changes in the fair value of AFS financial assets and any related tax are reported in a separate component of shareholders’ equity until disposal, when the cumulative gain or loss is recognized in net income.

c) HTM investments:

A financial asset may be classified as a HTM investment only if it has fixed or determinable payments, a fixed maturity and the Bank has the positive intention and ability to hold the financial asset to maturity. HTM investments are initially recognized at fair value, plus directly related transaction costs. They are subsequently measured at amortized cost using the effective interest method less any impairment losses.

d) Loans and receivables:

Non-derivative financial assets with fixed or determinable repayments that are not quoted in an active market are classified as loans and receivables, except those that are classified as AFS or as held for trading, or designated as at FVTPL. Loans and receivables are initially recognized at fair value, plus directly related transaction costs. They are subsequently measured at amortized cost using the effective interest method less any impairment losses. Interest income is recognized using the effective interest method, except for the short-term receivables to which the present value discount is not meaningful.

2) Financial liabilities

On initial recognition financial liabilities are classified financial liabilities at FVTPL (held for trading and financial liabilities designated as at FVTPL) and financial liabilities measured at amortized cost.

A financial liability is classified as held for trading if it is incurred principally for repurchase in the near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking, or it is a derivative (not in a qualifying hedge relationship). Held-for-trading financial liabilities are recognized at fair value with transaction costs being recognized in net income. Subsequently, they are measured at fair value. Gains and losses are recognized in net income as they arise.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

• the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Bank’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

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• it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial liabilities that the Bank designates on initial recognition as being at FVTPL are recognized at fair value, with transaction costs being recognized in net income, and are subsequently measured at fair value. Gains and losses on financial liabilities that are designated as at FVTPL are recognized in net income as they arise.

All other financial liabilities, such as deposits due to customers, borrowings, and debentures, are measured at amortized cost using the effective interest method.

3) Reclassifications

Held-for-trading and AFS financial assets that meet the definition of loans and receivables (non-derivative financial assets with fixed or determinable payments that are not quoted in an active market) may be reclassified to loans and receivables if the Bank has the intention and ability to hold the financial asset for the foreseeable future or until maturity. The Bank typically considers the foreseeable future as 12 months from the date of reclassification. Reclassifications are made at fair value. This fair value becomes the asset’s new cost or amortized cost as appropriate. Gains and losses recognized up to the date of reclassification are not reversed.

4) Derecognition of financial assets and liabilities

The Bank derecognizes a financial asset when the contractual right to the cash flows from the asset is expired, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another company. If the Bank neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Bank recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Bank retains substantially all the risks and rewards of ownership of a transferred financial asset, the Bank continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulated gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

On derecognition of a financial asset other than in its entirety (e.g., when the Bank retains an option to repurchase part of a transferred asset, or it retains a residual interest and such a retained interest indicates that the transferor has neither transferred nor retained substantially all the risks and rewards of ownership and has retained control of the transferred asset), the Bank allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair value of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part that is no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair value of those parts.

The Bank derecognizes the financial liability, when Bank’s obligations are discharged, canceled or expired. The difference between paid cost and the carrying amount of financial liabilities is recorded in profit or loss.

5) Fair value of financial assets and liabilities

Financial instruments classified as held for trading or designated as at FVTPL and financial assets classified as AFS are recognized in the separate financial statements at fair value. All derivatives are measured at fair value.

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Fair value is the price that would be received to sell an asset or paid to transfer a liability in and orderly transaction between market participants at the measurement date. Fair values are determined from quoted prices in active markets for identical financial assets or financial liabilities where these are available. The Bank characterizes active markets as those in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

Where a financial instrument is not in active market characterized by low transaction volumes, price quotations that vary substantially among market participants, or in which minimal information is released publicly, fair values are established using valuation techniques that rely on alternative market data or internally developed models using significant inputs that are generally readily observable from objective sources. Market data includes prices of financial instruments with similar maturities and characteristics, duration, interest rate yield curves, and measures of volatility. The amount determined to be fair value may incorporate the management of the Bank’s own assumptions (including assumptions that the Bank believes market participants would use in valuing the financial instruments and assumptions relating to appropriate risk adjustments for nonperformance and lack of marketability).

The valuation techniques used to estimate the fair value of the financial instruments include market approach and income approach, each of which involves a significant degree of judgment. Under the market approach, fair value is determined by reference to a recent transaction involving the financial instruments or by reference to observable valuation measures for comparable companies or assets.

Under the income approach, fair value is determined by converting future amounts (e.g., cash flows or earnings) to a single present amount (discounted) using current market expectations about the future amounts. In determining value under this approach, the Bank makes assumptions regarding, among other things, revenues, operating income, depreciation and amortization, capital expenditures, income taxes, working capital needs and terminal value of the financial investments. These valuation techniques involve a degree of estimation, the extent of which depends on the instrument’s complexity and the availability of market-based data.

The following are descriptions of valuation methodologies used by the Bank to measure various financial instruments at fair value.

a) Financial assets at FVTPL and AFS financial assets:

The fair value of the securities included in financial assets at FVTPL and AFS financial assets are recognized in the separate statements of financial position based on quoted market prices, where available. For debt securities traded in the Over-The-Counter (“OTC”) market, the Bank generally determines fair value based on prices obtained from independent pricing services. Specifically, with respect to independent pricing services, the Bank obtains three prices per instrument from reputable independent pricing services in Korea, and generally uses the lowest of the prices obtained from such services without further adjustment. For non-marketable equity securities, the Bank obtains prices from the independent pricing services. The Bank validates prices received from such independent pricing services using a variety of means, including verification of the qualification of the independent pricing services, corroboration of the pricing by comparing the prices among the independent pricing services and by reference to other available market data, and review of the pricing model and assumptions used by the independent pricing services by the Bank’s personnel who are familiar with market-related conditions.

b) Derivative assets and liabilities:

Quoted market prices are used for the Bank’s exchange-traded derivatives, such as certain interest rate futures and option contracts. All of the Bank’s derivatives are traded in the OTC markets where quoted market prices are not readily available and are valued using internal valuation techniques. Valuation techniques and inputs to internally developed models depend on the type of derivative and nature of the underlying rate, price or index upon which the derivative’s value is based. If the model inputs for certain derivatives are not observable in a liquid market, significant judgments on the level of inputs used for valuation techniques are required.

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c) Valuation Adjustments:

Using derivatives, the Bank is exposed to credit risk if counterparties to the derivative contracts do not perform as expected. If counterparty fails to perform, counterparty credit risk is equal to the amount reported as a derivative asset in the separate statements of financial position. The amounts reported as a derivative asset are derivative contracts in a gain position. Few of the Bank’s derivatives are listed on the exchange. The majority of derivative positions are valued using internally developed models that use observable market inputs as their basis. Therefore, an adjustment is necessary to reflect the credit quality of each counterparty to arrive at fair value. Counterparty credit risk adjustments are applied to derivative assets, such as OTC derivative instruments, when the market inputs used in valuation models may not be indicative of the creditworthiness of the counterparty. Adjustments are also made when valuing financial liabilities to reflect the Bank’s own credit standing.

The adjustment is based on probability of default of a counterparty and loss, given default. The adjustment also considers contractual factors designed to reduce the Bank’s credit exposure to each counterparty. To the extent derivative assets (liabilities) are subject to master netting arrangements, the exposure used to calculate the credit risk adjustment is net of derivatives in a loss (gain) position with the same counterparty and cash collateral received (paid).

6) Impairment of the financial assets

The Bank assesses at the end of each reporting date whether there is any objective evidence that a financial asset or group of financial assets classified as AFS, HTM or loans and receivables is impaired. A financial asset or portfolio of financial assets is impaired and an impairment loss incurred if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition asset and that event (or events) has an impact on the estimated future cash flows of the financial asset.

a) Financial assets carried at amortized cost:

If there is objective evidence that an impairment loss on a financial asset or group of financial assets classified as HTM investments or as loans and receivables has been incurred, the Bank measures the amount of the loss as the difference between the carrying amount of the asset or group of assets and the present value of estimated future cash flows from the asset or group of assets discounted at the effective interest rate of the instrument at initial recognition. For collateralized loans and receivables, estimated future cash flows include cash flows that may result from foreclosure, less the costs of obtaining and selling the collateral.

Impairment losses are assessed individually for financial assets that are individually significant and assessed either individually or collectively for assets that are not individually significant. In making collective assessment of impairment, financial assets are grouped into portfolios on the basis of similar risk characteristics. Future cash flows from these portfolios are estimated on the basis of the contractual cash flows and historical loss experience for assets with similar credit risk characteristics. Historical loss experience is adjusted, on the basis of observable data, to reflect current conditions not affecting the period of historical experience.

Impairment losses are recognized in net income and the carrying amount of the financial asset or group of financial assets reduced by establishing a provision for impairment losses. If, in a subsequent period, the amount of the impairment loss reduces and the reduction can be ascribed to an event after the impairment was recognized (i.e., improvement in the credit quality of a debtor), the previously recognized loss is reversed by adjusting the provision. Once an impairment loss has been recognized on a financial asset or group of financial assets, interest income is recognized on the carrying amount using the rate of interest at which estimated future cash flows were discounted in measuring impairment.

It is not the Bank’s usual practice to write off the asset at the time an impairment loss is recognized. Impaired loans and receivables are written off (i.e., the impairment provision is applied in writing down the loan’s carrying value in full) when the Bank concludes that there is no longer any realistic prospect of recovery of part or the entire loan. Amounts recovered after a loan has been written off are reflected to the provision for the period in which they are received.

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b) Financial assets carried at fair value:

When a decline in the fair value of a financial asset classified as AFS has been recognized directly in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss is removed from other comprehensive income and recognized in net income. The loss is measured as the difference between the amortized cost of the financial asset and its current fair value. Impairment losses on AFS equity instruments are not reversed through net income, but those on AFS debt instruments are reversed, if there is a decrease in the cumulative impairment loss that is objectively related to a subsequent event.

(8) Offsetting financial instruments

Financial assets and liabilities are presented net in the separate statements of financial position when the Bank has an enforceable legal right to set off and an intention to settle on a net basis or to realize an asset and settle the liability simultaneously.

(9) Investment properties

The Bank classifies a property held to earn rentals and/or for capital appreciation as an investment property. Investment properties are measured initially at cost, including transaction costs, less subsequent depreciation and impairment.

Subsequent costs are included in the carrying amount of the asset or recognized as a separate asset if it is probable that future economic benefits associated with the assets will flow into the Bank and the cost of an asset can be measured reliably. Routine maintenance and repairs are expensed as incurred.

While land is not depreciated, all other investment properties are depreciated based on the respective asset’s estimated useful life using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any change in estimate accounted for on a prospective basis.

An investment property is derecognized from the separate financial statements on disposal or when it is permanently withdrawn from use and no future economic benefits are expected even from its disposal. The gain or loss on the derecognition of an investment property is calculated as the difference between the net disposal proceeds and the carrying amount of the property, and is recognized in profit or loss in the period of the derecognition.

(10) Premises and equipment

Premises and equipment are stated at cost less subsequent accumulated depreciation and accumulated impairment losses. The cost of an item of premises and equipment is directly attributable to their purchase or construction, which includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. It also includes the initial estimate of costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent costs to replace part of the premises and equipment are recognized in the carrying amount of an asset or as an asset if it is probable that the future economic benefits associated with the assets will flow into the Bank and the cost of an asset can be measured reliably. Routine maintenance and repairs are expensed as incurred.

While land is not depreciated, for all other premises and equipment, depreciation is charged to net income on a straight-line basis on the estimated economic useful lives as follows:

	Useful life
Buildings used for business purpose	40 years
Structures in leased office	5 years
Properties for business purpose	5 years

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The Bank reassesses the depreciation method, the estimated useful lives and residual values of premises and equipment at the end of each reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate. When the carrying amount of a fixed asset exceeds the estimated recoverable amount, the carrying amount of such asset is reduced to the recoverable amount.

(11) Intangible assets and goodwill

Intangible assets are stated at the manufacturing cost or acquisition cost plus additional incidental expenses less accumulated amortization and accumulated impairment losses. The Bank’s software and industrial property right (trademark) are amortized over five years using the straight-line method. The estimated useful life and amortization method are reviewed at the end of each reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate.

	Useful life
Industrial property rights	10 years
Development costs	5 years
Other intangible assets	5 years

In addition, when an indicator that intangible assets are impaired is noted, and the carrying amount of the asset exceeds the estimated recoverable amount of the asset, the carrying amount of the asset is reduced to its recoverable amount immediately.

For impairment testing, goodwill is allocated to each of the Bank’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro rata basis based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

(12) Impairment of non-monetary assets

Intangible assets with indefinite useful lives or intangible assets that are not yet available for use are tested for impairment annually, regardless of whether or not there is any indication of impairment. All other assets are tested for impairment when there is an objective indication that the carrying amount may not be recoverable, and if the indication exists. The Bank estimates the recoverable amount. Recoverable amount is the higher of value in use or net fair value, less costs to sell. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and such impairment loss is recognized immediately in net income.

(13) Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

1) As a lessor

Amounts due from lessees under finance leases are recognized as receivables at the amount of the Bank’s net investment in the leases being the minimum lease payments and any unguaranteed residual value discount interest rate implicit in the lease. Finance lease income is allocated to accounting periods to reflect a constant periodic rate of return on the Bank’s net investment outstanding in respect of the leases.

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term. Operating lease assets are included within others in other assets and depreciated over their useful lives.

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2) As a lessee

Assets held under finance leases are initially recognized as assets of the Bank at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the separate statements of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation to achieve a constant rate of interest on the remaining balance of the liability. Contingent rentals arising under finance leases are recognized as expenses in the periods in which they are incurred.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as expenses in the period in which they are incurred.

(14) Derivative instruments

Derivative instruments are classified as forwards, futures, options and swaps, depending on the types of transactions and are classified as either trading or hedging if they are qualified for hedge accounting. Derivatives are initially recognized at fair value at the date the derivative contract is entered and are subsequently measured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in net income immediately unless the derivative is designated and effective as a hedging instrument.

A derivative embedded in a contract is accounted for as a stand-alone derivative if its economic characteristics are not closely related to the economic characteristics of the host contract; unless the entire contract is measured at fair value with changes in fair value recognized in net income.

The Bank designates certain hedging instruments to (a) hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment (fair value hedge), (b) hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction (cash flow hedge) and (c) hedge of a net investment in a foreign operation.

At the inception of the hedge relationship, the Bank documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Bank documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.

1) Fair value hedge

Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recognized in net income immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Hedge accounting is discontinued when the Bank revokes the hedging relationship or when the hedging instrument is no longer qualified for hedge accounting. The fair value adjustment to the carrying amount of the hedged item is amortized to net income from that date to maturity using the effective interest method.

(15) Assets (or disposal group) held for sale

The Bank classifies a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.

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(16) Provisions

The Bank recognizes provision if it has present or contractual obligations as a result of the past event, it is probable that an outflow of resources will be required to settle the obligation and the amount of the obligation is reliably estimated. Provision is not recognized for the future operating losses.

The Bank recognizes provision related to the payment guarantees, loan commitment and litigations. Where the Bank is required to restore a leased property that is used as a branch to an agreed condition after the contractual term expires, the present value of expected amounts to be used to dispose, decommission or repair the facilities is recognized as an asset retirement obligation.

Where there are a number of similar obligations, the probability that an outflow will be required in settlement is determined by considering the obligations as a whole. Although the likelihood of outflow for any one item may be small, if it is probable that some outflow of resources will be needed to settle the obligations as a whole, a provision is recognized.

(17) Capital and compound financial instruments

The Bank classifies a financial instrument that it issues as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. An instrument is classified as a liability if it is a contractual obligation to deliver cash or another financial asset, or to exchange financial assets or financial liabilities on potentially unfavorable terms. An instrument is classified as equity if it evidences a residual interest in the assets of the Bank after the deduction of liabilities. The components of a compound financial instrument issued by the Bank are classified and accounted for separately as financial liabilities or equity as appropriate.

If the Bank reacquires its own equity instruments, those instruments (“treasury shares”) are presented as a deduction from total equity. The gain or loss on the purchase, sale, issue or cancellation of treasury shares is not recognized in net income but recognized directly in equity.

(18) Financial guarantee contracts

Under a financial guarantee contract, the Bank, in return for a fee, undertakes to meet a customer’s obligations under the terms of a debt instrument if the customer fails to do so.

A financial guarantee is recognized as a liability; initially at fair value and, if not designated as at FVTPL, subsequently at the higher of its initial value, less cumulative amortization and any provision under the contract measured in accordance with provision policy. Amortization is calculated to recognize fees receivable in net income over the period of the guarantee.

(19) Employee benefits and pensions

The Bank recognizes the undiscounted amount of short-term employee benefits expecting payment in exchange for the services when employee renders services. Also, the Bank recognizes expenses and liabilities in the case of accumulating compensated absences when the employees render service that increases their entitlement to future compensated absences. Though the Bank may have no legal obligation to pay a bonus, considering some cases, the Bank has a practice of paying bonuses. In such cases, the Bank has a constructive obligation and, thus, recognizes expenses and liabilities when the employees render service.

The Bank is operating defined contribution retirement pension plans and defined benefit retirement pension plans. Contributions to defined contribution retirement pension plans are recognized as an expense when employees have rendered service entitling them to the contributions. For defined benefit retirement pension plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each reporting period. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest), is reflected immediately in the separate statement of financial position with a charge or credit recognized in other comprehensive income in the period in which they occur.

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Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is recognized in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are composed of service cost (including current service cost and past service cost, as well as gains and losses on curtailments and settlements), net interest expense (income) and remeasurement.

The Bank presents the service cost and net interest expense (income) components in profit or loss, and the remeasurement component in other comprehensive income. Curtailment gains and losses are accounted for as past service costs.

The retirement benefit obligation recognized in the separate statement of financial position represents the actual deficit or surplus in the Bank’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.

Liabilities for termination benefits are recognized at the earlier of either 1) when the Bank is not able to cancel its proposal for termination benefits or 2) when the Bank has recognized the cost of restructuring that accompanies the payment of termination benefits.

(20) Income taxes

Income tax expense represents the sum of the tax currently payable and deferred tax. Current income tax expense approximates taxes to be paid or refunded for the current period and deferred income tax expense is provided using an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, including operating losses and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the carrying values of assets and liabilities for financial reporting purposes and their tax bases. Deferred income tax benefit or expense is then recognized for the change in deferred tax assets or liabilities between periods. Deferred tax assets and liabilities are measured at the tax rates on the date of enactment or substantive enactment that are expected to apply in the period in which the liability is settled or the asset realized. Deferred tax assets, including the carryforwards of unused tax losses, are recognized to the extent it is probable that the deferred tax assets will be realized.

Deferred income tax assets and liabilities are offset if, and only if, the Bank has a legally enforceable right to offset current tax assets against current tax liabilities, and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities that intend either to settle current tax liabilities and assets on a net basis.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred liabilities are not recognized if the temporary difference arises from goodwill. Deferred tax assets or liabilities are not recognized if they arise from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred taxes are also recognized in other comprehensive income or directly in equity respectively.

(21) Earnings per share (“EPS”)

Basic EPS is calculated by net income attributable to ordinary shareholders, less the dividends paid to holders of preferred stock and hybrid securities, divided by the weighted-average number of common shares outstanding. Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of all dilutive potential common shares.

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3. SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS

The significant accounting estimates and assumptions are continually evaluated and are based on historical experiences and various factors, including expectations of future events that are considered to be reasonable. Actual results can differ from those estimates based on such definitions. The accounting estimates and assumptions, which involve potential significant risks that may materially impact the book values of assets and liabilities in the Bank’s separated financial statements are as follows:

(1) Income taxes

The Bank is subject to income taxes in numerous jurisdictions, which requires significant judgment in determining realization of deferred tax. Actual tax payment may be different from the provision estimate and such difference may affect the income tax expense. There are various transactions and calculations for which the ultimate tax determination is uncertain. Deferred tax assets relating to tax losses carried forward and deductible temporary differences are recognized only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized. This assessment requires significant management estimates and judgments. Future taxable profit is estimated based on, among other relevant factors, forecasted operating results, which are based on historical financial performance. In the event the Bank was to determine that it would be able to realize its deferred income tax assets in the future at an amount different than their net recorded amount, the Bank would make an adjustment to the provision for income taxes at such time.

(2) Valuation of Financial Instruments

Financial instruments classified as held-for trading or designated as at FVTPL and financial instruments classified as AFS are recognized in the separate financial statements at fair value. All derivatives are measured at fair value. Financial instruments, which are not traded in active market will have less objective fair value and require broad judgment in liquidity, concentration, uncertainty in market factors and assumption in price determination and other risks. The fair value of those assets is established by using valuation techniques.

As described in the significant accounting policies in Note 2-(7)-5), ‘Fair value of financial assets and liabilities’, a range of valuation techniques, which include market approach and income approach and internally developed models that incorporate various types of assumptions and variables, is used to determine the fair value of financial instruments.

(3) Impairment of loans and receivables

Impairment loss for loans and receivables carried at amortized cost is measured as the difference between such assets’ carrying value and the present value of estimated recoverable cash flows (not include any future loss events that have not occurred), discounted by using the initial effective interest rate. After initial recognition, when the estimated cash flow of the financial asset is affected by one or more loss events, it is determined that the financial asset is impaired.

The objective evidences that a financial asset is impaired incorporate below loss events:

1) Financial assets that are individually assessed

• Past due

• Debt restructuring

• Possible state of debtor’s bankruptcy or liquidation

• Occurrence of significant impairment on securities

• Breach of limit or debt covenant

• Deterioration of operating performance

2) Financial assets that are not individually assessed

• Repayment status of debtor or observable macroeconomic indexes

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The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant (individual evaluation of impairment) and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment (“collective evaluation of impairment”).

There are two components to the Bank’s loan impairment provisions (individual and collective).

Individual assessment of impairment losses is performed by discounting the expected future cash flows of a loan at its original effective interest rate and comparing the resultant present value with the loan’s carrying amount. This process normally encompasses management’s best estimate, such as operating cash flow of debtor and net realizable value of any collateral held and the timing of anticipated receipts.

Collective assessment of impairment losses is performed on a portfolio basis using the methodology based on historical loss experience. The methodology based on historical loss experience is used to estimate inherent incurred loss on groups of assets for collective evaluation of impairment. Such methodology incorporates factors such as type of product and debtors, credit rating, portfolio size, loss-emergence period and recovery period and applies probability of default on each asset (or pool of assets) and loss given default by type of collateral. Also, consistent assumptions are applied to form a formula-based model in estimating inherent loss and to determine factors on the basis of historical loss experience and current condition. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

(4) Defined benefit plan

The Bank operates defined benefit retirement pension plans. Defined benefit retirement pension plans are measured through actuarial valuation and the Bank estimates discount rate, future wage growth rate and mortality ratio to produce actuarial valuation. Defined benefit retirement pension plans contain significant uncertainty in these estimates due to their long-term characteristic.

4. RISK MANAGEMENT:

The Bank’s operating activity is exposed to various financial risks; hence, the Bank is required to analyze and assess the level of complex risks, determine the level of risks to be accepted or to manage the risks.

The Bank’s risk management procedure is set for improvement in the quality of assets held and investments by making a decision about how to avoid or mitigate risks through the identification of the cause of the potential risks and their impacts.

The Bank takes approaches to minimize risks and maximize profits by managing risks acceptable to the Bank and eliminating excessive risks of financial instruments. For these approaches, the following procedures are performed: risk recognition, measurement and assessment, control, and monitoring and reporting.

The risk is managed by the risk management department based on the Bank’s risk management policy. The Risk Management Committee of the Bank makes the decision on the risk management strategy such as the avoidance of concentration of risk and establishment of acceptable level of risks.

(1) Credit risk

Credit risk represents the possibility of financial losses incurred when the counterparty fails to fulfill its contractual obligations. The goal of credit risk management is to maintain the credit risk exposure to a permissible degree and to optimize the rate of return considering such credit risk.

1) Credit risk management

The Bank considers the probability of failure in performing the obligation of its counterparties, credit exposure to the counterparty, the related default risk and the rate of default loss. The Bank uses the credit rating model to assess the possibility of counterparty’s default risk; and when assessing the obligor’s credit grade, the Bank utilizes credit grades derived using statistical methods.

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In order to manage credit risk limit, the Bank establishes the appropriate credit line per obligor, company or industry. It monitors obligor’s credit line, total exposures and loan portfolios when approving the loan.

The Bank mitigates credit risk resulting from the obligor’s credit condition by using financial and physical collateral, guarantees, netting agreements and credit derivatives. The Bank has adopted the entrapment method to mitigate its credit risk. Credit risk mitigation is reflected in qualifying financial collateral, trade receivables, guarantees, residential and commercial real estate and other collaterals. The Bank regularly performs a revaluation of collateral reflecting such credit risk mitigation.

2) Maximum exposure to credit risk

The Bank’s maximum exposure to credit risk refers to net book value of financial assets net of allowances, which shows the uncertainties of maximum changes of net value of financial assets attributable to a particular risk without considering collateral and other credit enhancements obtained. However, the maximum exposure is the fair value amount (recorded on the books) for derivatives, maximum contractual obligation for payment guarantees and loan commitment for loan contracts.

The maximum exposure to credit risk is as follows (Unit: Korean won in millions):

		December 31, 2017		December 31, 2016
Loans and receivables	Korean treasury and government agencies		8,792,977		15,815,135
	Banks		25,053,476		17,826,219
	Corporates		83,568,058		83,529,250
	Consumers		131,396,113		124,337,444
	Subtotal		248,810,624		241,508,048
Financial assets at FVTPL	Gold banking assets		25,972		26,180
	Debt securities held for trading		1,008,827		1,140,928
	Derivative assets		3,098,769		2,880,543
	Subtotal		4,133,568		4,047,651
AFS financial assets	AFS debt securities		12,247,622		11,572,916
HTM financial assets	HTM debt securities		16,638,727		13,792,266
Derivative assets	Derivative assets (hedging)		59,272		140,577
Off-balance accounts	Guarantees		13,589,728		14,953,197
	Loan commitments		50,214,855		56,313,804
	Subtotal		63,804,583		71,267,001
	Total		345,694,396		342,328,459

a) Credit risk exposure by geographical areas

The following tables analyze credit risk exposure by geographical areas (Unit: Korean won in millions):

	December 31, 2017
	Korea		USA		UK		Japan		Others (*)		Total
Loans and receivables		240,912,334		1,209,094		1,094,988		381,889		5,212,319		248,810,624
Financial assets at FVTPL		3,892,601		—		148,955		—		92,012		4,133,568
AFS debt securities		11,972,446		—		—		—		275,176		12,247,622
HTM securities		16,606,692		—		—		—		32,035		16,638,727
Derivative assets		16,590		—		42,682		—		—		59,272
Off-balance accounts		62,856,918		121,784		66,974		25,039		733,868		63,804,583
Total		336,257,581		1,330,878		1,353,599		406,928		6,345,410		345,694,396

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	December 31, 2016
	Korea		USA		UK		Japan		Others (*)		Total
Loans and receivables		232,571,489		1,131,617		895,874		323,470		6,585,598		241,508,048
Financial assets at FVTPL		3,686,286		—		261,547		81		99,737		4,047,651
AFS debt securities		11,506,682		—		—		—		66,234		11,572,916
HTM securities		13,758,863		—		—		—		33,403		13,792,266
Derivative assets		74,166		—		66,342		—		69		140,577
Off-balance accounts		70,079,004		76,694		80,831		23,250		1,007,222		71,267,001
Total		331,676,490		1,208,311		1,304,594		346,801		7,792,263		342,328,459

(*) Others consist of financial assets in Vietnam, Panama and European countries and others.

b) Credit risk exposure by industries

The following tables analyze credit risk exposure by industries, which are service, manufacturing, finance and insurance, construction, individuals and others in accordance with the Korea Standard Industrial Classification Code (Unit: Korean won in millions):

	December 31, 2017
	Service		Manufacturing		Finance and insurance		Construction		Individuals		Others		Total
Loans and receivables		45,975,768		33,037,933		36,003,892		2,893,323		125,159,751		5,739,957		248,810,624
Financial assets at FVTPL		96,795		76,373		3,737,672		10,054		1,040		211,634		4,133,568
AFS debt securities		682,706		—		7,055,546		133,572		—		4,375,798		12,247,622
HTM securities		1,348,754		—		10,944,611		296,214		—		4,049,148		16,638,727
Derivative assets		—		—		59,272		—		—		—		59,272
Off-balance accounts		14,510,922		22,363,457		8,759,366		3,614,758		10,057,400		4,498,680		63,804,583
Total		62,614,945		55,477,763		66,560,359		6,947,921		135,218,191		18,875,217		345,694,396
	December 31, 2016
	Service		Manufacturing		Finance and insurance		Construction		Individuals		Others		Total
Loans and receivables		44,851,563		34,465,760		34,641,443		3,177,968		118,412,745		5,958,569		241,508,048
Financial assets at FVTPL		59,472		356,305		3,331,108		23,812		993		275,961		4,047,651
AFS debt securities		1,069,084		—		8,128,709		53,232		—		2,321,891		11,572,916
HTM securities		1,673,971		—		8,192,802		251,599		—		3,673,894		13,792,266
Derivative assets		—		—		140,577		—		—		—		140,577
Off-balance accounts		15,949,042		27,446,354		9,065,002		4,358,268		9,759,416		4,688,919		71,267,001
Total		63,603,132		62,268,419		63,499,641		7,864,879		128,173,154		16,919,234		342,328,459

3) Credit risk of loans and receivables

The credit exposure of loans and receivables by customer and loan conditions is as follows (Unit: Korean won in millions):

	December 31, 2017
	Korean treasury and government agencies		Banks		Corporates
					General business		Small- and medium-sized enterprise		Project financing and others		Subtotal		Consumers		Total
Loans neither overdue nor impaired		8,795,163		25,068,417		45,242,266		33,229,188		4,722,748		83,194,202		130,563,920		247,621,702
Loans overdue but not impaired		—		—		5,954		63,067		—		69,021		728,057		797,078
Impaired loans		—		—		1,354,096		241,776		17,665		1,613,537		339,297		1,952,834
Total		8,795,163		25,068,417		46,602,316		33,534,031		4,740,413		84,876,760		131,631,274		250,371,614
Allowance for loan losses		2,186		14,941		1,019,687		262,628		26,387		1,308,702		235,161		1,560,990
Total, net		8,792,977		25,053,476		45,582,629		33,271,403		4,714,026		83,568,058		131,396,113		248,810,624

- 24 -

	December 31, 2016
	Korean treasury and government agencies		Banks		Corporates
					General business		Small- and medium-sized enterprise		Project financing and others		Subtotal		Consumers		Total
Loans neither overdue nor impaired		15,819,124		17,841,428		45,975,557		30,744,224		6,349,788		83,069,569		123,558,440		240,288,561
Loans overdue but not impaired		—		—		7,550		55,993		—		63,543		641,829		705,372
Impaired loans		—		—		1,362,414		425,354		176,715		1,964,483		343,593		2,308,076
Total		15,819,124		17,841,428		47,345,521		31,225,571		6,526,503		85,097,595		124,543,862		243,302,009
Allowance for loan losses		3,989		15,209		1,095,969		417,333		55,043		1,568,345		206,418		1,793,961
Total, net		15,815,135		17,826,219		46,249,552		30,808,238		6,471,460		83,529,250		124,337,444		241,508,048

a) Credit quality of loans and receivables

The Bank manages credit quality of its loans and receivables (neither overdue nor impaired, net of allowance) through an internal rating system. Segregation of credit quality is as follows (Unit: Korean won in millions):

	December 31, 2017
	Korean treasury and government agencies		Banks		Corporates
					General business		Small- and medium-sized enterprise		Project financing and others		Subtotal		Consumers		Total
Upper grade (*1)		8,792,977		25,053,476		39,396,071		22,318,410		3,799,870		65,514,351		127,173,074		226,533,878
Lower grade (*2)		—		—		5,602,700		10,766,789		898,536		17,268,025		3,305,686		20,573,711
Total		8,792,977		25,053,476		44,998,771		33,085,199		4,698,406		82,782,376		130,478,760		247,107,589
Value of collateral(*3)		1,409		483,469		18,749,772		27,224,021		2,476,987		48,450,780		107,701,736		156,637,394
	December 31, 2016
	Korean treasury and government agencies		Banks		Corporates
					General business		Small- and medium-sized enterprise		Project financing and others		Subtotal		Consumers		Total
Upper grade (*1)		15,815,135		17,826,219		38,405,298		17,985,120		4,546,178		60,936,596		120,252,187		214,830,137
Lower grade (*2)		—		—		7,203,345		12,550,168		1,763,658		21,517,171		3,232,521		24,749,692
Total		15,815,135		17,826,219		45,608,643		30,535,288		6,309,836		82,453,767		123,484,708		239,579,829
Value of collateral(*3)		—		358,456		17,182,861		24,978,778		3,838,833		46,000,472		104,257,623		150,616,551

(*1) AAA–BBB for corporates, and 1–6 level for consumers

(*2) BBB- –C for corporates, and 7–10 level for consumers

(*3) The value of collateral is the allocated collateral amount when estimating the allowance for credit losses.

Allowances for credit losses, for loans and receivables neither overdue nor impaired, amounting to 514,113 million won and 708,732 million won as of December 31, 2017 and 2016, respectively, which are deducted from the loans and receivables above.

- 25 -

b) Aging analysis of loans and receivables

Aging analysis of loans and receivables (overdue but not impaired, net of allowance) is as follows (Unit: Korean won in millions):

	December 31, 2017
Overdue	Korean treasury and government agencies		Banks		Corporates
					General business		Small- and medium-sized enterprise		Project financing and others		Subtotal		Consumers		Total
Less than 30 days		—		—		3,298		48,002		—		51,300		584,753		636,053
30–59 days		—		—		1,873		6,550		—		8,423		77,162		85,585
60–89 days		—		—		40		4,395		—		4,435		42,012		46,447
Total		—		—		5,211		58,947		—		64,158		703,927		768,085
Value of collateral (*)		—		—		3,144		45,908		—		49,052		619,169		668,221
	December 31, 2016
Overdue	Korean treasury and government agencies		Banks		Corporates
					General business		Small- and medium-sized enterprise		Project financing and others		Subtotal		Consumers		Total
Less than 30 days		—		—		6,583		41,329		—		47,912		511,722		559,634
30–59 days		—		—		263		8,064		—		8,327		72,583		80,910
60–89 days		—		—		130		1,906		—		2,036		33,996		36,032
Total		—		—		6,976		51,299		—		58,275		618,301		676,576
Value of collateral (*)		—		—		5,161		39,488		—		44,649		542,109		586,758

(*) The collateral value held is the recoverable amount used when calculating allowance for credit losses.

Allowances for credit losses, for loans and receivables that are overdue but not impaired, amounting to 28,993 million won and 28,796 million won as of December 31, 2017 and 2016, respectively, which are deducted from the loans and receivables above.

c) Individually impaired loans and receivables

Impaired loans and receivables, net of allowance are as follows (Unit: Korean won in millions):

	December 31, 2017
	Korean treasury and government agencies		Banks		Corporates
					General business		Small- and medium-sized enterprise		Project financing and others		Subtotal		Consumers		Total
Impaired loans		—		—		578,647		127,257		15,620		721,524		213,426		934,950
Value of collateral (*)		—		—		536,465		134,477		—		670,942		206,303		877,245
	December 31, 2016
	Korean treasury and government agencies		Banks		Corporates
					General business		Small- and medium-sized enterprise		Project financing and others		Subtotal		Consumers		Total
Impaired loans		—		—		633,933		221,651		161,624		1,017,208		234,435		1,251,643
Value of collateral (*)		—		—		461,795		236,633		11,268		709,696		233,500		943,196

(*) The collateral value held is the recoverable amount used when calculating allowance for credit losses.

Allowances for credit losses, for impaired loans and receivables amounting to 1,017,884 million won and 1,056,433 million won as of December 31, 2017 and 2016, respectively, are deducted from the impaired loans and receivables above.

- 26 -

4) Credit quality of debt securities

The Bank manages debt securities based on the external credit rating. Credit soundness of debt securities on the basis of External Credit Assessment Institution’s rating is as follows (Unit: Korean won in millions):

	December 31, 2017
	Financial assets at FVTPL (*)		AFS securities		HTM securities		Total
AAA		1,008,827		9,836,599		15,806,327		26,651,753
AA- – AA+		—		2,189,269		832,400		3,021,669
BBB- – A+		—		221,754		—		221,754
Total		1,008,827		12,247,622		16,638,727		29,895,176
	December 31, 2016
	Financial assets at FVTPL (*)		AFS securities		HTM securities		Total
AAA		1,140,928		9,908,516		13,342,384		24,391,828
AA- – AA+		—		1,477,709		449,882		1,927,591
BBB- – A+		—		186,691		—		186,691
Total		1,140,928		11,572,916		13,792,266		26,506,110

(*) Financial assets at FVTPL comprise debt securities held for trading and financial assets designated at FVTPL

(2) Market risk

Market risk is the possible risk of loss arising from trading and non-trading activities in the volatility of market factors such as interest rates, stock prices, and foreign exchange rates. Market risk occurs as a result of changes in the interest rates and foreign exchange rates for financial instruments that are not yet settled, and all contracts are exposed to a certain level of volatility according to the interest rates, credit spreads, foreign exchange rates and the price of equity securities.

1) Market risk management

For trading activities and non-trading activities, the Bank avoids, bears or mitigates risks by identifying the underlying source of risks, measuring parameters and evaluating their appropriateness.

The Bank uses both a standard-based and an internal model-based approach to measure market risk. The standard-based approach is used to calculate individual market risk of owned capital while the internal model-based approach is used to calculate general capital market risk and it is used to measure internal risk management measure.

The Bank measures Value at Risk (“VaR,” maximum losses) with Historical Simulation Method based on 99% confidence level and 10-day holding period of positions, and calculates the required market risk capital using the internal model, which has been approved by Financial Supervisory Service in Korea. For the internal management purpose, VaR is measured based on 99% confidence level and one-day holding period of positions and the limit management is performed on a daily basis. The validation of the model is assessed through the performance of back testing, which is to compare the actual gain or loss to the VaR measurements on a daily basis.

In addition, for crisis management, the Bank performs stress testing on a monthly basis, which is to measure the expected loss amount in case of extreme situation, such as IMF bailout in 1997 or global financial crisis in 2008.

At the beginning of each year, the Risk Management Committee establishes the VaR limit, loss limit and risk capital limit for its management purposes. Limit by investment desk/dealer is independently managed to the extent of the limit given to each department of the Bank and the limit by investment and loss cut is managed by risk management personnel within the department.

- 27 -

2) Sensitivity analysis of market risk

The Bank performs sensitivity analysis, both for trading and for non-trading activities.

For trading activities, the Bank uses a VaR model, which uses certain assumptions of possible fluctuations in market condition and, by conducting simulations of gains and losses, under which the model estimates the maximum losses that may occur. A VaR model predicts based on statistics of possible losses on the portfolio at a certain period currently or in the future. It indicates the maximum expected loss with at least 99% credibility. In short, there exists a 1% possibility that the actual loss might exceed the predicted loss generated from the VaR’s calculation. The actual results are periodically monitored to examine the validity of the assumptions and variables and factors that are used in VaR’s calculations. However, this approach cannot prevent the loss when the market fluctuation exceeds expectation.

For the non-trading activities, the interest rate risk is managed and measured based on the analysis of the Net Interest Income (“NII”) and Net Portfolio Value (“NPV”) by the scenarios. NII is a profit-based indicator for displaying the profit changes in the short term due to the short-term interest changes. It will be estimated as subtracting interest expenses of liabilities from the interest income of assets. NPV is an indicator for displaying risks in an economic view according to unfavorable changes related to interest rate. It will be estimated as subtracting the present value of liabilities from the present value of assets.

- 28 -

a) Trading activities

The minimum, maximum and average VaR for the years ended December 31, 2017 and 2016, respectively, and the VaR as of December 31, 2017 and 2016, respectively, are as follows (Unit: Korean won in millions):

	As of December 31, 2017			For the year ended December 31, 2017									As of December 31, 2016			For the year ended December 31, 2016
Risk factor				Average			Maximum			Minimum						Average			Maximum			Minimum
Interest rate		4,183			3,799			4,918			2,467			3,250			2,844			6,430			1,367
Stock price		909			2,863			4,419			909			4,191			3,456			5,063			2,304
Foreign currencies		4,750			5,051			6,636			4,061			4,396			4,914			7,686			3,967
Commodity		—			31			188			—			152			113			325			21
Diversification		(4,472	)		(4,621	)		(6,798	)		(2,067	)		(5,630	)		(5,355	)		(10,385	)		(4,034	)
Total VaR		5,370			7,123			9,363			5,370			6,359			5,972			9,119			3,625

b) Non-trading activities

The NII and NPV are calculated for the assets and liabilities owned by the Bank, respectively, by using the simulation method. The scenario responding to interest rate (“IR”) changes are as follows (Unit: Korean won in millions):

Name of scenario	December 31, 2017				December 31, 2016
	NII		NPV		NII		NPV
Base case		4,936,457		23,487,317		4,388,019		21,582,242
Base case (Prepay)		4,936,334		23,178,467		4,405,391		20,692,036
IR 100bp up		5,394,161		22,900,740		4,835,013		20,919,129
IR 100bp down		4,401,735		24,141,984		3,918,645		22,304,777
IR 200bp up		5,851,632		22,386,912		5,282,061		20,315,402
IR 200bp down		3,462,869		24,844,803		2,985,778		23,078,379
IR 300bp up		6,309,102		21,943,972		5,729,108		19,768,300
IR 300bp down		2,259,870		26,648,024		1,973,612		25,121,678

- 29 -

The Bank estimates and manages risks related to changes in interest rate due to the difference in the maturities of interest-bearing assets and liabilities and discrepancies in the terms of interest rates. Cash flows (both principal and interest) from non-trading, interest-bearing assets and liabilities, presented by each repricing date, are as follows (Unit: Korean won in millions):

		December 31, 2017
		Within 3 months		4 to 6 months		7 to 9 months		10 to 12 months		1 to 5 years		Over 5 years		Total
Asset	Loans and receivables		148,513,919		39,972,641		6,935,597		5,672,432		50,858,179		25,688,896		277,641,664
	AFS financial assets		1,689,689		2,462,484		1,996,401		2,333,618		4,161,439		574,540		13,218,171
	HTM financial assets		2,268,640		2,161,467		1,433,425		1,687,362		9,309,427		312,507		17,172,828
	Total		152,472,248		44,596,592		10,365,423		9,693,412		64,329,045		26,575,943		308,032,663
Liability	Deposits due to customers		102,414,072		36,883,763		24,653,930		25,028,280		36,699,604		6,133		225,685,782
	Borrowings		8,998,265		874,830		412,966		405,352		2,649,142		479,399		13,819,954
	Debentures		1,571,159		2,069,377		677,903		1,520,299		14,614,175		2,843,679		23,296,592
	Total		112,983,496		39,827,970		25,744,799		26,953,931		53,962,921		3,329,211		262,802,328
		December 31, 2016
		Within 3 months		4 to 6 months		7 to 9 months		10 to 12 months		1 to 5 years		Over 5 years		Total
Asset	Loans and receivables		135,557,398		40,538,479		7,495,772		7,170,044		53,206,944		34,687,775		278,656,412
	AFS financial assets		2,896,225		2,908,851		2,837,545		2,902,392		4,958,226		675,113		17,178,352
	HTM financial assets		2,672,430		1,515,213		1,246,503		1,143,170		6,851,166		874,298		14,302,780
	Total		141,126,053		44,962,543		11,579,820		11,215,606		65,016,336		36,237,186		310,137,544
Liability	Deposits due to customers		95,261,776		36,070,813		24,657,781		22,748,665		33,819,842		40,032		212,598,909
	Borrowings		11,303,870		852,447		491,330		368,431		2,781,917		421,272		16,219,267
	Debentures		1,591,345		1,781,725		606,539		1,089,673		10,549,803		4,106,259		19,725,344
	Total		108,156,991		38,704,985		25,755,650		24,206,769		47,151,562		4,567,563		248,543,520

- 30 -

3) Currency risk

Currency risk occurs from the financial instrument denominated in foreign currencies other than the functional currency. Therefore, no currency risk arises from non-monetary items or financial instruments denominated in the functional currency.

Financial instruments in foreign currencies exposed to currency risk are as follows (Unit: USD in millions, JPY in millions, CNY in millions, and EUR in millions and Korean won in millions):

		December 31, 2017
		USD				JPY				CNY				EUR				Others		Total
		Foreign currency		Korean won equivalent		Foreign currency		Korean won equivalent		Foreign currency		Korean won equivalent		Foreign currency		Korean won equivalent		Korean won equivalent		Korean won equivalent
Asset	Loans and receivables		19,534		20,928,891		124,167		1,178,480		1,050		171,802		1,143		1,461,960		1,978,164		25,719,297
	Financial assets at FVTPL		29		31,360		25		238		—		—		27		34,583		104,892		171,073
	AFS financial assets		1,712		1,833,836		—		—		—		—		—		590		77,118		1,911,544
	HTM financial assets		51		54,439		—		—		—		—		—		—		32,035		86,474
	Total		21,326		22,848,526		124,192		1,178,718		1,050		171,802		1,170		1,497,133		2,192,209		27,888,388
Liability	Financial liabilities at FVTPL		41		43,423		79		752		—		—		19		24,878		69,977		139,030
	Deposits due to customer		11,303		12,110,340		195,154		1,852,228		1,520		248,808		882		1,127,917		924,008		16,263,301
	Borrowings		6,480		6,942,814		2,218		21,056		14		2,245		247		315,669		107,344		7,389,128
	Debentures		2,967		3,178,711		—		—		700		114,555		—		—		196,620		3,489,886
	Other financial liabilities		2,067		2,214,467		13,411		127,289		2,010		328,902		128		164,357		368,502		3,203,517
	Total		22,858		24,489,755		210,862		2,001,325		4,244		694,510		1,276		1,632,821		1,666,451		30,484,862
	Off-balance accounts		7,346		7,870,923		33,601		318,911		885		144,817		406		518,854		371,670		9,225,175
		December 31, 2016
		USD				JPY				CNY				EUR				Others		Total
		Foreign currency		Korean won equivalent		Foreign currency		Korean won equivalent		Foreign currency		Korean won equivalent		Foreign currency		Korean won equivalent		Korean won equivalent		Korean won equivalent
Asset	Loans and receivables		19,815		23,946,599		108,867		1,128,742		706		122,295		1,541		1,953,058		2,559,691		29,710,385
	Financial assets at FVTPL		60		72,826		57		589		—		—		30		37,562		34,124		145,101
	AFS financial assets		718		868,018		—		—		—		—		—		570		52,977		921,565
	HTM financial assets		—		—		—		—		—		—		—		—		46,068		46,068
	Total		20,593		24,887,443		108,924		1,129,331		706		122,295		1,571		1,991,190		2,692,860		30,823,119
Liability	Financial liabilities at FVTPL		75		90,908		253		2,621		—		—		88		111,098		115,980		320,607
	Deposits due to customer		9,073		10,964,130		124,781		1,293,742		1,098		190,268		650		823,718		953,350		14,225,208
	Borrowings		6,719		8,119,337		3,243		33,625		32		5,621		216		273,289		356,362		8,788,234
	Debentures		2,931		3,541,769		—		—		700		121,282		—		—		201,780		3,864,831
	Other financial liabilities		1,968		2,377,760		12,379		128,347		1,121		194,263		245		310,278		432,565		3,443,213
	Total		20,766		25,093,904		140,656		1,458,335		2,951		511,434		1,199		1,518,383		2,060,037		30,642,093
	Off-balance accounts		8,035		9,710,576		28,646		297,001		751		130,035		373		472,816		364,748		10,975,176

- 31 -

(3) Liquidity risk

Liquidity risk refers to the risk that the Bank may encounter difficulties in meeting obligations from its financial liabilities.

1) Liquidity risk management

Liquidity risk management is to prevent potential cash shortage as a result of mismatching the use of funds (assets) and sources of funds (liabilities) or unexpected cash outflows. The financial liabilities that are relevant to liquidity risk are incorporated within the scope of risk management. Derivative instruments are excluded from those financial liabilities as they reflect expected cash flows for a predetermined period.

Assets and liabilities are grouped by account under Asset Liability Management in accordance with the characteristics of the account. The Bank manages liquidity risk by identifying maturity gap, and then gap ratio through performing various cash flows analysis (i.e., based on remaining maturity and contract period, etc.), while maintaining the gap ratio at or below the target limit.

2) Maturity analysis of non-derivative financial liabilities

a) Cash flows of principals and interests by remaining contractual maturities of non-derivative financial liabilities are as follows (Unit: Korean won in millions):

	December 31, 2017
	Within 3 months		4 to 6 months		7 to 9 months		10 to 12 months		1 to 5 years		More than 5 years		Total
Financial liabilities at FVTPL		160,057		154,475		—		—		—		—		314,532
Deposits due to customers		143,085,964		28,776,407		17,749,883		29,951,466		6,723,926		644,187		226,931,833
Borrowings		5,339,315		1,700,358		1,488,848		1,132,055		3,799,707		479,140		13,939,423
Debentures		1,570,513		2,069,703		678,054		1,512,183		14,614,016		2,843,612		23,288,081
Other financial liabilities		6,531,004		—		—		—		—		2,704,197		9,235,201
Total		156,686,853		32,700,943		19,916,785		32,595,704		25,137,649		6,671,136		273,709,070
	December 31, 2016
	Within 3 months		4 to 6 months		7 to 9 months		10 to 12 months		1 to 5 years		More than 5 years		Total
Financial liabilities at FVTPL		673,906		—		—		—		153,757		—		827,663
Deposits due to customers		131,555,838		28,216,931		18,918,303		28,643,490		5,705,028		891,304		213,930,894
Borrowings		6,763,446		2,134,433		876,836		1,477,040		4,653,676		420,315		16,325,746
Debentures		1,590,890		1,781,431		606,681		1,062,254		10,550,080		4,106,193		19,697,529
Other financial liabilities		14,335,059		—		—		—		—		2,730,148		17,065,207
Total		154,919,139		32,132,795		20,401,820		31,182,784		21,062,541		8,147,960		267,847,039

- 32 -

b) Cash flows of principals and interests by expected maturities of non-derivative financial liabilities are as follows (Unit: Korean won in millions):

	December 31, 2017
	Within 3 months		4 to 6 months		7 to 9 months		10 to 12 months		1 to 5 years		More than 5 years		Total
Financial liabilities at FVTPL		160,057		154,475		—		—		—		—		314,532
Deposits due to customers		154,216,425		30,515,457		16,246,338		19,479,809		5,913,949		183,986		226,555,964
Borrowings		5,339,315		1,700,358		1,488,848		1,132,055		3,799,707		479,140		13,939,423
Debentures		1,570,513		2,069,703		678,054		1,512,183		14,614,016		2,843,612		23,288,081
Other financial liabilities		6,531,004		—		—		—		—		2,704,197		9,235,201
Total		167,817,314		34,439,993		18,413,240		22,124,047		24,327,672		6,210,935		273,333,201
	December 31, 2016
	Within 3 months		4 to 6 months		7 to 9 months		10 to 12 months		1 to 5 years		More than 5 years		Total
Financial liabilities at FVTPL		673,906		—		—		—		153,757		—		827,663
Deposits due to customers		142,802,770		29,698,603		17,269,323		18,716,262		4,664,658		374,152		213,525,768
Borrowings		6,763,452		2,134,429		876,835		1,477,039		4,653,676		420,315		16,325,746
Debentures		1,590,890		1,781,431		606,681		1,062,254		10,550,080		4,106,193		19,697,529
Other financial liabilities		14,335,059		—		—		—		—		2,730,148		17,065,207
Total		166,166,077		33,614,463		18,752,839		21,255,555		20,022,171		7,630,808		267,441,913

3) Maturity analysis of derivative financial liabilities is as follows (Unit: Korean won in millions):

Derivatives held for trading purposes are not managed in accordance with their contractual maturity since the Bank holds such financial instruments with the purpose of disposing or redemption before their maturity. As such, those derivatives are incorporated as “Within 3 months” in the table below.

The cash flow by the maturity of derivative financial liabilities as of December 31, 2017 and 2016, is as follows:

	Remaining maturity
	Within 3 months		4 to 6 months		7 to 9 months		10 to 12 months		1 to 5 years		More than 5 years		Total
December 31, 2017		3,139,218		—		—		381		11,722		—		3,151,321
December 31, 2016		3,000,098		—		—		208		7,013		—		3,007,319

4) Maturity analysis of off-balance accounts

The Bank provides guarantees on behalf of customers. A financial guarantee represents an irrevocable undertaking that the Bank should meet a customer’s obligations to third parties if the customer fails to do so. Under a loan commitment, the Bank agrees to make funds available to a customer in the future. Loan commitments that are usually for a specified term may persist or may be unconditionally cancelable, provided all conditions in the loan facility are satisfied or waived. Commitments to lend include commercial standby facilities and credit lines, liquidity facilities to commercial paper conduits and utilized overdraft facilities. The maximum limit to be paid by the Bank in accordance with guarantees and loan commitment only applies to principal amounts. There are contractual maturities for financial guarantees, such as guarantees for debentures issued or loans, loan commitments and other guarantees; however, under the terms of the guarantees and loan commitments, funds should be paid upon demand from the counterparty. Details of off-balance accounts are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Guarantees		13,589,728		14,953,197
Loan commitments		50,214,855		56,313,804

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(4) Operational risk

The Bank defines the operational risk that could cause a negative effect on capital resulting from inadequate internal process, labor work and systematic problem or external factors.

1) Operational risk management

The Bank has been running the operational risk management system under Basel II. The Bank developed advanced measurement approaches (“AMA”) to quantify required capital for operational risk. This system is used for reinforcement in foreign competitions, reducing the amount of risk capitals, managing the risk and precaution for any unexpected occasions. This system has been tested by an independent third party, and this system is approved by the Financial Supervisory Service.

2) Operational risk measurement

To quantify the required capital for operational risk, the Bank applies AMA using internal and external loss data, business environment and internal control factors, and scenario analysis. For the operational risk management for its subsidiaries, the Bank adopted the Basic Indicator Approach.

(5) Capital management

The Bank complies with the capital adequacy standard established by the Financial Services Commission. The capital adequacy standard is based on Basel III published by Basel Committee on Banking Supervision in Bank of International Settlements in 2010 and was implemented in Korea in December 2013. The capital adequacy ratio is calculated by dividing own capital by asset (weighted with a risk premium – risk weighted assets) based on the separate financial statements of the Bank.

The Bank is required to maintain a minimum common equity Tier 1 ratio of at least 6.25% and 5.38%, a minimum Tier 1 ratio of 7.75% and 6.88% and a minimum total regulatory capital of 9.75% and 8.88% as of December 31, 2017 and 2016.

Details of the Bank’s capital adequacy ratio as of December 31, 2017 and 2016, and are as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Tier 1 capital		16,074,987			15,714,480
Other Tier 1 capital		3,041,664			3,275,496
Tier 2 capital		3,486,555			3,910,513
Total risk-adjusted capital		22,603,206			22,900,489
Risk-weighted assets for credit risk		134,767,711			138,018,500
Risk-weighted assets for market risk		2,316,938			2,277,809
Risk-weighted assets for operational risk		9,677,559			9,431,814
Total risk-weighted assets		146,762,208			149,728,123
Common Equity Tier 1 ratio		10.95	%		10.50	%
Tier 1 capital ratio		13.03	%		12.68	%
Total capital ratio		15.40	%		15.29	%

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5. OPERATING SEGMENTS:

In evaluating the results of the Bank and allocating resources, the Bank’s Chief Operation Decision Maker (“CODM”) utilizes the information per type of customers. This financial information of the segments is regularly audited by the CODM to make decisions about resources to be allocated to each segment and evaluate its performance.

(1) Segment by type of customers

The Bank’s reporting segments comprise the following customers: consumer banking, corporate banking, investment banking, capital market and headquarters and others. The reportable segments are classified based on the target customers for whom the service is being provided:

• Consumer banking: Loans/deposits and financial services for retail and individual consumers, etc.

• Corporate banking: Loans/deposits and export/import, financial services for corporations, etc.

• Investment banking: Domestic/foreign investment, structured finance, M&A, Equity & fund investment-related business, venture advisory related tasks, real estate SOC development practices, etc.

• Capital market: Fund management, investment securities and derivatives business, etc.

• Headquarters and others: Segments that do not belong to above operating segments

The details of operating income by each segment are as follows (Unit : Korean won in millions):

	For the year ended December 31, 2017
	Consumer banking			Corporate banking			Investment banking			Capital Market			Headquarters and others			Subtotal			Adjustments			Total
Net interest income
Interest income		3,149,625			2,964,813			148,500			18,834			786,889			7,068,661			317,060			7,385,721
Interest expense		(955,836	)		(1,681,652	)		(243	)		—			(624,394	)		(3,262,125	)		267,007			(2,995,118	)
Intersegment		(490,850	)		512,216			(136,133	)		18,049			96,718			—			—			—
		1,702,939			1,795,377			12,124			36,883			259,213			3,806,536			584,067			4,390,603
Net non-interest income
Non-interest income		802,387			680,778			366,523			9,548,399			1,944,670			13,342,757			68			13,342,825
Non-interest expense		(253,961	)		(170,268	)		(214,355	)		(9,478,728	)		(1,703,600	)		(11,820,912	)		(584,099	)		(12,405,011	)
Intersegment		101,524			60,826			—			—			(162,350	)		—			—			—
		649,950			571,336			152,168			69,671			78,720			1,521,845			(584,031	)		937,814
Other expense
General and administrative expense		(1,808,974	)		(832,429	)		(12,881	)		(16,567	)		(457,874	)		(3,128,725	)		—			(3,128,725	)
Impairment losses due to credit loss and others		(97,587	)		(316,859	)		(50,954	)		31,229			25,073			(409,098	)		(36	)		(409,134	)
		(1,906,561	)		(1,149,288	)		(63,835	)		14,662			(432,801	)		(3,537,823	)		(36	)		(3,537,859	)
Operating income (expense)		446,328			1,217,425			100,457			121,216			(94,868	)		1,790,558			—			1,790,558
Non-operating income (expense)		(98,510	)		(3,153	)		39,350			—			(108,023	)		(170,336	)		—			(170,336	)
Net income before income tax expense		347,818			1,214,272			139,807			121,216			(202,891	)		1,620,222			—			1,620,222
Income tax expense		(84,172	)		(296,634	)		(33,834	)		(29,335	)		99,865			(344,110	)		—			(344,110	)
Net income		263,646			917,638			105,973			91,881			(103,026	)		1,276,112			—			1,276,112

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	For the year ended December 31, 2016
	Consumer banking			Corporate banking			Investment banking			Capital Market			Headquarters and others			Subtotal			Adjustments			Total
Net interest income
Interest income		2,979,811			3,026,148			153,160			19,575			904,751			7,083,444			293,269			7,376,713
Interest expense		(1,023,290	)		(1,780,990	)		(225	)		(324	)		(643,396	)		(3,448,224	)		293,958			(3,154,266	)
Intersegment		(472,288	)		495,982			(138,322	)		29,575			85,053			—			—			—
		1,484,233			1,741,140			14,613			48,826			346,408			3,635,220			587,227			4,222,447
Non-interest income
Non-interest income		923,810			535,514			605,026			7,590,087			3,723,389			13,377,826			48,978			13,426,804
Non-interest expense		(405,912	)		(32,873	)		(444,141	)		(7,586,054	)		(3,598,841	)		(12,067,821	)		(696,320	)		(12,764,141	)
Intersegment		39,512			47,553			—			—			(87,065	)		—			—			—
		557,410			550,194			160,885			4,033			37,483			1,310,005			(647,343	)		662,663
Other expense
Administrative expense		(1,788,672	)		(966,878	)		(14,983	)		(17,964	)		(326,875	)		(3,115,372	)		—			(3,115,372	)
Impairment losses on credit loss and others		(86,907	)		(509,312	)		(95,880	)		(34,031	)		166,778			(559,352	)		60,115			(499,237	)
		(1,875,579	)		(1,476,190	)		(110,863	)		(51,995	)		(160,097	)		(3,674,724	)		60,115			(3,614,609	)
Operating income (expense)		166,064			815,144			64,635			864			223,794			1,270,501			—			1,270,501
Non-operating income (loss)		(35,081	)		(1,619	)		46,559			(5,288	)		35,573			40,144			—			40,144
Net income before income tax expense		130,983			813,525			111,194			(4,424	)		259,367			1,310,645			—			1,310,645
Income tax expense		(31,698	)		(203,983	)		(26,909	)		1,071			16,476			(245,043	)		—			(245,043	)
Net income		99,285			609,542			84,285			(3,353	)		275,843			1,065,602			—			1,065,602

(2) Information on financial products and services

The products of the Bank are classified as interest-bearing products such as loans, deposits and debt securities and non-interest-bearing products such as loan commitment, credit commitment, equity securities and credit card service. This classification of products has been reflected in the segment information presenting interest income and non-interest income.

(3) Information on geographical areas

Of the Bank’s revenue (interest income and non-interest income) from services, revenue from the domestic customers for the years ended December 31, 2017 and 2016, amounted to 20,338,688 million won and 20,519,904 million won, respectively, and revenue from the foreign customers amounted to 389,858 million won and 283,613 million won, respectively. Of the Bank’s non-current assets (investments in subsidiaries and associates, investment properties, premises and equipment and intangible assets), non-current assets attributed to domestic subsidiaries as of December 31, 2017 and 2016, are 7,168,942 million won and 6,703,013 million won, respectively, and foreign subsidiaries are 8,003 million won and 9,059 million won, respectively.

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6. CASH AND CASH EQUIVALENTS:

(1) Details of cash and cash equivalents are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Cash		1,970,810		2,150,181
Foreign currencies		578,281		699,667
Demand deposits		2,407,731		3,144,208
Fixed deposits		372,138		109,973
Total		5,328,960		6,104,029

(2) Significant transactions not involving cash inflows and outflows are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Changes in other comprehensive income due to valuation of AFS financial assets		(48,139	)		(10,026	)
Changes in other comprehensive income of foreign currency translation of foreign operations		(34,093	)		9,361
Changes in other comprehensive loss due to remeasurement of defined benefit liabilities		16,566			33,191
Changes in investments in subsidiaries and associates due to equity swap and others		49,599			—
Changes in investments in subsidiaries and associates due to accounts transfer		(52,107	)		(137,849	)
Changes in accrued dividends of hybrid equity securities		(10,658	)		5,187

(3) Adjustments of liabilities from financing activities in current year are as follows (Unit: Korean won in millions):

	For the year ended December 31, 2017
	January 1, 2017		Cash flow			Not involving cash inflows and outflows								December 31, 2017
						Foreign exchange			Variation of gains on valuation of hedged items			Others
Borrowings		16,060,821		(1,946,265	)		(452,075	)		—			503		13,662,984
Debentures		18,166,057		3,988,956			(417,542	)		(39,373	)		9,368		21,707,466
Total		34,226,878		2,042,691			(869,617	)		(39,373	)		9,871		35,370,450

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7. FINANCIAL ASSETS AT FVTPL:

Details of financial assets held for trading are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Deposits:
Gold banking assets		25,972		26,180
Securities:
Debt securities
Korean treasury and government agencies		191,383		202,599
Financial institutions		817,444		938,329
Equity securities		156		24,762
Securities loaned		—		4,459
Subtotal		1,008,983		1,170,149
Derivative assets		3,098,769		2,880,543
Total		4,133,724		4,076,872

There are no financial assets designated as at FVTPL as of December 31, 2017 and 2016.

8. AFS FINANCIAL ASSETS:

Details of AFS financial assets are as follows (Unit: Korean won in millions):

	As of December 31, 2017
	Amortized cost		Cumulative gains on valuation		Cumulative losses on valuation			Fair value
Debt securities:
Korean treasury and government agencies		2,315,022		1,375		(10,443	)		2,305,954
Financial institutions		5,225,922		1,504		(10,159	)		5,217,267
Corporates		2,662,170		974		(5,112	)		2,658,032
Bond denominated in foreign currencies		1,904,303		1,202		(9,391	)		1,896,114
Subtotal		12,107,417		5,055		(35,105	)		12,077,367
Equity securities		829,443		390,404		(3,038	)		1,216,809
Beneficiary certificates		705,290		20,626		(3,644	)		722,272
Securities loaned		169,989		664		(397	)		170,256
Total		13,812,139		416,749		(42,184	)		14,186,704

	As of December 31, 2016
	Amortized cost		Cumulative gains on valuation		Cumulative losses on valuation			Fair value
Debt securities:
Korean treasury and government agencies		2,829,682		13,700		(3,759	)		2,839,623
Financial institutions		4,283,530		7,585		(3,904	)		4,287,211
Corporates		3,044,829		18,596		(2,423	)		3,061,002
Bond denominated in foreign currencies		895,352		905		(4,756	)		891,501
Subtotal		11,053,393		40,786		(14,842	)		11,079,337
Equity securities		919,916		363,807		(1,633	)		1,282,090
Beneficiary certificates		5,217,163		39,571		(5,878	)		5,250,856
Securities loaned		493,625		3,040		(3,086	)		493,579
Total		17,684,097		447,204		(25,439	)		18,105,862

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9. HTM FINANCIAL ASSETS:

Details of HTM financial assets are as follows (Unit: Korean won in millions):

	As of December 31, 2017
	Amortized cost		Cumulative gains on valuation		Cumulative losses on valuation			Fair value
Korean treasury and government agencies		3,994,857		6,944		(15,267	)		3,986,534
Financial institutions		7,245,426		2,923		(15,067	)		7,233,282
Corporates		5,311,970		12,367		(25,326	)		5,299,011
Bond denominated in foreign currencies		86,474		281		(649	)		86,106
Total		16,638,727		22,515		(56,309	)		16,604,933

	As of December 31, 2016
	Amortized cost		Cumulative gains on valuation		Cumulative losses on valuation			Fair value
Korean treasury and government agencies		3,754,355		26,366		(6,391	)		3,774,330
Financial institutions		5,168,487		9,236		(4,940	)		5,172,783
Corporates		4,823,356		58,176		(7,093	)		4,874,439
Bond denominated in foreign currencies		46,068		—		(25	)		46,043
Total		13,792,266		93,778		(18,449	)		13,867,595

10. LOANS AND RECEIVABLES:

(1) Details of loans and receivables are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Due from banks		7,392,805		13,147,281
Loans		235,237,937		221,089,139
Other loans and receivables		6,179,882		7,271,628
Total		248,810,624		241,508,048

(2) Details of due from banks are as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Due from banks in local currency:
Due from The Bank of Korea (“BOK”)		6,246,496			11,395,162
Others		79,394			56,355
Allowance for credit losses		(1,541	)		(2,798	)
Subtotal		6,324,349			11,448,719
Due from banks in foreign currencies:
Due from banks on demand		660,582			702,023
Time deposits		65,052			523,473
Others		343,361			474,472
Allowances for credit losses		(539	)		(1,406	)
Subtotal		1,068,456			1,698,562
Total		7,392,805			13,147,281

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(3) Details of restricted due from banks are as follows (Unit: Korean won in millions):

	Counterparty	December 31, 2017		Reason of restriction
Due from banks in local currency:
Due from BOK	BOK		6,246,496	Reserve deposits under the BOK Act
Others	The Korea Exchange and others		79,394	Central counterparty KRW margin and others
Subtotal			6,325,890
Due from banks in foreign currencies:
Due from banks on demand	BOK and others		654,718	Reserve deposits under the BOK Act and others
Others	Korea Investment & Securities Co., Ltd. and others		72,700	Deposits for foreign futures and options trading and others
Subtotal			727,418
Total			7,053,308

	Counterparty	December 31, 2016		Reason of restriction
Due from banks in local currency:
Due from BOK	BOK		11,395,162	Reserve deposits under the BOK Act
Others	The Korea Exchange and others		55,304	Central counterparty KRW margin and others
Subtotal			11,450,466
Due from banks in foreign currencies:
Due from banks on demand	BOK and others		678,999	Reserve deposits under the BOK Act and others
Others	Korea Investment & Securities Co., Ltd. and others		474,472	Deposits for foreign futures and options trading and others
Subtotal			1,153,471
Total			12,603,937

(4) Details of loans are as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Loans in local currency		198,504,623			190,099,544
Loans in foreign currencies		7,543,489			8,697,795
Domestic banker’s letter of credit		2,516,907			3,754,030
Bills bought in foreign currencies		8,071,263			7,691,879
Bills bought in local currency		194,234			322,189
Factoring receivables		134,634			95,173
Advances for customers on guarantees		21,512			24,132
Private placement bonds		158,193			222,926
Call loans		2,389,325			2,813,706
Bonds purchased under resale agreements		16,726,510			8,532,924
Loan origination costs and fees		489,008			447,073
Others		626			21,626
Discounted present value		(7,272	)		(11,490	)
Allowance for credit losses		(1,505,115	)		(1,622,368	)
Total		235,237,937			221,089,139

- 40 -

(5) Details of other loans and receivables are as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Receivables		4,201,407			4,849,111
Accrued income		927,297			970,789
Telex and telephone subscription rights and refundable deposits		947,341			986,242
Other receivables		157,632			632,875
Allowance for credit losses		(53,795	)		(167,389	)
Total		6,179,882			7,271,628

(6) Changes in the allowances for credit losses on loans and receivables are as follows (Unit: Korean won in millions):

	For the year ended December 31, 2017
	Consumers			Corporates			Others			Total
Beginning balance		(155,338	)		(1,467,030	)		(171,593	)		(1,793,961	)
Net reversal of provision (net provision)		(129,319	)		(528,377	)		31,660			(626,036	)
Recoveries		(45,053	)		(82,463	)		—			(127,516	)
Charge-offs		138,771			434,160			54,793			627,724
Sales of loans and receivables		898			65,145			29,265			95,308
Unwinding effect		8,639			36,390			—			45,029
Others (*)		—			218,462			—			218,462
Ending balance		(181,402	)		(1,323,713	)		(55,875	)		(1,560,990	)

(*) Others are due to debt-equity swap, fluctuation of foreign currencies exchange rates, etc.

	For the year ended December 31, 2016
	Consumers			Corporates			Others			Total
Beginning balance		(196,056	)		(1,649,828	)		(417,602	)		(2,263,486	)
Net provision		(73,331	)		(537,037	)		(82,648	)		(693,016	)
Recoveries of loans previously charged off		(53,674	)		(185,787	)		—			(239,461	)
Charge-offs		155,367			717,123			236,857			1,109,347
Sales of loans and receivables		2,055			113,177			91,800			207,032
Unwinding effect		10,317			66,657			—			76,974
Others (*)		(16	)		8,665			—			8,649
Ending balance		(155,338	)		(1,467,030	)		(171,593	)		(1,793,961	)

(*) Others are due to debt-equity swap, fluctuation of foreign currencies exchange rates, etc.

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11. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES:

(1) The fair value hierarchy

The fair value hierarchy is determined by the levels of judgment involved in estimating fair values of financial assets and liabilities. The specific financial instruments’ characteristics and market conditions, such as volume of transactions and transparency, are reflected to the market observable inputs. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities. The Bank maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value of its financial assets and financial liabilities. Fair value is measured based on the perspective of a market participant. As such, even when market assumptions are not readily available, the Bank’s own assumptions reflect those that market participants would use for measuring the assets or liabilities at the measurement date.

The fair value measurement is described in one of the following three levels used to classify fair value measurements:

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. The types of financial assets or liabilities generally included in Level 1 are publicly traded equity securities, derivatives and debt securities issued by governmental bodies.

• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e., prices) or indirectly (i.e., derived from prices). The types of financial assets or liabilities generally included in Level 2 are debt securities not traded in active markets and derivatives traded in the OTC market but do not require significant judgment.

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). The types of financial assets or liabilities generally included in Level 3 are non-public securities and derivatives and debt securities whose valuation techniques require significant judgments and subjectivity.

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Bank’s assessment of the significance of a particular input to a fair value measurement in its entirety requires judgment and consideration of inherent factors of the asset or liability.

(2) Fair value hierarchy of financial assets and liabilities measured at current fair value is as follows (Korean won in millions):

	December 31, 2017
	Level 1 (*1)		Level 2 (*1)		Level 3 (*2)		Total
Financial assets:
Financial assets held for trading
Deposits		25,972		—		—		25,972
Debt securities		191,383		817,444		—		1,008,827
Equity securities		156		—		—		156
Derivative assets		1,021		3,076,369		21,379		3,098,769
Subtotal		218,532		3,893,813		21,379		4,133,724
AFS financial assets
Debt securities		2,536,578		9,540,789		—		12,077,367
Equity securities		398,756		—		818,053		1,216,809
Beneficiary certificates		—		66,765		655,507		722,272
Securities loaned		69,778		100,478		—		170,256
Subtotal		3,005,112		9,708,032		1,473,560		14,186,704

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	December 31, 2017
	Level 1 (*1)		Level 2 (*1)		Level 3 (*2)		Total
Derivative assets		—		59,272		—		59,272
Total		3,223,644		13,661,117		1,494,939		18,379,700
Financial liabilities:
Financial liabilities held for trading
Deposits		25,964		—		—		25,964
Derivative liabilities		2,613		3,115,664		20,941		3,139,218
Subtotal		28,577		3,115,664		20,941		3,165,182
Financial liabilities designated as at FVTPL
Equity-linked securities		—		—		160,057		160,057
Debentures		—		91,739		—		91,739
Subtotal		—		91,739		160,057		251,796
Derivative liabilities		—		12,103		—		12,103
Total		28,577		3,219,506		180,998		3,429,081

	December 31, 2016
	Level 1 (*1)		Level 2 (*1)		Level 3 (*2)		Total
Financial assets:
Financial assets held for trading
Deposits		26,180		—		—		26,180
Debt securities		202,598		938,330		—		1,140,928
Equity securities		24,762		—		—		24,762
Securities loaned		4,459		—		—		4,459
Derivative assets		3,233		2,854,248		23,062		2,880,543
Subtotal		261,232		3,792,578		23,062		4,076,872
AFS financial assets
Debt securities		1,422,209		9,657,128		—		11,079,337
Equity securities		427,084		—		855,006		1,282,090
Beneficiary certificates		—		4,738,287		512,569		5,250,856
Securities loaned		391,279		102,300		—		493,579
Subtotal		2,240,572		14,497,715		1,367,575		18,105,862
Derivative assets		—		140,478		99		140,577
Total		2,501,804		18,430,771		1,390,736		22,323,311
Financial liabilities:
Financial liabilities held for trading
Deposits		26,501		—		—		26,501
Derivative liabilities		1,750		2,964,912		33,436		3,000,098
Subtotal		28,251		2,964,912		33,436		3,026,599
Financial liabilities designated as at FVTPL
Equity-linked securities		—		197		673,709		673,906
Debentures		—		92,974		—		92,974
Sub Total		—		93,171		673,709		766,880
Derivative liabilities		—		7,221		—		7,221
Total		28,251		3,065,304		707,145		3,800,700

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(*1) There were no transfers between Level 1 and Level 2 of financial assets and liabilities measured at fair value. The Bank recognizes transfers among levels at the end of reporting period in which events have occurred or conditions have changed.

(*2) Certain AFS unquoted equity securities were measured at cost as of December 31, 2017 and 2016, that amounted to 17,260 million won and 38,401 million won, respectively. These unquoted equity instruments mostly represent minority investments in structured entity vehicles, such as asset securitization structures. They are measured at cost because (a) observable inputs of financial information to measure fair value were not available to obtain, (b) there was a significant variance in likely estimated cash flows or (c) the probabilities for various estimated cash flows could not be measured reliably. In addition, the Bank has no intention to dispose these investments in the foreseeable future.

Certain financial assets are carried at cost, even though K-IFRS requires them to be subsequently measured at their fair value, since they do not have quoted market prices in an active market and cannot be measured at fair value reliably. The carrying amount of the financial assets that have been disposed for the year ended December 31, 2017, is 1,266 million won, and the related loss from the disposals is 102 million won.

Financial assets and liabilities at FVTPL, AFS financial assets, held-for-trading financial assets and liabilities and derivative assets and liabilities are recognized at fair value. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Financial instruments are measured at fair value using a quoted market price in active markets. If there is no active market for a financial instrument, the Bank establishes the fair value using valuation techniques. Fair value measurement methods for each type of financial instruments are as follows:

	Fair value measurement technique	Input variables
Debt securities	The fair value is measured by discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the securities.	Risk-free market rate, credit spread
Equity securities and beneficiary certificates	Among Discounted Cash Flow (“DCF”) model, free cash flow to equity model, comparable company analysis, dividend discount model, risk-adjusted rate of return method and net asset value method, more than one method is used given the characteristic of the subject of fair value measurement.	Risk-free market rate, market risk premium, Beta, etc.
	Fair value measurement technique	Input variables
Derivatives	The in-house developed model is based on the models that are used by market participants in the valuation of general OTC derivative products, such as options, interest rate swaps, currency swap and currency forward that are based on inputs observable in the market. However, for some complicated financial instruments whose valuation should be based on some assumptions since some significant or all inputs to be used in the model are not observable in the market, the in-house derived model is developed from the general valuation models, such as Finite Difference Method (“FDM”) or Monte Carlo Simulation.	Risk-free market rate, forward rate, volatility, foreign exchange rate, stock prices, etc.
Equity-linked securities	The fair value of security linked to stock prices or derivatives is measured by the models such as DCF model, FDM model or Monte Carlo Simulation given the natures of the securities or underlying assets.	Values of underlying assets, risk-free market rate, market rate, dividend and convenience yield, volatility, correlation coefficient, credit spread and foreign exchange rate
Debentures	The fair value is measured by discounting the projected cash flows of a debenture by applying the market discount rate that is reflecting credit rating of the Bank.	Risk-free market rate of return and forward rate

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Techniques for the financial assets and financial liabilities at Level 3 and significant unobservable inputs are as follows:

	Fair value measurement technique	Input variable	Range	Impact of changes in significant unobservable inputs on fair value measurement
Derivative assets	Option valuation model and others	Correlation coefficient	0.900–0.980	Variation of fair value increases as correlation coefficient increases.
		Volatility of underlying asset	12.1%–28.1%	Variation of fair value increases as volatility increases.
Derivative liabilities	Option valuation model and others	Correlation coefficient	0.900–0.980	Variation of fair value increases as correlation coefficient increases.
		Volatility of underlying asset	12.1%–28.1%	Variation of fair value increases as volatility increases.
Equity-linked securities	Monte Carlo Simulation and others	Correlation coefficient	0.363–0.694	Equity-linked securities’ variation of fair value increases if both volatility and correlation coefficient increase. However, when correlation coefficient decreases despite the increase in volatility, the variation of fair value of a compound financial instrument may decrease.
		Volatility of underlying asset	6.8%–58.9%
Equity securities and beneficiary certificates	External appraisal value and others	Expected growth rate	0.0%–1.0%	Fair value increases as expected growth rate increases.
		Volatility of real estate sale price	0%	Fair value increases as sale price increases.
		Discount rate of lease cash flow and others	8.31%–8.54%	Fair value increases as discount rate of lease cash flow decreases.

Fair value of financial assets and liabilities classified into Level 3 is measured by the Bank using its own valuation techniques or using external specialists. Unobservable inputs used in the fair value measurements are produced by the internal system of the Bank and the appropriateness of inputs is audited regularly.

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(3) Changes in financial assets and liabilities classified into Level 3 are as follows (Unit: Korean won in millions):

	For the year ended December 31, 2017
	January 1, 2017		Net income (*1)		Other comprehensive income			Purchases/ issuances		Disposals/ settlements			Transfer to or out of Level 3 (*2)		December 31, 2017
Financial assets:
Financial assets held for trading
Derivative assets		23,062		22,351		—			1,398		(25,432	)		—		21,379
AFS financial assets
Equity securities		855,006		27,994		18,680			46,401		(130,028	)		—		818,053
Beneficiary certificates		512,569		2,312		(3,062	)		247,582		(103,894	)		—		655,507
Subtotal		1,367,575		30,306		15,618			293,983		(233,922	)		—		1,473,560
Derivative assets		99		329		—			—		(428	)		—		—
Total		1,390,736		52,986		15,618			295,381		(259,782	)		—		1,494,939
Financial liabilities:
Financial liabilities held for trading
Derivative liabilities		33,436		24,943		—			500		(37,938	)		—		20,941
Financial liabilities designated at FVTPL
Equity-linked securities		673,709		112,015		—			—		(625,667	)		—		160,057
Total		707,145		136,958		—			500		(663,605	)		—		180,998

(*1) The losses that increase the financial liabilities are presented as positive amounts, and the gains that decrease the financial liabilities are presented as negative amounts. The loss amounting to 34,992 million won for the year ended December 31, 2017, which is from financial assets and liabilities that the Bank holds as at the end of the periods, has been recognized in net gain (loss) on financial instruments at FVTPL and net gain (loss) on AFS financial assets in the separate statement of comprehensive income.

(*2) The Bank recognizes transfers among levels at the end of reporting period within which events have occurred or conditions have changed.

	For the year ended December 31, 2016
	January 1, 2016		Net income (loss) (*1)			Other comprehensive income (loss)			Purchases/ issuances		Disposals/ settlements			Transfer to or from level 3 (*2)			December 31, 2016
Financial assets:
Financial assets held for trading
Derivative assets (*3)		78,676		(29,208	)		—			13,640		(39,506	)		(540	)		23,062
AFS financial assets
Equity securities (*4)		833,744		(6,632	)		50,235			202,620		(205,790	)		(19,171	)		855,006
Beneficiary certificates		365,896		14,365			5,735			167,331		(40,758	)		—			512,569
Others		5,308		594			(643	)		—		(5,259	)		—			—
Subtotal		1,204,948		8,327			55,327			369,951		(251,807	)		(19,171	)		1,367,575
Derivative assets		5,973		3,877			—			—		(9,751	)		—			99
Total		1,289,597		(17,004	)		55,327			383,591		(301,064	)		(19,711	)		1,390,736
Financial liabilities:
Financial liabilities held for trading
Derivative liabilities		78,601		(8,404	)		—			1,155		(37,916	)		—			33,436
Financial liabilities designated as at FVTPL
Equity-linked securities		747,351		71,079			—			—		(144,721	)		—			673,709
Total		825,952		62,675			—			1,155		(182,637	)		—			707,145

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(*1) The loss amounting to 92,721 million won for the year ended December 31, 2016, which is from financial assets and liabilities that the Bank holds as at the end of the periods, has been recognized in net gain (loss) on financial instruments at FVTPL and net gain (loss) on AFS financial assets in the separate statement of comprehensive income.

(*2) The Bank recognizes transfers among levels at the end of reporting period within which events have occurred or conditions have changed.

(*3) As the variables used for the valuation of equity- and interest-related derivatives became observable in the market, such derivatives were transferred into Level 2 from Level 3.

(*4) AFS financial assets were transferred out of Level 1 to Level 3 upon the change of the fair value measurement method of the assets by using market. When the external valuation specialists previously used quoted prices in the active market, in the opposite case, they were transferred out of Level 3 to Level 1.

(4) Sensitivity analysis on the unobservable inputs used for measuring Level 3 financial instruments

The sensitivity analysis of the financial instruments has been performed by classifying favorable and unfavorable changes based on how changes in unobservable assumptions have effects on the fluctuations of financial instruments’ value. When the fair value of a financial instrument is affected by more than one unobservable assumption, the below table reflects the most favorable or the most unfavorable changes that result from varying the assumptions individually. The sensitivity analysis was performed for two types of Level 3 financial instruments: (1) interest rate-related derivatives, currency-related derivatives, equity-related derivatives and equity-linked securities whose fair value changes are recognized as net income and (2) equity securities and beneficiary certificates whose fair value changes are recognized as other comprehensive income. Equity securities classified as Level 3 but measured at costs are excluded from sensitivity analysis.

The following table shows the sensitivity analysis to disclose the effect of reasonably possible volatility on the fair value of Level 3 financial instruments for the years ended December 31, 2017 and 2016 (Unit: Korean won in millions):

	As of December 31, 2017										As of December 31, 2016
	Net income (loss)					Other comprehensive income (loss)					Net income (loss)					Other comprehensive income (loss)
	Favorable		Unfavorable			Favorable		Unfavorable			Favorable		Unfavorable			Favorable		Unfavorable
Financial assets:
Financial assets at FVTPL
Derivative assets (*1) (*2)		1,234		(526	)		—		—			861		(2,248	)		—		—
AFS financial assets
Equity securities (*3) (*4)		—		—			20,594		(12,398	)		—		—			24,270		(16,223	)
Beneficiary certificates (*4)		—		—			1,749		(1,695	)		—		—			2,813		(2,754	)
Total		1,234		(526	)		22,343		(14,093	)		861		(2,248	)		27,083		(18,977	)
Financial liabilities:
Financial liabilities held for trading
Derivative liabilities (*1) (*2)		5		(513	)		—		—			4,892		(3,568	)		—		—
Financial liabilities designated as at FVTPL
Equity-linked securities (*1)		8		(7	)		—		—			905		(857	)		—		—
Total		13		(520	)		—		—			5,797		(4,425	)		—		—

(*1) Fair value changes of equity-related derivative assets and liabilities and equity-linked securities are calculated by increasing or decreasing historical fluctuation rate of stock price and correlation, which are major unobservable variables, by 10%. In the case of interest rate and currency-related derivative assets and liabilities, fair value changes are calculated by increasing or decreasing volatility of interest rate and credit risk adjustment ratio, which are major unobservable variables, by 10%.

(*2) Both derivative assets and liabilities held for trading and hedging are included.

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(*3) Fair value changes of equity securities are calculated by increasing or decreasing growth rate (0%–1%) and discount rate or liquidation value (-1%–1%) and discount rate. The growth rate, discount rate and liquidation value are major unobservable variables.

(*4) Among the equity securities, even if the sensitivity analysis of the capital contributions and beneficiary certificates is not possible in practice, fair value changes of beneficiary certificates and other securities whose major unobservable variables are composed of the real estate are calculated by increasing or decreasing price fluctuation of real estate, which is underlying assets and discount rate by 1%.

Fair value and carrying amount of financial assets and liabilities that are recorded at amortized cost are as follows (Unit: Korean won in millions):

	December 31, 2017
	Fair value								Book value
	Level 1		Level 2		Level 3		Total
Financial assets:
HTM financial assets		1,206,292		15,398,641		—		16,604,933		16,638,727
Loans and receivables		—		—		247,784,211		247,784,211		248,810,624
Financial liabilities:
Deposits due to customers		—		224,355,148		—		224,355,148		224,384,156
Borrowings		—		13,631,522		—		13,631,522		13,662,984
Debentures		—		21,733,045		—		21,733,045		21,707,466
Other financial liabilities		—		13,028,595		—		13,028,595		13,029,421
	December 31, 2016
	Fair value								Book value
	Level 1		Level 2		Level 3		Total
Financial assets:
HTM financial assets		741,880		13,125,715		—		13,867,595		13,792,266
Loans and receivables		—		—		242,668,472		242,668,472		241,508,048
Financial liabilities:
Deposits due to customers		—		211,370,812		—		211,370,812		211,382,380
Borrowings		—		16,076,215		—		16,076,215		16,060,821
Debentures		—		18,401,138		—		18,401,138		18,166,057
Other financial liabilities		—		20,826,846		—		20,826,846		20,827,284

The fair values of financial instruments are measured using quoted market price in active markets. In case there is no active market for financial instruments, the Bank determines the fair value using alternative assumptions through developing fair value measurement methods. Alternative assumptions and fair value measurement methods for financial assets and liabilities that are measured at amortized costs are given as follows:

	Fair value measurement technique	Input variables
Debt securities	The fair value is measured by discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the securities.	Risk-free market rate and credit spread
Loans and receivables	The fair value is measured by discounting the projected cash flows of loan products by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the debtor.	Risk-free market rate, credit spread and prepayment rate
Deposits due to customers, borrowings, debentures and other financial liabilities	The fair value is measured by discounting the projected cash flows of debt products by applying the market discount rate that is reflecting credit rating of the Bank.	Risk-free market rate and forward rate

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12. DERECOGNITION AND OFFSET OF FINANCIAL INSTRUMENTS:

(1) Derecognition of financial assets

1) Transferred financial assets that meet condition of derecognition

The book value and fair value of continuous participation and maximum exposure to loss from the financial assets that were derecognized from the separate financial statements of the Bank through disposals, although the Bank still has continuous involvements, are as follows (Unit: Korean won in millions):

	December 31, 2017
	Type of continuous involvement	Book value of continuous participation		Fair value of continuous participation		Maximum exposure to loss
Conditional disposal of loans to KAMCO (*)	Post-settlement		—		—		—

(*) The post-settlement had been settled and there are no financial instruments that meet the derecognition conditions, but the Bank still has continuous involvements as of December 31, 2017.

	December 31, 2016
	Type of continuous involvement	Book value of continuous participation		Fair value of continuous participation		Maximum exposure to loss
Conditional disposal of loans to KAMCO (*)	Post-settlement		—		—		701

(*) As the amounts to be settled after the auction of collaterals are not fixed yet, expected cash flow cannot be reliably measured as of December 31, 2016, and the maximum exposure to loss is disclosed at the transfer price. Though the transfer does not qualify for derecognition in accordance with K-IFRS 1039, the Bank derecognized the financial asset from the separate financial statements applying the exception for retrospective application of transactions before the date of transition to K-IFRSs in K-IFRS 1101 – First-time Adoption of K-IFRS.

2) Transferred financial assets that do not meet the condition of derecognition

a) Disposal of securities under repurchase agreements

The financial instruments that were disposed but the Bank agreed to repurchase at the fixed amounts at the same time, so that they did not meet the conditions of derecognition, are as follows (Unit: Korean won in millions):

		December 31, 2017		December 31, 2016
Assets transferred	AFS financial assets		9,998		220,098
	HTM financial assets		5,436		7,133
	Total		15,434		227,231
Related liabilities	Bonds sold under repurchase agreements		3,173		106,605

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b) Securities loaned

When the Bank loans its securities to outside parties, the legal ownerships of the securities are transferred; however, they should be returned at the end of lending period. Therefore, the Bank does not derecognize them from the separate financial statements as it owns majority of risks and benefits from the securities continuously, regardless of the transfer of legal ownership. The carrying amounts of the securities loaned are as follows (Unit: Korean won in millions):

		December 31, 2017		December 31, 2016		Loaned to
Financial assets at FVTPL	Korean equity securities		—		4,459	Samsung Securities Co., Ltd. and others
AFS financial assets	Korean treasury and government agencies and others		170,256		493,579	Korea Securities Finance Corporation and others
	Total		170,256		498,038

The details of the transferred financial assets that are not derecognized in their entirety, such as disposal of securities under repurchase agreement or securities loaned, are explained in Note 18.

(2) The offset of financial assets and liabilities

The Bank possesses both the uncollected domestic exchange receivables and the unpaid domestic exchange payable, which satisfy offsetting criteria of K-IFRS 1032. Therefore, the total number of uncollected domestic exchange receivables or unpaid domestic exchange payable has been countervailed with part of unpaid domestic exchange payable or uncollected domestic exchange receivables and has been disclosed in loans and receivables or other financial liabilities of the Bank’s separate statements of financial position.

The Bank possesses the derivative assets, derivative liabilities, receivable spot exchange and payable spot exchange that do not satisfy the offsetting criteria of K-IFRS 1032, but provide the Bank under the circumstances of the trading party’s defaults, insolvency or bankruptcy, the right of offsetting. Item such as cash collateral cannot satisfy the offsetting criteria of K-IFRS 1032, but in accordance with the collateral arrangements and under the circumstances of the trading party’s default, insolvency or bankruptcy, the derivative assets, derivative liabilities, receivable spot exchange and net amount of payable spot exchange can be offset.

The Bank has entered into a sale and repurchase agreement and accounted it as a collateralized borrowing. The Bank has also entered into a purchase and resale agreement and accounted it as a secured loan. The repurchase and resale agreements can have the offsetting right only under the trading party’s default, insolvency or bankruptcy, which do not satisfy the offsetting criteria of K-IFRS 1032. The Bank recorded the collateralized borrowing in borrowings and the secured loans in loans and receivables. The Bank under the repurchase agreements has offsetting right only upon the counterparty’s default, insolvency or bankruptcy; thus, the repurchase agreements are applied by the TBMA/ISMA Global Master Repurchase Agreement, which does not satisfy the offsetting criteria of K-IFRS 1032. The Bank disclosed bonds sold (purchased) under repurchase agreements as borrowings (loans and receivables).

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As of December 31, 2017 and 2016, the financial instruments to be set off and maybe covered by master netting agreements and similar agreements are given as follows (Unit: Korean won in millions):

	December 31, 2017
	Gross amounts of recognized financial assets		Gross amounts of recognized financial assets set off		Net amounts of financial assets presented		Related amounts not set off in the statement of financial position				Net amounts
							Netting agreements and others		Cash collateral received
Financial assets:
Derivative assets and others (*1)		2,979,492		1,710		2,977,782
Receivable spot exchange (*2)		3,674,864		—		3,674,864		5,694,421		174,415		783,810
Bonds purchased under resale agreements (*2)		16,726,510		—		16,726,510		16,726,510		—		—
Domestic exchanges receivable (*2) (*5)		39,045,597		38,985,354		60,243		—		—		60,243
Total		62,426,463		38,987,064		23,439,399		22,420,931		174,415		844,053
	December 31, 2017
	Gross amounts of recognized financial liabilities		Gross amounts of recognized financial liabilities set off		Net amounts of financial liabilities presented		Related amounts not set off in the statement of financial position				Net amounts
							Netting agreements and others		Cash collateral pledged
Financial liabilities:
Derivative liabilities and others (*1)		3,137,297		1,710		3,135,587
Payable spot exchange (*3)		3,674,737		—		3,674,737		5,817,331		157,750		835,243
Bonds sold under repurchase agreements (*4)		3,173		—		3,173		3,173		—		—
Domestic exchanges payable (*3) (*5)		40,279,285		38,985,354		1,293,931		1,293,931		—		—
Total		47,094,492		38,987,064		8,107,428		7,114,435		157,750		835,243
	December 31, 2016
	Gross amounts of recognized financial assets		Gross amounts of recognized financial assets set off		Net amounts of financial assets presented		Related amounts not set off in the statement of financial position				Net amounts
							Netting agreements and others		Cash collateral received
Financial assets:
Derivative assets and others (*1)		2,954,667		8,442		2,946,225
Receivable spot exchange (*2)		4,375,738		—		4,375,738		6,239,981		69,834		1,012,148
Bonds purchased under resale agreements (*2)		8,532,924		—		8,532,924		8,532,924		—		—
Domestic exchanges receivable (*2) (*5)		31,452,718		30,883,281		569,437		—		—		569,437
Total		47,316,047		30,891,723		16,424,324		14,772,905		69,834		1,581,585

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	December 31, 2016
	Gross amounts of recognized financial liabilities		Gross amounts of recognized financial liabilities set off		Net amounts of financial liabilities presented		Related amounts not set off in the statement of financial position				Net amounts
							Netting agreements and others		Cash collateral pledged
Financial liabilities:
Derivative liabilities and others (*1)		3,459,959		8,442		3,451,517
Payable spot exchange (*3)		4,380,424		—		4,380,424		6,389,463		105,270		1,337,208
Bonds sold under repurchase agreements (*4)		106,605		—		106,605		106,605		—		—
Domestic exchanges payable (*3) (*5)		39,341,233		30,883,281		8,457,952		6,161,151		—		2,296,801
Total		47,288,221		30,891,723		16,396,498		12,657,219		105,270		3,634,009

(*1) The items include derivatives held for trading, derivatives held for hedging and equity-linked securities.

(*2) The items are included in loans and receivables.

(*3) The items are included in other financial liabilities.

(*4) The items are included in borrowings.

(*5) Certain financial assets and liabilities are presented as net amounts.

13. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES:

(1) The Bank has the following subsidiaries (Unit: Korean won in 100 million, USD in 10 thousand, CNY in 100 million, RUB in 100 million, IDR in 100 million, BRL in 10 thousand, PHP in 100 million, VND in trillions):

Subsidiaries	Location	Capital stock		Main business
Woori FIS Co., Ltd.	Korea	KRW	245	System software development and maintenance
Woori Private Equity Asset Management Co., Ltd.	Korea	KRW	300	Finance
Woori Finance Research Institute Co., Ltd.	Korea	KRW	30	Other service business
Woori Card Co., Ltd. (*1)	Korea	KRW	8,963	Finance
Woori Investment Bank Co., Ltd. (*1)	Korea	KRW	3,371	Other credit finance business
Woori Private Equity Fund (*2)	Korea	KRW	—	Other financial business
Woori Credit Information Co., Ltd.	Korea	KRW	50	Credit information
Woori America Bank (*1)	America	USD	19,250	Finance
PT Bank Woori Saudara Indonesia 1906 Tbk (*1) (*3)	Indonesia	IDR	6,720	Finance
Woori Global Markets Asia Limited	Hong Kong	USD	10,000	Finance
Woori Bank China Limited	China	CNY	21.6	Finance
AO Woori Bank	Russia	RUB	14.5	Finance
Banco Woori Bank do Brasil S.A.	Brazil	BRL	7,709	Finance
Korea BTL Infrastructure Fund (*1)	Korea	KRW	7,800	Finance
Woori Fund Service Co., Ltd.	Korea	KRW	100	Finance
Woori Finance Cambodia PLC. (*1)	Cambodia	USD	1,300	Finance
Woori Finance Myanmar Co., Ltd. (*1)	Myanmar	USD	1,200	Finance
Wealth Development Bank	Philippine	PHP	7.7	Finance
Woori Bank Vietnam Limited	Vietnam	VND	3	Finance

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	December 31, 2017						December 31, 2016
Subsidiaries	Number of shares owned		Percentage of ownership (%)		Financial statements as of		Number of shares owned		Percentage of ownership (%)		Financial statements as of
Woori FIS Co., Ltd.		4,900,000		100.0		Dec.31, 2017		4,900,000		100.0	Dec.31, 2016
Woori Private Equity Asset Management Co., Ltd.		6,000,000		100.0		Dec.31, 2017		6,000,000		100.0	Dec.31, 2016
Woori Finance Research Institute Co., Ltd.		600,000		100.0		Dec.31, 2017		600,000		100.0	Dec.31, 2016
Woori Card Co., Ltd. (*1)		179,266,200		100.0		Dec.31, 2017		169,266,200		100.0	Dec.31, 2016
Woori Investment Bank Co., Ltd. (*1)		403,404,538		59.8		Dec.31, 2017		275,761,491		58.2	Dec.31, 2016
Woori Private Equity Fund (*2)		—		—		—		46,061		28.9	Dec.31, 2016
Woori Credit Information Co., Ltd.		1,008,000		100.0		Dec.31, 2017		1,008,000		100.0	Dec.31, 2016
Woori America Bank (*1)		38,500,000		100.0		Dec.31, 2017		24,500,000		100.0	Dec.31, 2016
PT Bank Woori Saudara Indonesia 1906 Tbk (*1) (*3)		5,256,690,211		79.9		Dec.31, 2017		3,754,701,359		74.0	Dec.31, 2016
Woori Global Markets Asia Limited		78,000,000		100.0		Dec.31, 2017		78,000,000		100.0	Dec.31, 2016
Woori Bank China Limited		—		100.0		Dec.31, 2017		—		100.0	Dec.31, 2016
AO Woori Bank		57,999,999		100.0		Dec.31, 2017		57,999,999		100.0	Dec.31, 2016
Banco Woori Bank do Brasil S.A.		77,093,999		100.0		Dec.31, 2017		77,093,999		100.0	Dec.31, 2016
Korea BTL Infrastructure Fund (*1)		155,805,801		99.9		Dec.31, 2017		155,270,233		99.9	Dec.31, 2016
Woori Fund Service Co., Ltd.		2,000,000		100.0		Dec.31, 2017		2,000,000		100.0	Dec.31, 2016
Woori Finance Cambodia PLC. (*1)		13,000,000		100.0		Dec.31, 2017		3,000,000		100.0	Dec.31, 2016
Woori Finance Myanmar Co., Ltd. (*1)		1,200,000		100.0		Dec.31, 2017		200,000		100.0	Dec.31, 2016
Wealth Development Bank		3,931,365		51.0		Dec.31, 2017		3,931,365		51.0	Dec.31, 2016
Woori Bank Vietnam Limited		—		100.0		Dec.31, 2017		—		100.0	Dec.31, 2016

(*1) The Bank’s capital stock and number of holding shares have increased, attributed to capital increase of subsidiaries during the year ended December 31, 2017.

(*2) Due to liquidation of Woori Private Equity Asset Management Co., Ltd., the entity was excluded from subsidiaries during the year ended December 31, 2017.

(*3) The ownership ratio has been increased, attributed to unequal capital increase of the subsidiary.

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(2) As for the structured entities in accordance with K-IFRS 1110 and K-IFRS 1112, it is determined that the Bank controls the entity after considering facts and circumstances, such as the Bank’s power over the entity’s related business activities, the Bank’s exposure to variable returns from the its involvement with the entity and the Bank’s ability to affect the returns through its power over the entity.

1) Details of structured entities that the Bank controls are as follows:

	As of December 31, 2017
Structured entities	Location		Main business		Percentage of ownership (%)		Financial statements as of
Structured entities established for securitization of financial assets (*1)
Kumho Trust First Co., Ltd. and 19 structured entities		Korea		Asset securitization		—		Dec. 31, 2017
KAMCO Value Recreation First Securitization Specialty Co., Ltd.		Korea		Asset securitization		15.0		Dec. 31, 2017
Money Trust by Trust Business Act (*2)
Principal Guaranteed Trust and Principal and Interest Guaranteed Trust		Korea		Trust		—		Dec. 31, 2017
Structured entities established for investment in securities and others
GS Pro Short-term Bond Investment Fund 13 and 3 structured entities		Korea		Investment securities		100.0		Dec. 31, 2017
HeungkukWoori Tech Company Private Placement Investment Trust No. 1		Korea		Investment securities		98.0		Dec. 31, 2017
Consus Sakhalin Real Estate Investment Trust 1st		Korea		Investment securities		75.0		Dec. 31, 2017
	As of December 31, 2016
Structured entities	Location		Main business		Percentage of ownership (%)		Financial statements as of
Structured entities established for securitization of financial assets (*1)
Kumho Trust First Co., Ltd. and 14 structured entities		Korea		Asset securitization		—		Dec. 31, 2016
KAMCO Value Recreation First Securitization Specialty Co., Ltd.		Korea		Asset securitization		15.0		Dec. 31, 2016
Money Trust by Trust Business Act (*2)
Principal Guaranteed Trust and Principal and Interest Guaranteed Trust		Korea		Trust		—		Dec. 31, 2016
Structured entities established for investment in securities and others
Samsung Plus Private Equity Investment Trust 36th and 33 structured entities		Korea		Investment securities		100.0		Dec. 31, 2016
Consus Sakhalin Real Estate Investment Trust 1st		Korea		Investment securities		75.0		Dec. 31, 2016

(*1) It is determined that the Bank controls the entity after considering all the facts and circumstances, such as the Bank’s power over the entity’s related business activities, the Bank’s exposure to variable returns from its involvement with the entity and the Bank’s ability to affect the returns through its power over the entity, even though the Bank holds less than 50% ownership interest of the entity.

(*2) The Bank controls the trust because it has power that determines the management performance over the trust and is exposed to variable returns to absorb losses through the guarantees of payment of principal and fixed rate of return.

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2) The following companies have been excluded from the consolidation scope despite the Bank’s majority ownership interest as of December 31, 2017 and 2016:

	As of December 31, 2017
Subsidiaries	Location		Main business		Percentage of ownership (%)
Golden Bridge NHN Online Private Equity Investment (*)		Korea		Investment securities		60.0
Mirae Asset Maps Clean Water Private Equity Investment Trust 7th (*)		Korea		Investment securities		59.7
Kiwoom Yonsei Private Equity Investment Trust (*)		Korea		Investment securities		88.9
Hana Qualified Investor Private Real Estate Investment Trust No. 41-1(*)		Korea		Investment securities		77.0
IGIS Global Private Placement Real Estate Fund No. 148-1(*)		Korea		Investment securities		69.0
IGIS Global Private Placement Real Estate Fund No. 148-2(*)		Korea		Investment securities		69.0

	As of December 31, 2016
Subsidiaries	Location		Main business		Percentage of ownership (%)
Golden Bridge NHN Online Private Equity Investment (*)		Korea		Investment securities		60.0
Mirae Asset Maps Clean Water Private Equity Investment Trust 7th (*)		Korea		Investment securities		59.7
Kiwoom Yonsei Private Equity Investment Trust (*)		Korea		Investment securities		88.9
Kiwoom Frontier Professional Investment Private Fund 6(Bond) (*)		Korea		Investment securities		50.0

(*) The Bank owns the majority ownership interest in these structured entities, but has no power over the investees’ relevant activities. As a result, it is deemed that the Bank has no power or control over the structured entities.

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(3) Investments in associates are as follows (Unit: Korean won in 100 million):

						December 31, 2017
Investees	Location		Capital		Main business	Number of shares owned		Percentage of ownership (%)		Financial statements as of
Kumho Tires Co., Inc. (*1)(*5)		Korea		7,900	Manufacturing		22,357,561		14.2	Sep. 30, 2017(*6)
Woori Blackstone Korea Opportunity No. 1 Private Equity Fund (*15)		Korea		—	Other finance business		—		—	—
Woori Service Networks Co., Ltd. (*3)		Korea		5	Freight and staffing		4,704		4.9	Nov. 30, 2017(*6)
Korea Credit Bureau Co., Ltd. (*2)		Korea		100	Credit information		180,000		9.9	Dec. 31, 2017
Korea Finance Security Co., Ltd. (*3)		Korea		60	Security service		180,000		15.0	Nov. 30, 2017(*6)
Chin Hung International Inc. (*5)(*9)		Korea		733	Construction		37,059,405		25.3	Nov. 30, 2017(*6)
Poonglim Industrial Co., Ltd. (*7)		Korea		736	Construction		4,142,782		29.0	Sep. 30, 2017(*6)
STX Engine Co., Ltd. (*1)(*5)(*18)		Korea		691	Manufacturing		8,082,650		29.2	—
Samho International Co., Ltd. (*5)(*17)		Korea		—	Construction		—		—	—
Force TEC Co., Ltd. (*4)(*11)		Korea		—	Freight and staffing		—		—	—
STX Corporation (*1)(*5)(*12)		Korea		478	Wholesale of non-specialized goods		3,772,400		19.7	Sep. 30, 2017(*6)
Saman Corporation (*2)		Korea		7	General construction and technology service		12,542		9.2	Sep. 30, 2017(*6)
Dongwoo C & C Co., Ltd. (*4)		Korea		7	Construction		13,317		23.2	—
SJCO Co., Ltd. (*4)		Korea		26	Aggregate transportation and wholesale		70,529		26.5	—
G2 collection Co., Ltd. (*4)		Korea		2	Wholesale and retail sales		12,574		28.9	—
The Base Enterprise Co., Ltd. (*4)		Korea		7	Manufacturing		68,470		48.4	—
Heungjiwon Co., Ltd. (*4)(*14)		Korea		—	Other printing		—		—	—
Kyesan Engineering Co., Ltd. (*4)		Korea		13	Construction		60,581		23.2	—
Good Software Lab Co., Ltd. (*4)		Korea		3	Service		17,121		28.9	—
Wongwang Co., Ltd. (*4)		Korea		1	Wholesale and real estate		2,590		29.0	—
Sejin Construction Co., Ltd. (*4)		Korea		4	Construction		12,123		29.6	—
Deokwon Food Co., Ltd. (*4)(*14)		Korea		—	Poultry processing and storage		—		—	—
QTS Shipping Co., Ltd. (*4)		Korea		4	Complex transportation brokerage		17,460		49.4	—
Reading Doctors Co., Ltd. (*4)(*10)		Korea		1	Other services		7,398		35.4	—
PREXCO Co., Ltd. (*4)(*10)		Korea		16	Manufacturing		919,972		28.1	—
Hyunwoo International Co., Ltd. (*4)(*10)		Korea		12	Manufacturing		59,873		25.9	—
Jiwon Plating Co., Ltd. (*4)(*16)		Korea		7	Plating		28,705		20.5
Cultizm Korea LTD Co., Ltd. (*4)(*16)		Korea		0.14	Wholesale and retail sales		858		31.3	—
Gil Co., Ltd. (*4)(*16)		Korea		9	Manufacturing		44,662		26.1	—
NK Eng Co., Ltd. (*4)(*10)		Korea		15	Manufacturing		697,033		23.1	—
Woori Growth Partnerships New Technology Private Equity Fund (*13)		Korea		1,249	Other financial services		28,333		23.1	Dec. 31, 2017
DAEA SNC Co., Ltd. (*4)		Korea		1	Wholesale and retail sales		1,253		24.0	—
ARES-TECH Co., Ltd. (*4)		Korea		2	Electronic component manufacturing		7,187		23.4	—
2016KIF-IMM Woori Bank Technology Venture Fund (*13)		Korea		342	Other financial services		6,840,000,000		20.0	Dec. 31, 2017
K BANK Co., Ltd. (*2)(*13)		Korea		3,500	Finance		9,078,462		13.0	Nov. 30, 2017(*6)
Smart Private Equity Fund No. 2 (*8)		Korea		150	Other financial services		3,000		20.0	Dec. 31, 2017
Woori Bank-Company K Korea Movie Asset Fund (*8)		Korea		120	Other financial services		3,000		25.0	Dec. 31, 2017
Well to Sea No. 3 Private Equity Fund (*8)		Korea		2,051	Finance		102,500,000,000		50.0	Sep. 30, 2017(*6)

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						December 31, 2016
Investees	Location		Capital		Main business	Number of shares owned		Percentage of ownership (%)		Financial statements as of
Kumho Tires Co., Inc. (*1)(*5)		Korea		7,900	Manufacturing		22,357,561		14.2	Sep. 30, 2016(*6)
Woori Blackstone Korea Opportunity No. 1 Private Equity Fund (*15)		Korea		295	Other finance business		6,332,435,273		21.4	Dec. 31, 2016
Woori Service Networks Co., Ltd. (*3)		Korea		5	Freight and staffing		4,704		4.9	Nov. 30, 2016(*6)
Korea Credit Bureau Co., Ltd. (*2)		Korea		100	Credit information		180,000		9.9	Dec. 31, 2016
Korea Finance Security Co., Ltd. (*3)		Korea		60	Security service		180,000		15.0	Nov. 30, 2016(*6)
Chin Hung International Inc. (*5)(*9)		Korea		769	Construction		43,709,400		28.4	Nov. 30, 2016(*6)
Poonglim Industrial Co., Ltd. (*7)		Korea		736	Construction		4,146,811		29.7	Sep. 30, 2016(*6)
STX Engine Co., Ltd. (*1)(*5)(*18)		Korea		691	Manufacturing		8,082,650		29.2	Sep. 30, 2016(*6)
Samho International Co., Ltd. (*5)(*17)		Korea		759	Construction		1,190,000		7.8	Dec. 31, 2016
Force TEC Co., Ltd. (*4)(*11)		Korea		118	Freight and staffing		8,087,128		34.4	—
STX Corporation (*1)(*5)(*12)		Korea		748	Wholesale of non-specialized goods		4,472,248		9.5	Sep. 30, 2016(*6)
Saman Corporation (*2)		Korea		7	General construction and technology service		12,542		9.2	Sep. 30, 2016(*6)
Dongwoo C & C Co., Ltd. (*4)		Korea		7	Construction		13,317		23.2	—
SJCO Co., Ltd. (*4)		Korea		26	Aggregate transportation and wholesale		70,529		26.5	—
G2 collection Co., Ltd. (*4)		Korea		2	Wholesale and retail sales		12,574		28.9	—
The Base Enterprise Co., Ltd. (*4)		Korea		7	Manufacturing		68,470		48.4	—
Heungjiwon Co., Ltd. (*4)(*14)		Korea		6	Other printing		32,849		27.8	—
Kyesan Engineering Co., Ltd. (*4)		Korea		13	Construction		60,581		23.2	—
Good Software Lab Co., Ltd. (*4)		Korea		3	Service		17,121		28.9	—
Wongwang Co., Ltd. (*4)		Korea		1	Wholesale and real estate		2,590		29.0	—
Sejin Construction Co., Ltd. (*4)		Korea		4	Construction		12,123		29.6	—
Deokwon Food Co., Ltd. (*4) (*14)		Korea		3	Poultry processing and storage		14,300		27.3	—
QTS Shipping Co., Ltd. (*4)		Korea		3	Complex transportation brokerage		17,460		49.4	—
Woori Growth Partnerships New Technology Private Equity Fund (*13)		Korea		589	Other finance services		13,602		23.1	Dec. 31, 2016
DAEA SNC Co., Ltd. (*4)		Korea		1	Wholesale and retail sales		1,253		24.0	—
ARES-TECH Co., Ltd. (*4)		Korea		2	Electronic component manufacturing		7,187		23.4	—
2016KIF-IMM Woori Bank Technology Venture Fund (*13)		Korea		90	Other financial services		1,800,000,000		20.0	Dec. 31, 2016
K BANK Co., Ltd. (*2)(*13)		Korea		2,500	Finance		6,500,000		13.0	Nov. 30, 2016(*6)

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(*1) The Bank has significant influence over the creditors’ council, which makes the financial and operating policy decisions.

(*2) The Bank can participate in the decision-making body and exercise significant influence over the associates through business partnerships.

(*3) Most of the significant business transactions are with the Bank as of December 31, 2017 and 2016.

(*4) The carrying values of investments in Reading Doctors Co., Ltd., PREXCO Co., Ltd., Hyunwoo International Co., Ltd., Jiwon Plating Co., Ltd., Cultizm Korea LTD Co., Ltd., Gil Co., Ltd. and NK Eng Co., Ltd. are nil as of December 31, 2017, and in Force TEC Co., Ltd. and Deokwon Food Co., Ltd. are nil as of December 31, 2016. Furthermore, investments in Dongwoo C&C Co., Ltd., SJCO Co., Ltd., G2 Collection Co., Ltd., The Base Enterprise Co., Ltd., Heungjiwon Co., Ltd., Kyesan Engineering Co., Ltd., Good Software Lab Co., Ltd., Wongwang Co., Ltd., Sejin Construction Co., Ltd., QTS Shipping Co., Ltd., DAEA SNC Co., Ltd. and ARES-TECH Co., Ltd. are nil as of December 31, 2017 and 2016.

(*5) The investments in associates that have quoted market prices are Kumho Tire Co., Ltd. (current period: KRW 4,425, previous year: KRW 8,480), Chin Hung International Inc. (current period: KRW 1,915, previous year: KRW 2,090), STX Engine Co., Ltd. (current period: KRW 9,150, previous year: KRW 6,630), Samho International Co., Ltd. (previous year: KRW 16,900) and STX Corporation (previous year: KRW 1,660).

(*6) The significant transactions and events at the end of reporting period of the associates and the Bank have been properly incorporated.

(*7) The Bank has sold a part of shares of the associate, so the number of holding shares has decreased during the year ended December 31, 2017.

(*8) Due to capital contribution by the Bank during the year ended December 31, 2017, the entities were included in the investment in associates.

(*9) Due to the consolidation of stocks and debt-equity swap of the associates, the Bank’s number of holding shares and ownership ratio decreased during the year ended December 31, 2017.

(*10) Even though the Bank’s ownership ratio of the entity was more than 20%, the Bank did not have significant influence over the entity because the entity was going through workout process under receivership and thus was excluded from the investment in associates. However, as the workout process was completed during the year ended December 31, 2017, it has been included in the investment in associates.

(*11) Force TEC Co., Ltd. is not in scope for the associates because the Bank does not have significant influence over the entity because the entity is going through workout process under receivership as of December 31, 2017.

(*12) Due to debt-equity swap of the associate, capital stock, the Bank’s number of holding shares and ownership ratio increased during the year ended December 31, 2017.

(*13) Due to capital increase of associates, the Bank’s capital stock and number of holding shares increased during the year ended December 31, 2017.

(*14) As the Bank sold its entire ownership interest of the entity, it was excluded from the investment in associates during the year ended December 31, 2017.

(*15) As the associate is on the liquidation process, it has returned the capital contribution of the Bank during the year ended December 31, 2017, and the Bank does not have capital stock and holding shares as of December 31, 2017. The residual property of the entity is to be distributed according to ownership ratio.

(*16) Due to debt-equity swap, the entity was included in the investment in associates during the year ended December 31, 2017.

(*17) The entity was sold after it was transferred to assets held for sale and was excluded from the investment in associates.

(*18) The shares of STX Engine Co., Ltd. owned by the Bank were reclassified as assets held for sale, as the creditor financial institutions committee entered into a contract with UAMCO during the current period to sell STX Engine Co., Ltd. shares.

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(4) The entities excluded from associates, although the Bank’s ownership interest in them is higher than 20% as of December 31, 2017 and 2016, are as follows:

	As of December 31, 2017
Associate (*)	Number of shares owned		Percentage of ownership
Orient Shipyard Co., Ltd.		465,050		21.4	%
Saenuel Co., Ltd.		3,531		37.4	%
E Mirae Tech Co., Ltd.		7,696		41.0	%
Jehin Trading Co., Ltd.		81,610		27.3	%
The Season Company Co., Ltd.		18,187		30.1	%
Yuil PESC Co., Ltd.		8,642		24.0	%
Youngdong Sea Food Co., Ltd.		12,106		24.0	%
Sinseong Trading Co., Ltd.		2,584		27.2	%
CL Tech Co., Ltd.		13,759		38.6	%
Force TEC Co., Ltd.		4,780,907		25.8	%
Protronics Co., Ltd.		95,921		48.1	%
Instern Co., Ltd.		14,296		20.1	%

	As of December 31, 2016
Associate (*)	Number of shares owned		Percentage of ownership
Orient Shipyard Co., Ltd.		465,050		23.0	%
Saenuel Co., Ltd.		3,531		37.4	%
E Mirae Tech Co., Ltd.		7,696		41.0	%
Jehin Trading Co., Ltd.		81,610		27.3	%
NK Eng Co., Ltd.		697,033		23.1	%
The Season Company Co., Ltd.		18,187		30.1	%
Yuil PESC Co., Ltd.		8,642		24.0	%
Youngdong Sea Food Co., Ltd.		12,106		24.0	%
Sinseong Trading Co., Ltd.		2,584		27.2	%
Reading Doctors Co., Ltd.		7,398		35.4	%
PREXCO Co., Ltd.		919,972		28.1	%
Hyunwoo International Co., Ltd.		59,873		25.9	%

(*) Even though the Bank’s ownership interest in the entity is more than 20%, it is determined that the Bank does not have significant influence over the entity since it is going through workout process under receivership; thus, it is excluded from the investment in associates.

(5) Changes in carrying value of investments in subsidiaries and associates are as follows (Korean won in millions). Because the investments associated with structured entities were classified as financial assets at FVTPL or AFS financial assets, they were excluded from the carrying value of investments in subsidiaries and associates.

- 59 -

	For the year ended December 31, 2017
Investees	January 1, 2017		Acquisitions (*1)		Disposals and others (*2)			Impairment			December 31, 2017
Woori FIS Co., Ltd.		35,362		—		—			—			35,362
Woori Private Equity Asset Management Co., Ltd.		43,227		—		—			—			43,227
Woori Finance Research Institute Co., Ltd.		3,364		—		—			—			3,364
Woori Card Co., Ltd.		1,174,260		100,000		—			—			1,274,260
Woori Investment Bank		79,992		63,822		—			—			143,814
Woori Private Equity Fund		9,018		—		(9,018	)		—			—
Woori Credit Information Co., Ltd.		24,666		—		—			—			24,666
Woori America Bank		202,371		79,100		—			—			281,471
PT Bank Woori Saudara Indonesia 1906 Tbk		215,400		112,612		—			—			328,012
Woori Global Markets Asia Limited		113,858		—		—			—			113,858
Woori Bank China Limited		427,802		—		—			—			427,802
AO Woori Bank		51,780		—		—			—			51,780
Banco Woori Bank do Brasil S.A.		44,045		—		—			—			44,045
Korea BTL Infrastructure Fund		780,525		2,698		(59	)		—			783,164
Woori Fund Service Co., Ltd.		10,000		—		—			—			10,000
Woori Finance Cambodia PLC.		4,600		11,250		—			—			15,850
Woori Finance Myanmar Co., Ltd.		2,389		11,260		—			—			13,649
Wealth Development Bank		25,675		—		(1,320	)		—			24,355
Woori Bank Vietnam Limited		155,400		—		—			—			155,400
Kumho Tire Co., Inc.		175,652		—		—			(76,720	)		98,932
Woori Blackstone Korea Opportunity No. 1 Private Equity Fund		5,418		—		(5,418	)		—			—
Woori Service Networks Co., Ltd.		108		—		—			—			108
Korea Credit Bureau Co., Ltd.		3,313		—		—			—			3,313
Korea Finance Security Co., Ltd.		3,267		—		—			—			3,267
Chin Hung International Inc.		67,467		41,053		—			(37,551	)		70,969
Poonglim Industrial Co., Ltd.		4,256		—		—			(4,250	)		6
STX Engine Co., Ltd.		44,615		—		(44,615	)		—			—
SamHo Co., Ltd.		7,492		—		(7,492	)		—			—
STX Corporation		7,424		8,546		—			(8,161	)		7,809
Saman Corporation		8,521		—		—			(7,266	)		1,255
Woori Growth Partnerships New Technology Private Equity Fund		13,602		15,729		(498	)		—			28,833
2016KIF-IMM Woori Bank Technology Venture Fund		1,800		5,040		—			—			6,840
K BANK Co., Ltd.		32,500		12,892		—			—			45,392
Smart Private Equity Fund No. 2		—		3,000		—			—			3,000
Woori Bank-Company K Korea Movie Asset Fund		—		3,000		—			—			3,000
Well to Sea No. 3 Private Equity Fund		—		102,500		(508	)		—			101,992
		3,779,169		572,502		(68,928	)		(133,948	)		4,148,795

(*1) Investments in associates increased by 49,599 million won through debt-equity swap occurred during the year ended December 31, 2017.

(*2) The Investments in Associates reclassified as assets held for sale amount to 52,107 million won, of which 7,492 million won was disposed of during the current period.

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	For the year ended December 31, 2016
Investees	January 1, 2016		Acquisitions (*1)		Disposals and others (*2)			Impairment			December 31, 2016
Woori FIS Co., Ltd.		35,362		—		—			—			35,362
Woori Private Equity Asset Management Co., Ltd.,		43,227		—		—			—			43,227
Woori Finance Research Institute		3,364		—		—			—			3,364
Woori Card		1,174,260		—		—			—			1,174,260
Woori Investment Bank		79,992		—		—			—			79,992
Woori Private Equity Fund		11,297		—		(2,279	)		—			9,018
Woori Credit Information Co., Ltd.		24,666		—		—			—			24,666
Woori America Bank		202,371		—		—			—			202,371
PT Bank Woori Saudara Indonesia 1906 Tbk		215,400		—		—			—			215,400
Woori Global Markets Asia Limited		113,858		—		—			—			113,858
Woori Bank China Limited		427,802		—		—			—			427,802
AO Woori Bank		51,780		—		—			—			51,780
Banco Woori Bank do Brasil S.A.		44,045		—		—			—			44,045
Korea BTL Infrastructure Fund		735,173		46,000		(648	)		—			780,525
Woori Fund Service Co., Ltd		10,000		—		—			—			10,000
Woori Finance Cambodia PLC.		4,600		—		—			—			4,600
Woori Finance Myanmar Co., Ltd.		2,389		—		—			—			2,389
Wealth Development Bank		—		25,675		—			—			25,675
Woori Bank Vietnam Limited		—		155,400		—			—			155,400
Kumho Tire Co., Inc.		175,652		—		—			—			175,652
Woori Blackstone Korea Opportunity Private Equity Fund No. 1		35,682		—		(30,264	)		—			5,418
Woori Service Networks Co., Ltd.		108		—		—			—			108
Korea Credit Bureau Co., Ltd.		3,313		—		—			—			3,313
Korea Finance Security Co., Ltd		3,267		—		—			—			3,267
United PF 1st Corporate financial stability		172,441		—		(172,441	)		—			—
Chin Hung International Inc.		67,467		—		—			—			67,467
Poonglim Industrial Co., Ltd.		5,123		—		—			(867	)		4,256
STX Engine Co., Ltd.		50,831		—		—			(6,216	)		44,615
SamHo Co., Ltd.		7,492		—		—			—			7,492
STX Co., Ltd.		14,311		—		—			(6,887	)		7,424
Osung LST Co., Ltd.		6,453		—		(6,453	)		—			—
Saman Corporation		8,521		—		—			—			8,521
K-Growth crowd 2step Fund		—		800		(800	)		—			—
Woori Growth Partnerships New Technology Private Equity Fund		—		13,602		—			—			13,602
2016KIF-IMM Woori Bank Technology Venture Fund		—		1,800		—			—			1,800
K BANK Co., Ltd.		—		32,500		—			—			32,500
		3,730,247		275,777		(212,885	)		(13,970	)		3,779,169

(*1) AFS financial assets decreased by 5,421 million won through transfers to investments in associates occurred during the year ended December 31, 2016.

(*2) Investments in associates decreased by 136,817 million won due to transfers to AFS financial assets during the year ended December 31, 2016. In addition, investments in associates decreased by 6,453 million won due to transfers to assets held for sale during the year ended December 31, 2016.

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14. INVESTMENT PROPERTIES:

(1) Details of investment properties are as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Acquisition cost		378,004			372,255
Accumulated depreciation		(27,769	)		(23,862	)
Net carrying value		350,235			348,393

(2) Changes in investment properties are as follows (Unit: Korean won in millions):

	For the year ended December 31
	2017			2016
Beginning balance		348,393			344,892
Acquisition		3,029			718
Depreciation		(3,580	)		(3,552	)
Transfers		2,472			6,314
Foreign currencies translation adjustments		(79	)		21
Ending balance		350,235			348,393

(3) Fair value of investment properties is amounting to 372,596 million won and 374,106 million won as of December 31, 2017 and 2016, respectively. The fair value of investment properties, based on the assessment that was independently performed by external appraisal agencies, is classified as Level 3 on the fair value hierarchy.

(4) Rental fee earned from investment properties is amounting to 13,918 million won and 13,930 million won for the years ended December 31, 2017 and 2016, respectively.

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15. PREMISES AND EQUIPMENT:

(1) Details of premises and equipment are as follows (Unit: Korean won in millions):

	December 31, 2017
	Land		Buildings			Properties for business use			Structures in leased office			Construction in progress		Total
Acquisition cost		1,472,170		848,668			498,298			385,398			64,241		3,268,775
Accumulated depreciation		—		(178,845	)		(379,232	)		(336,108	)		—		(894,185	)
Net carrying value		1,472,170		669,823			119,066			49,290			64,241		2,374,590
	December 31, 2016
	Land		Buildings			Properties for business use			Structures in leased office			Construction in progress		Total
Acquisition cost		1,472,720		835,671			472,676			381,593			13,663		3,176,323
Accumulated depreciation		—		(155,905	)		(351,103	)		(327,035	)		—		(834,043	)
Net carrying value		1,472,720		679,766			121,573			54,558			13,663		2,342,280

(2) Details of changes in premises and equipment are as follows (Unit: Korean won in millions):

	For the year ended December 31, 2017
	Land			Buildings			Properties for business use			Structures in leased office			Construction in progress			Total
Beginning balance		1,472,720			679,766			121,573			54,558			13,663			2,342,280
Acquisitions		4,244			21,065			40,717			17,367			50,878			134,271
Disposals		(1,840	)		(2,593	)		(106	)		(1,191	)		—			(5,730	)
Depreciation		—			(25,140	)		(42,847	)		(27,444	)		—			(95,431	)
Classified to assets held for sale		(2,693	)		(1,059	)		—			—			—			(3,752	)
Transfer		(196	)		(2,134	)		64			—			(206	)		(2,472	)
Foreign currencies translation adjustments		(65	)		(70	)		(125	)		(202	)		(94	)		(556	)
Others		—			(12	)		(210	)		6,202			—			5,980
Ending balance		1,472,170			669,823			119,066			49,290			64,241			2,374,590
	For the year ended December 31, 2016
	Land			Building			Properties for business use			Structures in leased office			Construction in progress			Total
Beginning balance		1,478,209			691,830			106,155			64,790			522			2,341,506
Acquisitions		—			15,937			58,102			16,728			16,330			107,097
Disposals		(30	)		(1,474	)		(207	)		(2,621	)		(102	)		(4,434	)
Depreciation		—			(24,642	)		(42,610	)		(43,983	)		—			(111,235	)
Classified to assets held for sale		(4,063	)		(251	)		—			—			—			(4,314	)
Transfers		(1,413	)		(1,557	)		—			—			(3,087	)		(6,057	)
Foreign currencies translation adjustments		17			(65	)		102			197			—			251
Others		—			(12	)		31			19,447			—			19,466
Ending balance		1,472,720			679,766			121,573			54,558			13,663			2,342,280

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16. INTANGIBLE ASSETS:

(1) Details of intangible assets are as follows (Unit: Korean won in millions):

	December 31, 2017
	Industrial property rights			Development cost			Others			Membership deposits			Total
Acquisition cost		951			234,433			575,148			11,870			822,402
Accumulated amortization		(471	)		(26,827	)		(489,433	)		—			(516,731	)
Accumulated impairment losses		—			—			—			(2,346	)		(2,346	)
Net carrying value		480			207,606			85,715			9,524			303,325
	December 31, 2016
	Industrial property rights			Development cost			Others			Membership deposits			Total
Acquisition cost		625			117,954			566,054			11,921			696,554
Accumulated amortization		(367	)		(17,114	)		(434,540	)		—			(452,021	)
Accumulated impairment losses		—			—			—			(2,303	)		(2,303	)
Net carrying value		258			100,840			131,514			9,618			242,230

(2) Details of changes in intangible assets are as follows (Unit: Korean won in millions):

	For the year ended December 31, 2017
	Industrial property rights			Development cost			Others			Membership deposit			Total
Beginning balance		258			100,840			131,514			9,618			242,230
Acquisition		326			116,593			16,395			302			133,616
Disposals		—			—			—			(316	)		(316	)
Amortization (*)		(104	)		(9,736	)		(56,243	)		—			(66,083	)
Impairment loss		—			—			—			(43	)		(43	)
Foreign currencies translation adjustment		—			—			(25	)		(37	)		(62	)
Others		—			(91	)		(5,926	)		—			(6,017	)
Ending balance		480			207,606			85,715			9,524			303,325

(*) Amortization of other intangible assets amounting to 48,292 million won is included in other operating expenses.

	For the year ended December 31, 2016
	Industrial property rights			Development cost			Others			Membership deposit			Total
Beginning balance		283			14,248			164,279			8,710			187,520
Acquisitions		54			85,117			24,405			1,427			111,003
Disposal		—			—			—			(939	)		(939	)
Amortization		(79	)		(3,367	)		(53,289	)		—			(56,735	)
Reversal of impairment loss		—			—			—			351			351
Foreign currencies translation adjustments		—			—			(113	)		69			(44	)
Others		—			4,842			(3,768	)		—			1,074
Ending balance		258			100,840			131,514			9,618			242,230

17. ASSETS HELD FOR SALE:

Assets held for sale are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Investments in subsidiaries and associates		44,615		—
Premises and equipment		1,568		2,342
Total		46,183		2,342

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18. ASSETS SUBJECT TO LIEN AND ASSETS ACQUIRED THROUGH FORECLOSURES:

(1) Assets subjected to lien are as follows (Unit: Korean won in millions):

		December 31, 2017
		Collateral given to	Amount		Reason for collateral
Loans and receivables	Due from banks in local currency	Samsung Securities Co., Ltd. and others		10,809	Margin deposit for futures or options
	Due from banks in foreign currencies	Korea Investment & Securities Co., Ltd. and others		9,135	Foreign margin deposit for futures or options and others
Financial assets at FVTPL	Financial institutions’ debt securities and others	Yuanta Securities Co., Ltd. and others		501,523	Substitute securities and others
AFS financial assets	Corporate bonds	Korea Securities Depository		9,998	Related to bonds sold under repurchase agreements (*)
	Korean treasury and government agencies’ bonds and others	BOK and others		1,540,985	Settlement risk and others
HTM financial assets	Korean treasury and government agencies’ bonds	Korea Securities Depository		5,436	Related to bonds sold under repurchase agreements (*)
	Financial institutions’ debt securities and others	BOK and others		7,601,016	Settlement risk and others
		Total		9,678,902

(*) The Bank has the agreements to repurchase the sold assets at the predetermined price or the price that includes the rate of return and to provide the guarantee on the assets. The transferee has the right to sell or to provide as guarantee. Therefore, the Bank does not derecognize the assets, but recognizes the relevant amounts as liability (bonds sold under repurchase agreements).

		December 31, 2016
		Collateral given to	Amount		Reason for collateral
Loans and receivables	Due from banks in local currency	Samsung Securities Co., Ltd. and others		22,870	Margin deposit for futures or options and others
	Due from banks in foreign currencies	Korea Investment & Securities Co., Ltd. and others		225,169	Foreign margin deposit for futures or options and others
Financial assets at FVTPL	Financial institutions’ debt securities and others	Yuanta Securities Co., Ltd. and others		458,476	Substitute securities and others
AFS financial assets	Korean treasury and government agencies’ bonds	Korea Securities Depository and others		220,098	Related to bonds sold under repurchase agreements (*)
	Financial institutions’ debt securities and others	BOK and others		3,116,810	Settlement risk and others
HTM financial assets	Korean treasury and government agencies’ bonds	Korea Securities Depository and others		7,133	Related to bonds sold under repurchase agreements (*)
	Korean treasury and government agencies’ bonds and others	BOK and others		6,181,192	Settlement risk and others
		Total		10,231,748

(*) The Bank has the agreements to repurchase the sold assets at the predetermined price or the price that includes the rate of return and to provide the guarantee on the assets. The transferee has the right to sell or to provide as guarantee. Therefore, the Bank does not derecognize the assets, but recognizes the relevant amounts as liability (bonds sold under repurchase agreements).

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(2) There is no asset the Bank has acquired through foreclosure as of December 31, 2017 and 2016.

(3) Securities loaned are as follows (Unit: Korean won in millions):

		December 31, 2017		December 31, 2016		Loaned to
Financial assets at FVTPL	Korean equity securities		—		4,459	Samsung Securities Co., Ltd. and others
AFS financial assets	Korean treasury and government agencies’ bonds and others		170,256		493,579	Korea Securities Finance Corporation and others
Total			170,256		498,038

Securities loaned are lending of specific securities to borrowers who agree to return the same quantity of the same security at the end of lending period. As the Bank does not derecognize these securities, there are no liabilities recognized through such transactions related to securities loaned.

(4) Collaterals held that can be disposed and resubjected to lien regardless of defaults of counterparties

Fair values of collaterals held that can be disposed and resubjected to lien regardless of defaults of counterparties as of December 31, 2017 and 2016, are as follows (Unit: Korean won in millions):

	December 31, 2017
	Fair values of collaterals		Fair values of collaterals were disposed or resubjected to lien
Securities		17,538,936		—
	December 31, 2016
	Fair values of collaterals		Fair values of collaterals were disposed or resubjected to lien
Securities		8,746,101		—

19. OTHER ASSETS:

Details of other assets are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Prepaid expenses		113,835		92,895
Advance payments		839		404
Others		3,215		3,627
Total		117,889		96,926

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20. FINANCIAL LIABILITIES AT FVTPL:

(1) Financial liabilities at FVTPL are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Financial liabilities held for trading		3,165,182		3,026,599
Financial liabilities designated as at FVTPL		251,796		766,880
Total		3,416,978		3,793,479

(2) Financial liabilities held for trading are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Deposits
Gold banking liabilities		25,964		26,501
Derivative liabilities		3,139,218		3,000,098
Total		3,165,182		3,026,599

(3) Financial liabilities designated as at FVTPL are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Equity-linked securities index
Equity-linked securities index in short position		160,057		673,906
Debentures
Debentures in local currency		91,739		92,974
Total		251,796		766,880

(4) Credit risk adjustments to financial liabilities designated as at FVTPL are as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Financial liabilities designated as at FVTPL subject to credit risk adjustments		251,796			766,880
Changes in fair value for credit risk adjustments		(254	)		(8	)
Accumulated changes in credit risk adjustments		133			349

Credit risk adjustments are applied to reflect the Bank’s own credit risk when measuring derivative liabilities at fair value. The methodology to determine the adjustment incorporates the Bank’s credit spread as observed through credit ratings.

(5) The difference between financial liabilities’ carrying amount and nominal amount at maturity is as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Carrying amount		251,796			766,880
Nominal amount at maturity		255,408			902,375
Difference		(3,612	)		(135,495	)

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21. DEPOSITS DUE TO CUSTOMERS:

Details of deposits due to customers by type are as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Deposits in local currency:
Deposits on demand		9,354,122			9,496,455
Time deposits		194,426,228			183,864,984
Mutual installment		34,055			37,128
Certificate of deposits		4,341,643			3,782,549
Subtotal		208,156,048			197,181,116
Deposits in foreign currencies		16,263,301			14,225,208
Present value discount		(35,193	)		(23,944	)
Total		224,384,156			211,382,380

22. BORROWINGS AND DEBENTURES:

(1) Details of borrowings are as follows (Unit: Korean won in millions):

	December 31, 2017
	Lender	Interest rate (%)	Amount
Borrowings in local currency:
Borrowings from BOK	BOK	0.5–0.8		1,404,087
Borrowing from government funds	Small Enterprise and Market Service and others	0.0–2.9		1,723,340
Others	The Korea Development Bank and others	0.0–3.2		3,106,303
Subtotal				6,233,730
Borrowings in foreign currencies:
Borrowings in foreign currencies	The Export-Import Bank of Korea and others	0.0–3.1		6,884,235
Offshore borrowings in foreign currencies	Commonwealth Bank	1.8		28,285
Subtotal				6,912,520
Bills sold	Others	0.0–1.2		36,953
Call money	Banks and others	1.5–2.7		476,773
Bonds sold under repurchase agreements	Other financial institutions	0.6–12.7		3,173
Present value discount				(165	)
Total				13,662,984
	December 31, 2016
	Lender	Interest rate (%)	Amount
Borrowings in local currency:
Borrowings from BOK	BOK	0.5–0.8		1,598,553
Borrowing from government funds	Small & Medium Business Corporation and others	0.0–3.5		1,534,807
Others	Seoul Metropolitan Government and others	0.0–3.8		3,446,894
Subtotal				6,580,254
Borrowings in foreign currencies:
Borrowings in foreign currencies	The Export-Import Bank of Korea and others	0.0–5.2		7,547,555
Offshore borrowings in foreign currencies	Wells Fargo	1.4		18,127
Subtotal				7,565,682
Bills sold	Others	0.0–1.6		26,895
Call money	Banks and others	0.0–5.1		1,782,052
Bonds sold under repurchase agreements	Other financial institutions	0.6–4.5		106,605
Present value discount				(667	)
Total				16,060,821

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(2) Details of debentures are as follows (Unit: Korean won in millions):

	December 31, 2017					December 31, 2016
	Interest rate (%)		Amount			Interest rate (%)		Amount
Face value of bond (*):
Ordinary bonds		1.5–5.8		16,965,338			1.5–7.2		12,889,422
Subordinated bonds		3.4–5.9		4,765,501			3.0–5.9		5,309,375
Subtotal				21,730,839					18,198,797
Discount on bonds				(23,373	)				(32,740	)
Total				21,707,466					18,166,057

(*) Included debentures under fair value hedge relationships are 3,102,386 million won and 3,610,193 million won as of December 31, 2017 and 2016, respectively.

23. PROVISIONS:

(1) Details of provisions are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Asset retirement obligation		56,243		52,838
Provisions for guarantees (*1)		185,557		240,023
Provisions for unused commitments		36,031		53,919
Provisions for customer reward credits		37,256		18,170
Other provisions (*2)		52,940		15,523
Total		368,027		380,473

(*1) Provisions for guarantees include provision for financial guarantee of 74,277 million won and 70,153 million won as of December 31, 2017 and 2016, respectively.

(*2) Other provisions consist of provision for litigation and others.

(2) Changes in provision, except for asset retirement obligation, are as follows (Unit: Korean won in millions):

	For the year ended December 31, 2017
	Provisions for guarantees			Provisions for unused commitments			Provisions for customer reward credits			Other provisions			Total
Beginning balance		240,023			53,919			18,170			15,523			327,635
Provisions provided		2,443			—			7,626			41,699			51,768
Provisions used		(24,826	)		(65	)		(67,528	)		(4,282	)		(96,701	)
Reversal of unused amount		(57,452	)		(17,823	)		—			—			(75,275	)
Transfer (*)		—			—			60,057			—			60,057
Others		25,369			—			18,931			—			44,300
Ending balance		185,557			36,031			37,256			52,940			311,784

(*) According to contracts with the third parties, the Bank ultimately will be reimbursed for which it has paid out on behalf of customers through their customer loyalty programs. Therefore, when such obligation incurs, the Bank recognizes it as “transfer,” but there is no impact on the Bank’s expense.

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	For the year ended December 31, 2016
	Provisions for guarantees			Provisions for unused commitments		Provisions for customer reward credits			Other provisions			Total
Beginning balance		366,873			45,773		—			19,308			431,954
Provisions provided		—			8,125		9,963			6,543			24,631
Provisions used and others		(80,018	)		21		(24,561	)		(10,328	)		(114,886	)
Reversal of unused amount		(60,698	)		—		—			—			(60,698	)
Transfer (*)		—			—		31,990			—			31,990
Others		13,866			—		778			—			14,644
Ending balance		240,023			53,919		18,170			15,523			327,635

(*) As the credits of the affiliates were transferred to the Bank, the allowance for the provisions for customer reward credits increased for the year ended December 31, 2016.

(3) Changes in asset retirement obligation are as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Beginning balance		52,838			35,933
Provisions provided		2,033			1,798
Provisions used		(1,131	)		(1,279	)
Reversal of provisions unused		(715	)		—
Amortization		426			453
Increase in restoration costs and others		2,792			15,933
Ending balance		56,243			52,838

24. NET DEFINED BENEFIT LIABILITIES (ASSETS):

Characteristics of the Bank’s defined benefit plans are as follows:

Employees and directors with one or more years of service are entitled to receive a payment upon termination of their employment, based on their length of service and salary at the time of termination. The assets of the plans are measured at fair value at the end of reporting date. Plan liabilities are measured using the projected unit method, which takes account of projected earnings increase, using actuarial assumptions that give the best estimate of the future cash flows that will arise under the plan liabilities.

The Bank is exposed to various risks through defined benefit retirement pension plan, and the most significant risks are as follows:

Volatility of asset	The defined benefit obligation was estimated with an interest rate calculated based on blue-chip corporate bonds’ earnings. A deficit may occur if the rate of return of plan assets falls short of the interest rate.
Decrease in profitability of blue- chip bonds	A decrease in profitability of blue-chip bonds will be offset by some increase in the value of debt securities that the employee benefit plan owns, but will bring an increase in the defined benefit obligation.
Risk of inflation	Defined benefit obligations are related to inflation rate; the higher the inflation rate is, the higher the level of liabilities. Therefore, deficit occurs in the system if an inflation rate increases.

(1) Details of net defined benefit assets are as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Defined benefit obligation		990,007			919,707
Fair value of plan assets		(975,723	)		(990,645	)
Net defined benefit liabilities (assets)		14,284			(70,938	)

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(2) Changes in the carrying value of defined benefit obligation are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Beginning balance		919,707			846,368
Current service cost		135,129			142,611
Interest cost		25,517			23,389
Remeasurements		(27,009	)		(50,639	)
Foreign currencies translation adjustments		(109	)		41
Retirement benefit paid		(52,300	)		(32,527	)
Curtailment or settlement		(10,928	)		(9,536	)
Ending balance		990,007			919,707

(3) Changes in the plan assets are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Beginning balance		990,645			800,690
Interest income		29,436			24,081
Remeasurements		(13,432	)		(6,853	)
Employer’s contributions		32,000			216,000
Retirement benefit paid		(49,353	)		(31,861	)
Curtailment or settlement		(11,052	)		(9,198	)
Others		(2,521	)		(2,214	)
Ending balance		975,723			990,645

(4) Plan assets wholly consist of time deposits as of December 31, 2017 and 2016. Among plan assets, realized returns on plan assets amount to 16,004 million won and 17,228 million won for the years ended December 31, 2017 and 2016, respectively.

Meanwhile, the contribution expected to be paid in the subsequent accounting year amounts to 125,818 million won.

(5) Current service cost, net interest income, loss on the curtailment or settlement and remeasurements recognized in the separate statements of comprehensive income are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Current service cost		135,129			142,611
Net interest income		(3,919	)		(692	)
Gain and loss on the curtailment or settlement		124			(338	)
Cost recognized in net income		131,334			141,581
Remeasurements (*)		(13,577	)		(43,786	)
Cost recognized in total comprehensive income		117,757			97,795

(*) This is an amount before considering the tax effects.

Retirement benefit service costs related to recognized defined contribution plans amount to 3,200 million won and 3,253 million won for the years ended December 31, 2017 and 2016, respectively.

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(6) Key actuarial assumptions used in defined benefit liability (asset) assessment are as follows:

	December 31, 2017	December 31, 2016
Discount rate	3.18%	2.85%
Future wage growth rate	6.18%	6.05%
Mortality rate	Issued by Korea Insurance Development Institute	Issued by Korea Insurance Development Institute
Retirement rate	Experience rate for each employment classification	Experience rate for each employment classification

(7) The sensitivity to actuarial assumptions used in the assessment of defined benefit obligation is as follows (Unit: Korean won in millions):

		December 31, 2017			December 31, 2016
Discount rate	Increase by 1% point		(91,364	)		(86,744	)
	Decrease by 1% point		106,296			99,833
Future wage growth rate	Increase by 1% point		105,849			99,225
	Decrease by 1% point		(92,682	)		(87,851	)

25. OTHER FINANCIAL LIABILITIES AND OTHER LIABILITIES:

Other financial liabilities and other liabilities are as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Other financial liabilities:
Accounts payable		4,079,676			4,744,622
Accrued expenses		1,874,837			1,886,601
Borrowing from trust accounts		3,363,579			3,391,903
Agency business revenue		344,591			331,159
Foreign exchanges payable		576,525			696,017
Domestic exchanges payable		1,304,416			8,476,475
Other miscellaneous financial liabilities		1,486,567			1,300,954
Present value discount		(770	)		(447	)
Subtotal		13,029,421			20,827,284
Other liabilities:
Unearned income		55,019			46,144
Other miscellaneous liabilities		80,667			107,094
Subtotal		135,686			153,238
Total		13,165,107			20,980,522

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26. DERIVATIVES:

(1) Derivative assets and derivative liabilities are as follows (Unit: Korean won in millions):

	December 31, 2017
			Assets				Liabilities
	Notional amount		For fair value hedge		For trading		For fair value hedge		For trading
Interest rate:
Futures		75,845		—		—		—		—
Swaps		130,861,378		59,272		224,660		12,103		257,905
Purchase options		630,000		—		12,346		—		—
Written options		795,000		—		—		—		12,869
Currency:
Futures		290,457		—		—		—		—
Forwards		71,333,635		—		1,301,850		—		1,360,945
Swaps		47,445,136		—		1,347,815		—		1,347,905
Purchase options		2,291,154		—		64,267		—		—
Written options		4,038,237		—		—		—		58,687
Equity:
Futures		91,436		—		—		—		—
Purchase options		5,060,706		—		146,775		—		—
Written options		4,504,290		—		—		—		99,770
Others:
Futures		—		—		—		—		—
Swaps		7,805		—		1,056		—		1,037
Purchase options		—		—		—		—		—
Written options		5,000		—		—		—		100
Total		267,430,079		59,272		3,098,769		12,103		3,139,218

	December 31, 2016
			Assets				Liabilities
	Notional amount		For fair value hedge		For trading		For fair value hedge		For trading
Interest rate:
Futures		54,785		—		—		—		—
Swaps		118,786,359		139,832		473,951		7,013		509,703
Purchase options		860,000		—		21,172		—		—
Written options		1,035,000		—		—		—		21,863
Currency:
Futures		447,749		—		—		—		—
Forwards		61,216,421		—		1,252,273		—		1,005,570
Swaps		39,745,794		—		1,014,994		—		1,221,961
Purchase options		1,120,949		—		42,126		—		—
Written options		907,211		—		—		—		8,589
Equity:
Futures		926,392		—		—		—		—
Purchase options		3,007,969		745		73,261		—		—
Written options		4,460,233		—		—		208		228,900
Others:
Futures		5,105		—		—		—		—
Swaps		7,918		—		2,645		—		2,331
Purchase options		8,307		—		121		—		—
Written options		64,352		—		—		—		1,181
Total		232,654,544		140,577		2,880,543		7,221		3,000,098

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Derivatives held for trading are classified into financial assets or liabilities at FVTPL (Notes 7 and 20), and derivatives held for hedging are presented as a separate line item in the separate statements of financial position.

(2) Gains or losses from valuation of financial instruments under hedge accounting are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Gains from hedged items		53,532			98,827
Losses from hedging instruments		(52,959	)		(98,832	)

27. DEFERRED DAY 1 PROFITS OR LOSSES:

Changes in deferred day 1 profits or losses are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Beginning balance		13,422			28,008
New transactions		500			1,337
Amounts recognized in profits and losses		(6,506	)		(15,923	)
Ending balance		7,416			13,442

The Bank has entered into transactions where the fair value is determined using valuation techniques for which not all inputs are observable or available in the market. Those financial instruments are recorded at the fair value produced by the valuation techniques at the time of acquisition despite the differences between the transaction price and the fair value. The table above presents the difference yet to be realized as profits or losses.

28. CAPITAL STOCK AND CAPITAL SURPLUS:

(1) The number of shares authorized and others are as follows:

	December 31, 2017		December 31, 2016
Shares of common stock authorized		5,000,000,000 shares		5,000,000,000 shares
Par value		5,000 won		5,000 won
Shares of common stock issued		676,000,000 shares		676,000,000 shares
Capital stock		3,381,392 million won		3,381,392 million won

(2) There are no changes in the number of shares issued and outstanding for the years ended December 31, 2017 and 2016.

(3) Details of capital surplus are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Capital in excess of par value		269,533		269,533

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29. HYBRID SECURITIES:

The bond-type hybrid securities classified as equity are as follows (Unit: Korean won in millions):

	Issue date		Maturity		Interest rates (%)		December 31, 2017			December 31, 2016
Securities in local currency		June 20, 2008		June 20, 2038		7.7		255,000			255,000
		March 8, 2012		March 8, 2042		5.8		—			190,000
		April 25, 2013		April 25, 2043		4.4		500,000			500,000
		November 13, 2013		November 13, 2043		5.7		200,000			200,000
		December 12, 2014		December 12, 2044		5.2		160,000			160,000
		June 3, 2015		June 3, 2045		4.4		240,000			240,000
Securities in foreign currencies		May 2, 2007		May 2, 2037		6.2		—			930,900
		June 10, 2015		June 10, 2045		5.0		559,650			559,650
		September 27, 2016		—		4.5		553,450			553,450
		May 16, 2017		—		5.3		562,700			—
Issuance cost								(12,912	)		(14,104	)
Total								3,017,888			3,574,896

With respect to the hybrid securities issued, there is no maturity, and the contractual agreements allow the Bank to indefinitely extend the maturity date and defer the payment of interest. If the Bank makes a resolution to not pay dividends on common stock, then it is exonerated from interest payment on the hybrid securities.

30. OTHER EQUITY:

1) Details of other equity are as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Accumulated other comprehensive income:
Gain on valuation of AFS financial assets		271,559			319,698
Gain (loss) on foreign currency translation of foreign operations		(26,693	)		7,400
Remeasurement loss related to defined benefit plan		(137,877	)		(154,443	)
Subtotal		106,989			172,655
Treasury shares		(34,113	)		(34,113	)
Other capital adjustments		(208,158	)		—
Total		(135,282	)		138,542

(2) Changes in the accumulated other comprehensive income are as follows (Unit: Korean won in millions):

	For the year ended December 31, 2017
	Beginning balance			Increase (decrease) (*)			Reclassification adjustments (*)			Income tax effect			Ending balance
Gain (loss) on valuation of AFS financial assets		319,698			77,862			(125,063	)		(938	)		271,559
Gain (loss) on foreign currency translation of foreign operations		7,400			(46,581	)		—			12,488			(26,693	)
Remeasurement gain (loss) related to defined benefit plan		(154,443	)		13,576			—			2,990			(137,877	)
Total		172,655			44,857			(125,063	)		14,540			106,989

(*) For the change in gain (loss) on valuation of AFS financial assets, “increase (decrease)” represents change due to the valuation during the period and “reclassification adjustments” represent disposal or recognition of impairment losses on AFS financial assets.

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	For the year ended December 31, 2016
	Beginning balance			Increase (decrease) (*)		Reclassification adjustments (*)			Income tax effect			Ending balance
Gain (loss) on valuation of AFS financial assets		329,724			85,289		(98,516	)		3,201			319,698
Gain (loss) on foreign currencies translation of foreign operations		(1,961	)		12,350		—			(2,989	)		7,400
Remeasurement of the net defined benefit liability		(187,634	)		43,787		—			(10,596	)		(154,443	)
Total		140,129			141,426		(98,516	)		(10,384	)		172,655

(*) For the change in gain (loss) on valuation of AFS financial assets, “increase (decrease)” represents change due to the valuation during the period and “reclassification adjustments” represent disposal or recognition of impairment losses on AFS financial assets.

31. RETAINED EARNINGS:

(1) Details of retained earnings are as follows (Unit: Korean won in millions):

		December 31, 2017		December 31, 2016
Legal reserve	Earned surplus reserve		1,729,754		1,622,754
	Other legal reserve		45,668		44,634
Subtotal			1,775,422		1,667,388
Voluntary reserve	Business rationalization reserve		8,000		8,000
	Reserve for financial structure improvement		235,400		235,400
	Additional reserve		7,418,806		7,073,104
	Regulatory reserve for credit loss		2,017,342		1,880,447
	Revaluation reserve		751,964		753,908
	Other voluntary reserve		11,700		11,700
Subtotal			10,443,212		9,962,559
Retained earnings before appropriation			1,041,925		858,208
Total			13,260,559		12,488,155

i. Earned surplus reserve

In accordance with the Act of Banking Law, earned surplus reserve is appropriated as at least one-tenth of the earnings after tax on every dividend declaration, not exceeding the paid-in capital. This reserve may not be used other than for offsetting a deficit or transferring to capital.

ii. Other legal reserve

Other legal reserves were appropriated in the branches located in Japan, Vietnam and Bangladesh according to the banking laws of Japan, Vietnam and Bangladesh and may be used to offset any deficit incurred in those branches.

iii. Business rationalization reserve

Pursuant to the Restriction of Special Taxation Act, the Bank was previously required to appropriate, as a reserve for business rationalization, amounts equal to tax reductions arising from tax exemptions and tax credits up to December 31, 2001. The requirement was no longer effective from 2002.

iv. Reserve for financial structure improvement

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From 2002 to 2014, the Finance Supervisory Services recommended banks in Korea to appropriate at least 10% of net income after accumulated deficit for financial structure improvement until tangible common equity ratio equals 5.5%, but this reserve is not available for payment of cash dividends; however, it can be used to reduce a deficit or be transferred to capital. The reserve and appropriation are an autonomous judgment matter of the Bank since 2015.

v. Additional reserve

Additional reserve was appropriated for capital adequacy and other management purpose.

vi. Regulatory reserve for credit loss

In accordance with Article 29 of the Regulation on Supervision of Banking Business (“RSBB”), if provisions for credit loss under K-IFRS for the accounting purpose are lower than provisions under RSBB, the Bank discloses such shortfall amount as regulatory reserve for credit loss.

vii. Revaluation reserve

Revaluation reserve is the number of limited dividends set by the board of directors to be recognized as complementary capital when the gain or loss occurred in the property revaluation by adopting K-IFRS.

(2) Statements of appropriations of retained earnings (plan) are as follows (Unit: Korean won in millions):

	2017			2016
Unappropriated retained earnings:
Beginning of year		213			111
Net income		1,276,112			1,065,602
Interim dividend		(67,328	)		—
Dividend on/repayment of hybrid equity securities		(167,072	)		(207,505	)
		1,041,925			858,208
Transfer from retained earnings:
Provision of revaluation excess		36,105			1,944
Reserves for research and personnel development		11,700			—
		47,805			1,944
Appropriation of retained earnings:
Legal reserve		128,000			107,000
Regulatory reserve for credit loss		74,379			136,895
Other reserve		715			1,036
Amortization of loss of repayment of hybrid equity securities		208,158			—
Cash dividend (dividend per share (%)) 2017: 500 won (10%), 2016: 400 won (8%)		336,636			269,308
Additional reserve		341,000			345,700
		1,088,888			859,939
Unappropriated retained earnings to be carried forward to next year		842			213

(3) The changes in retained earnings are as follows (Unit: Korean won in millions):

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	For the years ended December 31
	2017			2016
Beginning balance		12,488,155			11,798,375
Net income		1,276,112			1,065,602
Dividends on common stock		(336,636	)		(168,317	)
Dividends on hybrid securities		(167,072	)		(206,515	)
Repayment of hybrid securities		—			(990	)
Ending balance		13,260,559			12,488,155

32. REGULATORY RESERVE FOR CREDIT LOSS:

In accordance with paragraphs 1 and 2 of Article 29 of the RSBB, if the estimated provisions for credit loss under K-IFRS for the accounting purpose are lower than those in accordance with the provisions under the RSBB, the Bank shall disclose the difference as the planned regulatory reserve for credit loss.

(1) Balance of the planned regulatory reserve for credit loss is as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Beginning balance		2,017,342		1,880,447
Planned provision of regulatory reserve for credit loss		74,379		136,895
Ending balance		2,091,721		2,017,342

(2) Planned reserves provided, adjusted net income after the planned reserves provided and adjusted EPS after the planned reserves provided are as follows (Unit: Korean won in millions, except for EPS amount):

	For the years ended December 31
	2017		2016
Net income		1,276,112		1,065,602
Provision of regulatory reserve for credit loss		74,379		136,895
Adjusted net income after the provision of regulatory reserve		1,201,733		928,707
Adjusted EPS after the provision of regulatory reserve (Unit: Korean won)		1,537		1,073

33. DIVIDENDS:

The Bank’s dividends for the years ended December 31, 2017 and 2016, are 500 won and 400 won per share, respectively, and total dividend payments amount to 336,636 million won and 269,308 million won, respectively. Dividends for the current period will be brought up as an agenda in the annual shareholders’ meeting scheduled for March 23, 2018.

Meanwhile, the Bank paid out 67,328 million won (100 won per share) as an interim dividend during the year ended December 31, 2017.

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34. NET INTEREST INCOME:

(1) Interest income recognized is as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017		2016
Financial assets at FVTPL		17,735		18,950
AFS financial assets		209,594		239,202
HTM financial assets		303,348		352,897
Loans and receivables:
Interest on due from banks		69,007		58,586
Interest on loans		6,764,407		6,680,019
Interest of other receivables		21,630		27,059
Subtotal		6,855,044		6,765,664
Total		7,385,721		7,376,713

(2) Interest expenses recognized are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017		2016
Interest on deposits due to customers		2,209,408		2,373,079
Interest on borrowings		212,632		199,188
Interest on debentures		499,873		486,477
Other interest expense		73,205		95,522
Total		2,995,118		3,154,266

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35. NET FEES AND COMMISSIONS INCOME:

(1) Details of fees and commissions income are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017		2016
Fees and commissions received (*)		753,289		737,697
Fees and commissions received for provision of guarantee		70,707		71,654
Fees and commissions received on project financing		13,334		20,208
Fees and commissions received on securities		79,225		69,303
Other fees and commissions received		156,283		90,944
Total		1,072,838		989,806

(*) Fees and commissions received include fees income from agency commission, fees income from electronic finance, fees income related to loan, fees for import letter of credit dealing, commission received on foreign exchange and others.

(2) Details of fees and commissions expense are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017		2016
Fees and commissions paid		141,574		146,717
Other fees and commissions paid		243		206
Total		141,817		146,923

36. DIVIDEND INCOME:

Details of dividend income recognized are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017		2016
Financial assets at FVTPL		146		746
AFS financial assets		125,453		219,269
Total		125,599		220,015

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37. GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FVTPL:

(1) Details of gains or losses related to financial instruments at FVTPL are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Gains on financial assets held for trading		14,257			169,520
Losses on financial assets designated as at FVTPL		(111,240	)		(72,295	)
Total		(96,983	)		97,225

(2) Details of gains or losses on financial instruments held for trading are as follows (Unit: Korean won in millions):

			For the years ended December 31
			2017			2016
Financial assets held for trading	Securities	Gain on valuation		705			2,579
		Gain on disposals		7,695			9,366
		Loss on valuation		(2,429	)		(3,351	)
		Loss on disposals		(654	)		(3,808	)
		Subtotal		5,317			4,786
	Other financial assets	Gain on valuation		6,524			13,628
		Gain on disposals		2,353			2,404
		Loss on valuation		(7,885	)		(14,033	)
		Loss on disposals		(619	)		(1,644	)
		Subtotal		373			355
Total financial assets held for trading				5,690			5,141
Derivatives (for trading)	Interest rate derivatives	Gain on transactions and valuation		1,088,055			1,424,088
		Loss on transactions and valuation		(1,050,244	)		(1,401,354	)
		Subtotal		37,811			22,734
	Currency derivatives	Gain on transactions and valuation		7,197,779			5,708,310
		Loss on transactions and valuation		(7,340,708	)		(5,601,516	)
		Subtotal		(142,929	)		106,794
	Equity derivatives	Gain on transactions and valuation		511,080			292,830
		Loss on transactions and valuation		(397,411	)		(257,997	)
		Subtotal		113,669			34,833
	Other derivatives	Gain on transactions and valuation		4,056			18,243
		Loss on transactions and valuation		(4,040	)		(18,225	)
		Subtotal		16			18
Total derivatives (for trading)				8,567			164,379
Total				14,257			169,520

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(3) Details of gains or losses of financial instruments at FVTPL are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Gain (loss) on equity-linked securities:
Loss on disposal of equity-linked securities		(79,965	)		(24,165	)
Loss on valuation of equity-linked securities		(32,511	)		(52,007	)
Subtotal		(112,476	)		(76,172	)
Gain on other financial instruments:
Gain on valuation of other financial instruments		1,236			3,877
Total		(111,240	)		(72,295	)

38. GAINS OR LOSSES ON AFS FINANCIAL ASSETS:

Details of gains or losses on AFS financial assets recognized are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Gain on disposal of securities		—			594
Gain on transactions of securities		164,269			82,459
Impairment loss		(29,266	)		(47,528	)
Total		135,003			35,525

- 82 -

39. IMPAIRMENT LOSSES DUE TO CREDIT LOSS:

Impairment losses on loans and receivables, guarantees and loan commitments recognized for credit loss are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Impairment losses due to credit loss		(626,036	)		(693,016	)
Reversal of provision on guarantee		55,009			60,698
Reversal of provision on (provision for) loan commitment		17,823			(8,125	)
Total		(553,204	)		(640,443	)

40. GENERAL AND ADMINISTRATIVE EXPENSES AND OTHER NET OPERATING INCOME (EXPENSES):

(1) Details of general and administrative expenses are as follows (Unit: Korean won in millions):

			For the years ended December 31
			2017		2016
Salaries	Short-term employee benefits	Salaries		1,104,755		1,132,690
		Employee benefits		510,583		427,270
	Retirement benefit service costs			134,534		144,834
	Termination			298,496		178,067
	Subtotal		2,048,368		1,882,861
Depreciation and amortization				113,223		167,970
Other general and administrative expenses	Rent			251,739		254,961
	Taxes and public dues			88,631		83,897
	Service charges			176,908		220,713
	Computer and IT related			226,315		238,038
	Telephone and communication			32,902		33,410
	Operating promotion			37,927		42,112
	Advertising			62,956		68,475
	Printing			7,258		8,109
	Traveling			9,398		8,484
	Supplies			5,161		5,319
	Insurance premium			3,295		3,999
	Reimbursement			25,380		24,854
	Maintenance			13,163		13,589
	Water, light and heating			12,105		12,963
	Vehicle maintenance			7,785		7,833
	Others			6,211		37,784
	Subtotal		967,134		1,064,540
	Total			3,128,725		3,115,371

(2) Details of other operating income recognized are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017		2016
Gain on transactions of foreign exchange		3,040,858		4,457,416
Gain on disposals of loans and receivables		201,631		161,925
Gain related to derivatives		—		130
Gain on fair value hedging derivatives		53,532		99,302
Others (*)		58,180		89,730
Total		3,354,201		4,808,503

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(*) Other income includes such income, amounting to 29,336 million won and 74,700 million won for the years ended December 31, 2017 and 2016, respectively, that the Bank recognized for it to receive from other creditor financial institutions in accordance with the creditor financial institutions committee agreement.

(3) Details of other operating expenses recognized are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017		2016
Loss on transactions of foreign exchange		2,612,797		4,379,435
KDIC deposit insurance premium		300,505		293,958
Contribution to miscellaneous funds		283,551		293,253
Loss on disposals of loans and receivables		8,952		4,213
Loss related to derivatives		52,959		98,962
Loss on fair value hedged items		—		475
Others (*)		108,193		129,987
Total		3,366,957		5,200,283

(*) For the years ended December 31, 2017 and 2016, ‘Other expense’ includes losses amounting to 5,237 million won and 109,063 million won, respectively, which are related to the Bank’s expected payments to other creditor financial institutions in accordance with the creditor financial institutions committee agreement. In addition, ‘Other expense’ for the year ended December 31, 2017, includes 48,292 million won of intangible asset amortization expense.

41. OTHER NON-OPERATING INCOME (EXPENSES):

(1) Details of impairment loss of investments in subsidiaries and associates are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Impairment loss		(133,948	)		(13,970	)

(2) Details of other non-operating income and expenses recognized are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Other non-operating income		95,999			157,705
Other non-operating expenses		(132,387	)		(103,591	)
Net other non-operating income		(36,388	)		54,114

(3) Details of other non-operating income recognized are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017		2016
Rental fee income		14,375		14,415
Dividends from investments in subsidiaries and associates		34,004		44,571
Gain on disposal of investments in subsidiaries and associates		9,256		3,679
Gain on disposal of premises and equipment, intangible assets and investment properties		12,950		1,712
Reversal of impairment of premises and equipment, intangible assets and investment properties		141		630
Others		25,273		92,698
Total		95,999		157,705

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(4) Details of other non-operating expenses recognized are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017		2016
Depreciation of investment properties		3,580		3,552
Interest expenses of rent leasehold deposits		458		485
Loss on disposals of premises and equipment, intangible assets and investment properties		1,714		9,563
Impairment loss on premises and equipment, intangible assets and investment properties		184		279
Donation		95,040		43,071
Others		31,411		46,641
Total		132,387		103,591

42. INCOME TAX EXPENSE:

(1) Details of income tax expense are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Current tax expense:
Current tax expense in respect of the current period		410,282			265,947
Adjustments recognized in the current period in relation to the tax expense of prior periods		(4,381	)		(20,677	)
Subtotal		405,901			245,270
Deferred tax expense:
Deferred tax assets (liabilities) relating to the origination and reversal of temporary differences		(76,332	)		10,157
Deferred tax charged directly to equity		14,541			(10,384	)
Subtotal		(61,791	)		(227	)
Income tax expense		344,110			245,043

(2) Income tax expense reconciled to net income before income tax expense is as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017			2016
Net income before income tax expense		1,620,222			1,310,645
Tax calculated at statutory tax rate (*)		391,632			316,714
Adjustments:
Effect of income that is exempt from taxation		(43,775	)		(53,524	)
Effect of expenses that are not deductible in determining taxable profit		10,291			9,606
Adjustments recognized in the current period in relation to the current tax of prior periods		(4,381	)		(20,677	)
Others		(9,657	)		(7,076	)
Subtotal		(47,522	)		(71,671	)
Income tax expense		344,110			245,043
Effective tax rate		21.2	%		18.7	%

(*) The corporate tax rate is 11% up to 200 million won in tax basis, 22% over 200 million won to 20 billion won and 24.2% over 20 billion won.

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(3) Changes in cumulative temporary differences for the years ended December 31, 2017 and 2016, are as follows (Unit: Korean won in millions):

	For the year ended December 31, 2017
	Beginning balance			Recognized as income (loss)			Recognized as other comprehensive income (loss)			Ending balance
Gain (loss) on financial assets at FVTPL		424,035			71,062			(938	)		494,159
Gain (loss) on valuation of derivatives		(42,730	)		32,902			—			(9,828	)
Accrued income		(69,769	)		9,309			—			(60,460	)
Provision for loan losses		1,017			(445	)		—			572
Loans and receivables written off		51,393			(43,617	)		—			7,776
Loan origination costs and fees		(108,192	)		(26,285	)		—			(134,477	)
Defined benefit liability		211,353			52,442			2,990			266,785
Deposits with employee retirement insurance trust		(217,764	)		(59,366	)		—			(277,130	)
Provisions for guarantees		41,108			(10,506	)		—			30,602
Other provision		21,203			13,509			—			34,712
Others		(149,443	)		22,786			12,489			(114,168	)
Net deferred tax assets (liabilities)		162,211			61,791			14,541			238,543

	For the year ended December 31, 2016
	Beginning balance			Recognized as income (loss)			Recognized as other comprehensive income (loss)			Ending balance
Gain (loss) on financial assets at FVTPL		448,234			(24,199	)		—			424,035
Loss on valuation of derivatives		(38,648	)		(4,082	)		—			(42,730	)
Accrued income		(81,927	)		12,158			—			(69,769	)
Provision for loan losses		817			200			—			1,017
Loans and receivables written off		51,703			(310	)		—			51,393
Loan origination costs and fees		(104,006	)		(4,186	)		—			(108,192	)
Defined benefit liability		191,784			30,165			(10,596	)		211,353
Deposits with employee retirement insurance trust		(180,168	)		(37,596	)		—			(217,764	)
Provisions for guarantees		69,202			(28,094	)		—			41,108
Other provision		15,750			5,453			—			21,203
Others		(200,373	)		50,718			212			(149,443	)
Net deferred tax assets (liabilities)		172,368			227			(10,384	)		162,211

(4) Unrealizable temporary differences are as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Deductible temporary differences		220,345			217,466
Tax loss carried forward		56,513			56,513
Taxable temporary differences		(866,294	)		(866,294	)
Total		(589,436	)		(592,315	)

- 86 -

(5) Details of accumulated deferred tax relating to items that are recognized directly in equity are as follows (Unit: Korean won in millions):

	December 31, 2017			December 31, 2016
Loss on valuation of AFS securities		(103,005	)		(102,067	)
Foreign currency translation of foreign operations		10,125			(2,363	)
Remeasurement gain related to defined benefit plan		52,298			49,308
Total		(40,582	)		(55,122	)

(6) Current tax assets and liabilities are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Current tax assets		—		—
Current tax liabilities		212,376		148,672

43. EPS:

Basic EPS is calculated by dividing net income by weighted-average number of common shares outstanding (Unit: Korean won in millions, except for EPS and number of shares):

	For the years ended December 31
	2017			2016
Net income attributable to common shareholders		1,276,112			1,065,602
Dividends to hybrid securities		(167,072	)		(206,515	)
Net income attributable to common shareholders		1,109,040			859,087
Weighted-average number of common shares outstanding		673 million shares			673 million shares
Basic EPS (Unit: Korean won)		1,648			1,277

Diluted EPS is equal to basic EPS because there is no dilution effect for the years ended December 31, 2017 and 2016.

44. CONTINGENT LIABILITIES AND COMMITMENTS:

(1) Details of guarantees are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Confirmed guarantees:
Guarantees for loans		157,299		79,566
Acceptances		229,705		333,943
Guarantees in acceptance of imported goods		108,238		97,606
Other confirmed guarantees		6,322,111		7,542,726
Total		6,817,353		8,053,841
Unconfirmed guarantees:
Local letters of credit		383,117		397,588
Letters of credit		3,615,934		3,807,199
Other unconfirmed guarantees		485,123		838,593
Total		4,484,174		5,043,380
Commercial paper purchase commitments and others		2,288,201		1,855,976

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(2) Details of loan commitments and other commitments are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Loan commitments		50,214,855		56,313,804
Other commitments		1,902,703		1,869,253

(3) Litigation case

The Bank is involved in certain legal proceedings that are pending as follows

(Unit: Korean won in millions):

	December 31, 2017
	As plaintiff		As defendant
Number of cases		65 cases		130 cases
Amount of litigation		403,832		242,858
Provisions for litigations		7,750

	December 31, 2016
	As plaintiff		As defendant
Number of cases		54 cases		157 cases
Amount of litigation		287,146		232,485
Provisions for litigations		5,218

(4) Other

The Bank provides clearance services for payments in Korean won to facilitate trade transactions between Korea and Iran. In connection with these services, the Bank is currently being investigated by US government agencies including US prosecutors (United States Attorney’s Office and New York State Attorney General’s Office) as to whether the Bank has violated US laws by participating in prohibited transactions with countries sanctioned by the United States. The Bank has decided not to disclose the required disclosures stated in K-IFRS 1037 ‘Provisions, Contingent Liabilities and Contingent Assets’ as such information may adversely affect the current investigation against the Bank.

45. RELATED-PARTY TRANSACTIONS:

Related parties of the Bank as of December 31, 2017, assets and liabilities recognized, guarantees and commitments, and major transactions with related parties for the years ended December 31, 2017 and 2016, are as follows:

(1) Related parties

	Related parties
Subsidiaries	Woori FIS Co., Ltd., Woori Private Equity Asset Management Co., Ltd., Woori Finance Research Institute Co., Ltd., Woori Card Co., Ltd., Woori Investment Bank Co., Ltd., Woori Credit Information Co., Ltd., Woori America Bank, PT Bank Woori Saudara Indonesia 1906 Tbk, Woori Global Markets Asia Limited, Woori Bank China Limited, AO Woori Bank, Banco Woori Bank do Brasil S.A., Korea BTL Infrastructure Fund, Woori Fund Service Co., Ltd., Woori Finance Cambodia PLC., Woori Finance Myanmar Co., Ltd., Wealth Development Bank, Woori Bank Vietnam Limited, TUTU Finance-WCI Myanmar Co., Ltd., Woori Bank Principal and Interest Guaranteed Trust, Woori Bank Principal Guaranteed Trust, Kumho Trust First Co., Ltd. and 26 SPCs, HeungkukWoori Tech Company Private Placement Investment Trust No. 1 and five beneficiary certificates
Associates	Kumho Tires Co., Ltd., Woori Service Networks Co., Ltd., Korea Credit Bureau Co., Ltd., Korea Finance Security Co., Ltd., Chin Hung International Inc., Poonglim Industrial Co., Ltd., STX Engine Co., Ltd., STX Corporation, 2016KIF-IMM Woori Bank Technology Venture Fund, K BANK Co., Ltd., Well to Sea No. 3 Private Equity Fund, and others (Dongwoo C & C Co., Ltd. and 22 associates)

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(2) Assets and liabilities from transactions with related parties are as follows (Unit: Korean won in millions):

Related party		Title of account	December 31, 2017			December 31, 2016
Corporation that has significant influence over the Bank	KDIC (*1)	Other assets		—			270,041
		Deposits due to customers		—			1,894,631
		Other liabilities		—			15,568
Subsidiaries	Woori FIS Co., Ltd.	Other assets		114			99
		Deposits due to customers		27,216			40,078
		Other liabilities		18,365			16,248
	Woori Private Equity Asset Management Co., Ltd.	Deposits due to customers		2,410			1,258
		Other liabilities		1			—
	Woori Finance Research Institute Co., Ltd.	Deposits due to customers		2,718			2,657
		Other liabilities		517			1,534
	Woori Card Co., Ltd.	Other assets		20,209			13,619
		Derivative assets		—			156
		Deposits due to customers		65,326			64,954
		Other liabilities		14,457			14,769
		Derivative liabilities		1,232			—
	Woori Investment Bank Co., Ltd.	Cash and cash equivalents		—			70,000
		Loans		22,600			—
		Allowance for credit loss		(23	)		—
		Other assets		—			4,876
		Deposits due to customers		7,755			7,936
		Other liabilities		2,391			6,680
	Woori Private Equity Fund (*2)	Other assets		—			3
		Deposits due to customers		—			461
	Woori Credit Information Co., Ltd.	Other assets		2			—
		Deposits due to customers		15,585			16,913
		Other liabilities		10,739			10,503
	Woori America Bank	Cash and cash equivalents		3,658			4,394
	PT Bank Woori Saudara Indonesia 1906 Tbk	Cash and cash equivalents		5,180			8,728
		Loans		160,710			157,105
		Allowance for credit loss		(166	)		(240	)
		Other assets		—			107
		Deposits due to customers		72			23
	Woori Global Markets Asia Limited	Loans		172,184			146,724
		Allowance for credit loss		(70	)		(187	)
		Deposits due to customers		6,057			272
		Other liabilities		23			—
	Woori Bank China Limited	Cash and cash equivalents		23,602			36,002
		Loans		246,422			247,743
		Allowance for credit loss		(230	)		(347	)
		Other assets		108,650			73,171
		Deposits due to customers		73,264			71,497
		Other liabilities		107,791			74,213
	AO Woori Bank	Cash and cash equivalents		16,222			453
		Loans		53,426			43,861
		Allowance for credit loss		(55	)		(67	)
		Other assets		44			8

- 89 -

Related party		Title of account	December 31, 2017			December 31, 2016
	Banco Woori Bank do Brasil S.A.	Loans		1,607			1,813
		Allowance for credit loss		(1	)		(4	)
	Korea BTL Infrastructure Fund	Other assets		9			9
Subsidiaries	Woori Fund Service Co., Ltd.	Deposits due to customers		6,458			5,154
		Other liabilities		829			816
	Woori Finance Cambodia PLC.	Loans		32,142			24,170
		Allowance for credit loss		(13	)		(25	)
		Other liabilities		2			—
	Woori Finance Myanmar Co., Ltd.	Loans		4,286			2,417
		Allowance for credit loss		(2	)		(2	)
	Woori EL Co., Ltd. (*2)	Deposits due to customers		—			22
	Woori Bank Vietnam Limited	Loans		17,410			—
		Allowance for credit loss		(143	)		—
		Other assets		111,705			—
	Woori Bank Principal and Interest Guaranteed Trust and Principal Guaranteed Trust	Other assets		1,510			2,317
		Other liabilities		91,762			62,221
	Structured entities	Loans		2,102			13,627
		Allowance for credit loss		(302	)		(4,147	)
		Other assets		40			164
		Derivative assets		725			3,739
		Deposits due to customers		11,853			6,959
		Other liabilities		1,629			1,153
		Derivative liabilities		2,740			—
	Beneficiary certificates	Other assets		2			23
Associates	Kumho Tires Co., Ltd.	Loans		170,553			295,075
		Allowance for credit loss		(156,621	)		(650	)
		Deposits due to customers		666			45,957
		Other liabilities		1			99
	Woori Service Networks Co., Ltd.	Deposits due to customers		1,311			2,572
		Other liabilities		325			358
	Korea Credit Bureau Co., Ltd.	Deposits due to customers		5,586			5,069
		Other liabilities		54			40
	Korea Finance Security Co., Ltd.	Deposits due to customers		2,854			2,801
		Other liabilities		7			6

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Related party		Title of account	December 31, 2017			December 31, 2016
	Chin Hung International Inc.	Loans		—			4,044
		Allowance for credit loss		—			(4,011	)
		Deposits due to customers		46,220			14,047
		Other liabilities		1,656			5
	Poonglim Industrial Co., Ltd.	Deposits due to customers		4			283
	STX Engine Co., Ltd.	Loans		106,044			107,856
		Allowance for credit loss		(88,603	)		(89,436	)
		Deposits due to customers		18,092			13,260
		Other liabilities		29			39
	Samho International Co., Ltd. (*3)	Loans		—			36,568
		Allowance for credit loss		—			(628	)
		Deposits due to customers		—			82,917
		Other liabilities		—			127
Associates	STX Corporation	Loans		47,664			144,006
		Allowance for credit loss		(31,164	)		(92,615	)
		Deposits due to customers		77,555			14,412
		Other liabilities		27			23
	Well to Sea No. 3 Private Equity Fund (*4)	Loans		73,810			—
		Allowance for credit loss		(39	)		—
		Deposits due to customers		61			—
		Other liabilities		27			—
	Others (*5)	Loans		499			619
		Allowance for credit loss		(471	)		(253	)
		Other assets		1			8
		Deposits due to customers		2,906			4,460
		Other liabilities		73			60

(*1) As its ownership interest in the Bank is lower than 20% as of December 31, 2017, it has been excluded from the corporation that has significant influence over the Bank.

(*2) Woori Private Equity Fund has been excluded from the associates due to its liquidation during the year ended December 31, 2017.

(*3) As the Bank sold its entire ownership interest of the entity, it is excluded from the investment in associates during the year ended December 31, 2017.

(*4) Due to capital contribution by the Bank during the year ended December 31, 2017, the entity was included in the investment in associates.

(*5) Others include Saman Corporation, Kyesan Engineering Co., Ltd., Hyunwoo International Co., Ltd., DAEA SNC Co., Ltd. and others as of December 31, 2017 and 2016.

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(3) Gain or loss from transactions with related parties is as follows (Unit: Korean won in millions):

			For the years ended December 31
Related party		Title of account	2017			2016
Corporation that has significant influence over the Bank	KDIC (*1)	Interest income		—			11,817
		Interest expenses		15,331			20,966
Subsidiaries	Woori FIS Co., Ltd.	Fees income		514			500
		Other income		7,473			6,838
		Other expenses		215,371			212,066
	Woori Private Equity Co., Ltd.	Fees income		12			10
		Interest expenses		9			215
	Woori Finance Research Institute	Fees income		9			8
		Other income		—			300
		Interest expenses		41			35
		Fees expenses		4,680			4,399
	Woori Card Co., Ltd.	Fees income		142,968			129,771
		Gains related to derivatives		—			156
		Other income		785			1,338
		Interest expenses		53			18
		Fees expenses		8			—
		Losses related to derivatives		1,359			—
		Other expenses		—			19
	Woori Investment Bank	Fees income		616			456
		Interest income		1,805			—
		Other income		4,061			4,412
		Interest expenses		20			6
		Other expenses		7,020			3,026
		Impairment losses due to credit loss		23			—
	Woori Private Equity Fund (*2)	Fees income		1			7
		Interest expenses		1			3
	Woori Credit Information Co., Ltd.	Fees income		58			59
		Dividends		504			1,008
		Other income		392			396
		Interest expenses		172			201
		Fees expenses		11,250			9,776
	PT Bank Woori Saudara Indonesia 1906 Tbk	Interest income		2,525			527
		Fees income		111			89
		Dividends		3,300			2,643
		Fees expenses		—			65
		Impairment losses due to credit loss (reversal of provision for credit loss)		(74	)		175
	Woori Global Markets Asia Limited	Interest income		2,633			2,001
		Fees income		56			13
		Interest expenses		7			45
		Impairment losses due to credit loss (reversal of provision for credit loss)		(117	)		48

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			For the years ended December 31
Related party		Title of account	2017			2016
	Woori Bank China Limited	Interest income		3,114			2,911
		Fees income		486			297
		Other income		—			1
		Interest expenses		657			149
		Reversal of provision for credit loss		(117	)		(194	)
Subsidiaries	AO Woori Bank	Interest income		567			505
		Impairment losses due to credit loss (reversal of provision for credit loss)		(12	)		6
	Banco Woori Bank do Brasil S.A.	Interest income		27			23
		Fees income		—			38
		Impairment losses due to credit loss (reversal of provision for credit loss)		(3	)		2
	Korea BTL Infrastructure Fund	Dividends		27,290			29,679
		Fees income		78			76
	Woori Fund Service Co., Ltd.	Fees income		19			15
		Other income		164			156
		Interest expenses		98			58
	Woori Finance Cambodia	Interest income		658			557
		Fees income		10			5
		Impairment losses due to credit loss (reversal of provision for credit loss)		(12	)		15
	Woori Finance Myanmar	Interest income		114			18
		Impairment losses due to credit loss		—			2
	Woori Bank Vietnam Limited	Interest income		708			—
		Impairment losses due to credit loss		143			—
	Principal and Interest Guaranteed Trust and Principal Guaranteed Trust	Other income		7,389			7,507
		Interest expenses		727			653
		Other expenses		32			30
	Structured entities and others	Interest income		14			303
		Fees income		7,111			7,669
		Gains related to derivatives		725			957
		Interest expenses		9			9
		Reversal of impairment losses due to credit loss		(3,845	)		(13,296	)
		Losses related to derivatives		5,840			278
	Beneficiary certificates	Dividends		12,461			50,746
Associates	Kumho Tires Co., Ltd.	Interest income		2,641			2,430
		Fees income		5			6
		Interest expenses		1			68
		Impairment losses due to credit loss		155,971			99
	Woori Blackstone Korea Opportunity Private Equity Fund No. 1	Dividends		2,700			11,039
	Woori Service Networks Co., Ltd.	Dividends		8			12
		Other income		30			29
		Interest expenses		24			49

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			For the years ended December 31
Related party		Title of account	2017			2016
	Korea Credit Bureau Co., Ltd.	Dividends		149			136
		Interest expenses		82			137
Associates	Korea Finance Security Co., Ltd.	Dividends		54			54
		Interest expenses		12			10
	Chin Hung International Inc.	Interest income		364			240
		Fees income		1			1
		Interest expenses		27			28
		Reversal of impairment losses due to credit loss		(4,011	)		(625	)
	Poonglim Industrial Co., Ltd.	Interest expenses		—			2
		Reversal of impairment losses due to credit loss		—			(1,557	)
	STX Engine Co., Ltd.	Interest income		1,417			1,348
		Fees income		57			58
		Interest expenses		147			97
		Impairment losses due to credit loss (reversal of provision for credit loss)		(833	)		63,797
	Samho International Co., Ltd. (*3)	Interest income		486			916
		Fees income		6			5
		Interest expenses		334			525
		Reversal of impairment losses due to credit loss		(628	)		(5,174	)
	Force TEC Co., Ltd. (*4)	Interest income		—			153
	STX Corporation	Interest income		219			1,039
		Fees income		30			75
		Interest expenses		6			7
		Impairment losses due to credit loss (reversal of provision for credit loss)		(61,451	)		73,433
	Osung LST Co., Ltd. (*5)	Interest income		—			170
		Interest expenses		—			1
		Reversal of impairment losses due to credit loss		—			(338	)
	Well to Sea No. 3 Private Equity Fund (*6)	Interest income		982			—
		Interest expenses		4			—
		Impairment losses due to credit loss		39			—
	Others (*7)	Interest expense		13			17
		Impairment losses due to credit loss		218			253

(*1) As its ownership interest in the Bank is lower than 20% as of December 31, 2017, it has been excluded from the corporation that has significant influence over the Bank.

(*2) Woori Private Equity Fund has been excluded from the associates due to its liquidation that occurred during the year ended December 31, 2017.

(*3) As the Bank sold its entire ownership interest of the entity, it is excluded from the investment in associates during the year ended December 31, 2017.

(*4) The entity is not in scope for the associates because the Bank does not have significant influence over the entity due to an ongoing workout process under receivership as of December 31, 2017.

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(*5) As the Bank sold its ownership interests in the entities during the year ended December 31, 2016, these entities were excluded from the investment in associates.

(*6) Due to capital contribution by the Bank during the year ended December 31, 2017, the entity was included in the investment in associates.

(*7) Others include Saman Corporation, Kyesan Engineering Co., Ltd., Hyunwoo International Co., Ltd., DAEA SNC Co., Ltd. and others as of December 31, 2017, and Saman Corporation, Kyesan Engineering Co., Ltd., Gachi Staff Co., Ltd., QTS Shipping Co., Ltd., and others were included as of December 31, 2016.

(4) Guarantees provided to the related parties are as follows (Unit: Korean won in millions):

	Warranty	December 31, 2017		December 31, 2016
KDIC (*1)	Loan commitment		—		1,500,000
Woori Card Co., Ltd.	Loan commitment		500,000		500,000
Woori Investment Bank Co., Ltd.	Loan commitment		50,000		50,000
Woori America Bank	Confirmed guarantees in foreign currencies		1,388		26,959
PT Bank Woori Saudara Indonesia 1906 Tbk	Confirmed guarantees in foreign currencies and others		151,385		94,891
Woori Global Markets Asia Limited	Confirmed guarantees in foreign currencies		—		19,336
Woori Bank China Limited	Confirmed guarantees in foreign currencies and others		69,940		104,077
AO Woori Bank	Confirmed guarantees in foreign currencies and others		34,683		44,649
Banco Woori Bank do Brasil S.A.	Confirmed guarantees in foreign currencies		22,987		27,480
Korea BTL Infrastructure Fund	Securities purchase contract		311,078		313,778
Woori Finance Cambodia PLC.	Loan commitment		16,071		3,626
Woori Bank Vietnam Limited	Confirmed guarantees in foreign currencies and others		26,285		—
Structured entities	Loan commitment in local currency		830,100		466,080
	Loan commitment	810		572
Kumho Tires Co., Ltd.	Import credit in foreign currencies and others		4,181		24,187
	Loan commitment		—		126,435
Chin Hung International Inc.	Loan commitment		31,749		40,630
STX Engine Co., Ltd.	Import credit in foreign currencies and others		68,858		63,103
Samho International Co., Ltd. (*2)	Loan commitment		—		27,742
STX Corporation	Import credit in foreign currencies and others		17,557		24,316
Well to Sea No. 3 Private Equity Fund (*3)	Loan commitment		236,190		—

(*1) As its ownership interest in the Bank is lower than 20% as of December 31, 2017, it has been excluded from the corporation that has significant influence over the Bank.

(*2) As the Bank sold its entire ownership interest of the entities, they are excluded from the investment in associates.

(*3) Due to capital contribution by the Bank during the year ended December 31, 2017, the entity was included in the investment in associates.

For the guarantees provided to the related parties, the Bank recognized provisions for guarantees amounting to 74,205 million won and 73,381 million won as of December 31, 2017 and 2016, respectively.

(5) Commitments of derivatives to the related parties are as follows (Unit: Korean won in millions):

	Warranty	December 31, 2017		December 31, 2016
Woori Card Co., Ltd.	Unsettled commitment		100,000		50,000
Woori Investment Bank	Unsettled commitment		—		109,974
Woori Bank China Limited	Unsettled commitment		—		96,152
Structured entities	Unsettled commitment		782,914		350,000

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(6) Details of compensation to key management are as follows (Unit: Korean won in millions):

	For the years ended December 31
	2017		2016
Salaries		12,024		9,523
Severance and retirement benefits		472		424
Total		12,496		9,947

Key management includes registered executives and non-registered executives. Outstanding assets and liabilities from transactions with key management amount to 2,439 million won and 6,309 million won, respectively, as of December 31, 2017, and with respect to the assets, the Bank has not recognized any allowance or provision.

46. TRUST ACCOUNTS:

(1) Trust accounts of the Bank are as follows (Unit: Korean won in millions):

	Total assets				Operating income
	December 31, 2017		December 31, 2016		For the year ended December 31, 2017		For the year ended December 31, 2016
Trust accounts		43,895,511		38,807,666		1,029,501		751,691

(2) Significant receivables and payables between the Bank and trust accounts are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Receivables:
Trust fees receivable		25,286		23,667
Payables:
Deposits due to customers		585,832		1,919,324
Borrowings from trust accounts		2,711,529		2,687,776
Subtotal		3,297,361		4,607,100

(3) Significant transactions between the Bank and trust accounts are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Revenue:
Trust fees		141,999		78,616
Expenses:
Interest expenses on deposits due to customers		17,768		47,604
Interest expenses on borrowings from trust accounts		31,956		45,012
Subtotal		49,724		92,616

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(4) Principal guaranteed trusts and principal and fixed rate of return guaranteed trusts are as follows:

1) As of December 31, 2017 and 2016, the carrying values of principal guaranteed trusts and principal and fixed rate of return guaranteed trusts are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Principal guaranteed trusts:
Old age pension trusts		4,058		4,513
Personal pension trusts		530,556		532,959
Pension trusts		791,920		741,759
Retirement trusts		50,035		53,773
New personal pension trusts		8,563		8,536
New old age pension trusts		2,467		2,919
Subtotal		1,387,599		1,344,459
Principal and fixed rate of return guaranteed trusts:
Development trusts		19		19
Unspecified money trusts		801		787
Subtotal		820		806
Total		1,388,419		1,345,265

2) The amounts that the Bank must pay by the principal guaranteed contract or the operating results of the principal and return guaranteed trusts are as follows (Unit: Korean won in millions):

	December 31, 2017		December 31, 2016
Liabilities for the account (subsidy for trust account adjustment)		32		30

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Review Report on Internal Accounting Control System (“IACS”)

English Translation of a Report Originally Issued in Korean

To the Chief Executive Officer of

Woori Bank

We have reviewed the accompanying Report on the Management’s Assessment of IACS (the “Management’s Report”) of Woori Bank (the “Bank”) as of December 31, 2017. The Management’s Report and the design and operation of IACS are the responsibility of the Bank’s management. Our responsibility is to review the Management’s Report and issue a review report based on our procedures. The Bank’s management stated in the accompanying Management’s Report that “based on the assessment of the IACS as of December 31, 2017, the Bank’s IACS has been appropriately designed and is operating effectively as of December 31, 2017, in all material respects, in accordance with the IACS Framework established by the Korea Listed Companies Association.”

We conducted our review in accordance with the IACS Review Standards established by the Korean Institute of Certified Public Accountants. Those standards require that we plan and perform a review, objective of which is to obtain a lower level of assurance than an audit, of the Management’s Report in all material respects. A review includes obtaining an understanding of the Bank’s IACS; making inquiries regarding the Management’s Report; and, when deemed necessary, performing a limited inspection of underlying documents and other limited procedures.

The Bank’s IACS represents internal accounting policies and a system to manage and operate such policies to provide reasonable assurance regarding the reliability of financial statements prepared, in accordance with Korean International Financial Reporting Standards, for preparing and disclosing reliable accounting information. Because of its inherent limitations, IACS may not prevent or detect a material misstatement of the financial statements. In addition, projections of any evaluation of effectiveness of IACS to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our review, nothing has come to our attention that causes us to believe that the Management’s Report referred to above is not fairly stated, in all material respects, in accordance with the IACS Framework established by the Korea Listed Companies Association.

Our review is based on the Bank’s IACS as of December 31, 2017, and we did not review its IACS after December 31, 2017. This report has been prepared pursuant to the Acts on External Audit for Stock Companies in the Republic of Korea and may not be appropriate for other purposes or for other users.

March 14, 2018

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Report on the Operations of

the Internal Accounting Control System

English Translation of a Report Originally Issued in Korean on March 14, 2018

To the Board of Directors and Audit Committee of

Woori Bank

I, as the internal accounting control officer (“IACO”) of Woori Bank (“the Bank”), assessed the status of the design and operations of the Bank’s internal accounting control system (“IACS”) for the year ended December 31, 2017.

The Bank’s management, including IACO, is responsible for designing and operating IACS. I, as the IACO, assessed whether the IACS has been effectively designed and is operating to prevent and detect any error or fraud, which may cause any misstatement of the financial statements, for the purpose of establishing the reliability of financial reporting and the preparation of financial statements for external purposes. I, as the IACO, applied the IACS standard for the assessment of design and operations of the Bank’s IACS.

Based on our assessment on the IACS as of December 31, 2017, the Bank’s IACS has been appropriately designed and is operating effectively as of December 31, 2017, in all material respects, in accordance with the IACS Framework established by the Korean Listed Companies Association.

February 22, 2018

Internal Accounting Control System Officer

Lee, Won Duk

Chief Executive Officer

Sohn, Tae Seung

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