EX-99.1 2 d616497dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

WOORI BANK AND SUBSIDIARIES

CONSOLIDATED INTERIM FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2018 AND FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

The accompanying consolidated interim 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

Main Office Address: (Road Name Address) 51, Sogong-ro, Jung-gu, Seoul

(Phone Number)    02-2002-3000


WOORI BANK AND SUBSIDIARIES

CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017

 

     September 30,
2018 (*)
     December 31,
2017 (*)
 
     (Korean Won in millions)  

ASSETS

     

Cash and cash equivalents (Note 6)

     6,004,504        6,908,286  

Financial assets at fair value through profit or loss (“FVTPL”) (K-IFRS 1109) (Notes 4, 7, 11, 12, 18 and 26)

     5,720,811        —    

Financial assets at FVTPL (K-IFRS 1039) (Notes 4, 7, 11, 12, 18 and 26)

     —          5,843,077  

Financial assets at financial assets at fair value through other comprehensive income (“FVTOCI”) (Notes 4, 8, 11, 12, and 18)

     16,167,617        —    

Available-for-sale (“AFS”) financial assets (Notes 4,8,11,12 and 18)

     —          15,352,950  

Securities at amortized cost (Notes 4, 9, 11, 12 and 18)

     19,121,604        —    

Held to maturity (“HTM”) financial assets (Notes 4, 9, 11, 12 and 18)

     —          16,749,296  

Loans and other financial assets at amortized cost (Notes 4, 10, 11, 12, 18 and 45)

     278,684,897        —    

Loans and receivables (Notes 4,10,11,12,18 and 45)

     —          267,106,204  

Investments in joint ventures and associates (Note 13)

     341,603        417,051  

Investment properties (Note 14)

     382,389        371,301  

Premises and equipment (Notes 15 and 18)

     2,438,294        2,477,545  

Intangible assets and goodwill (Note 16)

     620,195        518,599  

Assets held for sale (Note 17)

     6,765        48,624  

Current tax assets

     15,635        4,722  

Deferred tax assets

     38,660        280,130  

Derivative assets (Held for hedging) (Notes 4,11,12 and 26)

     13,716        59,272  

Other assets (Notes 19 and 45)

     244,946        158,404  
  

 

 

    

 

 

 

Total assets

     329,801,636        316,295,461  
  

 

 

    

 

 

 
LIABILITIES              

Financial liabilities at FVTPL (K-IFRS 1109) (Notes 4, 11, 12, 20 and 26)

     2,222,042        —    

Financial liabilities at FVTPL (K-IFRS 1039) (Notes 4, 11, 12, 20 and 26)

     —          3,427,909  

Deposits due to customers (Notes 4,11,21 and 45)

     237,359,059        234,695,084  

Borrowings (Notes 4, 11, 12 and 22)

     15,862,477        14,784,706  

Debentures (Notes 4, 11 and 22)

     28,102,679        27,869,651  

Provisions (Notes 23, 44 and 45)

     385,343        410,470  

Net defined benefit liability (Note 24)

     112,520        43,264  

Current tax liabilities

     223,280        232,600  

Deferred tax liabilities

     18,785        22,681  

Derivative liabilities (Held for hedging) (Notes 4,11,12 and 26)

     74,107        67,754  

Other financial liabilities (Notes 4,11,12, 25 and 45)

     23,197,293        13,892,461  

Other liabilities (Notes 25 and 45)

     332,155        283,981  
  

 

 

    

 

 

 

Total liabilities

     307,889,740        295,730,561  
  

 

 

    

 

 

 

 

(Continued)


WOORI BANK AND SUBSIDIARIES

CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017 (CONTINUED)

 

     September 30,
2018 (*)
    December 31,
2017 (*)
 
     (Korean Won in millions)  

EQUITY

    

Owners’ equity:

     21,703,016       20,365,892  

Capital stock (Note 28)

     3,381,392       3,381,392  

Hybrid securities (Note 29)

     3,161,963       3,017,888  

Capital surplus (Note 28)

     285,887       285,880  

Other equity (Note 30)

     (2,158,221     (1,939,274

Retained earnings (Notes 31 and 32) (Regulatory reserve for credit loss as of September 30, 2018 and December 31, 2017 is 2,578,457 million Won and 2,438,191 million Won, respectively Regulatory reserve for credit loss to be reversed (reserved) as of September 30, 2018 and December 31, 2017 is 199,958 million Won and (-)140,266 million Won, respectively Planned provision reversed (reserved) of regulatory reserve for credit loss as of September 30, 2018 and December 31, 2017 is 199,958 million Won and (-)140,266 million Won, respectively

     17,031,995       15,620,006  

Non-controlling interests

     208,880       199,008  
  

 

 

   

 

 

 

Total equity

     21,911,896       20,564,900  
  

 

 

   

 

 

 

Total liabilities and equity

     329,801,636       316,295,461  
  

 

 

   

 

 

 

The consolidated interim statements of financial position as of September 30, 2018 was prepared in accordance with K-IFRS 1109; however, the comparative consolidated statements of financial position as of December 31, 2017 were not retrospectively restated accordance with K-IFRS 1109.

 

See accompanying notes


WOORI BANK AND SUBSIDIARIES

CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

 

     2018 (*)     2017 (*)  
     Three months
ended
September 30
    Nine months
ended
September 30
    Three months
ended
September 30
    Nine months
ended
September 30
 
     (Korean Won in millions, except per share data)  

Interest income

     2,476,774       7,120,190       2,187,829       6,377,413  

Financial assets at FVTPL (K-IFRS 1109)

     14,729       43,266       —         —    

Financial assets at FVTOCI

     71,951       191,397       —         —    

Financial assets at amortized cost

     2,390,094       6,885,527       —         —    

Financial assets at FVTPL (K-IFRS 1039)

     —         —         14,680       41,486  

AFS financial assets

     —         —         67,021       211,088  

HTM financial assets

     —         —         77,349       227,022  

Loans and receivables

     —         —         2,028,779       5,897,817  

Interest expense

     (1,044,099     (2,923,041     (836,273     (2,475,537
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (Notes 34 and 45)

     1,432,675       4,197,149       1,351,556       3,901,876  

Fees and commissions income

     545,086       1,658,092       534,597       1,548,490  

Fees and commissions expense

     (279,337     (789,688     (257,728     (733,921
  

 

 

   

 

 

   

 

 

   

 

 

 

Net fees and commissions income (Notes 35 and 45)

     265,749       868,404       276,869       814,569  

Dividend Income (Note 36 and 45)

     18,333       68,037       48,842       108,287  

Net gain(loss) on financial instruments at FVTPL (K-IFRS 1109) (Notes 11, 37 and 45)

     (24,437     92,586       —         —    

Net gain (loss) on financial instruments at FVTPL (K-IFRS 1039) (Notes 11, 37 and 45)

     —         —         48,773       (97,636

Net gain on financial assets at FVTOCI (Notes 11 and 38)

     886       2,173       —         —    

Net gain on AFS financial assets (Notes 11 and 38)

     —         —         44,273       148,445  

Net gain arising on financial assets at amortized cost

     8,732       39,618       —         —    

Net gain on disposals of securities at amortized cost

     —         431       —         —    

Net gain on disposals of loans and other financial assets at amortized cost

     8,732       39,187       —         —    

Impairment losses due to credit loss (Notes 39 and 45)

     (83,855     (55,417     (217,259     (501,022

General and administrative expenses (Notes 40 and 45)

     (818,773     (2,386,111     (1,108,625     (2,647,052

Other net operating income (expenses) (Notes 40 and 45)

     (33,496     252,910       (126,741     74,449  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     765,814       2,573,529       317,688       1,801,916  

Share of profits(losses) of joint ventures and associates (Note 13)

     (471     (1,933     69,670       5,392  

Net other non-operating income (expenses)

     60,445       55,724       (15,720     (5,722
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating income(expenses) (Note 41)

     59,974       53,791       53,950       (330
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income before income tax expense

     825,788       2,627,320       371,638       1,801,586  

Income tax expense (Note 42)

     (221,252     (706,468     (88,212     (409,145
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

(Net income after the provision of regulatory reserve for credit loss for the three months ended September 30, 2018 and 2017 are 579,618 million Won and 230,682 million Won, respectively, and net income after the provision of regulatory reserve for credit loss for the nine months ended September 30, 2018 and 2017 are 1,857,724 million Won and 1,289,736 million Won, respectively) (Note 32)

     604,536       1,920,852       283,426       1,392,441  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(Continued)


WOORI BANK AND SUBSIDIARIES

CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

 

     2018 (*)     2017 (*)  
     Three months
ended
September 30
    Nine months
ended
September 30
    Three months
ended
September 30
    Nine months
ended
September 30
 
     (Korean Won in millions, except per share data)  

Net gain (loss) on valuation of equity securities at FVTOCI

     (14,152     17,276       —         —    

Net gain on valuation of financial liabilities designated as at FVTPL due to own credit risk

     14       144       —         —    

Items out of change in equity method securities due to change in equity of investee that will not be reclassified to profit or loss

     (1,456     —         (278     (3,365

Remeasurement gain (loss) related to defined benefit plan

     16,304       (43,269     22,820       13,143  
  

 

 

   

 

 

   

 

 

   

 

 

 

Items that will not be reclassified to profit or loss

     710       (25,849     22,542       9,778  

Net gain on valuation of debt securities at FVTOCI

     6,033       16,057       —         —    

Net loss on valuation of AFS financial assets

     —         —         (22,335     (51,041

Share of other comprehensive gain of joint ventures and associates

     3,922       3,676       3,688       8,282  

Net gain (loss) on foreign currency translation for foreign operations

     (62,752     (27,226     14,488       (54,522

Net gain (loss) on valuation of cash flow hedge

     2,703       (3,510     279       (1,247

Net gain (loss) on disposal of assets held for sale

     564       (4,145     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Items that may be reclassified to profit or loss

     (49,530     (15,148     (3,880     (98,528

Other comprehensive income (loss), net of tax

     (48,820     (40,997     18,662       (88,750
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

     555,716       1,879,855       302,088       1,303,691  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to:

        

Net income attributable to owners

     597,528       1,903,406       280,146       1,378,507  

Net income attributable to non-controlling interests

     7,008       17,446       3,280       13,934  

Total comprehensive income attributable to:

        

Comprehensive income attributable to owners

     553,248       1,868,570       299,649       1,295,391  

Comprehensive income attributable to non-controlling interests

     2,468       11,285       2,439       8,300  

Basic and diluted earnings per share (In Korean Won) (Note 43)

     833       2,661       358       1,855  

The consolidated interim statements of comprehensive income for the three months and nine months ended September 30, 2018 was prepared in accordance with K-IFRS 1109; however, the comparative consolidated interim statements of comprehensive income for the three months and nine months ended September 30, 2017 was not retrospectively restated in accordance with K-IFRS 1109.

 

See accompanying notes


WOORI BANK AND SUBSIDIARIES

CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

 

    Capital
Stock
    Hybrid
securities
    Capital
surplus
    Other
equity
    Retained
earnings
    Owner’s
equity
    Non-controlling
interests
    Total
equity
 
    (Korean Won in millions)  

January 1, 2017

    3,381,392       3,574,896       286,331       (1,468,025     14,611,566       20,386,160       159,793       20,545,953  

Net income

    —         —         —         —         1,378,507       1,378,507       13,934       1,392,441  

Dividends to common stocks

    —         —         —         —         (336,636     (336,636     (1,544     (338,180

Capital increase of subsidiaries

    —         —         735       —         —         735       (144     591  

Net gain (loss) on valuation of available-for-sale financial assets

    —         —         —         (51,480     —         (51,480     439       (51,041

Changes in equity of joint ventures and associates

    —         —         —         4,917       —         4,917       —         4,917  

Loss on foreign currency translation of foreign operations

    —         —         —         (48,506     —         (48,506     (6,016     (54,522

Loss on valuation of cash flow hedge

    —         —         —         (1,247     —         (1,247     —         (1,247

Remeasurement gain (loss) related to defined benefit plan

    —         —         —         13,200       —         13,200       (57     13,143  

Dividends to hybrid securities

    —         —         —         —         (129,921     (129,921     —         (129,921

Issuance of hybrid securities

    —         559,565       —         —         —         559,565       —         559,565  

Redemption of hybrid securities

    —         (1,116,573     —         (208,158     —         (1,324,731     —         (1,324,731
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

September 30, 2017 (*)

    3,381,392       3,017,888       287,066       (1,759,299     15,523,516       20,450,563       166,405       20,616,968  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

January 1, 2018

    3,381,392       3,017,888       285,880       (1,939,274     15,620,006       20,365,892       199,008       20,564,900  

Cumulative effect of change in accounting policy (Note 2)

    —         —         —         (392,176     177,091       (215,085     723       (214,363

Adjusted balance, beginning of period

    3,381,392       3,017,888       285,880       (2,331,450     15,797,097       20,150,807       199,731       20,350,538  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    —         —         —         —         1,903,406       1,903,406       17,446       1,920,852  

Dividends to common stocks

    —         —         —         —         (336,636     (336,636     (2,118     (338,754

Capital decrease of subsidiaries

    —         —         7       —         —         7       (18     (11

Net gain on valuation of financial liabilities designated as at FVTPL due to own credit risk

    —         —         —         144       —         144       —         144  

Changes in other comprehensive income due to redemption of financial liabilities designated as at FVTPL

    —         —         —         (4     4       —         —         —    

Net gain (loss) on valuation of financial assets at FVTOCI

    —         —         —         33,632       —         33,632       (299     33,333  

Changes in other comprehensive income due to disposal of equity securities at FVTOCI

    —         —         —         279       (279     —         —         —    

Change in equity method securities due to change in equity of investees’

    —         —         —         3,676       (10,649     (6,973     —         (6,973

Loss on foreign currency translation of foreign operations

    —         —         —         (21,461     —         (21,461     (5,765     (27,226

Loss on valuation of cash flow hedge

    —         —         —         (3,510     —         (3,510     —         (3,510

Remeasurement loss related to defined benefit plan

    —         —         —         (43,172     —         (43,172     (97     (43,269

Net loss on disposal of assets held for sale

    —         —         —         (4,145     —         (4,145     —         (4,145

Dividends to hybrid securities

    —         —         —         —         (112,790     (112,790     —         (112,790

Issuance of hybrid securities

    —         398,707       —         —         —         398,707       —         398,707  

Redemption of hybrid securities

    —         (254,632     —         (368     —         (255,000     —         (255,000

Appropriation of retained earnings

    —         —         —         208,158       (208,158     —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

September 30, 2018 (*)

    3,381,392       3,161,963       285,887       (2,158,221     17,031,995       21,703,016       208,880       21,911,896  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The consolidated interim statements of changes in equity for the nine months ended September 30, 2018 was prepared in accordance with K-IFRS 1109; however, the comparative consolidated interim statements of changes in equity for the nine months ended September 30, 2017 was not retrospectively restated in accordance with K-IFRS 1109.

 

See accompanying notes


WOORI BANK AND SUBSIDIARIES

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

 

     For the nine months ended
September 30
 
     2018 (*)     2017 (*)  
     (Korean Won in millions)  

Cash flows from operating activities:

    

Net income

     1,920,852       1,392,441  

Adjustments to net income:

    

Income tax expense

     706,468       409,145  

Interest income

     (7,120,190     (6,377,413

Interest expense

     2,923,041       2,475,537  

Dividend income

     (68,037     (108,287
  

 

 

   

 

 

 
     (3,558,718     (3,601,018
  

 

 

   

 

 

 

Additions of expenses not involving cash outflows:

    

Impairment losses due to credit loss

     55,417       501,022  

Loss on financial assets at FVTOCI

     754       —    

Share of losses of investments in joint ventures and associates

     20,272       74,171  

Loss on disposal of investments in joint ventures and associates

     2,931       38,701  

Loss on transaction and valuation of derivatives (hedging)

     78,200       39,768  

Loss on hedged items (fair value hedge)

     —         6,856  

Loss on provision

     62,294       52,391  

Retirement benefits

     107,399       107,430  

Depreciation and amortization

     199,181       179,085  

Loss on disposal of premises and equipment and other assets

     967       8,574  

Impairment loss on premises and equipment and other assets

     36       269  
  

 

 

   

 

 

 
     527,451       1,008,267  
  

 

 

   

 

 

 

Deductions of income not involving cash inflows:

    

Gain on valuation of financial assets at FVTPL (K-IFRS 1109)

     117,512       —    

Gain on valuation of financial instruments at FVTPL (K-IFRS 1039)

     —         65,764  

Gain on redemption of debentures

     1,597       —    

Gain on financial assets at FVTOCI

     2,927       —    

Gain on AFS financial assets

     —         148,445  

Gain on disposal of securities at amortized cost

     431       —    

Share of profits of investments in joint ventures and associates

     18,339       79,563  

Gain on disposal of investments in joint ventures and associates

     49,767       33,194  

Gain on transaction and valuation of derivatives (Held for hedging)

     24,134       7,695  

Gain on hedged items (fair value hedge)

     83,531       25,055  

Gain on provisions

     1,718       2,000  

Gain on disposal of premises and equipment and other assets

     29,996       4,895  

Reversal of impairment loss on premises and equipment and other assets

     761       604  
  

 

 

   

 

 

 
     330,713       367,215  
  

 

 

   

 

 

 

Changes in operating assets and liabilities:

    

Financial assets at FVTPL (K-IFRS 1109)

     745,482       —    

Financial assets at FVTPL (K-IFRS 1039)

     —         (232,152

Loans and other financial assets at amortized cost

     (12,054,546     —    

Loans and receivables

     —         (10,076,492

Other assets

     (46,475     (86,535

Deposits due to customers

     2,664,028       5,326,478  

Provisions

     (44,945     (98,616

Net defined benefit liability

     (97,823     (19,952

Other financial liabilities

     9,117,584       1,644,842  

Other liabilities

     64,487       14,749  
  

 

 

   

 

 

 
     347,792       (3,527,678
  

 

 

   

 

 

 

Cash received from (paid for) operating activities:

    

Interest income received

     7,026,679       6,445,201  

Interest expense paid

     (2,655,693     (2,535,668

Dividends received

     68,250       110,855  

Income tax paid

     (413,899     (328,793

Net cash provided by (used in) operating activities

     2,932,001       (1,403,608
  

 

 

   

 

 

 

 

(Continued)


WOORI BANK AND SUBSIDIARIES

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 (CONTINUED)

 

     For the nine months ended
September 30
 
     2018 (*)     2017 (*)  
     (Korean Won in millions)  

Cash flows from investing activities:

    

Cash in-flows from investing activities:

    

Disposal of financial assets at FVTPL (K-IFRS 1109)

     8,209,468       —    

Disposal of financial assets at FVTOCI

     6,746,297       —    

Disposal of AFS financial assets

     —         18,991,381  

Redemption of securities at amortized cost

     7,077,432       —    

Redemption of HTM financial assets

     —         6,851,014  

Disposal of investments in joint ventures and associates

     56,556       78,204  

Disposal of investment properties

     3,483       356  

Disposal of premises and equipment

     314       6,425  

Disposal of intangible assets

     4,758       998  

Disposal of assets held for sale

     69,794       6,832  
  

 

 

   

 

 

 
     22,168,102       25,935,210  
  

 

 

   

 

 

 

Cash out-flows from investing activities:

    

Net cash in-flows of business combination

     70,905       —    

Acquisition of financial assets at FVTPL (K-IFRS 1109)

     8,447,712       —    

Acquisition of financial assets at FVTOCI

     8,912,434       —    

Acquisition of AFS financial assets

     —         15,777,632  

Acquisition of securities at amortized cost

     9,460,686       —    

Acquisition of HTM financial assets

     —         9,280,802  

Acquisition of investments in joint ventures and associates

     32,557       137,411  

Acquisition of investment properties

     10,225       5,080  

Acquisition of premises and equipment

     67,458       133,728  

Acquisition of intangible assets

     159,961       168,676  
  

 

 

   

 

 

 
     27,161,938       25,503,329  
  

 

 

   

 

 

 

Net cash provided by(used in) investing activities

     (4,993,836     431,881  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Cash in-flows from financing activities:

    

Increase in borrowings

     7,621,283       9,856,662  

Issuance of debentures

     15,824,515       14,556,550  

Issuance of hybrid securities

     398,707       559,565  

Capital increase of subsidiaries

     —         635  
  

 

 

   

 

 

 
     23,844,505       24,973,412  
  

 

 

   

 

 

 

Cash out-flows from financing activities:

    

Repayment of borrowings

     6,452,223       12,308,155  

Repayment of debentures

     15,753,950       10,581,681  

Redemption of hybrid securities

     255,000       1,323,400  

Payment of dividends to common stocks

     336,636       336,636  

Dividends paid on hybrid securities

     112,790       131,423  

Dividends paid on non-controlling interests

     2,118       1,544  
  

 

 

   

 

 

 
     22,912,717       24,682,839  
  

 

 

   

 

 

 

Net cash provided by financing activities

     931,788       290,573  
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (1,130,047     (681,154

Cash and cash equivalents, beginning of the period

     6,908,286       7,591,324  

Effects of exchange rate changes on cash and cash equivalents

     226,265       (97,681
  

 

 

   

 

 

 

Cash and cash equivalents, end of the period (Note 6)

     6,004,504       6,812,489  
  

 

 

   

 

 

 

The consolidated interim statements of cash flows for the nine months ended September 30, 2018 was prepared in accordance with K-IFRS 1109; however, the comparative consolidated interim statements of cash flows for the nine months ended September 30, 2017 was not retrospectively restated to apply K-IFRS 1109.

 

See accompanying notes


WOORI BANK AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2018 AND FOR THE THREE MONTHS AND THE NINE MONTHS

ENDED SEPTEMBER 30, 2018 AND 2017

 

1.

GENERAL

 

(1)

Summary of the parent company

Woori Bank (hereinafter referred to the “Bank”), which is a controlling entity in accordance with Korean International Financial Reporting Standards (“K-IFRS”) 1110 – Consolidated Financial Statements, 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, were reduced to nil in accordance with capital reduction procedure, and then, in accordance with the merger ratio, the Bank newly issued 676 million shares. Since then, there have been no change in numbers of issued shares. As a result, as of September 30, 2018, 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 September 30, 2018 and December 31, 2017, KDIC held 125 million shares (18.43% ownership interest), 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 in 51, Sogong-ro, Jung Gu, Seoul, Korea. The Bank has 878 branches and offices in Korea, and 23 branches and offices overseas as of September 30, 2018.


(2)

The consolidated financial statements for Woori Bank and its subsidiaries (the “Group”) include the following subsidiaries:

 

            Percentage of ownership
(%)
     Location      Financial
statements
as of
(2018)
 

Subsidiaries

   Main business      September
30, 2018
     December
31, 2017
 

Woori Bank:

              

Woori FIS Co., Ltd.

    
System software development &
maintenance
 
 
     100.0        100.0        Korea        September 30  

Woori Private Equity Asset Management Co., Ltd.

     Finance        100.0        100.0        Korea        September 30  

Woori Finance Research Institute Co., Ltd.

     Other service business        100.0        100.0        Korea        September 30  

Woori Card Co., Ltd.

     Finance        100.0        100.0        Korea        September 30  

Woori Investment Bank Co., Ltd.

     Other credit finance business        59.8        59.8        Korea        September 30  

Woori Credit Information Co., Ltd.

     Credit information        100.0        100.0        Korea        September 30  

Woori America Bank

     Finance        100.0        100.0        U.S.A.        September 30  

Woori Global Markets Asia Limited

            100.0        100.0        Hong Kong        September 30  

Woori Bank China Limited

            100.0        100.0        China        September 30  

AO Woori Bank

            100.0        100.0        Russia        September 30  

PT Bank Woori Saudara Indonesia 1906 Tbk

            79.9        79.9        Indonesia        September 30  

Banco Woori Bank do Brasil S.A.

            100.0        100.0        Brazil        September 30  

Korea BTL Infrastructure Fund

            99.9        99.9        Korea        September 30  

Woori Fund Service Co., Ltd.

            100.0        100.0        Korea        September 30  

Woori Finance Cambodia PLC.

            100.0        100.0        Cambodia        September 30  

Woori Finance Myanmar Co., Ltd.

            100.0        100.0        Myanmar        September 30  

Wealth Development Bank

            51.0        51.0        Philippines        September 30  

Woori Bank Vietnam Limited

            100.0        100.0        Vietnam        September 30  

WB Finance Co., Ltd.

            100.0        —          Cambodia        September 30  

Kumho Trust First Co., Ltd. (*1)

     Asset securitization        0.0        0.0        Korea        September 30  

Asiana Saigon Inc. (*1)

            0.0        0.0        Korea        September 30  

Consus Eighth Co., LLC (*1)

            0.0        0.0        Korea        September 30  

KAMCO Value Recreation First Securitization Specialty Co., Ltd. (*1)

            15.0        15.0        Korea        September 30  

Hermes STX Co., Ltd. (*1)

            0.0        0.0        Korea        September 30  

BWL First Co., LLC (*1)

            0.0        0.0        Korea        September 30  

Deogi Dream Fourth Co., Ltd. (*1)

            0.0        0.0        Korea        September 30  

Jeonju Iwon Ltd. (*1)

            0.0        0.0        Korea        September 30  

Wonju I one Inc. (*1)

            0.0        0.0        Korea        September 30  

Heitz Third Co., Ltd. (*1)

            0.0        0.0        Korea        September 30  

Woorihansoop 1st Co., Ltd. (*1)

            0.0        0.0        Korea        September 30  

Electric Cable First Co., Ltd. (*1)

            0.0        0.0        Korea        September 30  

Woori International First Co., Ltd. (*1)

            0.0        0.0        Korea        September 30  

Woori HJ First Co., Ltd. (*1)

            0.0        0.0        Korea        September 30  

Woori WEBST 1st Co., Ltd. (*1)

            0.0        0.0        Korea        September 30  

Wibihansoop 1st Co., Ltd. (*1)

            0.0        0.0        Korea        September 30  

Uri QS 1st Co., Ltd. (*1)

            0.0        0.0        Korea        September 30  

Uri Display 1st Co., Ltd.(*1)

            0.0        0.0        Korea        September 30  

Tiger Eyes 2nd Co., Ltd.(*1)

            0.0        0.0        Korea        September 30  

Woori Serveone 1st Co., Ltd. (*1)

            0.0        0.0        Korea        September 30  

Uri Display 2nd Co., Ltd. (*1)

            0.0        —          Korea        September 30  

Woori the Colony Unjung Securitization Specialty Co., Ltd. (*1)

            0.0        —          Korea        September 30  

Woori Dream 1st Co., Ltd. (*1)

            0.0        —          Korea        September 30  

Woori HS 1st Co., Ltd. (*1)

            0.0        —          Korea        September 30  

Woori HJ Second Co., Ltd.(* 1)

            0.0        —          Korea        September 30  

Woori Sinnonhyeon 1st Inc. (*1)

            0.0        —          Korea        September 30  

Woori K 1st Co., Ltd. (*1)

            0.0        —          Korea        September 30  

Uri S 1st Co., Ltd. (*1)

            0.0        —          Korea        September 30  

Smart Casting Inc. (*1)

            0.0        —          Korea        September 30  

HeungkukWoori Tech Company Private Placement Investment Trust No. 1 and 3 beneficiary certificates (*2)

     Securities investment and others        —          —          Korea        September 30  

Principle Guaranteed Trust (*3)

     Trust        0.0        0.0        Korea        September 30  


            Percentage of ownership
(%)
     Location      Financial
statements
as of
(2018)
 

Subsidiaries

   Main business      September
30, 2018
     December
31, 2017
 

Principle and Interest Guaranteed Trust (*3)

            0.0        0.0        Korea        September 30  

Woori Investment Bank:

              

Dongwoo First Securitization Specialty Co., Ltd. (*1)

     Asset securitization        5.0        5.0        Korea        September 30  

Seari First Securitization Specialty Co., Ltd. (*1)

            5.0        5.0        Korea        September 30  

Namjong 1st Securitization Specialty Co., Ltd. (*1)

            5.0        5.0        Korea        September 30  

Bukgeum First Securitization Specialty Co., Ltd. (*1)

            5.0        5.0        Korea        September 30  

Seori Second Securitization Specialty Co., Ltd. (*1)

            5.0        —          Korea        September 30  

Bukgeum Second Securitization Specialty Co., Ltd. (*1)

            5.0        —          Korea        September 30  

Woori Card Co., Ltd.:

              

TUTU Finance-WCI Myanmar Co., Ltd.

     Finance        100.0        100.0        Myanmar        September 30  

Woori Card one of 2017-1 Securitization Specialty Co., Ltd. (*1)

     Asset securitization        0.5        0.5        Korea        September 30  

Woori Card one of 2017-2 Securitization Specialty Co., Ltd. (*1)

            0.5        0.5        Korea        September 30  

 

(*1)

The entity was a structured entity for the purpose of asset securitization and was in scope for consolidation. Considering that, the Group 1) had the power over the investee, 2) was exposed, or had rights, to variable returns from its involvement with the investee, and 3) had the ability to use its power to affect its returns.

(*2)

The entity was a structured entity for the purpose of investment in securities and was in scope for consolidation, considering that the Group 1) had the power over the investee, 2) was exposed, or has rights, to variable returns from its involvement with the investee, and 3) has the ability to use its power to affect its returns.

(*3)

The entity was a money trust under the Financial Investment Services and Capital Markets Act and was in scope for consolidation. Although the Group was not a majority shareholder, the Group 1) has the power over the investee, 2) was exposed, or has rights, to variable returns from its involvement with the investee, and 3) has the ability to use its power to affect its returns.

 

(3)

As of September 30, 2018, and December 31, 2017, despite having more than 50% ownership interest, the Group has not consolidated the following companies as the Group does not have the ability to control following subsidiaries:

 

     As of September 30, 2018  

Subsidiaries

   Location    Main
Business
   Percentage of
ownership (%)
 

Golden Bridge NHN Online Private Equity Investment (*)

   Korea    Securities Investment      60.0  

Mirae Asset Maps Clean Water Private Equity Investment Trust 7th (*)

   Korea    Securities Investment      58.5  

Hana Walmart Real Estate Investment Trust 41-1 (*)

   Korea    Securities Investment      77.0  

Hangkang Sewage Treatment Plant Fund (*)

   Korea    Securities Investment      55.7  

IGIS Global Private Placement Real Estate Fund No. 163-2 (*)

   Korea    Securities Investment      97.9  

IGIS Global Private Placement Real Estate Fund No. 148-1 (*)

   Korea    Securities Investment      75.0  

IGIS Europe Private Placement Real Estate Fund No. 148-2 (*)

   Korea    Securities Investment      75.0  

Heungkuk Global Private Placement Investment Trust No. 1 (*)

   Korea    Securities Investment      93.3  

 

(*)

The Group owns the majority ownership interest in these structured entities, but has no power on the investees’ relevant activities. As results, it is deemed that the Group has no power or control on the structured entities.


     As of December 31, 2017  

Subsidiaries

   Location    Main
Business
   Percentage of
ownership (%)
 

Golden Bridge NHN Online Private Equity Investment (*)

   Korea    Securities Investment      60.0  

Mirae Asset Maps Clean Water Private Equity Investment Trust 7th (*)

   Korea    Securities Investment      59.7  

Kiwoom Yonsei Private Equity Investment Trust (*)

   Korea    Securities Investment      88.9  

Hana Walmart Real Estate Investment Trust 41-1 (*)

   Korea    Securities Investment      90.1  

IGIS Global Private Placement Real Estate Fund No. 148-1 (*)

   Korea    Securities Investment      75.0  

IGIS Global Private Placement Real Estate Fund No. 148-2 (*)

   Korea    Securities Investment      75.0  

 

(*)

The Group owns the majority ownership interest in these structured entities, but has no power on the investees’ relevant activities. As results, it is deemed that the Group has no power or control on the structured entities.

 

(4)

The summarized financial information before the elimination of intercompany transactions of the subsidiaries whose financial information was prepared under K-IFRS for the Group’s consolidated financial statements is as follows (Unit: Korean Won in millions):

 

     As of and for the nine months ended September 30, 2018  
     Assets      Liabilities      Operating
revenue
     Net income
(loss)
attributable to
owners
    Comprehensive
income (loss)
attributable to
owners
 

Woori FIS Co., Ltd.

     79,640        57,740        199,588        (10,645     (10,680

Woori Private Equity Asset Management Co., Ltd.

     40,238        1,949        1,317        (1,909     (1,936

Woori Finance Research Institute Co., Ltd.

     4,575        720        4,168        417       414  

Woori Card Co., Ltd.

     9,593,273        7,932,529        1,406,754        88,624       85,296  

Woori Investment Bank Co., Ltd.

     2,667,431        2,348,804        163,244        28,590       28,917  

Woori Credit Information Co., Ltd.

     34,331        6,159        26,827        1,114       1,049  

Woori America Bank

     2,216,713        1,917,262        66,713        16,996       27,448  

Woori Global Markets Asia Limited

     448,882        329,385        12,238        3,461       7,733  

Woori Bank China Limited

     5,218,846        4,711,178        339,386        15,609       9,749  

AO Woori Bank

     292,018        241,209        13,956        3,833       (1,686

PT Bank Woori Saudara Indonesia 1906 Tbk

     2,219,505        1,742,356        144,492        29,475       2,051  

Banco Woori Bank do Brasil S.A.

     137,873        109,182        10,552        1,124       (3,619

Korea BTL Infrastructure Fund

     777,412        299        22,299        19,535       19,535  

Woori Fund Service Co., Ltd.

     13,767        980        7,449        1,376       1,376  

Woori Finance Cambodia PLC.

     82,675        61,340        7,769        2,151       2,904  

Woori Finance Myanmar Co., Ltd.

     18,455        6,567        2,965        (1,510     (1,042

Wealth Development Bank

     197,519        164,850        9,661        9       (1,571

Woori Bank Vietnam Limited

     1,062,422        833,901        36,120        7,686       8,113  

WB Finance Co., Ltd.

     250,961        210,165        11,806        307       (14

Money trust under the FISCM Act (*)

     1,578,686        1,548,667        38,366        108       108  

Structured entity for the securitization of financial assets

     1,388,441        1,806,251        43,186        4,654       (6,269

Structured entity for the investments in securities

     63,028        98        1,434        (1,648     (2,954

 

(*)

FISCM Act: Financial Investment Services and Capital Markets Act


     As of and for the year ended December 31, 2017  
     Assets      Liabilities      Operating
revenue
     Net income
(loss)
attributable to
owners
    Comprehensive
income (loss)
attributable to
owners
 

Woori FIS Co., Ltd.

     103,932        71,386        252,460        1,940       (2,963

Woori Private Equity Asset Management Co., Ltd.

     42,894        2,670        7,257        (4,114     (4,074

Woori Finance Research Institute Co., Ltd.

     3,790        350        4,733        83       64  

Woori Card Co., Ltd.

     8,605,993        6,973,705        1,771,157        101,214       107,321  

Woori Investment Bank Co., Ltd.

     1,880,157        1,588,610        183,376        20,023       20,210  

Woori Credit Information Co., Ltd.

     33,298        6,175        31,580        861       752  

Woori America Bank

     1,954,301        1,679,248        81,337        11,869       (16,833

Woori Global Markets Asia Limited

     290,226        178,343        11,345        1,922       (12,544

Woori Bank China Limited

     4,960,637        4,458,683        388,913        13,809       (15,252

AO Woori Bank

     201,704        149,101        15,656        4,748       1,217  

PT Bank Woori Saudara Indonesia 1906 Tbk

     2,230,617        1,745,171        192,485        38,488       (18,689

Banco Woori Bank do Brasil S.A.

     213,889        181,544        20,455        1,843       (2,840

Korea BTL Infrastructure Fund

     786,480        301        30,240        26,390       26,390  

Woori Fund Service Co., Ltd.

     12,653        1,242        9,021        1,398       1,398  

Woori Finance Cambodia PLC.

     51,304        32,873        5,895        983       (473

Woori Finance Myanmar Co., Ltd.

     18,236        5,307        2,506        791       15  

Wealth Development Bank

     191,049        156,808        13,632        1,323       (1,093

Woori Bank Vietnam Limited

     775,758        632,160        29,698        2,436       (15,347

Money trust under the FISCM Act (*)

     1,560,672        1,530,760        44,344        582       582  

Structured entity for the securitization of financial assets

     867,583        1,275,719        22,730        1,179       (2,800

Structured entity for the investments in securities

     34,939        76        377        (475     (38,592

 

(*)

FISCM Act: Financial Investment Services and Capital Markets Act

 

(5)

The financial support that the Group provides to consolidated structured entities is as follows:

 

   

Structured entity for the securitization of financial assets

The structured entity is established for the purpose of securitization of project financing loans, corporate bonds, and other financial assets. The Group is involved with the structured entity through providing with credit facility over asset-backed commercial papers issued by the entity, originating loans directly to the structured entity, or purchasing 100% of the subordinated debts issued by the structured entity.

 

   

Structured entity for the investments in securities

The structured entity is established for the purpose of investments in securities. The Group acquires beneficiary certificates through its contribution of fund to the structured entity, and it is exposed to the risk that it may not be able to recover its fund depending on the result of investment performance of asset managers of the structured entity.

 

   

Money trust under the Financial Investment Services and Capital Markets Act

The Group provides with financial guarantee of principal and interest or principal only to some of its trust products. Due to the financial guarantees, the Group may be obliged to supplement when the principal and interest or principal of the trust product sold is short of the guaranteed amount depending on the result of investment performance of the trust product.


   

The Group is providing purchase commitment and credit facilities to structured entities that are subsidiaries of the Group. Purchase commitments guarantee the purchase and payment of outstanding commercial papers that were issued but were not repurchased by the structured entities. Credit facilities allow lending of funds to structured entities under certain conditions when there are grounds for discontinuing the issuance of commercial papers, or when structured entities default due to some reasons.

As of September 30, 2018, the Group is providing credit facilities (including ABCP purchase commitments, etc.) amounting to 1,325,904 million Won to aforementioned structured entities.

 

(6)

The Group has entered into various agreements with structured entities such as asset securitization vehicles, structured finance and investment funds, and monetary funds. Where it is determined in accordance with K-IFRS 1110 that the Group has no controlling power over such structured entities, the entities are not consolidated. The nature of interests, which the Group retains, and the risks, to which the Group is exposed, of the unconsolidated structured entities are as follows:

The interests to unconsolidated structured entities, which the Group retains, are classified to asset securitization vehicles, structured finance and investment fund, based on the nature and the purpose of the structured entities.

Asset securitization vehicle issues asset-backed securities and redeems the principal and interest or distributes dividends on asset-backed securities with profits from collecting cash flows or sale of securitized assets. The Group, as a secondary guarantor, provides purchase commitments for its asset-backed securities or guarantees to such asset securitization vehicle and recognizes commission income or interest income related to the commitment or guarantees. Therefore, the Group would be exposed to risks to purchases or pays back asset-backed securities issued by the vehicles when a primary guarantor fails to provide the financing asset securitization vehicles.

Structured finance includes investments in project financing on real estates, social overhead capital (“SOC”), infrastructure and shipping finance. They are formed as special purpose entity by funding through equity investments and loans from various investors. Investment decisions are made by the Group based on business outlook of such projects. In relation to such investments, the Group recognizes interest income on loans, gains or losses on valuation of equity investments or dividend income. The structured finance is secured by additional funding agreement, guarantee or credit facilities. However, the structured financing project would fail to return the capital of equity investments or principal of loans to the Group if it is discontinued or did not achieve business outcome.

Investment funds include trusts and private equity funds. A trust is formed by contributions from various investors, operated by a manager engaged to the trust and distributed proceeds from sales of investments to the investors. A private equity fund is established in order to acquire ownership interests in a portfolio company with exit strategy after implementing financial and operational restructuring of the company. The Group recognizes unrealized gains or losses on change in value of investments in proposition of ownership interests in investments. The Group would be exposed to risks of loss when the value of portfolio investment is decreased.


Total assets of the unconsolidated structured entities, the carrying value of the related items recorded, the maximum exposure to risks, and the loss recognized in conjunction with the unconsolidated structured entities as of September 30, 2018 and December 31, 2017 are as follows (Unit: Korean Won in millions):

 

     September 30, 2018  
     Asset
securitization
vehicle
     Structured
finance
     Investment
Funds
 

Total asset of the unconsolidated structured entities

     6,104,435        63,390,432        13,331,139  

Assets recognized in the consolidated financial statements related to the unconsolidated structured entities

     2,673,308        2,426,683        1,517,049  

Financial assets at FVTPL

     231,892        119,212        1,224,681  

Financial assets at FVTOCI

     286,490        —          —    

Financial assets at amortized cost

     2,154,481        2,304,510        38,833  

Investments in joint ventures and associates

     —          —          253,535  

Derivative assets (Held for hedging)

     445        2,961        —    

Liabilities recognized in the consolidated financial statements related to the unconsolidated structured entities

     1,249        1,678        74  

Derivative liabilities (Held for hedging)

     251        1,196         

Other liabilities (including provisions)

     998        482        74  

The maximum exposure to risks

     3,351,031        3,101,647        1,517,049  

Investments

     2,673,308        2,426,683        1,517,049  

Credit facilities

     659,723        674,964        —    

Other commitments

     18,000        —          —    

Loss recognized on unconsolidated structured entities

     83        10,200        2,531  

 

     December 31, 2017  
     Asset
securitization
vehicle
     Structured
finance
     Investment
Funds
 

Total asset of the unconsolidated structured entities

     7,295,601        40,172,830        13,641,135  

Assets recognized in the consolidated financial statements related to the unconsolidated structured entities

     3,215,159        2,314,043        1,138,523  

Loans and receivables

     43,180        1,969,760        —    

Financial assets held for trading

     —          233,428        10,160  

AFS financial assets

     902,390        106,819        904,774  

HTM financial assets

     2,269,451        —          —    

Investments in joint ventures and associates

     —          —          223,589  

Derivative assets (Held for hedging)

     138        4,036        —    

Liabilities recognized in the consolidated financial statements related to the unconsolidated structured entities

     1,433        1,506        —    

Derivative liabilities (Held for hedging)

     575        968        —    

Other liabilities (including provisions)

     858        538        —    

The maximum exposure to risks

     4,032,531        2,918,448        1,138,523  

Investments

     3,215,159        2,314,043        1,138,523  

Credit facilities

     817,372        604,405        —    

Loss recognized on unconsolidated structured entities

     837        3,939        5,993  


(7)

Subsidiaries of which non-controlling interests are significant to the Group’s consolidated financial statements are as follows (Unit: Korean Won in millions):

 

  1)

Accumulated non-controlling interests at the end of the reporting period

 

     September 30, 2018      December 31, 2017  

Woori Investment Bank

     131,447        191,111  

PT Bank Woori Saudara Indonesia 1906 Tbk

     63,208        64,877  

Wealth Development Bank

     16,008        16,778  

 

  2)

Net income attributable to non-controlling interests

 

     For the nine months ended
September 30, 2018
     For the nine months ended
September 30, 2017
 

Woori Investment Bank

     11,482        6,520  

PT Bank Woori Saudara Indonesia 1906 Tbk

     5,931        6,731  

Wealth Development Bank

     4        653  

 

  3)

Dividends to non-controlling interests

 

     For the nine months ended
September 30, 2018
     For the nine months ended
September 30, 2017
 

PT Bank Woori Saudara Indonesia 1906 Tbk

     2,082        1,513  

 

2.

BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

 

(1)

Basis of presentation

The Group’s consolidated interim financial statements are prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”) 1034, Interim Financial Reporting and K-IFRS 1110, Consolidated Financial Statements. It is necessary to use the annual consolidated financial statements for the year ended December 31, 2017 for understanding of the accompanying interim financial statements.

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

 

1)

The Group has newly adopted the following adoption of K-IFRS that affected the Group’s accounting policies:

 

   

Adoption of K-IFRS 1109 – Financial instruments (enacted)

The Group applied for the first time as of January 1, 2018, the adoption to K-IFRS 1109 and other standards related to K-IFRS 1109, which introduces new rules: 1) classification and measurement of financial assets and financial liabilities, 2) impairment of financial assets, and 3) hedge accounting.

The Group decided not to restate the prior period figures when applying the Standard for the first time, thus the comparative financial statements presented are not restated.

The main contents of the new accounting standard and the effect on the financial statements of the Group are as follows:

a) Classification and measurement of financial assets and financial liabilities

All financial assets included in the scope of K-IFRS 1109 are subsequently measured at amortized cost or fair value based on the business model for the management of financial assets and the nature of the contractual cash flows.


Debt instruments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods (financial assets at amortized cost).

Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at fair value through other comprehensive income (financial assets at fair value through other comprehensive income (“FVTOCI”)).

All other debt instruments and equity instruments are measured at their fair value at the end of subsequent accounting periods (financial assets at fair value through profit or loss (“FVTPL”)).

Notwithstanding the foregoing, the Group may make the following irrevocable choice or designation at the time of initial recognition of financial assets.

The Group may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument within the scope of this Standard that is neither held for trading nor contingent consideration recognized by an acquirer in a business combination to which K-IFRS 1103 applies.

At initial recognition, financial assets at amortized cost or FVTOCI may be irrevocably designated as financial assets at fair value through profit or loss mandatorily measured at fair value if doing so eliminate or significantly reduce a measurement or recognition inconsistency.

As of the date of first adoption of K-IFRS 1109, there are no debt instruments classified either as financial assets at amortized cost or FVTOCI that are designated as financial assets at fair value through profit or loss.

When debt instruments measured at FVTOCI are derecognized, the cumulative gain or loss recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment. On the other hand, for equity instruments designated as financial assets at fair value through other comprehensive income, cumulative gains or losses previously recognized in other comprehensive income are not subsequently reclassified to profit or loss. Debt instruments measured subsequently at amortized cost or fair value through other comprehensive income are subject to impairment provisions.


The classification and measurement of financial assets and financial liabilities in accordance with K-IFRS 1109 and K-IFRS 1039 as of January 1, 2018 are as follows (Unit: Korean Won in millions):

 

    

Classification

according to

K-IFRS 1039

  

Classification

according to

K-IFRS 1109

   Classification
according to
K-IFRS 1039
     Reclassificati-
on
    Remeasure-
ment
     Classification
according to
K-IFRS 1109
 

Deposit

   Loans and receivables   

Loan and other financial assets at amortized cost

     8,870,835        —         —          8,870,835  

Deposit

   Financial assets at FVTPL    Financial assets at FVTPL      25,972        —         —          25,972  

Debt securities

   Financial assets at FVTPL    Financial assets at FVTPL(*)      2,654,027        —         —          2,654,027  

Equity securities

   Financial assets at FVTPL    Financial assets at FVTPL(*)      47,304        —         —          47,304  

Derivatives

   Financial assets at FVTPL    Financial assets at FVTPL(*)      3,115,775        (2,137     —          3,113,638  

Equity securities

   AFS financial assets    Financial assets at FVTPL(*)      1,273,498        1,219       —          1,274,717  

Equity securities

   AFS financial assets    Financial assets at FVTOCI      850,207        —         —          850,207  

Debt securities

   AFS financial assets    Financial assets at FVTPL      46,855        —         —          46,855  

Debt securities

   AFS financial assets    Financial assets at FVTOCI      12,874,209        —         —          12,874,209  

Debt securities

   AFS financial assets    Securities at amortized cost      308,181        —         14,119        322,300  

Debt securities

   HTM financial assets    Securities at amortized cost      16,749,296        —         —          16,749,296  

Loans

   Loans and receivables    Financial assets at FVTPL (*)      279,032        918       50        280,000  

Loans

   Loans and receivables   

Loan and other financial assets at amortized cost

     253,014,491        —         —          253,014,491  

Derivatives assets

   Derivatives assets   

Derivatives assets (Held for hedging)

     59,272        —         —          59,272  

Other financial assets

   Loans and receivables   

Loan and other financial assets at amortized cost

     6,772,088        —         —          6,772,088  
        

 

 

    

 

 

   

 

 

    

 

 

 
  

Total financial assets

        306,941,042        —         14,169        306,955,211  
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(*)

Under K-IFRS 1039, the embedded derivatives out of hybrid financial instruments are accounted for as derivatives assets or liabilities if the criteria for separation of the embedded derivative are met and the rest of host contracts in those instruments are recorded as available-for-sale financial assets or loans and receivables respectively. Since K-IFRS 1109 requires financial instruments be accounted for based on the terms of the entire financial instruments, the hybrid financial assets are revalued and recorded as financial assets at fair value through profit or loss.


    

Classification according to

K-IFRS 1039

  

Classification according to

K-IFRS 1109

   Classification
according to
K-IFRS 1039
     Reclassifica-
tion
     Remeasure-
ment
     Classification
according to
K-IFRS 1109
 

Deposit due to customers

  

Financial liabilities at FVTPL

  

Financial liabilities at FVTPL

     25,964        —          —          25,964  

Deposit due to customers

  

Financial liabilities at amortized cost

  

Financial liabilities at amortized cost

     234,695,084        —          —          234,695,084  

Borrowings

  

Financial liabilities at amortized cost

  

Financial liabilities at amortized cost

     14,784,706        —          —          14,784,706  

Debentures

  

Financial liabilities at FVTPL

  

Financial liabilities at FVTPL

     91,739        —          —          91,739  

Debentures

  

Financial liabilities at amortized cost

  

Financial liabilities at amortized cost

     27,869,651        —          —          27,869,651  

Equity-linked securities

  

Financial liabilities at FVTPL

  

Financial liabilities at FVTPL

     160,057        —          —          160,057  

Derivatives liabilities

  

Financial liabilities at FVTPL

  

Financial liabilities at FVTPL

     3,150,149        —          —          3,150,149  

Derivatives liabilities

  

Derivatives liabilities

  

Derivatives liabilities (Held for hedging)

     67,754        —          —          67,754  

Other financial liabilities

  

Financial liabilities at amortized cost

  

Financial liabilities at amortized cost

     13,892,461        —          —          13,892,461  

Provision for financial guarantee

  

Provision for financial guarantee

  

Financial liabilities at amortized cost

     71,697        —          —          71,697  
        

 

 

    

 

 

    

 

 

    

 

 

 
  

Total financial liabilities

        294,809,262        —          —          294,809,262  
  

 

 

    

 

 

    

 

 

    

 

 

 

At the date of the initial application of K-IFRS 1109, there were no financial assets or liabilities measured at FVTPL that were reclassified to FVTOCI or amortized cost category.

As of the date of first adoption of K-IFRS 1109, the amount of valuation gain or loss and fair value of financial assets that would have been recognized in the book, had the entity decided not to reclassify financial assets at FVTPL or FVTOCI that has been reclassified into financial assets at amortized cost, is as follows: (Unit: Korean Won in millions)

 

Account subject

   Category before the adoption of
K-IFRS 1109
   Amount of valuation gain/
loss had it not been reclassified
     Fair value  

Debt securities

   AFS securities      (163      300,058  


b) Impairment of financial assets

The impairment model under K-IFRS 1109 reflects expected credit losses, as opposed to incurred credit losses under K-IFRS 1039. Under the impairment approach in K-IFRS 1109, it is no longer necessary for a credit event to have occurred before credit losses are recognized. Instead, the Group accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses should be updated at each reporting date to reflect changes in credit risk since initial recognition.

The Group is required to recognize the expected credit losses for financial instruments measured at amortized cost or FVTOCI, and loan commitments and financial guarantee contracts that are subject to the impairment provisions of K-IFRS 1109. In particular, when the credit risk of the financial instruments are significantly increased after initial recognition, or when the credit quality of the financial instruments are already impaired at acquisition, the loss allowance is measured as the expected credit loss for the whole life of the financial assets. If the credit risk of a financial instruments does not increase significantly after initial recognition (excluding purchased or originated credit-impaired loans—for financial assets already impaired at initial recognition), the Group measures the loss allowance on the financial instruments at the amount equivalent to the expected 12-month credit loss.

Management determined the credit risk at the date of initial recognition of the financial instrument in accordance with K-IFRS 1109 and provided a reasonable and supportive measure that can be used without undue cost or effort in comparison with the credit risk of the initial application date (January 1, 2018) the Group used information that could be used to assess the impairment of the Group’s financial assets, lending arrangements and financial guarantees at the date of initial application. As of January 1, 2018, the evaluation results are as follows (Unit: Korean Won in millions):

 

    

Classification

according to

K-IFRS

1039

  

Classification

according to

K-IFRS 1109

   Loss allowance
per K-IFRS
1039(A)
     Loss allowance
per K-IFRS
1109 (B)
     Increases
(B-A)
 

Deposit

   Loans and receivables   

Loans and other financial assets at amortized cost

     2,458        3,092        634  

Debt securities

              

AFS debt securities

   AFS financial assets    Financial assets at FVTOCI      —          4,236        4,236  

HTM securities

   HTM financial assets    Securities at amortized cost      —          5,078        5,078  

Loans and other financial assets

   Loans and receivables   

Loans and other financial assets at amortized cost

     1,827,785        2,076,873        249,088  

Payment guarantee

           183,247        192,924        9,677  

Loan commitment

           66,115        104,985        38,870  
        

 

 

    

 

 

    

 

 

 
  

Total

        2,079,605        2,387,188        307,583  
        

 

 

    

 

 

    

 

 

 

c) Classification and measurement of financial liabilities

One of the major changes related to the classification and measurement of financial liabilities as a result of the adoption of K-IFRS 1109 is the change in the fair value of financial liabilities designated at fair value through profit or loss due to the changes in issuer’s own credit risk. The Group recognizes the effect of changes in the credit risk of financial liabilities designated as at FVTOCI in other comprehensive income, except for cases where it causes or disproves accounting mismatch of the profit or loss. Changes in fair value due to credit risk of financial liabilities are not subsequently reclassified to profit or loss, but are reclassified as retained earnings when financial liabilities are eliminated.

In accordance with K-IFRS 1039, the entire of changes in fair value of financial liabilities designated as at FVTPL are recognized in profit or loss. As of January 1, 2018, the Group designated 251,796 million Korean Won of FVTPL out of 294,813,795 million of financial liabilities, and recognized 133 million Korean Won as accumulated other comprehensive loss in relation to the changes in credit risk of financial liabilities.


d) Hedge accounting

The new hedge accounting model maintains three types of hedge accounting. However, it is introduced more flexibility in the types of transactions that are eligible for hedge accounting and is expanded the types of hedging instruments and non-financial hedge items that qualify for hedge accounting. As a whole, it has been amended and replaced by the principle of “economic relationship” between the hedged item and the hedging instrument. Retrospective assessment of the hedging effectiveness is no longer required. Additional disclosure requirements have been introduced in relation to the Group’s risk management activities.

In accordance with the transitional provisions of K-IFRS 1109 on hedge accounting, the Group adopted the hedge accounting provisions of K-IFRS 1109 prospectively from January 1, 2018. As of the date of initial application, the Group has considered that the hedging relationship in accordance with K-IFRS 1039 is appropriate for hedge accounting under K-IFRS 1109, thus the hedging relationship is considered to exist continually. Since the major conditions for hedging instruments and the hedged items are consistent, all hedging relationships are consistent with the effectiveness assessment requirements of K-IFRS 1109. The Group has not designated a hedging relationship in accordance with K-IFRS 1109 in which the hedge relationship would not have met the requirements for hedge accounting under K-IFRS 1039.

Consistent with prior periods, the Group continues to designate fair value changes in interest rate swaps as hedging instruments in the fair value hedge relationship.

e) Effect on equity as a result of adoption of K-IFRS 1109

The effect on equity due to the adoption of K-IFRS 1109 as of January 1, 2018 is as follows (Unit: Korean Won in millions):

 

   

Impact on accumulated other comprehensive loss as result of financial assets at FVTOCI, etc.

 

     Amount  

Beginning balance (prior to K-IFRS 1109)

     (89,724

Adjustments

     (392,176

Reclassification of available-for-sale financial assets to financial assets at Amortized cost

     494  

Reclassification of available-for-sale financial assets to financial assets at FVTPL

     (152,124

Recognition of expected credit losses of debt securities at FVTOCI

     4,293  

Reclassified of available for sale financial assets (equity securities) to financial assets at FVTOCI

     (397,508

Effect on changes in credit risk of financial liabilities at fair value through profit or loss designated as upon initial recognition

     (133

Others

     3,006  

Income tax effect

     149,796  
  

 

 

 

Ending balance (based on K-IFRS 1109)

     (481,900
  

 

 

 


   

Retained earnings impact

 

     Amount  

Beginning balance (prior to K-IFRS 1109)

     15,620,006  

Adjustments

     177,091  

Reclassification of available-for-sale financial assets to financial assets at Amortized cost

     (494

Reclassification of available-for-sale financial assets to financial assets at FVTPL

     152,067  

Recognition of expected credit losses of debt instruments at FVTOCI

     (4,236

Reclassified of available for sale financial assets (equity securities) to financial assets at FVTOCI

     397,508  

Effect on revaluation of financial assets at amortized cost from loan and receivables or AFS financial assets

     282  

Recognition of expected credit losses of financial assets at amortized cost which were previously loan and receivables

     (240,683

Effect of payment guarantees / unused commitments on liabilities

     (48,548

Effect on changes in credit risk of financial liabilities at fair value through profit or loss designated as upon initial recognition

     133  

Others

     (4,456

Income tax effect

     (74,482
  

 

 

 

Ending balance (based on K-IFRS 1109)

     15,797,097  
  

 

 

 

 

   

Adoption of K-IFRS 1115 – Revenue from contracts with customers (enacted)

The Group adopted K-IFRS 1115 for the first time and decided to recognize apply the cumulative effect of applying the new standard at the beginning of the year of initial application (January 1, 2018), with no restatement of comparative periods, with a choice of practical expedients under the transition requirements of IFRS 15. In addition, the Group has applied the new standard to contractual modifications made prior to the first application date and applied the new standard to the contract modifications that occur after the date of initial application.

Accordingly, the Group has not retroactively restated the comparative consolidated financial statements presented herein.

 

   

Amendments to K-IFRS 1102 – Classification and Measurement of Share-based Payment Transactions

The amendments clarify the following; i) In estimating the fair value of a cash-settled share-based payment, the accounting for the effects of vesting and non-vesting conditions should follow the same approach as for equity-settled share-based payments ii) Where tax law or regulation requires an entity to withhold a specified number of equity instruments equal to the monetary value of the employee’s tax obligation to meet the employee’s tax liability which is then remitted to the tax authority, i.e. the share-based payment arrangement has a ‘net settlement feature’, such an arrangement should be classified as equity-settled in its entirety, provided that the share-based payment would have been classified as equity-settled had it not included the net settlement feature, iii) A modification of a share-based payment that changes the transaction from cash-settled to equity-settled should be accounted for as follows; a) the original liability is derecognized; b) the equity-settled share-based payment is recognized at the modification date fair value of the equity instrument granted to the extent that services have been rendered up to the modification date; and c) any difference between the carrying amount of the liability at the modification date and the amount recognized in equity should be recognized in profit or loss immediately.

 

   

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 the definition of investment property, supported by observable evidence that a change in use has occurred. The amendments further clarify that the situations listed in K-IFRS 1040 are not exhaustive and that a change in use is possible for properties under construction (i.e. a change in use is not limited to completed properties).


   

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

K-IFRS 2122 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 (or part of them), when consideration for that item has been paid or received in advance in a foreign currency which 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.

 

   

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 fair value through profit or loss mandatorily measured at fair value, 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.

There are no significant impacts on financial statements due to newly adopted accounting standards except for K-IFRS 1109.

 

2)

The Group has not applied the following K-IFRS that have been issued but are not yet effective:

 

   

K-IFRS 1116—Leases(enacted)

K-IFRS 1116 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. K-IFRS 1116 will supersede the current lease guidance including K-IFRS 1017 Leases and the related interpretations, and will be applied to periods beginning on or after January 1, 2019.

K-IFRS 1116 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced by model where a right-of-use asset and corresponding liability have to be recognized for all leases by lessees except for short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected as operating lease payments under K-IFRS 1017 are presented as operating cash flows; whereas under the K-IFRS 1116 model, the lease payments will be split into a principal and an interest portion which will be presented as financing and operating cash flows respectively.

In contrast to lessee accounting, K-IFRS 1116 substantially carries forward the lessor accounting requirements in K-IFRS 1017, and continues to require a lessor to classify a lease either as an operating lease or a finance lease. Also, K-IFRS 1116 requires expanded disclosures.

According to the preliminary assessment of the Group, the lease agreements entered into by the Group as of September 30, 2018 are expected to meet the definition of lease under the Standard, and accordingly, if the Group adopts the Standard, it applies to all leases except short-term leases and leases of low value assets, and the Group will recognize the right-of-use assets and related liabilities accordingly. The Group is currently analyzing the potential impact of this standards as of September 30, 2018.


3.

SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS

In the application of the Group’s accounting policies to the interim financial statements, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results can differ from those estimates based on such definitions.

The significant judgments which management has made about the application of the Group’s accounting policies and key sources of uncertainty in estimate do not differ from those used in preparing the consolidated financial statements for the year ended December 31, 2017, except the Group’s policy, accounting estimates and assumptions described below;

 

(1)

Income taxes

The Group is operating in numerous countries and the income generated from these operations is subject to income taxes based on tax laws and interpretations of tax authorities in numerous jurisdictions. There are many transactions and calculations which makes the ultimate tax determination uncertain. If certain portion of the taxable income is not used for investments, increase in wages, and others in accordance with the Tax System for Promotion of investment and Collaborative Cooperation (Recirculation of Corporate Income), the Group is liable to pay additional income tax calculated based on the tax laws. The new tax system is effective for three years from 2018. Accordingly, the measurement of current and deferred income tax is affected by the tax effects from the new system. As the Group’s income tax is dependent on the investments, increase in wages, and others, there exists uncertainty with regard to measuring the final tax effects.

 

(2)

Provisions for credit losses (allowances for loan losses, provisions for acceptances and guarantees, and unused loan commitments)

In accordance with K-IFRS 1109, the Group tests impairment and recognizes allowances for losses on financial assets classified at amortized cost, and debt instruments measured at fair value through other comprehensive income and lease receivables through impairment testing and recognizes provisions for guarantees, and unused loan commitments. Accuracy of provisions for credit losses is dependent upon estimation of expected cash flows of the borrower for individually assessed allowances of loans, and upon assumptions and methodology used for collectively assessed allowances for the Group’s of loans, guarantees and unused loan commitments.


4.

RISK MANAGEMENT

The Group’s operating activity is exposed to various financial risks. The Group is required to analyze and assess the level of complex risks, and determine the permissible level of risks and manage such risks. The Group’s risk management procedures have been established to improve the quality of assets for holding or investment purposes by making decisions as how to avoid or mitigate risks through the identification of the source of the potential risks and their impact.

The Group has established an approach to manage the acceptable level of risks and reduce the excessive risks in financial instruments in order to maximize the profit given risks present, for which the Group has implemented processes for risk identification, assessment, control, and monitoring and reporting.

The risk is managed by the risk management department in accordance with the Group’s risk management policy. The Risk Management Committee makes decisions on the risk strategies such as the allocation of risk capital and the establishment of acceptable level of risk.

 

(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 Group’s credit risk exposure to a permissible degree and to optimize its rate of return considering such credit risk.

 

  1)

Credit risk management

The Group 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 Group uses the credit rating model to assess the possibility of counterparty’s default risk; and when assessing the obligor’s credit grade, the Group utilizes credit grades derived using statistical methods.

In order to manage credit risk limit, the Group 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 Group mitigates credit risk resulting from the obligor’s credit condition by using financial and physical collateral, guarantees, netting agreements and credit derivatives. The Group 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 Group regularly performs a revaluation of collateral reflecting such credit risk mitigation.

 

  2)

Maximum exposure to credit risk

The Group’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 unused commitment.


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

 

          September 30, 2018      December 31, 2017  

Loans and other financial assets at amortized cost

  

Korean treasury and government agencies

     18,001,232        —    
   Banks      18,747,042        —    
   Corporates      97,141,269        —    
   Consumers      144,795,354        —    
     

 

 

    

 

 

 
  

Sub-total

     278,684,897        —    
     

 

 

    

 

 

 

Loans and receivables

  

Korean treasury and government agencies

     —          8,823,584  
   Banks      —          26,845,309  
   Corporates      —          90,570,551  
   Consumers      —          140,866,760  
     

 

 

    

 

 

 
  

Sub-total

     —          267,106,204  
     

 

 

    

 

 

 

Financial assets at FVTPL (K-IFRS 1109)

   Deposit      27,045        —    
   Debt securities      1,818,868        —    
   Loans      322,907        —    
   Derivative assets      1,921,399        —    
     

 

 

    

 

 

 
  

Sub-total

     4,090,219        —    
     

 

 

    

 

 

 

Financial assets at FVTPL (K-IFRS 1039)

   Deposit      —          25,972  
   Debt securities      —          2,644,333  
  

Financial assets designated at FVTPL

     —          9,694  
   Derivative assets      —          3,115,775  
     

 

 

    

 

 

 
  

Sub-total

     —          5,795,774  
     

 

 

    

 

 

 

Financial assets at FVTOCI

   Debt securities      15,148,280        —    

AFS financial assets

   Debt securities      —          13,229,244  

Securities at amortized cost

   Debt securities      19,121,604        —    

HTM financial assets

   Debt securities      —          16,749,296  

Derivative assets

  

Derivative assets (Held for hedging)

     13,716        59,272  

Off-balance accounts

   Guarantees      12,475,470        12,859,715  
   Loan commitments      97,085,991        80,760,325  
     

 

 

    

 

 

 
  

Sub-total

     109,561,461        93,620,040  
     

 

 

    

 

 

 
  

total

     426,620,177        396,559,830  
     

 

 

    

 

 

 


  a)

Credit risk exposure by geographical areas

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

 

     September 30, 2018  
     Korea      China      USA      UK      Japan      Others (*)      Total  

Loans and other financial assets at amortized cost

     259,175,016        4,849,590        4,229,635        1,336,132        549,769        8,544,755        278,684,897  

Securities at amortized cost

     18,968,281        —          71,295        —          —          82,028        19,121,604  

Financial assets at FVTPL

     3,897,918        3,583        —          107,099        —          81,619        4,090,219  

Financial assets at FVTOCI

     14,105,059        29,189        158,825        —          —          855,207        15,148,280  

Derivative assets (Held for hedging)

     9,391        —          —          4,325        —          —          13,716  

Off-balance accounts

     106,974,120        873,121        210,291        113,531        22,001        1,368,397        109,561,461  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     403,129,785        5,755,483        4,670,046        1,561,087        571,770        10,932,006        426,620,177  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2017  
     Korea      China      USA      UK      Japan      Others (*)      Total  

Loans and receivables

     250,678,479        4,104,912        2,823,247        1,094,988        381,890        8,022,688        267,106,204  

Financial assets at FVTPL

     5,551,870        2,937        —          148,955        —          92,012        5,795,774  

AFS debt securities

     12,407,602        52,259        151,131        —          —          618,252        13,229,244  

HTM securities

     16,606,692        —          63,732        —          —          78,872        16,749,296  

Derivative assets (Held for hedging)

     16,590        —          —          42,682        —          —          59,272  

Off-balance accounts

     91,603,852        529,193        172,570        66,974        25,039        1,222,412        93,620,040  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     376,865,085        4,689,301        3,210,680        1,353,599        406,929        10,034,236        396,559,830  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

Others consist of financial assets in Indonesia, Hong Kong, Singapore, and other countries.

 

  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):

 

     September 30, 2018  
     Service      Manufacturing      Finance and
insurance
     Construction      Individuals      Others      Total  

Loans and other financial assets at amortized cost

     48,718,620        35,526,804        40,303,976        3,587,102        140,628,975        9,919,420        278,684,897  

Securities at amortized cost

     1,124,406        —          11,503,510        416,341        —          6,077,347        19,121,604  

Financial assets at FVTPL

     97,326        104,668        2,925,489        49,797        3,735        909,204        4,090,219  

Financial assets at FVTOCI

     307,183        85,182        10,756,520        235,127        —          3,764,268        15,148,280  

Derivative assets (Held for hedging)

     —          —          13,716        —          —          —          13,716  

Off-balance accounts

     17,873,392        21,726,373        9,171,373        4,108,025        49,563,611        7,118,687        109,561,461  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     68,120,927        57,443,027        74,674,584        8,396,392        190,196,321        27,788,926        426,620,177  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2017  
     Service      Manufacturing      Finance and
insurance
     Construction      Individuals      Others      Total  

Loans and receivables

     47,192,641        34,502,509        38,260,051        3,574,746        133,094,287        10,481,970        267,106,204  

Financial assets at FVTPL

     100,766        83,239        4,640,068        15,073        1,040        955,588        5,795,774  

AFS debt securities

     707,737        37,719        7,331,774        153,534        —          4,998,480        13,229,244  

HTM securities

     1,348,754        —          10,962,149        296,214        —          4,142,179        16,749,296  

Derivative assets (Held for hedging)

     —          —          59,272        —          —          —          59,272  

Off-balance accounts

     16,892,926        21,427,378        9,841,379        3,842,479        36,928,554        4,687,324        93,620,040  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     66,242,824        56,050,845        71,094,693        7,882,046        170,023,881        25,265,541        396,559,830  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 


  3)

Credit risk exposure

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 lifetime credit losses:
  

Expected credit losses due to possible defaults on financial instruments within a 12-month period from the reporting date.

  

Expected credit losses due to 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 the reporting date.

The Group has estimated the allowance for credit losses based on experience losses with taken account of forward-looking information.

The probability of default and loss at given default per financial assets considering account type of borrowers, credit rate grade, portfolio are used in estimation of allowance for expected credit losses and those factors are reviewed periodically to reduce the difference of expected losses and actual losses.

The Group also measures expected credit losses using supportive and reasonable macroeconomic indicators, such as economic growth rates, interest rates, and composite stock indices. The methods for the estimation of forward-looking are also regularly reviewed.

The Group undertakes the following procedures in order to predict and apply the forward-looking economic information:

 

   

Development of a prediction model by analyzing the correlation between macroeconomic data and yearly default rate of corporate and retail exposures.

 

   

Calculation of predicted default rate by applying forward-looking economic information, which includes estimated macroeconomic indices provided by verified institutions such as Bank of Korea and National Assembly Budget Office, to the prediction model developed.

At the end of each period the Group evaluates whether there has been a significant increase in the credit risk since initial recognition. The Group is assessing the change in the risk of a default occurring over the expected life of the financial instruments instead of the change in the amount of expected credit losses. The Group distinguishes corporates/consumers exposures when determining significant increase in credit risk, and the applied methodology is as follows:

 

Corporates exposure

  

Consumers exposure

Below than “precautionary” level in assets quality Classification under the Regulations on Supervision of Banking Business in Korea

  

Below than “precautionary” level in assets quality classification under the Regulations on Supervision of Banking Business in Korea

More than 30 days past due

  

More than 30 days past due

Watch grade in early warning system established by the Group

  

Significant decreases in credit ratings

Significant change of borrower financial situation

(Working capital deficiencies, Adverse opinion, Disclaimer of opinion by the external auditors)

  

Significant decreases in credit ratings

  

At the end of each reporting period, the Group assesses whether there is a significant increase in credit risk.


The financial assets are impaired if the following conditions are met;

 

   

The principal and interest of the financial assets has been overdue for more than 90 days due to the serious deterioration of the credit condition,

 

   

It is deemed that the borrowers will not pay any portion of the debts without actions of recourse such as the disposition of the collateral is not taken

 

   

Objective evidence of impairment of financial assets are identified

The Group writes off assets when it is determined that the financial assets are virtually impossible to collect. The Group determines which receivable to write-off and subsequently writes them off in accordance with the company’s policy. Regardless of whether assets have been written off, the Group may continue to exercise its right of collection in accordance with company’s policy on receivables collection.

 

a)

Financial assets

The maximum exposure to credit quality, except for financial assets at FVTPL and derivative asset (Held for hedging) is as follows (Unit: Korean Won in millions):

 

    September 30, 2018  
    Stage 1     Stage 2     Stage 3     Total     Loss
allowance
    Total, net     Collateral
value of
impaired
property
 
    Above
appropriate
credit rating
(*1)
    Less than a
limited
credit
rating
(*2)
    Above
appropriate
credit
rating (*1)
    Less than a
limited credit
rating
(*2)
 

Loans and other financial assets at amortized cost

    248,120,312       17,913,994       6,371,302       6,481,329       1,585,639       280,472,576       (1,787,679     278,684,897       731,700  

Korean treasury and government agencies

    18,005,413       —         1       —         —         18,005,414       (4,182     18,001,232       —    

Banks

    18,267,000       141,080       346,390       —         11,531       18,766,001       (18,959     18,747,042       —    

Corporates

    76,487,768       16,164,069       539,329       4,145,546       943,624       98,280,336       (1,139,067     97,141,269       473,906  

General business

    43,816,454       6,749,706       454,214       2,120,784       676,237       53,817,395       (762,103     53,055,292       310,307  

Small- and medium-sized enterprise

    28,281,996       8,855,973       85,115       1,856,296       238,873       39,318,253       (337,333     38,980,920       144,189  

Project financing and others

    4,389,318       558,390       —         168,466       28,514       5,144,688       (39,631     5,105,057       19,410  

Consumers

    135,360,131       1,608,845       5,485,582       2,335,783       630,484       145,420,825       (625,471     144,795,354       257,794  

Securities at amortized cost

    19,127,191       —         —         —         —         19,127,191       (5,587     19,121,604       —    

Financial assets at FVTOCI (*3)

    15,091,002       42,126       15,152       —         —         15,148,280       (5,229     15,148,280       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    282,338,505       17,956,120       6,386,454       6,481,329       1,585,639       314,748,047       (1,798,495     312,954,781       731,700  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1)

Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6.

(*2)

Credit grade of corporates are BBB- ~ C, and consumers are grades 7 ~ 10.

(*3)

Financial assets at FVTOCI has been disclosed as the amount before deducting loss allowance because loss allowance does not reduce the carrying amount.


   

Loans and receivables

 

     December 31, 2017  
                 Corporates                
   Korean
treasury and
government
agencies
     Banks      General
business
     Small and
medium sized
enterprise
     Project
financing
and others
     Sub-total      Consumers      Total  

Neither overdue nor impaired

     8,825,767        26,861,286        50,463,112        34,107,547        5,547,950        90,118,609        139,886,407        265,692,069  

Overdue but not impaired

     8        —          65,616        63,067        —          128,683        878,406        1,007,097  

Impaired

     —          —          1,402,131        251,431        46,717        1,700,279        537,001        2,237,280  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     8,825,775        26,861,286        51,930,859        34,422,045        5,594,667        91,947,571        141,301,814        268,936,446  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loss allowance

     2,191        15,977        1,078,733        267,162        31,125        1,377,020        435,054        1,830,242  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total, net

     8,823,584        26,845,309        50,852,126        34,154,883        5,563,542        90,570,551        140,866,760        267,106,204  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

   

Debt securities

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

 

     December 31, 2017  
     Financial assets at
FVTPL (*)
     AFS debt
securities
     HTM
securities
     Total  

AAA

     1,685,099        9,897,689        15,806,327        27,389,115  

AA- ~ AA+

     722,923        2,386,567        888,547        3,998,037  

BBB- ~ A+

     236,311        876,482        52,188        1,164,981  

Below BBB-

     9,694        68,506        2,234        80,434  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2,654,027        13,229,244        16,749,296        32,632,567  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

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

 

b)

Guarantees and loan commitments

The credit quality of the guarantees and loan commitments as of September 30, 2018 as follows (Unit: Korean Won in millions):

 

     September 30, 2018  

Financial assets

   Stage 1      Stage 2      Stage3      Total  
   Above
appropriate
credit rating
(*1)
     Less than a
limited
credit rating
(*2)
     Above
appropriate
credit rating
(*1)
     Less than a
limited
credit rating
(*2)
 

Off-balance accounts

                 

Guarantees

     10,859,936        1,077,716        5,057        410,517        122,244        12,475,470  

Loan commitments

     91,170,081        3,516,699        1,486,696        893,759        18,756        97,085,991  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     102,030,017        4,594,415        1,491,753        1,304,276        141,000        109,561,461  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*1)

Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6.

(*2)

Credit grade of corporate are BBB- ~ C, and consumers are grades 7 ~ 10.


4) Collateral and other credit enhancements

During the current quarter, there have been no significant changes in the value of collateral or other credit enhancements held by the Group and there have been no significant changes in collateral or other credit enhancements due to changes in the collateral policy of the Group. As of September 30, 2018, there are no financial assets that do not recognize the allowance for losses just because financial assets have collateral.

 

(2)

Market risk

Market risk is the possible risk of loss arising from trading activities 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 changes in 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 Group avoids, bears, or mitigates risks by identifying the underlying source of the risks, measuring parameters and evaluating their appropriateness.

On a yearly basis, the Risk Management Committee establishes a Value at Risk (“VaR”, maximum losses) limit, loss limit and risk capital limit by subsidiaries for its management purposes. The limit by investment desk/dealer is independently managed to the extent of the limit given to subsidiaries and the limit by investment and loss cut is managed by the risk management personnel within the department.

The Group 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. For the trading activities, the Risk Management department measures the VaR limit by department, risk factor and loss limit on a daily basis and reports regularly to the Risk Management Committee.

 

  2)

Sensitivity analysis of market risk

The Group performs the sensitivity analyses both for trading and for non-trading activities.

For trading activities, the Group uses a VaR model that 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% confidence level. In short, there exists a one percent possibility that the actual loss might exceed the predicted loss generated from the VaR calculation. The actual results are periodically monitored to examine the validity of the assumptions, variables, and factors that are used in VaR calculations. However, this approach cannot prevent the loss when the market fluctuation exceeds expectation.

For the non-trading activities, interest rate Earning at Risk (“EaR”) and interest rate VaR, which is based on the simulations of the Net Interest Income (“NII”) and Net Portfolio Value (“NPV”), are calculated for the Bank and the consolidated trusts, and the risks for all other subsidiaries are measured and managed by the interest rate EaR and the interest rate VaR calculations based on the Bank for International Settlements (“BIS”) Framework.

NII is a profit-based indicator for displaying the profit changes in 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 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.


EaR shows the maximum profit-loss amount, which indicates the maximum deduction amount caused by the unfavorable changes related to the interest rate of a certain period (i.e. 1 year). Interest rate VaR shows the potential maximum loss generated by the unfavorable changes during a certain period of time in the present or future.

 

  a)

Trading activities

The minimum, maximum and average VaR for the period ended September 30, 2018 and for the year ended December 31, 2017, respectively, and the VaR as of September 30, 2018 and December 31, 2017, respectively, are as follows (Unit: Korean Won in millions):

 

     September 30,
2018
    For the period ended
September 30, 2018
    December 31,
2017
    For the year ended
December 31, 2017
 

Risk factor

  Average     Maximum     Minimum     Average     Maximum     Minimum  

Interest rate

     4,955       3,794       5,528       1,730       4,183       3,799       4,918       2,467  

Stock price

     2,682       2,575       4,618       1,138       909       2,863       4,419       909  

Foreign currencies

     5,038       4,553       6,136       3,439       4,750       5,051       6,636       4,061  

Commodity price

     17       1       17       —         —         31       188       —    

Diversification

     (6,892     (4,788     (7,685     (1,815     (4,472     (4,621     (6,798     (2,067
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total VaR(*)

     5,800       6,135       8,614       4,492       5,370       7,123       9,363       5,370  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*)

VaR(Value at Risk): Maximum expected losses

 

  b)

Non-trading activities

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

 

     September 30, 2018      December 31, 2017  
  

 

 

    

 

 

 
     NII(*1)      NPV(*2)      NII(*1)      NPV(*2)  

Base case

     4,713,257        24,686,971        4,916,138        23,472,792  

Base case (Prepay)

     4,704,711        24,380,159        4,916,015        23,163,942  

IR 100bp up

     5,209,637        24,550,082        5,361,546        22,886,122  

IR 100bp down

     4,294,765        24,846,145        4,386,437        24,127,559  

IR 200bp up

     6,071,377        24,430,336        5,806,723        22,372,208  

IR 200bp down

     3,783,567        25,035,233        3,452,590        24,830,482  

IR 300bp up

     6,852,372        24,324,139        6,251,897        21,929,189  

IR 300bp down

     3,647,006        25,266,044        2,254,609        26,633,807  

 

(*1)

NII: Net Interest Income

(*2)

NPV: Net Portfolio Value

The interest EaR and VaR calculated based on the BIS Framework of subsidiaries other than the Bank and consolidated trusts are as follows (Unit: Korean Won in millions):

 

September 30, 2018

     December 31, 2017  

EaR (*1)

   VaR (*2)      EaR (*1)      VaR (*2)  
258,121      168,335        255,679        130,821  

 

(*1)

EaR(Earning at Risk): Change of Maximum expected income and expense

(*2)

VaR(Value at Risk): Maximum expected losses


The Group 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), interest bearing assets and liabilities, presented by each re-pricing date, are as follows (Unit: Korean Won in millions):

 

     September 30, 2018  
     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 other financial assets at amortized cost

     151,532,534        44,044,660        8,844,675        8,524,447        46,037,186        3,678,776        262,662,278  

Financial assets at FVTPL

     270,110        84,149        57,810        33,077        58,007        20,364        523,517  

Financial assets at FVTOCI

     3,267,328        1,939,108        1,562,900        1,397,493        7,127,479        172,862        15,467,170  

Securities at amortized cost

     2,424,853        1,892,024        2,005,818        1,630,934        11,639,628        361,671        19,954,928  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     157,494,825        47,959,941        12,471,203        11,585,951        64,862,300        4,233,673        298,607,893  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liability:

                    

Deposits due to customers

     110,001,139        41,385,423        29,385,954        18,678,082        38,131,534        66,279        237,648,411  

Borrowings

     8,538,594        2,927,614        585,676        502,485        2,917,602        696,275        16,168,246  

Debentures

     1,742,589        2,192,041        2,417,121        2,191,199        18,692,490        2,895,263        30,130,703  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     120,282,322        46,505,078        32,388,751        21,371,766        59,741,626        3,657,817        283,947,360  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     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

     161,653,892        41,671,530        7,614,159        6,411,841        54,150,998        26,272,958        297,775,378  

AFS financial assets

     2,150,708        2,500,103        2,016,711        2,367,762        4,229,000        601,735        13,866,019  

HTM financial assets

     2,286,179        2,161,467        1,433,425        1,687,362        9,369,794        345,868        17,284,095  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     166,090,779        46,333,100        11,064,295        10,466,965        67,749,792        27,220,561        328,925,492  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liability:

                    

Deposits due to customers

     106,815,564        37,750,367        25,117,556        27,585,458        37,518,878        91,246        234,879,069  

Borrowings

     9,865,249        1,056,579        412,966        437,431        2,709,010        479,827        14,961,062  

Debentures

     1,955,902        2,452,240        1,018,563        1,752,847        19,770,538        2,869,766        29,819,856  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     118,636,715        41,259,186        26,549,085        29,775,736        59,998,426        3,440,839        279,659,987  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 


  3)

Currency risk

Currency risk arises from the financial instruments 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, EUR in millions, and Korean Won in millions):

 

    September 30, 2018  
        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 other financial assets at amortized cost

    25,397       28,258,170       155,998       1,524,936       29,587       4,786,589       1,548       2,003,929       4,443,257       41,016,881  
 

Financial assets at FVTPL

    38       42,294       509       4,993       —         —         10       13,468       182,009       242,764  
 

Financial assets at FVTOCI

    1,730       1,924,581       —         —         180       29,189       —         —         334,657       2,288,427  
 

Securities at amortized cost

    111       123,756       —         —         —         —         —         —         82,050       205,806  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
 

Total

    27,276       30,348,801       156,507       1,529,929       29,767       4,815,778       1,558       2,017,397       5,041,973       43,753,878  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liability

 

Financial liabilities at FVTPL

    62       69,084       452       4,431       —         —         30       38,438       112,012       223,965  
 

Deposits due to customer

    12,376       13,764,056       169,598       1,664,042       23,544       3,808,868       809       1,047,643       2,649,540       22,934,149  
 

Borrowings

    6,229       6,930,726       1,260       12,365       470       76,103       247       319,850       324,670       7,663,714  
 

Debentures

    4,042       4,497,903       —         —         —         —         —         —         283,701       4,781,604  
 

Other financial liabilities

    3,152       3,502,190       35,886       352,103       1,318       213,252       160       207,313       86,478       4,361,336  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
 

Total

    25,861       28,763,959       207,196       2,032,941       25,332       4,098,223       1,246       1,613,244       3,456,401       39,964,768  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Off-balance accounts

    7,010       7,799,660       35,311       346,457       4,962       802,684       469       607,464       856,294       10,412,559  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    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

    23,000       24,642,900       126,944       1,204,843       25,224       4,127,936       1,156       1,479,351       3,937,733       35,392,763  
 

Financial assets at FVTPL

    32       34,303       25       238       —         —         27       34,583       104,892       174,016  
 

AFS financial assets

    1,966       2,105,972       —         —         319       52,259       —         590       302,801       2,461,622  
 

HTM financial assets

    111       118,868       —         —         —         —         —         —         78,175       197,043  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
 

Total

    25,109       26,902,043       126,969       1,205,081       25,543       4,180,195       1,183       1,514,524       4,423,601       38,225,444  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liability

 

Financial liabilities at FVTPL

    41       43,423       79       752       —         —         19       24,878       69,977       139,030  
 

Deposits due to customer

    13,744       14,725,686       195,176       1,852,440       21,865       3,578,142       883       1,129,802       2,396,826       23,682,896  
 

Borrowings

    6,604       7,080,118       2,218       21,056       —         —         247       315,685       242,874       7,659,733  
 

Debentures

    3,467       3,714,411       —         —         700       114,555       —         —         375,749       4,204,715  
 

Other financial liabilities

    2,392       2,562,740       16,125       153,043       1,802       294,950       129       165,189       588,625       3,764,547  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
 

Total

    26,248       28,126,378       213,598       2,027,291       24,367       3,987,647       1,278       1,635,554       3,647,051       39,450,921  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Off-balance accounts

    8,108       8,687,009       33,624       319,127       1,199       196,261       406       519,843       176,886       9,899,126  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


(3)

Liquidity risk

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

 

  1)

Liquidity risk management

Liquidity risk management is to prevent potential cash shortages 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. Derivatives instruments are excluded from those financial liabilities as they reflect expected cash flows for a pre-determined period.

Assets and liabilities are grouped by account under Asset Liability Management (“ALM”) in accordance with the characteristics of the account. The Group manages liquidity risk by identifying the maturity gap and such gap ratio through 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):

 

     September 30, 2018  
     Within 3
months
     4 to 6
months
     7 to 9
months
     10 to 12
months
     1 to 5
years
     Over
5 years
     Total  

Financial liabilities at FVTPL

     214,941        82        —          —          —          —          215,023  

Deposits due to customers

     151,910,998        30,991,036        23,044,605        25,310,930        6,639,946        1,893,204        239,790,719  

Borrowings

     5,061,517        3,703,374        1,656,860        1,700,574        3,394,586        713,838        16,230,749  

Debentures

     1,742,589        2,192,041        2,417,121        2,191,199        18,692,490        2,895,263        30,130,703  

Other financial liabilities

     15,158,656        54,413        167,450        2,737        694,086        2,141,543        18,218,885  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     174,088,701        36,940,946        27,286,036        29,205,440        29,421,108        7,643,848        304,586,079  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     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  

Financial liabilities at FVTPL

     168,442        155,984        1,717        512        375        —          327,030  

Deposits due to customers

     148,008,777        29,563,310        18,175,348        32,468,110        7,409,118        2,624,594        238,249,257  

Borrowings

     6,115,732        1,893,173        1,489,272        1,178,107        3,924,681        479,568        15,080,533  

Debentures

     1,955,255        2,452,565        1,018,714        1,744,731        19,770,380        2,869,699        29,811,344  

Other financial liabilities

     7,121,342        162,871        825        1,003        128,940        2,730,001        10,144,982  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     163,369,548        34,227,903        20,685,876        35,392,463        31,233,494        8,703,862        293,613,146  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 


  b)

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

 

     September 30, 2018  
     Within 3
months
     4 to 6
months
     7 to 9
months
     10 to 12
months
     1 to 5
years
     Over 5
years
     Total  

Financial liabilities at FVTPL

     214,941        82        —          —          —          —          215,023  

Deposits due to customers

     162,280,313        32,668,245        19,937,299        18,869,178        5,320,582        116,506        239,192,123  

Borrowings

     5,061,517        3,703,374        1,656,860        1,700,574        3,394,586        713,838        16,230,749  

Debentures

     1,742,589        2,192,041        2,417,121        2,191,199        18,692,490        2,895,263        30,130,703  

Other financial liabilities

     15,158,656        54,413        167,450        2,737        694,086        2,141,543        18,218,885  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     184,458,016        38,618,155        24,178,730        22,763,688        28,101,744        5,867,150        303,987,483  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     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  

Financial liabilities at FVTPL

     168,442        155,984        1,717        512        375        —          327,030  

Deposits due to customers

     159,146,602        31,298,562        16,667,130        21,995,294        6,487,047        2,278,756        237,873,391  

Borrowings

     6,115,732        1,893,173        1,489,272        1,178,107        3,924,681        479,568        15,080,533  

Debentures

     1,955,255        2,452,565        1,018,714        1,744,731        19,770,380        2,869,699        29,811,344  

Other financial liabilities

     7,121,342        162,871        825        1,003        128,940        2,730,001        10,144,982  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     174,507,373        35,963,155        19,177,658        24,919,647        30,311,423        8,358,024        293,237,280  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  3)

Maturity analysis of derivative financial liabilities

Derivatives held for trading purpose are not managed in accordance with their contractual maturity, since the Group 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.

Derivatives held for hedging purpose are estimated by offsetting cash inflows and cash outflows.

The cash flow by the maturity of derivative financial liabilities as of September 30, 2018 and December 31, 2017 is as follows (Unit: Korean Won in millions):

 

     Remaining maturity  
     Within 3
months
     4 to 6
months
     7 to 9
months
     10 to 12
months
     1 to 5
years
     Over 5
years
     Total  

September 30, 2018

     2,007,243        —          —          —          69,972        4,135        2,081,350  

December 31, 2017

     3,150,149        —          —          381        67,373        —          3,217,903  

 

  4)

Maturity analysis of off-balance accounts

The Group provides guarantees on behalf of customers. A financial guarantee represents an irrevocable undertaking that the Group should meet a customer’s obligations to third parties if the customer fails to do so. Under a loan commitment, the Group agrees to make funds available to a customer in the future. 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 Group 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):

 

     September 30, 2018      December 31, 2017  

Guarantees

     12,475,470        12,859,715  

Loan commitments

     97,085,991        80,760,325  


(4) Operational risk

The Group 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 Group has been running the operational risk management system under Basel II. The Group 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 approved by the Financial Supervisory Service.

 

  2)

Operational risk measurement

To quantify required capital for operational risk, the Group 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 Group adopted the Basic Indicator Approach.

 

(5)

Capital management

The Group complies with the standard of capital adequacy provided by financial regulatory authorities. The capital adequacy standard is based on Basel published by Bazel III Committee on Banking Supervisioin in Bank for Internetional Settlement 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 consolidated financial statements of the Group.

According to the above regulations, the Group is required to meet the following new minimum requirements: Common Equity Tier 1 capital ratio of 7.13% and 6.25%, a minimum Tier 1 ratio of 8.63% and 7.75% and a minimum total regulatory capital of 10.63% and 9.75% as of September 30, 2018 and December 31, 2017, respectively.

Details of the Group’s capital adequacy ratio as of September 30, 2018 and December 31, 2017 are as follows (Unit: Korean Won in millions):

 

     September 30,
2018 (*)
    December 31,
2017
 

Tier 1 capital

     17,510,489       16,074,987  

Other Tier 1 capital

     3,146,975       3,041,664  

Tier 2 capital

     3,824,033       3,486,555  
  

 

 

   

 

 

 

Total risk-adjusted capital

     24,481,497       22,603,206  
  

 

 

   

 

 

 

Risk-weighted assets for credit risk

     141,904,674       134,767,711  

Risk-weighted assets for market risk

     2,381,287       2,316,938  

Risk-weighted assets for operational risk

     9,938,192       9,677,559  
  

 

 

   

 

 

 

Total risk-weighted assets

     154,224,153       146,762,208  
  

 

 

   

 

 

 

Common Equity Tier 1 ratio

     11.35     10.95
  

 

 

   

 

 

 

Tier 1 capital ratio

     13.39     13.03
  

 

 

   

 

 

 

Total capital ratio

     15.87     15.40
  

 

 

   

 

 

 

 

(*)

Capital adequacy ratio as of September 30, 2018 is tentatively measured.


5.

OPERATING SEGMENTS

In evaluating the results of the Group and allocating resources, the Group’s Chief Operation Decision Maker (“CODM”) utilizes the information per type of customers. This financial information of the segments is regularly reviewed 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 Group’s reporting segments comprise the following customers: consumer banking, corporate banking, investment banking, capital market, credit card 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 in securities and derivatives, etc.

 

   

Credit card: Credit card, cash service and card loan, etc.

 

   

Headquarter 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 nine months ended September 30, 2018  
    Consumer
banking
    Corporate
banking
    Investment
banking
    Capital
market
    Credit
cards
    Headquarters
and others
    Sub-total     Adjust-
ments
    Total  

Net Interest income (expense)

                 

Interest income

    2,601,854       2,509,028       112,975       7,563       496,064       1,164,324       6,891,808       228,382       7,120,190  

Interest expense

    (761,336     (1,548,717     (134     —         (117,539     (721,401     (3,149,127     226,086       (2,923,041

Inter-segment

    (445,593     589,252       (119,741     19,750       —         (43,668     —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    1,394,925       1,549,563       (6,900     27,313       378,525       399,255       3,742,681       454,468       4,197,149  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net non-interest Income (expense)

                 

Non-interest income

    543,436       598,600       172,658       5,488,289       894,604       944,744       8,642,331       (352,948     8,289,383  

Non-interest expense

    (134,910     (182,239     (46,517     (5,445,633     (844,787     (523,902     (7,177,988     (277,521     (7,455,509

Inter-segment

    110,481       53,546       —         —         —         (164,027     —         —         —