EX-99.2 3 d616497dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

WOORI BANK

SEPARATE INTERIM FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2018 AND FOR THE THREE AND

NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

The accompanying separate 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

Headquarters: (Address) 51, Sogong-ro, Jung-gu, Seoul

(Phone Number) 02-2002-3000


WOORI BANK

SEPARATE 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 (Notes 6 and 45)

     5,181,071        5,328,960  

Financial assets at fair value through profit or loss (“FVTPL”) (K-IFRS 1109) (Notes 4, 7, 11, 12, 18, 26 and 45)

     3,574,953        —    

Financial assets at FVTPL (K-IFRS 1039) (Notes 4, 7, 11, 12, 18, 26 and 45)

     —          4,133,724  

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

     15,430,525        —    

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

     —          14,186,704  

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

     19,012,864        —    

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

     —          16,638,727  

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

     256,674,666        —    

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

     —          248,810,624  

Investments in subsidiaries and associates (Note 13)

     4,230,919        4,148,795  

Investment properties (Note 14)

     362,707        350,235  

Premises and equipment (Note 15)

     2,343,666        2,374,590  

Intangible assets (Note 16)

     375,686        303,325  

Assets held for sale (Note 17)

     2,315        46,183  

Deferred tax assets

     —          238,543  

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

     13,716        59,272  

Other assets (Notes 19 and 45)

     206,658        117,889  
  

 

 

    

 

 

 

Total assets

     307,409,746        296,737,571  
  

 

 

    

 

 

 
LIABILITIES      

Financial liabilities at FVTPL (K-IFRS 1109) (Notes 4, 11 12, 20, 26 and 45)

     2,221,929        —    

Financial liabilities at FVTPL (K-IFRS 1039) (Notes 4, 11, 12, 20, 26 and 45)

     —          3,416,978  

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

     226,233,596        224,384,156  

Borrowings (Notes 4, 11, 12 and 22)

     13,941,360        13,662,984  

Debentures (Notes 4, 11 and 22)

     21,457,360        21,707,466  

Provisions (Notes 23, 44 and 45)

     324,051        368,027  

Net defined benefit liability (Note 24)

     80,148        14,284  

Current tax liabilities

     195,220        212,376  

Deferred tax liabilities

     3,341        —    

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

     38,094        12,103  

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

     21,653,196        13,029,421  

Other liabilities (Notes 25 and 45)

     176,193        135,686  
  

 

 

    

 

 

 

Total liabilities

     286,324,488        276,943,481  
  

 

 

    

 

 

 

 

(Continued)


WOORI BANK

SEPARATE 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     

Capital stock (Note 28)

     3,381,392       3,381,392  

Hybrid securities (Note 29)

     3,161,963       3,017,888  

Capital surplus (Note 28)

     269,533       269,533  

Other equity (Note 30)

     (323,809     (135,282

Retained earnings (Notes 31 and 32)

    

(Regulatory reserve for credit loss as of September 30, 2018 and December 31, 2017 is 2,091,721 million Won and 2,017,342 million Won, respectively.

    

Regulatory reserve for credit loss to be reversed (reserved) as of September 30, 2018 and December 31, 2017 is 159,292 million Won and (-) 74,379 million Won, respectively.

    

Planned provision reversed (reserved) of regulatory reserve for credit loss as of September 30, 2018 and December 31, 2017 is 159,292 million Won and (-) 74,379 million Won, respectively)

     14,596,179       13,260,559  
  

 

 

   

 

 

 

Total equity

     21,085,258       19,794,090  
  

 

 

   

 

 

 

Total liabilities and equity

     307,409,746       296,737,571  
  

 

 

   

 

 

 

 

(*)

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

See accompanying notes


WOORI BANK

SEPARATE INTERIM STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS AND THE NINE MONTHS ENDED

SEPTEMBER 30, 2018 AND 2017

 

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

Interest income

     2,119,450       6,124,373       1,881,273       5,482,056  

Financial assets at FVTPL (K-IFRS 1109)

     473       5,724       —         —    

Financial assets at FVTOCI

     66,364       174,380       —         —    

Financial assets at amortized cost

     2,052,613       5,944,269       —         —    

Financial assets at FVTPL (K-IFRS 1039)

     —         —         4,846       13,724  

AFS financial assets

     —         —         51,424       156,691  

HTM financial assets

     —         —         76,328       223,391  

Loans and receivables

     —         —         1,748,675       5,088,250  

Interest expense

     (921,889     (2,611,523     (747,565     (2,216,690
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (Notes 34 and 45)

     1,197,561       3,512,850       1,133,708       3,265,366  

Fees and commissions income

     280,204       876,472       279,128       808,305  

Fees and commissions expense

     (36,417     (106,624     (38,302     (101,629
  

 

 

   

 

 

   

 

 

   

 

 

 

Net fees and commissions income (Notes 35 and 45)

     243,787       769,848       240,826       706,676  

Dividend income (Notes 36 and 45)

     16,501       56,996       48,444       110,180  

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

     (35,581     72,241       —         —    

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

     —         —         42,805       (94,788

Net gain on financial assets at FVTOCI (K-IFRS 1109) (Notes 11 and 38)

     427       1,150      

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

     —         —         47,211       137,449  

Net gain on financial assets at amortized cost

     8,733       23,586       —         —    

Net gain on disposals of securities at amortized cost

     —         431       —         —    

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

     8,733       23,155       —         —    

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

     (12,347     151,061       (156,786     (336,690

General and administrative expenses (Notes 40 and 45)

     (709,230     (2,065,089     (1,001,984     (2,352,496

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

     (21,890     (211,643     (121,657     95,210  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     687,961       2,311,000       232,567       1,530,907  

Share of losses on subsidiaries and associates (Note 13)

     —         —         (9,635     (47,182

Net other non-operating income

     56,598       81,702       22,462       59,133  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating income (Note 41)

     56,598       81,702       12,827       11,951  

Net income before income tax expense

     744,559       2,392,702       245,394       1,542,858  

Income tax expense (Note 42)

     (202,359     (645,687     (52,986     (346,024

 

(Continued)


WOORI BANK

SEPARATE INTERIM STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS AND THE NINE MONTHS ENDED

SEPTEMBER 30, 2018 AND 2017 (CONTINUED)

 

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

Net income

  

(Net income after the provision of regulatory reserve for credit loss for the nine months ended September 30, 2018 and 2017 is 1,712,030 million Won and 1,171,730 million Won, respectively, and net income after the provision of regulatory reserve for credit loss for the three months ended September 30, 2018 and 2017 is 522,619 million Won and 156,498 million Won, respectively) (Note 32)

     542,200       1,747,015       192,408       1,196,834  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (13,878     15,168       —         —    

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

     14       144       —         —    

Remeasurement of the net defined benefit liability

     16,943       (41,402     21,817       12,868  
  

 

 

   

 

 

   

 

 

   

 

 

 

Items that will not be reclassified to profit or loss

     3,079       (26,090     21,817       12,868  

Net gain on valuation of debt securities at FVTOCI

     6,547       18,729       —         —    

Net loss on valuation of AFS financial assets

     —         —         (16,426     (32,644

Net gain (loss) on foreign currencies translation of foreign operations

     (5,853     4,242       1,712       (12,801
  

 

 

   

 

 

   

 

 

   

 

 

 

Items that may be reclassified to profit or loss

     694       22,971       (14,714     (45,445

Other comprehensive income(loss), net of tax

     3,773       (3,119     7,103       (32,577
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

     545,973       1,743,896       199,511       1,164,257  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share (Note 43)

        

Basic and diluted earnings per common share

(in Korean Won)

     750       2,428       228       1,585  

 

(*)

The separate interim statement 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 separate interim statement 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

SEPARATE 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
    Total  
     (Korean Won in millions)  

January 1, 2017

     3,381,392        3,574,896       269,533        138,542       12,488,155       19,852,518  

Net income

     —          —         —          —         1,196,834       1,196,834  

Dividends on common stocks

     —          —         —          —         (336,636     (336,636

Loss on valuation of available-for-sale financial assets

     —          —         —          (32,644     —         (32,644

Loss on foreign currency translation of foreign operations

     —          —         —          (12,801     —         (12,801

Remeasurement gain related to defined benefit plan

     —          —         —          12,868       —         12,868  

Dividends to hybrid securities

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

Issuance of hybrid securities

     —          559,565       —          —         —         559,565  

Redemption of hybrid securities

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

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

September 30, 2017(*)

     3,381,392        3,017,888       269,533        (102,193     13,218,432       19,785,052  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

January 1, 2018

     3,381,392        3,017,888       269,533        (135,282     13,260,559       19,794,090  

Cumulative effect of change in accounting policy (Note 2)

     —          —         —          (393,473     246,464       (147,009
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Adjusted balance, beginning of period

     3,381,392        3,017,888       269,533        (528,755     13,507,023       19,647,081  

Net income

     —          —         —          —         1,747,015       1,747,015  

Dividends on common stocks

     —          —         —          —         (336,636     (336,636

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

     —          —         —          144       —         144  

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

     —          —         —          (4     4       —    

Net gain on valuation of financial assets at FVTOCI

     —          —         —          33,897       —         33,897  

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

     —          —         —          279       (279     —    

Gain on foreign currency translation of foreign operations

     —          —         —          4,242       —         4,242  

Remeasurement loss related to defined benefit plan

     —          —         —          (41,402     —         (41,402

Appropriation of retained earnings

     —          —         —          208,158       (208,158     —    

Dividends to hybrid securities

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

Issuance of hybrid securities

     —          398,707       —          —         —         398,707  

Redemption of hybrid securities

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

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

September 30, 2018(*)

     3,381,392        3,161,963       269,533        (323,809     14,596,179       21,085,258  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

(*)

The separate 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 separate 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

SEPARATE 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

     1,747,015       1,196,834  

Adjustment to net income:

    

Income tax expense

     645,687       346,024  

Interest income

     (6,124,373     (5,482,056

Interest expense

     2,611,523       2,216,690  

Dividend income

     (87,789     (137,690
  

 

 

   

 

 

 
     (2,954,952     (3,057,032
  

 

 

   

 

 

 

Additions of expenses not involving cash outflows:

    

Impairment losses due to credit loss

     —         336,690  

Impairment loss on investments in subsidiaries and associates

     —         47,182  

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

     78,290       22,539  

Loss on hedged items (fair value hedge)

     —         6,856  

Loss on provision

     11,806       10,889  

Retirement benefits

     96,344       98,527  

Depreciation and amortization

     156,325       124,707  

Loss on disposal of premises and equipment and other assets

     829       1,156  

Impairment loss on premises and equipment and other assets

     36       153  
  

 

 

   

 

 

 
     343,630       648,699  
  

 

 

   

 

 

 

Deductions of income not involving cash inflows:

    

Reversal of impairment losses due to credit loss

     151,061       —    

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

     104,839       —    

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

     —         70,265  

Gain on financial assets at FVTOCI

     1,150       —    

Gain on AFS financial assets

     —         137,449  

Gain on disposal of securities at amortized cost

     431       —    

Gain on transaction and valuation of derivatives (hedging)

     985       7,038  

Gain on hedged items (fair value hedge)

     83,531       25,055  

Gain on provisions

     1,619       1,779  

Gain on disposal of investment in subsidiaries and associates

     35,409       9,232  

Gain on disposal of premises and equipment and other assets

     25,280       12,713  

Reversal of impairment loss on premises and equipment and other assets

     491       88  
  

 

 

   

 

 

 
     404,796       263,619  
  

 

 

   

 

 

 

 

(Continued)


WOORI BANK

SEPARATE 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)  

Changes in operating assets and liabilities:

    

Financial assets at FVTPL (K-IFRS 1109)

     1,163,657       —    

Financial assets at FVTPL (K-IFRS 1039)

     —         (204,017

Loans and other financial assets at amortized cost

     (7,884,160     —    

Loans and receivables

     —         (6,929,960

Other assets

     (87,429     (86,912

Deposits due to customers

     1,848,945       4,508,409  

Provision

     7,018       10,144  

Net defined benefit liability

     (87,602     (16,510

Other financial liabilities

     8,360,402       1,562,611  

Other liabilities

     42,892       8,940  
  

 

 

   

 

 

 
     3,363,723       (1,147,295
  

 

 

   

 

 

 

Cash received from(paid for) operating activities:

    

Interest income received

     6,044,728       5,531,811  

Interest expense paid

     (2,369,743     (2,232,723

Dividend received

     87,789       134,045  

Income tax paid

     (363,361     (281,194
  

 

 

   

 

 

 

Net cash provided by operating activities

     5,494,033       529,526  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Cash in-flows from investing activities:

    

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

     8,208,527       —    

Disposal of financial assets at FVTOCI

     6,245,472       —    

Disposal of AFS financial assets

     —         16,206,321  

Redemption of securities at amortized cost

     7,051,411       —    

Redemption of HTM financial assets

     —         6,772,192  

Disposal of investments in subsidiaries and associates

     59,712       32,876  

Disposal of premises and equipment

     32       6,194  

Disposal of intangible assets

     2,696       383  

Disposal of assets held for sale

     73,596       14,914  
  

 

 

   

 

 

 
     21,641,446       23,032,880  
  

 

 

   

 

 

 

Cash out-flows from investing activities:

    

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

     8,447,711       —    

Acquisition of financial instruments at FVTOCI

     8,570,616       —    

Acquisition of AFS financial assets

     —         15,519,965  

Acquisition of securities at amortized cost

     9,434,419       —    

Acquisition of HTM financial assets

     —         9,242,169  

Acquisition of investments in subsidiaries and associates

     205,363       454,332  

Acquisition of investment properties

     8,214       2,647  

Acquisition of premises and equipment

     53,639       110,916  

Acquisition of intangible assets

     149,408       148,862  
  

 

 

   

 

 

 
     26,869,370       25,478,891  
  

 

 

   

 

 

 

Net cash used in investing activities

     (5,227,924     (2,446,011
  

 

 

   

 

 

 

 

 

(Continued)


WOORI BANK

SEPARATE 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 financing activities:

    

Cash in-flows from financing activities:

    

Increase in borrowings

     6,451,285       9,229,323  

Issuance of debentures

     3,690,910       6,936,910  

Issuance of hybrid securities

     398,707       559,565  
  

 

 

   

 

 

 
     10,540,902       16,725,798  
  

 

 

   

 

 

 

Cash out-flows for financing activities:

    

Repayment of borrowings

     6,387,075       10,085,689  

Repayment of debentures

     4,078,068       3,847,036  

Payment of dividends to common stocks

     336,636       336,636  

Redemption of hybrid securities

     255,000       1,323,400  

Dividends paid on hybrid securities

     101,328       131,423  
  

 

 

   

 

 

 
     11,158,107       15,724,184  
  

 

 

   

 

 

 

Net cash provided by(used in) financing activities

     (617,205     1,001,614  
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (351,096     (914,871

Cash and cash equivalents, beginning of the period

     5,328,960       6,104,029  

Effects of exchange rate changes on cash and cash equivalents

     203,207       (138,180
  

 

 

   

 

 

 

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

     5,181,071       5,050,978  
  

 

 

   

 

 

 

 

(*)

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

See accompanying notes


WOORI BANK

NOTES TO SEPARATE 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)

Woori Bank

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

Previously, Woori Finance Holdings Co., Ltd., the former holding company of Woori Financial Group, established on March 27, 2001, held a 100% ownership of the Bank. Effective November 1, 2014, Woori Finance Holdings Co., Ltd. completed its merger (the “Merger”) with and into the Bank. Accordingly, the shares of the Bank, 597 million shares, prior to the merger, was reduced to nil in accordance with capital reduction procedure, and then, in accordance with the merger ratio, the Bank newly issued 676 million shares. 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 years ended December 31, 2017, KDIC sold additional 33 million shares. As of September 30, 2018 and December 31, 2017, KDIC held 125 million (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 at 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.

BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

The Bank’s separate interim financial statements are prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”) 1034, Interim Financial Reporting and K-IFRS 1027, Separate Financial Statements. It is necessary to use the annual separate 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 separate interim financial statements have been applied consistently with the annual separate financial statements as of and for the year ended December 31, 2017.


1)

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

 

   

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

The Bank 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 Bank 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 Bank 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 Bank may make the following irrevocable choice or designation at the time of initial recognition of a financial assets.

The Bank 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 of 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
     Reclassifica-
tion
    Remeasure-
ment
     Classification
according to
K-IFRS 1109
 

Deposit

  

Loans and receivables

  

Loan and other financial assets at amortized cost

     7,394,885        —         —          7,394,885  

Deposit

  

Financial assets at FVTPL

  

Financial assets at FVTPL

     25,972        —         —          25,972  

Debt securities

  

Financial assets at FVTPL

  

Financial assets at FVTPL(*)

     1,008,827        —         —          1,008,827  

Equity securities

  

Financial assets at FVTPL

  

Financial assets at FVTPL(*)

     156        —         —          156  

Derivatives

  

Financial assets at FVTPL

  

Financial assets at FVTPL(*)

     3,098,769        (2,137     —          3,096,632  

Equity securities

  

AFS financial assets

  

Financial assets at FVTPL(*)

     1,254,928        1,219       —          1,256,147  

Equity securities

  

AFS financial assets

  

Financial assets at FVTOCI

     684,153        —         —          684,153  

Debt securities

  

AFS financial assets

  

Financial assets at FVTOCI

     12,247,622        —         —          12,247,622  

Debt securities

  

HTM financial assets

  

Securities at amortized cost

     16,638,727        —         —          16,638,727  

Loans

  

Loans and receivables

  

Financial assets at FVTPL (*)

     51,653        918       282        52,853  

Loans

  

Loans and receivables

  

Loan and other financial assets at amortized cost

     236,691,399        —         —          236,691,399  

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

     6,233,677        —         —          6,233,677  
        

 

 

    

 

 

   

 

 

    

 

 

 
  

Total financial assets

        285,390,040        —         282        285,390,322  
        

 

 

    

 

 

   

 

 

    

 

 

 

 

(*)

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
     Reclassific-
ation
     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

     224,384,156        —          —          224,384,156  

Borrowings

  

Financial liabilities at amortized cost

  

Financial liabilities at amortized cost

     13,662,984        —          —          13,662,984  

Debentures

  

Financial liabilities at FVTPL

  

Financial liabilities at FVTPL

     91,739        —          —          91,739  

Debentures

  

Financial liabilities at amortized cost

  

Financial liabilities at amortized cost

     21,707,466        —          —          21,707,466  

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

     3,139,218        —          —          3,139,218  

Derivatives liabilities

  

Derivatives liabilities

  

Derivatives liabilities (Held for hedging)

     12,103        —          —          12,103  

Other financial liabilities

  

Financial liabilities at amortized cost

  

Financial liabilities at amortized cost

     13,029,421        —          —          13,029,421  

Provision for financial guarantee

  

Provision for financial guarantee

  

Financial liabilities at amortized cost

     74,277        —          —          74,277  
        

 

 

    

 

 

    

 

 

    

 

 

 
  

Total financial liabilities

        276,287,385        —          —          276,287,385  
        

 

 

    

 

 

    

 

 

    

 

 

 

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 initial adoption of K-IFRS 1109, there are no financial assets at FVTPL or FVTOCI reclassified to the amortized cost measurement category.

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 Bank 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 Bank 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 is already impaired at acquisition, the loss allowance is measured as the expected credit loss for the whole life of financial assets. If the credit risk of a financial instruments do not increase significantly after initial recognition (excluding purchased or originated credit-impaired loans—for financial assets already impaired at initial recognition), the Bank 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 provide 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 Bank used information that could be used to assess the impairment of the Bank’s financial assets, lending arrangements and financial guarantees at the date of initial application. As of January 1, 2018, the application results are as follows (Unit: Korean Won in millions):

 

    

Classification
according to
K-IFRS 1039

  

Classification
according to

K-IFRS 1109

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

Deposit

  

Loans and receivables

  

Loan and other financial assets at amortized cost

     2,080        2,464        384  

Debt securities

              

AFS debt securities

  

AFS financial assets

  

Financial assets at FVTOCI

     —          3,778        3,778  

HTM securities

  

HTM financial assets

  

Securities at amortized cost

     —          4,996        4,996  

Loans and other financial assets

  

Loans and receivables

  

Loan and other financial assets at amortized cost

     1,558,910        1,728,959        170,049  

Payment guarantee

           185,557        194,997        9,440  

Loan commitment

           36,031        55,373        19,342  
        

 

 

    

 

 

    

 

 

 
  

Total

        1,782,578        1,990,567        207,989  
        

 

 

    

 

 

    

 

 

 

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 as fair value through profit or loss due to the change in issuer’s own credit risk. The Bank 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 misstatement 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 replaced with 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 Bank designated 251,796 million Korean Won of FVTPL out of 276,291,854 million of financial liabilities, and recognized 133 million Korean Won as accumualted other comprehensive loss in relation to changes in the 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 Bank’s risk management activities.

In accordance with the transitional provisions of K-IFRS 1109 on hedge accounting, the Bank adopted the hedge accounting provisions of K-IFRS 1109 prospectively from January 1, 2018. As of the date of initial application, the Bank 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 Bank has not designated a hedging relationship as such 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 Bank 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 income as result of financial assets at FVTOCI, etc.

 

     Effect of K-IFRS 1109  

Beginning balance (prior to K-IFRS 1109)

     106,989  

Adjustment

     (393,473

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

     (148,857

Recognition of expected credit losses of debt securities at FVTOCI

     3,778  

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

     (397,508

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

     (133

Income tax effect

     149,247  
  

 

 

 

Ending balance (based on K-IFRS 1109)

     (286,484
  

 

 

 

 

   

Retained earnings impact

 

     Effect of K-IFRS 1109  

Beginning balance (prior to K-IFRS 1109)

     13,260,559  

Adjustments

     246,464  

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

     148,857  

Recognition of expected credit losses of debt instruments at FVTOCI

     (3,778

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

     (175,429

Effect of payment guarantees / unused commitments on liabilities

     (28,782

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

     133  

Others

     398  

Income tax effect

     (92,725
  

 

 

 

Ending balance (based on K-IFRS 1109)

     13,507,023  
  

 

 

 

 

   

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

The Bank adopted K-IFRS 1115 for the first time decided to recognize 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 Bank has applied the new standard to only contracts that are not completed by the date of initial application, and by using practical expedients, the Bank has not applied the new standard to contractual modifications made prior to the first application date and applied the new standard to the contact modifications that occur after the date of initial application..

Accordingly, the Bank has not retroactively restated the comparative separate 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 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 FVTPL, and that such designation must be made at the time of each investment’s initial recognition. In addition, when non-investment companies apply equity method to investment in associates and/or joint ventures that are investment companies, these companies may apply the same fair value measurement used by the said associates to value their own subsidiaries. This accounting treatment may be selectively applied to each associate.

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


2)

The Bank has not applied the following K-IFRS that has 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 Bank, the lease agreements entered into by the Bank as of September 30, 2018 are expected to meet the definition of lease under the Standard, and accordingly, if the Bank adopts the Standard, it applies to all leases except short-term leases and leases of low value assets, and the Bank will recognize the right-of-use assets and related liabilities accordingly. The Bank is currently analyzing the potential impact of this standard as of September 30, 2018.


3.

SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS

In the application of the Bank’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 Bank’s accounting policies and key sources of uncertainty in estimate do not differ from those used in preparing the annual separate financial statements for the year ended December 31, 2017, except the Bank’s policy, accounting estimates and assumptions described below;

 

(1)

Income taxes

The Bank 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 is 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 Bank 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 Bank’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 (Loss allowance, provisions for acceptances and guarantees, and unused loan commitments)

In accordance with K-IFRS 1109, the Bank tests impairment and recognizes loss allowance on financial assets classified at amortized cost, and financial assets 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 Bank’s of loans, guarantees and unused loan commitments.


4.

RISK MANAGEMENT

The Bank’s operating activity is exposed to various financial risks. The Bank is required to analyze and assess the level of complex risks, and determine the permissible level of risks and manage such risks. The Bank’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 Bank 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 Bank 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 Bank’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 Bank’s credit risk exposure to a permissible degree and to optimize the rate of return considering such credit risk.

 

  1)

Credit risk management

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

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

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

 

  2)

Maximum exposure to credit risk

The Bank’s maximum exposure to credit risk refers to net book value of financial assets net of allowances, which shows the uncertainties of maximum changes of net value of financial assets attributable to a particular risk without considering collateral and other credit enhancements obtained. However, the maximum exposure is the fair value amount (recorded on the books) for derivatives, maximum contractual obligation for payment guarantees and 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      17,910,178        —    
   Banks      16,031,763        —    
   Corporates      87,763,381        —    
   Consumers      134,969,344        —    
     

 

 

    

 

 

 
  

Sub-total

     256,674,666        —    
     

 

 

    

 

 

 

Loans and receivables

   Korean treasury and government agencies      —          8,792,977  
   Banks      —          25,053,476  
   Corporates      —          83,568,058  
   Consumers      —          131,396,113  
     

 

 

    

 

 

 
  

Sub-total

     —          248,810,624  
     

 

 

    

 

 

 

Financial assets at FVTPL (K-IFRS 1109)

   Deposit      27,045        —    
   Debt securities      —          —    
   Loans      56,019        —    
   Derivative assets      1,913,519        —    
     

 

 

    

 

 

 
  

Sub-total

     1,996,583        —    
     

 

 

    

 

 

 

Financial assets at FVTPL (K-IFRS 1039)

   Deposit      —          25,972  
   Debt securities      —          1,008,827  
   Derivative assets      —          3,098,769  
     

 

 

    

 

 

 
  

Sub-total

     —          4,133,568  
     

 

 

    

 

 

 

Financial assets at FVTOCI

   Debt securities      14,579,399        —    

AFS financial assets

   Debt securities      —          12,247,622  

Securities at amortized cost

   Debt securities      19,012,864        —    

HTM financial assets

   Debt securities      —          16,638,727  

Derivative assets

   Derivative assets (Held for hedging)      13,716        59,272  

Off-balance accounts

   Guarantees      13,665,249        13,589,728  
   Loan commitments      64,756,002        50,214,855  
     

 

 

    

 

 

 
  

Sub-total

     78,421,251        63,804,583  
     

 

 

    

 

 

 
  

total

     370,698,479        345,694,396  
     

 

 

    

 

 

 

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      USA      UK      Japan      Others (*)      Total  

Loans and other financial assets at amortized cost

     247,037,674        2,450,569        1,336,132        549,769        5,300,522        256,674,666  

Securities at amortized cost

     18,968,281        —          —          —          44,583        19,012,864  

Financial assets at FVTPL

     1,807,866        —          107,099        —          81,618        1,996,583  

Financial assets at FVTOCI

     14,049,542        —          —          —          529,857        14,579,399  

Derivative assets (Held for hedging)

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

Off-balance accounts

     77,305,055        136,563        113,531        22,001        844,101        78,421,251  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     359,177,809        2,587,132        1,561,087        571,770        6,800,681        370,698,479  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

Loans and receivables

     240,912,334        1,209,094        1,094,988        381,889        5,212,319        248,810,624  

Financial assets at FVTPL

     3,892,601        —          148,955        —          92,012        4,133,568  

AFS debt securities

     11,972,446        —          —          —          275,176        12,247,622  

HTM securities

     16,606,692        —          —          —          32,035        16,638,727  

Derivative assets (Held for hedging)

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

Off-balance accounts

     62,856,918        121,784        66,974        25,039        733,868        63,804,583  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     336,257,581        1,330,878        1,353,599        406,928        6,345,410        345,694,396  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

Others consist of financial assets in Hong Kong, Singapore and Australia countries and others.


b) Credit risk exposure by industries

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

 

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

Loans and other financial assets at amortized cost

     46,550,421        33,551,239        37,021,363        2,816,901        131,128,997        5,605,745        256,674,666  

Securities at amortized cost

     1,124,406        —          11,470,835        416,341        —          6,001,282        19,012,864  

Financial assets at FVTPL

     68,364        82,368        1,771,339        45,178        3,735        25,599        1,996,583  

Financial assets at FVTOCI

     277,659        19,989        10,594,600        204,974        —          3,482,177        14,579,399  

Derivative assets (Held for hedging)

     —          —          13,716        —          —          —          13,716  

Off-balance accounts

     15,273,066        23,167,240        8,508,815        3,622,515        21,668,465        6,181,150        78,421,251  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     63,293,916        56,820,836        69,380,668        7,105,909        152,801,197        21,295,953        370,698,479  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

Loans and receivables

     45,975,768        33,037,933        36,003,892        2,893,323        125,159,751        5,739,957        248,810,624  

Financial assets at FVTPL

     96,795        76,373        3,737,672        10,054        1,040        211,634        4,133,568  

AFS debt securities

     682,706        —          7,055,546        133,572        —          4,375,798        12,247,622  

HTM securities

     1,348,754        —          10,944,611        296,214        —          4,049,148        16,638,727  

Derivative assets (Held for hedging)

     —          —          59,272        —          —          —          59,272  

Off-balance accounts

     14,510,922        22,363,457        8,759,366        3,614,758        10,057,400        4,498,680        63,804,583  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     62,614,945        55,477,763        66,560,359        6,947,921        135,218,191        18,875,217        345,694,396  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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 credit losses due to possible defaults on financial instruments within a 12-month period from the reporting date.    Expected lifetime credit losses:
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 Bank 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 bank 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 Bank 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 Bank evaluates whether there has been a significantly increased in the credit risk since initial recognition. The Bank 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 Bank 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 Bank    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   

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 Bank writes off assets when it is determined that the financial assets are virtually impossible to collect. The Bank 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 Bank 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

     229,901,077        15,336,786        5,673,772        5,925,382        1,217,048        258,054,065        (1,379,399     256,674,666        691,046  

Korean treasury and government agencies

     17,914,355        —          —          —          —          17,914,355        (4,177     17,910,178        —    

Banks

     15,706,134        —          342,899        —          —          16,049,033        (17,270     16,031,763        —    

Corporates

     69,483,753        14,069,109        480,575        3,936,276        817,859        88,787,572        (1,024,191     87,763,381        435,824  

General business

     39,942,575        4,834,993        420,904        1,918,812        584,274        47,701,558        (669,121     47,032,437        291,635  

Small- and medium-sized enterprise

     26,088,359        8,675,726        59,671        1,848,998        232,872        36,905,626        (320,318     36,585,308        144,189  

Project financing and others

     3,452,819        558,390        —          168,466        713        4,180,388        (34,752     4,145,636        —    

Consumers

     126,796,835        1,267,677        4,850,298        1,989,106        399,189        135,303,105        (333,761     134,969,344        255,222  

Securities at amortized cost

     19,018,423        —          —          —          —          19,018,423        (5,559     19,012,864        —    

Financial assets at FVTOCI (*3)

     14,546,185        33,214        —          —          —          14,579,399        (4,721     14,579,399        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

     263,465,685        15,370,000        5,673,772        5,925,382        1,217,048        291,651,887        (1,389,679     290,266,929        691,046  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(*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.

(*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  
     Korean
treasury and
government
agencies
     Banks      Corporates                
   General
business
     Small- and
medium-sized
enterprise
     Project
financing
and others
     Sub-total      Consumers      Total  

Neither overdue nor impaired

     8,795,163        25,068,417        45,242,266        33,229,188        4,722,748        83,194,202        130,563,920        247,621,702  

Overdue but not impaired

     —          —          5,954        63,067        —          69,021        728,057        797,078  

Impaired

     —          —          1,354,096        241,776        17,665        1,613,537        339,297        1,952,834  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     8,795,163        25,068,417        46,602,316        33,534,031        4,740,413        84,876,760        131,631,274        250,371,614  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loss allowance

     2,186        14,941        1,019,687        262,628        26,387        1,308,702        235,161        1,560,990  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total, net

     8,792,977        25,053,476        45,582,629        33,271,403        4,714,026        83,568,058        131,396,113        248,810,624  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 


   

Debt securities

The Bank manages debt securities based on the external credit rating. Credit soundness of debt securities on the basis of External Credit Assessment Institution (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

     1,008,827        9,836,599        15,806,327        26,651,753  

AA- ~ AA+

     —          2,189,269        832,400        3,021,669  

BBB- ~ A+

     —          221,754        —          221,754  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,008,827        12,247,622        16,638,727        29,895,176  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

     12,362,848        834,274        5,057        340,826        122,244        13,665,249  

Loan commitments

     60,341,934        2,526,044        1,355,475        532,549        —          64,756,002  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     72,704,782        3,360,318        1,360,532        873,375        122,244        78,421,251  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*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.

 

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 Bank and, there have been no significant changes in collateral or other credit enhancements due to changes in the collateral policy of the Bank. 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 and non-trading activities in the volatility of market factors such as interest rates, stock prices, and foreign exchange rates. Market risk occurs as a result of changes in the interest rates and foreign exchange rates for financial instruments that are not yet settled, and all contracts are exposed to a certain level of volatility according to the interest rates, credit spreads, foreign exchange rates and the price of equity securities.

 

  1)

Market risk management

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

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

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

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

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

 

  2)

Sensitivity analysis of market risk

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

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

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


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

     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, 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  

Name of scenario

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

Base case

     4,705,186        24,564,201        4,936,457        23,487,317  

Base case (Prepay)

     4,696,951        24,257,410        4,936,334        23,178,467  

IR 100bp up

     5,215,346        24,426,881        5,394,161        22,900,740  

IR 100bp down

     4,286,818        24,723,791        4,401,735        24,141,984  

IR 200bp up

     6,090,866        24,306,689        5,851,632        22,386,912  

IR 200bp down

     3,775,702        24,913,272        3,462,869        24,844,803  

IR 300bp up

     6,885,640        24,200,035        6,309,102        21,943,972  

IR 300bp down

     3,639,128        25,144,451        2,259,870        26,648,024  

 

(*1)

NII: Net Interest Income

(*2)

NPV: Net Portfolio Value


The Bank estimates and manages risks related to changes in interest rate due to the difference in the maturities of interest-bearing assets and liabilities and discrepancies in the terms of interest rates. Cash flows (both principal and interest), interest-bearing assets and liabilities, presented by each repricing 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

     137,568,339        41,827,686        7,841,751        7,561,471        41,242,306        2,858,317        238,899,870  

Financial assets at FVTPL

     72,766        32        32        143        2,723        17,278        92,974  

Financial assets at FVTOCI

     2,951,141        1,868,510        1,545,509        1,368,573        7,037,794        152,312        14,923,839  

Securities at amortized cost

     2,384,082        1,880,749        1,989,508        1,630,934        11,604,085        327,624        19,816,982  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     142,976,328        45,576,945        11,376,800        10,561,121        59,886,908        3,355,531        273,733,665  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liability:

                    

Deposits due to customers

     106,963,089        38,599,350        28,810,010        16,299,726        36,790,517        65,657        227,528,349  

Borrowings

     8,565,831        1,290,082        572,671        469,070        2,753,334        516,293        14,167,281  

Debentures

     1,494,045        1,784,744        1,976,036        1,683,240        13,329,516        2,870,271        23,137,852  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     117,022,965        41,674,176        31,358,717        18,452,036        52,873,367        3,452,221        264,833,482  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2017  
     Within 3
months
     4 to 6
months
     7 to 9
months
     10 to 12
months
     1 to 5
years
     Over 5
years
     Total  

Asset:

                    

Loans and receivables

     148,513,919        39,972,641        6,935,597        5,672,432        50,858,179        25,688,896        277,641,664  

AFS financial assets

     1,689,689        2,462,484        1,996,401        2,333,618        4,161,439        574,540        13,218,171  

HTM financial assets

     2,268,640        2,161,467        1,433,425        1,687,362        9,309,427        312,507        17,172,828  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     152,472,248        44,596,592        10,365,423        9,693,412        64,329,045        26,575,943        308,032,663  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liability:

                    

Deposits due to customers

     102,414,072        36,883,763        24,653,930        25,028,280        36,699,604        6,133        225,685,782  

Borrowings

     8,998,265        874,830        412,966        405,352        2,649,142        479,399        13,819,954  

Debentures

     1,571,159        2,069,377        677,903        1,520,299        14,614,175        2,843,679        23,296,592  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     112,983,496        39,827,970        25,744,799        26,953,931        53,962,921        3,329,211        262,802,328  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 


3)

Currency risk

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

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

 

    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

    21,017       23,385,588       155,307       1,523,821       2,283       369,393       1,535       1,987,235       2,514,022       29,780,059  

Financial assets at FVTPL

    33       36,676       509       4,993       —         —         10       13,468       201,024       256,161  

Financial assets at FVTOCI

    1,423       1,583,855       —         —         —         —         —         —         191,157       1,775,012  

Securities at amortized cost

    47       52,444       —         —         —         —         —         —         44,594       97,038  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    22,520       25,058,563       155,816       1,528,814       2,283       369,393       1,545       2,000,703       2,950,797       31,908,270  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liability

                   

Financial liabilities at FVTPL

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

Deposits due to customer

    9,623       10,707,809       169,572       1,663,785       1,770       286,297       807       1,045,187       1,246,421       14,949,499  

Borrowings

    6,029       6,708,394       1,260       12,365       33       5,324       246       318,284       119,987       7,164,354  

Debentures

    3,542       3,941,553       —         —         —         —         —         —         102,900       4,044,453  

Other financial liabilities

    2,764       3,075,157       35,872       351,969       819       132,451       160       206,536       171,453       3,937,566  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    22,020       24,501,997       207,156       2,032,550       2,622       424,072       1,243       1,608,445       1,752,773       30,319,837  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Off-balance accounts

    6,499       7,231,867       35,294       346,297       821       132,830       468       605,391       505,459       8,821,844  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    December 31, 2017  
    USD     JPY     CNY     EUR     Others     Total  
    Foreign
currency
    Korean
Won
equivalent
    Foreign
currency
    Korean
Won
equivalent
    Foreign
currency
    Korean
Won
equivalent
    Foreign
currency
    Korean
Won
equivalent
    Korean won
equivalent
    Korean Won
equivalent
 

Asset

                   

Loans and receivables

    19,534       20,928,891       124,167       1,178,480       1,050       171,802       1,143       1,461,960       1,978,164       25,719,297  

Financial assets at FVTPL

    29       31,360       25       238       —         —         27       34,583       104,892       171,073  

AFS financial assets

    1,712       1,833,836       —         —         —         —         —         590       77,118       1,911,544  

HTM financial assets

    51       54,439       —         —         —         —         —         —         32,035       86,474  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    21,326       22,848,526       124,192       1,178,718       1,050       171,802       1,170       1,497,133       2,192,209       27,888,388  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liability

                   

Financial liabilities at FVTPL

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

Deposits due to customer

    11,303       12,110,340       195,154       1,852,228       1,520       248,808       882       1,127,917       924,008       16,263,301  

Borrowings

    6,480       6,942,814       2,218       21,056       14       2,245       247       315,669       107,344       7,389,128  

Debentures

    2,967       3,178,711       —         —         700       114,555       —         —         196,620       3,489,886  

Other financial liabilities

    2,067       2,214,467       13,411       127,289       2,010       328,902       128       164,357       368,502       3,203,517  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    22,858       24,489,755       210,862       2,001,325       4,244       694,510       1,276       1,632,821       1,666,451       30,484,862  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Off-balance accounts

    7,346       7,870,923       33,601       318,911       885       144,817       406       518,854       371,670       9,225,175  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


(3)

Liquidity risk

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

 

  1)

Liquidity risk management

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

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

 

  2)

Maturity analysis of non-derivative financial liabilities

 

  a)

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

 

     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

     214,799        —          —          —          —          —          214,799  

Deposits due to customers

     147,061,987        29,564,292        22,506,603        22,991,486        5,389,283        534,333        228,047,984  

Borrowings

     4,922,013        2,427,170        1,629,391        1,651,359        3,083,577        516,274        14,229,784  

Debentures

     1,494,045        1,784,744        1,976,036        1,683,240        13,329,516        2,870,271        23,137,852  

Other financial liabilities

     14,775,832        10,318        —          —          605,072        2,120,086        17,511,308  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     168,468,676        33,786,524        26,112,030        26,326,085        22,407,448        6,040,964        283,141,727  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     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

     160,057        154,475        —          —          —          —          314,532  

Deposits due to customers

     143,085,964        28,776,407        17,749,883        29,951,466        6,723,926        644,187        226,931,833  

Borrowings

     5,339,315        1,700,358        1,488,848        1,132,055        3,799,707        479,140        13,939,423  

Debentures

     1,570,513        2,069,703        678,054        1,512,183        14,614,016        2,843,612        23,288,081  

Other financial liabilities

     6,531,004        —          —          —          —          2,704,197        9,235,201  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     156,686,853        32,700,943        19,916,785        32,595,704        25,137,649        6,671,136        273,709,070  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 


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

     214,799        —          —          —          —          —          214,799  

Deposits due to customers

     157,105,165        30,997,088        19,218,299        16,415,266        3,847,444        68,115        227,651,377  

Borrowings

     4,922,013        2,427,170        1,629,391        1,651,359        3,083,577        516,274        14,229,784  

Debentures

     1,494,045        1,784,744        1,976,036        1,683,240        13,329,516        2,870,271        23,137,852  

Other financial liabilities

     14,775,832        10,318        —          —          605,072        2,120,086        17,511,308  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     178,511,854        35,219,320        22,823,726        19,749,865        20,865,609        5,574,746        282,745,120  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     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

     160,057        154,475        —          —          —          —          314,532  

Deposits due to customers

     154,216,425        30,515,457        16,246,338        19,479,809        5,913,949        183,986        226,555,964  

Borrowings

     5,339,315        1,700,358        1,488,848        1,132,055        3,799,707        479,140        13,939,423  

Debentures

     1,570,513        2,069,703        678,054        1,512,183        14,614,016        2,843,612        23,288,081  

Other financial liabilities

     6,531,004        —          —          —          —          2,704,197        9,235,201  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     167,817,314        34,439,993        18,413,240        22,124,047        24,327,672        6,210,935        273,333,201  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

3)

Maturity analysis of derivative financial liabilities

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

Derivatives held for hedging purposes 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

     2,007,130        —          —          —          33,959        4,135        2,045,224  

December 31, 2017

     3,139,218        —          —          381        11,722        —          3,151,321  

 

4)

Maturity analysis of off-balance accounts

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

 

     September 30,
2018
     December 31,
2017
 

Guarantees

     13,665,249        13,589,728  

Loan commitments

     64,756,002        50,214,855  


(4)

Operational risk

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

 

  1)

Operational risk management

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

 

  2)

Operational risk measurement

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

 

(5)

Capital management

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

According to the above regulations, Bank 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 Bank’s capital adequacy ratio as of September 30, 2018 and December 31, 2017, and 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 Bank and allocating resources, the Bank’s Chief Operation Decision Maker (“CODM”) utilizes the information per type of customers. This financial information of the segments is regularly 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 Bank’s reporting segments comprise the following customers: consumer banking, corporate banking, investment banking, capital market and headquarters and others. The reportable segments are classified based on the target customers for whom the service is being provided:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

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

 

     For the nine months ended September 30, 2018  
     Consumer
banking
    Corporate
banking
    Investment
banking
    Capital
market
    Headquarters
and others
    Sub-total     Adjustments     Total  

Net interest income(expense)

                

Interest income

     2,601,854       2,509,028       112,975       7,563       646,683       5,878,103       246,270       6,124,373  

Interest expense

     (761,336     (1,548,717     (134     —         (507,979     (2,818,166     206,643       (2,611,523

Intersegment

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,394,925       1,549,563       (6,900     27,313       95,036       3,059,937       452,913       3,512,850  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net non-interest income(expense)

                

Non-interest income

     543,436       598,600       172,658       5,488,289       328,470       7,131,453       (2,579     7,128,874  

Non-interest expense

     (134,910     (182,239     (46,517     (5,445,633     (170,092     (5,979,391     (456,113     (6,435,504

Intersegment

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     519,007       469,907       126,141       42,656       (5,649     1,152,063       (458,692     693,370  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income(expense)

                

General and administrative expense

     (1,339,229     (624,811     (8,842     (12,014     (80,193     (2,065,089     —         (2,065,089

Reversal of allowance for credit loss and impairment losses due to credit loss

     (80,723     103,293       54,630       (1,891     88,781       164,090       5,779       169,869  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (1,419,952     (521,518     45,788       (13,905     8,588       (1,900,999     5,779       (1,895,220
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     493,980       1,497,952       165,029       56,064       97,975       2,311,000       —         2,311,000  

Non-operating income (expense)

     (15,596     1,244       24,927       —         71,127       81,702       —         81,702  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income before income tax expense

     478,384       1,499,167       189,956       56,064       169,102       2,392,702       —         2,392,702  

Income tax expense

     (131,555     (381,491     (52,238     (15,418     (64,985     (645,687     —         (645,687
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     346,828       1,117,706       137,718       40,647       104,118       1,747,015       —         1,747,015  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


     For the nine months ended September 30, 2017  
     Consumer
banking
    Corporate
banking
    Investment
banking
    Capital
market
    Headquarters
and others
    Sub-total     Adjustments     Total  

Net interest income

                

Interest income

     2,332,134       2,196,051       108,570       14,328       593,056       5,244,139       237,917       5,482,056  

Interest expense

     (717,709     (1,238,742     (186     —         (459,999     (2,416,636     199,946       (2,216,690

Intersegment

     (379,017     358,953       (100,697     11,402       109,359       —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,235,408       1,316,262       7,687       25,730       242,416       2,827,503       437,863       3,265,366  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-interest income(expense)

                

Non-interest income

     598,446       503,820       272,024       6,155,339       1,225,616       8,755,245       133,408       8,888,653  

Non-interest expense

     (182,815     (104,265     (152,512     (6,125,701     (999,431     (7,564,724     (550,266     (8,114,990

Intersegment

     73,469       44,857       —         —         (118,326     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     489,100       444,412       119,512       29,638       107,859       1,190,521       (416,858     773,663  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income(expense)

                

General and administrative expense

     (1,337,679     (618,969     (8,434     (11,309     (376,105     (2,352,496     —         (2,352,496

Reversal of allowance for credit loss and impairment losses due to credit loss

     (70,180     (240,903     15,005       20,356       141,101       (134,621     (21,005     (155,626
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (1,407,859     (859,872     6,571       9,047       (235,004     (2,487,117     (21,005     (2,508,122
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     316,649       900,802       133,770       64,415       115,271       1,530,907       —         1,530,907  

Non-operating income (expense)

     3,304       (3,097     32,832       —         (21,088     11,951       —         11,951  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income before income tax expense

     319,953       897,705       166,602       64,415       94,183       1,542,858       —         1,542,858  

Income tax expense

     (77,429     (204,541     (40,318     (15,588     (8,148     (346,024     —         (346,024
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     242,524       693,164       126,284       48,827       86,035       1,196,834       —         1,196,834  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(2)

Information on financial products and services

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

 

(3)

Information on geographical areas

Of the Bank’s revenue (interest income and non-interest income) from services, revenue from the domestic customers for the nine months ended September 30, 2018 and 2017, amounted to 12,842,027 million Won and 14,095,130 million Won, respectively, and revenue from the foreign customers amounted to 411,220 million Won and 275,579 million Won, respectively. Of the Bank’s non-current assets (investments in subsidiaries and associates, investment properties, premises and equipment and intangible assets), non-current assets attributed to domestic subsidiaries as of September 30, 2018 and December 31, 2017, are 7,305,222 million Won and 7,168,942 million Won, respectively, and foreign subsidiaries are 7,756 million Won and 8,003 million Won, respectively.


6.

CASH AND CASH EQUIVALENTS

 

(1)

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

 

     September 30,
2018
     December 31,
2017
 

Cash

     2,091,564        1,970,810  

Foreign currencies

     718,121        578,281  

Demand deposits

     2,145,609        2,407,731  

Fixed deposits

     225,777        372,138  
  

 

 

    

 

 

 

Total

     5,181,071        5,328,960  
  

 

 

    

 

 

 

 

(2)

Significant transactions of investing activities and financing activities not involving cash inflows and outflows are as follows (Unit: Korean Won in millions):

 

     For the nine months ended
September 30
 
     2018      2017  

Changes in other comprehensive gain due to remeasurement of financial assets at FVTOCI

     33,897        —    

Changes in other comprehensive loss due to valuation of AFS financial assets

     —          (32,644

Changes in other comprehensive gain(loss) of foreign currency translation of foreign operations

     4,242        (12,801

Changes in other comprehensive gain(loss) due to remeasurement of defined benefit liabilities

     (41,402      12,868  

Changes in investments in subsidiaries and associates due to debt-equity swap

     —          49,599  

Changes in investments in subsidiaries and associates due to accounts transfer

     (98,938      —    

Changes in accrued dividends of hybrid equity securities

     11,462        (1,502

Changes in intangible assets related to accounts payable

     37,752        —    

Classified to assets held for sale from premises and equipment

     6,243        4,701  

 

7.

FINANCIAL ASSETS AT FVTPL

Details of Financial assets at fair value through profit or loss mandatorily measured at fair value and financial assets held for trading are as follows (Unit: Korean Won in millions):

 

     September 30, 2018      December 31, 2017  

Deposits:

     

Gold banking assets

     27,045        25,972  

Securities:

     

Debt securities

     

Korean treasury and government agencies

     —          191,383  

Financial institutions

     —          817,444  

Equity securities

     370,827        156  

Capital contributions

     354,246        —    

Beneficiary certificates

     853,297        —    
  

 

 

    

 

 

 

Sub-total

     1,578,370        1,008,983  
  

 

 

    

 

 

 

Loans

     56,019        —    

Derivative assets

     1,913,519        3,098,769  
  

 

 

    

 

 

 

Total

     3,574,953        4,133,724  
  

 

 

    

 

 

 

There are no financial assets at fair value through profit or loss designated as upon initial recognition as of September 30, 2018 and financial assets designated as at FVTPL as of December 31, 2017.


8.

FINANCIAL ASSETS AT FVTOCI AND AFS FINANCIAL ASSETS

 

(1)

Details of financial assets at FVTOCI as of September 30, 2018 and AFS financial assets as of December 31, 2017 are as follows (Unit: Korean Won in millions):

 

     September 30, 2018      December 31, 2017  

Debt securities:

     

Korean treasury and government agencies

     2,019,625        2,305,954  

Financial institutions

     9,157,435        5,217,267  

Corporates

     1,557,118        2,658,032  

Bond denominated in foreign currencies

     1,775,011        1,896,114  
  

 

 

    

 

 

 

Sub-total

     14,509,189        12,077,367  
  

 

 

    

 

 

 

Equity securities

     851,126        1,216,809  

Beneficiary certificates

     —          722,272  

Securities loaned

     70,210        170,256  
  

 

 

    

 

 

 

Total

     15,430,525        14,186,704  
  

 

 

    

 

 

 

 

(2)

Details of equity securities designated as financial assets at FVTOCI are as follows (Unit: Korean Won in millions):

 

     September 30, 2018  

Purpose of acquisition

   Fair value  

Strategic business partnership

     544,963  

Debt-equity swap

     306,163  
  

 

 

 

Total

     851,126  
  

 

 

 

 

(3)

Changes in the loss allowance and gross carrying amount of financial assets at FVTOCI are as follows (Unit: Korean Won in millions):

 

  1)

Loss allowance

 

     For the nine months ended September 30, 2018  
     Stage 1      Stage 2      Stage 3      Total  

Beginning balance(*1)

     (3,778      —          —          (3,778

Transfer to 12-month expected credit losses

     —          —          —          —    

Transfer to lifetime expected credit losses

     —          —          —          —    

Transfer to credit-impaired financial assets

     —          —          —          —    

Net provision of loss allowance

     (997      —          —          (997

Disposal

     30        —          —          30  

Others (*2)

     24        —          —          24  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

     (4,721      —          —          (4,721
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*1)

The beginning balance was restated in accordance with K-IFRS 1109.

(*2)

Others consist of foreign currencies translation, etc.

 

  2)

Gross carrying amount

 

     For the nine months ended September 30, 2018  
     Stage 1      Stage 2      Stage 3      Total  

Beginning balance

     12,247,623        —          —          12,247,623  

Transfer to 12-month expected credit losses

     —          —          —          —    

Transfer to lifetime expected credit losses

     —          —          —          —    

Transfer to credit-impaired financial assets

     —          —          —          —    

Acquisition

     8,394,810        —          —          8,394,810  

Disposal

     (6,140,379      —          —          (6,140,379

Gain (loss) on valuation

     12,827        —          —          12,827  

Amortization on the effective interest method

     (726      —          —          (726

Others (*)

     65,244        —          —          65,244  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

     14,579,399        —          —          14,579,399  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

Others consist of foreign currencies translation, etc.


(4)

The Bank disposed equity securities designated as financial assets at FVTOCI as the creditors determined to sell the securities for the nine months ended September 30, 2018. The fair value and accumulative loss on valuation of that equity securities at disposal date are 5,319 million Won and 384 million Won, respectively.

 

9.

SECURITIES AT AMORTIZED COST AND HTM FINANCIAL ASSETS

 

(1)

Details of securities at amortized cost as of September 30, 2018 and HTM financial assets as of December 31, 2017 are as follows (Unit: Korean Won in millions):

 

     September 30, 2018      December 31, 2017  

Korean treasury and government agencies

     5,878,664        3,994,857  

Financial institutions

     7,704,827        7,245,426  

Corporates

     5,337,894        5,311,970  

Bond denominated in foreign currencies

     97,038        86,474  

Loss allowance

     (5,559      —    
  

 

 

    

 

 

 

Total

     19,012,864        16,638,727  
  

 

 

    

 

 

 

 

(2)

Changes in the loss allowance and gross carrying amount of securities at amortized cost are as follows (Unit: Korean Won in millions):

 

  1)

Loss allowance

 

     For the nine months ended September 30, 2018  
     Stage 1      Stage 2      Stage 3      Total  

Beginning balance (*)

     (4,996      —          —          (4,996

Transfer to 12-month expected credit losses

     —          —          —          —    

Transfer to lifetime expected credit losses

     —          —          —          —    

Transfer to credit-impaired financial assets

     —          —          —          —    

Net provision of loss allowance

     (585      —          —          (585

Disposal

     22        —          —          22  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

     (5,559      —          —          (5,559
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

The beginning balance was restated in accordance with K-IFRS 1109.

 

  2)

Gross carrying amount

 

     For the nine months ended September 30, 2018  
     Stage 1     Stage 2      Stage 3      Total  

Beginning balance

     16,638,727       —          —          16,638,727  

Transfer to 12-month expected credit losses

     —         —          —          —    

Transfer to lifetime expected credit losses

     —         —          —          —    

Transfer to credit-impaired financial assets

     —         —          —          —    

Acquisition

     9,434,419       —          —          9,434,419  

Disposal / Redemption

     (7,051,346     —          —          (7,051,346

Amortization on the effective interest method

     (6,947     —          —          (6,947

Others (*)

     3,570       —          —          3,570  
  

 

 

   

 

 

    

 

 

    

 

 

 

Ending balance

     19,018,423       —          —          19,018,423  
  

 

 

   

 

 

    

 

 

    

 

 

 

 

(*)

Others consist of foreign currencies translation, etc.

 

10.

LOAN AND OTHER FINANCIAL ASSETS AT AMORTIZED COST , AND LOANS AND RECEIVABLES

 

(1)

Details of loans and other financial assets at amortized cost as of September 30, 2018 and loans and receivables as of December 31, 2017 are as follows (Unit: Korean Won in millions):

 

     September 30, 2018      December 31, 2017  

Due from banks

     17,461,242        7,392,805  

Loans

     229,112,714        235,237,937  

Other financial assets(Other receivables)

     10,100,710        6,179,882  
  

 

 

    

 

 

 

Total

     256,674,666        248,810,624  
  

 

 

    

 

 

 


(2)

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

 

     September 30,
2018
     December 31,
2017
 

Due from banks in local currency:

     

Due from The Bank of Korea (“BOK”)

     16,030,233        6,246,496  

Others

     72,176        79,394  

Loss allowance

     (3,800      (1,541
  

 

 

    

 

 

 

Sub-total

     16,098,609        6,324,349  
  

 

 

    

 

 

 

Due from banks in foreign currencies:

     

Due from banks on demand

     755,572        660,582  

Due from banks on time

     39,247        65,052  

Others

     569,443        343,361  

Loss allowance

     (1,629      (539
  

 

 

    

 

 

 

Sub-total

     1,362,633        1,068,456  
  

 

 

    

 

 

 

Total

     17,461,242        7,392,805  
  

 

 

    

 

 

 

 

(3)

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

 

    

Counterparty

   September 30,
2018
    

Reason of restriction

Due from banks in local currency:

        

Due from BOK

   The BOK      16,030,233     

Reserve deposits

under the BOK Act

Others

   The Korea Exchange and others      72,176     

Central counterparty KRW margin and others

     

 

 

    
  

Sub-total

     16,102,409     
  

 

 

    

Due from banks in foreign currencies:

        

Due from banks on demand

  

The BOK and others

     752,893     

Reserve deposits under the BOK Act and others

Others

  

Korea Investment & Securities Co., Ltd. and others

     569,443     

Deposits for foreign futures and options trading and others

     

 

 

    
  

Sub-total

     1,322,336     
  

 

 

    
  

Total

     17,424,745     
  

 

 

    

 

    

Counterparty

   December 31,
2017
    

Reason of restriction

Due from banks in local currency:

        

Due from BOK

   The BOK      6,246,496     

Reserve deposits

under the BOK Act

Others

   The Korea Exchange and others      79,394     

Central counterparty KRW margin and others

     

 

 

    
  

Sub-total

     6,325,890     
  

 

 

    

Due from banks in foreign currencies:

        

Due from banks on demand

   The BOK and others      654,718     

Reserve deposits under the BOK Act and others

Others

   Korea Investment & Securities Co., Ltd. and others      72,700     

Deposits for foreign futures and options trading and others

     

 

 

    
  

Sub-total

     727,418     
  

 

 

    
  

Total

     7,053,308     
  

 

 

    


(4)

Changes in the loss allowance and gross carrying amount of due from banks are as follows (Unit: Korean Won in millions):

 

  1)

Loss allowance

 

     For the nine months ended September 30, 2018  
     Stage 1      Stage 2      Stage 3      Total  

Beginning balance (*)

     (2,464      —          —          (2,464

Transfer to 12-month expected credit losses

     —          —          —          —    

Transfer to lifetime expected credit losses

     —          —          —          —    

Transfer to credit-impaired financial assets

     —          —          —          —    

Net provision of loss allowance

     (2,965      —          —          (2,965
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

     (5,429      —          —          (5,429
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

The beginning balance was restated in accordance with K-IFRS 1109.

 

  2)

Gross carrying amount

 

     For the nine months ended September 30, 2018  
     Stage 1      Stage 2      Stage 3      Total  

Beginning balance

     7,394,885        —          —          7,394,885