SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of March 2019
Woori Financial Group Inc.
(Translation of registrants name into English)
51, Sogong-ro, Jung-gu, Seoul, 04632, Korea
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submission to furnish a report or other document that the registration foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrants home country), or under the rules of the home country exchange on which the registrants securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrants security holders, and if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Submission of Audit Report of Woori Bank
Date of Submission by Deloitte Anjin LLC, Woori Banks independent auditor: March 19, 2019
Audit reports have been furnished as exhibits 99.1 & 99.2
< Consolidated Audit Report >
1. | Independent Auditors Opinion : Unqualified Opinion |
2. Key Earnings Figures
(Units: KRW) | ||||||||
Item |
FY 2018(1) | FY 2017 | ||||||
Revenue* |
19,940,555,773,082 | 23,725,105,810,531 | ||||||
Operating Income |
2,759,301,553,030 | 2,156,741,279,645 | ||||||
Income before Income Tax |
2,804,871,762,682 | 1,949,505,922,161 | ||||||
Net Income |
2,051,648,820,324 | 1,530,088,262,445 | ||||||
Income Attributable to Controlling Interests |
2,033,182,297,297 | 1,512,147,816,668 |
* | Represents the sum of interest income, fee and commission income, dividend income, gain on financial products and other operating income (and excludes non-operating income) |
(1) The figures above have been audited by our independent auditor and should be referred to in lieu of the preliminary figures disclosed in the Report of Foreign Private Issuer on Form 6-K furnished by Woori Financial Group to the Securities and Exchange Commission on February 11, 2019.
3. Key Financial Figures
(Units: KRW) | ||||||||
Item |
FY 2018 | FY 2017 | ||||||
Total Assets |
340,447,183,384,855 | 316,295,461,166,850 | ||||||
Total Liabilities |
318,494,137,861,684 | 295,730,561,030,343 | ||||||
Total Shareholders Equity |
21,953,045,523,171 | 20,564,900,136,507 | ||||||
Total Shareholders Equity * |
21,739,932,745,932 | 20,365,891,423,297 | ||||||
Capital Stock |
3,381,391,855,000 | 3,381,391,855,000 | ||||||
Shareholders Equity*/ Capital Stock (%) |
642.9 | 602.3 | ||||||
Number of Consolidated Subsidiaries |
64 | 53 |
* | Excluding non-controlling interests |
< Non-consolidated Audit Report >
1. | Independent Auditors Opinion : Unqualified Opinion |
2. Key Earnings Figures
(Units: KRW) | ||||||||
Item |
FY 2018 | FY 2017 | ||||||
Revenue* |
17,611,403,936,778 | 21,026,141,318,876 | ||||||
Operating Income |
2,415,690,702,181 | 1,790,558,836,819 | ||||||
Net Income before Income Tax |
2,485,630,321,745 | 1,620,222,673,757 | ||||||
Net Income |
1,810,903,184,989 | 1,276,112,213,039 |
* | Represents the sum of interest income, fee and commission income, dividend income, gain on financial products and other operating income (and excludes non-operating income) |
3. Key Financial Figures
(Units: KRW) | ||||||||
Item |
FY 2018 | FY 2017 | ||||||
Total Assets |
317,392,879,597,073 | 296,737,570,746,838 | ||||||
Total Liabilities |
296,343,878,685,672 | 276,943,480,696,748 | ||||||
Total Shareholders Equity |
21,049,000,911,401 | 19,794,090,050,090 | ||||||
Capital Stock |
3,381,391,855,000 | 3,381,391,855,000 | ||||||
Shareholders Equity/ Capital Stock (%) |
622.5 | 585.4 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Woori Financial Group Inc. |
||||||
(Registrant) | ||||||
Date: March 19, 2019 | By: /s/ Kyong-Hoon Park |
|||||
(Signature) | ||||||
Name: | Kyong-Hoon Park | |||||
Title: | Deputy President |
Exhibit 99.1
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2018 AND 2017
ATTACHMENT: INDEPENDENT AUDITORS REPORT
WOORI BANK
INDEPENDENT AUDITORS REPORT
English Translation of a Report Originally Issued in Korean on March 19, 2019
To the Shareholders and the Board of Directors of Woori Bank
Report on the Audited Consolidated Financial Statements
Our Opinion
We have audited the accompanying consolidated financial statements of Woori Bank and its subsidiaries (the Group), which comprise the consolidated statement of financial position as of December 31, 2018 and December 31, 2017, respectively, and the consolidated statement of comprehensive income, consolidated statement of changes in shareholders equity and consolidated statement of cash flows, for the years then ended, and a summary of significant accounting policies and other explanatory information.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2018 and December 31, 2017, respectively, and its financial performance and its cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (K-IFRS).
Basis for Audit Opinion
We conducted our audits in accordance with the Korean Standards on Auditing (KSAs). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements, including those related to independence, that are relevant to our audit of the consolidated financial statements in the Republic of Korea as required by prevailing audit regulations. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
The key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our audit opinion thereon, and we do not provide a separate opinion on these matters.
Allowance for credit loss in accordance with K-IFRS 1109 Financial Instruments
Key audit matter description
As a result of the adoption of K-IFRS 1109 in the current year, the Group estimates and records an allowance for loans based on expected credit losses, as opposed to the previous method based on incurred credit losses under K-IFRS 1039 as described in notes 2, 3, 4 and 10. In order to estimate expected credit losses, the Group segregated its portfolio in retail, corporate and credit card loans. With the exception of a portion of the corporate loan book comprised of individually significant loans (amortized cost of KRW 875,791 million), the Group measures all portfolios (amortized cost of KRW 261,722,202 million) based on a collective assessment methodology. Both the collective and individual impairment methodologies in the amounts of KRW 1,402,408 million and KRW 375,668 million, respectively, must consider historical losses adjusted for forward looking information and include multiple scenarios for macroeconomic factors. The allowance for certain loans is measured, at least in part, based on the valuation of collaterals which must take into account an expectation of when and for how much the collateral will be sold.
There was a significant amount of judgment required by management when determining the appropriateness of the forward looking and macroeconomic information used in the calculation of the expected losses in its loan portfolio.
Given the level of subjectivity and judgment, auditing the estimated allowance for loan losses involved especially complex and subjective judgment.
How the scope of our audit responded to the key audit matter
Our audit procedures related to the assumptions and unobservable inputs used by management for the estimate of impaired loans including the following:
| We tested the design and effectiveness of controls over the appropriateness of the cash-flows estimated to be collected in individually significant loans, including the estimates of collateral values. |
| We tested the design and effectiveness of the controls over the appropriateness of the models used to determine the calculation of the allowance for loan losses for collectively assessed loans and most importantly the determination of the relevant model and assumptions to incorporate forward looking and macro-economic information |
| We used our credit specialists to assist us in challenging the reasonableness of the methodologies and inputs used in the calculation of the allowance for loan losses for collectively assessed loans, most importantly in determining the appropriateness of forward looking and macro-economic scenarios used by management |
| We reperformed the calculation of the collective allowance taking into account forward looking and macroeconomic information determined to be appropriate in consultation with our credit specialists. |
| We selected samples of loans subject to individual assessments and performed the following: |
✓ | Independently estimated future operating cash flows from borrowers with significant loans outstanding to determine the available cash flows to repay the loans. |
✓ | With assistance of our appraisal specialists, evaluated the reasonableness of cash flow estimates based on the future sale of collateral. |
Responsibilities of Management and the Audit Committee for the Financial Statements
Management is responsible for the preparation of the accompanying consolidated financial statements in accordance with K-IFRS, and for such internal control as they determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management of the Group is responsible for assessing the Groups ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The audit committee is responsible for overseeing the Groups financial reporting process.
Auditors Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with KSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with KSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
| Identify and assess the risks of material misstatement of the consolidated financial statements, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
| Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Groups internal control. |
| Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
| Conclude on the appropriateness of the managements use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Groups ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Group to cease to continue as a going concern. |
| Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
| Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We are solely responsible for our audit opinion. |
We communicate with the audit committee of the Group regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the audit committee of the Group with a statement that we have complied with relevant ethical requirements, including those related to independence, and to communicate with them all matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the audit committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter.
March 19, 2019
Notice to Readers
This report is effective as of March 19, 2019 the auditors report date. Certain subsequent events or circumstances may have occurred between the auditors report date and the time the auditors report is read. Such events or circumstances could significantly affect the consolidated financial statements and may result in modifications to the auditors report.
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2018 AND 2017
The accompanying consolidated financial statements including all footnote disclosures were
prepared by, and are the responsibility of, the management of Woori Bank.
Tae Seung Sohn
President and Chief Executive Officer
Main Office Address: (Road Name Address) 51, Sogong-ro, Jung-gu, Seoul | ||
(Phone Number) | 02-2002-3000 |
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 2018 AND 2017
December 31, 2018 (*) |
December 31, 2017 (*) |
|||||||
(Korean Won in millions) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents (Note 6) |
6,712,623 | 6,908,286 | ||||||
Financial assets at fair value through profit or loss (FVTPL) (K-IFRS 1109) (Notes 4, 7, 11, 12 |
6,126,183 | | ||||||
Financial assets at FVTPL (K-IFRS 1039) (Notes 4, 7, 11, 12, 18 and 26) |
| 5,843,077 | ||||||
Financial assets at financial assets at fair value through other comprehensive income(FVTOCI) (Notes 4, 8, 11, 12, and 18) |
18,063,423 | | ||||||
Available-for-sale (AFS) financial assets (Notes 4,8,11,12 and 18) |
| 15,352,950 | ||||||
Securities at amortized cost (Notes 4, 9, 11, 12 and 18) |
22,932,559 | | ||||||
Held to maturity (HTM) financial assets (Notes 4, 9, 11, 12 and 18) |
| 16,749,296 | ||||||
Loans and other financial assets at amortized cost (Notes 4, 10, 11, 12, 18 and 45) |
282,448,315 | | ||||||
Loans and receivables (Notes 4,10,11,12,18 and 45) |
| 267,106,204 | ||||||
Investments in joint ventures and associates (Note 13) |
361,427 | 417,051 | ||||||
Investment properties (Note 14) |
378,069 | 371,301 | ||||||
Premises and equipment (Notes 15 and 18) |
2,441,141 | 2,477,545 | ||||||
Intangible assets and goodwill (Note 16) |
587,255 | 518,599 | ||||||
Assets held for distribution (sale) (Note 17) |
93,502 | 48,624 | ||||||
Current tax assets (Note 42) |
20,488 | 4,722 | ||||||
Deferred tax assets (Note 42) |
49,863 | 280,130 | ||||||
Derivative assets (Designated for hedging) (Notes 4,11,12 and 26) |
35,503 | 59,272 | ||||||
Other assets (Notes 19 and 45) |
196,832 | 158,404 | ||||||
|
|
|
|
|||||
Total assets |
340,447,183 | 316,295,461 | ||||||
|
|
|
|
|||||
LIABILITIES | ||||||||
Financial liabilities at FVTPL (K-IFRS 1109) (Notes 4, 11, 12, 20 and 26) |
2,282,686 | | ||||||
Financial liabilities at FVTPL (K-IFRS 1039) (Notes 4, 11, 12, 20 and 26) |
| 3,427,909 | ||||||
Deposits due to customers (Notes 4,11,21 and 45) |
248,690,939 | 234,695,084 | ||||||
Borrowings (Notes 4, 11, 12 and 22) |
16,202,986 | 14,784,706 | ||||||
Debentures (Notes 4, 11 and 22) |
28,725,862 | 27,869,651 | ||||||
Provisions (Notes 23, 44 and 45) |
389,862 | 410,470 | ||||||
Net defined benefit liability (Note 24) |
138,682 | 43,264 | ||||||
Liabilities of a disposal group classified as held for distribution (Note 17) |
72,660 | | ||||||
Current tax liabilities (Note 42) |
156,559 | 232,600 | ||||||
Deferred tax liabilities (Note 42) |
18,156 | 22,681 | ||||||
Derivative liabilities (Designated for hedging) (Notes 4,11,12 and 26) |
51,408 | 67,754 | ||||||
Other financial liabilities (Notes 4,11,12, 25 and 45) |
21,426,064 | 13,892,461 | ||||||
Other liabilities (Notes 25 and 45) |
338,275 | 283,981 | ||||||
|
|
|
|
|||||
Total liabilities |
318,494,139 | 295,730,561 | ||||||
|
|
|
|
(Continued)
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 2018 AND 2017 (CONTINUED)
December 31, 2018 (*) |
December 31, 2017 (*) |
|||||||
(Korean Won in millions) | ||||||||
EQUITY |
||||||||
Owners equity: |
21,739,931 | 20,365,892 | ||||||
Capital stock (Note 28) |
3,381,392 | 3,381,392 | ||||||
Hybrid securities (Note 29) |
3,161,963 | 3,017,888 | ||||||
Capital surplus (Note 28) |
285,889 | 285,880 | ||||||
Other equity (Note 30) |
(2,213,970 | ) | (1,939,274 | ) | ||||
Retained earnings and other reserves (Notes 31 and 32) |
||||||||
(Regulatory reserve for credit loss as of December 31, 2018 and 2017 is 2,578,457 million Won and 2,438,191 million Won, respectively |
||||||||
Regulatory reserve for credit loss to be reversed (reserved) as of December 31, 2018 and 2017 is 222,211 million Won and (-)140,266 million Won, respectively |
||||||||
Planned provision reversed (reserved) of regulatory reserve for credit loss as of December 31, 2018 and 2017 is 222,211 million Won and (-)140,266 million Won, respectively |
17,124,657 | 15,620,006 | ||||||
Non-controlling interests |
213,113 | 199,008 | ||||||
|
|
|
|
|||||
Total equity |
21,953,044 | 20,564,900 | ||||||
|
|
|
|
|||||
Total liabilities and equity |
340,447,183 | 316,295,461 | ||||||
|
|
|
|
(*) | The consolidated statements of financial position as of December 31, 2018 was prepared in accordance with K-IFRS 1109; however, the comparative consolidated statements of financial position as of December 31, 2017 was not retrospectively restated in accordance with K-IFRS 1109. |
See accompanying notes
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
2018(*) | 2017(*) | |||||||
(Korean Won in millions, except for per share data) |
||||||||
Interest income |
9,684,499 | 8,550,687 | ||||||
Financial assets at FVTPL (K-IFRS 1109) |
54,243 | | ||||||
Financial assets at FVTOCI |
280,371 | | ||||||
Financial assets at amortized cost |
9,349,885 | | ||||||
Financial assets at FVTPL (K-IFRS 1039) |
| 53,348 | ||||||
AFS financial assets |
| 239,030 | ||||||
HTM financial assets |
| 307,965 | ||||||
Loans and receivables |
| 7,950,344 | ||||||
Interest expense |
(4,033,548 | ) | (3,330,037 | ) | ||||
|
|
|
|
|||||
Net interest income (Notes 11, 34 and 45) |
5,650,951 | 5,220,650 | ||||||
Fees and commissions income |
1,680,764 | 2,069,198 | ||||||
Fees and commissions expense |
(610,790 | ) | (998,732 | ) | ||||
|
|
|
|
|||||
Net fees and commissions income (Notes 11, 35 and 45) |
1,069,974 | 1,070,466 | ||||||
Dividend income (Notes 36 and 45) |
90,552 | 124,992 | ||||||
Net gain on financial instruments at FVTPL (K-IFRS 1109) (Notes 11, 37 and 45) |
214,443 | | ||||||
Net loss on financial instruments at FVTPL (K-IFRS 1039) (Notes 11, 37 and 45) |
| (104,827 | ) | |||||
Net gain on financial assets at FVTOCI (Notes 11 and 38) |
2,047 | | ||||||
Net gain on AFS financial assets (Notes 11 and 38) |
| 192,708 | ||||||
Net gain on disposals of financial assets at amortized cost (Note 11) |
79,532 | | ||||||
Net gain on disposals of securities at amortized cost |
431 | | ||||||
Net gain on disposals of loans and other financial assets at amortized cost |
79,101 | | ||||||
Impairment losses due to credit loss (Notes 11, 39 and 45) |
(329,574 | ) | (785,133 | ) | ||||
|
|
|
|
|||||
General and administrative expenses (Notes 40 and 45) |
(3,624,033 | ) | (3,530,801 | ) | ||||
Other net operating expenses (Notes 40 and 45) |
(394,591 | ) | (31,313 | ) | ||||
Operating income |
2,759,301 | 2,156,742 | ||||||
Share of gain (loss) on subsidiaries and associates (Note 13) |
3,019 | (101,514 | ) | |||||
Net other non-operating income(expense) |
42,552 | (105,722 | ) | |||||
|
|
|
|
|||||
Non-operating income (expense) (Note 41) |
45,571 | (207,236 | ) | |||||
Net income before income tax expense |
2,804,872 | 1,949,506 | ||||||
Income tax expense (Note 42) |
(753,223 | ) | (419,418 | ) |
(Continued)
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (CONTINUED)
2018(*) | 2017(*) | |||||||
(Korean Won in millions, except for per share data) |
||||||||
Net income |
||||||||
(Net income after the provision for regulatory reserve for credit loss for the years ended December 31, 2018 and 2017, is 2,010,774 million won and 1,389,822 million won, respectively) (Note 32) |
2,051,649 | 1,530,088 | ||||||
|
|
|
|
|||||
Net loss on valuation of equity securities at FVTOCI |
(30,855 | ) | | |||||
Net gain on valuation of financial liabilities designated as at FVTPL due to own credit risk |
100 | | ||||||
Items out of share of other comprehensive gain of joint ventures and associates that will not be reclassified to profit or loss |
| (2,993 | ) | |||||
Remeasurement gain (loss) related to defined benefit plan |
(71,432 | ) | 10,497 | |||||
Other comprehensive income related to assets held for distribution |
(13,197 | ) | | |||||
|
|
|
|
|||||
Items that will not be reclassified to profit or loss |
(115,384 | ) | 7,504 | |||||
Net gain on valuation of debt securities at FVTOCI |
33,360 | | ||||||
Net loss on valuation of AFS financial assets |
| (84,498 | ) | |||||
Share of other comprehensive gain of joint ventures and associates |
2,958 | 3,605 | ||||||
Net loss on foreign currency translation of foreign operations |
(4,379 | ) | (208,329 | ) | ||||
Net gain (loss) on valuation of cash flow hedge |
(4,646 | ) | 777 | |||||
Other comprehensive income related to assets held for sale |
(4,145 | ) | 4,145 | |||||
|
|
|
|
|||||
Items that may be reclassified to profit or loss |
23,148 | (284,300 | ) | |||||
Other comprehensive loss, net of tax |
(92,236 | ) | (276,796 | ) | ||||
Total comprehensive income |
1,959,413 | 1,253,292 | ||||||
|
|
|
|
|||||
Net income attributable to: |
||||||||
Net income attributable to shareholders |
2,033,182 | 1,512,148 | ||||||
Net income attributable to non-controlling interests |
18,467 | 17,940 | ||||||
Total comprehensive income attributable to: |
||||||||
Comprehensive income attributable to shareholders |
1,943,885 | 1,249,057 | ||||||
Comprehensive income attributable to non-controlling interests |
15,528 | 4,235 | ||||||
Net income per share (Note 43) |
||||||||
Basic and diluted earnings per share (In Korean Won) |
2,796 | 1,999 |
(*) | The consolidated statements of comprehensive income for the year ended December 31, 2018 was prepared in accordance with K-IFRS 1109; however, the comparative consolidated statements of comprehensive income for the year ended December 31, 2017 was not retrospectively restated in accordance with K-IFRS 1109. |
See accompanying notes
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR YEARS ENDED DECEMBER 31, 2018 AND 2017
Capital Stock |
Hybrid securities |
Capital surplus |
Other equity |
Retained earnings and other reserves |
Owners equity |
Non- controlling interests |
Total equity |
|||||||||||||||||||||||||
(Korean Won in millions) | ||||||||||||||||||||||||||||||||
January 1, 2017 |
3,381,392 | 3,574,896 | 286,331 | (1,468,025 | ) | 14,611,566 | 20,386,160 | 159,793 | 20,545,953 | |||||||||||||||||||||||
Net income |
| | | | 1,512,148 | 1,512,148 | 17,940 | 1,530,088 | ||||||||||||||||||||||||
Dividends to common stocks |
| | | | (336,636 | ) | (336,636 | ) | (1,554 | ) | (338,190 | ) | ||||||||||||||||||||
Capital increase of subsidiaries |
| | (451 | ) | | | (451 | ) | 36,534 | 36,083 | ||||||||||||||||||||||
Net gain (loss) on valuation of available-for-sale financial assets |
| | | (85,051 | ) | | (85,051 | ) | 553 | (84,498 | ) | |||||||||||||||||||||
Changes in equity of joint ventures and associates |
| | | 612 | | 612 | | 612 | ||||||||||||||||||||||||
Loss on foreign currency translation of foreign operations |
| | | (194,347 | ) | | (194,347 | ) | (13,982 | ) | (208,329 | ) | ||||||||||||||||||||
Gain on valuation of cash flow hedge |
| | | 777 | | 777 | | 777 | ||||||||||||||||||||||||
Remeasurement gain (loss) related to defined benefit plan |
| | | 10,773 | | 10,773 | (276 | ) | 10,497 | |||||||||||||||||||||||
Other comprehensive income related to assets held for sale |
| | | 4,145 | | 4,145 | | 4,145 | ||||||||||||||||||||||||
Dividends to hybrid securities |
| | | | (167,072 | ) | (167,072 | ) | | (167,072 | ) | |||||||||||||||||||||
Issuance of hybrid securities |
| 559,565 | | | | 559,565 | | 559,565 | ||||||||||||||||||||||||
Redemption of hybrid securities |
| (1,116,573 | ) | | (208,158 | ) | | (1,324,731 | ) | | (1,324,731 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
December 31, 2017 (*) |
3,381,392 | 3,017,888 | 285,880 | (1,939,274 | ) | 15,620,006 | 20,365,892 | 199,008 | 20,564,900 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
January 1, 2018 |
3,381,392 | 3,017,888 | 285,880 | (1,939,274 | ) | 15,620,006 | 20,365,892 | 199,008 | 20,564,900 | |||||||||||||||||||||||
Cumulative effect of change in accounting policy (Note 2) |
| | | (392,176 | ) | 177,091 | (215,085 | ) | 723 | (214,362 | ) | |||||||||||||||||||||
Adjusted balance, beginning of period |
3,381,392 | 3,017,888 | 285,880 | (2,331,450 | ) | 15,797,097 | 20,150,807 | 199,731 | 20,350,538 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income |
| | | | 2,033,182 | 2,033,182 | 18,467 | 2,051,649 | ||||||||||||||||||||||||
Dividends to common stocks |
| | | | (336,636 | ) | (336,636 | ) | (2,128 | ) | (338,764 | ) | ||||||||||||||||||||
Capital decrease of subsidiaries |
| | 9 | | | 9 | (18 | ) | (9 | ) | ||||||||||||||||||||||
Net gain on valuation of financial liabilities designated as at FVTPL due to own credit risk |
| | | 100 | | 100 | | 100 | ||||||||||||||||||||||||
Changes in other comprehensive income due to redemption of financial liabilities designated as at FVTPL |
| | | (4 | ) | 4 | | | | |||||||||||||||||||||||
Net gain (loss) on valuation of financial assets at FVTOCI |
| | | 2,733 | | 2,733 | (228 | ) | 2,505 | |||||||||||||||||||||||
Changes in other comprehensive income due to disposal of equity securities at FVTOCI |
| | | (1,009 | ) | 1,009 | | | | |||||||||||||||||||||||
Share of other comprehensive gain of joint ventures and associates |
| | | 2,958 | (10,647 | ) | (7,689 | ) | | (7,689 | ) | |||||||||||||||||||||
Loss on foreign currency translation of foreign operations |
| | | (1,929 | ) | | (1,929 | ) | (2,450 | ) | (4,379 | ) | ||||||||||||||||||||
Loss on valuation of cash flow hedge |
| | | (4,646 | ) | | (4,646 | ) | | (4,646 | ) | |||||||||||||||||||||
Remeasurement loss related to defined benefit plan |
| | | (71,171 | ) | | (71,171 | ) | (261 | ) | (71,432 | ) | ||||||||||||||||||||
Other comprehensive income related to assets held for distribution (sale) |
| | | (17,342 | ) | | (17,342 | ) | | (17,342 | ) | |||||||||||||||||||||
Dividends to hybrid securities |
| | | | (151,194 | ) | (151,194 | ) | | (151,194 | ) | |||||||||||||||||||||
Issuance of hybrid securities |
| 398,707 | | | | 398,707 | | 398,707 | ||||||||||||||||||||||||
Redemption of hybrid securities |
| (254,632 | ) | | (368 | ) | | (255,000 | ) | | (255,000 | ) | ||||||||||||||||||||
Appropriation of retained earnings |
| | | 208,158 | (208,158 | ) | | | | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
December 31, 2018 (*) |
3,381,392 | 3,161,963 | 285,889 | (2,213,970 | ) | 17,124,657 | 21,739,931 | 213,113 | 21,953,044 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) | The consolidated statements of changes in equity for the year ended December 31, 2018 was prepared in accordance with K-IFRS 1109; however, the comparative consolidated statements of changes in equity for the year ended December 31, 2017 was not retrospectively restated in accordance with K-IFRS 1109. |
See accompanying notes
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
2018 (*) | 2017 (*) | |||||||
(Korean Won in millions) | ||||||||
Cash flows from operating activities: |
||||||||
Net income |
2,051,649 | 1,530,088 | ||||||
Adjustments to net income: |
||||||||
Income tax expense |
753,223 | 419,418 | ||||||
Interest income |
(9,684,499 | ) | (8,550,687 | ) | ||||
Interest expense |
4,033,548 | 3,330,037 | ||||||
Dividend income |
(90,552 | ) | (124,992 | ) | ||||
|
|
|
|
|||||
(4,988,280 | ) | (4,926,224 | ) | |||||
|
|
|
|
|||||
Additions of expenses not involving cash outflows: |
||||||||
Impairment losses due to credit loss |
329,574 | 785,133 | ||||||
Loss on valuation of financial instruments at FVTPL |
| 15,267 | ||||||
Loss on financial assets at FVTOCI |
1,053 | | ||||||
Share of losses of investments in joint ventures and associates |
22,772 | 185,020 | ||||||
Loss on disposal of investments in joint ventures and associates |
2,931 | 38,713 | ||||||
Loss on transaction and valuation of derivatives (Designated for hedging) |
36,483 | 109,569 | ||||||
Loss on hedged items (fair value hedge) |
17,299 | | ||||||
Loss on provision |
28,350 | 107,028 | ||||||
Retirement benefits |
142,712 | 142,902 | ||||||
Depreciation and amortization |
272,550 | 235,795 | ||||||
Loss on disposal of premises and equipment, intangible assets and other assets |
1,160 | 9,994 | ||||||
Impairment loss on premises and equipment, intangible assets and other assets |
87 | 390 | ||||||
|
|
|
|
|||||
854,971 | 1,629,811 | |||||||
|
|
|
|
|||||
Deductions of income not involving cash inflows: |
||||||||
Gain on valuation of financial assets at FVTPL (K-IFRS 1109) |
215,711 | | ||||||
Gain on redemption of debentures |
1,597 | | ||||||
Gain on financial assets at FVTOCI |
3,100 | | ||||||
Gain on AFS financial assets |
| 192,708 | ||||||
Gain on disposal of securities at amortized cost |
431 | | ||||||
Share of gains of investments in joint ventures and associates |
25,791 | 83,506 | ||||||
Gain on disposal of investments in joint ventures and associates |
50,511 | 39,932 | ||||||
Gain on transaction and valuation of derivatives (Designated for hedging) |
35,810 | 122 | ||||||
Gain on hedged items (fair value hedge) |
42,797 | 53,532 | ||||||
Reversal on provisions |
2,014 | 2,567 | ||||||
Gain on disposal of premises and equipment, intangible assets and other assets |
30,278 | 5,028 | ||||||
Reversal of impairment loss on premises and equipment, intangible assets and other assets |
761 | 666 | ||||||
|
|
|
|
|||||
408,801 | 378,061 | |||||||
|
|
|
|
|||||
Changes in operating assets and liabilities: |
||||||||
Financial assets at FVTPL (K-IFRS 1109) |
670,872 | | ||||||
Financial instruments at FVTPL (K-IFRS 1039) |
| (583,068 | ) | |||||
Loans and other financial assets at amortized cost |
(15,754,102 | ) | | |||||
Loans and receivables |
| (9,647,563 | ) | |||||
Other assets |
32,328 | 35,953 | ||||||
Deposits due to customers |
13,995,747 | 13,634,873 | ||||||
Provisions |
(11,920 | ) | (122,711 | ) | ||||
Net defined benefit liability |
(135,313 | ) | (46,789 | ) | ||||
Other financial liabilities |
7,411,753 | (7,966,786 | ) | |||||
Other liabilities |
89,399 | (27,550 | ) | |||||
|
|
|
|
|||||
6,298,764 | (4,723,641 | ) | ||||||
|
|
|
|
|||||
Cash received from operating activities: |
||||||||
Interest income received |
9,617,307 | 8,570,715 | ||||||
Interest expense paid |
(3,847,411 | ) | (3,404,608 | ) | ||||
Dividends received |
90,651 | 127,343 | ||||||
Income tax paid |
(544,058 | ) | (404,428 | ) | ||||
|
|
|
|
|||||
5,316,489 | 4,889,022 | |||||||
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
9,124,792 | (1,979,005 | ) | |||||
|
|
|
|
(Continued)
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (CONTINUED)
2018 (*) | 2017 (*) | |||||||
(Korean Won in millions) | ||||||||
Cash flows from investing activities: |
||||||||
Cash in-flows from investing activities: |
||||||||
Disposal of financial assets at FVTPL (K-IFRS 1109) |
11,919,335 | | ||||||
Disposal of financial assets at FVTOCI |
9,146,307 | | ||||||
Disposal of AFS financial assets |
| 24,912,752 | ||||||
Redemption of securities at amortized cost |
9,426,757 | | ||||||
Redemption of HTM financial assets |
| 8,587,092 | ||||||
Disposal of investments in joint ventures and associates |
51,435 | 70,180 | ||||||
Disposal of subsidiaries |
| 203 | ||||||
Disposal of investment properties |
3,512 | 418 | ||||||
Disposal of premises and equipment |
5,545 | 7,428 | ||||||
Disposal of intangible assets |
9,199 | 1,188 | ||||||
Disposal of assets held for distribution (sale) |
80,347 | 24,808 | ||||||
|
|
|
|
|||||
30,642,437 | 33,604,069 | |||||||
|
|
|
|
|||||
Cash out-flows from investing activities: |
||||||||
Net cash in-flows of business combination |
134,967 | | ||||||
Acquisition of financial assets at FVTPL (K-IFRS 1109) |
12,322,160 | | ||||||
Acquisition of financial assets at FVTOCI |
13,275,429 | | ||||||
Acquisition of AFS financial assets |
| 19,674,346 | ||||||
Acquisition of securities at amortized cost |
15,622,847 | | ||||||
Acquisition of HTM financial assets |
| 11,521,065 | ||||||
Acquisition of investments in joint ventures and associates |
48,272 | 143,161 | ||||||
Acquisition of investment properties |
15,195 | 9,872 | ||||||
Acquisition of premises and equipment |
118,668 | 162,245 | ||||||
Acquisition of intangible assets |
176,067 | 195,929 | ||||||
Cash out-flow related to derivatives designated for hedging |
| 13,742 | ||||||
|
|
|
|
|||||
41,713,605 | 31,720,360 | |||||||
|
|
|
|
|||||
Net cash provided by (used in) investing activities |
(11,071,168 | ) | 1,883,709 | |||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Cash in-flows from financing activities: |
||||||||
Increase in borrowings |
9,606,126 | 9,057,999 | ||||||
Issuance of debentures |
21,505,849 | 18,438,221 | ||||||
Issuance of hybrid securities |
398,707 | 559,565 | ||||||
Capital increase of subsidiaries |
| 35,841 | ||||||
|
|
|
|
|||||
31,510,682 | 28,091,626 | |||||||
|
|
|
|
|||||
Cash out-flows from financing activities: |
||||||||
Repayment of borrowings |
8,349,005 | 12,692,883 | ||||||
Repayment of debentures |
20,903,518 | 13,620,520 | ||||||
Payment of dividends to common stocks |
336,636 | 336,636 | ||||||
Dividends paid on hybrid securities |
147,625 | 177,730 | ||||||
Redemption of hybrid securities |
255,000 | 1,323,400 | ||||||
Dividends paid on non-controlling interests |
2,128 | 1,554 | ||||||
|
|
|
|
|||||
29,993,912 | 28,152,723 | |||||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
1,516,770 | (61,097 | ) | |||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
(429,606 | ) | (156,393 | ) | ||||
Cash and cash equivalents, beginning of the period |
6,908,286 | 7,591,324 | ||||||
Effects of exchange rate changes on cash and cash equivalents |
233,943 | (526,645 | ) | |||||
|
|
|
|
|||||
Cash and cash equivalents, end of the period (Note 6) |
6,712,623 | 6,908,286 | ||||||
|
|
|
|
(*) | The consolidated statements of cash flows for the year ended December 31, 2018 was prepared in accordance with K-IFRS 1109; however, the comparative consolidated statements of cash flows for the year ended December 31, 2017 was not retrospectively restated to apply K-IFRS 1109. |
See accompanying notes
WOORI BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
1. | GENERAL |
(1) | Summary of the parent company |
Woori Bank (hereinafter referred to the Bank), which is a controlling entity in accordance with Korean International Financial Reporting standards (K-IFRS) 1110 Consolidated Financial Statements, was established in 1899 and is engaged in the commercial banking business under the Banking Act, trust business and foreign exchange business under the Financial Investment Services and Capital Market Act (hereinafter referred to as the Capital Market Act)..
Previously, Woori Finance Holdings Co., Ltd. (established on March 27, 2001 in accordance with Financial Holding Companies Act), the former holding company of Woori Financial Group, held a 100% ownership of the Bank. Effective November 1, 2014, Woori Finance Holdings Co., Ltd. completed its merger (the Merger) with and into the Bank. Accordingly, the shares of the Bank, 597 million shares, prior to the merger, was reduced to nil in accordance with capital reduction procedure, and then, in accordance with the merger ratio, the Bank newly issued 676 million shares. As a result, the paid-in capital of the Bank as of December 31, 2018 is capital stock amounting to 3,381,392 million Korean Won. Meanwhile, 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 Banks shares to Oligopolistic Shareholders. In addition to the sale, during the year ended December 31, 2017, KDIC sold additional 33 million shares. As a result, KDIC holds 125 million shares (18.43% ownership interest) of the Bank as of December 31, 2018 and 2017, and is the majority shareholder of the Bank.
On June 24, 2002, Woori Finance Holdings Co., Ltd. listed its common stock on the Korea Exchange through public offering. In addition, on September 29, 2003, Woori Finance Holdings Co., Ltd. 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 877 branches and offices in Korea, and 23 branches and offices overseas as of December 31, 2018.
(2) | The consolidated financial statements for Woori Bank and its subsidiaries (the Group) include the following subsidiaries: |
Percentage of ownership (%) |
Location | Financial statements as of (2018) | ||||||||||||
Subsidiaries |
Main business |
December 31, 2018 |
December 31, 2017 |
|||||||||||
Woori Bank: |
||||||||||||||
Woori FIS Co., Ltd. |
System software development & maintenance | 100.0 | 100.0 | Korea | December 31 | |||||||||
Woori Private Equity Asset Management Co., Ltd. |
Finance | 100.0 | 100.0 | Korea | December 31 | |||||||||
Woori Finance Research Institute Co., Ltd. |
Other service business | 100.0 | 100.0 | Korea | December 31 | |||||||||
Woori Card Co., Ltd. |
Finance | 100.0 | 100.0 | Korea | December 31 | |||||||||
Woori Investment Bank Co., Ltd. |
Other credit finance business | 59.8 | 59.8 | Korea | December 31 | |||||||||
Woori Credit Information Co., Ltd. |
Credit information | 100.0 | 100.0 | Korea | December 31 | |||||||||
Woori America Bank |
Finance | 100.0 | 100.0 | U.S.A. | December 31 | |||||||||
Woori Global Markets Asia Limited |
| 100.0 | 100.0 | Hong Kong | December 31 | |||||||||
Woori Bank China Limited |
| 100.0 | 100.0 | China | December 31 | |||||||||
AO Woori Bank |
| 100.0 | 100.0 | Russia | December 31 | |||||||||
PT Bank Woori Saudara Indonesia 1906 Tbk |
| 79.9 | 79.9 | Indonesia | December 31 | |||||||||
Banco Woori Bank do Brasil S.A. |
| 100.0 | 100.0 | Brazil | December 31 | |||||||||
Korea BTL Infrastructure Fund |
| 99.9 | 99.9 | Korea | December 31 | |||||||||
Woori Fund Service Co., Ltd. |
| 100.0 | 100.0 | Korea | December 31 | |||||||||
Woori Finance Cambodia PLC. |
| 100.0 | 100.0 | Cambodia | December 31 | |||||||||
Woori Finance Myanmar Co., Ltd. |
| 100.0 | 100.0 | Myanmar | December 31 | |||||||||
Wealth Development Bank |
| 51.0 | 51.0 | Philippines | December 31 | |||||||||
Woori Bank Vietnam Limited |
| 100.0 | 100.0 | Vietnam | December 31 | |||||||||
WB Finance Co., Ltd.(*5) |
| 100.0 | | Cambodia | December 31 | |||||||||
Woori Bank Europe(*5) |
| 100.0 | | Germany | December 31 | |||||||||
Kumho Trust First Co., Ltd. (*1) |
Asset securitization | 0.0 | 0.0 | Korea | December 31 | |||||||||
Asiana Saigon Inc. (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Consus Eighth Co., LLC (*4) |
| | 0.0 | Korea | | |||||||||
KAMCO Value Recreation First Securitization Specialty Co., Ltd. (*1) |
| 15.0 | 15.0 | Korea | December 31 | |||||||||
Hermes STX Co., Ltd. (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
BWL First Co., LLC (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Deogi Dream Fourth Co., Ltd. (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Jeonju Iwon Ltd. (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Wonju I one Inc. (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Heitz Third Co., Ltd. (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Woorihansoop 1st Co., Ltd. (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Electric Cable First Co., Ltd. (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Woori International First Co., Ltd. (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Woori HJ First Co., Ltd. (*4) |
| | 0.0 | Korea | | |||||||||
Woori WEBST 1st Co., Ltd. (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Wibihansoop 1st Co., Ltd. (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
HNLD 1st Inc. (*4) |
| | 0.0 | Korea | | |||||||||
Uri QS 1st Co., Ltd. (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Uri Display 1st Co., Ltd.(*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Tiger Eyes 2nd Co., Ltd.(*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Woori Serveone 1st Co., Ltd. (*1) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Uri Display 2nd Co.,Ltd. (*1) |
| 0.0 | | Korea | December 31 | |||||||||
Woori the Colony Unjung Securitization Specialty Co., Ltd. (*1) |
| 0.0 | | Korea | December 31 | |||||||||
Woori Dream 1st Co., Ltd. (*1) |
| 0.0 | | Korea | December 31 | |||||||||
Woori Dream 2nd Co., Ltd. (*1) |
| 0.0 | | Korea | December 31 | |||||||||
Woori H 1st Co., Ltd.(*1) |
| 0.0 | | Korea | December 31 | |||||||||
Woori HS 1st Co., Ltd. (*1) |
| 0.0 | | Korea | December 31 | |||||||||
Woori HS 2nd Co., Ltd.(*1) |
| 0.0 | | Korea | December 31 | |||||||||
Woori Sinnonhyeon 1st Inc. (*1) |
| 0.0 | | Korea | December 31 | |||||||||
Woori K 1st Co.,Ltd. (*1) |
| 0.0 | | Korea | December 31 | |||||||||
Uri S 1st Co.,Ltd. (*1) |
| 0.0 | | Korea | December 31 | |||||||||
Smart Casting Inc. (*1) |
| 0.0 | | Korea | December 31 |
- 2 -
Percentage of ownership (%) |
Location | Financial statements as of (2018) | ||||||||||||
Subsidiaries |
Main business |
December 31, 2018 |
December 31, 2017 |
|||||||||||
G5 Pro Short-term Bond Investment Fund 13 (*2) |
Securities investment and others | 100.0 | 100.0 | Korea | December 31 | |||||||||
Heungkuk Global Private Placement Investment Trust No. 1 (*2) |
| 98.5 | | Korea | December 31 | |||||||||
HeungkukWoori Tech Company Private Placement Investment Trust No. 1 (*2) |
| 98.0 | 98.0 | Korea | December 31 | |||||||||
AI Partners Water Supply Private Placement Investment Trust No.2 (*2) |
| 97.3 | | England | December 31 | |||||||||
Consus Sakhalin Real Estate Investment Trust 1st(*2) |
| 75.0 | 75.0 | Korea | December 31 | |||||||||
Principle Guaranteed Trust (*3) |
Trust | 0.0 | 0.0 | Korea | December 31 | |||||||||
Principle and Interest Guaranteed Trust (*3) |
| 0.0 | 0.0 | Korea | December 31 | |||||||||
Woori Investment Bank: |
||||||||||||||
Dongwoo First Securitization Specialty Co., Ltd. (*1) |
Asset securitization | 5.0 | 5.0 | Korea | December 31 | |||||||||
Seari First Securitization Specialty Co., Ltd. (*1) |
| 5.0 | 5.0 | Korea | December 31 | |||||||||
Seari Second Securitization Specialty Co., Ltd. (*1) |
| 5.0 | | Korea | December 31 | |||||||||
Namjong 1st Securitization Specialty Co., Ltd. (*1) |
| 5.0 | 5.0 | Korea | December 31 | |||||||||
Bukgeum First Securitization Specialty Co., Ltd. (*1) |
| 5.0 | 5.0 | Korea | December 31 | |||||||||
Bukgeum Second Securitization Specialty Co., Ltd. (*1) |
| 5.0 | | Korea | December 31 | |||||||||
Woori Card Co., Ltd.: |
||||||||||||||
TUTU Finance-WCI Myanmar Co., Ltd. |
Finance | 100.0 | 100.0 | Myanmar | December 31 | |||||||||
Woori Card one of 2017-1 Securitization Specialty Co., Ltd. (*1) |
Asset securitization | 0.5 | 0.5 | Korea | December 31 | |||||||||
Woori Card one of 2017-2 Securitization Specialty Co., Ltd. (*1) |
| 0.5 | 0.5 | Korea | December 31 | |||||||||
Woori Card one of 2018-1 Securitization Specialty Co., Ltd. (*1) |
| 0.5 | | Korea | December 31 |
(*1) | The entity is a structured entity for the purpose of asset securitization and is in scope for consolidation. Although the Group is not a majority shareholder, the Group 1) has the power over the investee, 2) is exposed to or has rights to variable returns from its involvement with the investee, and 3) has the ability to use its power to affect its returns. |
(*2) | The entity is a structured entity for the purpose of investment in securities and is in scope for consolidation. Although the Group is not a majority shareholder, the Group 1) has the power over the investee, 2) is exposed to or has rights to variable returns from its involvement with the investee, and 3) has the ability to use its power to affect its returns. |
(*3) | The entity is a money trust under the Financial Investment Services and Capital Markets Act and is in scope for consolidation. Although the Group is not a majority shareholder, the Group 1) has the power over the investee, 2) is exposed to or has rights to variable returns from its involvement with the investee, and 3) has the ability to use its power to affect its returns. |
(*4) | The entity was removed from the list of subsidiaries as the control over the entity was lost during the current period. |
(*5) | The entity was included in the list of subsidiaries as the Bank acquired more than 50% of the ownership interest. |
- 3 -
(3) | The Group has not consolidated the following entities as of December 31, 2018 and 2017 despite having more than 50% ownership interest: |
As of December 31, 2018 | ||||||||||||
Subsidiaries |
Location | Main Business |
Percentage of ownership (%) |
|||||||||
Golden Bridge NHN Online Private Equity Investment (*) |
Korea | Securities Investment | 60.0 | |||||||||
Mirae Asset Seobu Underground Expressway Professional Investment (*) |
Korea | Securities Investment | 65.8 | |||||||||
Mirae Asset Maps Clean Water Private Equity Investment Trust 7th (*) |
Korea | Securities Investment | 59.7 | |||||||||
Kiwoom Yonsei Private Equity Investment Trust(*) |
Korea | Securities Investment | 88.9 | |||||||||
Hana Walmart Real Estate Investment Trust 41-1 (*) |
Korea | Securities Investment | 89.6 | |||||||||
IGIS Europe Private Placement Real Estate Fund No. 163-2 (*) |
Korea | Securities Investment | 97.9 | |||||||||
IGIS Global Private Placement Real Estate Fund No. 148-1 (*) |
Korea | Securities Investment | 75.0 | |||||||||
IGIS Global Private Placement Real Estate Fund No. 148-2 (*) |
Korea | Securities Investment | 75.0 | |||||||||
KB Nongso Sewage Treatment Equipment Private Special Asset (*) |
Korea | Securities Investment | 50.0 | |||||||||
Mirae Asset Seoul Ring Expressway Private Special Asset Fund No. 1 (*) |
Korea | Securities Investment | 66.2 | |||||||||
Hangkang Sewage Treatment Plant Fund (*) |
Korea | Securities Investment | 55.6 | |||||||||
Consus KyungJu Green Private Placement Real Estate Fund No. 1 (*) |
Korea | Securities Investment | 52.4 |
As of December 31, 2017 | ||||||||||||
Subsidiaries |
Location | Main Business |
Percentage of ownership (%) |
|||||||||
Golden Bridge NHN Online Private Equity Investment (*) |
Korea | Securities Investment | 60.0 | |||||||||
Mirae Asset Maps Clean Water Private Equity Investment Trust 7th (*) |
Korea | Securities Investment | 59.7 | |||||||||
Kiwoom Yonsei Private Equity Investment Trust (*) |
Korea | Securities Investment | 88.9 | |||||||||
Hana Walmart Real Estate Investment Trust 41-1 (*) |
Korea | Securities Investment | 90.1 | |||||||||
IGIS Global Private Placement Real Estate Fund No. 148-1 (*) |
Korea | Securities Investment | 75.0 | |||||||||
IGIS Global Private Placement Real Estate Fund No. 148-2 (*) |
Korea | Securities Investment | 75.0 |
(*) | Since the investee is a private equity investment fund, the Group does not have the power over the funds activities even though it holds more than 50% of ownership interest. |
(4) | The summarized financial information of the major subsidiaries are as follows. The financial information of each subsidiary was prepared on the basis of consolidated financial statements. (Unit: Korean Won in millions): |
As of and for the year ended December 31, 2018 | ||||||||||||||||||||
Assets | Liabilities | Operating revenue |
Net income (loss) attributable to owners |
Comprehensive income (loss) attributable to owners |
||||||||||||||||
Woori FIS Co., Ltd. |
96,260 | 63,412 | 271,651 | 2,840 | 269 | |||||||||||||||
Woori Private Equity Asset Management Co., Ltd. |
38,820 | 1,439 | 1,713 | (2,794 | ) | (2,843 | ) | |||||||||||||
Woori Finance Research Institute Co., Ltd. |
3,891 | 560 | 4,708 | 7 | (109 | ) | ||||||||||||||
Woori Card Co., Ltd. |
9,987,057 | 8,305,093 | 1,371,301 | 114,767 | 106,517 | |||||||||||||||
Woori Investment Bank Co., Ltd. |
2,682,660 | 2,367,418 | 205,446 | 25,552 | 25,533 | |||||||||||||||
Woori Credit Information Co., Ltd. |
34,921 | 6,386 | 36,883 | 1,657 | 1,411 | |||||||||||||||
Woori America Bank |
2,182,454 | 1,878,117 | 90,975 | 20,510 | 32,335 | |||||||||||||||
Woori Global Markets Asia Limited |
517,627 | 396,216 | 18,748 | 5,144 | 9,647 | |||||||||||||||
Woori Bank China Limited |
5,470,927 | 4,953,813 | 366,973 | 21,879 | 19,194 | |||||||||||||||
AO Woori Bank |
305,521 | 256,260 | 19,433 | 5,163 | (3,234 | ) | ||||||||||||||
PT Bank Woori Saudara Indonesia 1906 Tbk |
2,355,975 | 1,853,768 | 192,719 | 40,385 | 27,109 | |||||||||||||||
Banco Woori Bank do Brasil S.A. |
179,130 | 149,146 | 13,971 | 1,262 | (2,326 | ) | ||||||||||||||
Korea BTL Infrastructure Fund |
777,437 | 299 | 29,760 | 26,057 | 26,057 | |||||||||||||||
Woori Fund Service Co., Ltd. |
14,448 | 1,440 | 10,052 | 1,597 | 1,597 | |||||||||||||||
Woori Finance Cambodia PLC. |
93,239 | 71,133 | 11,038 | 2,826 | 3,676 | |||||||||||||||
Woori Finance Myanmar Co., Ltd. |
19,340 | 6,886 | 4,496 | 640 | (1,256 | ) | ||||||||||||||
Wealth Development Bank |
218,134 | 184,344 | 13,668 | 80 | (451 | ) | ||||||||||||||
Woori Bank Vietnam Limited |
954,580 | 720,554 | 48,716 | 10,710 | 13,618 | |||||||||||||||
WB Finance Co., Ltd. |
268,794 | 225,655 | 24,310 | 2,421 | 2,329 |
- 4 -
As of and for the year ended December 31, 2018 | ||||||||||||||||||||
Assets | Liabilities | Operating revenue |
Net income (loss) attributable to owners |
Comprehensive income (loss) attributable to owners |
||||||||||||||||
Woori Bank Europe |
58,399 | 311 | 5 | (5,959 | ) | (5,974 | ) | |||||||||||||
Money trust under the FISCM Act |
1,582,765 | 1,552,594 | 54,860 | 259 | 259 | |||||||||||||||
Structured entity for the securitization of financial assets |
1,369,745 | 1,786,869 | 53,578 | 4,990 | (5,681 | ) | ||||||||||||||
Structured entity for the investments in securities |
63,676 | 142 | 1,826 | (1,299 | ) | (3,009 | ) |
As of and for the year ended December 31, 2017 | ||||||||||||||||||||
Assets | Liabilities | Operating revenue |
Net income (loss) attributable to owners |
Comprehensive income (loss) attributable to owners |
||||||||||||||||
Woori FIS Co., Ltd. |
103,932 | 71,386 | 252,460 | 1,940 | (2,963 | ) | ||||||||||||||
Woori Private Equity Asset Management Co., Ltd. |
42,894 | 2,670 | 7,257 | (4,114 | ) | (4,074 | ) | |||||||||||||
Woori Finance Research Institute Co., Ltd. |
3,790 | 350 | 4,733 | 83 | 64 | |||||||||||||||
Woori Card Co., Ltd. |
8,605,993 | 6,973,705 | 1,771,157 | 101,214 | 107,321 | |||||||||||||||
Woori Investment Bank Co., Ltd. |
1,880,157 | 1,588,610 | 183,376 | 20,023 | 20,210 | |||||||||||||||
Woori Credit Information Co., Ltd. |
33,298 | 6,175 | 31,580 | 861 | 752 | |||||||||||||||
Woori America Bank |
1,954,301 | 1,679,248 | 81,337 | 11,869 | (16,833 | ) | ||||||||||||||
Woori Global Markets Asia Limited |
290,226 | 178,343 | 11,345 | 1,922 | (12,544 | ) | ||||||||||||||
Woori Bank China Limited |
4,960,637 | 4,458,683 | 388,913 | 13,809 | (15,252 | ) | ||||||||||||||
AO Woori Bank |
201,704 | 149,101 | 15,656 | 4,748 | 1,217 | |||||||||||||||
PT Bank Woori Saudara Indonesia 1906 Tbk |
2,230,617 | 1,745,171 | 192,485 | 38,488 | (18,689 | ) | ||||||||||||||
Banco Woori Bank do Brasil S.A. |
213,889 | 181,544 | 20,455 | 1,843 | (2,840 | ) | ||||||||||||||
Korea BTL Infrastructure Fund |
786,480 | 301 | 30,240 | 26,390 | 26,390 | |||||||||||||||
Woori Fund Service Co., Ltd. |
12,653 | 1,242 | 9,021 | 1,398 | 1,398 | |||||||||||||||
Woori Finance Cambodia PLC. |
51,304 | 32,873 | 5,895 | 983 | (473 | ) | ||||||||||||||
Woori Finance Myanmar Co., Ltd. |
18,236 | 5,307 | 2,506 | 791 | 15 | |||||||||||||||
Wealth Development Bank |
191,049 | 156,808 | 13,632 | 1,323 | (1,093 | ) | ||||||||||||||
Woori Bank Vietnam Limited |
775,758 | 632,160 | 29,698 | 2,436 | (15,347 | ) | ||||||||||||||
Money trust under the FISCM Act |
1,560,672 | 1,530,760 | 44,344 | 582 | 582 | |||||||||||||||
Structured entity for the securitization of financial assets |
867,583 | 1,275,719 | 22,730 | 1,179 | (2,800 | ) | ||||||||||||||
Structured entity for the investments in securities |
34,939 | 76 | 377 | (475 | ) | (38,592 | ) |
(5) | The financial support that the Group provides to consolidated structured entities is as follows: |
- | Structured entity for asset securitization |
The structured entity is established for the purpose of securitization of project financing loans, corporate bonds, and other financial assets. The Group is involved with the structured entity through providing with credit facility over asset-backed commercial papers issued by the entity, originating loans directly to the structured entity, or purchasing 100% of the subordinated debts issued by the structured entity.
- | Structured entity for the investments in securities |
The structured entity is established for the purpose of investments in securities. The Group acquires beneficiary certificates through its contribution of fund to the structured entity, and it is exposed to the risk that it may not be able to recover its fund depending on the result of investment performance of asset managers of the structured entity.
- | Money trust under the Financial Investment Services and Capital Markets Act |
The Group provides with financial guarantee of principal and interest or solely principal to some of its trust products. Due to the financial guarantees, the Group may be obliged when the principal and interest or principal of the trust product sold is short of the guaranteed amount depending on the result of investment performance of the trust product.
- 5 -
(6) | The Group has entered into various agreements with structured entities such as asset securitization, structured finance, investment fund, and monetary trust. The characteristics and the nature of risks related to unconsolidated structured entities over which the Group does not have control in accordance with K-IFRS 1110 are as follows: |
The ownership interests on unconsolidated structured entities that the Group hold are classified into asset securitization vehicles, structured finance and investment fund, based on the nature and the purpose of the structured entities.
Unconsolidated structured entities classified as asset securitization vehicles are entities that issue asset-backed securities, pay the principal and interest or distributes dividends on asset-backed securities through borrowings or profits from the management, operation and sale of securitized assets. The Group transfers related risks from the purchase commitments of asset-backed securities or issuance of asset-backed securities through credit grants, and the structured entities recognize related interest or fee revenue. There are entities that provide additional fund and conditional debt acquisition commitment before the Groups financial support, but the Group is still exposed to losses arising from the purchase of financial assets issued by the structured entities when it fails to renew the securities.
Unconsolidated structured entities classified as structured financing include real estate project financing investment vehicle, social overhead capital companies, and special purpose vehicles for ship (aircraft) financing. Each entity is incorporated as a separate company with a limited purpose in order to efficiently pursue business goals. Structured financing is a financing method for large-scale risky business, with investments made based on feasibility of the specific business or project, instead of credit of business owner or physical collaterals. The investors receive profits from the operation of the business. The Group recognizes interest revenue, valuation gain or loss on ownership interest, or dividend income. With regard to uncertainties involving structured financing, there are entities that provide financial support such as additional fund, guarantees and prioritized credit grants prior to the Groups intervention, but the Group is exposed to possible losses due to loss of principal from reduction in investment value or irrecoverable loans arising from failure to collect scheduled cash flows and cessation of projects.
Unconsolidated structured entities classified as investment funds include investment trusts and private equity funds. An investment trust orders the investment and operation of funds to the trust manager in accordance with trust contract with profits distributed to the investors. Private equity funds finances money required to acquire equity securities to enable direction of management and/or improvement of ownership structure, with profit distributed to the investors. The Group recognizes pro rata amount of valuation gain or loss on investment and dividend income as an investor, and may be exposed to losses due to reduction in investment value.
- 6 -
Total assets of the unconsolidated structured entities, the carrying value of the related items recorded, the maximum exposure to risks, and the loss recognized in conjunction with the unconsolidated structured entities as of December 31, 2018 and 2017 are as follows (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||
Asset securitization vehicle |
Structured finance |
Investment Funds |
||||||||||
Total asset of the unconsolidated structured entities |
6,796,235 | 58,161,494 | 11,138,822 | |||||||||
Assets recognized in the consolidated financial statements related to the unconsolidated structured entities |
2,571,835 | 2,831,842 | 1,530,767 | |||||||||
Financial assets at FVTPL |
285,156 | 70,219 | 1,197,844 | |||||||||
Financial assets at FVTOCI |
281,919 | 48,961 | | |||||||||
Financial assets at amortized cost |
2,003,921 | 2,511,055 | 71,150 | |||||||||
Investments in joint ventures and associates |
| 197,393 | 261,773 | |||||||||
Derivative assets |
839 | 4,214 | | |||||||||
Liabilities recognized in the consolidated financial statements related to the unconsolidated structured entities |
1,260 | 905 | | |||||||||
Derivative liabilities |
116 | 248 | | |||||||||
Other liabilities (including provisions) |
1,144 | 657 | | |||||||||
The maximum exposure to risks |
3,252,329 | 3,408,271 | 1,587,325 | |||||||||
Investments |
2,571,835 | 2,831,842 | 1,530,767 | |||||||||
Credit facilities |
680,494 | 576,429 | 56,558 | |||||||||
Loss recognized on unconsolidated structured entities |
5,764 | 11,609 | 13,868 |
December 31, 2017 | ||||||||||||
Asset securitization vehicle |
Structured finance |
Investment Funds |
||||||||||
Total asset of the unconsolidated structured entities |
7,295,601 | 40,172,830 | 13,641,135 | |||||||||
Assets recognized in the consolidated financial statements related to the unconsolidated structured entities |
3,215,159 | 2,314,043 | 1,138,523 | |||||||||
Financial assets held for trading |
| 233,428 | 10,160 | |||||||||
AFS financial assets |
902,390 | 106,819 | 904,774 | |||||||||
HTM financial assets |
2,269,451 | | | |||||||||
Loans and receivables |
43,180 | 1,969,760 | | |||||||||
Investments in joint ventures and associates |
| | 223,589 | |||||||||
Derivative assets |
138 | 4,036 | | |||||||||
Liabilities recognized in the consolidated financial statements related to the unconsolidated structured entities |
1,433 | 1,506 | | |||||||||
Derivative liabilities |
575 | 968 | | |||||||||
Other liabilities (including provisions) |
858 | 538 | | |||||||||
The maximum exposure to risks |
4,032,531 | 2,918,448 | 1,138,523 | |||||||||
Investments |
3,215,159 | 2,314,043 | 1,138,523 | |||||||||
Credit facilities |
817,372 | 604,405 | | |||||||||
Loss recognized on unconsolidated structured entities |
837 | 3,939 | 5,993 |
- 7 -
(7) | As of December 31, 2018 and 2017, the share of non-controlling interests on the net income and equity of subsidiaries in which non-controlling interests are significant are as follows: (Unit: Korean Won in millions): |
1) | Accumulated non-controlling interests at the end of the reporting period |
December 31, 2018 | December 31, 2017 | |||||||
Woori Investment Bank |
130,088 | 191,111 | ||||||
PT Bank Woori Saudara Indonesia 1906 Tbk |
68,250 | 64,877 | ||||||
Wealth Development Bank |
16,557 | 16,778 |
2) | Net income or loss attributable to non-controlling interests |
For the year ended December 31, 2018 |
For the year ended December 31, 2017 |
|||||||
Woori Investment Bank |
10,262 | 8,370 | ||||||
PT Bank Woori Saudara Indonesia 1906 Tbk |
8,126 | 8,882 | ||||||
Wealth Development Bank |
39 | 648 |
3) | Dividends to non-controlling interests |
For the year ended December 31, 2018 |
For the year ended December 31, 2017 |
|||||||
PT Bank Woori Saudara Indonesia 1906 Tbk |
2,082 | 1,513 |
2. | BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES |
(1) | Basis of presentation |
The Woori Bank and its subsidiaries (the Group)s consolidated financial statements are prepared in accordance with Korean Financial Reporting Standards (K-IFRS)
The significant accounting policies applied in the preparation of consolidated financial statements as of and for the year ended December 31, 2018 are stated below, and the accounting policies applied are identical to ones used in the preparation of previous periods consolidated financial statements, except for the effects of adopting new standards or interpretations as explained below.
The consolidated financial statements are prepared at the end of each reporting period in historical cost basis, except for certain non-current assets and financial assets that are either revalued or measured in fair value. Historical cost is generally measured at the fair value of consideration given to acquire assets.
The consolidated financial statements of the Group was approved by the Board of Directors on March 6, 2019, and is planned for an approval in the annual shareholders meeting on March 27, 2019.
1) The standards and interpretations that are newly adopted by the Group during the current period, and the changes in accounting policies thereof are as follows:
- | Adoption of K-IFRS 1109 Financial instruments (enacted) |
The Group initially applied K-IFRS 1109 and related amendments made to other standards during the current period, with January 1, 2018 as the date of initial application. K-IFRS 1109 introduces new rules on: 1) classification and measurement of financial assets and financial liabilities, 2) impairment of financial assets, and 3) hedge accounting. Additionally, the Group adopted consequential amendments to K-IFRS 1107 Financial Instruments: Disclosures that were applied to the disclosures for 2018.
The Group decided not to restate the prior period figures when applying the Standard for the first time, and as such the comparative consolidated financial statements are not restated.
- 8 -
The main contents of the new accounting standard and the effect on the consolidated financial statements of the Group are as follows.
a) Classification and measurement of financial assets
All financial assets included in the scope of K-IFRS 1109 are subsequently measured at amortized cost or fair value based on the Groups business model for the management of financial assets and the nature of the contractual cash flows of the financial assets.
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 cash flows that are solely payments of principal and interest on the principal 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, and any change in the fair value is recognized as profit or loss (Financial assets at fair value through profit or loss (FVTPL)).
Notwithstanding the foregoing, the Group may make the following irrevocable choice or designation at the time of initial recognition of a financial asset.
The Group may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument within the scope of this standard that is neither held for trading nor is a 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 eliminates or significantly reduces a measurement or recognition inconsistency.
As of the date of initial application 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 subsequently reclassified to retained earnings. Debt instruments measured subsequently at amortized cost or at FVTOCI are subject to impairment.
- 9 -
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 in K-IFRS 1039 |
Classification in K-IFRS 1109 |
Amount in accordance with K-IFRS 1039 |
Reclassification | Remeasurement (*1) | Amount in accordance with K-IFRS 1109 |
|||||||||||||||
Deposit |
Loans and receivables |
Loan and other financial assets at amortized cost |
8,870,835 | | | 8,870,835 | ||||||||||||||
Deposit |
Financial assets at FVTPL |
Financial assets at FVTPL |
25,972 | | | 25,972 | ||||||||||||||
Debt securities |
Financial assets at FVTPL |
Financial assets at FVTPL(*1) |
2,654,027 | | | 2,654,027 | ||||||||||||||
Equity securities |
Financial assets at FVTPL |
Financial assets at FVTPL(*1) |
47,304 | | | 47,304 | ||||||||||||||
Derivatives assets |
Financial assets at FVTPL |
Financial assets at FVTPL(*1) |
3,115,775 | (2,137 | ) | | 3,113,638 | |||||||||||||
Equity securities |
AFS financial assets |
Financial assets at FVTPL(*1) |
1,273,498 | 1,219 | | 1,274,717 | ||||||||||||||
Equity securities |
AFS financial assets |
Financial assets at FVTOCI |
850,207 | | | 850,207 | ||||||||||||||
Debt securities |
AFS financial assets |
Financial assets at FVTPL |
46,855 | | | 46,855 | ||||||||||||||
Debt securities |
AFS financial assets |
Financial assets at FVTOCI |
12,874,209 | | | 12,874,209 | ||||||||||||||
Debt securities |
AFS financial assets |
Securities at amortized cost |
308,181 | | 14,119 | 322,300 | ||||||||||||||
Debt securities |
HTM financial assets |
Securities at amortized cost |
16,749,296 | | | 16,749,296 | ||||||||||||||
Loans |
Loans and receivables |
Financial assets at FVTPL (*1) |
279,032 | 918 | 50 | 280,000 | ||||||||||||||
Loans |
Loans and receivables |
Loan and other financial assets at amortized cost |
253,014,491 | | | 253,014,491 | ||||||||||||||
Derivatives assets (Designated for hedging) |
Derivatives assets (Designated for hedging) |
Derivatives assets (Designated for hedging) |
59,272 | | | 59,272 | ||||||||||||||
Other financial assets |
Loans and receivables |
Loan and other financial assets at amortized cost |
6,772,088 | | | 6,772,088 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total financial assets |
306,941,042 | | 14,169 | 306,955,211 | ||||||||||||||||
|
|
|
|
|
|
|
|
- 10 -
Classification in K-IFRS 1039 |
Classification in K-IFRS 1109 |
Amount in accordance with K-IFRS 1039 |
Reclassification | Remeasurement (*2) | Amount in accordance with K-IFRS 1109 |
|||||||||||||||
Deposit due to customers |
Financial liabilities at FVTPL |
Financial liabilities at FVTPL |
25,964 | | | 25,964 | ||||||||||||||
Deposit due to customers |
Financial liabilities at amortized cost |
Financial liabilities at amortized cost |
234,695,084 | | | 234,695,084 | ||||||||||||||
Borrowings |
Financial liabilities at amortized cost |
Financial liabilities at amortized cost |
14,784,706 | | | 14,784,706 | ||||||||||||||
Debentures |
Financial liabilities at FVTPL |
Financial liabilities at FVTPL |
91,739 | | | 91,739 | ||||||||||||||
Debentures |
Financial liabilities at amortized cost |
Financial liabilities at amortized cost |
27,869,651 | | | 27,869,651 | ||||||||||||||
Equity-linked securities |
Financial liabilities at FVTPL |
Financial liabilities at FVTPL |
160,057 | | | 160,057 | ||||||||||||||
Derivatives liabilities |
Financial liabilities at FVTPL |
Financial liabilities at FVTPL |
3,150,149 | | | 3,150,149 | ||||||||||||||
Derivatives liabilities (Designated for hedging) |
Derivatives liabilities (Designated for hedging) |
Derivatives liabilities (Designated for hedging) |
67,754 | | | 67,754 | ||||||||||||||
Other financial liabilities |
Financial liabilities at amortized cost |
Financial liabilities at amortized cost |
13,892,461 | | | 13,892,461 | ||||||||||||||
Provision for financial guarantee |
Provision |
Financial liabilities at amortized cost |
71,697 | | | 71,697 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total financial liabilities |
294,809,262 | | | 294,809,262 | ||||||||||||||||
|
|
|
|
|
|
|
|
(*1) | Under K-IFRS 1039, the embedded derivatives out of hybrid financial instruments are accounted for as derivative assets or liabilities if the criteria for separation of the embedded derivatives are met; and the host contract in those instruments are recorded as available-for-sale financial assets or loans and receivables respectively. However, since K-IFRS 1109 requires financial instruments to be accounted for based on the terms of the entire financial instrument, the hybrid financial assets are revalued and classified as financial assets at fair value through profit or loss. |
(*2) | The remeasurement effect due to expected credit losses is not included (The remeasurement effect of expected credit losses is as follows: b) Impairment of financial assets). |
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.
The financial assets at FVTPL or FVTOCI that are reclassified to the amortized cost measurement category as of the date of initial application of K-IFRS 1109, and the related valuation gain or loss and fair value of the financial assets as of December 31, 2018 had it not been reclassified, are as follows (Unit: Korean Won in millions):
Account subject |
Category before the adoption of K-IFRS 1109 |
Amount of valuation gain/loss had it not been reclassified |
Fair value | |||||
Debt securities(*) |
AFS financial assets | 2 | 257,665 |
(*) | Those financial assets that are removed from the books as of December 31, 2018 are not presented in the table above. |
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b) Impairment of financial assets
The impairment model under K-IFRS 1109 reflects expected credit losses, as opposed to incurred credit losses under K-IFRS 1039. Under the impairment approach in K-IFRS 1109, it is no longer necessary for a credit event to have occurred before credit losses are recognized. Instead, the Group accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses should be updated at each reporting date to reflect changes in credit risk since initial recognition.
The Group is required to recognize the expected credit losses for financial instruments measured at amortized cost or FVTOCI (debt instrument), and unused loan commitments and financial guarantee contracts that are subject to the impairment provisions of K-IFRS 1109. In particular, K-IFRS 1109 requires the Group to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses (ECL) if the credit risk on that financial instrument has increased significantly since initial recognition, or if the financial instrument is a purchased or originated credit-impaired financial asset. If the credit risk of a financial instruments does not increase significantly after initial recognition (excluding purchased or originated credit-impaired loans - for financial assets already impaired at initial recognition), the Group measures the loss allowance on the financial instruments at the amount equivalent to the expected 12-month credit loss.
Management assessed the impairment of the Groups financial assets, lending arrangements and financial guarantees at the date of initial application by using reasonable and supportive measures that can be used without undue cost or effort in determining the credit risk of the financial instruments at initial recognition in accordance with K-IFRS 1109 and in comparing above credit risk with the credit risk at the date of initial application. As of January 1, 2018, the results of the assessment are as follows (Unit: Korean Won in millions):
Classification in accordance with K-IFRS 1039 |
Classification in K-IFRS 1109 |
Loss allowance in accordance with K-IFRS 1039(A) |
Loss allowance in accordance with K-IFRS 1109 (B) |
Increases (B-A) |
||||||||||||
Deposit |
Loans and receivables |
Loans and other financial assets at amortized cost |
2,458 | 3,092 | 634 | |||||||||||
Debt securities |
||||||||||||||||
AFS securities |
AFS financial assets |
Financial assets at FVTOCI |
| 4,236 | 4,236 | |||||||||||
HTM securities |
HTM financial assets |
Securities at amortized cost |
| 5,078 | 5,078 | |||||||||||
Loans and other financial assets |
Loans and receivables |
Loans and other financial assets at amortized cost |
1,827,785 | 2,076,873 | 249,088 | |||||||||||
Payment guarantee |
183,247 | 192,924 | 9,677 | |||||||||||||
Loan commitment |
66,115 | 104,985 | 38,870 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
2,079,605 | 2,387,188 | 307,583 | |||||||||||||
|
|
|
|
|
|
c) Classification and measurement of financial liabilities
One of the major changes related to the classification and measurement of financial liabilities as a result of the adoption of K-IFRS 1109 is the accounting for change in the fair value of financial liabilities designated at fair value through profit or loss due to the changes in issuers own credit risk. The Group recognizes the effect of changes in the credit risk of financial liabilities designated as at FVTOCI in other comprehensive income, except for cases where it creates or enlarges accounting mismatch of the profit or loss. Changes in fair value due to credit risk of financial liabilities are not subsequently reclassified to profit or loss, but are reclassified as retained earnings when financial liabilities are derecognized.
- 12 -
In accordance with K-IFRS 1039, the entire of changes in fair value of financial liabilities designated as at FVTPL are recognized in profit or loss. As of January 1, 2018, the Group designated 251,796 million Korean Won of FVTPL out of 294,813,795 million of financial liabilities to be measured at FVTPL, and recognized 133 million Korean Won as accumulated other comprehensive loss in relation to the changes in own credit risk of financial liabilities.
d) Hedge accounting
The new hedge accounting model maintains three types of hedge accounting. However, it introduced more flexibility in the types of transactions that are eligible for hedge accounting and expanded the types of hedging instruments and non-financial hedge items that qualify for hedge accounting. The standard related to the evaluation of hedge accounting has been amended as a whole, where it is now 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 Groups risk management activities.
In accordance with the transitional provisions of K-IFRS 1109 on hedge accounting, the Group adopted the hedge accounting provisions of K-IFRS 1109 prospectively from January 1, 2018. As of the date of initial application, the Group concluded 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 within the effectiveness assessment requirements of K-IFRS 1109. The Group has not designated a hedging relationship in accordance with K-IFRS 1109 in which the hedge relationship would not have met the requirements for hedge accounting under K-IFRS 1039.
e) Effect on equity as a result of adoption of K-IFRS 1109
The effect on equity due to the adoption of K-IFRS 1109 as of January 1, 2018 is as follows (Unit: Korean Won in millions):
- | Impact on accumulated other comprehensive loss due to financial assets at FVTOCI, etc. |
Amount | ||||
Balance as of December 31, 2017 (prior to K-IFRS 1109) |
(89,724 | ) | ||
Adjustments |
(392,176 | ) | ||
Reclassification of available-for-sale financial assets to financial assets at FVTPL |
(152,124 | ) | ||
Recognition of expected credit losses of debt securities at FVTOCI |
4,293 | |||
Reclassification of available-for-sale financial assets(equity securities) to financial assets at FVTOCI |
(397,508 | ) | ||
Effect on changes in credit risk of financial liabilities at fair value through profit or loss designated as upon initial recognition |
(133 | ) | ||
Others |
3,500 | |||
Income tax effect |
149,796 | |||
|
|
|||
Balance as of January 1, 2018 (based on K-IFRS 1109) |
(481,900 | ) | ||
|
|
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- | Retained earnings impact |
Amount | ||||
Balance as of December 31, 2017 (prior to K-IFRS 1109) |
15,620,006 | |||
Adjustments |
177,091 | |||
Reclassification of available-for-sale financial assets to financial assets at FVTPL |
152,124 | |||
Recognition of expected credit losses of debt instruments at FVTOCI |
(4,293 | ) | ||
Reclassification of available-for-sale financial assets(equity securities) to financial assets at FVTOCI |
397,508 | |||
Effect on revaluation of financial assets at amortized cost from loan and receivables or AFS financial assets |
282 | |||
Recognition of expected credit losses of financial assets at amortized cost which were previously loan and receivables |
(240,683 | ) | ||
Effect on provision for guarantees and unused loan commitments on liabilities |
(48,548 | ) | ||
Effect on changes in credit risk of financial liabilities at fair value through profit or loss designated as upon initial recognition |
133 | |||
Others |
(4,950 | ) | ||
Income tax effect |
(74,482 | ) | ||
|
|
|||
Balance as of January 1, 2018 (based on K-IFRS 1109) |
15,797,097 | |||
|
|
- | Adoption of K-IFRS 1115 Revenue from contracts with customers (enacted) |
The Group adopted the requirements using the modified retrospective method, with the effect of initial application recognized on the date of initial application and without restatement of the comparative periods. Also, this standard is retroactively applied to contracts which are not completed as of the date of initial application, but practical expedient is used so that contract modifications made before the date of initial application are not retroactively restated.
Accordingly, the Group has not retroactively restated the comparative consolidated financial statements presented herein.
The effects of the adoption of K-IFRS 1115 by Woori Card Co. Ltd., a subsidiary of Woori Bank, are as follows. Woori Card Co. Ltd. has modified its accounting policies related to the customer loyalty program, whereby rewards and points provided to the users of the card are deducted from revenue due to the fact that these are regarded as consideration provided to the customer. As a result of the aforementioned accounting policy modification, Fees and Commission Received on Credit Card and Fees and Commission Paid for Credit Card are both reduced by 525,978 million Won. On the other hand, accounting change modifications resulting from the adoption of K-IFRS 1115 did not have any significant effect on the Consolidated Statement of Financial Position, the capital and the Consolidated Statement of Cash Flows.
- | Amendments to K-IFRS 1102 Classification and Measurement of Share-based Payment Transactions |
The amendments clarify that: 1) When measuring the fair value of share-based payment, the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payment should be consistent with the measurement of equity-settled share-based payment; 2) When an entity has an obligation to pay the employees withholding tax to the tax authority for the employees equity-settled share-based payment, the transaction shall be classified in its entirety as an equity-settled share-based payment transaction if it would have been so classified in the absence of the net settlement feature; and 3) When a cash-settled share-based payment changes to an equity-settled share-based payment because of modifications of the terms and conditions, the original liability recognized is derecognized and the equity-settled share-based payment is recognized at the modification date fair value. Any difference between the carrying amount of the liability at the modification date and the amount recognized in equity at the same date would be recognized in profit and loss immediately.
- | Amendments to K-IFRS 1040 Investment Property |
The amendments clarify that a transfer to, or from, investment property necessitates an assessment of whether a property meets the definition of investment property, supported by observable evidence that a change in use has occurred. The amendments further clarify that the situations listed in K-IFRS 1040 are not exhaustive and that a change in use is possible for properties under construction (i.e. a change in use is not limited to completed properties).
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- | Amendments to K-IFRS 2122 Foreign Currency Transactions and Advance Consideration |
The interpretation addresses how to determine the date of transaction for the purpose of determining the exchange rate to use on initial recognition of an asset, expense or income (or part of them) as a result of the derecognition of a non-monetary asset or non-monetary liability (e.g., a non-refundable deposit or deferred revenue) which were previously recognized due to the fact that consideration was paid or received in advance in a foreign currency. The interpretation specifies that the date of transaction is the date on which the entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the interpretation requires an entity to determine the date of transaction for each payment or receipt of advance consideration.
- | Annual Improvements to K-IFRS 2014-2016 Cycle |
The amendments include partial amendments to K-IFRS 1101 First-time Adoption of K-IFRS and K-IFRS 1028 Investments in Associates and Joint Ventures. Amendments to K-IFRS 1028 provide that an investment company such as a venture capital investment vehicle may selectively designate each of its investment in associates and/or joint ventures to be measured at fair value through profit or loss mandatorily measured at fair value, and that such designation must be made at the time of each investments 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.
The amendments, except for K-IFRS 1109 and K-IFRS 1115, do not have significant impact on the consolidated financial statements of the Group.
2) | The Group has not applied the following K-IFRS that have been issued but are not yet effective: |
- | K-IFRS 1116 Leases(enacted) |
K-IFRS 1116 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. K-IFRS 1116 will supersede the current lease guidance including K-IFRS 1017 Leases and the related interpretations, and will be applied to periods beginning on or after January 1, 2019.
The Group plans to apply modified retrospective approach as of January 1, 2019 in accordance with K-IFRS 1116. Therefore, the cumulative effect of applying K-IFRS 1116 will be adjusted in the retained earnings (or, where appropriate, other components of equity) at the date of initial application, and the comparative financial statements will not be restated.
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.
- 15 -
According to the preliminary assessment of the Group, the lease agreements entered into by the Group as of December 31, 2018 are expected to meet the definition of lease under the Standard, and accordingly, if the Group adopts the Standard, it applies to all leases except short-term leases and leases of low value assets, and the Group will recognize the right-of-use assets and related liabilities accordingly. As a result of an analysis of the impact on consolidated financial statements, the Group expects right-of-use asset and lease liability to both increase by 338,914 million Won as of December 31, 2018.
The following enacted/amended standards are not expected to affect the Group:
- | K-IFRS 2123 Uncertainty over Income Tax Treatments (enacted) |
- | Amendments to K-IFRS 1109 |
- | Amendments to K-IFRS 1028 |
- | Amendments to K-IFRS 1019 |
- | Amendments to K-IFRS 1115 |
- | Annual Improvements to K-IFRS 2015-2017 Cycle |
These annual improvements contain partial amendments to K-IFRS 1012 Income taxes, K-IFRS 1023 Borrowing costs, K-IFRS 1103 Business combinations and K-IFRS 1111 Joint arrangements.
(2) | Basis of consolidated financial statement presentation |
The consolidated financial statements incorporate the financial statements of the Bank and the entities (including structured entities) controlled by the Bank (and its subsidiaries, which is the Group). Control is achieved where the Group 1) has the power over the investee, 2) is exposed, or has rights, to variable returns from its involvement with the investee, and 3) has the ability to use its power to affect its returns. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
When the Group has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Group considers all relevant facts and circumstances in assessing whether or not the Groups voting rights in an investee are sufficient to give it power, including:
| The relative size of the Groups holding of voting rights and dispersion of holdings of the other vote holders; |
| Potential voting rights held by the Group, other vote holders or other parties; |
| Rights arising from other contractual arrangements; |
| Any additional facts and circumstances that indicate that the Group has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders meetings. |
Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owner of the Group and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owner of the Group and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Groups accounting policies.
All intra-group transactions and, related assets and liabilities, income and expenses are eliminated in full on consolidation.
Changes in the Groups ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Groups interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owner of the parent company.
- 16 -
When the Group loses control of a subsidiary, a gain or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognized in other comprehensive income and accumulated in equity, the amounts previously recognized in other comprehensive income and accumulated in equity are accounted for as if the Group had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings). The fair value of any investment retained in the former subsidiary at the date when control is lost is recognized as the fair value on initial recognition for subsequent accounting under K-IFRS 1109 Financial Instruments or, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.
(3) | Business combinations |
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured as the sum of the acquisition-date fair values of the assets transferred by the Group in exchange for control of the acquiree, liabilities assumed by the Group for the former owners of the acquiree and the equity interests issued by the Group. Acquisition-related costs are generally recognized in profit or loss as incurred.
At the acquisition date, the acquirees identifiable assets, liabilities and contingent liabilities that meet the condition for recognition under K-IFRS 1103 are recognized at their fair value, except that:
| deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with K-IFRS 1012 Income Taxes and K-IFRS 1019 Employee Benefits, respectively; |
| liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with K-IFRS 1102 Share-based Payment at the acquisition date; and |
| non-current assets (or disposal groups) that are classified as held for sale in accordance with K-IFRS 1105 Non-current Assets Held for Sale and Discontinued Operations are measured at the lower of their previous carrying amounts and fair value less costs to sell. |
Any excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Groups previously held equity interest (if any) in the acquiree over the net of identifiable assets and liabilities assumed of the acquiree at the acquisition date is recognized as goodwill which is included in intangible assets.
If, after reassessment, the Groups interest in the fair value of the acquirees identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirers previously held equity interest in the acquiree (if any), the excess is recognized immediately in net income as a bargain purchase gain.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entitys net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests proportionate share of the recognized amounts of the acquirees identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value
When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
- 17 -
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration other than the above is remeasured at subsequent reporting dates as appropriate, with the corresponding gain or loss being recognized in profit or loss.
When a business combination is achieved in stages, the Groups previously held equity interest in the acquiree is remeasured at fair value at the acquisition date (i.e., the date when the Group obtains control) and the resulting gain or loss, if any, is recognized in net income (or other comprehensive income, if applicable). Amounts arising from changes in value of interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are recognized, identical to the treatment assuming interests are sold directly.
In case where i) a common entity ultimately controls over all participating entities, or businesses, in a business combination transaction, prior to and after the transaction continuously, and ii) the control is not temporary, the transaction meets the definition of business combination under common control and it is deemed that the transaction only results in the changes in legal substance, and not economic substance, from the perspective of the ultimate controlling party. Thus, in such transactions, the acquirer recognizes the assets and liabilities of the acquiree in its financial statements at the book values as recognized in the ultimate controlling partys consolidated financial statements, and the difference between the book value of consideration transferred to and the book value of net assets transferred in is recognized as equity.
(4) | Investments in joint ventures and associates |
An associate is an entity over which the Group has significant influence, and that is not a subsidiary or a joint venture. Significant influence is the power to participate in making decision on the financial and operating policy of the investee but is not control or joint control over those policies.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to net assets relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
The net income of current period and the assets and liabilities of the joint ventures and associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with K-IFRS 1105 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, an investment in the joint ventures and associates is initially recognized in the consolidated statements of financial position at cost and adjusted thereafter to recognize the Groups share of the net assets of the joint ventures and associates and any impairment. When the Groups share of losses of the joint ventures and associates exceeds the Groups interest in the associate, the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint ventures and associates.
Any excess of the cost of acquisition over the Groups share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the joint ventures and associates recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment. Any excess of the Groups share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognized immediately in net income.
Upon a loss of significant influence over the joint ventures and associates, the Group discontinues the use of the equity method and measures at fair value of any investment that the Group retains in the former joint ventures and associates from the date when the Group loses significant influence. The fair value of the investment is regarded as its fair value on initial recognition as a financial asset in accordance with K-IFRS 1039 Financial Instruments; Recognition and Measurement. The Group recognized differences between the carrying amount and fair value in net income and it is included in determination of the gain or loss on disposal of joint ventures and associates. The Group accounts for all amounts recognized in other comprehensive income in relation to that joint ventures and associates on the same basis as would be required if the joint ventures and associates had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognized in other comprehensive income by an associate would be reclassified to net income on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to net income as a reclassification adjustment.
- 18 -
When the Groups ownership of interest in an associate or a joint venture decreases but the Group continues to maintain significant influence over an associate or a joint venture, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that decrease in ownership interest if the gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities. Meanwhile, if interest on associate or joint venture meets the definition of non-current asset held for sale, it is accounted for in accordance with K-IFRS 1105.
The requirements of K-IFRS 1028 - Investments in Associates and Joint Ventures to determine whether there has been a loss event are applied to identify whether it is necessary to recognize any impairment loss with respect to the Groups investment in the joint ventures and associates. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with K-IFRS 1036 - Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized is not allocated to any asset (including goodwill), which forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with K-IFRS 1036 to the extent that the recoverable amount of the investment subsequently increases.
The Group continues to use the equity method when an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate. There is no remeasurement to fair value upon such changes in ownership interests.
When a subsidiary transacts with an associate or a joint venture of the Group, profits and losses resulting from the transactions with the associate or joint venture are recognized in the Groups consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group.
(5) | Investment in Joint operation |
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
When the Group operates as a joint operator, it recognizes in relation to its interest in a joint operation:
- | its assets, including its share of any assets held jointly; |
- | its liabilities, including its share of any liabilities incurred jointly; |
- | its revenue from the sale of its share of the output arising from the joint operation; |
- | its share of the revenue from the sale of the output by the joint operation; and |
- | its expenses, including its share of any expenses incurred jointly. |
The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the K-IFRSs applicable to the particular assets, liabilities, revenues and expenses.
When the Group enters into a transaction with a joint operation in which it is a joint operator, such as a sale or contribution of assets, it is conducting the transaction with the other parties to the joint operation and, as such, the Group recognizes gains and losses resulting from such a transaction only to the extent of the other parties interests in the joint operation.
When the Group enters into a transaction with a joint operation in which it is a joint operator, such as a purchase of assets, it does not recognize proportional share of profit or loss until the asset is sold to a third party.
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(6) | Revenue recognition |
K-IFRS 1018 allowed recognition of fees and commission income, a revenue from contracts with customers, in accordance with the accrual principle. However, K-IFRS 1115, applicable from the current period, requires the recognition of revenues based on transaction price allocated to the performance obligation when or as the Group performs that obligation to the customer. Since revenues other than those from contracts with customers, such as interest revenue and loan origination fee (cost), are measured through effective interest rate method, the revenue recognition principles are identical with those applied in the previous periods.
1) Revenues from contracts with customers
The Group recognizes revenue when the Group satisfies a performance obligation by transferring a promised good or service to a customer. When a performance obligation is satisfied, the Group shall recognizes as a revenue the amount of the transaction price that is allocated to that performance obligation. The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
The Group is recognizing revenue by major sources as shown below:
① | Fees and commission received for brokerage |
The fees and commission received for agency are the amount of consideration or fee expected to be entitled to receive in return for providing goods or services to the other parties with the Group acting as an agency, such as in the case of sales of bancassurance and beneficiary certificates. The majority of these fees and commission received for brokerage are from the business activities relevant to Consumer banking segment.
② | Fees and commission received related to credit |
The fees and commission received related to credit mainly include the lending fees received from the loan activity and the fees received in the L/C transactions. Except for the fees and commission accounted for in calculating the effective interest rate, it is generally recognized when the performance obligation has been performed. The majority of these fees and commission received related to credit are from the business activities relevant to Consumer banking and Corporate banking segment.
③ | Fees and commission received for electronic finance |
The fees and commission received for electronic finance include fees received in return for providing various kinds of electronic financial services through firm-banking and CMS. These fees are recognized as revenue immediately upon the completion of services. The majority of these fees and commission received for electronic finance are from the business activities relevant to Consumer banking and Corporate banking segment.
④ | Fees and commission received on foreign exchange handling |
The fees and commission received on foreign exchange handling consist of various fees incurred when transferring foreign currency. The point of processing the customers request is the time when performance obligation is satisfied, and revenue is immediately recognized when fees and commission are received after requests are processed. The business activities relevant to these fees and commission received on foreign exchange handling are substantially attributable to Corporate banking segment.
⑤ | Fees and commission received on foreign exchange |
The fees and commission received on foreign exchange consist of fees related to the issuance of various certificates, such as exchange, import and export performance certificates, purchase certificates, etc. The point of processing the customers request is the time when performance obligation is satisfied, and revenue is immediately recognized when fees and commission are received after requests are processed. The business activities relevant to these fees and commission received on foreign exchange are substantially attributable to Corporate banking segment.
⑥ | Fees and commission received for guarantee |
The fees and commission received for guarantee include the fees received for the various warranties. The activities related to the warranty consist mainly of performance obligations satisfied over time and fees and commission are recognized over the guarantee period. The business activities relevant to these fees and commission received for guarantee are substantially attributable to Corporate banking segment.
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⑦ | Fees and commission received on credit card |
The fees and commission received on credit card consist mainly of merchant account fees and annual fees. The Group recognizes merchant account fees by multiplying agreed commission rate to the amount paid by using the credit card. The annual fees are performance obligation satisfied over time and are recognized over agreed periods after the annual fees are paid in advance. The business activities relevant to these fees and commission received on credit card are substantially attributable to Credit cards segment.
⑧ | Fees and commission received on securities business |
The fees and commission received on securities business consist mainly of fees and commission for the sale of beneficiary certificates, and these fees are recognized when the beneficiary certificates are sold to customers. The business activities relevant to these fees and commission received on securities business are substantially attributable to Consumer banking segment.
⑨ | Fees and commission from trust management |
The fees and commission from trust management consist of fees and commission received in return for the operation and management services for entrusted assets. These operation and management services are performance obligations satisfied over time, and revenue is recognized over the service period. Among the fees and commission from trust management, variable considerations such as profit commission that are affected by the value of entrusted assets and base return of the future periods are recognized as revenue when limitations to the estimates are lifted. The majority of these fees and commission received for brokerage are from the business activities relevant to Consumer banking segment.
⑩ | Fees and commission received on credit Information |
The fees and commission received on credit Information are composed of the fees and commission received by performing credit investigation and proxy collection services. Credit investigation fees and commission are the amount received in return for verifying the information requested by the customer and are recognized as revenue at the time the verification is completed. Proxy collection service fees are recognized by multiplying the applicable rate to the collected amount at the time when collection services are completed. The majority of these fees and commission received for brokerage are from the business activities relevant to Consumer banking segment.
Other fees |
Other fees are usually fees related to remittances, but include fees related to various other services provided to customers by the Group. These fees are recognized when transactions occur at the customers request and services are provided, at the same time when commission are received. These other fees occur across all operating segments and no single operating segment represents majority of other fees.
2) Revenues from sources other than contracts with customers
① Interest income
Interest income on financial assets measured at FVTOCI and financial assets at amortized costs is measured using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating the interest income over the expected life of the asset. The effective interest rate is the rate that exactly discounts estimated future cash flows to the instruments initial unamortized cost over the expected period, or shorter if appropriate. Future cash flows include commissions and cost of reward points(limited to the primary component of effective interest rate) and other premiums or discounts that are paid or received between the contractual parties when calculating the effective interest rate, but does not include expected credit losses. All contractual terms of a financial instrument are considered when estimating future cash flows.
For purchased or originated credit-impaired financial assets, interest revenue is recognized by applying the credit-adjusted effective interest rate to the amortized cost of the financial asset from initial recognition. Even if the financial asset is no longer impaired in the subsequent periods due to credit improvement, the basis of interest revenue calculation is not changed from amortized cost to unamortized cost of the financial assets.
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② Loan origination fees and costs
The commission fees earned on loans, which is part of the effective interest of loans, is accounted for as deferred origination fees. Incremental costs related to the origination of loans are accounted for as deferred origination fees and is being added or deducted to/from interest income on loans using effective interest rate method.
(7) | Accounting for foreign currencies |
The Groups consolidated financial statements are presented in Korean Won, which is the functional currency of the Group. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at its prevailing exchange rates at the date. The effective portion of the changes in fair value of a derivative that qualifies as a cash flow hedge and the foreign exchange differences on monetary items that form part of net investment in foreign operations are recognized in equity.
Assets and liabilities of the foreign operations subject to consolidation are translated into Korean Won at foreign exchange rates at the end of the reporting period. Except for situations in which it is required to use exchange rates at the date of transaction due to significant changes in exchange rates during the period, items that belong to profit or loss shall be measured by average exchange rate, with foreign exchange differences recognized as other comprehensive income and added to equity (allocated to non-controlling interests, if appropriate). When foreign operations are disposed, the controlling interests share of accumulated foreign exchange differences related to such foreign operations will be reclassified to profit or loss, while non-controlling interests corresponding share will not be reclassified.
Adjustments to fair value of identifiable assets and liabilities, and goodwill arising from the acquisition of foreign operations will be treated as assets and liabilities of the corresponding foreign operation, and is translated using foreign exchange rates at the end of the period. The foreign exchange differences are recognized in equity.
(8) | Cash and cash equivalents |
The Group is classifying cash on hand, demand deposits, interest-earning deposits with original maturities of up to three months on acquisition date, and highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value as cash and cash equivalents.
(9) | Financial assets and financial liabilities |
The Groups accounting policies in accordance with the newly adopted K-IFRS 1109 are as follows:
1) | Financial assets |
A regular way purchase or sale of financial assets is recognized or derecognized on the trade or settlement date. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose term requires delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.
On initial recognition, financial assets are classified into financial assets at FVTPL, financial assets at FVTOCI, and financial assets at amortized cost.
a) | Business model |
The Group evaluates the way business is being managed, and the purpose of the business model for managing a financial asset best reflects the way information is provided to the management at its portfolio level. Such information considers the following:
- | The accounting policies and purpose specified for the portfolio, the actual operation of such policies. This includes strategy of the management focusing on the receipt of contractual interest revenue, maintaining a certain level of interest income, matching the duration of financial assets and the duration of corresponding liabilities to obtain the asset, and outflow or realization of expected cash flows from disposal of assets |
- | The way the performance of a financial asset held under the business model is evaluated, and the way such evaluation is being reported to the management |
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- | The risk affecting the performance of the business model (and financial assets held under the business model), and the way such risk is being managed |
- | The compensation plan for the management (e.g. whether the management is being compensated based on the fair value of assets or based on contractual cash flows received) |
- | Frequency, amount, timing and reason for sale of financial assets in the past, and forecast of future sale activities. |
b) | Contractual cash flows |
The principal is defined to be the fair value of a financial assets at initial recognition. Interest is not only composed of consideration for the time value of money, consideration for the credit risk related to remaining principal at a certain period of time, and consideration for other cost (e.g. liquidity risk and cost of operation) and fundamental risk associated with lending, but also profit.
When evaluating whether contractual cash flows are solely payments of principal and interests, the Group considers the contractual terms of the financial instrument. When a financial asset contains contractual conditions that modify the timing and amount of contractual cash flows, it is required to determine whether contractual cash flows that arise during the remaining life of the financial instrument due to such contractual condition are solely payments of principal and interest. The Group considers the following elements when evaluating the above:
- | Conditions that lead to modification of timing or amount of cash flows |
- | Contractual terms that adjust contractual nominal interest, including floating rate features |
- | Early payment features and maturity extension features |
- | Contractual terms that limit the Groups claim on cash flows arising from certain assets (e.g. non-recourse feature) |
① | Financial assets at FVTPL |
The Group is classifying those financial assets that are not classified as either financial assets at amortized cost or financial assets at FVTOCI, and those designated to be measured at FVTPL, as financial assets at FVTPL. Financial assets at FVTPL are measured at fair value, and related profit or loss is recognized in net income. Transaction costs related to acquisition at initial recognition is recognized in net income immediately upon its occurrence.
It is possible to designate a financial asset as financial asset at FVTPL if at initial recognition: (a) it is possible to remove or significantly reduce recognition or measurement mismatch that may otherwise have occurred if not for its designation as financial asset at FVTPL; (b) the financial asset forms part of the Groups financial instrument group (A group composed of a combination of financial asset or liability), is measured at fair value and is being evaluated for its performance, and such information is provided internally; and (c) the financial asset is part of a contract that contains one or more of embedded derivatives, and is a hybrid contract in which designation as financial asset at FVTPL is allowed under K-IFRS 1109 Financial Instruments. However, the designation is irrevocable.
② | Financial assets at FVTOCI |
When financial assets are held under a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and when contractual cash flows from such financial assets are solely payments of principal and interest, the financial assets are classified as financial assets at FVTOCI. Also, for investments in equity instruments that are not held for short-term trade, an irrevocable election is available at initial recognition to present subsequent changes in fair value as other comprehensive income.
At initial recognition, financial assets at FVTOCI is measured at its fair value plus any direct transaction cost, and is subsequently measured in fair value. However, for equity instruments that do not have a quotation in an active market and in which fair value cannot be measured reliably, they are measured at cost. The changes in fair value except for profit or loss items such as impairment losses (reversals), interest revenue calculated by using effective interest method, and foreign exchange gain or loss, and related income tax effects are recognized as other comprehensive income until the assets disposal. Upon derecognition, the accumulated other comprehensive income is reclassified from equity to net income for FVTOCI (debt instrument), and reclassified within the equity for FVTOCI (equity instruments).
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③ | Financial assets at amortized cost |
When financial assets are held under a business model whose objective is to hold financial assets in order to collect contractual cash flows, and when contractual cash flows from such financial assets are solely payments of principal and interest, the financial assets are classified as financial assets at amortized cost. At initial recognition, financial assets at amortized cost are recognized at fair value plus any direct transaction cost. Financial assets at amortized cost is presented at amortized cost using effective interest method, less any loss allowance.
2) | Financial liabilities |
At initial recognition, financial liabilities are classified into either financial liabilities at FVTPL or financial liabilities at amortized cost.
Financial liabilities are usually classified as financial liabilities at FVTPL when they are acquired with a purpose to repurchase them within a short period of time, when they are part of a certain financial instrument portfolio that is actually and recently being managed with a purpose of short-term profit and joint management by the Group at initial recognition, and when they are derivatives that do not qualify as hedging instruments. Financial liabilities at FVTPL are measured at fair value plus direct transaction cost at initial recognition, and are subsequently measured at fair value. Profit or loss arising from financial liabilities at FVTPL is recognized in net income when occurred.
It is possible to designate a financial liability as financial liability at FVTPL if at initial recognition: (a) it is possible to remove or significantly reduce recognition or measurement mismatch that may otherwise have occurred if not for its designation as financial liability at FVTPL; (b) the financial asset forms part of the Groups financial instrument group (A group composed of a combination of financial asset or liability) according to the Groups documented risk management or investment strategy, is measured at fair value and is being evaluated for its performance, and such information is provided internally; and (c) the financial liability is part of a contract that contains one or more of embedded derivatives, and is a hybrid contract in which designation as financial liability at FVTPL is allowed under K-IFRS 1109 Financial Instruments.
Financial liabilities designated as at FVTPL are initially recognized at fair value, with any direct transaction cost recognized in profit or loss, and are subsequently measured at fair value. Any profit or loss from financial liabilities at FVTPL are recognized in profit or loss.
Financial liabilities not classified as financial liabilities at FVTPL are measured at amortized cost. The Group is classifying liabilities such as deposits due to customers, borrowings and debentures as financial liabilities at amortized cost.
3) | Reclassification |
Financial assets are not reclassified after initial recognition unless the Group modifies the business model used to manage financial assets. When the Group modifies the business model used to manage financial assets, all affected financial assets are reclassified on the first day of the first reporting period after the modification.
4) | Derecognition |
Financial assets are derecognized when contractual rights to cash flows from the financial assets are expired, or when substantially all of risk and reward for holding financial assets is transferred to another entity as a result of a sale of financial assets. If the Group does not have and does not transfer substantially all of the risk and reward of holding financial assets with control of the transferred financial assets retained, the Group recognizes financial assets to the extent of its continuing involvement. If the Group holds substantially all the risk and reward of holding a financial asset, it continues to recognize that asset and proceeds are accounted for as collateralized borrowings.
When a financial asset is fully derecognized, the difference between the book value and the sum of proceeds and accumulated other comprehensive income is recognized as profit or loss in case of FVTOCI (debt instruments), and as retained earnings for FVTOCI (equity instruments).
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In case when a financial asset is not fully derecognized, the Group allocates the book value into amounts retained in the books and removed from the books, based on the relative fair value of each portion at the date of sale, and based on the degree of continuing involvement. For the derecognized portion of the financial assets, the difference between its book value and the sum of proceeds and the portion of accumulated other comprehensive income attributable to that portion will be recognized in profit or loss in case of debt instruments and recognized in retained earnings in case of equity instruments. The accumulated other comprehensive income is distributed to the portion of book value retained in the books, and to the portion of book value removed from the books.
The Group derecognizes financial liabilities when, and only when, the Groups obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.
When the Group exchanges with the existing lender one debt instrument into another one with the substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Group accounts for substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective rate is at least 10 percent different from the discounted present value of the remaining cash flows of the original financial liability
5) | Fair value of financial instruments |
Financial assets at FVTPL and financial assets at FVTOCI are measured and presented in consolidated financial statements at their fair values, and all derivatives are also subject to fair value measurement.
Fair value is defined as the price that would be received to exchange an asset or paid to transfer a liability in a recent transaction between independent parties that are reasonable and willing. Fair value is the transaction price of identical financial assets or financial liabilities generated in an active market. An active market is a market where trade volume is sufficient and objective price information is available due to the fact that bid and ask price differences are small.
When trade volume of a financial instrument is low, when transaction prices within the market show large differences among them, or when it cannot be concluded that a financial instrument is being traded within an active market due to disclosures being extremely shallow, fair value is measured using valuation techniques based on alternative market information or using internal valuation techniques based on general and observable information obtained from objective sources. Market information includes maturity and characteristics, duration, similar yield curve, and variability measurement of financial instruments of similar nature. Fair value amount contains unique assumptions on each entity (the Group concluded that it is using assumptions applied in valuing financial instruments in the market, or risk-adjusted assumptions in case marketability does not exist).
The market approach and income approach, which are valuation techniques used to estimate the fair value of financial instruments, both require significant judgment. Market approach measures fair value using either a recent transaction price that includes the financial instrument, or observable information on comparable firm or assets. Income approach measures fair value through discounting future cash flows with a discount rate reflecting market expectations, and revenue, operating income, depreciation, capital expenditures, income tax, working capital and estimated residual value of financial investments are being considered when deriving future cash flows. Valuation techniques such as the above include estimates based on the financial instruments complexity and usefulness of observable information in the market.
The valuation techniques used in the evaluation of financial instruments are explained below.
a) Financial assets at FVTPL and Financial assets at FVTOCI
The fair value of equity securities included in financial assets at FVTPL and financial assets at FVTOCI category is recognized in the statement of financial position at its available market price. Debt securities traded in the over-the-counter market are generally recognized at an amount computed by an independent appraiser. Especially, when the Group uses the fair value determined by independent appraisers, the Group usually obtains three values from three different appraisers for each financial instrument, and selects the minimum amount without making additional adjustments. For equity securities without marketability, the Group uses the amount determined by the independent appraiser. The Group verifies the prices obtained from appraisers in various ways, including the evaluation of independent appraisers competency, indirect verification through comparison between appraisers price and other available market information, and reperformance done by employees who have knowledge of valuation models and assumptions that appraisers used.
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b) Derivatives
The Groups transactions involving derivatives such as futures and exchange traded options are measured at market value. For exchange traded derivatives classified as level 2 in the fair value hierarchy, the fair value is estimated using internal valuation techniques. If there are no publicly available market prices because they are traded over-the-counter, fair value is measured through internal valuation techniques. When using internal valuation techniques to derive fair value, the types of derivatives, base interest rate or characteristics of prices, or stock market indices are considered. When variables used in the internal valuation techniques are not observable information in the market, such variables may contain significant estimates.
c) Adjustment of valuation amount
The Group is exposed to credit risk when counterparty to a derivative contract does not perform its contractual obligation, and the exposure amount is equal to the amount of derivative asset recognized in the statement of financial position. When the Group earns income through valuation of derivatives, such income is recognized as derivative asset in the statement of financial position. Some of the derivatives are traded in the market, but most of the derivatives are measured at estimated fair value derived from internal valuation models that use observable information in the market. As such, in order to estimate the fair value there should be an adjustment made to incorporate counterpartys credit risk, and credit risk adjustment is being considered when valuing derivative assets such as over-the counter derivatives. The amount of financial liabilities is also adjusted by the Groups own credit risk when valuing them.
The amount of adjustment is derived from counterpartys probability of default and loss given default. This adjustment considers contractual matters that are designed to reduce the Groups exposure to each counterpartys credit risk. When derivatives are under master netting arrangement, the exposure used in the computation of credit risk adjustment is a net amount after adding/deducting cash collateral received (or paid) from loss (or gain) position derivatives with the same counterparty.
6) | Expected credit losses on financial assets |
The Group recognizes loss allowance on expected credit losses for the following assets:
- | Financial assets at amortized cost |
- | Debt instruments measured at FVTOCI |
- | Contract assets as defined by K-IFRS 1115 |
Expected credit losses are weighted-average value of a range of possible results, considering the time value of money, and are measured by incorporating information on current conditions and forecasts of future economic conditions that are available without undue cost or effort.
The methods to measure expected credit losses are classified into following three categories in accordance with K-IFRS:
- | General approach: Financial assets that does not belong to below two models and unused loan commitments |
- | Simplified approach: When financial assets are either trade receivables, contract assets or lease receivables |
- | Credit impairment model: Purchased or originated credit-impaired financial assets |
The measurement of loss allowance under general approach is differentiated depending on whether the credit risk has increased significantly after initial recognition. That is, loss allowance is measured based on 12-month expected credit loss when the credit risk has not increased significantly after initial recognition, while loss allowance is measured at lifetime expected credit loss when credit risk has increased significantly. Lifetime is the expected remaining life of the financial instrument up to the maturity date of the contract.
The measurement of loss allowance under simplified approach is always based on lifetime expected credit loss, and loss allowance under credit impairment model is measured as the cumulative change in lifetime expected credit loss since initial recognition.
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a) Measurement of expected credit losses on financial asset at amortized cost
The expected credit losses on financial assets at amortized cost is measured by the difference between the contractual cash flows during the period and the present value of expected cash flows. Expected cash inflows are computed for individually significant financial assets in order to calculate expected credit losses.
When financial assets that are not individually significant, they are included in a group of financial assets with similar credit risk characteristics and expected credit losses of the group are calculated collectively.
Expected credit losses are deducted through loss allowance account, and when the financial asset is determined to be uncollectible, the loss allowance is written off from the books along with the related financial asset. When loan receivable previously written off is subsequently collected, the related loss allowance is increased and changes in loss allowance are recognized in profit or loss.
b) Measurement of expected credit losses on financial asset at FVTOCI
The measurement method of expected credit loss is identical to financial asset at amortized cost, but changes in the loss allowance is recognized in other comprehensive income. When financial assets at FVTOCI is disposed or repaid, the related loss allowance is reclassified from other comprehensive income to net income.
The comparative financial statements for the year 2017 are prepared in accordance with K-IFRS 1039.
1) | Financial assets |
A regular way purchase or sale of financial assets is recognized or derecognized on the trade or settlement date. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose term requires delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.
On initial recognition, financial assets are classified into financial assets at fair value through profit or loss (FVTPL), AFS financial assets, held-to-maturity (HTM) and loans and receivables.
① | Financial assets at FVTPL |
The Group classifies financial assets as financial assets measured at FVTPL when they are either held for trading or designated to be measured at FVTPL. Financial assets acquired with the purpose of selling in the near term are classified as financial assets held for trading, and are measured at fair value with related valuation gain or loss recognized in net income. Any transaction cost related to the acquisition of financial assets at initial recognition is recognized in net income upon its occurrence.
A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if: (a) such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or (b) the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Groups documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or (c) it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.
Financial assets designated by the Group on initial recognition as at FVTPL are recognized at fair value, with transaction costs recognized in net income, and are subsequently measured at fair value. Gains and losses on financial assets that are designated as at FVTPL are recognized in net income as they arise.
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② | AFS financial assets |
Financial assets that are not classified as HTM, financial assets at FVTPL, or loans and receivables, are classified as AFS. Financial assets can be designated as AFS on initial recognition. AFS financial assets are initially recognized at fair value plus directly related transaction costs. They are subsequently measured at fair value. Unquoted equity investments whose fair value cannot be measured reliably are carried at cost and classified as AFS financial assets. Impairment losses in monetary and non-monetary AFS financial assets and dividends on non-monetary financial assets are recognized in net income. Interest revenue on monetary financial assets is calculated using the effective interest method. Other changes in the fair value of AFS financial assets and any related tax are reported in a separate component of shareholders equity until disposal, when the cumulative gain or loss is recognized in net income.
③ | HTM financial assets |
A financial asset may be classified as a HTM investment only if it has fixed or determinable payments, a fixed maturity, and the Group has the positive intention and ability to hold the financial asset to maturity. HTM investments are initially recognized at fair value plus directly related transaction costs. They are subsequently measured at amortized cost using the effective interest method less any impairment losses.
④ | Loans and other receivables |
Non-derivative financial assets with fixed or determinable repayments that are not quoted in an active market are classified as loans and receivables, except those that are classified as AFS or as held-for-trading, or designated as at FVTPL. Loans and receivables are initially recognized at fair value plus directly related transaction costs. They are subsequently measured at amortized cost using the effective interest method less any impairment losses. Interest income is recognized using the effective interest method, except for the short-term receivables to which the present value discount is not meaningful.
2) | Financial liabilities |
On initial recognition financial liabilities are classified financial liabilities at FVTPL (held for trading, and financial liabilities designated as at FVTPL) and financial liabilities measured at amortized cost.
A financial liability is classified as held-for-trading if it is incurred principally for repurchase in the near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking, or it is a derivative (not in a qualifying hedge relationship). Held-for-trading financial liabilities are recognized at fair value with transaction costs being recognized in net income. Subsequently, they are measured at fair value. Gains and losses are recognized in net income as they incur.
A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if: (a) such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or (b) the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Groups documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or (c) it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.
Financial liabilities that the Group designates on initial recognition as being at FVTPL are recognized at fair value, with transaction costs being recognized in net income, and are subsequently measured at fair value. Gains and losses on financial liabilities that are designated as at FVTPL are recognized in net income as they incur.
All other financial liabilities, such as deposits due to customers, borrowings, and debentures, are measured at amortized cost using the effective interest method.
3) | Reclassification |
Held-for-trading and AFS financial assets that meet the definition of loans and receivables (non-derivative financial assets with fixed or determinable payments that are not quoted in an active market) may be reclassified to loans and receivables if the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. The Group typically regards the foreseeable future as twelve months from the date of reclassification. Reclassifications are made at fair value. This fair value becomes the assets new cost or amortized cost as appropriate. Gains and losses recognized up to the date of reclassification are not reversed.
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4) | Derecognition |
The Group derecognizes a financial asset when the contractual right to the cash flows from the asset is expired, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another company. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between the assets carrying amount and the sum of the consideration received and receivable and the cumulated gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.
On derecognition of a financial assets other than in its entirety the Group allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair value of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part that is no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair value of those parts.
The Group derecognizes the financial liability, when Groups obligations are discharged, canceled or expired. The difference between paid cost and the carrying amount of financial liabilities is recorded in profit or loss.
5) | Fair value of financial instruments |
Financial instruments classified as held-for-trading or designated as at FVTPL and financial assets classified as AFS are recognized in the financial statements at fair value. All derivatives are measured at fair value.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in and orderly transaction between market participants at the measurement date. Fair values are determined from quoted prices in active markets for identical financial assets or financial liabilities where these are available. The Group characterizes active markets as those in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
Where a financial instrument is not in active market characterized by low transaction volumes, price quotations which vary substantially among market participants, or in which minimal information is released publicly, fair values are established using valuation techniques rely on alternative market data or internally developed models using significant inputs that are generally readily observable from objective sources. Market data includes prices of financial instruments with similar maturities and characteristics, duration, interest rate yield curves, and measures of volatility. The amount determined to be fair value may incorporate the management of the Groups own assumptions (including assumptions that the Group believes market participants would use in valuing the financial instruments and assumptions relating to appropriate risk adjustments for nonperformance and lack of marketability).
The valuation techniques used to estimate the fair value of the financial instruments include market approach and income approach, each of which involves a significant degree of judgment. Under the market approach, fair value is determined by reference to a recent transaction involving the financial instruments or by reference to observable valuation measures for comparable companies or assets. Under the income approach, fair value is determined by converting future amounts (e.g., cash flows or earnings) to a single present amount (discounted) using current market expectations about the future amounts. In determining value under this approach, the Group makes assumptions regarding, among other things, revenues, operating income, depreciation and amortization, capital expenditures, income taxes, working capital needs, and terminal value of the financial investments. These valuation techniques involve a degree of estimation, the extent of which depends on the instruments complexity and the availability of market-based data.
The following are descriptions of valuation methodologies used by the Group to measure various financial instruments at fair value.
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a) Financial assets at FVTPL and AFS financial assets
The fair value of the securities included in financial assets at FVTPL and AFS financial assets are recognized in the consolidated statements of financial position based on quoted market prices, where available. For debt securities traded in the OTC market, the Group generally determines fair value based on prices obtained from independent pricing services. Specifically, with respect to independent pricing services, the Group obtains three prices per instrument from reputable independent pricing services in Korea, and generally uses the lowest of the prices obtained from such services without further adjustment. For non-marketable equity securities, the Group obtains prices from the independent pricing services. The Group validates prices received from such independent pricing services using a variety of means, including verification of the qualification of the independent pricing services, corroboration of the pricing by comparing the prices among the independent pricing services and by reference to other available market data, and review of the pricing model and assumptions used by the independent pricing services by the Groups personnel who are familiar with market-related conditions.
b) Derivatives
Quoted market prices are used for the Groups exchange-traded derivatives, such as certain interest rate futures and option contracts. All of the Groups derivatives are traded in OTC markets where quoted market prices are not readily available are valued using internal valuation techniques. Valuation techniques and inputs to internally developed models depend on the type of derivative and nature of the underlying rate, price or index upon which the derivatives value is based. If the model inputs for certain derivatives are not observable in a liquid market, significant judgments on the level of inputs used for valuation techniques are required.
c) Adjustment of valuation amount
By using derivatives, the Group is exposed to credit risk if counterparties to the derivative contracts do not perform as expected. If counterparty fails to perform, counterparty credit risk is equal to the amount reported as a derivative asset in the consolidated statements of financial position. The amounts reported as a derivative asset are derivative contracts in a gain position. Few of the Groups derivatives are listed on an exchange. The majority of derivative positions is valued using internally developed models that use as their basis observable market inputs. Therefore, an adjustment is necessary to reflect the credit quality of each counterparty to arrive at fair value. Counterparty credit risk adjustments are applied to derivative assets, such as OTC derivative instruments, when the market inputs used in valuation models may not be indicative of the creditworthiness of the counterparty. Adjustments are also made when valuing financial liabilities to reflect the Groups own credit standing.
The adjustment is based on probability of default of a counterparty and loss given default. The adjustment also takes into account contractual factors designed to reduce the Groups credit exposure to each counterparty. To the extent derivative assets (liabilities) are subject to master netting arrangements, the exposure used to calculate the credit risk adjustment is net of derivatives in a loss (gain) position with the same counterparty and cash collateral received (paid).
6) | Impairment of financial assets |
The Group assesses at the end of each reporting date whether there is any objective evidence that a financial asset or group of financial assets classified as AFS, HTM or loans and receivables is impaired. A financial asset or portfolio of financial assets is impaired and an impairment loss incurred if there is objective evidence of impairment as result of one or more events that occurred after the initial recognition asset and that event (or events) has an impact on the estimated future cash flows of the financial asset.
a) Financial assets carried at amortized cost
If there is objective evidence that an impairment loss on a financial asset or group of financial assets classified as HTM investments or as loans and receivables have been incurred, the Group measures the amount of the loss as the difference between the carrying amount of the asset or group of assets and the present value of estimated future cash flows from the asset or group of assets discounted at the effective interest rate of the instrument at initial recognition. For collateralized loans and receivables, estimated future cash flows include cash flows that may result from foreclosure less the costs of obtaining and selling the collateral.
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Impairment losses are assessed individually for financial assets that are individually significant and assessed either individually or collectively for assets that are not individually significant. In making collective assessment of impairment, financial assets are grouped into portfolios on the basis of similar risk characteristics. Future cash flows from these portfolios are estimated on the basis of the contractual cash flows and historical loss experience for assets with similar credit risk characteristics. Historical loss experience is adjusted, on the basis of observable data, to reflect current conditions not affecting the period of historical experience.
Impairment losses are recognized in net income and the carrying amount of the financial asset or group of financial assets reduced by establishing a provision for impairment losses. If, in a subsequent period, the amount of the impairment loss reduces and the reduction can be ascribed to an event after the impairment was recognized (i.e., improvement in the credit quality of a debtor), the previously recognized loss is reversed by adjusting the provision. Once an impairment loss has been recognized on a financial asset or group of financial assets, interest income is recognized on the carrying amount using the rate of interest at which estimated future cash flows were discounted in measuring impairment.
It is not the Groups usual practice to write-off the asset at the time an impairment loss is recognized. Impaired loans and receivables are written off (i.e. the impairment provision is applied in writing down the loans carrying value in full) when the Group concludes that there is no longer any realistic prospect of recovery of part or the entire loan. Amounts recovered after a loan has been written off are reflected to the provision for the period in which they are received.
b) Financial assets carried at fair value
When a decline in the fair value of a financial asset classified as AFS has been recognized directly in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss is removed from other comprehensive income and recognized in net income. The loss is measured as the difference between the amortized cost of the financial asset and its current fair value. Impairment losses on AFS equity instruments are not reversed through net income, but those on AFS debt instruments are reversed, if there is a decrease in the cumulative impairment loss that is objectively related to a subsequent event.
(10) | Offsetting financial instruments |
Financial assets and liabilities are presented as a net amount in the statements of financial position when the Group has an enforceable legal right and an intention to settle on a net basis or to realize an asset and settle the liability simultaneously.
(11) | Investment properties |
The Group classifies a property held to earn rentals and/or for capital appreciation as an investment property. Investment properties are measured initially at cost, including transaction costs, less subsequent depreciation and impairment.
Subsequent costs are included in the carrying amount of the asset or recognized as a separate asset if it is probable that future economic benefits associated with the assets will flow into the Group and the cost of an asset can be measured reliably, and the book value of a portion of an asset that are replaced by a subsequent expenditure is removed from the books. Routine maintenance and repairs are expensed as incurred.
While land is not depreciated, all other investment properties are depreciated based on the depreciation method and useful lives of premises and equipment. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, and when it is deemed appropriate to change them, the effect of any change is accounted for as a change in accounting estimates.
An investment property is derecognized from the consolidated financial statements on disposal or when it is permanently withdrawn from use and no future economic benefits are expected even from its disposal. The gain or loss on the derecognition of an investment property is calculated as the difference between the net disposal proceeds and the carrying amount of the property, and is recognized in profit or loss in the period of the derecognition.
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(12) | Premises and equipment |
Premises and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of premises and equipment is expenditures directly attributable to their purchase or construction, which includes any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. It also includes the initial estimate of costs of dismantling and removing the item and restoring the site on which it is located.
Subsequent costs are recognized in the carrying amount of an asset or as a separate asset (if appropriate) if it is probable that future economic benefit associated with the assets will flow into the Group and the cost of an asset can be measured reliably. Routine maintenance and repairs are expensed as incurred.
While land is not depreciated, for all other premises and equipment, depreciation is charged to net income on a straight-line basis by applying the following estimated economic useful lives on the amount of cost or revalued amount less residual value.
Useful life | ||
Buildings used for business purpose |
35 to 57 years | |
Structures in leased office |
4 to 5 years | |
Properties for business purpose |
4 to 5 years | |
Leased assets |
Useful lives of the same kind or similar other premises and equipment |
The Group reassesses the depreciation method, the estimated useful lives and residual values of premises and equipment at the end of each reporting period. If changes in the estimates are deemed appropriate, the changes are accounted for as a change in an accounting estimate. When there is an indicator of impairment and the carrying amount of a premises and equipment item exceeds the estimated recoverable amount, the carrying amount of such asset is reduced to the recoverable amount.
(13) | Intangible assets and goodwill |
The Group is recognizing intangible assets measured at the manufacturing cost or acquisition cost plus additional incidental expenses less accumulated amortization and accumulated impairment losses. The Groups intangible asset are amortized over the following economic lives using the straight-line method. The estimated useful life and amortization method are reviewed at the end of each reporting period. If changes in the estimates are deemed appropriate, the changes are accounted for as a change in an accounting estimate.
Useful life | ||
Industrial property rights |
10 years | |
Development costs |
5 years | |
Software and others |
4 to 5 years |
In addition, when an indicator that intangible assets are impaired is noted, and the carrying amount of the asset exceeds the estimated recoverable amount of the asset, the carrying amount of the asset is reduced to its recoverable amount.
Goodwill acquired in a business combination is included in intangible assets. Goodwill is not amortized, but is subject to an impairment test at the cash-generating unit level every year, and whenever there is an indicator that goodwill is impaired.
Goodwill is allocated to each of the Groups cash-generating unit (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro rata basis based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.
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(14) | Impairment of non-monetary assets |
Intangible assets with indefinite useful lives or intangible assets that are not yet available for use are tested for impairment annually, regardless of whether or not there is any indication of impairment. All other assets are tested for impairment by estimating the recoverable amount when there is an objective indication that the carrying amount may not be recoverable. Recoverable amount is the higher of value in use or net fair value, less costs to sell. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and such impairment loss is recognized immediately in net income.
(15) | Leases |
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
1) The Group as a lessor
The Group recognizes lease receivables at the present value of minimum lease payments of a finance lease and any unguaranteed residual value. After the commencement date of the lease, accounting is done to recognize interest income over each reporting period by computing periodic interest income on the Groups net investment.
Rental income from operating leases is recognized on a straight-line basis over the lease term. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and expensed on a straight-line basis over the lease term. Operating lease assets are included within other asset category in other assets, and depreciated over their economic life.
2) The Group as a lessee
Assets held under finance leases are initially recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the separate statements of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation to achieve a constant rate of interest on the remaining balance of the liability. Contingent rentals arising under finance leases are recognized as expenses in the periods in which they are incurred.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as expenses in the period in which they are incurred.
(16) | Derivative instruments |
Derivative instruments are classified as forwards, futures, options and swaps, depending on the types of transactions and are classified at the point of transaction as either trading or hedging based on its purpose.
Derivatives are initially recognized at fair value at the date of contract and are subsequently measured at fair value at the end of each reporting period. The resulting gain or loss is recognized in net income immediately unless the derivative is designated and effective as a hedging instrument. If derivatives have been designated as hedging instruments and if it is effective, the point of recognition of gain or loss depends on the characteristics of hedging relationship.
1) Embedded derivatives
Embedded derivatives are components of a hybrid financial instrument that includes a non-derivative host contract. It has an effect of modifying part of cash flows of the hybrid financial instrument similar to an independent derivative.
Embedded derivatives that are part of a hybrid contract of which the host contract is a financial asset within the scope of K-IFRS 1109 is not separated. The classification is done by considering the hybrid contract as a whole, and subsequent measurement is either at amortized cost or fair value.
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If embedded derivatives are part of a hybrid contract of which the host contract is not a financial asset within the scope of K-IFRS 1109 (e.g. financial liability), then these are treated as separate derivatives if embedded derivatives meet the definition of a derivative, characteristics & risk of the embedded derivatives are not closely related to that of host contract, and if the host contract is not measured at FVTPL.
In the previous year, all embedded derivatives which were part of a hybrid contract were treated as separate derivatives if embedded derivatives meet the definition of a derivative, characteristics & risk of the embedded derivatives are not closely related to that of host contract, and if the host contract is not measured at FVTPL
2) Hedge accounting
The Group is applying K-IFRS 1109 in regards to hedge accounting. The Group is designating certain derivatives as hedging instrument against fair value changes in relation to the interest rate risk, foreign currency translation and interest rate risk, and foreign currency translation risk.
The Group is documenting the relationship between hedging instruments and hedged items at the commencement of hedging in accordance with their purpose and strategy. Also, the Group documents at the commencement and subsequent dates whether the hedging instrument effectively counters the changes in fair value of hedged items. A hedging instrument is effective only when it meets all the following criteria:
| When there is an economic relationship between the hedged items and hedging instruments. |
| When the effect of credit risk is not stronger than the change in value due to the economic relationship between the hedged items and hedging instruments. |
| When the hedge ratio is equal to the proportion of hedged items to the hedging instruments. |
When a hedging relationship no longer meets the hedging effectiveness requirements related to hedge ratio, but when the purpose of risk management on designated hedging relationship is still maintained, the hedge ratio of the hedging relationship is adjusted so that hedging relationship may meet the requirements again (Hedge ratio readjustment).
The Group has designated derivatives as hedging instrument except for the portion on foreign currency basis spread. The fair value change due to foreign currency basis spread is recognized in other comprehensive income and is accumulated in equity. If the hedged item is related to transactions, the accumulated other comprehensive income is reclassified to profit or loss when the hedged item affects the profit or loss. However, when non-monetary items are subsequently recognized due to hedged items, the accumulated equity is removed from the equity directly, and is included in the initial book value of the recognized non-monetary items. Such transfers does not affect other comprehensive income. But if part or all of accumulated equity is not expected to be recovered in the future periods, the amount not expected to be recovered is immediately reclassified to profit or loss. If the hedged item is time-related, then the foreign currency basis spread on the day the derivative is designated as a hedging instrument that is related to the hedged item is reclassified to profit or loss over the term of the hedge.
3) Fair value hedge
Gain or loss arising from valid hedging instrument is recognized in profit or loss. However, when the hedging instrument mitigates risks on equity instruments designated as financial assets at FVTOCI, related gain or loss is recognized in other comprehensive income.
The book value of hedged items that are not measured in fair value is adjusted by the changes in fair value arising from the hedged risk, with resulting gain or loss reflected in net income. In case of debt instruments measured at FVTOCI, book value is an amount that is already adjusted to fair value and thus gain or loss arising from the hedged risk is recognized in profit or loss instead of other comprehensive income without adjustments in book value. When the hedged item is equity instruments measured at FVTOCI, the gain or loss arising from hedged risk is retained at other comprehensive income in order to match the gain or loss with hedging instruments.
Hedge accounting ceases to apply only when hedging relationship (or part of it) does not meet the requirements of hedge accounting (even after hedging relationship readjustment, if applicable). This treatment holds in case of lapse, disposal, expiry and exercise of hedging instruments, and this cease of treatment applies prospectively. The fair value adjustments made to book value of hedged item due to hedged risk is amortized from the date of discontinuance of hedge accounting and is recognized in profit or loss.
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4) Cash flow hedge
The Group recognizes the effective portion of changes in the fair value of derivatives and other valid hedging instruments that are designated and qualified as cash flow hedges in other comprehensive income, to the extent of cumulative fair value changes of the hedged item from the date of hedge accounting. The gain or loss relating to the ineffective portion is recognized immediately in net income.
Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to net income when the hedged item affects net income. However, when non-monetary assets or liabilities are subsequently recognized due to expected transactions involving hedged items, the valuation gain or loss accumulated in the equity as other comprehensive income is removed from the equity and included in the initial book value of the recognized non-monetary assets or liabilities. Such transfers does not affect other comprehensive income. Also if accumulated other comprehensive income is a loss and part or all of the losses are not expected to be recovered in the future periods, the said amount is immediately reclassified to profit or loss.
Hedge accounting ceases to apply only when hedging relationship (or part of it) does not meet the requirements of hedge accounting (even after hedging relationship readjustment, if applicable). This treatment holds in case of lapse, disposal, expiry and exercise of hedging instruments, and this cease of treatment applies prospectively. At the point of cessation of cash flow hedge, the valuation gain or loss recognized as accumulated other comprehensive income continues to be recognized as equity, and is reclassified to profit or loss when the expected transaction is ultimately recognized as profit or loss. However, when transactions are no longer expected to occur, the valuation gain or loss of hedging instrument recognized as accumulated other comprehensive income is immediately reclassified to profit or loss.
(17) | Assets (or disposal group) held for sale |
The Group classifies a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.
(18) Provisions
Provisions are recognized if (a) it has present or contractual obligations as a result of the past event, (b) it is probable that an outflow of resources will be required to settle the obligation and (c) the amount of the obligation is reliably estimated. Provision is not recognized for the future operating losses.
The Group recognizes provision related to the unused membership points, payment guarantees, loan commitment and litigations. Where the Group is required to restore a leased property that is used as a branch to an agreed condition after the contractual term expires, the present value of expected amounts to be used to dispose, decommission or repair the facilities is recognized as an asset retirement obligation.
Where there are a number of similar obligations, the probability that an outflow will be required in settlement is determined by considering the obligations as a whole. Although the likelihood of outflow for any one item may be small, if it is probable that some outflow of resources will be needed to settle the obligations as a whole, a provision is recognized.
(19) | Capital and compound financial instruments |
The Group classifies a financial instrument that it issues as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. A financial liability is a contractual obligation to deliver cash or another financial asset to another entity. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The compound financial instruments are financial instruments where it is neither a financial liability nor an equity instrument because it was designed to contain both equity and debt elements.
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If the Group reacquires its own equity instruments, the consideration paid including the direct transaction costs (net of tax expense) are presented as a deduction from total equity until such instruments are retired or reissued. When these instruments are reissued, the consideration received (net of direct transaction costs) is included in the shareholders equity.
(20) | Financial guarantee contracts |
A financial guarantee contract is a contract where the issuer must pay a certain amount of money in order to compensate losses suffered by the creditor when debtor defaults on a debt instrument in accordance with original or modified contractual terms.
A financial guarantee is initially measured at fair value and is subsequently measured at the higher of the amounts below unless it is designated to be measured at FVTPL or when it arises from disposal of an asset.
- | Loss allowance in accordance with K-IFRS 1109 |
- | Initial book value less accumulated profit measured in accordance with K-IFRS 1115 |
(21) | Employee benefits and pensions |
The Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by the employees. Also, the Group recognizes expenses and liabilities in the case of accumulating compensated absences when the employees render services that entitle their right to future compensated absences. Similarly, the Group recognizes expenses and liabilities for customary profit distribution or bonuses when the employees render services, even though the Group does not have legal obligation to do so because it can be construed as constructive obligation.
The Group is operating defined contribution plans and defined benefit plans. Contributions to defined contribution plans are recognized as an expense when employees have rendered services entitling them to receive the benefits. For defined benefit plans, the defined benefit liability is calculated through an actuarial assessment using the projected unit credit method every end of the reporting period, conducted by a professional actuaries. Remeasurement, comprising actuarial gains and losses, the return on plan assets (excluding interest), and the effect of the changes to the asset ceiling (if applicable) is reflected immediately in the separate statement of financial position with a charge or credit recognized in other comprehensive income in the period in which they occur.
Remeasurement recognized in the consolidated statement of comprehensive income is not reclassified to profit or loss in the subsequent periods. Past service cost is recognized in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are composed of service cost (including current service cost and past service cost, as well as gains and losses on curtailments and settlements), net interest expense (income) and remeasurement.
The Group presents the service cost and net interest expense (income) components in profit or loss, and the remeasurement component in other comprehensive income. Curtailment gains and losses are accounted for as past service costs.
The retirement benefit obligation recognized in the consolidated statement of financial position represents the actual deficit or surplus in the Groups defined benefit plans. Any surplus resulting from this calculation is recognized as an asset limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.
Liabilities for termination benefits are recognized at the earlier of either 1) the date when the Group is no longer able to cancel its proposal for termination benefits or 2) the date when the Group has recognized the cost of restructuring that accompanies the payment of termination benefits.
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(22) | Income taxes |
Income tax expense is composed of current tax and deferred tax. That is, income tax expense is composed of taxes payable or refundable during the period and deferred taxes calculated by applying asset-liability method to taxable and deductible temporary differences arising from operating loss and tax credit carryforwards. Temporary differences are the differences between the carrying values of assets and liabilities for financial reporting purposes and their tax bases. Deferred income tax benefit or expense is recognized for the change in deferred tax assets or liabilities. Deferred tax assets and liabilities are measured as of the reporting date using the enacted or substantively enacted tax rates expected to apply in the period in which the liability is settled or asset realized. Deferred tax assets, including the carryforwards of unused tax losses, are recognized to the extent it is probable that the deferred tax assets will be realized.
Deferred income tax assets and liabilities are offset if, and only if, the Group has a legally enforceable right to offset current tax assets against current tax liabilities, and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority or when the entity intends to settle current tax liabilities and assets on a net basis with different taxable entities.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill. Deferred tax assets or liabilities are not recognized if they arise from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity or when it arises from business combination.
(23) | Earnings per share (EPS) |
Basic EPS is a calculation of net income per each common stock. It is calculated by dividing net income attributable to ordinary shareholders by the weighted-average number of common shares outstanding. Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of all dilutive potential common shares.
3. | SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS |
The significant accounting estimates and assumptions are continuously being evaluated based on numerous factors including historical experiences and expectations of future events considered to be reasonably possible. Actual results can differ from those estimates based on such definitions. The accounting estimates and assumptions that contain significant risk of materially changing current book values of assets and liabilities in the next accounting periods are as follows:
(1) | Income taxes |
The Group has recognized current and deferred taxes based on best estimates of expected future income tax effect arising from the Groups operations until the end of the current reporting period. However, actual tax payment may not be identical to the related assets and/or liabilities already recognized, and these differences may affect current taxes and deferred tax assets/liabilities at the time when income tax effects are finalized. Deferred tax assets relating to tax losses carried forward and deductible temporary differences are recognized only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized. In this case the Groups evaluation considers various factors such as estimated future taxable profit based on forecasted operating results, which are based on historical financial performance. The Group is reviewing the book value of deferred tax assets every end of the reporting period and in the event that the possibility of earning future taxable income changes, the deferred tax assets are adjusted up to taxable income sufficient to use deductible temporary differences.
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(2) | Valuation of financial instruments |
Financial assets at FVTPL and FVTOCI are recognized in the consolidated financial statements at fair value. All derivatives are measured at fair value. Valuation techniques are required in order to determine fair values of financial instruments where observable market prices do not exist. Financial instruments that are not actively traded and have low price transparency will have less objective fair value and require broad judgment in liquidity, concentration, uncertainty in market factors and assumption in price determination and other risks.
As described in Note 2-(9)-5), Fair value of financial assets and liabilities, when valuation techniques are used to determine the fair value of a financial instrument, various general and internally developed techniques are used, and various types of assumptions and variables are incorporated during the process.
(3) | Impairment of financial instruments |
K-IFRS 1109 requires entities to measure loss allowance equal to 12-month expected credit losses or lifetime expected credit losses after classifying financial assets into one of the three stages, which depends on the degree of increase in credit risk after their initial recognition.
Stage 1 |
Stage 2 |
Stage 3 | ||||
Credit risk has not significantly increased |
Credit risk has significantly increased since initial recognition |
Credit has been impaired | ||||
Allowance for expected credit losses |
Expected 12-month credit losses: Expected credit losses due to possible defaults on financial instruments within a 12-month period from the year-end. |
Expected lifetime credit losses: Expected credit losses from all possible defaults during the expected lifetime of the financial instruments. |
(*) | Credit risk may be considered to not have been significantly increased when credit risk is low at year-end. |
The Group has estimated the allowance for credit losses based on reasonable and supportable information that was available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.
Probability of default (PD) and Loss given default (LGD) for each category of financial asset is being calculated by considering factors such as debtor type, credit rating and portfolio. The estimates are regularly being reviewed in order to reduce discrepancies with actual losses.
Also, in measuring the expected credit losses, the Group is using reasonable and supportable macroeconomic indicators such as economic growth rates, interest rates, market index rates, etc., in order to forecast future economic conditions.
The Group is conducting the following procedures to estimate and apply future economic forecast information.
- Development of prediction models by analyzing the correlation between default rates of corporate and retail exposures per year and macroeconomic indicators
- Calculation of predicted default rate incorporating future economic forecasts by applying estimated macroeconomic indicators provided by verified institutions such as Bank of Korea and National Assembly Budget Office to the prediction model developed.
At the end of every reporting period, the Group evaluates whether credit risk reflected forward-looking information has significantly been increased since the date of initial recognition. When evaluating whether credit risk has significantly been increased, the changes in the probability of default over the financial instruments remaining life is used instead of changes in the amount of expected credit losses. The Group performs the above evaluation with distinctions made to corporate and retail exposures, and indicators of significant increase in credit risk are as follows:
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Corporate Exposures |
Retail Exposures | |
Asset quality level Precautionary or lower |
Asset quality level Precautionary or lower | |
More than 30 days past due |
More than 30 days past due | |
Warning level in early warning system |
Significant decrease in credit rating(*) | |
Debtor experiencing financial difficulties (Capital impairment, Adverse opinion or Disclaimer of opinion by external auditors) |
||
Significant decrease in credit rating(*) |
(*) | Determining whether there has been a significant decrease in the credit rating of corporate and retail exposures applies only to credit ratings that are measured through 12-month expected credit loss. The Bank has applied the above indicators of significant decrease in credit rating since initial recognition as follows, and the estimation method is regularly being monitored. |
Credit rating |
Significant increased indicator of the credit rating | |||
Corporate |
AAA ~ A+ | More than 4 steps | ||
A- ~ BBB | More than 3 steps | |||
BBB- ~ BB+ | More than 2 steps | |||
BB ~ BB- | More than 1 step | |||
Retail |
1 ~ 3 | More than 3 steps | ||
4 ~ 5 | More than 2 steps | |||
6 ~ 10 | More than 1 step |
The Group sees no significant increase in credit risk after initial recognition for debt securities, etc. with a credit rating of A + or higher, which are deemed to have low credit risk at the end of the reporting period
The | Group concludes that credit is impaired when financial assets are under conditions stated below: |
- | When principal of loan is overdue for 90 days or longer due to significant deterioration in credit |
- | For loans overdue for less than 90 days, when it is determined that not even a portion of the loan will be recovered unless claim actions such as disposal of collaterals are taken |
- | When other objective indicators of impairment has been noted for the financial asset. |
The Group determines which loan is subject to write-off in accordance with internal guidelines, and writes off loan receivables when it is determined that the loans are practically irrecoverable. For example, loans are practically irrecoverable when application is made for rehabilitation under the Debtor Rehabilitation and Bankruptcy Act and loans are confirmed as irrecoverable by the courts decision to waive debtors obligation, or when it is impossible to recover the loan amount through legal means such as auctioning of debtors assets or through any other means of recovery available. Notwithstanding the write-off, the Group may still exercise its right of collection after the asset has been written off in accordance with its collection policies.
(4) | Defined benefit plan |
The Group operates a defined benefit pension plan. Defined benefit obligation is calculated at every end of the reporting period by performing actuarial valuation, and estimation of assumptions such as discount rate, expected wage growth rate and mortality rate is required to perform such actuarial valuation. The defined benefit plan, due to its long-term nature, contains significant uncertainties in its estimates.
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4. | RISK MANAGEMENT |
The Groups operating activity is exposed to various financial risks. The Group is required to analyze and assess the level of complex risks, and determine the permissible level of risks and manage such risks. The Groups risk management procedures have been established to improve the quality of assets for holding or investment purposes by making decisions as how to avoid or mitigate risks through the identification of the source of the potential risks and their impact.
The Group has established an approach to manage the acceptable level of risks and reduce the excessive risks in financial instruments in order to maximize the profit given risks present, for which the Group has implemented processes for risk identification, assessment, control, and monitoring and reporting.
The risk is managed by the risk management department in accordance with the Groups 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 Groups credit risk exposure to a permissible degree and to optimize its rate of return considering such credit risk.
1) | Credit risk management |
The Group considers the probability of failure in performing the obligation of its counterparties, credit exposure to the counterparty, the related default risk and the rate of default loss. The Group uses the credit rating model to assess the possibility of counterpartys default risk; and when assessing the obligors credit grade, the Group utilizes credit grades derived using statistical methods.
In order to manage credit risk limit, the Group establishes the appropriate credit line per obligor, company or industry. It monitors obligors credit line, total exposures and loan portfolios when approving the loan.
The Group mitigates credit risk resulting from the obligors credit condition by using financial and physical collateral, guarantees, netting agreements and credit derivatives. The Group has adopted the entrapment method to mitigate its credit risk. Credit risk mitigation is reflected in qualifying financial collateral, trade receivables, guarantees, residential and commercial real estate and other collaterals. The Group regularly performs a revaluation of collateral reflecting such credit risk mitigation.
2) | Maximum exposure to credit risk |
The Groups 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 loan commitment.
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The maximum exposure to credit risk is as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||||
Loans and other financial assets at amortized cost |
Korean treasury and government agencies | 13,547,154 | | |||||||
Banks | 22,282,857 | | ||||||||
Corporates | 96,619,393 | | ||||||||
Consumers | 149,998,911 | | ||||||||
|
|
|
|
|||||||
Sub-total | 282,448,315 | | ||||||||
|
|
|
|
|||||||
Loans and receivables |
Korean treasury and government agencies | | 8,823,584 | |||||||
Banks | | 26,845,309 | ||||||||
Corporates | | 90,570,551 | ||||||||
Consumers | | 140,866,760 | ||||||||
|
|
|
|
|||||||
Sub-total | | 267,106,204 | ||||||||
|
|
|
|
|||||||
Financial assets at FVTPL (K-IFRS 1109) |
Deposit | 26,935 | | |||||||
Debt securities | 1,824,155 | | ||||||||
Loans | 385,450 | | ||||||||
Derivative assets | 2,026,079 | | ||||||||
|
|
|
|
|||||||
Sub-total | 4,262,619 | | ||||||||
|
|
|
|
|||||||
Financial assets at FVTPL (K-IFRS 1039) |
Deposit | | 25,972 | |||||||
Debt securities | | 2,644,333 | ||||||||
Financial assets designated at FVTPL | | 9,694 | ||||||||
Derivative assets | | 3,115,775 | ||||||||
|
|
|
|
|||||||
Sub-total | | 5,795,774 | ||||||||
|
|
|
|
|||||||
Financial assets at FVTOCI |
Debt securities | 17,112,249 | | |||||||
AFS financial assets |
Debt securities | | 13,229,244 | |||||||
Securities at amortized cost |
Debt securities | 22,932,559 | | |||||||
HTM financial assets |
Debt securities | | 16,749,296 | |||||||
Derivative assets |
Derivative assets (Designated for hedging) | 35,503 | 59,272 | |||||||
Off-balance accounts |
Guarantees | 12,666,417 | 12,859,715 | |||||||
Unused loan commitments | 97,796,704 | 80,760,325 | ||||||||
|
|
|
|
|||||||
Sub-total | 110,463,121 | 93,620,040 | ||||||||
|
|
|
|
|||||||
Total | 437,254,366 | 396,559,830 | ||||||||
|
|
|
|
- 41 -
a) | Credit risk exposure by geographical areas |
The following tables analyze credit risk exposure by geographical areas (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||||||||||||||
Korea | China | USA | UK | Japan | Others (*) | Total | ||||||||||||||||||||||
Loans and other financial assets at amortized cost |
261,538,144 | 4,592,153 | 4,597,119 | 1,526,532 | 893,354 | 9,301,013 | 282,448,315 | |||||||||||||||||||||
Securities at amortized cost |
22,757,048 | | 70,578 | | | 104,933 | 22,932,559 | |||||||||||||||||||||
Financial assets at FVTPL |
4,261,110 | 1,243 | | | 266 | | 4,262,619 | |||||||||||||||||||||
Financial assets at FVTOCI |
15,697,518 | 261,085 | 103,755 | 24,960 | 2,247 | 1,022,684 | 17,112,249 | |||||||||||||||||||||
Derivative assets (Designated for hedging) |
35,503 | | | | | | 35,503 | |||||||||||||||||||||
Off-balance accounts |
107,632,858 | 801,978 | 343,323 | 136,727 | 35,000 | 1,513,235 | 110,463,121 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
411,922,181 | 5,656,459 | 5,114,775 | 1,688,219 | 930,867 | 11,941,865 | 437,254,366 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||||||||||||
Korea | China | USA | UK | Japan | Others (*) | Total | ||||||||||||||||||||||
Loans and receivables |
250,678,479 | 4,104,912 | 2,823,247 | 1,094,988 | 381,890 | 8,022,688 | 267,106,204 | |||||||||||||||||||||
Financial assets at FVTPL |
5,551,870 | 2,937 | | 148,955 | | 92,012 | 5,795,774 | |||||||||||||||||||||
AFS debt securities |
12,407,602 | 52,259 | 151,131 | | | 618,252 | 13,229,244 | |||||||||||||||||||||
HTM securities |
16,606,692 | | 63,732 | | | 78,872 | 16,749,296 | |||||||||||||||||||||
Derivative assets (Designated for hedging) |
16,590 | | | 42,682 | | | 59,272 | |||||||||||||||||||||
Off-balance accounts |
91,603,852 | 529,193 | 172,570 | 66,974 | 25,039 | 1,222,412 | 93,620,040 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
376,865,085 | 4,689,301 | 3,210,680 | 1,353,599 | 406,929 | 10,034,236 | 396,559,830 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) | Others consist of financial assets in Indonesia, Hong Kong, Singapore, and other countries. |
b) | Credit risk exposure by industries |
The following tables analyze credit risk exposure by industries, which are service, manufacturing, finance and insurance, construction, individuals and others in accordance with the Korea Standard Industrial Classification Code (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||||||||||||||
Service | Manufacturing | Finance and insurance |
Construction | Individuals | Others | Total | ||||||||||||||||||||||
Loans and other financial assets at amortized cost |
48,316,081 | 34,967,700 | 40,337,838 | 3,295,967 | 145,715,074 | 9,815,655 | 282,448,315 | |||||||||||||||||||||
Securities at amortized cost |
1,157,512 | | 13,414,743 | 527,847 | | 7,832,457 | 22,932,559 | |||||||||||||||||||||
Financial assets at FVTPL |
120,659 | 153,159 | 3,117,845 | 16,118 | 7,614 | 847,224 | 4,262,619 | |||||||||||||||||||||
Financial assets at FVTOCI |
382,409 | 109,749 | 13,017,646 | 224,665 | 5,535 | 3,372,245 | 17,112,249 | |||||||||||||||||||||
Derivative assets (Designated for hedging) |
| | 35,503 | | | | 35,503 | |||||||||||||||||||||
Off-balance accounts |
17,645,104 | 22,300,388 | 9,654,685 | 4,146,708 | 49,948,865 | 6,767,371 | 110,463,121 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
67,621,765 | 57,530,996 | 79,578,260 | 8,211,305 | 195,677,088 | 28,634,952 | 437,254,366 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||||||||||||
Service | Manufacturing | Finance and insurance |
Construction | Individuals | Others | Total | ||||||||||||||||||||||
Loans and receivables |
47,192,641 | 34,502,509 | 38,260,051 | 3,574,746 | 133,094,287 | 10,481,970 | 267,106,204 | |||||||||||||||||||||
Financial assets at FVTPL |
100,766 | 83,239 | 4,640,068 | 15,073 | 1,040 | 955,588 | 5,795,774 | |||||||||||||||||||||
AFS debt securities |
707,737 | 37,719 | 7,331,774 | 153,534 | | 4,998,480 | 13,229,244 | |||||||||||||||||||||
HTM securities |
1,348,754 | | 10,962,149 | 296,214 | | 4,142,179 | 16,749,296 | |||||||||||||||||||||
Derivative assets (Designated for hedging) |
| | 59,272 | | | | 59,272 | |||||||||||||||||||||
Off-balance accounts |
16,892,926 | 21,427,378 | 9,841,379 | 3,842,479 | 36,928,554 | 4,687,324 | 93,620,040 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
66,242,824 | 56,050,845 | 71,094,693 | 7,882,046 | 170,023,881 | 25,265,541 | 396,559,830 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 42 -
3) | Credit risk exposure |
a) | Financial assets |
The maximum exposure to credit risk by asset quality, except for financial assets at FVTPL and derivative asset (Designated for hedging) is as follows (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Loss allowance |
Total, net | |||||||||||||||||||||||||||
Above appropriate credit rating (*1) |
Less than a limited credit rating (*3) |
Above appropriate credit rating (*2) |
Less than a limited credit rating (*3) |
|||||||||||||||||||||||||||||
Loans and other financial assets at amortized cost |
252,911,704 | 17,624,416 | 6,330,382 | 5,739,850 | 1,693,148 | 284,299,500 | (1,851,185 | ) | 282,448,315 | |||||||||||||||||||||||
Korean treasury and government agencies |
13,549,305 | 1,009 | 1 | | | 13,550,315 | (3,161 | ) | 13,547,154 | |||||||||||||||||||||||
Banks |
22,162,966 | 105,583 | 27,777 | | 14,307 | 22,310,633 | (27,776 | ) | 22,282,857 | |||||||||||||||||||||||
Corporates |
77,152,005 | 15,550,301 | 655,907 | 3,424,215 | 1,034,030 | 97,816,458 | (1,197,065 | ) | 96,619,393 | |||||||||||||||||||||||
General business |
43,165,455 | 6,474,057 | 526,303 | 1,723,704 | 716,722 | 52,606,241 | (816,783 | ) | 51,789,458 | |||||||||||||||||||||||
Small- and medium-sized enterprise |
29,510,917 | 8,527,542 | 107,998 | 1,547,761 | 277,825 | 39,972,043 | (335,469 | ) | 39,636,574 | |||||||||||||||||||||||
Project financing and others |
4,475,633 | 548,702 | 21,606 | 152,750 | 39,483 | 5,238,174 | (44,813 | ) | 5,193,361 | |||||||||||||||||||||||
Consumers |
140,047,428 | 1,967,523 | 5,646,697 | 2,315,635 | 644,811 | 150,622,094 | (623,183 | ) | 149,998,911 | |||||||||||||||||||||||
Securities at amortized cost |
22,939,039 | | 195 | | 250 | 22,939,484 | (6,925 | ) | 22,932,559 | |||||||||||||||||||||||
Financial assets at FVTOCI (*4) |
16,940,654 | 146,443 | 25,153 | | | 17,112,250 | (6,177 | ) | 17,112,250 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
292,791,397 | 17,770,859 | 6,355,730 | 5,739,850 | 1,693,398 | 324,351,234 | (1,864,287 | ) | 322,493,124 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 | ||||||||||||||||
Collateral value | ||||||||||||||||
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Loans and other financial assets at amortized cost |
163,329,105 | 8,836,440 | 698,593 | 172,864,138 | ||||||||||||
Korean treasury and government agencies |
11,600 | | | 11,600 | ||||||||||||
Banks |
361,024 | 3,334 | | 364,358 | ||||||||||||
Corporates |
51,595,949 | 2,509,620 | 426,325 | 54,531,894 | ||||||||||||
General business |
19,907,948 | 1,167,993 | 241,651 | 21,317,592 | ||||||||||||
Small- and medium-sized enterprise |
29,780,716 | 1,291,222 | 184,674 | 31,256,612 | ||||||||||||
Project financing and others |
1,907,285 | 50,405 | | 1,957,690 | ||||||||||||
Consumers |
111,360,532 | 6,323,486 | 272,268 | 117,956,286 | ||||||||||||
Securities at amortized cost |
| | | | ||||||||||||
Financial assets at FVTOCI (*4) |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
163,329,105 | 8,836,440 | 698,593 | 172,864,138 | ||||||||||||
|
|
|
|
|
|
|
|
(*1) | Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6. |
(*2) | Credit grade of corporates are A- ~ BBB, and consumers are grades 1 ~ 6. |
(*3) | Credit grade of corporates are BBB- ~ C, and consumers are grades 7 ~ 10. |
(*4) | Financial assets at FVTOCI has been disclosed as the amount before deducting loss allowance because loss allowance does not reduce the carrying amount. |
- 43 -
- | Loans and receivables |
December 31, 2017 | ||||||||||||||||||||||||||||||||
Corporates | ||||||||||||||||||||||||||||||||
Korean treasury and government agencies |
Banks | General business |
Small and medium sized enterprise |
Project financing and others |
Sub-total | Consumers | Total | |||||||||||||||||||||||||
Neither overdue nor impaired |
8,825,767 | 26,861,286 | 50,463,112 | 34,107,547 | 5,547,950 | 90,118,609 | 139,886,407 | 265,692,069 | ||||||||||||||||||||||||
Overdue but not impaired |
8 | | 65,616 | 63,067 | | 128,683 | 878,406 | 1,007,097 | ||||||||||||||||||||||||
Impaired |
| | 1,402,131 | 251,431 | 46,717 | 1,700,279 | 537,001 | 2,237,280 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
8,825,775 | 26,861,286 | 51,930,859 | 34,422,045 | 5,594,667 | 91,947,571 | 141,301,814 | 268,936,446 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Loss allowance |
2,191 | 15,977 | 1,078,733 | 267,162 | 31,125 | 1,377,020 | 435,054 | 1,830,242 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total, net |
8,823,584 | 26,845,309 | 50,852,126 | 34,154,883 | 5,563,542 | 90,570,551 | 140,866,760 | 267,106,204 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- | Debt securities |
The Group manages debt securities based on the external credit rating. Credit soundness of debt securities on the basis of External Credit Assessment Institution (ECAI)s rating is as follows (Unit: Korean Won in millions):
December 31, 2017 | ||||||||||||||||
Financial assets at FVTPL (*) |
AFS debt securities |
HTM securities | Total | |||||||||||||
AAA |
1,685,099 | 9,897,689 | 15,806,327 | 27,389,115 | ||||||||||||
AA- ~ AA+ |
722,923 | 2,386,567 | 888,547 | 3,998,037 | ||||||||||||
BBB- ~ A+ |
236,311 | 876,482 | 52,188 | 1,164,981 | ||||||||||||
Below BBB- |
9,694 | 68,506 | 2,234 | 80,434 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
2,654,027 | 13,229,244 | 16,749,296 | 32,632,567 | ||||||||||||
|
|
|
|
|
|
|
|
(*) | Financial assets at FVTPL comprise debt securities held for trading and financial assets designated at FVTPL. |
b) | Guarantees and loan commitments |
The credit quality of the guarantees and loan commitments as of December 31, 2018 as follows (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||||||||||
Financial assets |
Stage 1 | Stage 2 | Stage3 | Total | ||||||||||||||||||||
Above appropriate credit rating (*1) |
Less than a limited credit rating (*3) |
Above appropriate credit rating (*2) |
Less than a limited credit rating (*3) |
|||||||||||||||||||||
Off-balance accounts |
||||||||||||||||||||||||
Guarantees |
11,212,772 | 1,063,551 | 7,147 | 261,599 | 121,348 | 12,666,417 | ||||||||||||||||||
Loan commitments |
91,734,567 | 3,632,586 | 1,529,330 | 880,518 | 19,703 | 97,796,704 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
102,947,339 | 4,696,137 | 1,536,477 | 1,142,117 | 141,051 | 110,463,121 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6. |
(*2) | Credit grade of corporates are A- ~ BBB, and consumers are grades 1 ~ 6. |
(*3) | Credit grade of corporate are BBB- ~ C, and consumers are grades 7 ~ 10. |
- 44 -
4) Collateral and other credit enhancements
During the current quarter, there have been no significant changes in the value of collateral or other credit enhancements held by the Group and there have been no significant changes in collateral or other credit enhancements due to changes in the collateral policy of the Group. As of December 31, 2018, there are no financial assets that do not recognize the allowance for losses just because financial assets have collateral.
5) For the financial assets that record loss allowance as total expected credit loss, the amortized cost before the change in contractual cash flows is 23,132 million won, and the net loss due to the change is 239 million won.
6) As the Group manages receivables that have not lost the right of claim to the debtor for the grounds of incomplete statute limitation and uncollected receivables under the related laws as receivable charge-offs, the balance as of December 31, 2018 is 9,578,796 million won.
(2) | Market risk |
Market risk is the possible risk of loss arising from trading activities and non-trading activities in the volatility of market factors such as interest rates, stock prices and foreign exchange rates. Market risk occurs as a result of changes in the interest rates and foreign exchange rates for financial instruments that are not yet settled, and all contracts are exposed to a certain level of volatility according to changes in the interest rates, credit spreads, foreign exchange rates and the price of equity securities.
1) | Market risk management |
For trading activities and non-trading activities, the Group avoids, bears, or mitigates risks by identifying the underlying source of the risks, measuring parameters and evaluating their appropriateness.
On a yearly basis, the Risk Management Committee establishes a Value at Risk (VaR, maximum losses) limit, loss limit and risk capital limit by subsidiaries for its management purposes. The limit by investment desk/dealer is independently managed to the extent of the limit given to subsidiaries and the limit by investment and loss cut is managed by the risk management personnel within the department.
The Group uses both a standard-based and an internal model-based approach to measure market risk. The standard-based approach is used to calculate individual market risk of owned capital while the internal model-based approach is used to calculate general capital market risk and it is used to measure internal risk management measure. For the trading activities, the Risk Management department measures the VaR limit by department, risk factor and loss limit on a daily basis and reports regularly to the Risk Management Committee.
2) | Sensitivity analysis of market risk |
The Group performs the sensitivity analyses both for trading and for non-trading activities.
For trading activities, the Group uses a VaR model that uses certain assumptions of possible fluctuations in market condition and, by conducting simulations of gains and losses, under which the model estimates the maximum losses that may occur. A VaR model predicts based on statistics of possible losses on the portfolio at a certain period currently or in the future. It indicates the maximum expected loss with at least 99% confidence level. In short, there exists a one percent possibility that the actual loss might exceed the predicted loss generated from the VaR calculation. The actual results are periodically monitored to examine the validity of the assumptions, variables, and factors that are used in VaR calculations. However, this approach cannot prevent the loss when the market fluctuation exceeds expectation.
For the non-trading activities, interest rate Earning at Risk (EaR) and interest rate VaR, which is based on the simulations of the Net Interest Income (NII) and Net Portfolio Value (NPV), are calculated for the Bank and the consolidated trusts, and the risks for all other subsidiaries are measured and managed by the interest rate EaR and the interest rate VaR calculations based on the Bank for International Settlements (BIS) Framework.
- 45 -
NII is a profit-based indicator for displaying the profit changes in short term due to the short-term interest changes. It will be estimated as subtracting interest expenses of liabilities from the interest income of assets. NPV is an indicator for displaying risks in economic view according to unfavorable changes related to interest rate. It will be estimated as subtracting the present value of liabilities from the present value of assets. EaR shows the maximum profit-loss amount, which indicates the maximum deduction amount caused by the unfavorable changes related to the interest rate of a certain period (i.e. 1 year). Interest rate VaR shows the potential maximum loss generated by the unfavorable changes during a certain period of time in the present or future.
a) | Trading activities |
The minimum, maximum and average VaR for the year ended December 31, 2018 and 2017, respectively, and the VaR as of December 31, 2018 and 2017, respectively, are as follows (Unit: Korean Won in millions):
December 31, 2018 |
For the year ended December 31, 2018 |
December 31, 2017 |
For the year ended December 31, 2017 |
|||||||||||||||||||||||||||||
Risk factor |
Average | Maximum | Minimum | Average | Maximum | Minimum | ||||||||||||||||||||||||||
Interest rate |
3,107 | 3,702 | 5,528 | 1,730 | 4,183 | 3,799 | 4,918 | 2,467 | ||||||||||||||||||||||||
Stock price |
2,353 | 2,669 | 5,081 | 1,138 | 909 | 2,863 | 4,419 | 909 | ||||||||||||||||||||||||
Foreign currencies |
4,972 | 4,678 | 6,136 | 3,439 | 4,750 | 5,051 | 6,636 | 4,061 | ||||||||||||||||||||||||
Commodity price |
| 3 | 24 | | | 31 | 188 | | ||||||||||||||||||||||||
Diversification |
(4,445 | ) | (4,869 | ) | (8,155 | ) | (1,815 | ) | (4,472 | ) | (4,621 | ) | (6,798 | ) | (2,067 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total VaR(*) |
5,987 | 6,183 | 8,614 | 4,492 | 5,370 | 7,123 | 9,363 | 5,370 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) | VaR (Value at Risk): Maximum expected losses |
b) | Non-trading activities |
The NII and NPV are calculated for the assets and liabilities owned by the Bank and consolidated trusts, respectively, by using the simulation method. The scenario responding to interest rate (IR) changes are as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||||||||||
NII(*1) | NPV(*2) | NII(*1) | NPV(*2) | |||||||||||||
Base case |
4,895,332 | 24,636,678 | 4,916,138 | 23,472,792 | ||||||||||||
Base case (Prepay) |
4,887,799 | 24,225,946 | 4,916,015 | 23,163,942 | ||||||||||||
IR 100bp up |
5,575,470 | 24,415,761 | 5,361,546 | 22,886,122 | ||||||||||||
IR 100bp down |
4,329,543 | 24,907,344 | 4,386,437 | 24,127,559 | ||||||||||||
IR 200bp up |
6,603,132 | 24,232,738 | 5,806,723 | 22,372,208 | ||||||||||||
IR 200bp down |
3,508,859 | 25,245,667 | 3,452,590 | 24,830,482 | ||||||||||||
IR 300bp up |
7,560,155 | 24,079,415 | 6,251,897 | 21,929,189 | ||||||||||||
IR 300bp down |
3,352,267 | 25,680,084 | 2,254,609 | 26,633,807 |
(*1) | NII: Net Interest Income |
(*2) | NPV: Net Portfolio Value |
The interest EaR and VaR calculated based on the BIS Framework of subsidiaries other than the Bank and consolidated trusts are as follows (Unit: Korean Won in millions):
December 31, 2018 |
December 31, 2017 | |||||
EaR (*1) |
VaR (*2) |
EaR (*1) |
VaR (*2) | |||
248,364 |
141,484 | 255,679 | 130,821 |
(*1) | EaR(Earning at Risk): Change of Maximum expected income and expense |
(*2) | VaR(Value at Risk): Maximum expected losses |
- 46 -
The Group estimates and manages risks related to changes in interest rate due to the difference in the maturities of interest-bearing assets and liabilities and discrepancies in the terms of interest rates. Cash flows (both principal and interest), interest bearing assets and liabilities, presented by each re-pricing date, are as follows (Unit: Korean Won in millions):
December 31, 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 |
159,893,080 | 45,387,214 | 8,878,060 | 9,903,959 | 46,459,450 | 4,201,379 | 274,723,142 | |||||||||||||||||||||
Financial assets at FVTPL |
371,984 | 32,278 | 24,951 | 64,838 | 145,121 | 27,536 | 666,708 | |||||||||||||||||||||
Financial assets at FVTOCI |
2,579,442 | 1,775,435 | 1,486,953 | 2,223,494 | 9,289,742 | 185,320 | 17,540,386 | |||||||||||||||||||||
Securities at amortized cost |
2,449,416 | 2,251,180 | 1,735,698 | 1,946,948 | 15,177,608 | 402,671 | 23,963,521 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
165,293,922 | 49,446,107 | 12,125,662 | 14,139,239 | 71,071,921 | 4,816,906 | 316,893,757 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Liability: |
||||||||||||||||||||||||||||
Deposits due to customers |
100,232,916 | 44,207,416 | 29,419,951 | 35,427,657 | 40,130,055 | 72,276 | 249,490,271 | |||||||||||||||||||||
Borrowings |
9,971,680 | 1,924,390 | 670,404 | 518,167 | 2,723,156 | 626,364 | 16,434,161 | |||||||||||||||||||||
Debentures |
2,143,916 | 2,416,483 | 2,201,070 | 2,584,230 | 18,955,400 | 2,403,077 | 30,704,176 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
112,348,512 | 48,548,289 | 32,291,425 | 38,530,054 | 61,808,611 | 3,101,717 | 296,628,608 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||||||||||||
Within 3 months |
4 to 6 months |
7 to 9 months |
10 to 12 months |
1 to 5 years |
Over 5 years | Total | ||||||||||||||||||||||
Asset: |
||||||||||||||||||||||||||||
Loans and receivables |
161,653,892 | 41,671,530 | 7,614,159 | 6,411,841 | 54,150,998 | 26,272,958 | 297,775,378 | |||||||||||||||||||||
AFS financial assets |
2,150,708 | 2,500,103 | 2,016,711 | 2,367,762 | 4,229,000 | 601,735 | 13,866,019 | |||||||||||||||||||||
HTM financial assets |
2,286,179 | 2,161,467 | 1,433,425 | 1,687,362 | 9,369,794 | 345,868 | 17,284,095 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
166,090,779 | 46,333,100 | 11,064,295 | 10,466,965 | 67,749,792 | 27,220,561 | 328,925,492 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Liability: |
||||||||||||||||||||||||||||
Deposits due to customers |
106,815,564 | 37,750,367 | 25,117,556 | 27,585,458 | 37,518,878 | 91,246 | 234,879,069 | |||||||||||||||||||||
Borrowings |
9,865,249 | 1,056,579 | 412,966 | 437,431 | 2,709,010 | 479,827 | 14,961,062 | |||||||||||||||||||||
Debentures |
1,955,902 | 2,452,240 | 1,018,563 | 1,752,847 | 19,770,538 | 2,869,766 | 29,819,856 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
118,636,715 | 41,259,186 | 26,549,085 | 29,775,736 | 59,998,426 | 3,440,839 | 279,659,987 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 47 -
3) | Currency risk |
Currency risk arises from the financial instruments denominated in foreign currencies other than the functional currency. Therefore, no currency risk arises from non-monetary items or financial instruments denominated in the functional currency.
Financial instruments in foreign currencies exposed to currency risk are as follows (Unit: USD in millions, JPY in millions, CNY in millions, EUR in millions, and Korean Won in millions):
December 31, 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 |
20,406 | 22,816,027 | 167,419 | 1,696,255 | 29,880 | 4,863,230 | 1,994 | 2,550,147 | 4,742,340 | 36,667,999 | |||||||||||||||||||||||||||||||
Financial assets at FVTPL |
74 | 82,197 | 1,425 | 14,434 | | | 59 | 75,169 | 79,584 | 251,384 | ||||||||||||||||||||||||||||||||
Financial assets at FVTOCI |
1,472 | 1,645,595 | | | 1,604 | 261,085 | | | 729,581 | 2,636,261 | ||||||||||||||||||||||||||||||||
Securities at amortized cost |
52 | 58,489 | | | | | | | 175,552 | 234,041 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total | 22,004 | 24,602,308 | 168,844 | 1,710,689 | 31,484 | 5,124,315 | 2,053 | 2,625,316 | 5,727,057 | 39,789,685 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Liability |
Financial liabilities at FVTPL |
118 | 131,927 | 1,956 | 19,815 | | | 55 | 70,250 | 121,658 | 343,650 | |||||||||||||||||||||||||||||||
Deposits due to customers |
11,159 | 12,477,154 | 169,770 | 1,720,072 | 23,967 | 3,900,923 | 887 | 1,135,149 | 4,392,936 | 23,626,234 | ||||||||||||||||||||||||||||||||
Borrowings |
6,606 | 7,386,616 | 3,834 | 38,847 | 381 | 61,947 | 286 | 365,585 | 505,541 | 8,358,536 | ||||||||||||||||||||||||||||||||
Debentures |
3,645 | 4,075,084 | | | | | | | 285,339 | 4,360,423 | ||||||||||||||||||||||||||||||||
Other financial liabilities |
2,522 | 2,820,290 | 28,955 | 293,362 | 1,818 | 295,919 | 193 | 246,584 | 18,527 | 3,674,682 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total | 24,050 | 26,891,071 | 204,515 | 2,072,096 | 26,166 | 4,258,789 | 1,421 | 1,817,568 | 5,324,001 | 40,363,525 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Off-balance accounts |
7,453 | 8,333,153 | 33,347 | 337,868 | 1,557 | 253,366 | 474 | 606,714 | 823,655 | 10,354,756 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||
USD | JPY | CNY | EUR | Others | Total | |||||||||||||||||||||||||||||||||||||
Foreign currency |
Korean Won equivalent |
Foreign currency |
Korean Won equivalent |
Foreign currency |
Korean Won equivalent |
Foreign currency |
Korean Won equivalent |
Korean Won equivalent |
Korean Won equivalent |
|||||||||||||||||||||||||||||||||
Asset |
Loans and receivables |
23,000 | 24,642,900 | 126,944 | 1,204,843 | 25,224 | 4,127,936 | 1,156 | 1,479,351 | 3,937,733 | 35,392,763 | |||||||||||||||||||||||||||||||
Financial assets at FVTPL |
32 | 34,303 | 25 | 238 | | | 27 | 34,583 | 104,892 | 174,016 | ||||||||||||||||||||||||||||||||
AFS financial assets |
1,966 | 2,105,972 | | | 319 | 52,259 | | 590 | 302,801 | 2,461,622 | ||||||||||||||||||||||||||||||||
HTM financial assets |
111 | 118,868 | | | | | | | 78,175 | 197,043 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total | 25,109 | 26,902,043 | 126,969 | 1,205,081 | 25,543 | 4,180,195 | 1,183 | 1,514,524 | 4,423,601 | 38,225,444 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Liability |
Financial liabilities at FVTPL |
41 | 43,423 | 79 | 752 | | | 19 | 24,878 | 69,977 | 139,030 | |||||||||||||||||||||||||||||||
Deposits due to customers |
13,744 | 14,725,686 | 195,176 | 1,852,440 | 21,865 | 3,578,142 | 883 | 1,129,802 | 2,396,826 | 23,682,896 | ||||||||||||||||||||||||||||||||
Borrowings | 6,604 | 7,080,118 | 2,218 | 21,056 | | | 247 | 315,685 | 242,874 | 7,659,733 | ||||||||||||||||||||||||||||||||
Debentures | 3,467 | 3,714,411 | | | 700 | 114,555 | | | 375,749 | 4,204,715 | ||||||||||||||||||||||||||||||||
Other financial liabilities |
2,392 | 2,562,740 | 16,125 | 153,043 | 1,802 | 294,950 | 129 | 165,189 | 588,625 | 3,764,547 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total | 26,248 | 28,126,378 | 213,598 | 2,027,291 | 24,367 | 3,987,647 | 1,278 | 1,635,554 | 3,647,051 | 39,450,921 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Off-balance accounts |
8,108 | 8,687,009 | 33,624 | 319,127 | 1,199 | 196,261 | 406 | 519,843 | 176,886 | 9,899,126 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 48 -
(3) | Liquidity risk |
Liquidity risk refers to the risk that the Group may encounter difficulties in meeting obligations from its financial liabilities.
1) | Liquidity risk management |
Liquidity risk management is to prevent potential cash shortages as a result of mismatching the use of funds (assets) and sources of funds (liabilities) or unexpected cash outflows. The financial liabilities that are relevant to liquidity risk are incorporated within the scope of risk management. Derivatives instruments are excluded from those financial liabilities as they reflect expected cash flows for a pre-determined period.
Assets and liabilities are grouped by account under Asset Liability Management (ALM) in accordance with the characteristics of the account. The Group manages liquidity risk by identifying the maturity gap and such gap ratio through various cash flows analysis (i.e. based on remaining maturity and contract period, etc.), while maintaining the gap ratio at or below the target limit.
2) | Maturity analysis of non-derivative financial liabilities |
a) | Cash flows of principals and interests by remaining contractual maturities of non-derivative financial liabilities are as follows (Unit: Korean Won in millions): |
December 31, 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 |
191,825 | | | | | | 191,825 | |||||||||||||||||||||
Deposits due to customers |
145,187,689 | 33,825,662 | 22,186,833 | 42,046,740 | 7,098,907 | 1,870,334 | 252,216,165 | |||||||||||||||||||||
Borrowings |
6,373,835 | 2,846,294 | 1,874,069 | 1,607,985 | 3,156,128 | 642,017 | 16,500,328 | |||||||||||||||||||||
Debentures |
2,143,916 | 2,416,483 | 2,201,070 | 2,584,230 | 18,955,400 | 2,403,077 | 30,704,176 | |||||||||||||||||||||
Other financial liabilities |
14,240,022 | 44,572 | 169,996 | 1,201 | 90,615 | 2,288,560 | 16,834,966 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
168,137,287 | 39,133,011 | 26,431,968 | 46,240,156 | 29,301,050 | 7,203,988 | 316,447,460 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||||||||||||
Within 3 months |
4 to 6 months |
7 to 9 months |
10 to 12 months |
1 to 5 years |
Over 5 years |
Total | ||||||||||||||||||||||
Financial liabilities at FVTPL |
168,442 | 155,984 | 1,717 | 512 | 375 | | 327,030 | |||||||||||||||||||||
Deposits due to customers |
148,008,777 | 29,563,310 | 18,175,348 | 32,468,110 | 7,409,118 | 2,624,594 | 238,249,257 | |||||||||||||||||||||
Borrowings |
6,115,732 | 1,893,173 | 1,489,272 | 1,178,107 | 3,924,681 | 479,568 | 15,080,533 | |||||||||||||||||||||
Debentures |
1,955,255 | 2,452,565 | 1,018,714 | 1,744,731 | 19,770,380 | 2,869,699 | 29,811,344 | |||||||||||||||||||||
Other financial liabilities |
7,121,342 | 162,871 | 825 | 1,003 | 128,940 | 2,730,001 | 10,144,982 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
163,369,548 | 34,227,903 | 20,685,876 | 35,392,463 | 31,233,494 | 8,703,862 | 293,613,146 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 49 -
b) | Cash flows of principals and interests by expected maturities of non-derivative financial liabilities are as follows (Unit: Korean Won in millions): |
December 31, 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 |
191,825 | | | | | | 191,825 | |||||||||||||||||||||
Deposits due to customers |
163,787,990 | 38,126,886 | 20,993,436 | 23,262,092 | 5,230,533 | 17,649 | 251,418,586 | |||||||||||||||||||||
Borrowings |
6,373,835 | 2,846,294 | 1,874,069 | 1,607,985 | 3,156,128 | 642,017 | 16,500,328 | |||||||||||||||||||||
Debentures |
2,143,916 | 2,416,483 | 2,201,070 | 2,584,230 | 18,955,400 | 2,403,077 | 30,704,176 | |||||||||||||||||||||
Other financial liabilities |
14,240,022 | 44,572 | 169,996 | 1,201 | 90,615 | 2,288,560 | 16,834,966 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
186,737,588 | 43,434,235 | 25,238,571 | 27,455,508 | 27,432,676 | 5,351,303 | 315,649,881 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||||||||||||
Within 3 months |
4 to 6 months |
7 to 9 months |
10 to 12 months |
1 to 5 years |
Over 5 years |
Total | ||||||||||||||||||||||
Financial liabilities at FVTPL |
168,442 | 155,984 | 1,717 | 512 | 375 | | 327,030 | |||||||||||||||||||||
Deposits due to customers |
159,146,602 | 31,298,562 | 16,667,130 | 21,995,294 | 6,487,047 | 2,278,756 | 237,873,391 | |||||||||||||||||||||
Borrowings |
6,115,732 | 1,893,173 | 1,489,272 | 1,178,107 | 3,924,681 | 479,568 | 15,080,533 | |||||||||||||||||||||
Debentures |
1,955,255 | 2,452,565 | 1,018,714 | 1,744,731 | 19,770,380 | 2,869,699 | 29,811,344 | |||||||||||||||||||||
Other financial liabilities |
7,121,342 | 162,871 | 825 | 1,003 | 128,940 | 2,730,001 | 10,144,982 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
174,507,373 | 35,963,155 | 19,177,658 | 24,919,647 | 30,311,423 | 8,358,024 | 293,237,280 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3) | Maturity analysis of derivative financial liabilities |
Derivatives held for trading purpose are not managed in accordance with their contractual maturity, since the Group holds such financial instruments with the purpose of disposing or redemption before their maturity. As such, those derivatives are incorporated as within 3 months in the table below. Derivatives designated for hedging purpose are estimated by offsetting cash inflows and cash outflows.
The cash flow by the maturity of derivative financial liabilities as of December 31, 2018 and 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 | ||||||||||||||||||||||
December 31, 2018 |
2,090,861 | 816 | | | 50,592 | | 2,142,269 | |||||||||||||||||||||
December 31, 2017 |
3,150,149 | | | 381 | 67,373 | | 3,217,903 |
4) | Maturity analysis of off-balance accounts (Guarantees and loan commitments) |
The Group provides guarantees on behalf of customers. A financial guarantee represents an irrevocable undertaking that the Group should meet a customers obligations to third parties if the customer fails to do so. Under a loan commitment, the Group agrees to make funds available to a customer in the future. Commitments to lend include commercial standby facilities and credit lines, liquidity facilities to commercial paper conduits and utilized overdraft facilities. The maximum limit to be paid by the Group in accordance with guarantees and loan commitment only applies to principal amounts. There are contractual maturities for financial guarantees, such as guarantees for debentures issued or loans, unused loan commitments, and other guarantees, however, under the terms of the guarantees and unused loan commitments, funds should be paid upon demand from the counterparty. Details of off-balance accounts are as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||
Guarantees |
12,666,417 | 12,859,715 | ||||||
Loan commitments |
97,796,704 | 80,760,325 |
- 50 -
(4) | Operational risk |
The Group defines the operational risk that could cause a negative effect on capital resulting from inadequate internal process, labor work and systematic problem or external factors.
1) | Operational risk management |
The Group has been running the operational risk management system under Basel II. The Group developed Advanced Measurement Approaches (AMA) to quantify required capital for operational risk. This system is used for reinforcement in foreign competitions, reducing the amount of risk capitals, managing the risk, and precaution for any unexpected occasions. This system has been tested by an independent third party, and this system approved by the Financial Supervisory Service.
2) | Operational risk measurement |
To quantify required capital for operational risk, the Group applies AMA using internal and external loss data, business environment and internal control factors, and scenario analysis. For the operational risk management for its subsidiaries, the Group adopted the Basic Indicator Approach.
(5) | Capital management |
The Group complies with the standard of capital adequacy provided by financial regulatory authorities. The capital adequacy standard is based on Basel published by Basel III Committee on Banking Supervision in Bank for International Settlement in 2010 and was implemented in Korea in December 2013. The capital adequacy ratio is calculated by dividing own capital by asset (weighted with a risk premium risk weighted assets) based on the consolidated financial statements of the Group.
According to the above regulations, the Group is required to meet the following new minimum requirements: Common Equity Tier 1 capital ratio of 7.13% and 6.25%, a Tier 1 capital ratio of 8.63% and 7.75% and a minimum total capital ratio of 10.63% and 9.75% as of December 31, 2018 and December 31, 2017, respectively.
Details of the Groups capital adequacy ratio as of December 31, 2018 and 2017 are as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||
Tier 1 capital |
17,275,539 | 16,074,987 | ||||||
Other Tier 1 capital |
3,147,680 | 3,041,664 | ||||||
Tier 2 capital |
3,827,573 | 3,486,555 | ||||||
|
|
|
|
|||||
Total risk-adjusted capital |
24,250,792 | 22,603,206 | ||||||
|
|
|
|
|||||
Risk-weighted assets for credit risk |
142,626,069 | 134,767,711 | ||||||
Risk-weighted assets for market risk |
2,372,451 | 2,316,938 | ||||||
Risk-weighted assets for operational risk |
9,972,430 | 9,677,559 | ||||||
|
|
|
|
|||||
Total risk-weighted assets |
154,970,950 | 146,762,208 | ||||||
|
|
|
|
|||||
Common Equity Tier 1 ratio |
11.15 | % | 10.95 | % | ||||
|
|
|
|
|||||
Tier 1 capital ratio |
13.18 | % | 13.03 | % | ||||
|
|
|
|
|||||
Total capital ratio |
15.65 | % | 15.40 | % | ||||
|
|
|
|
- 51 -
5. | OPERATING SEGMENTS |
In evaluating the results of the Group and allocating resources, the Groups 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 Groups reporting segments comprise the following customers: consumer banking, corporate banking, investment banking, capital market, credit card market and headquarters and others. The reportable segments are classified based on the target customers for whom the service is being provided.
| Consumer banking: Loans/deposits and financial services for retail and individual consumers, etc. |
| Corporate banking: Loans/deposits and export/import, financial services for corporations, etc. |
| Investment banking: Domestic/foreign investment, structured finance, M&A, equity & fund investment related business, venture advisory related tasks, real estate SOC development practices, etc. |
| Capital market: Fund management, investment in securities and derivatives, etc. |
| Credit card: Credit card, cash service and card loan, etc. |
| Headquarter and others: Segments that do not belong to above operating segments |
The details of operating income by each segment are as follows (Unit: Korean Won in millions):
For the year ended December 31, 2018 | ||||||||||||||||||||||||||||||||||||
Consumer banking |
Corporate banking |
Investment banking |
Capital market |
Credit cards |
Headquarters and others |
Sub-total | Adjust- ments(*) |
Total | ||||||||||||||||||||||||||||
Net Interest income(expense) |
||||||||||||||||||||||||||||||||||||
Interest income |
3,529,645 | 3,409,835 | 152,273 | 8,945 | 670,240 | 1,605,696 | 9,376,634 | 307,865 | 9,684,499 | |||||||||||||||||||||||||||
Interest expense |
(1,021,639 | ) | (2,168,000 | ) | (150 | ) | | (160,642 | ) | (983,547 | ) | (4,333,978 | ) | 300,430 | (4,033,548 | ) | ||||||||||||||||||||
Inter-segment |
(634,110 | ) | 833,224 | (163,962 | ) | 25,963 | | (61,115 | ) | | | | ||||||||||||||||||||||||
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|||||||||||||||||||
1,873,896 | 2,075,059 | (11,839 | ) | 34,908 | 509,598 | 561,034 | 5,042,656 | 608,295 | 5,650,951 | |||||||||||||||||||||||||||
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|
|||||||||||||||||||
Net non-interest Income(expense) |
||||||||||||||||||||||||||||||||||||
Non-interest income |
678,360 | 721,096 | 230,357 | 7,020,740 | 665,534 | 1,214,380 | 10,530,467 | (8,463,129 | ) | 2,067,338 | ||||||||||||||||||||||||||
Non-interest expense |
(143,704 | ) | (290,347 | ) | (53,671 | ) | (6,964,671 | ) | (620,687 | ) | (550,919 | ) | (8,623,999 | ) | 7,618,618 | (1,005,381 | ) | |||||||||||||||||||
Inter-segment |
132,690 | 70,016 | | | | (202,706 | ) | | | | ||||||||||||||||||||||||||
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|||||||||||||||||||
667,346 | 500,765 | 176,686 | 56,069 | 44,847 | 460,755 | 1,906,468 | (844,511 | ) | 1,061,957 | |||||||||||||||||||||||||||
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|||||||||||||||||||
Other income(expense) |
||||||||||||||||||||||||||||||||||||
General and administrative expense |
(1,865,933 | ) | (868,608 | ) | (14,318 | ) | (18,452 | ) | (170,765 | ) | (967,923 | ) | (3,905,999 | ) | 281,966 | (3,624,033 | ) | |||||||||||||||||||
Reversal of allowance for credit loss and impairment losses due to credit loss |
(127,220 | ) | (61,064 | ) | 62,454 | (16,861 | ) | (227,144 | ) | 102,574 | (267,261 | ) | (62,313 | ) | (329,574 | ) | ||||||||||||||||||||
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|||||||||||||||||||
(1,993,153 | ) | (929,672 | ) | 48,136 | (35,313 | ) | (397,909 | ) | (865,349 | ) | (4,173,260 | ) | 219,653 | (3,953,607 | ) | |||||||||||||||||||||
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|||||||||||||||||||
Operating income(expenses) |
548,089 | 1,646,152 | 212,983 | 55,664 | 156,536 | 156,440 | 2,775,864 | (16,563 | ) | 2,759,301 | ||||||||||||||||||||||||||
Non-operating income(expenses) |
(20,208 | ) | 899 | 32,738 | | (5,547 | ) | 56,829 | 64,711 | (19,140 | ) | 45,571 | ||||||||||||||||||||||||
Net income(expense) before income tax expense |
527,881 | 1,647,051 | 245,721 | 55,664 | 150,989 | 213,269 | 2,840,575 | (35,703 | ) | 2,804,872 | ||||||||||||||||||||||||||
Income tax expense |
(145,167 | ) | (445,619 | ) | (67,573 | ) | (15,308 | ) | (36,222 | ) | (41,088 | ) | (750,977 | ) | (2,246 | ) | (753,223 | ) | ||||||||||||||||||
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|
|||||||||||||||||||
Net income(expense) |
382,714 | 1,201,432 | 178,148 | 40,356 | 114,767 | 172,181 | 2,089,598 | (37,949 | ) | 2,051,649 | ||||||||||||||||||||||||||
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|
(*) | These adjustments are performed in order to present intersegment profit or loss adjustments based on managerial accounting as profit or loss in accordance with K-IFRS. |
- 52 -
For the year ended December 31, 2017 | ||||||||||||||||||||||||||||||||||||
Consumer banking |
Corporate banking |
Investment banking |
Capital market |
Credit cards | Headquarters and others |
Sub-total | Adjust- ments(*) |
Total | ||||||||||||||||||||||||||||
Net Interest income |
||||||||||||||||||||||||||||||||||||
Interest income |
3,149,625 | 2,964,813 | 148,500 | 18,834 | 599,550 | 1,360,734 | 8,242,056 | 308,631 | 8,550,687 | |||||||||||||||||||||||||||
Interest expense |
(955,836 | ) | (1,681,652 | ) | (243 | ) | | (135,947 | ) | (834,662 | ) | (3,608,340 | ) | 278,303 | (3,330,037 | ) | ||||||||||||||||||||
Inter-segment |
(490,850 | ) | 512,216 | (136,133 | ) | 18,049 | | 96,718 | | | | |||||||||||||||||||||||||
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|||||||||||||||||||
1,702,939 | 1,795,377 | 12,124 | 36,883 | 463,603 | 622,790 | 4,633,716 | 586,934 | 5,220,650 | ||||||||||||||||||||||||||||
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|
|||||||||||||||||||
Net non-interest Income(expense) |
||||||||||||||||||||||||||||||||||||
Non-interest income |
802,387 | 680,778 | 366,523 | 9,548,399 | 1,163,575 | 2,683,407 | 15,245,069 | (12,858,172 | ) | 2,386,897 | ||||||||||||||||||||||||||
Non-interest expense |
(253,961 | ) | (170,268 | ) | (214,355 | ) | (9,478,728 | ) | (1,090,038 | ) | (2,132,053 | ) | (13,339,403 | ) | 12,204,532 | (1,134,871 | ) | |||||||||||||||||||
Inter-segment |
101,524 | 60,826 | | | | (162,350 | ) | | | | ||||||||||||||||||||||||||
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|||||||||||||||||||
649,950 | 571,336 | 152,168 | 69,671 | 73,537 | 389,004 | 1,905,666 | (653,640 | ) | 1,252,026 | |||||||||||||||||||||||||||
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|||||||||||||||||||
Other income(expense) |
||||||||||||||||||||||||||||||||||||
General and administrative expense |
(1,808,974 | ) | (832,429 | ) | (12,881 | ) | (16,567 | ) | (163,536 | ) | (954,238 | ) | (3,788,625 | ) | 257,824 | (3,530,801 | ) | |||||||||||||||||||
Reversal of allowance for credit loss and impairment losses due to credit loss |
(97,587 | ) | (316,859 | ) | (50,954 | ) | 31,229 | (235,116 | ) | 14,832 | (654,455 | ) | (130,678 | ) | (785,133 | ) | ||||||||||||||||||||
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|||||||||||||||||||
(1,906,561 | ) | (1,149,288 | ) | (63,835 | ) | 14,662 | (398,652 | ) | (939,406 | ) | (4,443,080 | ) | 127,146 | (4,315,934 | ) | |||||||||||||||||||||
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|||||||||||||||||||
Operating income |
446,328 | 1,217,425 | 100,457 | 121,216 | 138,488 | 72,388 | 2,096,302 | 60,440 | 2,156,742 | |||||||||||||||||||||||||||
Non-operating income(expense) |
(98,510 | ) | (3,153 | ) | 39,350 | | (5,219 | ) | (112,734 | ) | (180,266 | ) | (26,970 | ) | (207,236 | ) | ||||||||||||||||||||
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|||||||||||||||||||
Net income before income tax expense |
347,818 | 1,214,272 | 139,807 | 121,216 | 133,269 | (40,346 | ) | 1,916,036 | 33,470 | 1,949,506 | ||||||||||||||||||||||||||
Income tax expense |
(84,172 | ) | (296,634 | ) | (33,834 | ) | (29,335 | ) | (32,055 | ) | 63,396 | (412,634 | ) | (6,784 | ) | (419,418 | ) | |||||||||||||||||||
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|||||||||||||||||||
Net income(expense) |
263,646 | 917,638 | 105,973 | 91,881 | 101,214 | 23,050 | 1,503,402 | 26,686 | 1,530,088 | |||||||||||||||||||||||||||
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(*) These adjustments are performed in order to present intersegment profit or loss adjustments based on managerial accounting as profit or loss in accordance with K-IFRS.
(2) | Information on products and services |
The products of the Group 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 Groups revenue (interest income and non-interest income) from services, revenue from the domestic customers for the years ended December 31, 2018 and 2017 amounted to 10,440,668 million Won and 9,817,327 million Won, respectively, and revenue from the foreign customers amounted to 1,311,169 million Won and 1,120,257 million Won, respectively. Of the Groups non-current assets (investments in joint ventures and associates, investment properties, premises and equipment and intangible assets), non-current assets attributed to domestic subsidiaries as of December 31, 2018 and 2017 are 3,531,842 million Won and 3,550,764 million Won, respectively, and foreign subsidiaries are 236,050 million Won and 233,732 million Won, respectively.
(4) | Information about major customers |
The Group does not have any single customer that generates 10% or more of the Groups total revenue.
- 53 -
6. | CASH AND CASH EQUIVALENTS |
(1) | Details of cash and cash equivalents are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Cash |
2,107,850 | 2,009,363 | ||||||
Foreign currencies |
725,083 | 617,155 | ||||||
Demand deposits |
3,512,216 | 3,423,355 | ||||||
Fixed deposits |
367,474 | 858,413 | ||||||
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|
|
|
|||||
Total |
6,712,623 | 6,908,286 | ||||||
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|
|
|
(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 years ended December 31 | ||||||||
2018 | 2017 | |||||||
Changes in other comprehensive income related to valuation of financial assets at FVTOCI |
2,505 | | ||||||
Changes in other comprehensive income related to available-for-sale securities |
| (84,498 | ) | |||||
Changes in other comprehensive income related to valuation of equity method investments |
2,958 | 612 | ||||||
Changes in other comprehensive income related to valuation gain or loss on cash flow hedge |
(4,646 | ) | 777 | |||||
Changes in financial assets at FVTOCI as a result of debt-equity swap |
14,378 | | ||||||
Changes in investments in associates due to debt-equity swap |
| 51,227 | ||||||
Changes in investments in associates due to accounts transfer |
(89,151 | ) | (62,571 | ) | ||||
Changes in unpaid dividends on hybrid equity securities |
3,569 | (10,658 | ) | |||||
Changes in equity related to assets held for distribution (sale) |
(17,342 | ) | 4,145 | |||||
Classified to assets held for distribution (sale) from premises and equipment |
15,594 | | ||||||
Classified to assets held for distribution (sale) from deferred tax assets |
9,778 | |
- 54 -
(3) | Adjustments of liabilities from financing activities in current year are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||||
January 1, 2018 |
Cash flow | Not involving cash inflows and outflows | December 31, 2018 |
|||||||||||||||||||||
Foreign Exchange |
Variation of gains on valuation of hedged items |
Others | ||||||||||||||||||||||
Borrowings |
14,784,706 | 1,257,121 | 161,078 | | 81 | 16,202,986 | ||||||||||||||||||
Debentures |
27,869,651 | 602,331 | 267,339 | (25,498 | ) | 12,039 | 28,725,862 | |||||||||||||||||
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Total |
42,654,357 | 1,859,452 | 428,417 | (25,498 | ) | 12,120 | 44,928,848 | |||||||||||||||||
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|
|
|
|
|
|
|
|
For the year ended December 31, 2017 | ||||||||||||||||||||||||
January 1, 2017 |
Cash flow | Not involving cash inflows and outflows | December 31, 2017 |
|||||||||||||||||||||
Foreign Exchange |
Variation of gains on valuation of hedged items |
Others | ||||||||||||||||||||||
Borrowings |
18,769,515 | (3,634,883 | ) | (350,429 | ) | | 503 | 14,784,706 | ||||||||||||||||
Debentures |
23,565,449 | 4,817,701 | (478,249 | ) | (39,373 | ) | 4,123 | 27,869,651 | ||||||||||||||||
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|
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|
|
|
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|
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Total |
42,334,964 | 1,182,818 | (828,678 | ) | (39,373 | ) | 4,626 | 42,654,357 | ||||||||||||||||
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7. | FINANCIAL ASSETS AT FVTPL |
(1) | Financial assets at FVTPL are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Financial assets at fair value through profit or loss mandatorily measured at fair value |
6,126,183 | | ||||||
Financial assets held for trading |
| 5,820,787 | ||||||
Financial assets designated at FVTPL |
| 22,290 | ||||||
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|
|
|
|||||
Total |
6,126,183 | 5,843,077 | ||||||
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(2) | 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): |
December 31, 2018 | December 31, 2017 | |||||||
Deposits: |
||||||||
Gold banking asset |
26,935 | 25,972 | ||||||
Securities: |
||||||||
Debt securities |
||||||||
Korean treasury and government agencies |
516,173 | 540,438 | ||||||
Financial institutions |
533,393 | 1,476,498 | ||||||
Corporates |
774,589 | 627,397 | ||||||
Equity securities |
455,666 | 21,666 | ||||||
Capital contributions |
422,481 | | ||||||
Beneficiary certificates |
985,417 | 13,041 | ||||||
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|
|||||
Sub-total |
3,687,719 | 2,679,040 | ||||||
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|
|||||
Loans |
385,450 | | ||||||
Derivatives assets |
2,026,079 | 3,115,775 | ||||||
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|
|
|||||
Total |
6,126,183 | 5,820,787 | ||||||
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|
- 55 -
(3) | Financial assets at fair value through profit or loss designated as upon initial recognition is nil as of December 31, 2018 and financial assets at fair value through profit or loss designated as upon initial recognition as of December 31, 2017 is as follows (Unit: Korean Won in millions): |
December 31, 2017 | ||||
Debt securities |
9,694 | |||
Equity securities |
12,596 | |||
|
|
|||
Total |
22,290 | |||
|
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8. | FINANCIAL ASSETS AT FVTOCI AND AFS FINANCIAL ASSETS |
(1) | Details of financial assets at FVTOCI as of December 31, 2018 is as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||
Debt securities: |
||||
Korean treasury and government agencies |
1,358,378 | |||
Financial institutions |
11,252,790 | |||
Corporates |
1,824,843 | |||
Bond denominated in foreign currencies |
2,636,209 | |||
|
|
|||
Sub-total |
17,072,220 | |||
|
|
|||
Equity securities |
951,174 | |||
Securities loaned |
40,029 | |||
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|
|||
Total |
18,063,423 | |||
|
|
(2) | Details of equity securities designated as financial assets at FVTOCI are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||
Purpose of acquisition |
Fair value | |||
Strategic business partnership |
662,934 | |||
Debt-equity swap |
287,990 | |||
Others (Cooperative insurance, etc.) |
250 | |||
|
|
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Total |
951,174 | |||
|
|
(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 year ended December 31, 2018 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance (*1) |
(4,107 | ) | (129 | ) | | (4,236 | ) | |||||||||
Transfer to 12-month expected credit losses |
| | | | ||||||||||||
Transfer to lifetime expected credit losses |
| | | | ||||||||||||
Transfer to credit-impaired financial assets |
| | | | ||||||||||||
Net provision of loss allowance |
(1,918 | ) | (109 | ) | | (2,027 | ) | |||||||||
Others (*2) |
86 | | | 86 | ||||||||||||
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|||||||||
Ending balance |
(5,939 | ) | (238 | ) | | (6,177 | ) | |||||||||
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(*1) | The beginning balance was restated in accordance with K-IFRS 1109. |
(*2) | Others consist of foreign currencies translation, etc. |
- 56 -
2) | Gross carrying amount |
For the year ended December 31, 2018 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance |
12,843,997 | 30,212 | | 12,874,209 | ||||||||||||
Transfer to 12-month expected credit losses |
| | | | ||||||||||||
Transfer to lifetime expected credit losses |
| | | | ||||||||||||
Transfer to credit-impaired financial assets |
| | | | ||||||||||||
Acquisition |
13,275,429 | 10,000 | | 13,285,429 | ||||||||||||
Disposal |
(9,146,307 | ) | (15,047 | ) | | (9,161,354 | ) | |||||||||
Gain (loss) on valuation |
70,017 | (59 | ) | | 69,958 | |||||||||||
Amortization on the effective interest method |
10,195 | 47 | | 10,242 | ||||||||||||
Others (*) |
33,765 | | | 33,765 | ||||||||||||
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|
|||||||||
Ending balance |
17,087,096 | 25,153 | | 17,112,249 | ||||||||||||
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|
|
(*) Others consist of foreign currencies translation, etc.
(4) | The Group disposed equity securities designated as financial assets at FVTOCI as the creditors determined to sell the securities for the year ended December 31, 2018. The fair value and accumulative gain on valuation of that equity securities at disposal date are 9,379 million Won and 1,392 million Won, respectively. |
(5) | Details of AFS financial assets as of December 31, 2017 is as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2017 | ||||||||||||||||
Amortized cost |
Cumulative gains on valuation |
Cumulative losses on valuation |
Fair value | |||||||||||||
Debt securities: |
||||||||||||||||
Korean treasury and government agencies |
2,338,760 | 1,193 | (9,386 | ) | 2,330,567 | |||||||||||
Financial institutions |
5,225,921 | 1,504 | (10,159 | ) | 5,217,266 | |||||||||||
Corporates |
2,727,016 | 3,851 | (5,635 | ) | 2,725,232 | |||||||||||
Asset-backed securities |
309,518 | | (1,337 | ) | 308,181 | |||||||||||
Bond denominated in foreign currencies |
2,449,954 | 3,100 | (10,475 | ) | 2,442,579 | |||||||||||
Others |
35,154 | 21 | (12 | ) | 35,163 | |||||||||||
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|
|
|
|
|
|
|||||||||
Sub-total |
13,086,323 | 9,669 | (37,004 | ) | 13,058,988 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Equity securities |
982,393 | 430,921 | (2,236 | ) | 1,411,078 | |||||||||||
Beneficiary certificates |
697,655 | 18,701 | (3,728 | ) | 712,628 | |||||||||||
Securities loaned |
169,988 | 664 | (396 | ) | 170,256 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
14,936,359 | 459,955 | (43,364 | ) | 15,352,950 | |||||||||||
|
|
|
|
|
|
|
|
9. | SECURITIES AT AMORTIZED COST AND HTM FINANCIAL ASSETS |
(1) | Details of securities at amortized cost as of December 31, 2018 is as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||
Korean treasury and government agencies |
7,523,458 | |||
Financial institutions |
9,474,922 | |||
Corporates |
5,707,063 | |||
Bond denominated in foreign currencies |
234,041 | |||
Loss allowance |
(6,925 | ) | ||
|
|
|||
Total |
22,932,559 | |||
|
|
- 57 -
(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 year ended December 31, 2018 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance (*1) |
(5,078 | ) | | | (5,078 | ) | ||||||||||
Transfer to 12-month expected credit losses |
| | | | ||||||||||||
Transfer to lifetime expected credit losses |
| | | | ||||||||||||
Transfer to credit-impaired financial assets |
| | | | ||||||||||||
Net provision of loss allowance |
(1,922 | ) | | | (1,922 | ) | ||||||||||
Disposal |
22 | | | 22 | ||||||||||||
Others(*2) |
54 | | | 54 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
(6,924 | ) | | | (6,924 | ) | ||||||||||
|
|
|
|
|
|
|
|
(*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 year ended December 31, 2018 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance |
16,749,296 | | | 16,749,296 | ||||||||||||
Transfer to 12-month expected credit losses |
| | | | ||||||||||||
Transfer to lifetime expected credit losses |
| | | | ||||||||||||
Transfer to credit-impaired financial assets |
| | | | ||||||||||||
Acquisition |
15,622,847 | | | 15,622,847 | ||||||||||||
Disposal / Redemption |
(9,426,757 | ) | | | (9,426,757 | ) | ||||||||||
Amortization on the effective interest method |
(7,970 | ) | | | (7,970 | ) | ||||||||||
Others (*) |
2,068 | | | 2,068 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
22,939,484 | | | 22,939,484 | ||||||||||||
|
|
|
|
|
|
|
|
(*) | Others consist of foreign currencies translation, etc. |
(3) | Details of HTM financial assets as of December 31, 2017 are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2017 | ||||||||||||||||
Amortized cost |
Cumulative gains on valuation |
Cumulative losses on valuation |
Fair value | |||||||||||||
Korean treasury and government agencies |
3,994,857 | 6,944 | (15,266 | ) | 3,986,535 | |||||||||||
Financial institutions |
7,245,426 | 2,923 | (15,067 | ) | 7,233,282 | |||||||||||
Corporates |
5,311,970 | 12,367 | (25,326 | ) | 5,299,011 | |||||||||||
Bond denominated in foreign currencies |
197,043 | 832 | (1,024 | ) | 196,851 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
16,749,296 | 23,066 | (56,683 | ) | 16,715,679 | |||||||||||
|
|
|
|
|
|
|
|
- 58 -
10. | LOANS AND OTHER FINANCIAL ASSETS AT AMORTIZED COST, AND LOANS AND RECEIVABLES |
(1) | Details of loans and other financial assets at amortized cost as of December 31, 2018 and loans and receivables as of December 31, 2017 are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Due from banks |
14,150,027 | 8,868,378 | ||||||
Loans |
260,819,917 | 251,523,301 | ||||||
Other financial assets(other receivables) |
7,478,371 | 6,714,525 | ||||||
|
|
|
|
|||||
Total |
282,448,315 | 267,106,204 | ||||||
|
|
|
|
(2) | Details of due from banks are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Due from banks in local currency: |
||||||||
Due from The Bank of Korea (BOK) |
11,034,602 | 6,246,496 | ||||||
Due from depository banks |
90,003 | 30,003 | ||||||
Due from non-depository institutions |
76 | 150 | ||||||
Due from the Korea Exchange |
30,000 | 50,000 | ||||||
Others |
85,915 | 97,365 | ||||||
Loss allowance |
(3,069 | ) | (1,541 | ) | ||||
|
|
|
|
|||||
Sub-total |
11,237,527 | 6,422,473 | ||||||
|
|
|
|
|||||
Due from banks in foreign currencies: |
||||||||
Due from banks on demand |
828,022 | 794,353 | ||||||
Due from banks on time |
1,288,303 | 972,915 | ||||||
Others |
798,493 | 679,554 | ||||||
Loss allowance |
(2,318 | ) | (917 | ) | ||||
|
|
|
|
|||||
Sub-total |
2,912,500 | 2,445,905 | ||||||
|
|
|
|
|||||
Total |
14,150,027 | 8,868,378 | ||||||
|
|
|
|
(3) | Details of restricted due from banks are as follows (Unit: Korean Won in millions): |
Counterparty |
December 31, 2018 | Reason of restriction | ||||||
Due from banks in local currency: |
||||||||
Due from BOK |
The BOK | 11,034,602 | Reserve deposits under the BOK Act | |||||
Others |
The Korea Exchange and others |
81,889 | Central counterparty KRW margin and others | |||||
|
|
|||||||
Sub-total |
11,116,491 | |||||||
|
|
|||||||
Due from banks in foreign currencies: |
||||||||
Due from banks on demand |
The BOK and others | 780,576 | Reserve deposits under the BOK Act and others | |||||
Others |
Korea Investment & Securities and others |
798,493 | Overseas futures and options trade deposits and others | |||||
|
|
|||||||
Sub-total |
1,579,069 | |||||||
|
|
|||||||
Total |
12,695,560 | |||||||
|
|
- 59 -
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 |
94,394 | Central counterparty KRW margin and others | |||||
|
|
|||||||
Sub-total |
6,340,890 | |||||||
|
|
|||||||
Due from banks in foreign currencies: |
||||||||
Due from banks on demand |
The BOK and others | 787,520 | Reserve deposits under the BOK Act and others | |||||
Others |
The Peoples Bank of China and others |
367,108 | Reserve deposits and others | |||||
|
|
|||||||
Sub-total |
1,154,628 | |||||||
|
|
|||||||
Total |
7,495,518 | |||||||
|
|
(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 year ended December 31, 2018 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance (*1) |
(3,092 | ) | | | (3,092 | ) | ||||||||||
Transfer to 12-month expected credit losses |
| | | | ||||||||||||
Transfer to lifetime expected credit losses |
| | | | ||||||||||||
Transfer to credit-impaired financial assets |
| | | | ||||||||||||
Net provision of loss allowance |
(2,219 | ) | | | (2,219 | ) | ||||||||||
Others (*2) |
(76 | ) | | | (76 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
(5,387 | ) | | | (5,387 | ) | ||||||||||
|
|
|
|
|
|
|
|
(*1) | The beginning balance was restated in accordance with K-IFRS 1109. |
(*2) | Others consist of foreign currencies translation and etc. |
2) | Gross carrying amount |
For the year ended December 31, 2018 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance |
8,870,835 | | | 8,870,835 | ||||||||||||
Transfer to 12-month expected credit losses |
| | | | ||||||||||||
Transfer to lifetime expected credit losses |
| | | | ||||||||||||
Transfer to credit-impaired financial assets |
| | | | ||||||||||||
Net increase |
5,301,259 | | | 5,301,259 | ||||||||||||
Other |
(16,680 | ) | | | (16,680 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
14,155,414 | | | 14,155,414 | ||||||||||||
|
|
|
|
|
|
|
|
- 60 -
(5) | Details of loans are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Loans in local currency |
210,701,421 | 200,213,230 | ||||||
Loans in foreign currencies |
15,239,032 | 13,147,888 | ||||||
Domestic bankers letter of credit |
2,934,366 | 2,516,907 | ||||||
Credit card accounts |
8,051,384 | 6,827,295 | ||||||
Bills bought in foreign currencies |
7,874,457 | 8,197,159 | ||||||
Bills bought in local currency |
22,885 | 334,714 | ||||||
Factoring receivables |
45,851 | 137,523 | ||||||
Advances for customers on guarantees |
13,810 | 23,620 | ||||||
Private placement bonds |
365,531 | 362,319 | ||||||
Securitized loans |
1,377,072 | 563,152 | ||||||
Call loans |
2,669,080 | 3,003,455 | ||||||
Bonds purchased under resale agreements |
11,701,951 | 16,859,064 | ||||||
Others |
1,037,283 | 607,325 | ||||||
Loan origination costs and fees |
574,178 | 510,860 | ||||||
Discounted present value |
(10,308 | ) | (10,988 | ) | ||||
Loss allowance |
(1,778,076 | ) | (1,770,222 | ) | ||||
|
|
|
|
|||||
Total |
260,819,917 | 251,523,301 | ||||||
|
|
|
|
(6) | Changes in the loss allowance on loans for the year ended December 31, 2018 are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||||
Consumers | Corporates | |||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||||||||
Beginning balance (*1) |
(101,479 | ) | (41,358 | ) | (117,168 | ) | (365,251 | ) | (255,922 | ) | (905,243 | ) | ||||||||||||
Transfer to 12-month expected credit losses |
(9,848 | ) | 8,966 | 882 | (24,324 | ) | 22,658 | 1,666 | ||||||||||||||||
Transfer to lifetime expected credit losses |
5,905 | (7,183 | ) | 1,278 | 15,074 | (407,780 | ) | 392,706 | ||||||||||||||||
Transfer to credit-impaired financial assets |
79,078 | 47,343 | (126,421 | ) | 62,731 | 97,750 | (160,481 | ) | ||||||||||||||||
Net reversal (provision) of loss allowance |
(86,224 | ) | (56,164 | ) | (49,637 | ) | (68,381 | ) | 193,392 | (94,004 | ) | |||||||||||||
Recoveries of loans previously charged off |
| | (51,855 | ) | | | (127,630 | ) | ||||||||||||||||
Charge-off |
| | 204,552 | | | 290,109 | ||||||||||||||||||
Disposal |
| 33 | 1,633 | | 237 | 49,902 | ||||||||||||||||||
Unwinding effect |
| | 7,945 | | | 23,381 | ||||||||||||||||||
Others (*2) |
(1,941 | ) | (5 | ) | (1,115 | ) | 31,840 | 46 | 1,921 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
(114,509 | ) | (48,368 | ) | (129,906 | ) | (348,311 | ) | (349,619 | ) | (527,673 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2018 | ||||||||||||||||||||||||||||
Credit card accounts | Sub-total | Total | ||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||||||||||||
Beginning balance (*1) |
(57,134 | ) | (71,463 | ) | (102,858 | ) | (523,864 | ) | (368,743 | ) | (1,125,269 | ) | (2,017,876 | ) | ||||||||||||||
Transfer to 12-month expected credit losses |
(13,846 | ) | 13,738 | 108 | (48,018 | ) | 45,362 | 2,656 | | |||||||||||||||||||
Transfer to lifetime expected credit losses |
5,871 | (6,194 | ) | 323 | 26,850 | (421,157 | ) | 394,307 | | |||||||||||||||||||
Transfer to credit-impaired financial assets |
82,406 | 84,048 | (166,454 | ) | 224,215 | 229,141 | (453,356 | ) | | |||||||||||||||||||
Net reversal (provision) of loss allowance |
(82,083 | ) | (98,260 | ) | (33,205 | ) | (236,688 | ) | 38,968 | (176,846 | ) | (374,566 | ) | |||||||||||||||
Recoveries of loans previously charged off |
| | (57,565 | ) | | | (237,050 | ) | (237,050 | ) | ||||||||||||||||||
Charge-off |
| | 242,879 | | | 737,540 | 737,540 | |||||||||||||||||||||
Disposal |
| | | | 270 | 51,535 | 51,805 | |||||||||||||||||||||
Unwinding effect |
| | | | | 31,326 | 31,326 | |||||||||||||||||||||
Others (*2) |
(1 | ) | | | 29,898 | 41 | 806 | 30,745 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Ending balance |
(64,787 | ) | (78,131 | ) | (116,772 | ) | (527,607 | ) | (476,118 | ) | (774,351 | ) | (1,778,076 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*1) The beginning balance was restated in accordance with K-IFRS 1109.
(*2) Others consist of debt-equity swap, foreign currencies translation and etc.
- 61 -
Changes in the loss allowances on loans and receivables for the year ended December 31, 2017, are as follows (Unit: Korean Won in millions):
For the year ended December 31, 2017 | ||||||||||||||||||||
Consumers | Corporates | Credit card | Others | Total | ||||||||||||||||
Beginning balance |
(163,858 | ) | (1,498,842 | ) | (155,372 | ) | (209,024 | ) | (2,027,096 | ) | ||||||||||
Net reversal (provision) of loss allowance |
(131,275 | ) | (539,222 | ) | (203,968 | ) | 12,192 | (862,273 | ) | |||||||||||
Recoveries of loans previously charged off |
(45,060 | ) | (84,413 | ) | (51,366 | ) | (68 | ) | (180,907 | ) | ||||||||||
Charge-off |
142,099 | 453,249 | 228,640 | 63,181 | 887,169 | |||||||||||||||
Disposal |
898 | 65,145 | | 29,186 | 95,229 | |||||||||||||||
Unwinding effect |
8,643 | 36,548 | | | 45,191 | |||||||||||||||
Others(*) |
908 | 211,729 | 1 | (193 | ) | 212,445 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance |
(187,645 | ) | (1,355,806 | ) | (182,065 | ) | (104,726 | ) | (1,830,242 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
(*) | Others consist of debt-equity swap, foreign currencies translation and etc. |
(7) | Changes in the gross carrying amount of loans are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||||
Consumers | Corporates | |||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||||||||
Beginning balance |
103,502,347 | 5,487,758 | 326,739 | 131,096,396 | 4,466,354 | 1,622,409 | ||||||||||||||||||
Transfer to 12-month expected credit losses |
1,921,485 | (1,912,046 | ) | (9,439 | ) | 1,081,702 | (1,077,895 | ) | (3,807 | ) | ||||||||||||||
Transfer to lifetime expected credit losses |
(3,186,506 | ) | 3,199,993 | (13,487 | ) | (2,275,984 | ) | 2,733,860 | (457,876 | ) | ||||||||||||||
Transfer to credit-impaired financial assets |
(218,943 | ) | (127,447 | ) | 346,390 | (348,503 | ) | (275,189 | ) | 623,692 | ||||||||||||||
Charge-off |
| | (204,552 | ) | | | (290,109 | ) | ||||||||||||||||
Disposal |
| (478 | ) | (31,910 | ) | | (2,781 | ) | (166,347 | ) | ||||||||||||||
Net increase (decrease) |
8,600,859 | (619,771 | ) | (22,247 | ) | 1,900,116 | (813,091 | ) | (307,304 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
110,619,242 | 6,028,009 | 391,494 | 131,453,727 | 5,031,258 | 1,020,658 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2018 | ||||||||||||||||||||||||||||
Credit card accounts | Sub-total | Total | ||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||||||||||||
Beginning balance |
5,721,743 | 935,266 | 177,983 | 240,320,486 | 10,889,378 | 2,127,131 | 253,336,995 | |||||||||||||||||||||
Transfer to 12-month expected credit losses |
221,984 | (221,841 | ) | (143 | ) | 3,225,171 | (3,211,782 | ) | (13,389 | ) | | |||||||||||||||||
Transfer to lifetime expected credit losses |
(287,623 | ) | 288,027 | (404 | ) | (5,750,113 | ) | 6,221,880 | (471,767 | ) | | |||||||||||||||||
Transfer to credit-impaired financial assets |
(104,459 | ) | (95,758 | ) | 200,217 | (671,905 | ) | (498,394 | ) | 1,170,299 | | |||||||||||||||||
Charge-off |
| | (242,879 | ) | | | (737,540 | ) | (737,540 | ) | ||||||||||||||||||
Disposal |
| | | | (3,259 | ) | (198,257 | ) | (201,516 | ) | ||||||||||||||||||
Net increase (decrease) |
1,310,199 | 77,078 | 74,215 | 11,811,174 | (1,355,784 | ) | (255,336 | ) | 10,200,054 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Ending balance |
6,861,844 | 982,772 | 208,989 | 248,934,813 | 12,042,039 | 1,621,141 | 262,597,993 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 62 -
(8) | Details of other financial assets (other receivables) are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
CMA accounts |
185,999 | 135,000 | ||||||
Receivables |
4,864,403 | 4,459,318 | ||||||
Accrued income |
1,000,427 | 1,026,273 | ||||||
Telex and telephone subscription rights and refundable deposits |
982,925 | 984,620 | ||||||
Other receivables |
512,339 | 166,877 | ||||||
Loss allowance |
(67,722 | ) | (57,563 | ) | ||||
|
|
|
|
|||||
Total |
7,478,371 | 6,714,525 | ||||||
|
|
|
|
(9) | Changes in the loss allowances on other financial assets are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance (*1) |
(2,955 | ) | (1,832 | ) | (54,211 | ) | (58,998 | ) | ||||||||
Transfer to 12-month expected credit losses |
(150 | ) | 139 | 11 | | |||||||||||
Transfer to lifetime expected credit losses |
105 | (416 | ) | 311 | | |||||||||||
Transfer to credit-impaired financial assets |
6,509 | 304 | (6,813 | ) | | |||||||||||
Net provision of loss allowance |
(6,583 | ) | (166 | ) | (31,550 | ) | (38,299 | ) | ||||||||
Charge-off |
| | 28,200 | 28,200 | ||||||||||||
Disposal |
| 1 | 1,264 | 1,265 | ||||||||||||
Others(*2) |
(176 | ) | (1 | ) | 287 | 110 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
(3,250 | ) | (1,971 | ) | (62,501 | ) | (67,722 | ) | ||||||||
|
|
|
|
|
|
|
|
(*1) The beginning balance was restated in accordance with K-IFRS 1109.
(*2) Others consist of foreign currencies translation and etc.
(10) | Changes in the gross carrying amount of other financial assets are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance |
6,662,335 | 29,124 | 79,912 | 6,771,371 | ||||||||||||
Transfer to 12-month expected credit losses |
7,573 | (7,556 | ) | (17 | ) | | ||||||||||
Transfer to lifetime expected credit losses |
(11,418 | ) | 11,734 | (316 | ) | | ||||||||||
Transfer to credit-impaired financial assets |
(7,580 | ) | (1,110 | ) | 8,690 | | ||||||||||
Disposal |
| | (28,201 | ) | (28,201 | ) | ||||||||||
Net increase and others |
| (5 | ) | (1,640 | ) | (1,645 | ) | |||||||||
Others |
794,983 | (3,994 | ) | 13,579 | 804,568 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
7,445,893 | 28,193 | 72,007 | 7,546,093 | ||||||||||||
|
|
|
|
|
|
|
|
- 63 -
11. | FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES |
(1) | The fair value hierarchy |
The fair value hierarchy is determined by the levels of judgment involved in estimating fair values of financial assets and liabilities. The specific financial instruments characteristics and market condition such as volume of transactions and transparency are reflected to the market observable inputs. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities. The Group maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value of its financial assets and financial liabilities. Fair value is measured based on the perspective of a market participant. As such, even when market assumptions are not readily available, the Groups own assumptions reflect those that market participants would use for measuring the assets or liabilities at the measurement date.
The fair value measurement is described in the one of the following three levels used to classify fair value measurements:
| Level 1fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. The types of financial assets or liabilities generally included in Level 1 are publicly traded equity securities, derivatives, and debt securities issued by governmental bodies. |
| Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices). The types of financial assets or liabilities generally included in Level 2 are debt securities not traded in active markets and derivatives traded in OTC but not required significant judgment. |
| Level 3 fair value measurements are those derived from valuation technique that include inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). The types of financial assets or liabilities generally included in Level 3 are non-public securities and derivatives and debt securities of which valuation techniques require significant judgments and subjectivity. |
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Groups assessment of the significance of a particular input to a fair value measurement in its entirety requires judgment and consideration of inherent factors of the asset or liability.
(2) | Fair value hierarchy of financial assets and liabilities measured at fair value are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||||||||||||||
Level 1 (*1) | Level 2 (*1) | Level 3 | Total | |||||||||||||
Financial assets: |
||||||||||||||||
Financial assets at fair value through profit or loss mandatorily measured at fair value |
||||||||||||||||
Deposits |
26,935 | | | 26,935 | ||||||||||||
Debt securities |
239,794 | 1,575,972 | 8,389 | 1,824,155 | ||||||||||||
Equity securities |
53,806 | | 401,860 | 455,666 | ||||||||||||
Capital contributions |
| | 422,481 | 422,481 | ||||||||||||
Beneficiary certificates |
2,130 | 128,988 | 854,299 | 985,417 | ||||||||||||
Loans |
| 205,000 | 180,450 | 385,450 | ||||||||||||
Derivative assets |
13,216 | 1,964,065 | 48,798 | 2,026,079 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
335,881 | 3,874,025 | 1,916,277 | 6,126,183 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial assets at FVTOCI |
||||||||||||||||
Debt securities |
1,838,409 | 15,233,811 | | 17,072,220 | ||||||||||||
Equity securities |
482,327 | | 468,847 | 951,174 | ||||||||||||
Securities loaned |
| 40,029 | | 40,029 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
2,320,736 | 15,273,840 | 468,847 | 18,063,423 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative assets (Designated for hedging) |
| 35,503 | | 35,503 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
2,656,617 | 19,183,368 | 2,385,124 | 24,225,109 | ||||||||||||
|
|
|
|
|
|
|
|
- 64 -
December 31, 2018 | ||||||||||||||||
Level 1 (*1) | Level 2 (*1) | Level 3 | Total | |||||||||||||
Financial liabilities: |
||||||||||||||||
Financial liabilities at fair value through profit or loss mandatorily measured at fair value |
||||||||||||||||
Deposits due to customers |
27,058 | | | 27,058 | ||||||||||||
Derivative liabilities |
2,245 | 2,071,925 | 16,691 | 2,090,861 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
29,303 | 2,071,925 | 16,691 | 2,117,919 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities at fair value through profit or loss designated as upon initial recognition |
||||||||||||||||
Equity-linked securities |
| | 164,767 | 164,767 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities (Designated for hedging) |
| 51,408 | | 51,408 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
29,303 | 2,123,333 | 181,458 | 2,334,094 | ||||||||||||
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||
Level 1 (*1) | Level 2 (*1) | Level 3 (*2) | Total | |||||||||||||
Financial assets: |
||||||||||||||||
Financial assets held for trading |
||||||||||||||||
Deposits |
25,972 | | | 25,972 | ||||||||||||
Debt securities |
405,942 | 2,238,391 | | 2,644,333 | ||||||||||||
Equity securities |
21,666 | | | 21,666 | ||||||||||||
Beneficiary certificates |
| 13,041 | | 13,041 | ||||||||||||
Derivative assets |
1,021 | 3,093,272 | 21,482 | 3,115,775 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
454,601 | 5,344,704 | 21,482 | 5,820,787 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial assets designated at FVTPL |
||||||||||||||||
Debt securities |
| | 9,694 | 9,694 | ||||||||||||
Equity securities |
| | 12,596 | 12,596 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
| | 22,290 | 22,290 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
AFS financial assets |
||||||||||||||||
Debt securities |
2,710,172 | 10,348,815 | | 13,058,987 | ||||||||||||
Equity securities |
399,214 | | 1,011,864 | 1,411,078 | ||||||||||||
Beneficiary certificates |
| 68,722 | 643,906 | 712,628 | ||||||||||||
Securities loaned |
69,778 | 100,478 | | 170,256 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
3,179,164 | 10,518,015 | 1,655,770 | 15,352,949 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative assets (Designated for hedging) |
| 59,272 | | 59,272 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
3,633,765 | 15,921,991 | 1,699,542 | 21,255,298 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities: |
||||||||||||||||
Financial liabilities held for trading |
||||||||||||||||
Deposits due to customers |
25,964 | | | 25,964 | ||||||||||||
Derivative liabilities |
2,613 | 3,126,585 | 20,951 | 3,150,149 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
28,577 | 3,126,585 | 20,951 | 3,176,113 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities designated at FVTPL |
||||||||||||||||
Equity-linked securities |
| | 160,057 | 160,057 | ||||||||||||
Debentures |
| 91,739 | | 91,739 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
| 91,739 | 160,057 | 251,796 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities (Designated for hedging) |
| 67,754 | | 67,754 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
28,577 | 3,286,078 | 181,008 | 3,495,663 | ||||||||||||
|
|
|
|
|
|
|
|
(*1) | There were no transfers between Level 1 and Level 2 of financial assets and liabilities measured at fair value. The Group recognizes transfers among levels at the end of reporting period in which events have occurred or conditions have changed. |
(*2) | Certain unquoted AFS equity securities were measured at cost as of December 31, 2017, that amounted to 37,092 million Won. These unquoted equity instruments mostly represent minority investments in structured entity vehicles, such as asset securitization structures. They are measured at cost because (a) observable inputs of financial information to measure fair value were not available to obtain, (b) there was a significant variance in likely estimated cash flows or (c) the probabilities for various estimated cash flows could not be measured reliably. In addition, the Group has no intention to dispose these investments in the foreseeable future. |
- 65 -
Financial assets and liabilities at fair value through profit or loss mandatorily measured at fair value, financial liabilities at fair value through profit or loss designated as upon initial recognition, financial assets at FVTOCI, and derivative assets (Designated for hedging) and liabilities (Designated for hedging) are recognized at fair value. Fair value is the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
Financial instruments are measured at fair value using a quoted market price in active markets. If there is no active market for a financial instrument, the Group determines the fair value using valuation methods. Valuation methods and input variables for each type of financial instruments are as follows:
Valuation methods |
Input variables | |||
Loans |
The fair value of Loans is measured by the Binomial tree given the values of underlying assets and volatility. | Values of underlying assets, Volatility | ||
Debt securities |
The fair value is measured by discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the securities. | Risk-free market rate, credit spread | ||
Equity securities, capital contributions and Beneficiary certificates |
Among DCF (Discounted Cash Flow) Model, FCFE (Free Cash Flow to Equity) Model, Comparable Company Analysis, Dividend Discount Model, Risk-adjusted Rate of Return Method, and Net Asset Value Method, more than one method is used given the characteristic of the subject of fair value measurement. | Risk-free market rate, market risk premium, Beta, etc. | ||
Derivatives |
The in-house developed model which is based on the models that are used by market participants in the valuation of general OTC derivative products, such as options, interest rate swaps, currency swap and currency forward that are based on inputs observable in the market. However, for some complicated financial instruments of which valuation should be based on some assumptions since some significant or all inputs to be used in the model are not observable in the market, the in-house derived model which is developed from the general valuation models, such as Finite Difference Method (FDM) or Monte Carlo Simulation. |
Risk-free market rate, forward rate, volatility, foreign exchange rate, stock prices, etc. | ||
Equity-linked securities |
The fair value of security linked to stock prices or derivatives is measured by the models such as DCF model, FDM, or Monte Carlo Simulation given the natures of the securities or underlying assets. | Values of underlying assets, risk-free market rate, market rate, dividend and convenience yield, volatility, correlation coefficient, credit spread, and foreign exchange rate | ||
Debentures |
The fair value is measured by discounting the projected cash flows of a debenture by applying the market discount rate that is reflecting credit rating of the Group. | Risk-free market rate, forward rate |
- 66 -
Valuation methods of financial assets and liabilities measured at fair value and classified into Level 3 and significant but unobservable inputs are as follows:
Fair value measurement |
Input variable |
Range |
Impact of changes in significant unobservable inputs on | |||||
Loans |
Binomial tree | Stock, Volatility of underlying asset | 15.49%~36.96% | Fair value increases as volatility of underlying asset increases. | ||||
Derivative assets |
Option valuation model and others | Correlation coefficient | 0.9~0.98 | Variation of fair value increases as correlation coefficient increases. | ||||
Volatility of underlying asset | 14.00%~34.28% | Variation of fair value increases as volatility increases. | ||||||
Derivative liabilities |
Option valuation model and others | Correlation coefficient | 0.9~0.98 | Variation of fair value increases as correlation coefficient increases. | ||||
Volatility of underlying asset | 14.00%~34.28% | Variation of fair value increases as volatility increases. | ||||||
Equity-linked securities |
Monte Carlo Simulation and others | Correlation coefficient | 0.005~0.658 | Equity-linked securities variation of fair value increases if both volatility and correlation coefficient increase. However, when correlation coefficient decreases despite the increase in volatility, the variation of fair value of a compound financial instrument may decrease. | ||||
Volatility of underlying asset | 22.09%~31.19% | |||||||
Equity securities, capital contributions and Beneficiary certificates |
External appraisal value and others | Terminal growth rate | 0.00% | Fair value increases as terminal growth rate increases. | ||||
Discount rate | 3.67%~17.40% | Fair value increases as discount rate decreases. | ||||||
Volatility of real estate sale price | 0.00% | Fair value increases as volatility of real estate sale price increases. |
Fair value of financial assets and liabilities classified into Level 3 is measured by the Group using its own valuation methods or using external specialists. Unobservable inputs used in the fair value measurements are produced by the internal system of the Group and the appropriateness of inputs is reviewed regularly.
- 67 -
(3) | Changes in financial assets and liabilities measured at fair value classified into Level 3 are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||||||||
January 1, 2018 |
Net Income (loss) (*1) |
Other comprehensive income |
Purchases/ issuances |
Disposals/ settlements |
Transfer to or out of Level 3 (*2) |
December 31, 2018 |
||||||||||||||||||||||
Financial assets: |
||||||||||||||||||||||||||||
Financial assets at fair value through profit or loss mandatorily measured at fair value |
||||||||||||||||||||||||||||
Debt securities |
9,694 | (28 | ) | | 3,000 | (4,277 | ) | | 8,389 | |||||||||||||||||||
Equity securities |
280,171 | 56,271 | | 67,953 | (2,535 | ) | | 401,860 | ||||||||||||||||||||
Capital contributions |
294,121 | 16,119 | | 144,207 | (31,966 | ) | | 422,481 | ||||||||||||||||||||
Beneficiary certificates |
654,066 | 16,391 | | 5,151,535 | (4,971,003 | ) | 3,310 | 854,299 | ||||||||||||||||||||
Loans |
165,001 | 3,378 | | 150,103 | (138,032 | ) | | 180,450 | ||||||||||||||||||||
Derivative assets |
19,346 | 75,696 | | 4,722 | (50,966 | ) | | 48,798 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Sub-total |
1,422,399 | 167,827 | | 5,521,520 | (5,198,779 | ) | 3,310 | 1,916,277 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Financial assets at FVTOCI |
||||||||||||||||||||||||||||
Equity securities |
451,287 | | 19,688 | 432 | (2,560 | ) | | 468,847 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
1,873,686 | 167,827 | 19,688 | 5,521,952 | (5,201,339 | ) | 3,310 | 2,385,124 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Financial liabilities: |
||||||||||||||||||||||||||||
Financial liabilities at fair value through profit or loss mandatorily measured at fair value |
||||||||||||||||||||||||||||
Derivative liabilities |
20,951 | 46,409 | | 255 | (50,921 | ) | (3 | ) | 16,691 | |||||||||||||||||||
Financial liabilities at fair value through profit or loss designated as upon initial recognition |
||||||||||||||||||||||||||||
Equity-linked securities |
160,057 | (16,243 | ) | | 183,039 | (162,086 | ) | | 164,767 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
181,008 | 30,166 | | 183,294 | (213,007 | ) | (3 | ) | 181,458 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | The losses that increase financial liabilities are presented as positive amounts, and the gains that decrease financial liabilities are presented as negative amounts. The gain amounting to 137,777 million Won for the years ended December 31, 2018, which is from financial assets and liabilities that the Group holds as at the end of the periods, has been recognized in net gain (loss) on financial assets at FVTPL and net gain (loss) on financial assets at FVTOCI in the consolidated statement of comprehensive income. |
(*2) | The Group recognizes transfers between levels at the end of reporting period within which events have occurred or conditions have changed. |
- 68 -
For the year ended December 31, 2017 | ||||||||||||||||||||||||||||
January 1, 2017 |
Net Income (loss) (*1) |
Other comprehensive income |
Purchases/ Issuances |
Disposals/ Settlements |
Transfer to or out of level 3 (*2) |
December 31, 2017 |
||||||||||||||||||||||
Financial assets: |
||||||||||||||||||||||||||||
Financial assets held for trading |
||||||||||||||||||||||||||||
Derivative assets |
23,153 | 22,362 | | 1,398 | (25,431 | ) | | 21,482 | ||||||||||||||||||||
Financial assets designed at FVTPL |
||||||||||||||||||||||||||||
Debt securities |
4,348 | 346 | | 5,000 | | | 9,694 | |||||||||||||||||||||
Equity securities |
12,652 | (56 | ) | | | | | 12,596 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Sub-total |
17,000 | 290 | | 5,000 | | | 22,290 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
AFS financial assets |
||||||||||||||||||||||||||||
Equity securities |
1,024,935 | 27,986 | 24,442 | 65,961 | (131,460 | ) | | 1,011,864 | ||||||||||||||||||||
Beneficiary certificates |
530,511 | 212 | (4,321 | ) | 226,975 | (109,471 | ) | | 643,906 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Sub-total |
1,555,446 | 28,198 | 20,121 | 292,936 | (240,931 | ) | | 1,655,770 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Derivative assets |
99 | 329 | | | (428 | ) | | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
1,595,698 | 51,179 | 20,121 | 299,334 | (266,790 | ) | | 1,699,542 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Financial liabilities: |
||||||||||||||||||||||||||||
Financial liabilities held for trading |
||||||||||||||||||||||||||||
Derivative liabilities |
33,524 | 24,866 | | 500 | (37,939 | ) | | 20,951 | ||||||||||||||||||||
Financial liabilities designated at FVTPL |
||||||||||||||||||||||||||||
Equity-linked securities |
673,709 | 112,015 | | | (625,667 | ) | | 160,057 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
707,233 | 136,881 | | 500 | (663,606 | ) | | 181,008 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | The losses that increase financial liabilities are presented as positive amounts, and the gains that decrease financial liabilities are presented as negative amounts. The loss amounting to 34,621 million Won for the year ended December 31, 2017, which is from financial assets and liabilities that the Group holds, has been recognized in net gain (loss) on financial instruments at FVTPL and net gain (loss) on AFS financial assets in the statement of comprehensive income. |
(*2) | The Group recognizes transfers between levels at the end of reporting period within which events have occurred or conditions have changed. |
(4) | Sensitivity analysis on the unobservable inputs used for measuring Level 3 financial instruments |
The sensitivity analysis of the financial instruments has been performed by classifying with favorable and unfavorable changes based on how changes in unobservable assumptions would have effects on the fluctuations of financial instruments value. When the fair value of a financial instrument is affected by more than one unobservable assumption, the below table reflects the most favorable or the most unfavorable changes which resulted from varying the assumptions individually. The sensitivity analysis was performed for two types of level 3 financial instruments: (1) interest rate related derivatives, currency related derivatives, equity related derivatives, equity-linked securities beneficiary certificates and loans of which fair value changes are recognized as net income; (2) equity securities of which fair value changes are recognized as other comprehensive income.
The equity investments classified as Level 3 equity securities whose costs (2,566,582 million Won and 1,880,550 million Won as of December 31, 2018 and 2017) are considered to provide the best estimate of fair value are excluded from sensitivity analysis (1,641,875 million Won and 1,146,751 million Won as of December 31, 2018 and 2017).
- 69 -
The following table presents the sensitivity analysis to disclose the effect of reasonably possible volatility on the fair value of a Level 3 financial instruments (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||
Net income (loss) | Other comprehensive income (loss) | |||||||||||||||
Favorable | Unfavorable | Favorable | Unfavorable | |||||||||||||
Financial assets: |
||||||||||||||||
Financial assets at FVTPL |
||||||||||||||||
Derivative assets (*1) |
4,578 | (4,352 | ) | | | |||||||||||
Loans |
146 | (127 | ) | | | |||||||||||
Debt securities |
68 | (35 | ) | | | |||||||||||
Equity securities (*2) (*3) |
12,700 | (9,165 | ) | | | |||||||||||
Beneficiary certificates (*3) |
1,582 | (1,582 | ) | | | |||||||||||
Financial assets at FVTOCI |
||||||||||||||||
Equity securities (*2) (*3) |
| | 23,798 | (10,078 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
19,074 | (15,261 | ) | 23,798 | (10,078 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities: |
||||||||||||||||
Financial liabilities at fair value through profit or loss mandatorily measured at fair value |
||||||||||||||||
Derivative liabilities (*1) |
2,433 | (2,751 | ) | | | |||||||||||
Financial liabilities at fair value through profit or loss designated as upon initial recognition |
||||||||||||||||
Equity-linked securities (*1) |
1,561 | (1,669 | ) | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
3,994 | (4,420 | ) | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2017 | ||||||||||||||||
Net income (loss) | Other comprehensive income (loss) | |||||||||||||||
Favorable | Unfavorable | Favorable | Unfavorable | |||||||||||||
Financial assets: |
||||||||||||||||
Financial assets held for trading |
||||||||||||||||
Derivatives assets (*1) |
1,234 | (526 | ) | | | |||||||||||
Financial assets designated at FVTPL |
||||||||||||||||
Debt securities (*4) |
265 | (309 | ) | | | |||||||||||
Equity securities (*4) |
670 | (624 | ) | | | |||||||||||
AFS Financial assets |
||||||||||||||||
Equity securities (*2)(*3) |
| | 28,583 | (15,246 | ) | |||||||||||
Beneficiary certificates (*3) |
| | 1,861 | (1,857 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
2,169 | (1,459 | ) | 30,444 | (17,103 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities: |
||||||||||||||||
Financial liabilities held for trading |
||||||||||||||||
Derivative liabilities (*1) |
5 | (513 | ) | | | |||||||||||
Financial liabilities designated at FVTPL |
||||||||||||||||
Equity-linked securities (*1) |
8 | (7 | ) | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
13 | (520 | ) | | | |||||||||||
|
|
|
|
|
|
|
|
(*1) | Fair value changes of equity related derivatives assets and liabilities and equity-linked securities are calculated by increasing or decreasing historical volatility of the stock price and correlation, which are major unobservable variables, by 10%, respectively. In the case of interest rate related derivative assets and liabilities, fair value changes are calculated by increasing or decreasing the volatility of interest rate, which are major unobservable variables, by 10%. |
(*2) | Fair value changes of equity securities are calculated by increasing or decreasing growth rate (0~1%) and discount rate or liquidation value (-1~1%). The growth rate, discount rate, and liquidation value are major unobservable variables. |
(*3) | Even if the sensitivity analysis of the capital contributions and beneficiary certificates is not possible in practice, fair value changes of beneficiary certificates and other securities whose major unobservable variables are composed of the real estate are calculated by increasing or decreasing price fluctuation of real estate which is underlying assets and discount rate by 1%. |
(*4) | Changes of fair value are measured by increasing or decreasing the discount rate by 10%, which is major unobservable variable, respectively. |
- 70 -
(5) | Fair value and carrying amount of financial assets and liabilities that are recorded at amortized cost are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||||||||||||||||||
Fair value | Book value |
|||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Financial assets: |
||||||||||||||||||||
Securities at amortized cost |
3,618,213 | 19,417,130 | | 23,035,343 | 22,932,559 | |||||||||||||||
Loans and other financial assets at amortized cost |
| | 282,333,497 | 282,333,497 | 282,448,315 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits due to customers |
| 248,763,952 | | 248,763,952 | 248,690,939 | |||||||||||||||
Borrowings |
| 16,203,070 | | 16,203,070 | 16,202,986 | |||||||||||||||
Debentures |
| 28,755,251 | | 28,755,251 | 28,725,862 | |||||||||||||||
Other financial liabilities |
| 21,444,937 | | 21,444,937 | 21,426,064 |
December 31, 2017 | ||||||||||||||||||||
Fair value | Book value |
|||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Financial assets: |
||||||||||||||||||||
HTM financial assets |
1,206,292 | 15,509,387 | | 16,715,679 | 16,749,296 | |||||||||||||||
Loans and receivables |
| | 265,570,649 | 265,570,649 | 267,106,204 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits due to customers |
| 234,682,775 | | 234,682,775 | 234,695,084 | |||||||||||||||
Borrowings |
| 14,754,506 | | 14,754,506 | 14,784,706 | |||||||||||||||
Debentures |
| 27,889,781 | | 27,889,781 | 27,869,651 | |||||||||||||||
Other financial liabilities |
| 13,890,789 | | 13,890,789 | 13,892,461 |
The fair values of financial instruments are measured using quoted market price in active markets. In case there is no active market for financial instruments, the Group determines the fair value using valuation methods. Valuation methods and input variables for financial assets and liabilities that are measured at amortized costs are given as follows:
Valuation methods |
Input variables | |||
Securities at amortized cost (HTM financial assets in previous year) |
The fair value is measured by discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the securities. | Risk-free market rate and credit spread | ||
Loans and other financial assets at amortized cost (Loans and receivables in previous year) |
The fair value is measured by discounting the projected cash flows of loan products by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the debtor. | Risk-free market rate, credit spread and prepayment-rate | ||
Deposits due to customers, borrowings, debentures and other financial liabilities |
The fair value is measured by discounting the projected cash flows of debt products by applying the market discount rate that is reflecting credit rating of the Group. | Risk-free market rate and forward rate |
- 71 -
(6) | Financial instruments by category |
Carrying amounts of financial assets and liabilities by each category are as follows (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||||||
Financial assets | Financial asset at FVTPL |
Financial assets at FVTOCI |
Financial assets at amortized cost |
Derivatives assets (Designated for hedging) |
Total | |||||||||||||||
Deposits |
26,935 | | 14,150,027 | | 14,176,962 | |||||||||||||||
Securities |
3,687,719 | 18,063,423 | 22,932,559 | | 44,683,701 | |||||||||||||||
Loans |
385,450 | | 260,819,917 | | 261,205,367 | |||||||||||||||
Derivative assets |
2,026,079 | | | 35,503 | 2,061,582 | |||||||||||||||
Other financial assets |
| | 7,478,371 | | 7,478,371 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
6,126,183 | 18,063,423 | 305,380,874 | 35,503 | 329,605,983 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Financial liabilities | December 31, 2018 | |||||||||||||||
Financial liabilities at FVTPL |
Financial liabilities at amortized cost |
Derivatives liabilities (Designated for hedging) |
Total | |||||||||||||
Deposits due to customers |
27,058 | 248,690,939 | | 248,717,997 | ||||||||||||
Borrowings |
164,767 | 16,202,986 | | 16,367,753 | ||||||||||||
Debentures |
| 28,725,862 | | 28,725,862 | ||||||||||||
Derivative liabilities |
2,090,861 | | 51,408 | 2,142,269 | ||||||||||||
Other financial liabilities(*) |
| 21,473,881 | | 21,473,881 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
2,282,686 | 315,093,668 | 51,408 | 317,427,762 | ||||||||||||
|
|
|
|
|
|
|
|
(*) | Other financial liabilities include 47,817 million Won of financial guarantee liabilities measured at amortized cost included in provisions. |
December 31, 2017 | ||||||||||||||||||||||||
Financial assets | Financial assets at FVTPL |
AFS financial assets |
HTM financial assets |
Loans and receivables |
Derivatives assets (Designated for hedging) |
Total | ||||||||||||||||||
Deposits |
25,972 | | | 8,868,378 | | 8,894,350 | ||||||||||||||||||
Securities |
2,701,330 | 15,352,950 | 16,749,296 | | | 34,803,576 | ||||||||||||||||||
Loans |
| | | 251,523,301 | | 251,523,301 | ||||||||||||||||||
Derivative assets |
3,115,775 | | | | 59,272 | 3,175,047 | ||||||||||||||||||
Other financial assets |
| | | 6,714,525 | | 6,714,525 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
5,843,077 | 15,352,950 | 16,749,296 | 267,106,204 | 59,272 | 305,110,799 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||
Financial liabilities | Financial liabilities at FVTPL |
Financial liabilities at amortized cost |
Derivatives liabilities (Designated for hedging) |
Total | ||||||||||||
Deposits due to customers |
25,964 | 234,695,084 | | 234,721,048 | ||||||||||||
Borrowings |
160,057 | 14,784,706 | | 14,944,763 | ||||||||||||
Debentures |
91,739 | 27,869,651 | | 27,961,390 | ||||||||||||
Derivative liabilities |
3,150,149 | | 67,754 | 3,217,903 | ||||||||||||
Other financial liabilities(*) |
| 13,964,158 | | 13,964,158 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
3,427,909 | 291,313,599 | 67,754 | 294,809,262 | ||||||||||||
|
|
|
|
|
|
|
|
(*) | Other financial liabilities include 71,697 million Won of financial guarantee liabilities measured at amortized cost included in provisions. |
- 72 -
(7) | Income or expense from financial instruments by category |
Income or expense from financial assets and liabilities by each category during the years ended December 31, 2018 and 2017 are as follows (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||||||
Interest Income (expense) |
Fees and Commissions Income (expense) |
Provision (reversal) of credit loss |
Others | Total | ||||||||||||||||
Financial assets at FVTPL |
54,243 | 86,845 | | 264,850 | 405,938 | |||||||||||||||
Financial assets at FVTOCI |
280,371 | 66 | (2,027 | ) | 24,707 | 303,117 | ||||||||||||||
Securities at amortized cost |
376,788 | | (1,922 | ) | 431 | 375,297 | ||||||||||||||
Loans and other financial assets at amortized cost |
8,973,097 | 317,316 | (415,084 | ) | 79,101 | 8,954,430 | ||||||||||||||
Financial liabilities at FVTPL |
(3,164 | ) | | | 17,485 | 14,321 | ||||||||||||||
Financial liabilities at amortized cost |
(4,030,384 | ) | 27,742 | | 25,498 | (3,977,144 | ) | |||||||||||||
Derivatives assets (liabilities) (Designated for hedging) |
| | | (672 | ) | (672 | ) | |||||||||||||
Off-balance provisions |
| | 89,459 | | 89,459 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
5,650,951 | 431,969 | (329,574 | ) | 411,400 | 6,164,746 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2017 | ||||||||||||||||||||
Interest Income (expense) |
Fees and Commissions Income (expense) |
Provision (reversal) of credit loss |
Others | Total | ||||||||||||||||
Financial assets at FVTPL |
48,615 | | | 6,859 | 55,474 | |||||||||||||||
AFS financial assets |
239,030 | 80,041 | (31,300 | ) | 362,712 | 650,483 | ||||||||||||||
HTM financial assets |
307,965 | | | | 307,965 | |||||||||||||||
Loans and receivables |
7,948,069 | 384,025 | (862,273 | ) | 196,269 | 7,666,090 | ||||||||||||||
Financial liabilities at FVTPL |
| | | (111,240 | ) | (111,240 | ) | |||||||||||||
Financial liabilities at amortized cost |
(3,323,029 | ) | | | 39,373 | (3,283,656 | ) | |||||||||||||
Derivatives assets (liabilities) (Designated for hedging) |
| | | (109,447 | ) | (109,447 | ) | |||||||||||||
Off-balance provisions |
| | 77,140 | | 77,140 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
5,220,650 | 464,066 | (816,433 | ) | 384,526 | 5,252,809 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
- 73 -
12. | DERECOGNITION AND OFFSET OF FINANCIAL INSTRUMENTS |
(1) | Derecognition of financial instruments |
Transferred financial assets that do not meet the condition of derecognition in their entirety.
a) | Bonds sold under repurchase agreements |
The financial instruments that were disposed but the Group agreed to repurchase at the fixed amounts at the same time, so that they did not meet the conditions of derecognition, are as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||||
Assets transferred |
Financial assets at FVTOCI | 33,588 | | |||||||
AFS financial assets | | 9,998 | ||||||||
Securities at amortized cost | 5,552 | | ||||||||
HTM financial assets | | 5,436 | ||||||||
|
|
|
|
|||||||
Total | 39,140 | 15,434 | ||||||||
|
|
|
|
|||||||
Related liabilities |
Bonds sold under repurchase agreements | 42,907 | 3,173 | |||||||
|
|
|
|
b) | Securities loaned |
When the Group loans its securities to outside parties, the legal ownerships of the securities are transferred; however, they should be returned at the end of lending period. Therefore, the Group does not derecognize them from the financial statements as it owns majority of risks and benefits from the securities continuously, regardless of the transfer of legal ownership. The carrying amounts of the securities loaned are as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | Loaned to | ||||||||||
Financial assets at FVTOCI |
Korean financial institutions debt securities and others |
40,029 | | Korea Securities Finance Corporation | ||||||||
AFS financial assets |
Korean treasury, government bonds and others |
| 170,256 | Korea Securities Finance Corporation and others | ||||||||
|
|
|
|
|||||||||
Total | 40,029 | 170,256 | ||||||||||
|
|
|
|
The details of the transferred financial assets that are not meet the condition of derecognition in their entirety, such as disposal of securities under repurchase agreement or securities loaned, are explained in Note 18.
(2) | The offset of financial assets and liabilities |
The Group possesses both the uncollected domestic exchange receivables and the unpaid domestic exchange payable, which satisfy offsetting criteria of K-IFRS 1032. Therefore, the total number of uncollected domestic exchange receivables or unpaid domestic exchange payable has been offset with part of unpaid domestic exchange payable or uncollected domestic exchange receivables and has been disclosed in loans at amortized cost and other financial assets (loans and receivables in previous year) or other financial liabilities of the Groups statements of financial position.
The Group possesses the derivative assets, derivative liabilities, receivable spot exchange and payable spot exchange that do not satisfy the offsetting criteria of K-IFRS 1032, but provide the Group under the circumstances of the trading partys defaults, insolvency or bankruptcy, the right of offsetting. Item such as cash collateral cannot satisfy the offsetting criteria of K-IFRS 1032, but in accordance with the collateral arrangements and under the circumstances of the trading partys default, insolvency or bankruptcy, the net amount of derivative assets and derivative liabilities, receivable spot exchange and payable spot exchange can be offset.
- 74 -
The Group has entered into a resale and repurchase agreement and accounted it as a collateralized borrowing. The Group has also entered into a resale and purchase agreement and accounted it as a secured loans. The resale and repurchase agreements can have the offsetting right only under the trading partys default, insolvency or bankruptcy, which do not satisfy the offsetting criteria of K-IFRS 1032. The Group recorded the collateralized borrowing in borrowings and the secured loans in loans and receivables. The Group under the repurchase agreements has offsetting right only upon the counterpartys default, insolvency or bankruptcy; thus, the repurchase agreements are applied by the TBMA/ISMA Global Master Repurchase Agreement, which does not satisfy the offsetting criteria of K-IFRS 1032. The Group disclosed bonds purchased under resale agreements as loan at amortized cost and other financial assets (loans and receivables in previous year) and bonds sold under repurchase agreements as borrowings.
As of December 31, 2018 and 2017, the financial instruments to be off set and may be covered by master netting agreements and similar agreements are as follows (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||||||||||
Gross amounts of recognized financial assets |
Gross amounts of recognized financial assets setoff |
Net amounts of financial assets presented |
Related amounts not setoff in the consolidated statement of financial position |
Net amounts |
||||||||||||||||||||
Netting agreements and others |
Cash collateral received |
|||||||||||||||||||||||
Financial assets: |
||||||||||||||||||||||||
Derivative assets (*1) |
1,908,542 | | 1,908,542 | 5,527,117 | 66,857 | 515,100 | ||||||||||||||||||
Receivable spot exchange (*2) |
4,200,532 | | 4,200,532 | |||||||||||||||||||||
Bonds purchased under resale agreements (*2) |
11,701,951 | | 11,701,951 | 11,701,951 | | | ||||||||||||||||||
Domestic exchange settlement credits (*2)(*6) |
30,090,598 | 29,699,412 | 391,186 | | | 391,186 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
47,901,623 | 29,699,412 | 18,202,211 | 17,229,068 | 66,857 | 906,286 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2018 | ||||||||||||||||||||||||
Gross amounts of recognized financial liabilities |
Gross amounts of recognized financial liabilities setoff |
Net amounts of financial liabilities presented |
Related amounts not setoff in the consolidated statement of financial position |
Net amounts |
||||||||||||||||||||
Netting agreements and others |
Cash collateral pledged |
|||||||||||||||||||||||
Financial liabilities: |
||||||||||||||||||||||||
Derivative liabilities (*1) |
1,862,681 | | 1,862,681 | 5,540,147 | 115,615 | 577,713 | ||||||||||||||||||
Equity-linked securities index in short position (*3) |
164,767 | | 164,767 | |||||||||||||||||||||
Payable spot exchange (*4) |
4,206,027 | | 4,206,027 | |||||||||||||||||||||
Bonds sold under repurchase agreements (*5) |
42,907 | | 42,907 | 42,907 | | | ||||||||||||||||||
Domestic exchange settlement debits (*4)(*6) |
36,832,774 | 29,699,412 | 7,133,362 | 6,231,538 | | 901,824 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
43,109,156 | 29,699,412 | 13,409,744 | 11,814,592 | 115,615 | 1,479,537 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | The items include derivatives held for trading, derivatives designated for hedging. |
(*2) | The items are included in loan at amortized cost and other financial assets. |
(*3) | The items are equity linked securities related to derivatives and are included in financial liabilities at FVTPL. |
(*4) | The items are included in other financial liabilities. |
(*5) | The items are included in borrowings. |
(*6) | Certain financial assets and liabilities are presented as net amounts. |
- 75 -
December 31, 2017 | ||||||||||||||||||||||||
Gross amounts of recognized financial assets |
Gross amounts of recognized financial assets setoff |
Net amounts of financial assets presented |
Related amounts not setoff in the consolidated statement of financial position |
Net amounts |
||||||||||||||||||||
Netting agreements and others |
Cash collateral received |
|||||||||||||||||||||||
Financial assets: |
||||||||||||||||||||||||
Derivative assets (*1) |
2,992,476 | 1,710 | 2,990,766 | 5,787,448 | 174,415 | 796,629 | ||||||||||||||||||
Receivable spot exchange (*2) |
3,767,726 | | 3,767,726 | |||||||||||||||||||||
Bonds purchased under resale agreements (*2) |
16,859,064 | | 16,859,064 | 16,859,064 | | | ||||||||||||||||||
Domestic exchanges settlement credits (*2)(*6) |
39,050,227 | 38,985,354 | 64,873 | | | 64,873 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
62,669,493 | 38,987,064 | 23,682,429 | 22,646,512 | 174,415 | 861,502 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2017 | ||||||||||||||||||||||||
Gross amounts of recognized financial liabilities |
Gross amounts of recognized financial liabilities setoff |
Net amounts of financial liabilities presented |
Related amounts not setoff in the consolidated statement of financial position |
Net amounts |
||||||||||||||||||||
Netting agreements and others |
Cash collateral pledged |
|||||||||||||||||||||||
Financial liabilities: |
||||||||||||||||||||||||
Derivative liabilities (*1) |
3,000,160 | 1,710 | 2,998,450 | 5,866,682 | 157,750 | 857,961 | ||||||||||||||||||
Equity-linked securities index in short position(*3) |
160,057 | | 160,057 | |||||||||||||||||||||
Payable spot exchange (*4) |
3,723,886 | | 3,723,886 | |||||||||||||||||||||
Bonds sold under repurchase agreements (*5) |
3,173 | | 3,173 | 3,173 | | | ||||||||||||||||||
Domestic exchanges settlement debits (*4)(*6) |
40,284,515 | 38,985,354 | 1,299,161 | 1,293,931 | | 5,230 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
47,171,791 | 38,987,064 | 8,184,727 | 7,163,786 | 157,750 | 863,191 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | The items include derivatives held for trading, derivatives designated for hedging. |
(*2) | The items are included in loans and receivables. |
(*3) | The items are equity linked securities related to derivatives and are included in financial liabilities at fair value through profit or loss mandatorily measured at fair value. |
(*4) | The items are included in other financial liabilities. |
(*5) | The items are included in borrowings. |
(*6) | Certain financial assets and liabilities are presented at as net amounts. |
- 76 -
13. | INVESTMENTS IN JOINT VENTURES AND ASSOCIATES |
(1) | Investments in joint ventures and associates accounted for using the equity method of accounting are as follows: |
Percentage of ownership (%) |
Financial statements as of | |||||||||||
Joint ventures and Associates |
Main business |
December 31, 2018 |
December 31, 2017 |
|||||||||
Woori Bank: |
||||||||||||
Kumho Tire Co., Inc. (*1) |
Manufacturing | | 14.2 | | ||||||||
Woori Service Networks Co., Ltd. (*4) |
Freight & staffing services | 4.9 | 4.9 | Nov. 30, 2018 (*3) | ||||||||
Korea Credit Bureau Co., Ltd. (*5) |
Credit information | 9.9 | 9.9 | Dec. 31, 2018 | ||||||||
Korea Finance Security Co., Ltd. (*4) |
Security service | 15.0 | 15.0 | Nov. 30, 2018 (*3) | ||||||||
Chin Hung International Inc. (*2) |
Construction | 25.3 | 25.3 | Nov. 30, 2018 (*3) | ||||||||
Poonglim Industrial Co., Ltd. (*9) |
Construction | | 29.4 | | ||||||||
STX Engine Co., Ltd. (*10) |
Manufacturing | | 29.2 | | ||||||||
STX Corporation (*10) |
Wholesale of non-specialized goods | | 19.7 | | ||||||||
Saman Corporation (*5) |
General construction Technology service | 9.2 | 9.2 | Sep. 30, 2018 (*3) | ||||||||
Dongwoo C & C Co., Ltd. (*6) |
Construction | 24.5 | 23.2 | | ||||||||
SJCO Co., Ltd. (*6) |
Aggregate transportation and wholesale | 26.5 | 26.5 | | ||||||||
G2 Collection Co., Ltd. (*6) |
Wholesale and retail sales | 28.9 | 28.9 | | ||||||||
The Base Enterprise Co., Ltd. (*6) |
Manufacturing | 48.4 | 48.4 | | ||||||||
Kyesan Engineering Co., Ltd. (*6) |
Construction | 23.3 | 23.2 | | ||||||||
Good Software Lab Co., Ltd. (*6) |
Service | 29,4 | 28.9 | | ||||||||
Wongwang Co., Ltd. (*6) |
Wholesale and real estate | 29.0 | 29.0 | | ||||||||
Sejin Construction Co., Ltd. (*6) |
Construction | 29.6 | 29.6 | | ||||||||
QTS Shipping Co., Ltd. (*6) |
Complex transportation brokerage | 49.4 | 49.4 | | ||||||||
DAEA SNC Co., Ltd. (*6) |
Wholesale and retail sales | 24.0 | 24.0 | | ||||||||
ARES-TECH Co., Ltd. (*6) |
Electronic component manufacturing | 23.4 | 23.4 | | ||||||||
Force TEC Co., Ltd. (*6)(*7) |
Manufacturing | 25.8 | | | ||||||||
Sinseong Trading Co., Ltd. (*6)(*7) |
Manufacturing | 27.2 | | | ||||||||
Reading Doctors Co., Ltd. (*6) |
Other services | 35.4 | 35.4 | | ||||||||
PREXCO Co., Ltd. (*6) |
Manufacturing | 28.1 | 28.1 | | ||||||||
Hyunwoo International Co., Ltd. (*11) |
Manufacturing | | 25.9 | | ||||||||
Jiwon Plating Co., Ltd. (*6) |
Plating | 20.8 | 20.5 | | ||||||||
Cultizm Korea LTD Co., Ltd. (*6) |
Wholesale and retail sales | 31.3 | 31.3 | | ||||||||
Gil Co.,Ltd. (*6) |
Manufacturing | 26.1 | 26.1 | | ||||||||
NK Eng Co., Ltd. (*6) |
Manufacturing | 23.1 | 23.1 | | ||||||||
Youngdong Sea Food Co., Ltd. (*6)(*7) |
Processed sea food manufacturing | 24.0 | | | ||||||||
Woori Growth Partnerships New Technology Private Equity Fund |
Other financial services | 23.1 | 23.1 | Dec. 31,2018 | ||||||||
2016KIF-IMM Woori Bank Technology Venture Fund |
Other financial services | 20.0 | 20.0 | Dec. 31,2018 | ||||||||
K BANK Co., Ltd. (*5) |
Finance | 14.1 | 13.0 | Nov. 31, 2018(*3) | ||||||||
Smart Private Equity Fund No.2 |
Other financial services | 20.0 | 20.0 | Dec. 31, 2018 | ||||||||
Woori Bank-Company K Korea Movie Asset Fund |
Other financial services | 25.0 | 25.0 | Dec. 31, 2018 | ||||||||
Well to Sea No. 3 Private Equity Fund (*12) |
Finance | 50.0 | 50.0 | Sep. 30, 2018(*3) | ||||||||
Partner One Value Up Ist Private Equity Fund (*8) |
Other financial services | 23.3 | | Dec. 31, 2018 |
- 77 -
Percentage of ownership (%) |
Financial statements as of | |||||||||||
Joint ventures and Associates |
Main business |
December 31, 2018 |
December 31, 2017 |
|||||||||
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership (*8) |
Other financial services | 20.0 | | Dec. 31, 2018 | ||||||||
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund (*8) |
Other financial services | 25.0 | | Dec. 31, 2018 | ||||||||
Woori Investment Bank Co., Ltd.: |
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Nomura-Rifa Private Real Estate Investment Trust No.17 (*5) |
Other financial services | 19.4 | 25.0 | Dec. 31, 2018 | ||||||||
Woori Private Equity Asset Management Co., Ltd.: |
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Uri Hanhwa Eureka Private Equity Fund (*5)(*8) |
Other financial services | 0.8 | | Dec. 31, 2018 |
(*1) | The Group did not have significant influence over the entity due to the termination of the joint management procedures of the creditors financial institution, and thus the entity was excluded from the investment in associates for the years ended December 31, 2018. |
(*2) | The investments in associates that have quoted market prices are Chin Hung International Inc. (current period: KRW 2,065, previous year: KRW 1,915). |
(*3) | The significant transactions and events between the end of reporting period of the associates and the Group have been properly incorporated. |
(*4) | Most of the significant business transactions of associates are with the Group as of December 31, 2018 and 2017. |
(*5) | The Group can participate in decision-making body and exercise significant influence over associates through business partnerships. |
(*6) | The carrying values of investments in associates are nil as of December 31, 2018 and 2017. |
(*7) | Even though the Groups ownership ratio of the entity was more than 20%, the Group did not have significant influence over the entity because the entity was going through workout process under receivership and thus was excluded from the investment in associates. However, as the workout process was completed for the year ended December 31, 2018, it has been included in the investment in associates. |
(*8) | Due to capital contribution by the Group for the year ended December 31, 2018, the entities has been included in the investment in associates. |
(*9) | The Group lost significant influence over the entity due to the stock consolidation and the capital increase of the associate during the year ended December 31, 2018, and thus the entity was excluded from the list of associates. |
(*10) | The entity was sold after it was transferred to assets held for distribution (sale) and was excluded from the investment in associates. |
(*11) | The entity was excluded from the associate as the group sold its entire stake during the year ended December 31, 2018. |
(*12) | The Group has entered into a contract whereas the Group (or a third party designated by the Group) obtains a preemptive right to acquire the base assets (Aju Capital Co. Ltd.) of Well to Sea No. 3 Private Equity Fund, an affiliate of the Group, when the Fund disposes them. |
- 78 -
(2) | Changes in the carrying value of investments in joint ventures and associates accounted for using the equity method of accounting are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||
Acquisition cost |
January 1, 2018 |
Share of profits (losses) |
Acquisi- tion |
Disposal and others (*) |
Dividends | Change in capital |
Impairment | Others | December 31, 2018 |
|||||||||||||||||||||||||||||||
Kumho Tire Co., Inc. |
175,652 | 98,933 | (10,451 | ) | | (83,286 | ) | | (5,196 | ) | | | | |||||||||||||||||||||||||||
Woori Service Networks Co., Ltd. |
108 | 158 | 1 | | | (2 | ) | | | | 157 | |||||||||||||||||||||||||||||
Korea Credit Bureau Co., Ltd. |
3,313 | 5,816 | 1,087 | | | (113 | ) | | | | 6,790 | |||||||||||||||||||||||||||||
Korea Finance Security Co., Ltd. |
3,267 | 3,519 | (10 | ) | | | (54 | ) | 1 | | | 3,456 | ||||||||||||||||||||||||||||
Chin Hung International Inc. |
130,779 | 45,101 | 1,206 | | | | (1,725 | ) | | 159 | 44,741 | |||||||||||||||||||||||||||||
Poonglim Industrial Co., Ltd. |
13,916 | | | | | | | | | | ||||||||||||||||||||||||||||||
STX Corporation |
50,760 | 6,947 | (816 | ) | | (5,865 | ) | | (266 | ) | | | | |||||||||||||||||||||||||||
Saman Corporation |
8,521 | 1,254 | (98 | ) | | | | 35 | (177 | ) | | 1,014 | ||||||||||||||||||||||||||||
Woori Growth Partnerships New Technology Private Equity Fund |
25,847 | 27,611 | 950 | 360 | (3,346 | ) | (484 | ) | | | | 25,091 | ||||||||||||||||||||||||||||
2016KIF-IMM Woori Bank Technology Venture Fund |
15,000 | 6,840 | | 8,160 | | | 300 | | | 15,300 | ||||||||||||||||||||||||||||||
K BANK Co., Ltd. |
67,343 | 31,735 | (10,705 | ) | 21,951 | | | 144 | | 584 | 43,709 | |||||||||||||||||||||||||||||
Smart Private Equity Fund No.2 |
3,000 | 2,932 | (42 | ) | | | | | | | 2,890 | |||||||||||||||||||||||||||||
Woori Bank-Company K Korea Movie Asset Fund |
3,000 | 2,957 | (257 | ) | | | | | | | 2,700 | |||||||||||||||||||||||||||||
Well to Sea No.3 Private Equity Fund |
101,992 | 182,309 | 22,546 | | (508 | ) | (517 | ) | (6,437 | ) | | | 197,393 | |||||||||||||||||||||||||||
Partner One Value Up Ist Private Equity Fund |
10,000 | | (52 | ) | 10,000 | | | | | | 9,948 | |||||||||||||||||||||||||||||
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership |
4,426 | | | 4,426 | | | | | | 4,426 | ||||||||||||||||||||||||||||||
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund |
3,025 | | | 3,025 | | | | | | 3,025 | ||||||||||||||||||||||||||||||
Nomura-Rifa Private Real Estate Investment Trust No.17 |
1,000 | 939 | (152 | ) | | | | | | | 787 | |||||||||||||||||||||||||||||
Uri Hanhwa Eureka Private Equity Fund |
350 | | (11 | ) | 350 | | | | | (339 | ) | | ||||||||||||||||||||||||||||
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621,299 | 417,051 | 3,196 | 48,272 | (93,005 | ) | (1,170 | ) | (13,144 | ) | (177 | ) | 404 | 361,427 | |||||||||||||||||||||||||||
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(*) | Investments in joint ventures and associates decreased by 83,286 million Won through transfers to financial assets at FVTOCI (K-IFRS 1109) which occurred during the year ended December 31, 2018. |
- 79 -
For the year ended December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||
Acquisition cost |
January 1, 2017 |
Share of profits (losses) |
Acquisition (*) |
Disposal and others |
Dividends | Change in capital |
Impairment | Others (*) |
December 31, 2017 |
|||||||||||||||||||||||||||||||
Woori Blackstone Korea Opportunity No.1 Private Equity Fund |
| 15,289 | (4,617 | ) | | (7,369 | ) | (3,303 | ) | | | | | |||||||||||||||||||||||||||
Kumho Tire Co., Inc. |
175,652 | 200,332 | (102 | ) | | | | 1,545 | (102,842 | ) | | 98,933 | ||||||||||||||||||||||||||||
Woori Service Networks Co., Ltd. |
108 | 145 | 21 | | | (8 | ) | | | | 158 | |||||||||||||||||||||||||||||
Korea Credit Bureau Co., Ltd. |
3,313 | 5,592 | 371 | | | (147 | ) | | | | 5,816 | |||||||||||||||||||||||||||||
Korea Finance Security Co., Ltd. |
3,266 | 3,376 | 197 | | | (54 | ) | | | | 3,519 | |||||||||||||||||||||||||||||
Chin Hung International Inc. |
89,725 | 43,032 | (14,375 | ) | 41,053 | | | 1,535 | | (26,144 | ) | 45,101 | ||||||||||||||||||||||||||||
Poonglim Industrial Co., Ltd. |
13,916 | | (6,733 | ) | | | | | | 6,733 | | |||||||||||||||||||||||||||||
STX Engine Co., Ltd. |
92,038 | 43,036 | (1,010 | ) | | (46,217 | ) | | 4,191 | | | | ||||||||||||||||||||||||||||
Samho Co., Ltd. |
7,492 | 19,729 | 2,021 | | (16,354 | ) | | (73 | ) | (5,323 | ) | | | |||||||||||||||||||||||||||
STX Corporation |
42,215 | | (29,788 | ) | 8,546 | | | 417 | | 27,772 | 6,947 | |||||||||||||||||||||||||||||
Saman Corporation |
8,521 | 8,699 | (733 | ) | | | | 26 | (6,738 | ) | | 1,254 | ||||||||||||||||||||||||||||
Woori Growth Partnerships New Technology Private Equity Fund |
13,602 | 13,118 | (582 | ) | 15,729 | (498 | ) | | (156 | ) | | | 27,611 | |||||||||||||||||||||||||||
2016KIF-IMM Woori Bank Technology Venture Fund |
1,800 | 1,800 | | 5,040 | | | | | | 6,840 | ||||||||||||||||||||||||||||||
K BANK Co., Ltd. |
32,500 | 30,442 | (11,381 | ) | 12,892 | | | (245 | ) | | 27 | 31,735 | ||||||||||||||||||||||||||||
Smart Private Equity Fund No.2 |
3,000 | | (68 | ) | 3,000 | | | | | | 2,932 | |||||||||||||||||||||||||||||
Woori Bank-Company K Korea Movie Asset Fund |
1,500 | | (43 | ) | 3,000 | | | | | | 2,957 | |||||||||||||||||||||||||||||
Well to Sea No.3 Private Equity Fund |
102,500 | | 80,894 | 102,500 | (508 | ) | | (577 | ) | | | 182,309 | ||||||||||||||||||||||||||||
Woori Renaissance Holdings |
| 54,422 | (622 | ) | | | (57,109 | ) | | | 3,309 | | ||||||||||||||||||||||||||||
Nomura-Rifa Private Real Estate Investment Trust No.17 |
1,000 | | (61 | ) | 1,000 | | | | | | 939 | |||||||||||||||||||||||||||||
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592,148 | 439,012 | 13,389 | 192,760 | (70,946 | ) | (60,621 | ) | 6,663 | (114,903 | ) | 11,697 | 417,051 | ||||||||||||||||||||||||||||
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(*) | Changes in investments in joint ventures and associates due to debt-equity swap is 51,227 million Won. |
(3) | Summary financial information relating to investments in joint ventures and associates accounted for using the equity method of accounting is as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||||||||||||||
Assets | Liabilities | Operating revenue |
Net income (loss) |
|||||||||||||
Woori Service Networks Co., Ltd. |
5,066 | 1,886 | 15,803 | 819 | ||||||||||||
Korea Credit Bureau Co., Ltd. |
88,797 | 22,788 | 78,018 | 9,901 | ||||||||||||
Korea Finance Security Co., Ltd. |
35,155 | 12,114 | 60,706 | 17 | ||||||||||||
Chin Hung International Inc. |
412,205 | 332,268 | 606,192 | 6,402 | ||||||||||||
Saman Corporation |
97,720 | 69,915 | 75,825 | (869 | ) | |||||||||||
Woori Growth Partnerships New Technology Private Equity Fund |
109,167 | 440 | 5,943 | 4,117 | ||||||||||||
2016KIF-IMM Woori Bank Technology Venture Fund |
73,231 | 12 | 16 | (1,510 | ) | |||||||||||
K BANK Co., Ltd. |
2,024,856 | 1,807,502 | 60,039 | (69,256 | ) | |||||||||||
Smart Private Equity Fund No.2 |
14,502 | 51 | 1 | (209 | ) | |||||||||||
Woori Bank-Company K Korea Movie Asset Fund |
10,805 | 5 | 1,663 | (299 | ) | |||||||||||
Well to Sea No.3 Private Equity Fund |
5,968,591 | 5,395,307 | 429,742 | 39,711 | ||||||||||||
Partner One Value Up Ist Private Equity Fund |
42,776 | | 326 | (224 | ) | |||||||||||
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership |
21,200 | 757 | 390 | (1,268 | ) | |||||||||||
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund |
12,014 | 105 | 3 | (191 | ) | |||||||||||
Nomura-Rifa Private Real Estate Investment Trust No.17 |
20,197 | 16,178 | 10 | (228 | ) | |||||||||||
Uri Hanhwa Eureka Private Equity Fund |
42,332 | 181 | 1 | (1,349 | ) |
- 80 -
December 31, 2017 | ||||||||||||||||
Assets | Liabilities | Operating revenue |
Net income (loss) |
|||||||||||||
Kumho Tire Co., Inc. |
5,105,107 | 3,928,327 | 2,136,569 | (61,748 | ) | |||||||||||
Woori Service Networks Co., Ltd. |
4,982 | 1,780 | 14,887 | 1,003 | ||||||||||||
Korea Credit Bureau Co., Ltd. |
75,504 | 19,323 | 68,750 | 3,580 | ||||||||||||
Korea Finance Security Co., Ltd. |
33,915 | 10,461 | 55,610 | 1,071 | ||||||||||||
Chin Hung International Inc. |
341,284 | 259,454 | 513,285 | 28,698 | ||||||||||||
Poonglim Industrial Co., Ltd. |
241,063 | 309,925 | 107,360 | (29,812 | ) | |||||||||||
STX Corporation |
595,348 | 543,458 | 1,371,272 | 342,869 | ||||||||||||
Saman Corporation |
98,435 | 69,929 | 76,135 | (6,096 | ) | |||||||||||
Woori Growth Partnerships New Technology Private Equity Fund |
120,133 | 485 | 1,024 | (3,199 | ) | |||||||||||
2016KIF-IMM Woori Bank Technology Venture Fund |
32,815 | 380 | 6 | (1,515 | ) | |||||||||||
K BANK Co., Ltd. |
1,244,270 | 1,001,121 | 19,231 | (74,403 | ) | |||||||||||
Smart Private Equity Fund No.2 |
14,711 | 51 | 1 | (340 | ) | |||||||||||
Woori Bank-Company K Korea Movie Asset Fund |
11,830 | 2 | 16 | (172 | ) | |||||||||||
Well to Sea No.3 Private Equity Fund |
5,068,424 | 4,534,957 | 131,488 | 162,743 | ||||||||||||
Nomura-Rifa Private Real Estate Investment Trust No.17 |
20,265 | 16,507 | 62 | (242 | ) |
(4) | The entities that the Group has not applied equity method of accounting although the Groups ownership interest is more than 20% as of December 31, 2018 and 2017, are as follows: |
December 31, 2018 | ||||||||
Associate (*) |
Number of shares owned | Ownership (%) | ||||||
Orient Shipyard Co., Ltd. |
464,812 | 21.4 | ||||||
Saenuel Co., Ltd. |
3,531 | 37.4 | ||||||
E Mirae Tech Co., Ltd. |
7,696 | 41.0 | ||||||
Jehin Trading Co., Ltd. |
81,610 | 27.3 | ||||||
The Season Company Co., Ltd. |
18,187 | 30.1 | ||||||
Yuil PESC Co., Ltd. |
8,642 | 24.0 | ||||||
CL Tech Co., Ltd. |
13,759 | 38.6 |
December 31, 2017 | ||||||||
Associate (*) |
Number of shares owned | Ownership (%) | ||||||
Orient Shipyard Co., Ltd. |
465,050 | 21.4 | ||||||
Saenuel Co., Ltd. |
3,531 | 37.4 | ||||||
E Mirae Tech Co., Ltd. |
7,696 | 41.0 | ||||||
Jehin Trading Co., Ltd. |
81,610 | 27.3 | ||||||
The Season Company Co., Ltd. |
18,187 | 30.1 | ||||||
Yuil PESC Co., Ltd. |
8,642 | 24.0 | ||||||
Youngdong Sea Food Co., Ltd. |
12,106 | 24.0 | ||||||
Sinseong Trading Co., Ltd. |
2,584 | 27.2 | ||||||
CL Tech Co., Ltd. |
13,759 | 38.6 | ||||||
Force TEC Co., Ltd. |
4,780,907 | 25.8 | ||||||
Protronics Co., Ltd. |
95,921 | 48.1 | ||||||
Instern Co., Ltd. |
14,296 | 20.1 |
(*) | Even though the Groups ownership interest of the entity is more than 20%, the Group does not have significant influence over the entity since it is going through work-out process under receivership, thus it is excluded from the investment in associates. |
- 81 -
(5) | As of December 31, 2018 and 2017, the reconciliations from the net assets of associates based on the ownership ratio of the Group to its corresponding book value of investment in joint ventures and associates are as follows (Unit: Korean Won in millions except for ownership): |
December 31, 2018 | ||||||||||||||||||||||||||||
Total net asset |
Ownership (%) |
Ownership portion of net assets |
Basis difference |
Impairment | Intercompany transaction |
Book value |
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Woori Service Networks Co., Ltd. |
3,180 | 4.9 | 157 | | | | 157 | |||||||||||||||||||||
Korea Credit Bureau Co., Ltd. |
66,009 | 9.9 | 6,544 | 246 | | | 6,790 | |||||||||||||||||||||
Korea Finance Security Co., Ltd. |
23,041 | 15.0 | 3,456 | | | | 3,456 | |||||||||||||||||||||
Chin Hung International Inc. (*) |
79,793 | 25.3 | 20,192 | 24,565 | | (16 | ) | 44,741 | ||||||||||||||||||||
Saman Corporation |
27,805 | 9.2 | 2,556 | 5,373 | (6,915 | ) | | 1,014 | ||||||||||||||||||||
Woori Growth Partnerships New Technology Private Equity Fund |
108,727 | 23.1 | 25,091 | | | | 25,091 | |||||||||||||||||||||
2016KIF-IMM Woori Bank Technology Venture Fund |
73,219 | 20.0 | 14,644 | | | 656 | 15,300 | |||||||||||||||||||||
K BANK Co., Ltd.(*) |
290,597 | 14.1 | 40,984 | 2,725 | | | 43,709 | |||||||||||||||||||||
Smart Private Equity Fund No.2 |
14,451 | 20.0 | 2,890 | | | | 2,890 | |||||||||||||||||||||
Woori Bank-Company K Korea Movie Asset Fund |
10,800 | 25.0 | 2,700 | | | | 2,700 | |||||||||||||||||||||
Well to Sea No.3 Private Equity Fund (*) |
396,248 | 50.0 | 198,027 | | | (634 | ) | 197,393 | ||||||||||||||||||||
Partner One Value Up Ist Private Equity Fund |
42,776 | 23.3 | 9,948 | | | | 9,948 | |||||||||||||||||||||
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership |
20,443 | 20.0 | 4,089 | | | 337 | 4,426 | |||||||||||||||||||||
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund |
11,909 | 25.0 | 2,977 | | | 48 | 3,025 | |||||||||||||||||||||
Nomura-Rifa Private Real Estate Investment Trust No.17 |
4,019 | 19.4 | 780 | | | 7 | 787 | |||||||||||||||||||||
Uri Hanhwa Eureka Private Equity Fund |
42,151 | 0.8 | 339 | | | (339 | ) | |
December 31, 2017 | ||||||||||||||||||||||||||||
Total net asset |
Ownership (%) |
Ownership portion of net assets |
Basis difference |
Impairment | Intercompany transaction |
Book value |
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Kumho Tire Co., Inc. (*) |
1,065,421 | 14.2 | 150,767 | 48,459 | (102,843 | ) | 2,549 | 98,932 | ||||||||||||||||||||
Woori Service Networks Co., Ltd. |
3,202 | 4.9 | 158 | | | | 158 | |||||||||||||||||||||
Korea Credit Bureau Co., Ltd. |
56,181 | 9.9 | 5,568 | 248 | | | 5,816 | |||||||||||||||||||||
Korea Finance Security Co., Ltd. |
23,454 | 15.0 | 3,519 | | | | 3,519 | |||||||||||||||||||||
Chin Hung International Inc. (*) |
81,686 | 25.3 | 20,671 | 24,565 | | (136 | ) | 45,100 | ||||||||||||||||||||
Poonglim Industrial Co., Ltd. (*) |
(168,154 | ) | 29.4 | (49,446 | ) | 54,542 | (20,504 | ) | 15,408 | | ||||||||||||||||||
STX Corporation |
51,890 | 19.7 | 10,232 | 24,614 | (27,904 | ) | 5 | 6,947 | ||||||||||||||||||||
Saman Corporation |
28,506 | 9.2 | 2,619 | 5,373 | (6,738 | ) | | 1,254 | ||||||||||||||||||||
Woori Growth Partnerships New Technology Private Equity Fund |
119,648 | 23.1 | 27,611 | | | | 27,611 | |||||||||||||||||||||
2016KIF-IMM Woori Bank Technology Venture Fund |
32,435 | 20.0 | 6,487 | | | 353 | 6,840 | |||||||||||||||||||||
K BANK Co., Ltd. |
243,149 | 13.0 | 31,535 | | | 200 | 31,735 | |||||||||||||||||||||
Smart Private Equity Fund No.2 |
14,660 | 20.0 | 2,932 | | | | 2,932 | |||||||||||||||||||||
Woori Bank-Company K Korea Movie Asset Fund |
11,828 | 25.0 | 2,957 | | | | 2,957 | |||||||||||||||||||||
Well to Sea No.3 Private Equity Fund (*) |
364,909 | 50.0 | 182,366 | | | (57 | ) | 182,309 | ||||||||||||||||||||
Nomura-Rifa Private Real Estate Investment Trust No.17 |
3,758 | 25.0 | 939 | | | | 939 |
(*) | The net asset amount is after reflecting debt-equity swap and others. |
- 82 -
14. | INVESTMENT PROPERTIES |
(1) | Details of investment properties are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Acquisition cost |
416,649 | 404,741 | ||||||
Accumulated depreciation |
(38,580 | ) | (33,440 | ) | ||||
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Net carrying value |
378,069 | 371,301 | ||||||
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(2) | Changes in investment properties are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Beginning balance |
371,301 | 358,497 | ||||||
Acquisition |
15,195 | 9,872 | ||||||
Disposal |
(3,045 | ) | (458 | ) | ||||
Depreciation |
(4,045 | ) | (3,902 | ) | ||||
Transfers from(to) premises and equipment |
7,623 | 2,472 | ||||||
Classified to assets held for distribution (sale) |
(10,056 | ) | (371 | ) | ||||
Foreign currencies translation adjustments |
(5 | ) | (324 | ) | ||||
Others |
1,101 | 5,515 | ||||||
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Ending balance |
378,069 | 371,301 | ||||||
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|
(3) | Fair value of investment properties is amounting to 438,407 million Won and 396,587 million Won as of December 31, 2018 and 2017, respectively. The fair value of investment properties has been assessed on the basis of recent similar real estate market price and officially assessed land price in the area of the investment properties, is classified as level 3 on the fair value hierarchy. |
(4) | Rental fee earned from investment properties is amounting to 5,080 million Won and 4,579 million Won for the years ended December 31, 2018 and 2017, respectively. |
15. | PREMISES AND EQUIPMENT |
(1) | Details of premises and equipment are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||||||||||||||||||||||||||
Land | Building | Equipment and vehicles |
Leasehold improvement |
Construction in progress |
Structures | Total | ||||||||||||||||||||||
Acquisition cost |
1,481,776 | 872,063 | 717,141 | 445,157 | 8,381 | 20 | 3,524,538 | |||||||||||||||||||||
Accumulated depreciation |
| (210,301 | ) | (485,119 | ) | (387,960 | ) | | (17 | ) | (1,083,397 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net carrying value |
1,481,776 | 661,762 | 232,022 | 57,197 | 8,381 | 3 | 2,441,141 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||||||||||||
Land | Building | Equipment and vehicles |
Leasehold improvement |
Construction in progress |
Structures | Total | ||||||||||||||||||||||
Acquisition cost |
1,487,278 | 867,804 | 1,024,186 | 429,665 | 64,559 | 20 | 3,873,512 | |||||||||||||||||||||
Accumulated depreciation |
| (186,958 | ) | (844,114 | ) | (364,878 | ) | | (17 | ) | (1,395,967 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net carrying value |
1,487,278 | 680,846 | 180,072 | 64,787 | 64,559 | 3 | 2,477,545 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 83 -
(2) | Details of changes in premises and equipment are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||||||||
Land | Building | Equipment and vehicles |
Leasehold improvement |
Construction in progress |
Structures | Total | ||||||||||||||||||||||
Beginning balance |
1,487,278 | 680,846 | 180,072 | 64,787 | 64,559 | 3 | 2,477,545 | |||||||||||||||||||||
Acquisitions |
1,372 | 14,701 | 76,783 | 17,527 | 8,285 | | 118,668 | |||||||||||||||||||||
Disposals |
(29 | ) | | (5,192 | ) | (737 | ) | (187 | ) | | (6,145 | ) | ||||||||||||||||
Depreciation |
| (26,014 | ) | (76,171 | ) | (32,162 | ) | | | (134,347 | ) | |||||||||||||||||
Classified to assets held for distribution (sale) |
(3,746 | ) | (2,742 | ) | (7,991 | ) | (397 | ) | (718 | ) | | (15,594 | ) | |||||||||||||||
Transfer |
(2,863 | ) | (4,760 | ) | 63,432 | | (63,432 | ) | | (7,623 | ) | |||||||||||||||||
Foreign currencies translation adjustments |
(236 | ) | (257 | ) | (69 | ) | 323 | (126 | ) | | (365 | ) | ||||||||||||||||
Acquisition through business combination |
| | 969 | 661 | | | 1,630 | |||||||||||||||||||||
Others |
| (12 | ) | 189 | 7,195 | | | 7,372 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Ending balance |
1,481,776 | 661,762 | 232,022 | 57,197 | 8,381 | 3 | 2,441,141 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2017 | ||||||||||||||||||||||||||||
Land | Building | Equipment and vehicles |
Leasehold improvement |
Construction in progress |
Structures | Total | ||||||||||||||||||||||
Beginning balance |
1,488,745 | 691,699 | 189,902 | 68,958 | 18,717 | 4 | 2,458,025 | |||||||||||||||||||||
Acquisitions |
4,755 | 22,579 | 59,694 | 23,420 | 51,797 | | 162,245 | |||||||||||||||||||||
Disposals |
(1,840 | ) | (2,593 | ) | (442 | ) | (1,231 | ) | | | (6,106 | ) | ||||||||||||||||
Depreciation |
| (26,156 | ) | (74,223 | ) | (31,728 | ) | | (1 | ) | (132,108 | ) | ||||||||||||||||
Classified to assets held for sale |
(2,693 | ) | (1,059 | ) | 549 | | | | (3,203 | ) | ||||||||||||||||||
Transfer |
(196 | ) | (2,134 | ) | 5,411 | | (5,553 | ) | | (2,472 | ) | |||||||||||||||||
Foreign currencies translation adjustments |
(1,493 | ) | (1,393 | ) | (2,023 | ) | (1,315 | ) | (402 | ) | | (6,626 | ) | |||||||||||||||
Others |
| (97 | ) | 1,204 | 6,683 | | | 7,790 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Ending balance |
1,487,278 | 680,846 | 180,072 | 64,787 | 64,559 | 3 | 2,477,545 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16. | INTANGIBLE ASSETS |
(1) | Details of intangible assets are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||||||||||||||||||||||||||||||
Goodwill | Software | Industrial property rights |
Development cost |
Others | Membership deposit |
Construction in progress |
Total | |||||||||||||||||||||||||
Acquisition cost |
153,602 | 38,839 | 1,250 | 305,114 | 728,399 | 24,099 | 10,415 | 1,261,718 | ||||||||||||||||||||||||
Accumulated amortization |
| (12,602 | ) | (688 | ) | (68,696 | ) | (589,557 | ) | | | (671,543 | ) | |||||||||||||||||||
Accumulated impairment losses |
| | | | | (2,920 | ) | | (2,920 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net carrying value |
153,602 | 26,237 | 562 | 236,418 | 138,842 | 21,179 | 10,415 | 587,255 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||||||||||||||||
Goodwill | Software | Industrial property rights |
Development cost |
Others | Membership deposit |
Construction in progress |
Total | |||||||||||||||||||||||||
Acquisition cost |
108,707 | 203,418 | 1,063 | 260,087 | 634,150 | 27,337 | 153,209 | 1,387,971 | ||||||||||||||||||||||||
Accumulated amortization |
| (162,746 | ) | (524 | ) | (182,846 | ) | (516,467 | ) | | | (862,583 | ) | |||||||||||||||||||
Accumulated impairment losses |
| | | | (137 | ) | (6,652 | ) | | (6,789 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net carrying value |
108,707 | 40,672 | 539 | 77,241 | 117,546 | 20,685 | 153,209 | 518,599 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 84 -
(2) | Details of changes in intangible assets are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||||||||||||
Goodwill | Software | Industrial property rights |
Development cost |
Others | Membership deposit |
Construction in progress |
Total | |||||||||||||||||||||||||
Beginning balance |
108,707 | 40,672 | 539 | 77,241 | 117,546 | 20,685 | 153,209 | 518,599 | ||||||||||||||||||||||||
Acquisitions |
| 6,839 | 195 | 20,935 | 45,205 | 5,162 | 97,067 | 175,403 | ||||||||||||||||||||||||
Disposal |
| (4,359 | ) | | | (196 | ) | (2,871 | ) | | (7,426 | ) | ||||||||||||||||||||
Amortization (*) |
| (14,028 | ) | (172 | ) | (46,045 | ) | (73,913 | ) | | | (134,158 | ) | |||||||||||||||||||
Reversal of impairment loss |
| | | | | 674 | | 674 | ||||||||||||||||||||||||
Classified to assets held for distribution (sale) |
| (3,490 | ) | | (3,902 | ) | (455 | ) | (2,419 | ) | | (10,266 | ) | |||||||||||||||||||
Transfer |
| | | 188,189 | 51,672 | | (239,861 | ) | | |||||||||||||||||||||||
Acquisition through business combination |
46,752 | 763 | | | | | | 47,515 | ||||||||||||||||||||||||
Foreign currencies translation adjustment |
(1,857 | ) | (165 | ) | | | (227 | ) | (52 | ) | | (2,301 | ) | |||||||||||||||||||
Others |
| 5 | | | (790 | ) | | | (785 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Ending balance |
153,602 | 26,237 | 562 | 236,418 | 138,842 | 21,179 | 10,415 | 587,255 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
(*) Amortization of other intangible assets amounting to 51,770 million Won is included in other operating expenses.
|
| |||||||||||||||||||||||||||||||
For the year ended December 31, 2017 | ||||||||||||||||||||||||||||||||
Goodwill | Software | Industrial property rights |
Development cost |
Others | Membership deposit |
Construction in progress |
Total | |||||||||||||||||||||||||
Beginning balance |
124,803 | 35,477 | 313 | 70,697 | 164,364 | 20,086 | 67,999 | 483,739 | ||||||||||||||||||||||||
Acquisitions |
105 | 9,722 | 349 | 29,133 | 22,531 | 1,867 | 93,716 | 157,423 | ||||||||||||||||||||||||
Disposal |
| | | | (37 | ) | (944 | ) | | (981 | ) | |||||||||||||||||||||
Amortization (*) |
| (16,258 | ) | (123 | ) | (22,534 | ) | (60,869 | ) | | | (99,784 | ) | |||||||||||||||||||
Impairment loss |
| | | | (78 | ) | (159 | ) | | (237 | ) | |||||||||||||||||||||
Transfer |
| 7,987 | | | | | (7,987 | ) | | |||||||||||||||||||||||
Foreign currencies translation adjustment |
(16,201 | ) | (952 | ) | | 36 | (2,742 | ) | (160 | ) | (519 | ) | (20,538 | ) | ||||||||||||||||||
Others |
| 4,696 | | (91 | ) | (5,623 | ) | (5 | ) | | (1,023 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Ending balance |
108,707 | 40,672 | 539 | 77,241 | 117,546 | 20,685 | 153,209 | 518,599 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) | Amortization of other intangible assets amounting to 48,292 million Won is included in other operating expenses. |
(3) | Details of goodwill as of December 31, 2018 and 2017 are as follow(Unit: Korea Won in millions) |
Goodwill is allocated to cash-generating units, based on managements analysis, that are expected to benefit from the synergies of the combination for impairment testing, and cash-generating units consist of an operating segment or units which are not larger than an operating segment. The recoverable amount of a cash-generating unit is measured at the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell is the amount obtainable from the sale in an arms length transaction between knowledgeable, willing parties, less the costs of disposal. If it is difficult to measure the amount obtainable from the sale, the Group measures the fair value less costs to sell by reflecting the characteristics of the measured cash-generating unit. If it is not possible to obtain reliable information to measure the fair value less costs to sell, the Group uses the assets value in use as its recoverable amount. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. The projections of the future cash flows are based on the most recent financial budget approved by management and generally cover a period of five years. The future cash flows after projection period are estimated on the assumption that the future cash flows will increase by 3.0% for all other cash-generating units. The key assumptions used for the estimation of the future cash flows are the market size and the Groups market share. The discount rate is a pre-tax rate that reflects assumptions regarding risk-free interest rate, market risk premium and the risks specific to the asset for which the future cash flow estimates have not been adjusted.
- 85 -
17. | ASSETS HELD FOR DISTRIBUTION (SALE) |
(1) | Assets held for distribution (sale) are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Disposal group as held for distribution |
75,590 | | ||||||
Investments in joint ventures and associates |
| 46,217 | ||||||
Premises and equipment, etc. (*) |
17,912 | 2,407 | ||||||
|
|
|
|
|||||
Total |
93,502 | 48,624 | ||||||
|
|
|
|
(*) | The Group classified premises and equipment that are highly likely to be sold within one year as assets held for distribution (sale). |
(2) | Disposal group as held for distribution: |
In accordance with the establishment of financial holding company and plans on share transfer, the Group classified assets, liabilities and equity of each subsidiary as of the end of the reporting period. The details of disposal group held for sale as of December 31, 2018 as follows:
Gross amount | Intercompany eliminations |
Net amount | ||||||||||
Disposal group as held for distribution |
||||||||||||
Cash And Cash Equivalents |
90,771 | (55,500 | ) | 35,271 | ||||||||
Financial assets at FVTPL |
133 | | 133 | |||||||||
Loans and other financial assets at amortized cost |
66,514 | (57,251 | ) | 9,263 | ||||||||
Investments in joint ventures and associates |
339 | | 339 | |||||||||
Investment properties |
127 | | 127 | |||||||||
Premises and equipment |
9,351 | | 9,351 | |||||||||
Intangible assets |
10,265 | | 10,265 | |||||||||
Current tax assets |
242 | | 242 | |||||||||
Deferred tax assets |
9,778 | | 9,778 | |||||||||
Others |
821 | | 821 | |||||||||
|
|
|
|
|
|
|||||||
Total |
188,341 | (112,751 | ) | 75,590 | ||||||||
|
|
|
|
|
|
|||||||
Liabilities of a disposal group classified as held for distribution |
||||||||||||
Debentures |
10,000 | | 10,000 | |||||||||
Provisions |
1,451 | | 1,451 | |||||||||
Net defined benefit liability |
34,427 | | 34,427 | |||||||||
Current tax liabilities |
2,519 | | 2,519 | |||||||||
Other financial liabilities |
17,979 | (576 | ) | 17,403 | ||||||||
Other liabilities |
6,860 | | 6,860 | |||||||||
|
|
|
|
|
|
|||||||
Total |
73,236 | (576 | ) | 72,660 | ||||||||
|
|
|
|
|
|
The Group calculated net fair value of each subsidiary subject to future distribution as of December 31, 2018 based on the value of net asset and net income. The computed value is 110,773 million Won, and classified as Level 3 in the fair value hierarchy.
The Group measured assets held for distribution (sale) as the smaller amount between the fair value less cost of sale and book value.
- 86 -
18. | ASSETS SUBJECT TO LIEN AND ASSETS ACQUIRED THROUGH FORECLOSURES |
(1) | Assets subjected to lien are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||||||||
Collateral given to |
Amount | Reason for collateral | ||||||||
Loan at amortized cost and other financial assets |
Due from banks on time in local currency |
Daishin AMC and others |
1,500 | Right of pledge | ||||||
Due from banks in local currencies |
Samsung Securities Co., Ltd. and others |
38,112 | Margin deposit for futures or option | |||||||
Due from banks in foreign currencies |
Korea Investment & Securities Co., Ltd. and others |
202,156 | Foreign margin deposit for future or option and others | |||||||
Financial assets at FVTOCI |
Korean financial institutions debt securities and others |
The BOK and others |
2,919,042 | Settlement risk and others | ||||||
Korean financial institutions debt securities |
Banco Bilbao Vizcaya Argentaria, S.A |
33,588 | Related to bonds sold under repurchase agreements (*) | |||||||
Securities at amortized cost |
Korean treasury and government bonds |
Korea Securities Depository |
5,552 | Related to bonds sold under repurchase agreements (*) | ||||||
Korean treasury and government bonds and others |
The BOK and others |
6,382,188 | Settlement risk and others | |||||||
Premises and equipment |
Land and building |
Credit Counselling & Recovery Service and others |
5,987 | Right to collateral and others | ||||||
|
|
|||||||||
Total | 9,588,125 | |||||||||
|
|
December 31, 2017 | ||||||||||
Collateral given to |
Amount | Reason for collateral | ||||||||
Loan and receivables |
Due from banks on time in local currency |
Bank of China and others |
6,629 | Collaterals for issuing letter of guarantee and others | ||||||
Due from banks in local currencies |
Samsung Securities Co., Ltd. and others |
10,809 | Margin deposit for futures or option | |||||||
Due from banks in foreign currencies |
Korea Investment & Securities Co., Ltd. and others |
9,136 | Foreign margin deposit for future or option and others | |||||||
Financial assets at FVTPL |
Korean financial institutions debt securities and others |
Yuanta Securities Co., Ltd. and others |
501,523 | Substitute securities and others | ||||||
AFS financial assets |
Korean treasury and corporate bonds |
Korea Securities Depository and others |
9,998 | Related to bonds sold under repurchase agreements (*) | ||||||
Korean treasury and government bonds and others |
The BOK and others |
1,570,608 | Settlement risk and others | |||||||
HTM financial assets |
Korean treasury and government bonds |
Korea Securities Depository |
5,436 | Related to bonds sold under repurchase agreements (*) | ||||||
Korean financial institutions debt securities and others |
The BOK and others |
7,605,292 | Settlement risk and others | |||||||
Premises and equipment |
Land and building |
Credit Counselling & Recovery Service and others |
6,186 | Leasehold rights and others | ||||||
|
|
|||||||||
Total | 9,725,617 | |||||||||
|
|
(*) | The Group has the agreements to repurchase the sold assets at the predetermined price or the price that includes the rate of return and to provide the guarantee on the assets. The transferee has the right to sell or to provide as guarantee. Therefore, the Group does not derecognize the assets, but recognizes the relevant amounts as liability (bonds sold under repurchase agreements). |
- 87 -
(2) | There are no the carrying amounts of assets acquired through foreclosure and the carrying amounts of assets acquired through foreclosure of December 31, 2017 are as follows. (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Land |
| 332 | ||||||
Buildings |
| 44 | ||||||
|
|
|
|
|||||
Total |
| 376 | ||||||
|
|
|
|
(3) | Securities loaned are as follows (Unit: Korean Won in millions): |
December 31, 2018 |
December 31, 2017 |
Loaned to | ||||||||||
Financial assets at FVTOCI |
Korean financial institutions debt securities and others |
40,029 | | Korea Securities Finance Corporation | ||||||||
AFS financial assets |
Korean treasury, government bonds and others |
| 170,256 | Korea Securities Finance Corporation and others | ||||||||
|
|
|
|
|||||||||
Total |
40,029 | 170,256 | ||||||||||
|
|
|
|
Securities loaned are lending of specific securities to borrowers who agree to return the same quantity of the same security at the end of lending period. As the Group does not derecognize these securities, there are no liabilities recognized through such transactions relates to securities loaned.
(4) | Collaterals held that can be disposed and re-subjected to lien regardless of defaults of counterparties |
Fair values of collaterals held that can be disposed and re-subjected to lien regardless of defaults of counterparties as of December 31, 2018 and 2017 are as follows (Unit: Korean Won in millions):
December 31, 2018 | ||||||
Fair values of collaterals | Fair values of collaterals were disposed or re-subjected to lien | |||||
Securities |
12,262,041 | |
December 31, 2017 | ||||||
Fair values of collaterals | Fair values of collaterals were disposed or re-subjected to lien | |||||
Securities |
17,671,490 | |
19. | OTHER ASSETS |
Details of other assets are as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||
Prepaid expenses |
160,327 | 130,245 | ||||||
Advance payments |
18,448 | 18,363 | ||||||
Non-operative assets |
| 376 | ||||||
Others |
18,057 | 9,420 | ||||||
|
|
|
|
|||||
Total |
196,832 | 158,404 | ||||||
|
|
|
|
- 88 -
20. | FINANCIAL LIABILITIES AT FVTPL |
(1) | Financial liabilities at FVTPL are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Financial liabilities at fair value through profit or loss mandatorily measured at fair value |
2,117,919 | | ||||||
Financial liabilities held for trading |
| 3,176,113 | ||||||
Financial liabilities at fair value through profit or loss designated as upon initial recognition |
164,767 | | ||||||
Financial liabilities designated as at FVTPL |
| 251,796 | ||||||
|
|
|
|
|||||
Total |
2,282,686 | 3,427,909 | ||||||
|
|
|
|
(2) | Financial liabilities at fair value through profit or loss mandatorily measured at fair value (Financial liabilities held for trading) are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Deposits |
||||||||
Gold banking liabilities |
27,058 | 25,964 | ||||||
Derivative liabilities |
2,090,861 | 3,150,149 | ||||||
|
|
|
|
|||||
Total |
2,117,919 | 3,176,113 | ||||||
|
|
|
|
(3) | Financial liabilities at fair value through profit or loss designated as upon initial recognition (Financial liabilities designated as at FVTPL) are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Equity-linked securities index |
||||||||
Equity-linked securities index in short position |
164,767 | 160,057 | ||||||
Debentures |
||||||||
Debentures in local currency |
| 91,739 | ||||||
|
|
|
|
|||||
Total |
164,767 | 251,796 | ||||||
|
|
|
|
Financial liabilities at fair value through profit or loss designated as upon initial recognition are designated in order to eliminate or significantly reduce accounting mismatch arising from recognition or measurement.
(4) | Accumulated changes in credit risk adjustments to financial liabilities at fair value through profit or loss designated as upon initial recognition does not have. |
The adjustment to reflect Groups credit risk is considered in measuring the fair value of equity-linked securities index and debentures. The Groups credit risk is determined by adjusting credit spread observed in credit rating of Group.
(5) | The difference between carrying amount and maturity amount of financial liabilities at fair value through profit or loss designated as upon initial recognition (Financial liabilities designated as at FVTPL) are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Carrying amount |
164,767 | 251,796 | ||||||
Nominal amount at maturity |
217,280 | 255,408 | ||||||
|
|
|
|
|||||
Difference |
(52,513 | ) | (3,612 | ) | ||||
|
|
|
|
- 89 -
(6) | Changes in equity in relation to financial liabilities at fair value through profit or loss designated as upon initial recognition |
The cumulative gain or loss realized as a result of the derecognition of financial liabilities designated as at FVTPL that is presented in other comprehensive income and transferred within equity is 4 million (after income tax expense) Won for the year ended December 31, 2018.
21. | DEPOSITS DUE TO CUSTOMERS |
Details of deposits due to customers by type are as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||
Deposits in local currency: |
||||||||
Deposits on demand |
11,076,417 | 9,349,070 | ||||||
Deposits at termination |
204,051,570 | 194,292,679 | ||||||
Mutual installment |
30,783 | 34,055 | ||||||
Deposits on notes payables |
1,891,556 | 1,323,679 | ||||||
Deposits on CMA |
137,316 | 164,431 | ||||||
Customer deposit for security investment |
30,000 | 50,000 | ||||||
Certificate of deposits |
6,510,571 | 4,436,443 | ||||||
Other deposits |
1,409,505 | 1,401,841 | ||||||
|
|
|
|
|||||
Sub-total |
225,137,718 | 211,052,198 | ||||||
|
|
|
|
|||||
Deposits in foreign currency: |
||||||||
Deposits in foreign currencies |
23,626,234 | 23,682,896 | ||||||
|
|
|
|
|||||
Present value discount |
(73,013 | ) | (40,010 | ) | ||||
|
|
|
|
|||||
Total |
248,690,939 | 234,695,084 | ||||||
|
|
|
|
22. | BORROWINGS AND DEBENTURES |
(1) | Details of borrowings are as follows (Unit: Korean Won in millions): |
December 31, 2018 |
||||||||||
Lenders |
Interest rate (%) | Amount | ||||||||
Borrowings in local currency: |
||||||||||
Borrowings from The BOK |
The BOK |
0.5 ~ 0.8 | 1,335,459 | |||||||
Borrowings from government funds |
Small Enterprise And Market Service and others |
0.0 ~ 3.5 | 1,771,379 | |||||||
Others |
The Korea Development Bank and others |
0.0 ~ 4.0 | 4,716,231 | |||||||
|
|
|||||||||
Sub-total |
7,823,069 | |||||||||
|
|
|||||||||
Borrowings in foreign currencies: |
||||||||||
Borrowings in foreign currencies |
The Export-Import Bank of Korea and others |
0.0 ~ 7.5 | 7,308,857 | |||||||
Offshore borrowings in foreign currencies |
JPMORGAN CHASE BANK |
2.9 | 33,543 | |||||||
|
|
|||||||||
Sub-total |
7,342,400 | |||||||||
|
|
|||||||||
Bills sold |
Others |
0.0 ~ 1.8 | 19,336 | |||||||
Call money |
Bank and others |
0.0 ~ 7.3 | 975,358 | |||||||
Bonds sold under repurchase agreements |
Other financial institutions |
0.8 ~ 12.7 | 42,907 | |||||||
Present value discount |
(84 | ) | ||||||||
|
|
|||||||||
Total |
16,202,986 | |||||||||
|
|
- 90 -
December 31, 2017 |
||||||||||
Lenders |
Interest rate (%) | Amount | ||||||||
Borrowings in local currency: |
||||||||||
Borrowings from The BOK |
The BOK | 0.5 ~ 0.8 | 1,404,087 | |||||||
Borrowings from government funds |
Small Enterprise And Market Service and others | 0.0 ~ 2.9 | 1,723,340 | |||||||
Others |
The Korea Development Bank and others | 0.0 ~ 3.2 | 3,957,421 | |||||||
|
|
|||||||||
Sub-total |
7,084,848 | |||||||||
|
|
|||||||||
Borrowings in foreign currencies: |
||||||||||
Borrowings in foreign currencies |
The Export-Import Bank of Korea and others | 0.0 ~ 6.8 | 6,996,551 | |||||||
Offshore borrowings in foreign currencies |
Commonwealth Bank | 1.8 | 28,285 | |||||||
|
|
|||||||||
Sub-total |
7,024,836 | |||||||||
|
|
|||||||||
Bills sold |
Others | 0.0 ~ 1.2 | 36,953 | |||||||
Call money |
Bank and others | 1.5 ~ 2.7 | 635,061 | |||||||
Bonds sold under repurchase agreements |
Other financial institutions | 0.6 ~ 12.7 | 3,173 | |||||||
Present value discount |
(165 | ) | ||||||||
|
|
|||||||||
Total |
14,784,706 | |||||||||
|
|
(2) | Details of debentures are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||||||||||
Interest rate (%) | Amount | Interest rate (%) | Amount | |||||||||||||
Face value of bond(*): |
||||||||||||||||
Ordinary bonds |
1.6 ~ 4.5 | 22,422,183 | 1.5 ~ 5.8 | 22,468,908 | ||||||||||||
Subordinated bonds |
3.0 ~ 12.6 | 5,358,838 | 3.4 ~ 12.6 | 4,781,301 | ||||||||||||
Other bonds |
1.9 ~ 17.0 | 974,230 | 1.6 ~ 17.0 | 649,615 | ||||||||||||
|
|
|
|
|||||||||||||
Sub-total |
28,755,251 | 27,899,824 | ||||||||||||||
|
|
|
|
|||||||||||||
Discounts on bonds |
(29,389 | ) | (30,173 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total |
28,725,862 | 27,869,651 | ||||||||||||||
|
|
|
|
(*) | Included debentures under fair value hedge relationships are 2,956,565 million Won and 3,089,751 million Won as of December 31, 2018 and 2017, respectively. Also, debentures under cash flow hedge amounting to 823,219 million Won and 694,548 million Won are included as of December 31, 2018 and 2017, respectively. |
23. | PROVISIONS |
(1) | Details of provisions are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Asset retirement obligation |
67,093 | 61,872 | ||||||
Provisions for guarantees (*1) |
89,761 | 183,247 | ||||||
Provisions for unused loan commitments |
121,535 | 66,115 | ||||||
Provisions for customer reward credits |
49,180 | 40,445 | ||||||
Other provisions (*2) |
62,293 | 58,791 | ||||||
|
|
|
|
|||||
Total |
389,862 | 410,470 | ||||||
|
|
|
|
(*1) | Provisions for guarantees includes provision for financial guarantee of 47,817 million Won and 71,697 million Won as of December 31, 2018 and 2017, respectively. |
(*2) | Other provisions consist of provision for litigation and others. |
- 91 -
(2) | Changes in provisions for guarantees and unused loan commitments are as follows (Unit: Korean Won in millions): |
1) | Provisions for guarantees |
For the year ended December 31, 2018 | ||||||||||||||||
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Beginning balance (*1) |
47,132 | 18,281 | 127,511 | 192,924 | ||||||||||||
Replaced with 12-month expected credit loss |
92 | (92 | ) | | | |||||||||||
Replaced with expected credit loss for the entire period |
(237 | ) | 91,008 | (90,771 | ) | | ||||||||||
Replaced with credit-impaired financial assets |
(38 | ) | (29 | ) | 67 | | ||||||||||
Provisions used |
(20,429 | ) | | | (20,429 | ) | ||||||||||
Net reversal of unused amount |
(4,866 | ) | (75,410 | ) | (25,709 | ) | (105,985 | ) | ||||||||
Others (*2) |
23,249 | 2 | | 23,251 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
44,903 | 33,760 | 11,098 | 89,761 | ||||||||||||
|
|
|
|
|
|
|
|
(*1) | The beginning balance was restated in accordance with K-IFRS 1109. |
(*2) | This is the effect of new financial guarantee contracts that are initially measured at fair value. |
For the year ended December 31, 2017 | ||||
Provision for guarantees | ||||
Beginning balance |
238,117 | |||
Provisions provided |
4,876 | |||
Provisions used and others |
(24,898 | ) | ||
Reversal of unused amount |
(60,300 | ) | ||
Foreign currencies translation adjustments |
9 | |||
Others |
25,443 | |||
|
|
|||
Ending balance |
183,247 | |||
|
|
2) | Provisions for unused loan commitment |
For the year ended December 31, 2018 | ||||||||||||||||
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Beginning balance (*) |
75,232 | 27,875 | 1,878 | 104,985 | ||||||||||||
Replaced with 12-month expected credit loss |
7,770 | (7,396 | ) | (374 | ) | | ||||||||||
Replaced with expected credit loss for the entire period |
(2,376 | ) | 2,525 | (149 | ) | | ||||||||||
Replaced with credit-impaired financial assets |
(213 | ) | (1,579 | ) | 1,792 | | ||||||||||
Net provision(reversal) of unused amount |
(5,813 | ) | 23,860 | (1,521 | ) | 16,526 | ||||||||||
Others |
24 | | | 24 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
74,624 | 45,285 | 1,626 | 121,535 | ||||||||||||
|
|
|
|
|
|
|
|
(*) | The beginning balance was restated in accordance with K-IFRS 1109. |
For the year ended December 31, 2017 | ||||
Provision for unused loan commitments | ||||
Beginning balance |
87,909 | |||
Provisions provided |
2,028 | |||
Provisions used and others |
(68 | ) | ||
Reversal of unused amount |
(23,744 | ) | ||
Foreign currencies translation adjustments |
(10 | ) | ||
|
|
|||
Ending balance |
66,115 | |||
|
|
- 92 -
(3) | Changes in asset retirement obligation are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Beginning balance |
61,872 | 58,076 | ||||||
Provisions provided |
1,489 | 2,225 | ||||||
Provisions used |
(913 | ) | (1,283 | ) | ||||
Reversal of provisions unused |
(1,038 | ) | (733 | ) | ||||
Amortization |
564 | 428 | ||||||
Increase in restoration costs and others |
5,119 | 3,159 | ||||||
|
|
|
|
|||||
Ending balance |
67,093 | 61,872 | ||||||
|
|
|
|
The amount of the asset retirement obligation is the present value of the best estimate of future expected expenditure to settle the obligation arising from leased premises as of December 31, 2018, discounted by appropriate discount rate. The restoration cost is expected to occur by the end of each premises lease period, and the Group has used average lease period of each category of leases terminated during the past years in order to rationally estimate the lease period. In addition, the Group used average amount of actual recovery cost for the past 3 years and the inflation rate for last year in order to estimate future recovery cost.
(4) | Changes in other provisions are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||
Provisions for customer reward credits |
Other provisions |
Total | ||||||||||
Beginning balance |
40,445 | 58,791 | 99,236 | |||||||||
Provisions provided |
70,138 | 8,384 | 78,522 | |||||||||
Provisions used |
(98,170 | ) | (6,940 | ) | (105,110 | ) | ||||||
Reversal of unused amount |
| (52 | ) | (52 | ) | |||||||
Foreign currencies translation adjustments |
| (194 | ) | (194 | ) | |||||||
Transfer (*) |
9,228 | | 9,228 | |||||||||
Others |
27,539 | 2,304 | 29,843 | |||||||||
|
|
|
|
|
|
|||||||
Ending balance |
49,180 | 62,293 | 111,473 | |||||||||
|
|
|
|
|
|
For the years ended December 31, 2017 | ||||||||||||
Provisions for customer reward credits |
Other provisions |
Total | ||||||||||
Beginning balance |
22,093 | 22,282 | 44,375 | |||||||||
Provisions provided |
62,593 | 42,042 | 104,635 | |||||||||
Provisions used |
(84,979 | ) | (8,014 | ) | (92,993 | ) | ||||||
Reversal of unused amount |
| (77 | ) | (77 | ) | |||||||
Foreign currencies translation adjustments |
| (249 | ) | (249 | ) | |||||||
Transfer (*) |
21,808 | | 21,808 | |||||||||
Others |
18,930 | 2,807 | 21,737 | |||||||||
|
|
|
|
|
|
|||||||
Ending balance |
40,445 | 58,791 | 99,236 | |||||||||
|
|
|
|
|
|
(*) | As the credits of the affiliates were transferred to the Group, the allowance for the provisions for customer reward credits increased for the years ended December 31, 2018, and 2017, respectively. |
(5) | Others |
The Group provides settlement services for payments in Korean Won to facilitate trade transactions between Korea and Iran. In connection with these services, the Group is currently being investigated by US government agencies including US prosecutors (United States Attorneys Office and New York State Attorney Generals Office) as to whether the Group has violated United States laws by participating in prohibited transactions involving the following countries: Iran, Sudan, Syria and Cuba, which have been sanctioned by the US.
- 93 -
24. | NET DEFINED BENEFIT LIABILITY |
The characteristics of the Groups defined benefit retirement pension plans are as follows:
Employees and directors with one or more years of service are entitled to receive a payment upon termination of their employment, based on their length of service and rate of salary at the time of termination. The assets of the plans are measured at their fair value at the end of reporting date. The plan liabilities are measured using the projected unit method, which takes account of projected earnings increases, using actuarial assumptions that give the best estimate of the future cash flows that will arise under the plan liabilities.
The Group is exposed to various risks through defined benefit retirement pension plan, and the most significant risks are as follows:
Volatility of asset |
The defined benefit obligation was estimated with an interest rate calculated based on blue chip corporate bonds earnings. A deficit may occur if the rate of return of plan assets falls short of the interest rate. | |
Decrease in profitability of blue chip bonds |
A decrease in profitability of blue chip bonds will be offset by some increase in the value of debt securities that the employee benefit plan owns but will bring an increase in the defined benefit obligation. | |
Risk of inflation |
Defined benefit obligations are related to inflation rate; the higher the inflation rate is, the higher the level of liabilities. Therefore, deficit occurs in the system if an inflation rate increases. |
(1) | Details of net defined benefit liability are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Present value of defined benefit obligation |
1,209,669 | 1,071,170 | ||||||
Fair value of plan assets |
(1,070,987 | ) | (1,027,906 | ) | ||||
|
|
|
|
|||||
Net defined benefit liability |
138,682 | 43,264 | ||||||
|
|
|
|
(2) | Changes in the carrying value of defined benefit obligation are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 |
For the year ended December 31, 2017 |
|||||||
Beginning balance |
1,071,170 | 984,381 | ||||||
Current service cost |
144,394 | 146,750 | ||||||
Interest cost |
32,143 | 26,629 | ||||||
Remeasurements |
100,854 | (20,389 | ) | |||||
Foreign currencies translation adjustments |
(3 | ) | (279 | ) | ||||
Retirement benefit paid |
(74,952 | ) | (55,552 | ) | ||||
Curtailment or settlement |
| (10,928 | ) | |||||
Transfer to assets held for distribution (sale) |
(65,351 | ) | | |||||
Others |
1,414 | 558 | ||||||
|
|
|
|
|||||
Ending balance |
1,209,669 | 1,071,170 | ||||||
|
|
|
|
- 94 -
(3) | Changes in the plan assets are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 |
For the year ended December 31, 2017 |
|||||||
Beginning balance |
1,027,906 | 990,653 | ||||||
Interest income |
33,825 | 30,601 | ||||||
Remeasurements |
(14,783 | ) | (14,125 | ) | ||||
Employers contributions |
128,926 | 43,114 | ||||||
Retirement benefit paid |
(71,672 | ) | (51,877 | ) | ||||
Curtailment or settlement |
| (11,052 | ) | |||||
Transfer to assets held for distribution (sale) |
(30,924 | ) | | |||||
Others |
(2,291 | ) | 40,592 | |||||
|
|
|
|
|||||
Ending balance |
1,070,987 | 1,027,906 | ||||||
|
|
|
|
(4) | Plan assets wholly consist of fixed deposits as of December 31, 2018 and 2017. Among plan assets, realized returns on plan assets amount to 19,042 million Won and 16,476 million Won for the years ended December 31, 2018 and 2017, respectively. |
Meanwhile, the contribution expected to be paid in the next accounting year amounts to 161,571 million Won.
(5) | Current service cost, net interest income, loss (gain) on the curtailment or settlement and remeasurements recognized in the consolidated statements comprehensive income are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 |
For the year ended December 31, 2017 |
|||||||
Current service cost |
144,394 | 146,750 | ||||||
Net interest income |
(1,682 | ) | (3,972 | ) | ||||
Loss on the curtailment or settlement |
| 124 | ||||||
|
|
|
|
|||||
Cost recognized in net income |
142,712 | 142,902 | ||||||
|
|
|
|
|||||
Remeasurements |
115,637 | (6,264 | ) | |||||
|
|
|
|
|||||
Cost recognized in total comprehensive income |
258,349 | 136,638 | ||||||
|
|
|
|
Retirement benefit service costs related to defined contribution plans amount to 2,437 million Won and 3,946 million Won for the years ended December 31, 2018 and 2017, respectively.
(6) | Key actuarial assumptions used in net defined benefit liability measurement are as follows: |
December 31, 2018 |
December 31, 2017 | |||
Discount rate |
2,69% | 3.18% | ||
Future wage growth rate |
6.18% | 6.18% | ||
Mortality rate |
Issued by Korea Insurance Development Institute | Issued by Korea Insurance Development Institute | ||
Retirement rate |
Experience rate for each employment classification | Experience rate for each employment classification |
The weighted average maturity of defined benefit liability is 8.05 ~ 13.21 years.
- 95 -
(7) | The sensitivity to actuarial assumptions used in the assessment of defined benefit obligation is as follows (Unit: Korean Won in millions): |
December 31, 2018(*) | December 31, 2017(*) | |||||||||
Discount rate |
Increase by 1% point | (116,812 | ) | (116,405 | ) | |||||
Decrease by 1% point | 136,990 | 137,151 | ||||||||
Future wage growth rate |
Increase by 1% point | 135,767 | 136,707 | |||||||
Decrease by 1% point | (118,020 | ) | (117,765 | ) |
(*) | The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to changes in principal actuarial assumptions is calculated using the projected unit credit method, the same method applied when calculating the defined benefit obligations recognized on the statement of financial position. |
25. | OTHER FINANCIAL LIABILITIES AND OTHER LIABILITIES |
Other financial liabilities and other liabilities are as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||
Other financial liabilities: |
||||||||
Accounts payable |
5,407,025 | 4,692,320 | ||||||
Accrued expenses |
2,212,350 | 2,049,861 | ||||||
Borrowings from trust accounts |
3,747,492 | 3,271,817 | ||||||
Agency business revenue |
396,735 | 344,591 | ||||||
Foreign exchange payables |
539,554 | 590,667 | ||||||
Domestic exchange settlement credits |
7,134,966 | 1,309,646 | ||||||
Other miscellaneous financial liabilities |
1,990,426 | 1,635,156 | ||||||
Present value discount |
(2,484 | ) | (1,597 | ) | ||||
|
|
|
|
|||||
Sub-total |
21,426,064 | 13,892,461 | ||||||
|
|
|
|
|||||
Other liabilities: |
||||||||
Unearned income |
204,034 | 180,664 | ||||||
Other miscellaneous liabilities |
134,241 | 103,317 | ||||||
|
|
|
|
|||||
Sub-total |
338,275 | 283,981 | ||||||
|
|
|
|
|||||
Total |
21,764,339 | 14,176,442 | ||||||
|
|
|
|
- 96 -
26. | DERIVATIVES |
(1) | Derivative assets and derivative liabilities are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||||||||||||||||||||||
Nominal amount |
Assets | Liabilities | ||||||||||||||||||||||
For fair value hedge |
For trading | For cash flow hedge |
For fair value hedge |
For trading | ||||||||||||||||||||
Interest rate: |
||||||||||||||||||||||||
Futures |
| | | | | | ||||||||||||||||||
Swaps |
150,710,490 | 35,503 | 218,140 | 665 | 17,654 | 266,207 | ||||||||||||||||||
Purchase options |
530,000 | | 10,461 | | | | ||||||||||||||||||
Written options |
525,000 | | | | | 12,438 | ||||||||||||||||||
Currency: |
||||||||||||||||||||||||
Futures |
320,213 | | | | | | ||||||||||||||||||
Forwards |
88,376,776 | | 843,621 | | | 777,039 | ||||||||||||||||||
Swaps |
67,179,195 | | 761,907 | 33,089 | | 773,701 | ||||||||||||||||||
Purchase options |
1,933,454 | | 17,544 | | | | ||||||||||||||||||
Written options |
3,134,774 | | | | | 20,747 | ||||||||||||||||||
Equity: |
||||||||||||||||||||||||
Futures |
186,737 | | | | | | ||||||||||||||||||
Swaps |
441,573 | | 31,377 | | | 1,217 | ||||||||||||||||||
Purchase options |
4,925,315 | | 143,029 | | | | ||||||||||||||||||
Written options |
6,145,935 | | | | | 239,512 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
324,409,462 | 35,503 | 2,026,079 | 33,754 | 17,654 | 2,090,861 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||||||||
Nominal amount |
Assets | Liabilities | ||||||||||||||||||||||
For fair value hedge |
For trading | For cash flow hedge |
For fair value hedge |
For trading | ||||||||||||||||||||
Interest rate: |
||||||||||||||||||||||||
Futures |
75,845 | | | | | | ||||||||||||||||||
Swaps |
130,197,378 | 59,272 | 223,935 | | 12,103 | 253,972 | ||||||||||||||||||
Purchase options |
630,000 | | 12,346 | | | | ||||||||||||||||||
Written options |
795,000 | | | | | 12,869 | ||||||||||||||||||
Currency: |
||||||||||||||||||||||||
Futures |
318,217 | | | | | | ||||||||||||||||||
Forwards |
72,526,956 | | 1,314,368 | | | 1,375,799 | ||||||||||||||||||
Swaps |
48,176,306 | | 1,352,924 | 55,651 | | 1,347,905 | ||||||||||||||||||
Purchase options |
2,291,154 | | 64,267 | | | | ||||||||||||||||||
Written options |
4,038,237 | | | | | 58,687 | ||||||||||||||||||
Equity: |
||||||||||||||||||||||||
Futures |
91,436 | | | | | | ||||||||||||||||||
Swaps |
15,000 | | 103 | | | 10 | ||||||||||||||||||
Purchase options |
5,060,706 | | 146,775 | | | | ||||||||||||||||||
Written options |
4,504,290 | | | | | 99,770 | ||||||||||||||||||
Others: |
||||||||||||||||||||||||
Futures |
| | | | | | ||||||||||||||||||
Swaps |
7,805 | | 1,056 | | | 1,037 | ||||||||||||||||||
Purchase options |
| | | | | | ||||||||||||||||||
Written options |
5,000 | | | | | 100 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
268,733,330 | 59,272 | 3,115,774 | 55,651 | 12,103 | 3,150,149 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives held for trading are classified into financial assets at FVTPL (Note 7) and financial liabilities at FVTPL (Note 20), and derivatives designated for hedging are presented as a separate line item in the consolidated statements of financial position.
- 97 -
(2) | Overview of the Groups hedge accounting |
1) | Fair value hedge |
As of the current period end, the Group has applied fair value hedge on fixed interest rate foreign currency denominated debentures amounting to 2,956,565 million Won. The purpose of the hedging is to avoid fair value volatility risk of fixed interest rate foreign currency denominated debentures derived from fluctuations of market interest rate, and as such the Group entered into interest rate swap agreements designated as hedging instruments.
Pursuant to the interest rate swap agreement, by swapping the calculated difference between the fixed interest rate and floating interest rate applied to the nominal value, the fair value fluctuation risk is hedged as the foreign currency denominated debentures fixed interest rate terms are converted to floating interest rate. Pursuant to the interest rate swap agreement, hedge ratio is determined by matching the nominal value to the face value of the hedging instrument.
In this hedging relationship, only the market interest rate fluctuation, which is the most significant part of the fair value change of the hedged item, is designated as the hedged risk, and other risk factors including credit risk are not included in the hedged risk. Therefore, the ineffective portion of the hedge could arise from fluctuations in the timing of the cash flow of the hedged item, the change in the total amount and price of the hedged item, or significant credit risk fluctuation of either party of the hedging instrument.
The interest rate swap agreements and the hedged items are subject to fluctuations in the underlying market rate of interest and the Group expects the fair value of the interest rate swap contract and the value of the hedged item to generally change in the opposite direction.
The fair value of the interest rate swap at the end of the reporting period is determined by discounting future cash flows estimated using the yield curve at the end of the reporting period and the credit risk embedded in the contract and the average interest rate is determined based on the outstanding balance at the end of the reporting period. The variable interest rate applied to the interest rate swap is USD Libor 3M (6M) plus spread. In accordance with the terms of each interest rate swap contract designated as a hedging instrument, the Group receives interest at a fixed interest rate and pays interest at a variable interest rate.
2) | Cash Flow Hedge |
As of the end of the current period, the Group has applied cash flow hedge on foreign currency denominated debentures amounting to 723,308 million Won and debentures on local currency amounting to 99,911 million Won. The Groups hedging strategies are to ① Mitigate risks of cash flow fluctuation from variable interest rate debentures due to changes in market interest rate by entering into an interest rate swap contract and thereby designating it as hedging instrument; ② Mitigate the risks of cash flow fluctuation from principal and interest of variable-interest rate debentures denominated in foreign currency due to changes in foreign exchange rates and interest rates by entering into a currency swap contract and thereby designating it as hedging instrument; and ③ Mitigate the risks of cash flow fluctuation from principal and interest of fixed-interest rate debentures denominated in foreign currency due to changes in foreign exchange rates by entering into a currency swap contract and thereby designating it as hedging instrument.
This means exchanging a predetermined nominal amount as set forth in the interest rate swap contract adjusted by the differences between the fixed and variable interest rates, which results in the conversion of interest rates of debentures from variable interest into fixed interest, eliminating the cash flow fluctuation risk.
In addition, this also means a payment of predetermined principal amount as set forth in the currency swap adjusted by fixed interest rate, an exchange of an amount calculated by applying variable interest rate to USD or applying fixed interest rate to SGD, and an exchange of the principal denominated in KRW and principal denominated in foreign currency at maturity eliminating cash flow fluctuation risk on principal and interest.
- 98 -
The hedge ratio is determined by matching the nominal amount of the hedging instrument to the face amount of the hedged item in accordance with interest rate swap and currency swap.
Only interest rate and foreign exchange rate fluctuation risk, which is the most significant factor in the cash flow fluctuation of the hedged item, is addressed in this hedging relationship, and other risk factors such as credit risk are not subject to hedging.
Thus, there could be hedge ineffectiveness arising from price margin set by the counterparty of hedging instruments and unilateral change in credit risk of any party to the transaction.
The interest rate swap, currency swap contract and the hedged item are all affected by the changes in market interest rate and foreign exchange rates which are basic factors of the derivative. The Group expects that the value of currency swap contract and the hedged item will generally fluctuate in opposite direction.
(3) | The nominal amounts of the hedging instrument as of December 31, 2018 are as follows (Unit: USD, SGD and Korean Won in millions): |
1 year or less | 1 year to 5 years | More than 5 years |
Total | |||||||||||||
Fair value hedge |
||||||||||||||||
Interest rate risk |
||||||||||||||||
Interest rate swap(USD) |
| 1,350,000,000 | 1,300,000,000 | 2,650,000,000 | ||||||||||||
Cash flow hedge |
||||||||||||||||
Interest rate risk |
||||||||||||||||
Interest rate swap(KRW) |
| 100,000 | | 100,000 | ||||||||||||
Foreign currencies translation risk and interest rate risk |
||||||||||||||||
Currency swap(USD) |
50,000,000 | 450,000,000 | | 500,000,000 | ||||||||||||
Foreign currencies translation risk |
||||||||||||||||
Currency swap(SGD) |
| 204,000,000 | | 204,000,000 |
(4) | The average interest rate and average currency rate of the hedging instrument as of December 31, 2018 are as follows: |
Average interest rate and average currency rate | ||
Fair value hedge |
||
Interest rate risk |
||
Interest rate swaps(USD) |
Fixed 3.96% receipt and Libor 3M+1.61% floating paid Fixed 5.88% receipt and Libor 6M+2.15% floating paid | |
Cash flow hedge |
||
Interest rate risk |
||
Interest rate swap(KRW) |
KRW 3Y CMS+0.395% receipt, KRW 2.38% paid | |
Foreign currencies translation risk and interest rate risk |
||
Currency swap(USD) |
USD 3M Libor+0.7% receipt, KRW 1.74% paid, USD/KRW = 1,136 USD 1M Libor+0.517% receipt, KRW 1.70% paid, USD/KRW = 1,178 | |
Foreign currencies translation risk |
||
Currency swap(SGD) |
SGD 1.91% receipt, KRW 1.98% paid, SGD/KRW = 828 |
- 99 -
(5) | The amounts related to items designated as hedging instruments as of December 31, 2018 are as follows (Unit: USD, SGD and Korean Won in millions): |
Nominal amounts of the hedging instrument |
Carrying amounts of the hedging instrument |
Line item in the statement of financial position where
the hedging located |
Changing in fair value used for calculating hedge ineffectiveness |
|||||||||||||||
Assets | Liabilities | |||||||||||||||||
Fair value hedge |
||||||||||||||||||
Interest rate risk |
||||||||||||||||||
Interest rate swaps(USD) |
2,650,000,000 | 35,503 | 17,654 | Derivative assets (Designated for hedging) Derivative liabilities (Designated for hedging) |
(27,362 | ) | ||||||||||||
Cash flow hedge |
||||||||||||||||||
Interest rate risk |
||||||||||||||||||
Interest rate swap(KRW) |
100,000 | | 665 | Derivative liabilities (Designated for hedging) |
(665 | ) | ||||||||||||
Foreign currencies translation risk and interest rate risk |
||||||||||||||||||
Currency swap (USD) |
500,000,000 | | 28,907 | Derivative liabilities (Designated for hedging) |
21,582 | |||||||||||||
Foreign currencies translation risk |
||||||||||||||||||
Currency swap (SGD) |
204,000,000 | | 4,182 | Derivative liabilities (Designated for hedging) |
2,353 |
(6) | Details of carrying amount to hedged and amount adjusted due to hedge accounting as of December 31, 2018 are as follows (Unit: Korean won in millions): |
Carrying amounts of the hedging item |
Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item |
Line item in the statement of financial position in which the hedged item is included |
Changing in fair value used for calculating hedge ineffectiveness |
Cash flow hedge reserve (*) |
||||||||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||||||||
Fair value hedge |
||||||||||||||||||||||||||||
Interest rate risk |
||||||||||||||||||||||||||||
Debenture |
| 2,956,565 | | 5,200 | Debentures | 25,498 | | |||||||||||||||||||||
Cash flow hedge |
||||||||||||||||||||||||||||
Interest rate risk |
||||||||||||||||||||||||||||
Debenture |
| 99,911 | | Debentures | 521 | (371 | ) | |||||||||||||||||||||
Foreign currencies translation risk and interest rate risk |
||||||||||||||||||||||||||||
Debenture |
| 557,186 | | Debentures | (16,790 | ) | (1,211 | ) | ||||||||||||||||||||
Foreign currencies translation risk |
||||||||||||||||||||||||||||
Debenture |
| 166,122 | | Debentures | (1,762 | ) | (2,287 | ) |
(*) After tax amount
(7) | Amounts recognized in profit or loss due to the ineffective portion of fair value hedges during the current period are as follows (Unit: Korean Won in millions): |
Hedge ineffectiveness recognized in profit or loss |
Line item in the profit that includes hedge ineffectiveness | |||||||
Fair value hedge |
Interest rate risk | (1,864 | ) | Other net operating income |
- 100 -
(8) | Reclassification of profit or loss from other comprehensive income and equity related to cash flow hedges is as follows (Unit: Korean Won in millions): |
Changes in the value of hedging instruments recognized in cash flow hedge reserve |
Hedge ineffectiveness recognized in profit or loss |
Changes in the value of foreign basis spread recognized in OCI |
Line item in the |
Amounts reclassified from cash flow hedge reserve to profit or loss |
Line
item | |||||||||||||||||
Cash flow hedge |
Interest rate risk | (517 | ) | (148 | ) | | Other net operating expense | | Other net operating expense | |||||||||||||
Foreign currencies translation risk and interest rate risk |
21,429 | 153 | (882 | ) | Other net operating income (expense) | (23,084 | ) | Other net operating expense | ||||||||||||||
Foreign currencies translation risk |
2,353 | | (491 | ) | Other net operating income | (3,601 | ) | Other net operating expense |
27. | DEFERRED DAY 1 PROFITS OR LOSSES |
Changes in deferred day 1 profits or losses are as follows (Unit: Korean Won in millions):
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Beginning balance |
7,416 | 13,422 | ||||||
New transactions |
23,678 | 500 | ||||||
Amounts recognized in losses |
(5,631 | ) | (6,506 | ) | ||||
|
|
|
|
|||||
Ending balance |
25,463 | 7,416 | ||||||
|
|
|
|
In case some variables to measure fair values of financial instruments are not observable in the market, valuation techniques are utilized to evaluate such financial instruments. Those financial instruments are recorded the transaction price as at the time of acquisition, even though there are difference noted between the transaction price and the fair value. The table above presents the difference yet to be realized as profit or losses.
28. | CAPITAL STOCK AND CAPITAL SURPLUS |
(1) | The number of shares authorized and others are as follows: |
December 31, 2018 | December 31, 2017 | |||||||
Shares of common stock authorized |
5,000,000,000 Shares | 5,000,000,000 Shares | ||||||
Par value |
5,000 Won | 5,000 Won | ||||||
Shares of common stock issued |
676,000,000 Shares | 676,000,000 Shares | ||||||
Capital stock |
3,381,392 million Won | 3,381,392 million Won |
(2) | There are no changes in the number of shares issued and outstanding for the years ended December 31, 2018 and 2017. |
(3) | Details of capital surplus are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Capital in excess of par value |
269,533 | 269,533 | ||||||
Other capital surplus |
16,356 | 16,347 | ||||||
|
|
|
|
|||||
Total |
285,889 | 285,880 | ||||||
|
|
|
|
- 101 -
29. | HYBRID SECURITIES |
The bond-type hybrid securities classified as owners equity are as follows (Unit: Korean Won in millions):
Issue date |
Maturity |
Interest rate (%) |
December 31, 2018 |
December 31, 2017 |
||||||||||||
Securities in local currency |
June 20, 2008 | June 20, 2038 | 7.7 | | 255,000 | |||||||||||
April 25, 2013 | April 25, 2043 | 4.4 | 500,000 | 500,000 | ||||||||||||
November 13, 2013 | November 13, 2043 | 5.7 | 200,000 | 200,000 | ||||||||||||
December 12, 2014 | December 12, 2044 | 5.2 | 160,000 | 160,000 | ||||||||||||
June 3, 2015 | June 3, 2045 | 4.4 | 240,000 | 240,000 | ||||||||||||
July 26, 2018 | | 4.4 | 400,000 | | ||||||||||||
Securities in foreign currencies |
June 10, 2015 | June 10, 2045 | 5.0 | 559,650 | 559,650 | |||||||||||
September 27, 2016 | | 4.5 | 553,450 | 553,450 | ||||||||||||
May 16, 2017 | | 5.3 | 562,700 | 562,700 | ||||||||||||
Issuance cost |
(13,837 | ) | (12,912 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total |
3,161,963 | 3,017,888 | ||||||||||||||
|
|
|
|
The hybrid securities mentioned above are either without a maturity date or its maturity can be extended indefinitely at the maturity date without change of terms.
30. | OTHER EQUITY |
(1) | Details of other equity are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Accumulated other comprehensive loss: |
||||||||
Net loss on valuation of financial assets at FVTOCI |
(87,182 | ) | | |||||
Gain on valuation of AFS financial assets |
| 301,930 | ||||||
Gain on financial liabilities at FVTPL(K-IFRS 1109) designated as upon initial recognition due to own credit risk |
| | ||||||
Share of other comprehensive gain(loss) of joint ventures and associates |
302 | (1,251 | ) | |||||
Loss on foreign currency translation of foreign operations |
(244,735 | ) | (242,700 | ) | ||||
Remeasurement loss related to defined benefit plan |
(223,529 | ) | (152,624 | ) | ||||
Gain (loss) on valuation of derivatives designated as cash flow hedges |
(3,869 | ) | 777 | |||||
Equity related to assets held for distribution (sale) |
(13,197 | ) | 4,145 | |||||
|
|
|
|
|||||
Sub-total |
(572,210 | ) | (89,723 | ) | ||||
|
|
|
|
|||||
Treasury shares |
(34,113 | ) | (34,113 | ) | ||||
Other capital adjustments(*) |
(1,607,647 | ) | (1,815,438 | ) | ||||
|
|
|
|
|||||
Total |
(2,213,970 | ) | (1,939,274 | ) | ||||
|
|
|
|
(*) | Other capital adjustments include gain or loss on capital transactions that was recognized in 2014 as a result of the merger of Woori Bank and Woori Finance Holdings Co., Ltd. |
- 102 -
(2) | Changes in the accumulated other comprehensive loss, net of tax, are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||||
Beginning balance (*1) |
Increase (decrease) (*2)(*3) |
Reclassification adjustments |
Related to assets held for distribution (sale) |
Income tax effect |
Ending balance |
|||||||||||||||||||
Net gain (loss) on valuation of financial assets at FVTOCI |
(88,906 | ) | (8,677 | ) | 8,015 | | 2,386 | (87,182 | ) | |||||||||||||||
Gain (loss) on financial liabilities at FVTPL (K-IFRS 1109) designated as upon initial recognition due to own credit risk |
(96 | ) | 132 | | | (36 | ) | | ||||||||||||||||
Share of other comprehensive gain (loss) of joint ventures and associates |
(2,656 | ) | 4,080 | | | (1,122 | ) | 302 | ||||||||||||||||
Gain (loss) on foreign currency translation of foreign operations |
(242,806 | ) | (2,661 | ) | | | 732 | (244,735 | ) | |||||||||||||||
Remeasurement gain (loss) related to defined benefit plan |
(152,358 | ) | (85,007 | ) | | (13,197 | ) | 27,033 | (223,529 | ) | ||||||||||||||
Gain (loss) on valuation of derivatives designated as cash flow hedges |
777 | 30,655 | (26,871 | ) | | (8,430 | ) | (3,869 | ) | |||||||||||||||
Transfer to assets held for distribution (sale) |
4,145 | (17,342 | ) | | | | (13,197 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
(481,900 | ) | (78,820 | ) | (18,856 | ) | (13,197 | ) | 20,563 | (572,210 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | The beginning balance was adjusted in accordance with K-IFRS 1109. |
(*2) | Net gain (loss) on valuation of financial assets at FVTOCI included the 1,009 million Won transfer to retained earnings due to disposal of equity securities. |
(*3) | Gain (loss) on financial liabilities at fair value through profit or loss designated as upon initial recognition due to own credit risk included the 4 million Won transfer to retained earnings due to redemption. |
For the year ended December 31, 2017 | ||||||||||||||||||||
Beginning balance |
Increase (decrease)(*) |
Reclassif- ication adjustments(*) |
Income tax effect |
Ending balance |
||||||||||||||||
Gain (loss) on valuation of AFS financial assets |
386,981 | 80,997 | (164,803 | ) | (1,245 | ) | 301,930 | |||||||||||||
Share of other comprehensive income (loss) of joint ventures and associates |
(1,863 | ) | 2,516 | | (1,904 | ) | (1,251 | ) | ||||||||||||
Gain (loss) on foreign currency translation of foreign operations |
(48,353 | ) | (193,272 | ) | | (1,075 | ) | (242,700 | ) | |||||||||||
Remeasurement gain (loss) related to defined benefit plan |
(163,397 | ) | 6,216 | | 4,557 | (152,624 | ) | |||||||||||||
Gain (loss) on valuation of cash flow hedges |
| 1,025 | | (248 | ) | 777 | ||||||||||||||
Transfer to assets held for sale |
| 4,145 | | | 4,145 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
173,368 | (98,373 | ) | (164,803 | ) | 85 | (89,723 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
(*) | For the change in gain (loss) on valuation of AFS financial assets, increase (decrease) represents change due to the valuation during the period, and reclassification adjustments represents disposal or recognition of impairment losses on AFS financial assets. |
- 103 -
31. | RETAINED EARNINGS AND OTHER RESERVE |
(1) | Details of retained earnings are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||||
Legal reserve |
Earned surplus reserve | 1,857,754 | 1,729,754 | |||||||
Other legal reserve | 46,384 | 45,668 | ||||||||
|
|
|
|
|||||||
Sub-total | 1,904,138 | 1,775,422 | ||||||||
|
|
|
|
|||||||
Voluntary reserve |
Business rationalization reserve | 8,000 | 8,000 | |||||||
Reserve for financial structure improvement |
235,400 | 235,400 | ||||||||
Additional reserve | 7,759,804 | 7,418,806 | ||||||||
Regulatory reserve for credit loss | 2,578,457 | 2,438,191 | ||||||||
Revaluation reserve | 715,860 | 751,964 | ||||||||
Other voluntary reserve | | 11,700 | ||||||||
|
|
|
|
|||||||
Sub-total | 11,297,521 | 10,864,061 | ||||||||
|
|
|
|
|||||||
Retained earnings before appropriation(*) |
3,922,998 | 2,980,523 | ||||||||
|
|
|
|
|||||||
Total |
17,124,657 | 15,620,006 | ||||||||
|
|
|
|
(*) | The unappropriated retained earnings for the current period has been restated in accordance with K-IFRS 1109. |
i. | Earned surplus reserve |
In accordance with the Article 40, Banking Act, earned surplus reserve is appropriated at least one tenth of the earnings after tax on every dividend declaration, not exceeding the paid in capital. This reserve may not be used other than for offsetting a deficit or transferring to capital.
ii. | Other legal reserve |
Other legal reserves were appropriated in the branches located in Japan, Vietnam and Bangladesh according to the banking laws of Japan, Vietnam and Bangladesh, and may be used to offset any deficit incurred in those branches.
iii. | Business rationalization reserve |
Pursuant to the Restriction of Special Taxation Act, the Group was previously required to appropriate, as a reserve for business rationalization, amounts equal to tax reductions arising from tax exemptions and tax credits up to December 31, 2001. The requirement was no longer effective from 2002.
iv. | Reserve for financial structure improvement |
From 2002 to 2014, the Finance Supervisory Services recommended banks in Korea to appropriate at least 10 percent of net income after accumulated deficit for financial structure improvement, until tangible common equity ratio equals 5.5 percent. But this reserve is not available for payment of cash dividends; however, it can be used to reduce a deficit or be transferred to capital. The reserve and appropriation are an Autonomous judgment matter of the Group since 2015.
v. | Additional reserve |
Additional reserve was appropriated for capital adequacy and other management purpose.
vi. | Regulatory reserve for credit loss |
In accordance with paragraphs 1 and 2 of Article 29 of the Regulation on Supervision of Banking Business (RSBB), if provisions for credit loss under K-IFRS for the accounting purpose are lower than provisions under RSBB, the Bank limits such shortfall amount as regulatory reserve for credit loss.
- 104 -
vii. | Revaluation reserve |
In accordance with attached table 3 of the Regulation on Supervision of Banking Business Enforcement Rules Revaluation reserve is the amount of limited dividends set by the board of directors to be recognized as complementary capital when the gain or loss occurred in the property revaluation by adopting K-IFRS.
32. | REGULATORY RESERVE FOR CREDIT LOSS |
In accordance with Paragraph 1 and 2 of Article 29 of the Regulation on the Supervision of Banking Business (RSBB), the Group shall disclose the difference as the planned regulatory reserve for credit loss. The planned provision (reversal) is recognized subsequent to December 31, 2018.
(1) | Balance of the planned regulatory reserve for credit loss is as follows (Unit: Korean Won in millions): |
December 31, 2018 |
December 31, 2017 |
|||||||
Balance as at December 31 |
2,578,457 | 2,438,191 | ||||||
Planned provision (reversal) of regulatory reserve for credit loss |
(222,211 | ) | 140,266 | |||||
|
|
|
|
|||||
Balance after recognizing the planned provision (reversal) |
2,356,246 | 2,578,457 | ||||||
|
|
|
|
(2) | Planned reserves provided, adjusted net income after the planned reserves provided and adjusted EPS after the planned reserves provided are as follows (Unit: Korean Won in millions, except for EPS amount): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Net income |
2,051,649 | 1,530,088 | ||||||
Provision of regulatory reserve for credit loss(*) |
40,875 | 140,266 | ||||||
Adjusted net income after the provision of regulatory reserve |
2,010,774 | 1,389,822 | ||||||
Adjusted EPS after the provision of regulatory reserve (Unit: Korean Won) |
2,762 | 1,817 |
(*) The amount of reserve for credit loss for the year ended December 31, 2018 is calculated considering only the change in the reserve for credit loss after the accounting policy change due to adoption of K-IFRS 1109. Therefore, the effect of reducing the reserve for credit losses due to changes in accounting policies was excluded.
33. | DIVIDENDS |
Dividends for the years 2018 and 2017 are 650 Won and 500 Won, respectively, and the total amount of dividends paid are 437,626 million Won and 336,636 million Won, respectively. The dividends for the current period will be submitted as an agenda in the upcoming annual shareholders meeting scheduled on March 27, 2019.
- 105 -
34. | NET INTEREST INCOME |
(1) | Interest income recognized is as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Financial assets at FVTPL (K-IFRS 1109) |
54,243 | | ||||||
Financial assets at FVTOCI |
280,371 | | ||||||
Financial assets at amortized cost |
||||||||
Securities at amortized cost |
376,788 | | ||||||
Loans and other financial assets at amortized cost: |
||||||||
Interest on due from banks |
112,581 | | ||||||
Interest on loans |
8,832,485 | | ||||||
Interest of other receivables |
28,031 | | ||||||
|
|
|
|
|||||
Sub-total |
9,349,885 | | ||||||
|
|
|
|
|||||
Financial assets at FVTPL (K-IFRS 1039) |
| 53,348 | ||||||
AFS financial assets |
| 239,030 | ||||||
HTM financial assets |
| 307,965 | ||||||
Loans and receivables: |
||||||||
Interest on due from banks |
| 83,325 | ||||||
Interest on loans |
| 7,835,957 | ||||||
Interest of other receivables |
| 31,062 | ||||||
|
|
|
|
|||||
Sub-total |
| 7,950,344 | ||||||
|
|
|
|
|||||
Total |
9,684,499 | 8,550,687 | ||||||
|
|
|
|
(2) | Interest expense recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Interest on deposits due to customers |
2,917,165 | 2,380,263 | ||||||
Interest on borrowings |
306,739 | 238,212 | ||||||
Interest on debentures |
720,394 | 638,653 | ||||||
Other interest expense |
89,250 | 72,909 | ||||||
|
|
|
|
|||||
Total |
4,033,548 | 3,330,037 | ||||||
|
|
|
|
35. | NET FEES AND COMMISSIONS INCOME |
(1) | Details of fees and commissions income recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Fees and commission received for brokerage |
162,344 | 164,041 | ||||||
Fees and commission received related to credit |
173,233 | 166,364 | ||||||
Fees and commission received for electronic finance |
121,250 | 110,105 | ||||||
Fees and commission received on foreign exchange handling |
60,433 | 58,383 | ||||||
Fees and commission received on foreign exchange |
66,036 | 61,552 | ||||||
Fees and commission received for guarantee |
65,254 | 65,779 | ||||||
Fees and commission received on credit card |
598,705 | 1,072,423 | ||||||
Fees and commission received on securities business |
96,379 | 80,872 | ||||||
Fees and commission from trust management |
177,456 | 141,766 | ||||||
Fees and commission received on credit Information |
12,985 | 11,737 | ||||||
Other fees |
146,689 | 136,176 | ||||||
|
|
|
|
|||||
Total |
1,680,764 | 2,069,198 | ||||||
|
|
|
|
- 106 -
(2) | Details of fees and commissions expense incurred are as follows (Unit: Korean Won in millions): |
For the years ended December 31 |
||||||||
2018 | 2017 | |||||||
Fees and commissions paid |
174,669 | 164,834 | ||||||
Credit card commission |
428,613 | 828,363 | ||||||
Brokerage commission |
1,833 | 558 | ||||||
Others |
5,675 | 4,977 | ||||||
|
|
|
|
|||||
Total |
610,790 | 998,732 | ||||||
|
|
|
|
36. | DIVIDEND INCOME |
(1) | Details of dividend income recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 |
||||||||
2018 | 2017 | |||||||
Financial assets at FVTPL (K-IFRS 1109) |
67,892 | | ||||||
Financial assets at FVTPL (K-IFRS 1039) |
| 446 | ||||||
Financial assets at FVTOCI |
22,660 | | ||||||
AFS financial assets |
| 124,546 | ||||||
|
|
|
|
|||||
Total |
90,552 | 124,992 | ||||||
|
|
|
|
(2) | Details of dividends related to financial assets at FVTOCI are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 |
||||
Dividend income recognized from assets held |
||||
Equity securities |
22,386 | |||
Dividend income recognized in assets derecognized |
274 | |||
|
|
|||
Total |
22,660 | |||
|
|
37. | NET GAIN OR LOSS ON FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS MANDATORILY MEASURED AT FAIR VALUE (K-IFRS 1109 AND 1039) |
(1) | Details of gain or loss related to net gain or loss on financial instruments at FVTPL (K-IFRS 1109 and 1039) are as follows (Unit: Korean Won in millions): |
For the years ended December 31 |
||||||||
2018 | 2017 | |||||||
Gain on financial instruments at fair value through profit or loss mandatorily measured at fair value |
196,959 | | ||||||
Gain on financial instruments held for trading |
| 6,123 | ||||||
Gain on financial instruments at fair value through profit or loss designated as upon initial recognition |
17,484 | | ||||||
Loss on financial instruments designed as at fair value through profit or loss |
| (110,950 | ) | |||||
|
|
|
|
|||||
Total |
214,443 | (104,827 | ) | |||||
|
|
|
|
- 107 -
(2) | Details of net gain or loss on financial instruments at fair value through profit or loss mandatorily measured at fair value and financial instruments held for trading are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||||||
2018 | 2017 | |||||||||||
Financial assets at FVTPL (financial assets held for trading) |
Securities |
Gain on valuation |
137,237 | 2,764 | ||||||||
Gain on disposals |
45,105 | 20,528 | ||||||||||
Loss on valuation |
(25,499 | ) | (13,757 | ) | ||||||||
Loss on disposals |
(26,728 | ) | (6,466 | ) | ||||||||
|
|
|
|
|||||||||
Sub-total |
130,115 | 3,069 | ||||||||||
|
|
|
|
|||||||||
Loans |
Gain on valuation |
1,606 | | |||||||||
Gain on disposals |
4,136 | | ||||||||||
Loss on valuation |
(4,805 | ) | | |||||||||
Loss on disposals |
(117 | ) | | |||||||||
|
|
|
|
|||||||||
Sub-total |
820 | | ||||||||||
|
|
|
|
|||||||||
Gain on valuation |
2,050 | 6,524 | ||||||||||
Gain on disposals |
530 | 2,353 | ||||||||||
Other financial assets |
Loss on valuation |
(2,280 | ) | (7,885 | ) | |||||||
Loss on disposals |
(86 | ) | (619 | ) | ||||||||
|
|
|
|
|||||||||
Sub-total |
214 | 373 | ||||||||||
|
|
|
|
|||||||||
Sub-total |
131,149 | 3,442 | ||||||||||
|
|
|
|
|||||||||
Derivatives (for trading) |
Interest rate derivatives |
Gain on transactions and valuation |
1,255,581 | 1,088,192 | ||||||||
Loss on transactions and valuation |
(1,303,244 | ) | (1,043,312 | ) | ||||||||
|
|
|
|
|||||||||
Sub-total |
(47,663 | ) | 44,880 | |||||||||
|
|
|
|
|||||||||
Currency derivatives |
Gain on transactions and valuation |
4,935,922 | 7,253,426 | |||||||||
Loss on transactions and valuation |
(4,822,915 | ) | (7,408,741 | ) | ||||||||
|
|
|
|
|||||||||
Sub-total |
113,007 | (155,315 | ) | |||||||||
|
|
|
|
|||||||||
Equity derivatives |
Gain on transactions and valuation |
486,560 | 511,220 | |||||||||
Loss on transactions and valuation |
(484,986 | ) | (397,462 | ) | ||||||||
|
|
|
|
|||||||||
Sub-total |
1,574 | 113,758 | ||||||||||
|
|
|
|
|||||||||
Other derivatives |
Gain on transactions and valuation |
4,138 | 4,056 | |||||||||
Loss on transactions and valuation |
(5,246 | ) | (4,698 | ) | ||||||||
|
|
|
|
|||||||||
Sub-total |
(1,108 | ) | (642 | ) | ||||||||
|
|
|
|
|||||||||
Sub-total |
65,810 | 2,681 | ||||||||||
|
|
|
|
|||||||||
Total |
196,959 | 6,123 | ||||||||||
|
|
|
|
(3) | Details of net gain(loss) on financial instruments at fair value through profit or loss designated as upon initial recognition and Losses on financial instruments designated as at fair value through profit or loss are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Gain(loss) on equity-linked securities: |
||||||||
Loss on disposal of equity-linked securities |
(2,058 | ) | (79,965 | ) | ||||
Gain(loss) on valuation of equity-linked securities |
17,945 | (32,511 | ) | |||||
Sub-total |
15,887 | (112,476 | ) | |||||
Gain on other securities: |
||||||||
Gain on valuation of other securities |
| 290 | ||||||
Gain on other financial instruments: |
||||||||
Gain on valuation of other financial instruments |
1,597 | 1,236 | ||||||
|
|
|
|
|||||
Total |
17,484 | (110,950 | ) | |||||
|
|
|
|
- 108 -
38. | NET GAIN OR LOSS ON FINANCIAL ASSETS AT FVTOCI AND AFS FINANCIAL ASSETS |
Details of net gain or loss on financial assets at FVTOCI and AFS financial assets recognized are as follows (Unit: Korean Won in millions):
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Gain on redemption of securities |
53 | 47 | ||||||
Gain on transactions of securities |
1,994 | 223,961 | ||||||
Impairment loss on securities |
| (31,300 | ) | |||||
|
|
|
|
|||||
Total |
2,047 | 192,708 | ||||||
|
|
|
|
39. | IMPAIRMENT REVERSAL (LOSS) DUE TO CREDIT LOSS |
Impairment reversal (loss) due to credit loss are as follows (Unit: Korean Won in millions):
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Impairment loss due to credit loss on financial assets measured at FVTOCI |
(2,027 | ) | | |||||
Impairment loss due to credit loss on securities at amortized cost |
(1,922 | ) | | |||||
Reversal (provision) for credit loss on loan and other financial assets at amortized cost |
(415,084 | ) | | |||||
Impairment loss due to credit loss |
| (862,273 | ) | |||||
Reversal of provision on guarantee |
105,985 | 55,424 | ||||||
Reversal of provision on (provision for) unused loan commitment |
(16,526 | ) | 21,716 | |||||
|
|
|
|
|||||
Total |
(329,574 | ) | (785,133 | ) | ||||
|
|
|
|
- 109 -
40. | GENERAL AND ADMINISTRATIVE EXPENSES AND OTHER NET OPERATING INCOME (EXPENSES) |
(1) | Details of general and administrative expenses recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||||||
2018 | 2017 | |||||||||||
Salaries |
Short-term employee benefits | Salaries | 1,484,236 | 1,317,826 | ||||||||
Employee benefits | 468,012 | 559,562 | ||||||||||
Retirement benefit service costs | 145,149 | 146,848 | ||||||||||
Termination | 225,106 | 299,562 | ||||||||||
|
|
|
|
|||||||||
Sub-total | 2,322,503 | 2,323,798 | ||||||||||
|
|
|
|
|||||||||
Depreciation and amortization |
216,735 | 183,601 | ||||||||||
|
|
|
|
|||||||||
Other general and administrative expenses |
Rent | 321,198 | 313,080 | |||||||||
Taxes and public dues | 115,454 | 111,248 | ||||||||||
Service charges | 222,530 | 198,828 | ||||||||||
Computer and IT related | 88,689 | 70,936 | ||||||||||
Telephone and communication | 70,618 | 65,015 | ||||||||||
Operating promotion | 43,540 | 43,850 | ||||||||||
Advertising | 72,450 | 68,942 | ||||||||||
Printing | 8,601 | 8,633 | ||||||||||
Traveling | 12,757 | 13,064 | ||||||||||
Supplies | 7,071 | 6,795 | ||||||||||
Insurance premium | 8,355 | 8,548 | ||||||||||
Reimbursement | 23,474 | 27,516 | ||||||||||
Maintenance | 17,384 | 16,081 | ||||||||||
Water, light and heating | 14,686 | 14,165 | ||||||||||
Vehicle maintenance | 10,264 | 9,902 | ||||||||||
Others | 47,724 | 46,799 | ||||||||||
|
|
|
|
|||||||||
Sub-total | 1,084,795 | 1,023,402 | ||||||||||
|
|
|
|
|||||||||
Total |
3,624,033 | 3,530,801 | ||||||||||
|
|
|
|
(2) | Details of other operating income recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Gain on transactions of foreign exchange |
1,227,561 | 3,391,095 | ||||||
Gain on disposals of loans and receivables (*1) |
| 205,490 | ||||||
Gain related to derivatives(Designated for hedging) |
35,810 | 122 | ||||||
Gain on fair value hedged items |
42,797 | 53,532 | ||||||
Others (*2) |
82,417 | 86,159 | ||||||
|
|
|
|
|||||
Total |
1,388,585 | 3,736,398 | ||||||
|
|
|
|
(*1) | Gain (loss) on disposal of loan and receivables occurred during the year ended December 31, 2018 was presented as a separate account named Net gain related to financial assets at amortized cost in accordance with the adoption of K-IFRS 1109. |
(*2) | Other income includes income amounting to 29,316 million Won and 29,336 million Won, for the years ended December 31, 2018 and 2017, respectively, that the Group recognized for it is to receive from other creditor financial institutions in accordance with the creditor financial institutions committee agreement. |
- 110 -
(3) | Details of other operating expenses recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Losses on transactions of foreign exchange |
991,423 | 2,886,535 | ||||||
KDIC deposit insurance premium |
315,315 | 304,055 | ||||||
Contribution to miscellaneous funds |
298,416 | 286,000 | ||||||
Losses on disposals of loans and receivables(*1) |
| 9,221 | ||||||
Losses related to derivatives (Designated for hedging) |
36,483 | 109,569 | ||||||
Losses on fair value hedged items |
17,299 | | ||||||
Others (*2) |
124,240 | 172,331 | ||||||
|
|
|
|
|||||
Total |
1,783,176 | 3,767,711 | ||||||
|
|
|
|
(*1) | Loss on disposal of loan and receivables occurred during the year ended December 31, 2018 was presented as a separate account named Net gain related to financial assets at amortized cost in accordance with the adoption of K-IFRS 1109. |
(*2) | Other expense includes such expenses amounting to 1,594 million Won and 5,237 million Won for the years ended December 31, 2018 and 2017, respectively, which are related to the Groups expected payments to other creditor financial institutions in accordance with the creditor financial institutions committee agreement. In addition, in includes 51,770 million Won and 48,292 million Won, respectively, of intangible asset amortization expense. |
41. | OTHER NON-OPERATING INCOME (EXPENSES) |
(1) | Details of gains or losses on valuation of investments in joint ventures and associates are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Gains on valuation of investments in joint ventures and associates |
25,791 | 83,506 | ||||||
Losses on valuation of investments in joint ventures and associates |
(22,595 | ) | (70,117 | ) | ||||
Impairment losses of investments in joint ventures and associates |
(177 | ) | (114,903 | ) | ||||
|
|
|
|
|||||
Total |
3,019 | (101,514 | ) | |||||
|
|
|
|
(2) | Details of other non-operating income and expenses recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Other non-operating incomes |
129,709 | 84,361 | ||||||
Other non-operating expenses |
(87,157 | ) | (190,083 | ) | ||||
|
|
|
|
|||||
Total |
42,552 | (105,722 | ) | |||||
|
|
|
|
(3) | Details of other non-operating income recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Rental fee income |
6,835 | 6,973 | ||||||
Gains on disposal of investments in joint ventures and associates |
50,511 | 39,932 | ||||||
Gains on disposal of premises and equipment, intangible assets and other assets |
30,278 | 5,028 | ||||||
Reversal of impairment loss of premises and equipment, intangible assets and other assets |
761 | 666 | ||||||
Others |
41,324 | 31,762 | ||||||
|
|
|
|
|||||
Total |
129,709 | 84,361 | ||||||
|
|
|
|
- 111 -
(4) | Details of other non-operating expenses recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Depreciation on investment properties |
4,045 | 3,902 | ||||||
Interest expenses of refundable deposits |
620 | 459 | ||||||
Losses on disposal of investment in joint ventures and associates |
2,931 | 38,713 | ||||||
Losses on disposal of premises and equipment, intangible assets and other assets |
1,160 | 9,994 | ||||||
Impairment losses of premises and equipment, intangible assets and other assets |
87 | 390 | ||||||
Donation |
51,983 | 98,132 | ||||||
Others |
26,331 | 38,493 | ||||||
|
|
|
|
|||||
Total |
87,157 | 190,083 | ||||||
|
|
|
|
42. | INCOME TAX EXPENSE |
(1) | Details of income tax expenses are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Current tax expense: |
||||||||
Current tax expense with respect to the current period |
432,645 | 471,669 | ||||||
Adjustments recognized in the current period in relation to the tax expense of prior periods |
5,923 | (5,209 | ) | |||||
|
|
|
|
|||||
Sub-total |
438,568 | 466,460 | ||||||
|
|
|
|
|||||
Deferred tax expense (income): |
||||||||
Changes in deferred tax assets (liabilities) relating to the temporary differences |
314,655 | (47,042 | ) | |||||
|
|
|
|
|||||
Income tax expense |
753,223 | 419,418 | ||||||
|
|
|
|
(2) | Income tax expense reconciled to net income before income tax expense is as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Net income before income tax expense |
2,804,872 | 1,949,506 | ||||||
Tax calculated at statutory tax rate (*) |
760,978 | 471,318 | ||||||
Adjustments: |
||||||||
Effect of income that is exempt from taxation |
(49,418 | ) | (55,983 | ) | ||||
Effect of expenses that are not deductible in determining taxable income |
18,639 | 22,254 | ||||||
Adjustments recognized in the current period in relation to the current tax of prior periods |
5,923 | (5,209 | ) | |||||
Others |
17,101 | (12,962 | ) | |||||
|
|
|
|
|||||
Sub-total |
(7,755 | ) | (51,900 | ) | ||||
|
|
|
|
|||||
Income tax expense |
753,223 | 419,418 | ||||||
|
|
|
|
|||||
Effective tax rate |
26.9 | % | 21.5 | % |
(*) | The applicable income tax rate: 1) 11% for taxable income below 200 million Won, 2) 22% for above 200 million Won and below 20 billion Won, 3) 24.2% for above 20 billion Won and below 300 billion Won, 4) 27.5% for above 300 billion Won. |
- 112 -
(3) | Changes in cumulative temporary differences for the years ended Deferred 31, 2018 and 2017, are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||||||||||||
K-IFRS 1109 adoption effect | ||||||||||||||||||||||||||||||||
Beginning balance |
Recognized as retained earnings |
Recognized as other comprehensive income (loss) |
Beginning balance after K-IFRS 1109 adoption |
Business combination |
Recognized as income (expense) |
Recognized as other comprehensive income (expense)(*2) |
Ending Balance(*3) |
|||||||||||||||||||||||||
Gain (loss) on financial assets |
479,065 | (150,140 | ) | 149,796 | 478,721 | | (102,170 | ) | (4,205 | ) | 372,346 | |||||||||||||||||||||
Gain on valuation using the equity method of accounting |
24,482 | | | 24,482 | | 3,203 | 669 | 28,354 | ||||||||||||||||||||||||
Gain (loss) on valuation of derivatives |
(10,260 | ) | (3,990 | ) | | (14,250 | ) | | (13,617 | ) | 360 | (27,507 | ) | |||||||||||||||||||
Accrued income |
(60,987 | ) | | | (60,987 | ) | 621 | 4,520 | | (55,846 | ) | |||||||||||||||||||||
Provision for loan losses |
(47,697 | ) | 47,446 | | (251 | ) | 399 | (52,493 | ) | | (52,345 | ) | ||||||||||||||||||||
Loan and receivables written off |
9,777 | | | 9,777 | | (3,105 | ) | | 6,672 | |||||||||||||||||||||||
Loan origination costs and fees |
(137,320 | ) | 36 | | (137,284 | ) | | (17,147 | ) | | (154,431 | ) | ||||||||||||||||||||
Defined benefit liability |
284,234 | | | 284,234 | 317 | 43,821 | 31,715 | 360,087 | ||||||||||||||||||||||||
Deposits with employee retirement insurance trust |
(287,333 | ) | | | (287,333 | ) | | (31,092 | ) | 95 | (318,330 | ) | ||||||||||||||||||||
Provision for guarantee |
30,602 | 1,370 | | 31,972 | | (20,598 | ) | | 11,374 | |||||||||||||||||||||||
Other provision |
45,153 | 25,879 | | 71,032 | | 4,162 | | 75,194 | ||||||||||||||||||||||||
Others(*1) |
(72,265 | ) | 4,917 | | (67,348 | ) | 44 | (130,137 | ) | (6,642 | ) | (204,083 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net deferred tax assets |
257,451 | (74,482 | ) | 149,796 | 332,765 | 1,381 | (314,653 | ) | 21,992 | 41,485 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | Among the deferred tax assets and liabilities classified as Others, the deferred tax asset arising from unused tax losses amounts to 18,154 million Won. |
(*2) | Includes 1,429 million Won presented on non-controlling interests. |
(*3) | Includes 9,778 million Won presented on assets held for distribution (sale) (Note 17). |
- 113 -
For the year ended December 31, 2017 | ||||||||||||||||
Beginning balance |
Recognized as income (expense) |
Recognized as other comprehensive income (expense) |
Ending balance |
|||||||||||||
Gain (loss) on financial assets |
407,128 | 72,945 | (1,008 | ) | 479,065 | |||||||||||
Gain on valuation using the equity method of accounting |
32,859 | (6,473 | ) | (1,904 | ) | 24,482 | ||||||||||
Gain (loss) on valuation of derivatives |
(43,818 | ) | 33,806 | (248 | ) | (10,260 | ) | |||||||||
Accrued income |
(69,959 | ) | 8,972 | | (60,987 | ) | ||||||||||
Provision for loan losses |
(46,811 | ) | (886 | ) | | (47,697 | ) | |||||||||
Loan and receivables written off |
53,915 | (44,138 | ) | | 9,777 | |||||||||||
Loan origination costs and fees |
(108,102 | ) | (29,218 | ) | | (137,320 | ) | |||||||||
Defined benefit liability |
225,045 | 54,533 | 4,656 | 284,234 | ||||||||||||
Deposits with employee retirement insurance trust |
(226,321 | ) | (61,012 | ) | | (287,333 | ) | |||||||||
Provision for guarantee |
41,138 | (10,536 | ) | | 30,602 | |||||||||||
Other provision |
32,392 | 12,761 | | 45,153 | ||||||||||||
Others(*) |
(87,479 | ) | 16,289 | (1,075 | ) | (72,265 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net deferred tax assets |
209,987 | 47,043 | 421 | 257,451 | ||||||||||||
|
|
|
|
|
|
|
|
(*) Among the deferred tax assets and liabilities classified as Others, the deferred tax asset arising from unused tax losses amounts to 15,652 million Won.
(4) | Unrealizable temporary differences are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Deductible temporary differences |
272,911 | 126,818 | ||||||
Tax loss carry forward |
149,035 | 96,135 | ||||||
Taxable temporary differences |
(868,541 | ) | (1,298,586 | ) | ||||
|
|
|
|
|||||
Total |
(446,595 | ) | (1,075,633 | ) | ||||
|
|
|
|
No deferred income tax asset has been recognized for the deductible temporary difference of KRW 227,144 million associated with investments in subsidiaries and associates as of December 31, 2018, because it is not probable that the temporary differences will be reversed in the foreseeable future. KRW 45,767 million associated with others, respectively, as of December 31, 2018, due to the uncertainty that these will be realized in the future.
No deferred income tax liability has been recognized for the taxable temporary difference of KRW 866,294 million associated with investment in subsidiaries and associates as of December 31, 2018, due to the following reasons:
- The Group is able to control the timing of the reversal of the temporary difference.
- It is probable that the temporary difference will not be reversed in the foreseeable future.
KRW 2,247 million associated with others are not recognized as deferred tax liabilities as it is not probable that the associated temporary differences will be reversed in the foreseeable future.
As of December 31, 2018, the expected extinctive date of tax loss carry forward that are not recognized as deferred tax assets are as follows (Unit: Korean Won in millions):
1 year or less | 1 2 years | 2 3 years | More than 3 years | |||||||||||||
Tax loss carry forward |
| | | 149,035 |
- 114 -
(5) | Details of accumulated deferred tax charged directly to other equity are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Net gain on valuation of financial assets at FVTOCI |
31,422 | | ||||||
Loss on valuation of AFS securities |
(114,169 | ) | ||||||
Share of other comprehensive loss of and associates |
(285 | ) | (954 | ) | ||||
Gain on foreign currency translation of foreign operations |
8,183 | 15,855 | ||||||
Remeasurements of the net defined benefit liability |
88,127 | 56,317 | ||||||
Gain (loss) on derivatives designated as cash flow hedge |
1,140 | (248 | ) | |||||
|
|
|
|
|||||
Total |
128,587 | (43,199 | ) | |||||
|
|
|
|
(6) | Current tax assets and liabilities are as follows (Unit: Korean Won in millions) |
December 31, 2018 | December 31, 2017 | |||||||
Current tax assets |
20,488 | 4,722 | ||||||
Current tax liabilities |
156,559 | 232,600 |
43. | EARNINGS PER SHARE (EPS) |
Basic EPS is calculated by dividing net income attributable to common shareholders by weighted-average number of common shares outstanding (Unit: Korean Won in millions, except for EPS and number of shares):
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Net income attributable to Owners |
2,033,182 | 1,512,148 | ||||||
Dividends to hybrid securities |
(151,194 | ) | (167,072 | ) | ||||
Net income attributable to Common shareholders |
1,881,988 | 1,345,076 | ||||||
Weighted-average number of common shares outstanding |
673 million shares | 673 million shares | ||||||
Basic EPS (Unit: Korean Won) |
2,796 | 1,999 |
Diluted EPS is equal to basic EPS because there is no dilution effect for the years ended December 31, 2018 and 2017.
- 115 -
44. | CONTINGENT LIABILITIES AND COMMITMENTS |
(1) | Details of guarantees are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Confirmed guarantees |
||||||||
Guarantee for loans |
125,870 | 157,299 | ||||||
Acceptances |
371,525 | 320,519 | ||||||
Guarantees in acceptances of imported goods |
158,179 | 108,238 | ||||||
Other confirmed guarantees |
6,452,791 | 6,288,965 | ||||||
|
|
|
|
|||||
Sub-total |
7,108,365 | 6,875,021 | ||||||
|
|
|
|
|||||
Unconfirmed guarantees |
||||||||
Local letters of credit |
305,057 | 383,117 | ||||||
Letters of credit |
3,322,731 | 3,637,787 | ||||||
Other unconfirmed guarantees |
669,677 | 505,689 | ||||||
|
|
|
|
|||||
Sub-total |
4,297,465 | 4,526,593 | ||||||
|
|
|
|
|||||
Commercial paper purchase commitments and others |
1,260,587 | 1,458,101 | ||||||
|
|
|
|
|||||
Total |
12,666,417 | 12,859,715 | ||||||
|
|
|
|
(2) | Details of unused loan commitments and others are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Loan commitments |
97,796,704 | 80,760,325 | ||||||
Other commitments |
5,041,314 | 4,546,090 |
(3) | Litigation case |
Legal cases where the Group is involved are as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||||||||||
As plaintiff | As defendant | As plaintiff | As defendant | |||||||||||||
Number of cases (*) |
77 cases | 154 cases | 83 cases | 155 cases | ||||||||||||
Amount of litigation |
494,645 | 246,826 | 413,267 | 244,767 | ||||||||||||
Provisions for litigations |
17,925 | 9,277 |
(*) | The number of lawsuits as of December 31, 2018 and 2017 does not include fraud lawsuits, etc. and those lawsuits that are filed only to extend the statute of limitation. |
45. | RELATED PARTY TRANSACTIONS |
Related parties of the Group as of December 31, 2018 and 2017, and assets and liabilities recognized, guarantees and commitments, major transactions with related parties and compensation to key management for the years ended December 31, 2018 and 2017 are as follows:
(1) | Related parties |
Related parties | ||
Associates |
Woori Service Networks Co., Ltd., Korea Credit Bureau Co., Ltd., Korea Finance Security Co., Ltd., Chin Hung International Inc., 2016KIF-IMM Woori Bank Technology Venture Fund, K BANK Co., Ltd., Well to Sea No. 3 Private Equity Fund, and Others (Dongwoo C & C Co., Ltd. and other 28 associates) |
- 116 -
(2) | Assets and liabilities from transactions with related parties are as follows (Unit: Korean Won in millions): |
Related party |
A title of account |
December 31, 2018 |
December 31, 2017 |
|||||||||
Associates |
Kumho Tire Co., Inc.(*1) |
Loans |
| 170,917 | ||||||||
Loss allowance |
| (156,712 | ) | |||||||||
Deposits due to customers |
| 666 | ||||||||||
Other liabilities |
| 50 | ||||||||||
Woori Service Networks Co., Ltd. |
Loans |
69 | 45 | |||||||||
Deposits due to customers |
1,967 | 1,311 | ||||||||||
Other liabilities |
333 | 357 | ||||||||||
Korea Credit Bureau Co., Ltd. |
Loans |
7 | 6 | |||||||||
Deposits due to customers |
6,494 | 5,586 | ||||||||||
Other liabilities |
19 | 54 | ||||||||||
Korea Finance Security Co., Ltd. |
Loans |
57 | 56 | |||||||||
Loss allowance |
(4 | ) | | |||||||||
Deposits due to customers |
5,040 | 2,854 | ||||||||||
Other liabilities |
10 | 7 | ||||||||||
Chin Hung International Inc. |
Loans |
411 | 408 | |||||||||
Loss allowance |
(204 | ) | (22 | ) | ||||||||
Deposits due to customers |
11,605 | 46,220 | ||||||||||
Other liabilities |
2,974 | 1,658 | ||||||||||
Poonglim Industrial Co., Ltd.(*2) |
Deposits due to customers |
| 4 | |||||||||
STX Engine Co., Ltd.(*3) |
Loans |
| 106,176 | |||||||||
Loss allowance |
| (88,734 | ) | |||||||||
Deposits due to customers |
| 18,092 | ||||||||||
Other liabilities |
| 29 | ||||||||||
STX Corporation(*3) |
Loans |
| 47,711 | |||||||||
Loss allowance |
| (31,210 | ) | |||||||||
Deposits due to customers |
| 77,555 | ||||||||||
Other liabilities |
| 80 | ||||||||||
K BANK Co., Ltd. |
Loans |
190 | 212 | |||||||||
Well to Sea No.3 Private Equity Fund |
Loans |
1,857 | 73,810 | |||||||||
Loss allowance |
(9 | ) | (39 | ) | ||||||||
Deposits due to customers |
356 | 61 | ||||||||||
Other liabilities |
64 | 27 | ||||||||||
Others (*4) |
Loans |
4,783 | 499 | |||||||||
Loss allowance |
(324 | ) | (471 | ) | ||||||||
Other assets |
9 | 1 | ||||||||||
Deposits due to customers |
8,049 | 2,906 | ||||||||||
Other liabilities |
165 | 73 |
(*1) | The Group lost significant influence over the entity due to the termination of the joint management procedures of the creditors financial institution during the year December 31, 2018, and thus the entity was excluded from the list of associates. |
(*2) | The Group lost significant influence over the entity due to the stock consolidation and the capital increase of the associate during the year ended December 31, 2018, and thus the entity was excluded from the list of associates. |
(*3) | The shares of the entity were sold after it was transferred to assets held for distribution (sale) during the years ended December 31, 2018 and thus was excluded from the list of associates. |
(*4) | Others include Saman Corporation, Kyesan Engineering Co., Ltd., DAEA SNC Co., Ltd., etc., as of December 31, 2018 and 2017. |
- 117 -
(3) | Gain or loss from transactions with related parties are as follows (Unit: Korean Won in millions): |
For the years ended December 31 |
||||||||||||
Related party |
A title of account |
2018 | 2017 | |||||||||
Corporation that has significant influence over the Group |
KDIC(*1) |
Interest expenses |
| 15,331 | ||||||||
Associates |
Kumho Tire Co., Inc. (* 2) |
Interest income |
1,098 | 2,641 | ||||||||
Fees income |
| 5 | ||||||||||
Interest expenses |
| 1 | ||||||||||
Impairment losses due to credit loss (reversal of allowance for credit loss) |
(156,712 | ) | 155,997 | |||||||||
Woori Blackstone Korea Opportunity Private Equity Fund No.1 (*3) |
Fees income |
| 6,225 | |||||||||
Woori Service Networks Co., Ltd. |
Other income |
30 | 30 | |||||||||
Interest expenses |
14 | 24 | ||||||||||
Fees expenses |
561 | 543 | ||||||||||
Other expenses |
580 | 507 | ||||||||||
Korea Credit Bureau Co., Ltd. |
Interest expenses |
62 | 82 | |||||||||
Fees expenses |
2,310 | 2,079 | ||||||||||
Korea Finance Security Co., Ltd. |
Interest expenses |
12 | 12 | |||||||||
Impairment losses due to credit loss |
4 | | ||||||||||
Other expenses |
146 | | ||||||||||
Chin Hung International Inc. |
Interest income |
| 364 | |||||||||
Fees income |
| 1 | ||||||||||
Interest expenses |
43 | 27 | ||||||||||
Impairment losses due to credit loss (reversal of allowance for credit loss) |
182 | (4,265 | ) | |||||||||
STX Engine Co., Ltd. (*4) |
Interest income |
333 | 1,417 | |||||||||
Fees income |
| 28 | ||||||||||
Interest expenses |
86 | 147 | ||||||||||
Reversal of allowance for credit loss |
(88,734 | ) | (797 | ) | ||||||||
Samho International Co., Ltd.(*5) |
Interest income |
| 486 | |||||||||
Fees income |
| 5 | ||||||||||
Interest expenses |
| 334 | ||||||||||
Reversal of allowance for credit loss |
| (717 | ) | |||||||||
STX Corporation(*4) |
Interest income |
| 219 | |||||||||
Fees income |
| 30 | ||||||||||
Interest expenses |
2 | 4 | ||||||||||
Reversal of allowance for credit loss |
(31,210 | ) | (61,432 | ) | ||||||||
Woori Columbus 1st Private Equity Fund(*3) |
Fees income |
| 272 |
- 118 -
For the years ended December 31 |
||||||||||||
Related party |
A title of account |
2018 | 2017 | |||||||||
Associates |
K BANK Co., Ltd. | Fees income | 1,134 | | ||||||||
Other income | 19 | 1,051 | ||||||||||
Well to Sea No.3 Private Equity Fund (*6) |
Interest income | 2,179 | 982 | |||||||||
Interest expenses | 9 | 4 | ||||||||||
Impairment losses due to credit loss (reversal of allowance for credit loss) |
(30 | ) | 39 | |||||||||
Others (*7) |
Interest income | 233 | | |||||||||
Fees income | 23 | | ||||||||||
Other income | 14 | | ||||||||||
Interest expenses | 40 | 13 | ||||||||||
Impairment losses due to credit loss (reversal of allowance for credit loss) |
(147 | ) | 218 |
(*1) | As its ownership interest in the Group is lower than 20% as of December 31, 2017, it has been excluded from the corporation that have significant influence over the Group category. |
(*2) | The Group lost significant influence over the entity due to the termination of the joint management procedures of the creditors financial institution during the year ended December 31, 2018, and thus the entity was excluded from the list of associates. |
(*3) | The entity is excluded from the list of associates due to its liquidation for the year ended December 31, 2017. |
(*4) | The shares of the entity were sold after it was transferred to assets held for distribution (sale) during the years ended December 31, 2018 and thus was excluded from the list of associates. |
(*5) | The shares of the entity were sold after it was transferred to assets held for distribution (sale) during the year ended December 31, 2017 and thus was excluded from the list of associates. |
(*6) | Due to capital contribution for the year ended December 31, 2017, the entity has been included in the list of associates. |
(*7) | Others include the amount transacted with Saman Corporation, Kyesan Engineering Co., Ltd., DAEA SNC Co., Ltd., etc., for the years ended December 31, 2018 and 2017. |
(4) | Major loan transactions with related parties for the years ended December 31, 2018 and 2017 are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||
Related parties | Beginning balance |
Loan | Collection | Others | Ending balance (*1) |
|||||||||||||||||
Associates |
Kumho Tire Co., Inc.(*2) |
57,470 | | 7,057 | (50,413 | ) | | |||||||||||||||
Well to Sea No. 3 Private Equity Fund (*3) |
73,810 | 16,857 | 88,810 | | 1,857 | |||||||||||||||||
STX Engine Co., Ltd. (*4) |
39,886 | | 2,177 | (37,709 | ) | | ||||||||||||||||
For the year ended December 31, 2017 | ||||||||||||||||||||||
Related parties | Beginning balance |
Loan | Collection | Others | Ending balance (*1) |
|||||||||||||||||
Associates |
Kumho Tire Co., Inc.(*2) |
50,413 | 7,057 | | | 57,470 | ||||||||||||||||
Well to Sea No. 3 Private Equity Fund (*3) |
| 83,810 | 10,000 | | 73,810 | |||||||||||||||||
STX Engine Co., Ltd. (*4) |
44,797 | 2,177 | 7,088 | | 39,886 |
(*1) | Settlement payment from normal operation among the related parties were excluded, and in the case of a limited loan, it was presented as a net increase or decrease. |
(*2) | The Group lost significant influence over the entity due to the termination of the joint management procedures of the creditors financial institution during the year ended December 31, 2018, and thus the entity was excluded from the list of associates. |
(*3) | Due to capital contribution, the entity was included in the list of associates during the year ended December 31, 2017. |
(*4) | The shares of the entity were sold after it was transferred to assets held for distribution (sale) during the year ended December 31, 2018 and thus was excluded from the list of associates. |
- 119 -
(5) | There are no major borrowing transactions with related parties for the years ended December 31, 2018 and 2017. |
(6) | Guarantees provided to the related parties are as follows (Unit: Korean Won in millions): |
December 31, 2018 |
December 31, 2017 |
Warranty | ||||||||
Kumho Tire Co., Inc.(*1) |
| 4,181 | Import credit in foreign currencies and others | |||||||
| 636 | Unused loan commitment | ||||||||
Korea Finance Security Co., Ltd. |
203 | 204 | Unused loan commitment | |||||||
Korea Credit Bureau Co., Ltd. |
28 | 29 | Unused loan commitment | |||||||
Woori Service Networks Co., Ltd. |
131 | 155 | Unused loan commitment | |||||||
Chin Hung International Inc. |
32,058 | 31,891 | Unused loan commitment | |||||||
STX Engine Co., Ltd.(*2) |
| 68,858 | Import credit in foreign currencies and others | |||||||
STX corporation (*2) |
|
|
|
17,557 | Import credit in foreign currencies and others | |||||
| 53 | Unused loan commitment | ||||||||
K BANK Co., Ltd. |
15 | | Unused loan commitment | |||||||
Well to Sea No.3 Private Equity Fund |
208,143 | 236,190 | Unused loan commitment |
(*1) | The Group lost significant influence over the entity due to the termination of the joint management procedures of the creditors financial institution during the year ended December 31, 2018, and thus the entity was excluded from the list of associates. |
(*2) | The shares of the entity were sold after it was transferred to assets held for distribution (sale) during the year ended December 31, 2018 and thus was excluded from the list of associates. |
For the guarantee provided to the related parties, the amount the Group recognized as provisions for guarantees is nil and 71,459 million Won, as of December 31, 2018 and December 31, 2017, respectively.
(7) | Compensation for key management is as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Short-term employee salaries |
12,326 | 12,024 | ||||||
Retirement benefit service costs |
489 | 472 | ||||||
|
|
|
|
|||||
Total |
12,815 | 12,496 | ||||||
|
|
|
|
Key management includes registered executives and non-registered executives. Outstanding assets and liabilities from transactions with key management amount to 2,816 million Won and 6,096 million Won, respectively, as of December 31, 2018, and with respect to the assets, the Group has not recognized any allowance nor related impairment loss due to credit losses.
- 120 -
46. | TRUST ACCOUNTS |
(1) | Trust accounts of the Bank are as follows (Unit: Korean Won in millions): |
Total assets | Operating income | |||||||||||||||
For the years ended December 31 | ||||||||||||||||
December 31, 2018 | December 31, 2017 | 2018 | 2017 | |||||||||||||
Trust accounts |
53,560,071 | 43,895,511 | 1,049,105 | 1,029,501 |
(2) | Receivables and payables between the Bank and trust accounts are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Receivables: |
||||||||
Trust fees receivables |
28,703 | 25,286 | ||||||
|
|
|
|
|||||
Payables: |
||||||||
Deposits due to customers |
574,330 | 585,832 | ||||||
Borrowings from trust accounts |
3,020,371 | 2,711,529 | ||||||
|
|
|
|
|||||
Total |
3,594,701 | 3,297,361 | ||||||
|
|
|
|
|||||
(3) Significant transactions between the Bank and trust accounts are as follows (Unit: Korean Won in millions):
|
| |||||||
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Revenue: |
||||||||
Trust fees |
177,913 | 141,999 | ||||||
Termination fees |
5,885 | 1,565 | ||||||
|
|
|
|
|||||
Total |
183,798 | 143,564 | ||||||
|
|
|
|
|||||
Expense: |
||||||||
Interest expenses on deposits due to customers |
7,813 | 17,768 | ||||||
Interest expenses on borrowings from trust accounts |
38,873 | 31,956 | ||||||
|
|
|
|
|||||
Total |
46,686 | 49,724 | ||||||
|
|
|
|
(4) | Principal guaranteed trusts and principal and interest guaranteed trusts are as follows; |
1) | The carrying value of principal guaranteed trusts and principal and interest guaranteed trusts are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Principal guaranteed trusts |
||||||||
Old-age pension trusts |
3,564 | 4,058 | ||||||
Personal pension trusts |
521,200 | 530,556 | ||||||
Pension trusts |
819,102 | 791,920 | ||||||
Retirement trusts |
42,187 | 50,035 | ||||||
New personal pension trusts |
8,104 | 8,563 | ||||||
New old-age pension trusts |
2,134 | 2,467 | ||||||
|
|
|
|
|||||
Sub-total |
1,396,291 | 1,387,599 | ||||||
|
|
|
|
|||||
Principal and interest guaranteed trusts |
||||||||
Development trusts |
19 | 19 | ||||||
Unspecified money trusts |
835 | 801 | ||||||
|
|
|
|
|||||
Sub-total |
854 | 820 | ||||||
|
|
|
|
|||||
Total |
1,397,145 | 1,388,419 | ||||||
|
|
|
|
- 121 -
2) | The amounts that the Bank must pay by the operating results of the principal guaranteed trusts or the principal and interest guaranteed trusts are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Liabilities for the account (subsidy for trust account adjustment) |
33 | 32 |
47. | BUSINESS COMBINATION |
The business combination occurred during the current period is as follows:
(1) | Acquisition of WB Finance Co., Ltd. |
To expand Cambodias retail business, the Group had acquired 100% ownership of Vision Fund Cambodia in June 2018 and the Group changed its name to WB Finance Co., Ltd.
The goodwill amounting to 46,752 million Won arising from the acquisition is based on the economic effect of combining the operation of the Group and its subsidiaries, and also from the customer base acquired.
(2) | Woori Bank Europe |
The Group acquired approval from the Deutsche Bundesbank(Central bank of Germany) for the establishment of Woori Bank Europe(Capital amounting to 50 million Euros) on October 9, 2018. Woori Bank Europe started its operation on November 1, 2018.
(3) | Details of the accounting for the business combination are as follows (Unit: Korean Won in millions): |
WB Finance Co., Ltd |
Woori Bank Europe |
Total | ||||||||||
Consideration transferred: |
||||||||||||
Cash and cash equivalents |
87,562 | 64,062 | 151,624 | |||||||||
Identifiable assets and liabilities recognized: |
||||||||||||
Cash and cash equivalents |
16,657 | | 16,657 | |||||||||
Financial assets at FVTOCI |
17 | | 17 | |||||||||
Loans and other financial assets at amortized cost(*) |
205,451 | 64,062 | 269,513 | |||||||||
Premises and equipment |
1,630 | | 1,630 | |||||||||
Intangible assets |
763 | | 763 | |||||||||
Current tax assets |
173 | | 173 | |||||||||
Deferred tax assets |
1,381 | | 1,381 | |||||||||
Other assets |
1,510 | | 1,510 | |||||||||
|
|
|
|
|
|
|||||||
Assets sub- total |
227,582 | 64,062 | 291,644 | |||||||||
|
|
|
|
|
|
|||||||
Deposits due to customers |
54,615 | | 54,615 | |||||||||
Borrowings |
120,644 | | 120,644 | |||||||||
Other financial liabilities |
6,149 | | 6,149 | |||||||||
Current tax liabilities |
640 | | 640 | |||||||||
Other liabilities |
4,724 | | 4,724 | |||||||||
|
|
|
|
|
|
|||||||
Liabilities sub-total |
186,772 | | 186,772 | |||||||||
|
|
|
|
|
|
|||||||
Identifiable net fair value |
40,810 | 64,062 | 104,872 | |||||||||
Goodwill |
46,752 | | 46,752 | |||||||||
|
|
|
|
|
|
(*) | The book value of loans and other financial assets at amortized cost is used as proxy for fair value since the difference between fair value and book value is not material. The total contractual amount of WB Finance is 208,623 million Won and the contractual cash flow that is not expected to be recovered is 3,182 million Won. |
- 122 -
(4) | Operating income and Net income of the Group |
Assuming that the acquisition date is the date of the beginning of reporting period, the amounts to be added to the operating income and net income in the Groups statement of comprehensive income for the year ended December 31, 2018 are as follows: (Unit: Korean Won in millions):
WB Finance | ||||
Operating income |
44,545 | |||
Net income |
4,511 |
48. | EVENT AFTER THE REPORTING PERIOD |
After the end of the reporting period, the financial holding company was established on January 11, 2019. In accordance with the established of financial holding company, six companies, Bank, Woori FIS Co., Ltd., Woori Finance Research Institute Co., Ltd., Woori Credit Information Co., Ltd., Woori Fund Service Co., Ltd., Woori Private Equity Asset Management Co., Ltd. became fully owned subsidiaries of the said financial holding company.
After the financial holding company is established, the shares of the Bank was delisted from the Korea Stock Exchange and New York Stock Exchange on January 11, 2019, and the shares of the newly established financial holding company was listed on February 13, 2019, both Korea Stock Exchange and New York Stock Exchange.
- 123 -
Exhibit 99.2
WOORI BANK
SEPARATE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2018 AND 2017
ATTACHMENT: INDEPENDENT AUDITORS REPORT
WOORI BANK
INDEPENDENT AUDITORS REPORT
English Translation of a Report Originally Issued in Korean on March 19, 2019
To the Shareholders and the Board of Directors of Woori Bank
Report on the Audited Separate Financial Statements
Our Opinion
We have audited the accompanying separate financial statements of Woori Bank (the Bank), which comprise the separate statement of financial position as of December 31, 2018 and December 31, 2017, respectively, and the separate statement of comprehensive income, separate statement of changes in shareholders equity and separate statement of cash flows, for the years then ended, and a summary of significant accounting policies and other explanatory information.
In our opinion, the separate financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2018 and December 31, 2017, respectively, and its financial performance and its cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (K-IFRS).
Basis for Audit Opinion
We conducted our audits in accordance with the Korean Standards on Auditing (KSAs). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the ethical requirements, including those related to independence, that are relevant to our audit of the separate financial statements in the Republic of Korea as required by prevailing audit regulations. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
The key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the separate financial statements of the current period. These matters were addressed in the context of our audit of the separate financial statements as a whole, and in forming our audit opinion thereon, and we do not provide a separate opinion on these matters.
Allowance for credit loss in accordance with K-IFRS 1109 Financial Instruments
Key audit matter description
As a result of the adoption of K-IFRS 1109 in the current year, the Bank estimates and records an allowance for loans based on expected credit losses, as opposed to the previous method based on incurred credit losses under K-IFRS 1039 as described in notes 2, 3, 4 and 10. In order to estimate expected credit losses, the Bank segregated its portfolio in retail loans. With the exception of a portion of the corporate loan book comprised of individually significant loans (amortized cost of KRW 819,593 million), the Bank measures all portfolios (amortized cost of KRW 241,863,227 million) based on a collective assessment methodology. Both the collective and individual impairment methodologies in the amounts of KRW 1,025,866 million and KRW 371,188 million, respectively, must consider historical losses adjusted for forward looking information and include multiple scenarios for macroeconomic factors. The allowance for certain loans is measured, at least in part, based on the valuation of collaterals which must take into account an expectation of when and for how much the collateral will be sold.
There was a significant amount of judgment required by management when determining the appropriateness of the forward looking and macroeconomic information used in the calculation of the expected losses in its loan portfolio.
Given the level of subjectivity and judgment, auditing the estimated allowance for loan losses involved especially complex and subjective judgment.
How the scope of our audit responded to the key audit matter
Our audit procedures related to the assumptions and unobservable inputs used by management for the estimate of impaired loans including the following:
| We tested the design and effectiveness of controls over the appropriateness of the cash-flows estimated to be collected in individually significant loans, including the estimates of collateral values. |
| We tested the design and effectiveness of the controls over the appropriateness of the models used to determine the calculation of the allowance for loan losses for collectively assessed loans and most importantly the determination of the relevant model and assumptions to incorporate forward looking and macro-economic information |
| We used our credit specialists to assist us in challenging the reasonableness of the methodologies and inputs used in the calculation of the allowance for loan losses for collectively assessed loans, most importantly in determining the appropriateness of forward looking and macro-economic scenarios used by management |
| We reperformed the calculation of the collective allowance taking into account forward looking and macroeconomic information determined to be appropriate in consultation with our credit specialists. |
| We selected samples of loans subject to individual assessments and performed the following: |
✓ | Independently estimated future operating cash flows from borrowers with significant loans outstanding to determine the available cash flows to repay the loans. |
✓ | With assistance of our appraisal specialists, evaluated the reasonableness of cash flow estimates based on the future sale of collateral. |
Responsibilities of Management and the Audit Committee for the Financial Statements
Management is responsible for the preparation of the accompanying separate financial statements in accordance with K-IFRS, and for such internal control as they determine is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the separate financial statements, management of the Bank is responsible for assessing the Banks ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
The audit committee is responsible for overseeing the Banks financial reporting process.
Auditors Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with KSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements.
As part of an audit in accordance with KSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
| Identify and assess the risks of material misstatement of the separate financial statements, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
| Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Banks internal control. |
| Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
| Conclude on the appropriateness of the managements use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Banks ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Bank to cease to continue as a going concern. |
| Evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
We communicate with the audit committee of the Bank regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the audit committee of the Bank with a statement that we have complied with relevant ethical requirements, including those related to independence, and to communicate with them all matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the audit committee, we determine those matters that were of most significance in the audit of the separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter.
March 19, 2019
Notice to Readers
This report is effective as of March 19, 2019 the auditors report date. Certain subsequent events or circumstances may have occurred between the auditors report date and the time the auditors report is read. Such events or circumstances could significantly affect the separate financial statements and may result in modifications to the auditors report.
WOORI BANK
SEPARATE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS
ENDED DECEMBER 31, 2018 AND 2017
The accompanying separate financial statements, including all footnote disclosures, were
prepared by, and are the responsibility of, the management of Woori Bank.
Tae Seung Sohn
President and Chief Executive Officer
Headquarters: (Address) 51, Sogong-ro, Jung-gu, Seoul | ||
(Phone Number) | 02-2002-3000 |
WOORI BANK
SEPARATE STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 2018 AND 2017
December 31, 2018(*) |
December 31, 2017(*) |
|||||||
(Korean Won in millions) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents (Notes 6 and 45) |
5,723,801 | 5,328,960 | ||||||
Financial assets at fair value through profit or loss (FVTPL) (K-IFRS 1109) (Notes 4, 7, 11, 12, 26 and 45) |
3,877,858 | | ||||||
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) |
17,040,674 | | ||||||
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) |
22,802,050 | | ||||||
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) |
260,350,949 | | ||||||
Loans and receivables (Notes 4, 10, 11, 12, 18 and 45) |
| 248,810,624 | ||||||
Investments in subsidiaries and associates (Note 13) |
4,193,775 | 4,148,795 | ||||||
Investment properties (Note 14) |
367,117 | 350,235 | ||||||
Premises and equipment (Note 15) |
2,350,342 | 2,374,590 | ||||||
Intangible assets (Note 16) |
353,167 | 303,325 | ||||||
Assets held for distribution (sale) (Note 17) |
143,288 | 46,183 | ||||||
Deferred tax assets (Note 42) |
7,360 | 238,543 | ||||||
Derivative assets (Designated for hedging) (Notes 4, 11, 12 and 26) |
35,503 | 59,272 | ||||||
Other assets (Notes 19 and 45) |
146,995 | 117,889 | ||||||
|
|
|
|
|||||
Total assets |
317,392,879 | 296,737,571 | ||||||
|
|
|
|
|||||
LIABILITIES | ||||||||
Financial liabilities at FVTPL (K-IFRS 1109) (Notes 4, 11 12, 20, 26 and 45) |
2,279,373 | | ||||||
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) |
237,426,765 | 224,384,156 | ||||||
Borrowings (Notes 4, 11, 12 and 22) |
14,081,092 | 13,662,984 | ||||||
Debentures (Notes 4, 11 and 22) |
21,666,331 | 21,707,466 | ||||||
Provisions (Notes 23, 44 and 45) |
283,501 | 368,027 | ||||||
Net defined benefit liability (Note 24) |
136,163 | 14,284 | ||||||
Liabilities of a disposal group classified as held for distribution (Note 17) |
72,361 | | ||||||
Current tax liabilities (Note 42) |
110,127 | 212,376 | ||||||
Derivative liabilities (Designated for hedging) (Notes 4, 11, 12 and 26) |
17,654 | 12,103 | ||||||
Other financial liabilities (Notes 4, 11, 12, 25 and 45) |
20,097,011 | 13,029,421 | ||||||
Other liabilities (Notes 25 and 45) |
173,501 | 135,686 | ||||||
|
|
|
|
|||||
Total liabilities |
296,343,879 | 276,943,481 | ||||||
|
|
|
|
(Continued)
WOORI BANK
SEPARATE STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 2018 AND 2017 (CONTINUED)
December 31, 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) |
(386,840 | ) | (135,282 | ) | ||||
Retained earnings and other reserves (Notes 31 and 32) (Regulatory reserve for credit loss as of December 31, 2018 and 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 December 31, 2018 and 2017 is 202,905 million Won and (-) 74,379 million Won, respectively |
||||||||
Planned provision reversed (reserved) of regulatory reserve for credit loss as of December 31, 2018 and 2017 is 202,905 million Won and (-) 74,379 million Won, respectively) |
14,622,952 | 13,260,559 | ||||||
|
|
|
|
|||||
Total equity |
21,049,000 | 19,794,090 | ||||||
|
|
|
|
|||||
Total liabilities and equity |
317,392,879 | 296,737,571 | ||||||
|
|
|
|
(*) | The separate statement of financial position as of December 31, 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 STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
2018(*) | 2017(*) | |||||||
(Korean won in millions, except for per share data) |
||||||||
Interest income |
8,331,967 | 7,385,721 | ||||||
Financial assets at FVTPL (K-IFRS 1109) |
6,047 | | ||||||
Financial assets at FVTOCI |
256,995 | | ||||||
Financial assets at amortized cost |
8,068,925 | | ||||||
Financial assets at FVTPL (K-IFRS 1039) |
| 17,735 | ||||||
AFS financial assets |
| 209,594 | ||||||
HTM financial assets |
| 303,348 | ||||||
Loans and receivables |
| 6,855,044 | ||||||
Interest expense |
(3,604,249 | ) | (2,995,118 | ) | ||||
|
|
|
|
|||||
Net interest income (Notes 11, 34 and 45) |
4,727,718 | 4,390,603 | ||||||
Fees and commissions income |
1,151,201 | 1,072,838 | ||||||
Fees and commissions expense |
(148,554 | ) | (141,817 | ) | ||||
|
|
|
|
|||||
Net fees and commissions income (Notes 11, 35 and 45) |
1,002,647 | 931,021 | ||||||
Dividend income (Notes 36 and 45) |
75,986 | 125,599 | ||||||
Net gain on financial instruments at FVTPL (K-IFRS 1109) (Notes 11, 37 and 45) |
204,649 | | ||||||
Net loss on financial instruments at FVTPL (K-IFRS 1039) (Notes 11, 37 and 45) |
| (96,983 | ) | |||||
Net gain on financial assets at FVTOCI (K-IFRS 1109) (Notes 11 and 38) |
1,333 | | ||||||
Net gain on AFS financial assets (Notes 11 and 38) |
| 135,003 | ||||||
Net gain on disposals of financial assets at amortized cost (Note 11) |
44,166 | | ||||||
Net gain on disposals of securities at amortized cost |
431 | | ||||||
Net gain on disposals of loans and other financial assets at amortized cost |
43,735 | | ||||||
Impairment losses due to credit loss (Notes 11, 39 and 45) |
(58,823 | ) | (553,204 | ) | ||||
General and administrative expenses (Notes 40 and 45) |
(3,189,336 | ) | (3,128,725 | ) | ||||
Other net operating expenses (Notes 40 and 45) |
(392,649 | ) | (12,756 | ) | ||||
|
|
|
|
|||||
Operating income |
2,415,691 | 1,790,558 | ||||||
Share of losses on subsidiaries and associates (Note 13) |
(241 | ) | (133,948 | ) | ||||
Net other non-operating income(expense) |
70,181 | (36,388 | ) | |||||
|
|
|
|
|||||
Non-operating income(expense) (Note 41) |
69,940 | (170,336 | ) | |||||
Net income before income tax expense |
2,485,631 | 1,620,222 | ||||||
Income tax expense (Note 42) |
(674,727 | ) | (344,110 | ) |
WOORI BANK
SEPARATE STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
2018(*) | 2017(*) | |||||||
(Korean won in millions, except for per share data) |
||||||||
Net income |
||||||||
(Net income after the provision for regulatory reserve for credit loss for the years ended December 31, 2018 and 2017, is 1,819,532 million won and 1,201,733 million won, respectively) (Note 32) |
1,810,904 | 1,276,112 | ||||||
|
|
|
|
|||||
Net loss on valuation of equity securities at FVTOCI |
(29,290 | ) | | |||||
Net gain on valuation of financial liabilities designated as at FVTPL due to own credit risk |
100 | | ||||||
Remeasurement gain (loss) related to defined benefit plan |
(79,639 | ) | 16,566 | |||||
Items that will not be reclassified to profit or loss |
(108,829 | ) | 16,566 | |||||
Net gain on valuation of debt securities at FVTOCI |
36,085 | | ||||||
Net loss on valuation of AFS financial assets |
| (48,139 | ) | |||||
Net gain (loss) on foreign currencies translation of foreign operations |
7,882 | (34,093 | ) | |||||
Items that may be reclassified to profit or loss |
43,967 | (82,232 | ) | |||||
Other comprehensive loss, net of tax |
(64,682 | ) | (65,666 | ) | ||||
Total comprehensive income |
1,746,042 | 1,210,446 | ||||||
Net income per share (Note 43) |
||||||||
Basic and diluted earnings per common share (in Korean Won) |
2,466 | 1,648 |
(*) | The separate statement of comprehensive income for year ended December 31, 2018 was prepared in accordance with K-IFRS 1109; however, the comparative separate statement of comprehensive income for the year ended December 31, 2017 was not retrospectively restated in accordance with K-IFRS 1109. |
See accompanying notes
WOORI BANK
SEPARATE STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Capital stock |
Hybrid securities |
Capital surplus |
Other equity |
Retained Earnings and other reserves |
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 |
| | | | 1,276,112 | 1,276,112 | ||||||||||||||||||
Dividends on common stocks |
| | | | (336,636 | ) | (336,636 | ) | ||||||||||||||||
Loss on valuation of available-for-sale financial assets |
| | | (48,139 | ) | | (48,139 | ) | ||||||||||||||||
Loss on foreign currency translation of foreign operations |
| | | (34,093 | ) | | (34,093 | ) | ||||||||||||||||
Remeasurement gain related to defined benefit plan |
| | | 16,566 | | 16,566 | ||||||||||||||||||
Dividends to hybrid securities |
| | | | (167,072 | ) | (167,072 | ) | ||||||||||||||||
Issuance of hybrid securities |
| 559,565 | | | | 559,565 | ||||||||||||||||||
Redemption of hybrid securities |
| (1,116,573 | ) | | (208,158 | ) | | (1,324,731 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2017(*) |
3,381,392 | 3,017,888 | 269,533 | (135,282 | ) | 13,260,559 | 19,794,090 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
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 |
| | | | 1,810,904 | 1,810,904 | ||||||||||||||||||
Dividends on common stocks |
| | | | (336,636 | ) | (336,636 | ) | ||||||||||||||||
Net gain on valuation of financial liabilities designated as at FVTPL due to own credit risk |
| | | 100 | | 100 | ||||||||||||||||||
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 |
| | | 6,795 | | 6,795 | ||||||||||||||||||
Changes in other comprehensive income due to disposal of equity securities at FVTOCI |
| | | (1,009 | ) | 1,009 | | |||||||||||||||||
Gain on foreign currency translation of foreign operations |
| | | 7,882 | | 7,882 | ||||||||||||||||||
Remeasurement loss related to defined benefit plan |
| | | (79,639 | ) | | (79,639 | ) | ||||||||||||||||
Appropriation of retained earnings |
| | | 208,158 | (208,158 | ) | | |||||||||||||||||
Dividends to hybrid securities |
| | | | (151,194 | ) | (151,194 | ) | ||||||||||||||||
Issuance of hybrid securities |
| 398,707 | | | | 398,707 | ||||||||||||||||||
Redemption of hybrid securities |
| (254,632 | ) | | (368 | ) | | (255,000 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2018(*) |
3,381,392 | 3,161,963 | 269,533 | (386,840 | ) | 14,622,952 | 21,049,000 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*) | The separate statements of changes in equity for the year ended December 31, 2018 was prepared in accordance with K-IFRS 1109; however, the comparative separate statements of changes in equity for year ended December 31, 2017 was not retrospectively restated in accordance with K-IFRS 1109. |
See accompanying notes
WOORI BANK
SEPARATE STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
2018(*) | 2017(*) | |||||||
(Korean Won in millions) | ||||||||
Cash flows from operating activities: |
||||||||
Net income |
1,810,904 | 1,276,112 | ||||||
Adjustment to net income: |
||||||||
Income tax expense |
674,727 | 344,110 | ||||||
Interest income |
(8,331,967 | ) | (7,385,721 | ) | ||||
Interest expense |
3,604,249 | 2,995,118 | ||||||
Dividend income |
(113,467 | ) | (159,603 | ) | ||||
|
|
|
|
|||||
(4,166,458 | ) | (4,206,096 | ) | |||||
|
|
|
|
|||||
Additions of expenses not involving cash outflows: |
||||||||
Impairment losses due to credit loss |
58,823 | 553,204 | ||||||
Loss on valuation of financial instruments at FVTPL |
| 6,596 | ||||||
Impairment loss on investments in subsidiaries and associates |
241 | 133,948 | ||||||
Loss on transaction and valuation of derivatives (Designated for hedging) |
36,488 | 52,959 | ||||||
Loss on hedged items (fair value hedge) |
17,299 | | ||||||
Loss on provision |
10,823 | 51,510 | ||||||
Retirement benefits |
128,447 | 131,334 | ||||||
Depreciation and amortization |
217,074 | 165,095 | ||||||
Loss on disposal of premises and equipment, intangible assets and other assets |
933 | 1,714 | ||||||
Impairment loss on premises and equipment, intangible assets and other assets |
5,933 | 184 | ||||||
|
|
|
|
|||||
476,061 | 1,096,544 | |||||||
|
|
|
|
|||||
Deductions of income not involving cash inflows: |
||||||||
Gain on valuation of financial assets at FVTPL (K-IFRS 1109) |
216,135 | | ||||||
Gain on financial assets at FVTOCI |
1,333 | | ||||||
Gain on AFS financial assets |
| 135,003 | ||||||
Gain on disposal of securities at amortized cost |
431 | | ||||||
Gain on transaction and valuation of derivatives (Designated for hedging) |
9,126 | | ||||||
Gain on hedged items (fair value hedge) |
42,797 | 53,532 | ||||||
Gain on provisions |
1,883 | 2,357 | ||||||
Gain on disposal of investment in subsidiaries and associates |
35,409 | 9,256 | ||||||
Gain on disposal of premises and equipment, intangible assets and other assets |
25,537 | 12,950 | ||||||
Reversal of impairment loss on premises and equipment and other assets |
491 | 141 | ||||||
|
|
|
|
|||||
333,142 | 213,239 | |||||||
|
|
|
|
(Continued)
WOORI BANK
SEPARATE STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
2018(*) | 2017(*) | |||||||
(Korean Won in millions) | ||||||||
Changes in operating assets and liabilities: |
||||||||
Financial assets at FVTPL (K-IFRS 1109) |
1,232,277 | | ||||||
Financial assets at FVTPL (K-IFRS 1039) |
| (439,949 | ) | |||||
Loans and other financial assets at amortized cost |
(11,927,559 | ) | | |||||
Loans and receivables |
| (8,192,223 | ) | |||||
Other assets |
(23,497 | ) | (21,665 | ) | ||||
Deposits due to customers |
13,042,027 | 13,005,112 | ||||||
Provisions |
7,781 | 4,788 | ||||||
Net defined benefit liability |
(118,735 | ) | (34,946 | ) | ||||
Other financial liabilities |
6,919,137 | (7,675,726 | ) | |||||
Other liabilities |
45,077 | (28,404 | ) | |||||
|
|
|
|
|||||
9,176,508 | (3,383,013 | ) | ||||||
|
|
|
|
|||||
Cash received from operating activities: |
||||||||
Interest income received |
8,305,699 | 7,389,513 | ||||||
Interest expense paid |
(3,416,210 | ) | (3,013,602 | ) | ||||
Dividend received |
111,426 | 153,401 | ||||||
Income tax paid |
(464,286 | ) | (343,529 | ) | ||||
|
|
|
|
|||||
4,536,629 | 4,185,783 | |||||||
|
|
|
|
|||||
Net cash provided by(used in) operating activities |
11,500,502 | (1,243,909 | ) | |||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Cash in-flows from investing activities: |
||||||||
Disposal of Financial assets at FVTPL (K-IFRS 1109) |
11,918,394 | | ||||||
Disposal of financial assets at FVTOCI |
8,969,290 | | ||||||
Disposal of AFS financial assets |
| 23,119,666 | ||||||
Redemption of securities at amortized cost |
9,400,596 | | ||||||
Redemption of HTM financial assets |
| 8,506,982 | ||||||
Disposal of investments in subsidiaries and associates |
51,962 | 26,078 | ||||||
Disposal of premises and equipment |
387 | 7,238 | ||||||
Disposal of intangible assets |
2,845 | 383 | ||||||
Disposal of assets held for distribution (sale) |
81,650 | 21,681 | ||||||
|
|
|
|
|||||
30,425,124 | 31,682,028 | |||||||
|
|
|
|
|||||
Cash out-flows from investing activities: |
||||||||
Acquisition of financial assets at FVTPL (K-IFRS 1109) |
12,322,160 | | ||||||
Acquisition of financial instruments at FVTOCI |
12,945,225 | | ||||||
Acquisition of AFS financial assets |
| 19,287,548 | ||||||
Acquisition of securities at amortized cost |
15,575,213 | | ||||||
Acquisition of HTM financial assets |
| 11,477,669 | ||||||
Acquisition of investments in subsidiaries and associates |
285,140 | 522,906 | ||||||
Acquisition of investment properties |
12,957 | 3,029 | ||||||
Acquisition of premises and equipment |
89,414 | 134,271 | ||||||
Acquisition of intangible assets |
163,877 | 172,121 | ||||||
Cash out-flow related to derivatives for risk hedge |
| 13,742 | ||||||
|
|
|
|
|||||
41,393,986 | 31,611,286 | |||||||
|
|
|
|
|||||
Net cash provided by(used in) investing activities |
(10,968,862 | ) | 70,742 | |||||
|
|
|
|
(Continued)
WOORI BANK
SEPARATE STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
2018(*) | 2017(*) | |||||||
(Korean Won in millions) | ||||||||
Cash flows from financing activities: |
||||||||
Cash in-flows from financing activities: |
||||||||
Increase in borrowings |
8,539,312 | 8,529,590 | ||||||
Issuance of debentures |
5,248,047 | 8,669,476 | ||||||
Issuance of hybrid securities |
398,707 | 559,565 | ||||||
|
|
|
|
|||||
14,186,066 | 17,758,631 | |||||||
|
|
|
|
|||||
Cash out-flows from financing activities: |
||||||||
Repayment of borrowings |
8,280,546 | 10,475,855 | ||||||
Repayment of debentures |
5,523,518 | 4,680,520 | ||||||
Payment of dividends to common stocks |
336,636 | 336,636 | ||||||
Redemption of hybrid securities |
255,000 | 1,323,400 | ||||||
Dividends paid on hybrid securities |
147,625 | 177,730 | ||||||
|
|
|
|
|||||
14,543,325 | 16,994,141 | |||||||
|
|
|
|
|||||
Net cash provided by(used in) financing activities |
(357,259 | ) | 764,490 | |||||
|
|
|
|
|||||
Net increase(decrease) in cash and cash equivalents |
174,381 | (408,677 | ) | |||||
Cash and cash equivalents, beginning of the period |
5,328,960 | 6,104,029 | ||||||
Effects of exchange rate changes on cash and cash equivalents |
220,460 | (366,392 | ) | |||||
|
|
|
|
|||||
Cash and cash equivalents, end of the period (Note 6) |
5,723,801 | 5,328,960 | ||||||
|
|
|
|
(*) | The separate statement of cash flows for the year ended December 31, 2018 was prepared in accordance with K-IFRS 1109; however, the comparative separate flows for the year ended December 31, 2017 was not retrospectively restated in accordance with K-IFRS 1109. |
See accompanying notes
WOORI BANK
NOTES TO SEPARATE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
1. | GENERAL |
Summary of the 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 (hereinafter referred to as the Capital Market Act).
Previously, Woori Finance Holdings Co., Ltd. (established on March 27, 2001 in accordance with Financial Holding Companies Act), the former holding company of Woori Financial Group, held a 100% ownership of the Bank. Effective November 1, 2014, Woori Finance Holdings Co., Ltd. completed its merger (the Merger) with and into the Bank. Accordingly, the shares of the Bank, 597 million shares, prior to the merger, was reduced to nil in accordance with capital reduction procedure, and then, in accordance with the merger ratio, the Bank newly issued 676 million shares. As a result, the paid-in capital of the Bank as of December 31, 2018 is capital stock amounting to 3,381,392 million Korean Won. Meanwhile, 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 Banks shares to Oligopolistic Shareholders. In addition to the sale, during the year ended December 31, 2017, KDIC sold additional 33 million shares. As a result, KDIC holds 125 million shares (18.43% ownership interest) of the Bank as of December 31, 2018 and 2017, and is the majority shareholder of the Bank.
On June 24, 2002, Woori Finance Holdings Co., Ltd. listed its common stock on the Korea Exchange through public offering. In addition, on September 29, 2003, Woori Finance Holdings Co., Ltd. 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 877 branches and offices in Korea, and 23 branches and offices overseas as of December 31, 2018.
2. | BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES |
(1) | Basis of preparation |
The Bank is preparing its financial statements in accordance with the Korean Financial Reporting Standards (K-IFRS), and this separate financial statements are prepared in accordance with K-IFRS 1027 Separate Financial Statements. Separate financial statements are those presented by an investor who has significant influence over subsidiaries or investees in which the entity could elect to account for its investments in subsidiaries, joint ventures and associates either at cost, in accordance with K-IFRS 1109 Financial Instruments, or using the equity method as described in K-IFRS 1028 Investments in Associates and Joint Ventures.
The significant accounting policies applied in the preparation of financial statements as of and for the year ended December 31, 2018 are stated below, and the accounting policies applied are identical to ones used in the preparation of previous periods financial statements, except for the effects of adopting new standards or interpretations as explained below.
The financial statements are prepared at the end of each reporting period in historical cost basis, except for certain non-current assets and financial assets that are either revalued or measured in fair value. Historical cost is generally measured at the fair value of consideration given to acquire assets.
The financial statements of the Bank was approved by the Board of Directors on March 6, 2019, and is planned for an approval in the annual shareholders meeting on March 27, 2019.
1) | The Bank has newly adopted the following K-IFRS that affected the Banks accounting policies: |
- | Adoption of K-IFRS 1109 Financial instruments (enacted) |
The Bank initially applied K-IFRS 1109 and related amendments made to other standards during the current period, with January 1, 2018 as the date of initial application. K-IFRS 1109 introduces new rules on: 1) classification and measurement of financial assets and financial liabilities, 2) impairment of financial assets, and 3) hedge accounting. Additionally, the Bank adopted consequential amendments to K-IFRS 1107 Financial Instruments: Disclosures that were applied to the disclosures for 2018.
The Bank decided not to restate the prior period figures when applying the Standard for the first time, and as such the comparative financial statements 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 Banks business model for the management of financial assets and the nature of the contractual cash flows of the financial assets.
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 cash flows that are solely payments of principal and interest on the principal 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, and any change in the fair value is recognized as profit or loss (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 asset.
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 is a 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 eliminates or significantly reduces a measurement or recognition inconsistency.
- 2 -
As of the date of initial application 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 subsequently transferred to retained earnings. Debt instruments measured subsequently at amortized cost or at FVTOCI are subject to impairment.
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(date of initial application) are as follows (Unit: Korean Won in millions):
Classification in K-IFRS 1039 |
Classification in K-IFRS 1109 |
Amount in accordance with K-IFRS 1039 |
Reclassification | Remeasurement(*2) | Amount in accordance with 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) |
1,008,827 | | | 1,008,827 | ||||||||||||||
Equity securities |
Financial assets at FVTPL |
Financial assets at FVTPL(*1) |
156 | | | 156 | ||||||||||||||
Derivatives assets |
Financial assets at FVTPL |
Financial assets at FVTPL(*1) |
3,098,769 | (2,137 | ) | | 3,096,632 | |||||||||||||
Equity securities |
AFS financial assets | Financial assets at FVTPL(*1) |
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 (*1) |
51,653 | 918 | 282 | 52,853 | ||||||||||||||
Loans |
Loans and receivables | Loan and other financial assets at amortized cost |
236,691,399 | | | 236,691,399 | ||||||||||||||
Derivative assets (Designated for hedging) |
Derivative assets (Designated for hedging) |
Derivatives assets (Designated 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 | ||||||||||||||||
|
|
|
|
|
|
|
|
- 3 -
Classification in K-IFRS 1039 |
Classification in K-IFRS 1109 |
Amount in accordance with K-IFRS 1039 |
Reclassification | Remeasurement(*2) | Amount in accordance with 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 | ||||||||||||||
Derivative liabilities |
Financial liabilities at FVTPL |
Financial liabilities at FVTPL | 3,139,218 | | | 3,139,218 | ||||||||||||||
Derivative liabilities (Designated for hedging) |
Derivative liabilities (Designated for hedging) |
Derivative liabilities (Designated 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 |
Provisions |
Financial liabilities at amortized cost |
74,277 | | | 74,277 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total financial liabilities |
276,287,385 | | | 276,287,385 | ||||||||||||||||
|
|
|
|
|
|
|
|
(*1) | Under K-IFRS 1039, the embedded derivatives out of hybrid financial instruments are accounted for as derivative assets or liabilities if the criteria for separation of the embedded derivatives are met; and the host contract in those instruments are recorded as available-for-sale financial assets or loans and receivables respectively. However, since K-IFRS 1109 requires financial instruments to be accounted for based on the terms of the entire financial instrument, the hybrid financial assets are revalued and classified as financial assets at fair value through profit or loss. |
(*2) | The remeasurement effect due to expected credit losses is not included (The remeasurement effect of expected credit losses is as follows: b) Impairment of financial assets). |
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 application 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.
- 4 -
The Bank is required to recognize the expected credit losses for financial instruments measured at amortized cost or FVTOCI (debt instrument), and loan commitments and financial guarantee contracts that are subject to the impairment provisions of K-IFRS 1109. In particular, K-IFRS 1109 requires the Bank to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses (ECL) if the credit risk on that financial instrument has increased significantly since initial recognition, or if the financial instrument is a purchased or originated credit-impaired financial asset. If the credit risk of a financial instruments does not increase significantly after initial recognition (excluding purchased or originated credit-impaired loans - for financial assets already impaired at initial recognition), the Bank measures the loss allowance on the financial instruments at the amount equivalent to the expected 12-month credit loss.
Management assessed the impairment of the Banks financial assets, lending arrangements and financial guarantees at the date of initial application by using reasonable and supportive measures that can be used without undue cost or effort in determining the credit risk of the financial instruments at initial recognition in accordance with K-IFRS 1109 and in comparing above credit risk with the credit risk at the date of initial application. As of January 1, 2018, the results of the assessment are as follows (Unit: Korean Won in millions):
Classification in |
Classification in K-IFRS 1109 |
Loss allowances in accordance with K-IFRS 1039(A) |
Loss allowances in accordance with 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 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 accounting for change in the fair value of financial liabilities designated as fair value through profit or loss due to the change in issuers own credit risk. The Bank recognizes the effect of changes in the credit risk of financial liabilities designated as at FVTPL in other comprehensive income, except for cases where it creates or enlarges accounting mismatch of the profit or loss. Changes in fair value due to credit risk of financial liabilities are not subsequently reclassified to profit or loss, but are replaced with retained earnings when financial liabilities are derecognized.
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 out of 276,291,854 million of financial liabilities to be measured at FVTPL, and recognized 133 million Korean Won as accumulated other comprehensive loss in relation to changes in own credit risk of financial liabilities.
d) Hedge accounting
The new hedge accounting model maintains three types of hedge accounting. However, it introduced more flexibility in the types of transactions that are eligible for hedge accounting and expanded the types of hedging instruments and non-financial hedge items that qualify for hedge accounting. The standard related to the evaluation of hedge accounting has been amended as a whole, where it is now 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 Banks risk management activities.
- 5 -
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 concluded 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 within 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.
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 due to financial assets at FVTOCI, etc. |
Effect of K-IFRS 1109 | ||||
Balance as of December 31, 2017 (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 | |||
Reclassification 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 | |||
|
|
|||
Balance as of January 1, 2018 (based on K-IFRS 1109) |
(286,484 | ) | ||
|
|
- | Retained earnings impact |
Effect of K-IFRS 1109 | ||||
Balance as of December 31, 2017 (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 | ) | ||
Reclassification 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 on provision for guarantees and unused loan 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 | ) | ||
|
|
|||
Balance as of January 1, 2018 (based on K-IFRS 1109) |
13,507,023 | |||
|
|
- | Adoption of K-IFRS 1115 Revenue from contracts with customers (enacted) |
The Bank adopted the requirements using the modified retrospective method, with the effect of initial application recognized on the date of initial application and without restatement of the comparative periods. Also, this standard is retroactively applied to contracts which are not completed as of the date of initial application, but practical expedient is used so that contract modifications made before the date of initial application are not retroactively restated.
- 6 -
Accordingly, the Bank has not retroactively restated the comparative separate financial statements presented herein.
- | Amendments to K-IFRS 1102 Share-based Payment |
The amendments clarify that: 1) When measuring the fair value of share-based payment, the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payment should be consistent with the measurement of equity-settled share-based payment; 2) When an entity has an obligation to pay the employees withholding tax to the tax authority for the employees equity-settled share-based payment, the transaction shall be classified in its entirety as an equity-settled share-based payment transaction if it would have been so classified in the absence of the net settlement feature; and 3) When a cash-settled share-based payment changes to an equity-settled share-based payment because of modifications of the terms and conditions, the original liability recognized is derecognized and the equity-settled share-based payment is recognized at the modification date fair value. Any difference between the carrying amount of the liability at the modification date and the amount recognized in equity at the same date would be recognized in profit and loss immediately.
- | Amendments to K-IFRS 1040 - Investment Property |
The amendments clarify that a transfer to, or from, investment property necessitates an assessment of whether a property meets, or has ceased to meet, the definition of investment property, supported by observable evidence that a change in use has occurred. The amendments further clarify that situations other than the ones listed in K-IFRS 1040 may evidence a change in use, and that a change in use is possible for properties under construction (i.e., a change in use is not limited to completed properties).
- | Enactments to K-IFRS 2122 Foreign Currency Transactions and Advance Consideration |
The interpretation addresses how to determine the date of transaction for the purpose of determining the exchange rate to use on initial recognition of an asset, expense or income (or part of them) as a result of the derecognition of a non-monetary asset or non-monetary liability (e.g., a non-refundable deposit or deferred revenue) which were previously recognized due to the fact that consideration was paid or received in advance in a foreign currency. 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 investments initial recognition. In addition, when non-investment companies apply equity method to investment in associates and/or joint ventures that are investment companies, these companies may apply the same fair value measurement used by the said associates to value their own subsidiaries. This accounting treatment may be selectively applied to each associate. These amendments should be applied retrospectively and are available for early adoption.
The amendments, except for ones on K-IFRS 1109, do not have significant impact on the separate financial statements of the Bank.
2) | The Bank has not applied the following K-IFRS that has been issued but are not yet effective: |
- | K-IFRS 1116Leases(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.
The Bank plans to apply modified retrospective approach as of January 1, 2019 in accordance with K-IFRS 1116. Therefore, the cumulative effect of applying K-IFRS 1116 will be adjusted in the retained earnings (or, where appropriate, other components of equity) at the date of initial application, and the comparative financial statements will not be restated.
- 7 -
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 December 31, 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. As a result of an analysis of the impact on financial statements, the Bank expects right-of-use asset and lease liability to both increase by 245,896 million Won as of December 31, 2018.
The following enacted/amended standards are not expected to affect the Bank:
- | K-IFRS 2123 Uncertainty over Income Tax Treatments (enacted) |
- | Amendments to K-IFRS 1109 |
- | Amendments to K-IFRS 1028 |
- | Amendments to K-IFRS 1019 |
- | Amendments to K-IFRS 1115 |
- | Annual Improvements to K-IFRS 2015-2017 Cycle |
These annual improvements contain partial amendments to K-IFRS 1012 Income taxes, K-IFRS 1023 Borrowing costs, K-IFRS 1103 Business combinations and K-IFRS 1111 Joint arrangements.
(2) | Business combinations |
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured as the sum of the acquisition-date fair values of the assets transferred by the Bank in exchange for control of the acquiree, liabilities assumed by the Bank and the equity interests issued by the Bank. Acquisition-related costs are generally recognized in profit or loss as incurred.
At the acquisition date, the acquirees identifiable assets, liabilities and contingent liabilities that meet the condition for recognition under K-IFRS 1103 are recognized at their fair value, except that:
| deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with K-IFRS 1012 Income Taxes and K-IFRS 1019 Employee Benefits, respectively; |
| liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Bank entered into to replace share-based payment arrangements of the acquiree are measured in accordance with K-IFRS 1102 Share-based Payment at the acquisition date; and |
| non-current assets (or disposal groups) that are classified as held for sale in accordance with K-IFRS 1105 Non-current Assets Held for Sale and Discontinued Operations are measured at the lower of their previous carrying amounts and fair value less costs to sell. |
- 8 -
Any excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Banks previously held equity interest (if any) in the acquiree over the net of identifiable assets and liabilities assumed of the acquiree at the acquisition date is recognized as goodwill which is included in intangible assets.
If, after reassessment, the Banks interest in the fair value of the acquirees identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirers previously held equity interest in the acquiree (if any), the excess is recognized immediately in net income (or other comprehensive income, if applicable) identical to the treatment assuming interests are sold directly.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entitys net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests proportionate share of the recognized amounts of the acquirees identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable.
When the consideration transferred by the Bank in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration other than the above is remeasured at subsequent reporting dates as appropriate, with the corresponding gain or loss being recognized in profit or loss.
When a business combination is achieved in stages, the Banks previously held equity interest in the acquiree is remeasured at fair value at the acquisition date (i.e., the date when the Bank obtains control) and the resulting gain or loss, if any, is recognized in net income(or other comprehensive income, if applicable). Amounts arising from changes in value of interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are recognized, identical to the treatment assuming interests are sold directly.
In case where i) a common entity ultimately controls over all participating entities, or businesses, in a business combination transaction, prior to and after the transaction continuously, and ii) the control is not temporary, the transaction meets the definition of business combination under common control and it is deemed that the transaction only results in the changes in legal substance, and not economic substance, from the perspective of the ultimate controlling party. Thus, in such transactions, the acquirer recognizes the assets and liabilities of the acquiree in its financial statements at the book values as recognized in the ultimate controlling partys consolidated financial statements, and the difference between the book value of consideration transferred to and the book value of net assets transferred in is recognized as equity.
(3) | Investment in Joint operation |
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
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When the Bank operates as a joint operator, it recognizes in relation to its interest in a joint operation:
- | its assets, including its share of any assets held jointly; |
- | its liabilities, including its share of any liabilities incurred jointly; |
- | its revenue from the sale of its share of the output arising from the joint operation; |
- | its share of the revenue from the sale of the output by the joint operation; and |
- | its expenses, including its share of any expenses incurred jointly. |
The Bank accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the K-IFRSs applicable to the particular assets, liabilities, revenues and expenses.
When the Bank enters into a transaction with a joint operation in which it is a joint operator, such as a purchase of assets, it does not recognize proportional share of profit or loss until the asset is sold to a third party.
(4) | Revenue recognition |
K-IFRS 1018 allowed recognition of fees and commission income, a revenue from contracts with customers, in accordance with the accrual principle. However, K-IFRS 1115, applicable from the current period, requires the recognition of revenues based on transaction price allocated to the performance obligation when or as the Bank performs that obligation to the customer. Since revenues other than those from contracts with customers, such as interest revenue and loan origination fee (cost), are measured through effective interest rate method, the revenue recognition principles are identical with those applied in the previous periods.
1) | Revenue from contracts with customers |
The Bank recognizes revenue when the Bank satisfies a performance obligation by transferring a promised good or service to a customer. When a performance obligation is satisfied, the Bank shall recognizes as a revenue the amount of the transaction price that is allocated to that performance obligation. The transaction price is the amount of consideration to which the Bank expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
The Bank is recognizing revenue by major sources as shown below:
① Fees and commission received for brokerage
The fees and commission received for agency are the amount of consideration or fee expected to be entitled to receive in return for providing goods or services to the other parties with the Bank acting as an agency, such as in the case of sales of bancassurance and beneficiary certificates. The majority of these fees and commission received for brokerage are from the business activities relevant to Consumer banking segment.
② Fees and commission received related to credit
The fees and commission received related to credit mainly include the lending fees received from the loan activity and the fees received in the L/C transactions. Except for the fees and commission accounted for in calculating the effective interest rate, it is generally recognized when the performance obligation has been performed. The majority of these fees and commission received related to credit are from the business activities relevant to Consumer banking and Corporate banking segment.
③ Fees and commission received for electronic finance
The fees and commission received for electronic finance include fees received in return for providing various kinds of electronic financial services through firm-banking and CMS. These fees are recognized as revenue immediately upon the completion of services. The majority of these fees and commission received for electronic finance are from the business activities relevant to Consumer banking and Corporate banking segment.
④ Fees and commission received on foreign exchange handling
The fees and commission received on foreign exchange handling consist of various fees incurred when transferring foreign currency. The point of processing the customers request is the time when performance obligation is satisfied, and revenue is immediately recognized when fees and commission are received after requests are processed. The business activities relevant to these fees and commission received on foreign exchange handling are substantially attributable to Corporate banking segment.
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⑤ Fees and commission received on foreign exchange
The fees and commission received on foreign exchange consist of fees related to the issuance of various certificates, such as exchange, import and export performance certificates, purchase certificates, etc. The point of processing the customers request is the time when performance obligation is satisfied, and revenue is immediately recognized when fees and commission are received after requests are processed. The business activities relevant to these fees and commission received on foreign exchange are substantially attributable to Corporate banking segment.
⑥ Fees and commission received for guarantee
The fees and commission received for guarantee include the fees received for the various warranties. The activities related to the warranty consist mainly of performance obligations satisfied over time and fees and commission are recognized over the guarantee period. The business activities relevant to these fees and commission received for guarantee are substantially attributable to Corporate banking segment.
⑦ Fees and commission received on securities business
The fees and commission received on securities business consist mainly of fees and commission for the sale of beneficiary certificates, and these fees are recognized when the beneficiary certificates are sold to customers. The business activities relevant to these fees and commission received on credit card are substantially attributable to Consumer banking segment.
⑧ Fees and commission from trust management
The fees and commission from trust management consist of fees and commission received in return for the operation and management services for entrusted assets. These operation and management services are performance obligations satisfied over time, and revenue is recognized over the service period. Among the fees and commission from trust management, variable considerations such as profit commission that are affected by the value of entrusted assets and base return of the future periods are recognized as revenue when limitations to the estimates are lifted. The majority of these fees and commission received for brokerage are from the business activities relevant to Consumer banking segment.
⑨ Other fees
Other fees are usually fees related to remittances, but include fees related to various other services provided to customers by the Bank. These fees are recognized when transactions occur at the customers request and services are provided, at the same time when commissions are received. These other fees occur across all operating segments and no single operating segment represents majority of other fees.
2) | Other revenue from contracts with customers |
① Interest income
Interest income on financial assets measured at FVTOCI and financial assets at amortized costs is measured using the effective interest method.
The effective interest method is a method of calculating the amortized cost of debt securities (or group of financial assets) and of allocating the interest income over the expected life of the asset. The effective interest rate is the rate that exactly discounts estimated future cash flows to the instruments initial total carrying amount over the expected period, or shorter if appropriate. Future cash flows include commissions and cost of reward points (limited to the primary component of effective interest rate) and other premiums or discounts that are paid or received between the contractual parties, and future cash flows exclude expected credit loss when calculating the effective interest rate. All contractual terms of a financial instrument are considered when estimating future cash flows.
For purchased or originated credit-impaired financial assets, interest revenue is recognized by applying the credit-adjusted effective interest rate to the amortized cost of the financial asset from initial recognition. Even if the financial asset is no longer impaired in the subsequent periods due to credit improvement, the basis of interest revenue calculation is not changed from amortized cost to unamortized cost of the financial assets.
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② Loan origination fees and costs
The commission fees earned on loans, which is part of the effective interest of loans, is accounted for as deferred origination fees. Incremental costs related to the origination of loans are accounted for as deferred origination fees and is being added or deducted to/from interest income on loans using effective interest rate method.
(5) | Accounting for foreign currencies |
The Banks separate financial statements are presented in Korean Won, which is the functional currency of the Bank. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at its prevailing exchange rates at the date. The effective portion of the changes in fair value of a derivative that qualifies as a cash flow hedge and the foreign exchange differences on monetary items that form part of net investment in foreign operations are recognized in equity.
Assets and liabilities of the foreign operations subject to consolidation are translated into Korean Won at foreign exchange rates at the end of the reporting period. Except for situations in which it is required to use exchange rates at the date of transaction due to significant changes in exchange rates during the period, items that belong to profit or loss shall be measured by average exchange rate, with foreign exchange differences recognized as other comprehensive income and added to equity (allocated to non-controlling interests, if appropriate). When foreign operations are disposed, the controlling interests share of accumulated foreign exchange differences related to such foreign operations will be reclassified to profit or loss, while non-controlling interests corresponding share will not be reclassified.
Adjustments to fair value of identifiable assets and liabilities, and goodwill arising from the acquisition of foreign operations will be treated as assets and liabilities of the corresponding foreign operation, and is translated using foreign exchange rates at the end of the period. The foreign exchange differences are recognized in equity.
(6) | Cash and cash equivalents |
The Bank is classifying cash on hand, demand deposits, interest-earning deposits with original maturities of up to three months on acquisition date, and highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value as cash and cash equivalents.
(7) | Financial assets and financial liabilities |
The Banks accounting policies in accordance with the newly adopted K-IFRS 1109 are as follows:
1) | Financial assets |
A regular way purchase or sale of financial assets is recognized or derecognized on the trade or settlement date. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose term requires delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.
On initial recognition, financial assets are classified into financial assets at FVTPL, financial assets at FVTOCI, and financial assets at amortized cost.
a) | Business model |
The Bank evaluates the way business is being managed, and the purpose of the business model for managing a financial asset best reflects the way information is provided to the management at its portfolio level. Such information considers the following:
- | The accounting policies and purpose specified for the portfolio, and the actual operation of such policies. This includes strategy of the management focusing on the receipt of contractual interest revenue, maintaining a certain level of interest income, matching the duration of financial assets and the duration of corresponding liabilities to obtain the asset, and outflow or realization of expected cash flows from disposal of assets |
- | The way the performance of a financial asset held under the business model is evaluated, and the way such evaluation is being reported to the management |
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- | The risk affecting the performance of the business model (and financial assets held under the business model), and the way such risk is being managed |
- | The compensation plan for the management (e.g. whether the management is being compensated based on the fair value of assets or based on contractual cash flows received) |
- | Frequency, amount, timing and reason for sale of financial assets in the past, and forecast of future sale activities. |
b) | Contractual cash flows |
The principal is defined to be the fair value of a financial assets at initial recognition. Interest is not only composed of consideration for the time value of money, consideration for the credit risk related to remaining principal at a certain period of time, and consideration for other cost (e.g. liquidity risk and cost of operation) and fundamental risk associated with lending, but also profit.
When evaluating whether contractual cash flows are solely payments of principal and interests, the Bank considers the contractual terms of the financial instrument. When a financial asset contains contractual conditions that modify the timing and amount of contractual cash flows, it is required to determine whether contractual cash flows that arise during the remaining life of the financial instrument due to such contractual condition are solely payments of principal and interest. The Bank considers the following elements when evaluating the above:
- | Conditions that lead to modification of timing or amount of cash flows |
- | Contractual terms that adjust contractual nominal interest, including floating rate features |
- | Early payment features and maturity extension features |
- | Contractual terms that limit the Banks claim on cash flows arising from certain assets (e.g. non-recourse feature) |
① | Financial assets at FVTPL |
The Bank is classifying those financial assets that are not classified as either financial assets at amortized cost or financial assets at FVTOCI, and those designated to be measured at FVTPL, as financial assets at FVTPL. Financial assets at FVTPL are measured at fair value, and related profit or loss is recognized in net income. Transaction costs related to acquisition at initial recognition is recognized in net income immediately upon its occurrence.
It is possible to designate a financial asset as financial asset at FVTPL if at initial recognition: (a) it is possible to remove or significantly reduce recognition or measurement mismatch that may otherwise have occurred if not for its designation as financial asset at FVTPL; (b) the financial asset forms part of the Banks financial instrument group (A group composed of a combination of financial asset or liability), is measured at fair value and is being evaluated for its performance, and such information is provided internally; and (c) the financial asset is part of a contract that contains one or more of embedded derivatives, and is a hybrid contract in which designation as financial asset at FVTPL is allowed under K-IFRS 1109 Financial Instruments. However, the designation is irrevocable.
② | Financial assets at FVTOCI |
When financial assets are held under a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and when contractual cash flows from such financial assets are solely payments of principal and interest, the financial assets are classified as financial assets at FVTOCI. Also, for investments in equity instruments that are not held for short-term trade, an irrevocable election is available at initial recognition to present subsequent changes in fair value as other comprehensive income.
At initial recognition, financial assets at FVTOCI is measured at its fair value plus any direct transaction cost, and is subsequently measured in fair value. However, for equity instruments that do not have a quotation in an active market and in which fair value cannot be measured reliably, they are measured at cost. The changes in fair value except for profit or loss items such as impairment losses (reversals), interest revenue calculated by using effective interest method, and foreign exchange gain or loss, and related income tax effects are recognized as other comprehensive income until the assets disposal. Upon derecognition, the accumulated other comprehensive income is reclassified from equity to net income for FVTOCI (debt instrument), and reclassified within the equity for FVTOCI (equity instruments)
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③ | Financial assets at amortized cost |
When financial assets are held under a business model whose objective is to hold financial assets in order to collect contractual cash flows, and when contractual cash flows from such financial assets are solely payments of principal and interest, the financial assets are classified as financial assets at amortized cost. At initial recognition, financial assets at amortized cost are recognized at fair value plus any direct transaction cost. Financial assets at amortized cost is presented at amortized cost using effective interest method, less any loss allowance.
2) | Financial liabilities |
At initial recognition, financial liabilities are classified into either financial liabilities at FVTPL or financial liabilities at amortized cost.
Financial liabilities are usually classified as financial liabilities at FVTPL when they are acquired with a purpose to repurchase them within a short period of time, when they are part of a certain financial instrument portfolio that is actually and recently being managed with a purpose of short-term profit and joint management by the Bank at initial recognition, and when they are derivatives that do not qualify as hedging instruments. Financial liabilities at FVTPL are measured at fair value plus direct transaction cost at initial recognition, and are subsequently measured at fair value. Profit or loss arising from financial liabilities at FVTPL is recognized in net income when occurred.
It is possible to designate a financial liability as financial liability at FVTPL if at initial recognition: (a) it is possible to remove or significantly reduce recognition or measurement mismatch that may otherwise have occurred if not for its designation as financial liability at FVTPL; (b) the financial asset forms part of the Banks financial instrument group (A group composed of a combination of financial asset or liability) according to the Banks documented risk management or investment strategy, is measured at fair value and is being evaluated for its performance, and such information is provided internally; and (c) the financial liability is part of a contract that contains one or more of embedded derivatives, and is a hybrid contract in which designation as financial liability at FVTPL is allowed under K-IFRS 1109 Financial Instruments.
Financial liabilities designated as at FVTPL are initially recognized at fair value, with any direct transaction cost recognized in profit or loss, and are subsequently measured at fair value. Any profit or loss from financial liabilities at FVTPL are recognized in profit or loss.
Financial liabilities not classified as financial liabilities at FVTPL are measured at amortized cost. The Bank is classifying liabilities such as deposits due to customers, borrowings and debentures as financial liabilities at amortized cost.
3) | Reclassification |
Financial assets are not reclassified after initial recognition unless the Bank modifies the business model used to manage financial assets. When the Bank modifies the business model used to manage financial assets, all affected financial assets are reclassified on the first day of the first reporting period after the modification.
4) | Derecognition |
Financial assets are derecognized when contractual rights to cash flows from the financial assets are expired, or when substantially all of risk and reward for holding financial assets is transferred to another entity as a result of a sale of financial assets. If the Bank does not have and does not transfer substantially all of the risk and reward of holding financial assets with control of the transferred financial assets retained, the Bank recognizes financial assets to the extent of its continuing involvement. If the Bank holds substantially all the risk and reward of holding a financial asset, it continues to recognize that asset and proceeds are accounted for as collateralized borrowings.
When a financial asset is fully derecognized, the difference between the book value and the sum of proceeds and accumulated other comprehensive income is recognized as profit or loss in case of FVTOCI (debt instruments), and as retained earnings for FVTOCI (equity instruments).
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In case when a financial asset is not fully derecognized, the Bank allocates the book value into amounts retained in the books and removed from the books, based on the relative fair value of each portion at the date of sale, and based on the degree of continuing involvement. For the derecognized portion of the financial assets, the difference between its book value and the sum of proceeds and the portion of accumulated other comprehensive income attributable to that portion will be recognized in profit or loss in case of debt instruments and recognized in retained earnings in case of equity instruments. The accumulated other comprehensive income is distributed to the portion of book value retained in the books, and to the portion of book value removed from the books.
The Bank derecognizes financial liabilities when, and only when, the Banks obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.
When the Bank exchanges with the existing lender one debt instrument into another one with the substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Bank accounts for substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective rate is at least 10 percent different from the discounted present value of the remaining cash flows of the original financial liability.
5) | Fair value of financial instruments |
Financial assets at FVTPL and financial assets at FVTOCI are measured and presented in financial statements at their fair values, and all derivatives are also subject to fair value measurement.
Fair value is defined as the price that would be received to exchange an asset or paid to transfer a liability in a recent transaction between independent parties that are reasonable and willing. Fair value is the transaction price of identical financial assets or financial liabilities generated in an active market. An active market is a market where trade volume is sufficient and objective price information is available due to the fact that bid and ask price differences are small.
When trade volume of a financial instrument is low, when transaction prices within the market show large differences among them, or when it cannot be concluded that a financial instrument is being traded within an active market due to disclosures being extremely shallow, fair value is measured using valuation techniques based on alternative market information or using internal valuation techniques based on general and observable information obtained from objective sources. Market information includes maturity and characteristics, duration, similar yield curve, and variability measurement of financial instruments of similar nature. Fair value amount contains unique assumptions on each entity (the Bank concluded that it is using assumptions applied in valuing financial instruments in the market, or risk-adjusted assumptions in case marketability does not exist).
The market approach and income approach, which are valuation techniques used to estimate the fair value of financial instruments, both require significant judgment. Market approach measures fair value using either a recent transaction price that includes the financial instrument, or observable information on comparable firm or assets. Income approach measures fair value through discounting future cash flows with a discount rate reflecting market expectations, and revenue, operating income, depreciation, capital expenditures, income tax, working capital and estimated residual value of financial investments are being considered when deriving future cash flows. Valuation techniques such as the above include estimates based on the financial instruments complexity and usefulness of observable information in the market.
The valuation techniques used in the evaluation of financial instruments are explained below.
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a) Financial assets at FVTPL and Financial assets at FVTOCI
The fair value of equity securities included in financial assets at FVTPL and financial assets at FVTOCI category is recognized in the statement of financial position at its available market price. Debt securities traded in the over-the-counter market are generally recognized at an amount computed by an independent appraiser. Especially, when the Bank uses the fair value determined by independent appraisers, the Bank usually obtains three values from three different appraisers for each financial instrument, and selects the minimum amount without making additional adjustments. For equity securities without marketability, the Bank uses the amount determined by the independent appraiser. The Bank verifies the prices obtained from appraisers in various ways, including the evaluation of independent appraisers competency, indirect verification through comparison between appraisers price and other available market information, and reperformance done by employees who have knowledge of valuation models and assumptions that appraisers used.
b) Derivatives
The Banks transactions involving derivatives such as futures and exchange traded options are measured at market value. For exchange traded derivatives classified as level 2 in the fair value hierarchy, the fair value is estimated using internal valuation techniques. If there are no publicly available market prices because they are traded over-the-counter, fair value is measured through internal valuation techniques. When using internal valuation techniques to derive fair value, the types of derivatives, base interest rate or characteristics of prices, or stock market indices are considered. When variables used in the internal valuation techniques are not observable information in the market, such variables may contain significant estimates.
c) Adjustment of valuation amount
The Bank is exposed to credit risk when counterparty to a derivative contract does not perform its contractual obligation, and the exposure amount is equal to the amount of derivative asset recognized in the statement of financial position. When the Bank earns income through derivatives, such income is recognized as derivative asset in the statement of financial position. Some of the derivatives are traded in the market, but most of the derivatives are measured at estimated fair value derived from internal valuation models that use observable information in the market. As such, in order to estimate the fair value there should be an adjustment made to incorporate counterpartys credit risk, and credit risk adjustment is being considered when valuing derivative assets such as over-the counter derivatives. The amount of financial liabilities is also adjusted by the Banks own credit risk when valuing them.
The amount of adjustment is derived from counterpartys probability of default and loss given default. This adjustment considers contractual matters that are designed to reduce the Banks exposure to each counterpartys credit risk. When derivatives are under master netting arrangement, the exposure used in the computation of credit risk adjustment is a net amount after adding/deducting cash collateral received (or paid) from loss(or gain) position derivatives with the same counterparty.
6) Expected credit losses on financial assets
The Bank recognizes loss allowance on expected credit losses for the following assets:
- | Financial assets at amortized cost |
- | Debt instruments measured at FVTOCI |
- | Contract assets as defined by K-IFRS 1115 |
Expected credit losses are weighted-average value of a range of possible results, considering the time value of money, and are measured by incorporating information on current conditions and forecasts of future economic conditions that are available without undue cost or effort.
The methods to measure expected credit losses are classified into following three categories in accordance with K-IFRS:
- | General approach: Financial assets that does not belong to below two models and unused loan commitments |
- | Simplified approach: When financial assets are either trade receivables, contract assets or lease receivables |
- | Credit impairment model: Purchased or originated credit-impaired financial assets |
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The measurement of loss allowance under general approach is differentiated depending on whether the credit risk has increased significantly after initial recognition. That is, loss allowance is measured based on 12-month expected credit loss when the credit risk has not increased significantly after initial recognition, while loss allowance is measured at lifetime expected credit loss when credit risk has increased significantly. Lifetime is the expected remaining life of the financial instrument up to the maturity date of the contract.
The measurement of loss allowance under simplified approach is always based on lifetime expected credit loss, and loss allowance under credit impairment model is measured as the cumulative change in lifetime expected credit loss since initial recognition.
a) Measurement of expected credit losses on financial asset at amortized cost
The expected credit losses on financial assets at amortized cost is measured by the difference between the contractual cash flows during the period and the present value of expected cash flows. Expected cash inflows are computed for individually significant financial assets in order to calculate expected credit losses.
When financial assets that are not individually significant, they are included in a group of financial assets with similar credit risk characteristics and expected credit losses of the group are calculated collectively.
Expected credit losses are deducted through loss allowance account, and when the financial asset is determined to be uncollectible, the loss allowance is written off from the books along with the related financial asset. When loan receivable previously written off is subsequently collected, the related loss allowance is increased and changes in loss allowance are recognized in profit or loss.
b) Measurement of expected credit losses on financial asset at FVTOCI
The measurement method of expected credit loss is identical to financial asset at amortized cost, but changes in the allowance is recognized in other comprehensive income. When financial assets at FVTOCI is disposed or repaid, the related allowance is reclassified from other comprehensive income to net income.
The comparative financial statements for the year 2017 are prepared in accordance with K-IFRS 1039.
1) | Financial assets |
A regular way purchase or sale of financial assets is recognized or derecognized on the trade or settlement date. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose term requires delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.
On initial recognition, financial assets are classified into financial assets at FVTPL, AFS financial assets, HTM and loans and receivables.
① Financial assets at FVTPL
The Bank classifies financial assets as financial assets measured at FVTPL when they are either held for trading or designated to be measured at FVTPL. Financial assets acquired with the purpose of selling in the near term are classified as financial assets held for trading, and are measured at fair value with related valuation gain or loss recognized in net income. Any transaction cost related to the acquisition of financial assets at initial recognition is recognized in net income upon its occurrence.
A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if: (a) such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or (b) the financial asset forms part of a group of financial assets or financial liabilities, or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Banks documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or (c) it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039 permits the entire combined contract (asset or liability) to be designated as at FVTPL.
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② | AFS financial assets |
Financial assets that are not classified as HTM, financial assets at FVTPL or loans and receivables, are classified as AFS. Financial assets can be designated as AFS on initial recognition. AFS financial assets are initially recognized at fair value, plus directly related transaction costs. They are subsequently measured at fair value. Unquoted equity investments whose fair value cannot be measured reliably are carried at cost and classified as AFS financial assets. Impairment losses in monetary and non-monetary AFS financial assets and dividends on non-monetary financial assets are recognized in net income. Interest revenue on monetary financial assets is calculated using the effective interest method. Other changes in the fair value of AFS financial assets and any related tax are reported in a separate component of shareholders equity until disposal, when the cumulative gain or loss is recognized in net income.
③ | HTM financial assets |
A financial asset may be classified as a HTM investment only if it has fixed or determinable payments, a fixed maturity and the Bank has the positive intention and ability to hold the financial asset to maturity. HTM investments are initially recognized at fair value, plus directly related transaction costs. They are subsequently measured at amortized cost using the effective interest method less any impairment losses.
④ | Loans and receivables |
Non-derivative financial assets with fixed or determinable repayments that are not quoted in an active market are classified as loans and receivables, except those that are classified as AFS or as held for trading, or designated as at FVTPL. Loans and receivables are initially recognized at fair value, plus directly related transaction costs. They are subsequently measured at amortized cost using the effective interest method less any impairment losses. Interest income is recognized using the effective interest method, except for the short-term receivables to which the present value discount is not meaningful.
2) | Financial liabilities |
On initial recognition financial liabilities are classified financial liabilities at FVTPL (held for trading and financial liabilities designated as at FVTPL) and financial liabilities measured at amortized cost.
A financial liability is classified as held for trading if it is incurred principally for repurchase in the near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking, or it is a derivative (not in a qualifying hedge relationship). Held-for-trading financial liabilities are recognized at fair value with transaction costs being recognized in net income. Subsequently, they are measured at fair value. Gains and losses are recognized in net income as they incur.
A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if: (a) such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or (b) the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Banks documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or (3) it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039 permits the entire combined contract (asset or liability) to be designated as at FVTPL.
Financial liabilities that the Bank designates on initial recognition as being at FVTPL are recognized at fair value, with transaction costs being recognized in net income, and are subsequently measured at fair value. Gains and losses on financial liabilities that are designated as at FVTPL are recognized in net income as they incur.
All other financial liabilities, such as deposits due to customers, borrowings, and debentures, are measured at amortized cost using the effective interest method.
3) | Reclassification |
Held-for-trading and AFS financial assets that meet the definition of loans and receivables (non-derivative financial assets with fixed or determinable payments that are not quoted in an active market) may be reclassified to loans and receivables if the Bank has the intention and ability to hold the financial asset for the foreseeable future or until maturity. The Bank typically considers the foreseeable future as 12 months from the date of reclassification. Reclassifications are made at fair value. This fair value becomes the assets new cost or amortized cost as appropriate. Gains and losses recognized up to the date of reclassification are not reversed.
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4) | Derecognition |
The Bank derecognizes a financial asset when the contractual right to the cash flows from the asset is expired, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another company. If the Bank neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Bank recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Bank retains substantially all the risks and rewards of ownership of a transferred financial asset, the Bank continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between the assets carrying amount and the sum of the consideration received and receivable and the cumulated gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.
On derecognition of a financial asset other than in its entirety the Bank allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair value of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part that is no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair value of those parts.
The Bank derecognizes the financial liability, when Banks obligations are discharged, canceled or expired. The difference between paid cost and the carrying amount of financial liabilities is recorded in profit or loss.
5) | Fair value of financial assets and liabilities |
Financial instruments classified as held for trading or designated as at FVTPL and financial assets classified as AFS are recognized in the separate financial statements at fair value. All derivatives are measured at fair value.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in and orderly transaction between market participants at the measurement date. Fair values are determined from quoted prices in active markets for identical financial assets or financial liabilities where these are available. The Bank characterizes active markets as those in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
Where a financial instrument is not in active market characterized by low transaction volumes, price quotations that vary substantially among market participants, or in which minimal information is released publicly, fair values are established using valuation techniques that rely on alternative market data or internally developed models using significant inputs that are generally readily observable from objective sources. Market data includes prices of financial instruments with similar maturities and characteristics, duration, interest rate yield curves, and measures of volatility. The amount determined to be fair value may incorporate the management of the Banks own assumptions (including assumptions that the Bank believes market participants would use in valuing the financial instruments and assumptions relating to appropriate risk adjustments for nonperformance and lack of marketability).
The valuation techniques used to estimate the fair value of the financial instruments include market approach and income approach, each of which involves a significant degree of judgment. Under the market approach, fair value is determined by reference to a recent transaction involving the financial instruments or by reference to observable valuation measures for comparable companies or assets. Under the income approach, fair value is determined by converting future amounts (e.g., cash flows or earnings) to a single present amount (discounted) using current market expectations about the future amounts. In determining value under this approach, the Bank makes assumptions regarding, among other things, revenues, operating income, depreciation and amortization, capital expenditures, income taxes, working capital needs, and terminal value of the financial investments. These valuation techniques involve a degree of estimation, the extent of which depends on the instruments complexity and the availability of market-based data.
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The following are descriptions of valuation methodologies used by the Bank to measure various financial instruments at fair value.
a) Financial assets at FVTPL and AFS financial assets
The fair value of the securities included in financial assets at FVTPL and AFS financial assets are recognized in the separate statements of financial position based on quoted market prices, where available. For debt securities traded in the Over-The-Counter (OTC) market, the Bank generally determines fair value based on prices obtained from independent pricing services. Specifically, with respect to independent pricing services, the Bank obtains three prices per instrument from reputable independent pricing services in Korea, and generally uses the lowest of the prices obtained from such services without further adjustment. For non-marketable equity securities, the Bank obtains prices from the independent pricing services. The Bank validates prices received from such independent pricing services using a variety of means, including verification of the qualification of the independent pricing services, corroboration of the pricing by comparing the prices among the independent pricing services and by reference to other available market data, and review of the pricing model and assumptions used by the independent pricing services by the Banks personnel who are familiar with market-related conditions.
b) Derivatives
Quoted market prices are used for the Banks exchange-traded derivatives, such as certain interest rate futures and option contracts. All of the Banks derivatives are traded in the OTC markets where quoted market prices are not readily available and are valued using internal valuation techniques. Valuation techniques and inputs to internally developed models depend on the type of derivative and nature of the underlying rate, price or index upon which the derivatives value is based. If the model inputs for certain derivatives are not observable in a liquid market, significant judgments on the level of inputs used for valuation techniques are required.
c) Adjustment of valuation amount
Using derivatives, the Bank is exposed to credit risk if counterparties to the derivative contracts do not perform as expected. If counterparty fails to perform, counterparty credit risk is equal to the amount reported as a derivative asset in the separate statements of financial position. The amounts reported as a derivative asset are derivative contracts in a gain position. Few of the Banks derivatives are listed on the exchange. The majority of derivative positions is valued using internally developed models that use observable market inputs as their basis. Therefore, an adjustment is necessary to reflect the credit quality of each counterparty to arrive at fair value. Counterparty credit risk adjustments are applied to derivative assets, such as OTC derivative instruments, when the market inputs used in valuation models may not be indicative of the creditworthiness of the counterparty. Adjustments are also made when valuing financial liabilities to reflect the Banks own credit standing.
The adjustment is based on probability of default of a counterparty and loss, given default. The adjustment also considers contractual factors designed to reduce the Banks credit exposure to each counterparty. To the extent derivative assets (liabilities) are subject to master netting arrangements, the exposure used to calculate the credit risk adjustment is net of derivatives in a loss (gain) position with the same counterparty and cash collateral received (paid).
6) Impairment of the financial assets
The Bank assesses at the end of each reporting date whether there is any objective evidence that a financial asset or group of financial assets classified as AFS, HTM or loans and receivables is impaired. A financial asset or portfolio of financial assets is impaired and an impairment loss incurred if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition asset and that event (or events) has an impact on the estimated future cash flows of the financial asset.
a) Financial assets carried at amortized cost
If there is objective evidence that an impairment loss on a financial asset or group of financial assets classified as HTM investments or as loans and receivables have been incurred, the Bank measures the amount of the loss as the difference between the carrying amount of the asset or group of assets and the present value of estimated future cash flows from the asset or group of assets discounted at the effective interest rate of the instrument at initial recognition. For collateralized loans and receivables, estimated future cash flows include cash flows that may result from foreclosure, less the costs of obtaining and selling the collateral.
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Impairment losses are assessed individually for financial assets that are individually significant and assessed either individually or collectively for assets that are not individually significant. In making collective assessment of impairment, financial assets are grouped into portfolios on the basis of similar risk characteristics. Future cash flows from these portfolios are estimated on the basis of the contractual cash flows and historical loss experience for assets with similar credit risk characteristics. Historical loss experience is adjusted, on the basis of observable data, to reflect current conditions not affecting the period of historical experience.
Impairment losses are recognized in net income and the carrying amount of the financial asset or group of financial assets reduced by establishing a provision for impairment losses. If, in a subsequent period, the amount of the impairment loss reduces and the reduction can be ascribed to an event after the impairment was recognized (i.e., improvement in the credit quality of a debtor), the previously recognized loss is reversed by adjusting the provision. Once an impairment loss has been recognized on a financial asset or group of financial assets, interest income is recognized on the carrying amount using the rate of interest at which estimated future cash flows were discounted in measuring impairment.
It is not the Banks usual practice to write off the asset at the time an impairment loss is recognized. Impaired loans and receivables are written off (i.e., the impairment provision is applied in writing down the loans carrying value in full) when the Bank concludes that there is no longer any realistic prospect of recovery of part or the entire loan. Amounts recovered after a loan has been written off are reflected to the provision for the period in which they are received.
b) Financial assets carried at fair value
When a decline in the fair value of a financial asset classified as AFS has been recognized directly in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss is removed from other comprehensive income and recognized in net income. The loss is measured as the difference between the amortized cost of the financial asset and its current fair value. Impairment losses on AFS equity instruments are not reversed through net income, but those on AFS debt instruments are reversed, if there is a decrease in the cumulative impairment loss that is objectively related to a subsequent event.
(8) | Offsetting financial instruments |
Financial assets and liabilities are presented as a net amount in the statements of financial position when the Bank has an enforceable legal right and an intention to settle on a net basis or to realize an asset and settle the liability simultaneously.
(9) | Investment properties |
The Bank classifies a property held to earn rentals and/or for capital appreciation as an investment property. Investment properties are measured initially at cost, including transaction costs, less subsequent depreciation and impairment.
Subsequent costs are included in the carrying amount of the asset or recognized as a separate asset if it is probable that future economic benefits associated with the assets will flow into the Bank and the cost of an asset can be measured reliably, and the book value of a portion of an asset that are replaced by a subsequent expenditure is removed from the books. Routine maintenance and repairs are expensed as incurred.
While land is not depreciated, all other investment properties are depreciated based on the depreciation method and useful lives of premises and equipment. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, and when it is deemed appropriate to change them, the effect of any change is accounted for as a change in accounting estimates.
An investment property is derecognized from the separate financial statements on disposal or when it is permanently withdrawn from use and no future economic benefits are expected even from its disposal. The gain or loss on the derecognition of an investment property is calculated as the difference between the net disposal proceeds and the carrying amount of the property, and is recognized in profit or loss in the period of the derecognition.
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(10) | Premises and equipment |
Premises and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of premises and equipment is expenditures directly attributable to their purchase or construction, which includes any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. It also includes the initial estimate of costs of dismantling and removing the item and restoring the site on which it is located.
Subsequent costs are recognized in the carrying amount of an asset or as a separate asset (if appropriate) if it is probable that future economic benefit associated with the assets will flow into the Bank and the cost of an asset can be measured reliably. Routine maintenance and repairs are expensed as incurred.
While land is not depreciated, for all other premises and equipment, depreciation is charged to net income on a straight-line basis by applying the following estimated economic useful lives on the amount of cost or revalued amount less residual value.
Useful life | ||||
Buildings used for business purpose |
40 years | |||
Structures in leased office |
5 years | |||
Properties for business purpose |
5 years |
The Bank reassesses the depreciation method, the estimated useful lives and residual values of premises and equipment at the end of each reporting period. If changes in the estimates are deemed appropriate, the changes are accounted for as a change in an accounting estimate. When there is an indicator of impairment and the carrying amount of a premises and equipment item exceeds the estimated recoverable amount, the carrying amount of such asset is reduced to the recoverable amount.
(11) | Intangible assets and goodwill |
The Bank is recognizing intangible assets measured at the manufacturing cost or acquisition cost plus additional incidental expenses less accumulated amortization and accumulated impairment losses. The Banks intangible asset are amortized over the following economic lives using the straight-line method. The estimated useful life and amortization method are reviewed at the end of each reporting period. If changes in the estimates are deemed appropriate, the changes are accounted for as a change in an accounting estimate.
Useful life | ||||
Industrial property rights |
10 years | |||
Development costs |
5 years | |||
Other intangible assets |
5 years |
In addition, when an indicator that intangible assets are impaired is noted, and the carrying amount of the asset exceeds the estimated recoverable amount of the asset, the carrying amount of the asset is reduced to its recoverable amount immediately.
Goodwill is not amortized, but is subject to an impairment test every year, and whenever there is an indicator that goodwill is impaired.
Goodwill is allocated to each of the Banks cash-generating unit (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro rata basis based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.
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(12) | Impairment of non-monetary assets |
Intangible assets with indefinite useful lives or intangible assets that are not yet available for use are tested for impairment annually, regardless of whether or not there is any indication of impairment. All other assets are tested for impairment by estimating the recoverable amount when there is an objective indication that the carrying amount may not be recoverable. Recoverable amount is the higher of value in use or net fair value, less costs to sell. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and such impairment loss is recognized immediately in net income.
(13) | Leases |
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
1) The Bank as a lessor
The Bank recognizes lease receivables at the present value of minimum lease payments of a finance lease and any unguaranteed residual value. After the commencement date of the lease, accounting is done to recognize interest income over each reporting period by computing periodic interest income on the Banks net investment.
Rental income from operating leases is recognized on a straight-line basis over the lease term. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and expensed on a straight-line basis over the lease term. Operating lease assets are included within other asset category in other assets, and depreciated over their economic life.
2) The Bank as a lessee
Assets held under finance leases are initially recognized as assets of the Bank at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the separate statements of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation to achieve a constant rate of interest on the remaining balance of the liability. Contingent rentals arising under finance leases are recognized as expenses in the periods in which they are incurred.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as expenses in the period in which they are incurred.
(14) | Derivative instruments |
Derivative instruments are classified as forwards, futures, options and swaps, depending on the types of transactions and are classified at the point of transaction as either trading or hedging based on its purpose.
Derivatives are initially recognized at fair value at the date of contract and are subsequently measured at fair value at the end of each reporting period. The resulting gain or loss is recognized in net income immediately unless the derivative is designated and effective as a hedging instrument. If derivatives have been designated as hedging instruments and if it is effective, the point of recognition of gain or loss depends on the characteristics of hedging relationship.
1) Embedded derivatives
Embedded derivatives are components of a hybrid financial instrument that includes a non-derivative host contract. It has an effect of modifying part of cash flows of the hybrid financial instrument similar to an independent derivative.
Embedded derivatives that are part of a hybrid contract of which the host contract is a financial asset within the scope of K-IFRS 1109 is not separated. The classification is done by considering the hybrid contract as a whole, and subsequent measurement is either at amortized cost or fair value.
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If embedded derivatives are part of a hybrid contract of which the host contract is not a financial asset within the scope of K-IFRS 1109 (e.g. financial liability), then these are treated as separate derivatives if embedded derivatives meet the definition of a derivative, characteristics & risk of the embedded derivatives are not closely related to that of host contract, and if the host contract is not measured at FVTPL.
In the previous year, all embedded derivatives which were part of a hybrid contract were treated as separate derivatives if embedded derivatives meet the definition of a derivative, characteristics & risk of the embedded derivatives are not closely related to that of host contract, and if the host contract is not measured at FVTPL
2) Hedge accounting
The Bank is applying K-IFRS 1109 in regards to hedge accounting. The Bank designates certain derivatives as hedging instrument against fair value changes in relation to the interest rate risk, foreign currency translation and interest rate risk, and foreign currency translation risk.
The Bank documents the relationship between hedging instruments and hedged items at the commencement of hedging in accordance with their purpose and strategy. Also, the Bank documents at the commencement and subsequent dates whether the hedging instrument effectively counters the changes in fair value of hedged items. A hedging instrument is effective only when it meets all the following criteria:
| When there is an economic relationship between the hedged items and hedging instruments. |
| When the effect of credit risk is not stronger than the change in value due to the economic relationship between the hedged items and hedging instruments. |
| When the hedge ratio is equal to the proportion and the number of hedged items to those of the hedging instruments. |
When a hedging relationship no longer meets the hedging effectiveness requirements related to hedge ratio, but when the purpose of risk management on designated hedging relationship is still maintained, the hedge ratio of the hedging relationship is adjusted so that hedging relationship may meet the requirements again (Hedge ratio readjustment).
3) Fair value hedge
Gain or loss arising from valid hedging instrument is recognized in profit or loss. However, when the hedging instrument mitigates risks on equity instruments designated as financial assets at FVTOCI, related gain or loss is recognized in other comprehensive income.
The book value of hedged items that are not measured in fair value is adjusted by the changes in fair value arising from the hedged risk, with resulting gain or loss reflected in net income. In case of debt instruments measured at FVTOCI, book value is an amount that is already adjusted to fair value and thus gain or loss arising from the hedged risk is recognized in profit or loss instead of other comprehensive income without adjustments in book value. When the hedged item is equity instruments measured at FVTOCI, the gain or loss arising from hedged risk is retained at other comprehensive income in order to match the gain or loss with hedging instruments.
Hedge accounting ceases to apply only when hedging relationship (or part of it) does not meet the requirements of hedge accounting (even after hedging relationship readjustment, if applicable). This treatment holds in case of lapse, disposal, expiry and exercise of hedging instruments, and this cease of treatment applies prospectively. The fair value adjustments made to book value of hedged item due to hedged risk is amortized from the date of discontinuance of hedge accounting and is recognized in profit or loss.
(15) | Assets (or disposal group) held for sale |
The Bank classifies a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.
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(16) | Provisions |
The Bank recognizes provision if (a) it has present or contractual obligations as a result of the past event, (b) it is probable that an outflow of resources will be required to settle the obligation and (c) the amount of the obligation is reliably estimated. Provision is not recognized for the future operating losses.
The Bank recognizes provision related to the unused membership points, payment guarantees, loan commitment and litigations. Where the Bank is required to restore a leased property that is used as a branch to an agreed condition after the contractual term expires, the present value of expected amounts to be used to dispose, decommission or repair the facilities is recognized as an asset retirement obligation.
Where there are a number of similar obligations, the probability that an outflow will be required in settlement is determined by considering the obligations as a whole. Although the likelihood of outflow for any one item may be small, if it is probable that some outflow of resources will be needed to settle the obligations as a whole, a provision is recognized.
(17) | Capital and compound financial instruments |
The Bank classifies a financial instrument that it issues as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. A financial liability is a contractual obligation to deliver cash or another financial asset to another entity. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The compound financial instruments issued by the Bank are financial instruments where it is neither a financial liability nor an equity instrument because it was designed to contain both equity and debt elements.
If the Bank reacquires its own equity instruments, the consideration paid including the direct transaction costs (net of tax expense) are presented as a deduction from total equity until such instruments are retired or reissued. When these instruments are reissued, the consideration received (net of direct transaction costs) is included in the shareholders equity.
(18) | Financial guarantee liabilities |
A financial guarantee contract is a contract where the issuer must pay a certain amount of money in order to compensate losses suffered by the creditor when debtor defaults on a debt instrument in accordance with original or modified contractual terms.
A financial guarantee is initially measured at fair value and is subsequently measured at the higher of the amounts below unless it is designated to be measured at FVTPL or when it arises from disposal of an asset.
| Loss allowance in accordance with K-IFRS 1109 |
| Initial book value less accumulated profit measured in accordance with K-IFRS 1115 |
(19) | Employee benefits and pensions |
The Bank recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by the employees. Also, the Bank recognizes expenses and liabilities in the case of accumulating compensated absences when the employees render services that entitle their right to future compensated absences. Similarly, the Bank recognizes expenses and liabilities for customary profit distribution or bonuses when the employees render services, even though the Bank does not have legal obligation to do so because it can be construed as constructive obligation.
The Bank is operating defined contribution plans and defined benefit plans. Contributions to defined contribution plans are recognized as an expense when employees have rendered services entitling them to receive the benefits. For defined benefit plans, the defined benefit liability is calculated through an actuarial assessment using the projected unit credit method every end of the reporting period, conducted by a professional actuaries. Remeasurement, comprising actuarial gains and losses, the return on plan assets (excluding interest), and the effect of the changes to the asset ceiling (if applicable) is reflected immediately in the separate statement of financial position with a charge or credit recognized in other comprehensive income in the period in which they occur.
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Remeasurement recognized in the statement of comprehensive income is not reclassified to profit or loss in the subsequent periods. Past service cost is recognized in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are composed of service cost (including current service cost and past service cost, as well as gains and losses on curtailments and settlements), net interest expense (income) and remeasurement.
The Bank presents the service cost and net interest expense (income) components in profit or loss, and the remeasurement component in other comprehensive income. Curtailment gains and losses are accounted for as past service costs.
The retirement benefit obligation recognized in the separate statement of financial position represents the actual deficit or surplus in the Banks defined benefit plans. Any surplus resulting from this calculation is recognized as an asset limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.
Liabilities for termination benefits are recognized at the earlier of either 1) the date when the Bank is no longer able to cancel its proposal for termination benefits or 2) the date when the Bank has recognized the cost of restructuring that accompanies the payment of termination benefits.
(20) | Income taxes |
Income tax expense is composed of current tax and deferred tax. That is, income tax expense is composed of taxes payable or refundable during the period and deferred taxes calculated by applying asset-liability method to taxable and deductible temporary differences arising from operating loss and tax credit carryforwards. Temporary differences are the differences between the carrying values of assets and liabilities for financial reporting purposes and their tax bases. Deferred income tax benefit or expense is recognized for the change in deferred tax assets or liabilities. Deferred tax assets and liabilities are measured as of the reporting date using the enacted or substantively enacted tax rates expected to apply in the period in which the liability is settled or asset realized. Deferred tax assets, including the carryforwards of unused tax losses, are recognized to the extent it is probable that the deferred tax assets will be realized.
Deferred income tax assets and liabilities are offset if, and only if, the Bank has a legally enforceable right to offset current tax assets against current tax liabilities, and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority or when the entity intends to settle current tax liabilities and assets on a net basis with different taxable entities.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill. Deferred tax assets or liabilities are not recognized if they arise from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity or when it arises from business combination.
(21) | Earnings per share (EPS) |
Basic EPS is a calculation of net income per each common stock. It is calculated by dividing net income attributable to ordinary shareholders by the weighted-average number of common shares outstanding. Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of all dilutive potential common shares.
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3. | SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS |
The significant accounting estimates and assumptions are continuously being evaluated based on numerous factors including historical experiences and expectations of future events considered to be reasonably possible. Actual results can differ from those estimates based on such definitions. The accounting estimates and assumptions that contain significant risk of materially changing current book values of assets and liabilities in the next accounting periods are as follows:
(1) | Income taxes |
The Bank has recognized current and deferred taxes based on best estimates of expected future income tax effect arising from the Banks operations until the end of the current reporting period. However, actual tax payment may not be identical to the related assets and/or liabilities already recognized, and these differences may affect current taxes and deferred tax assets/liabilities at the time when income tax effects are finalized. Deferred tax assets relating to tax losses carried forward and deductible temporary differences are recognized only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized. In this case the Banks evaluation considers various factors such as estimated future taxable profit based on forecasted operating results, which are based on historical financial performance. The Bank is reviewing the book value of deferred tax assets every end of the reporting period and in the event that the possibility of earning future taxable income changes, the deferred tax assets are adjusted up to taxable income sufficient to use deductible temporary differences.
(2) | Valuation of financial instruments |
Financial assets at FVTPL and FVTOCI are recognized in the separate financial statements at fair value. All derivatives are measured at fair value. Valuation techniques are required in order to determine fair values of financial instruments where observable market prices do not exist. Financial instruments that are not actively traded and have low price transparency will have less objective fair value and require broad judgment in liquidity, concentration, uncertainty in market factors and assumption in price determination and other risks.
As described in Note 2-(7)-5), Fair value of financial assets and liabilities, when valuation techniques are used to determine the fair value of a financial instrument, various general and internally developed techniques are used, and various types of assumptions and variables are incorporated during the process.
(3) | Impairment of financial instruments |
K-IFRS 1109 requires entities to measure loss allowance equal to 12-month expected credit losses or lifetime expected credit losses after classifying financial assets into one of the three stages, which depends on the degree of increase in credit risk after their initial recognition.
Stage 1 |
Stage 2 |
Stage 3 | ||||
Credit risk has not significantly increased |
Credit risk has significantly increased |
Credit has been impaired | ||||
Allowance for expected credit losses |
Expected 12-month credit losses: Expected credit losses due to possible defaults on financial instruments within a 12-month period from the year-end. |
Expected lifetime credit losses: Expected credit losses from all possible defaults during the expected lifetime of the financial instruments. |
(*) | Credit risk may be considered to not have been significantly increased when credit risk is low at year-end. |
The Bank has estimated the allowance for credit losses based on reasonable and supportable information that was available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.
Probability of default (PD) and Loss given default (LGD) for each category of financial asset is being calculated by considering factors such as debtor type, credit rating and portfolio. The estimates are regularly being reviewed in order to reduce discrepancies with actual losses.
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Also, in measuring the expected credit losses, the Bank is using reasonable and supportable macroeconomic indicators such as economic growth rate, interest rates, market index rates, etc., in order to forecast future economic conditions.
The Bank is conducting the following procedures to estimate and apply future economic forecast information.
- | Development of estimation models by analyzing the correlation between default rates of corporate and retail exposures per year and macroeconomic indicators |
- | Calculation of estimated default rate incorporating future economic forecasts by applying estimated macroeconomic indicators provided by verified institutions such as Bank of Korea and National Assembly Budget Office to the estimation model developed. |
At the end of every reporting period, the Bank is evaluating whether credit risk reflected forward-looking information has significantly been increased since the date of initial recognition. When evaluating whether credit risk has significantly been increased, the changes in the probability of default over the financial instruments remaining life is used instead of changes in the amount of expected credit losses. The Bank performs the above evaluation with distinctions made to corporate and retail exposures, and indicators of significant increase in credit risk are as follows:
Corporate Exposures |
Retail Exposures | |
Asset quality level Precautionary or lower |
Asset quality level Precautionary or lower | |
Overdue of 30 days or longer |
Overdue of 30 days or longer | |
Warning level in early warning system |
Significant decrease in credit rating(*) | |
Debtor experiencing financial difficulties |
||
Significant decrease in credit rating(*) |
(*) | Determining whether there has been a significant decrease in the credit rating of corporate and retail exposures applies only to credit ratings that are measured through 12-month expected credit loss. The Bank has applied the above indicators of significant decrease in credit rating since initial recognition as follows, and the estimation method is regularly being monitored. |
Credit rating |
Indicators of significant decrease in credit rating | |||
Corporate |
AAA ~ A+ | More than 4 steps | ||
A- ~ BBB | More than 3 steps | |||
BBB- ~ BB+ | More than 2 steps | |||
BB ~ BB- | More than 1 step | |||
Retail |
1 ~ 3 | More than 3 steps | ||
4 ~ 5 | More than 2 steps | |||
6 ~ 10 | More than 1 step |
The Bank sees no significant increase in credit risk after initial recognition for debt securities, etc. with a credit rating of A + or higher, which are deemed to have low credit risk at the end of the reporting period.
The Bank concludes that credit is impaired when financial assets are under conditions stated below:
- | When principal of loan is overdue for 90 days or longer due to significant deterioration in credit |
- | For loans overdue for less than 90 days, when it is determined that not even a portion of the loan will be recovered unless claim actions such as disposal of collaterals are taken |
- | When other objective indicators of impairment has been noted for the financial asset. |
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The Bank determines which loan is subject to write-off in accordance with internal guidelines, and writes off loan receivables when it is determined that the loans are practically irrecoverable. For example, loans are practically irrecoverable when application is made for rehabilitation under the Debtor Rehabilitation and Bankruptcy Act and loans are confirmed as irrecoverable by the courts decision to waive debtors obligation, or when it is impossible to recover the loan amount through legal means such as auctioning of debtors assets or through any other means of recovery available. Notwithstanding the write-off, the Bank may still exercise its right of collection after the asset has been written off in accordance with its collection policies.
(4) | Defined benefit plan |
The Bank operates a defined benefit pension plan. Defined benefit obligation is calculated at every end of the reporting period by performing actuarial valuation, and estimation of assumptions such as discount rate, expected wage growth rate and mortality rate is required to perform such actuarial valuation. The defined benefit plan, due to its long-term nature, contains significant uncertainties in its estimates.
4. | RISK MANAGEMENT |
The Banks 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 Banks 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 Banks 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 Banks 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 counterpartys default risk; and when assessing the obligors 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 obligors credit line, total exposures and loan portfolios when approving the loan.
The Bank mitigates credit risk resulting from the obligors 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.
- 29 -
2) Maximum exposure to credit risk
The Banks 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 loan commitment.
The maximum exposure to credit risk is as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||||
Loans and other financial assets at amortized cost |
Korean treasury and government agencies | 13,513,927 | | |||||||
Banks | 19,965,172 | | ||||||||
Corporates | 87,357,986 | | ||||||||
Consumers | 139,513,864 | | ||||||||
|
|
|
|
|||||||
Sub-total | 260,350,949 | | ||||||||
|
|
|
|
|||||||
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 | 26,935 | | |||||||
Loans | 21,492 | | ||||||||
Derivative assets | 2,034,988 | | ||||||||
Sub-total | 2,083,415 | | ||||||||
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 | 16,254,592 | | |||||||
AFS financial assets |
Debt securities | | 12,247,622 | |||||||
Securities at amortized cost |
Debt securities | 22,802,050 | | |||||||
HTM financial assets |
Debt securities | | 16,638,727 | |||||||
Derivative assets |
Derivative assets (Held for hedging) | 35,503 | 59,272 | |||||||
Off-balance accounts |
Guarantees | 13,990,450 | 13,589,728 | |||||||
Loan commitments | 65,012,748 | 50,214,855 | ||||||||
|
|
|
|
|||||||
Sub-total | 79,003,198 | 63,804,583 | ||||||||
|
|
|
|
|||||||
Total | 380,529,707 | 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):
December 31, 2018 | ||||||||||||||||||||||||
Korea | USA | UK | Japan | Others (*) | Total | |||||||||||||||||||
Loans and other financial assets at amortized cost |
249,216,942 | 2,754,044 | 1,526,532 | 893,354 | 5,960,077 | 260,350,949 | ||||||||||||||||||
Securities at amortized cost |
22,757,047 | | | | 45,003 | 22,802,050 | ||||||||||||||||||
Financial assets at FVTPL |
2,083,148 | | | 267 | | 2,083,415 | ||||||||||||||||||
Financial assets at FVTOCI |
15,642,031 | | 16,718 | | 595,843 | 16,254,592 | ||||||||||||||||||
Derivative assets (Held for hedging) |
35,503 | | | | | 35,503 | ||||||||||||||||||
Off-balance accounts |
77,614,417 | 257,816 | 136,727 | 34,999 | 959,239 | 79,003,198 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
367,349,088 | 3,011,860 | 1,679,977 | 928,620 | 7,560,162 | 380,529,707 | ||||||||||||||||||
|
|
|
|
|
|
|
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|
|
|
- 30 -
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 and others. |
b) Credit risk exposure by industries
The following tables analyze credit risk exposure by industries, which are service, manufacturing, finance and insurance, construction, individuals and others in accordance with the Korea Standard Industrial Classification Code (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||||||||||||||
Service | Manufacturing | Finance and insurance |
Construction | Individuals | Others | Total | ||||||||||||||||||||||
Loans and other financial assets at amortized cost |
46,177,373 | 32,891,096 | 37,453,611 | 2,557,684 | 135,827,962 | 5,443,223 | 260,350,949 | |||||||||||||||||||||
Securities at amortized cost |
1,157,512 | | 13,376,324 | 527,847 | | 7,740,367 | 22,802,050 | |||||||||||||||||||||
Financial assets at FVTPL |
82,351 | 81,451 | 1,872,922 | 9,173 | 7,614 | 29,904 | 2,083,415 | |||||||||||||||||||||
Financial assets at FVTOCI |
326,333 | 41,673 | 12,830,631 | 194,562 | 5,535 | 2,855,858 | 16,254,592 | |||||||||||||||||||||
Derivative assets (Held for hedging) |
| | 35,503 | | | | 35,503 | |||||||||||||||||||||
Off-balance accounts |
15,205,797 | 23,696,274 | 8,784,514 | 3,706,275 | 21,663,309 | 5,947,029 | 79,003,198 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
62,949,366 | 56,710,494 | 74,353,505 | 6,995,541 | 157,504,420 | 22,016,381 | 380,529,707 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 31 -
3) Credit risk exposure
a) | Financial assets |
The maximum exposure to credit risk by asset quality, except for financial assets at FVTPL and derivative assets (Held for hedging) is as follows (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Loss allowance |
Total, net | |||||||||||||||||||||||||||
Above appropriate credit rating (*1) |
Less than a limited credit rating (*3) |
Above appropriate credit rating (*2) |
Less than a limited credit rating (*3) |
|||||||||||||||||||||||||||||
Loans and other financial assets at amortized cost |
234,604,099 | 15,064,338 | 5,597,603 | 5,209,197 | 1,340,212 | 261,815,449 | (1,464,500 | ) | 260,350,949 | |||||||||||||||||||||||
Korean treasury and government agencies |
13,517,080 | | | | | 13,517,080 | (3,153 | ) | 13,513,927 | |||||||||||||||||||||||
Banks |
19,956,800 | 10,314 | 23,935 | | | 19,991,049 | (25,877 | ) | 19,965,172 | |||||||||||||||||||||||
Corporates |
70,302,975 | 13,451,275 | 532,000 | 3,236,305 | 931,193 | 88,453,748 | (1,095,762 | ) | 87,357,986 | |||||||||||||||||||||||
General business |
39,440,686 | 4,565,102 | 469,573 | 1,537,953 | 648,087 | 46,661,401 | (736,204 | ) | 45,925,197 | |||||||||||||||||||||||
Small- and medium-sized enterprise |
27,303,978 | 8,337,471 | 62,427 | 1,545,602 | 269,059 | 37,518,537 | (318,312 | ) | 37,200,225 | |||||||||||||||||||||||
Project financing and others |
3,558,311 | 548,702 | | 152,750 | 14,047 | 4,273,810 | (41,246 | ) | 4,232,564 | |||||||||||||||||||||||
Consumers |
130,827,244 | 1,602,749 | 5,041,668 | 1,972,892 | 409,019 | 139,853,572 | (339,708 | ) | 139,513,864 | |||||||||||||||||||||||
Securities at amortized cost |
22,808,945 | | | | | 22,808,945 | (6,895 | ) | 22,802,050 | |||||||||||||||||||||||
Financial assets at FVTOCI (*3) |
16,167,536 | 87,056 | | | | 16,254,592 | (5,413 | ) | 16,254,592 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
273,580,580 | 15,151,394 | 5,597,603 | 5,209,197 | 1,340,212 | 300,878,986 | (1,476,808 | ) | 299,407,591 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6. |
(*2) | Credit grade of corporates are A- ~ BBB, and consumers are grades 1 ~ 6. |
(*3) | Credit grade of corporate are BBB- ~ C, and consumers are grades 7 ~ 10. |
(*4) | Financial assets at FVTOCI have been disclosed as the amount before deducting loss allowance because loss allowance does not reduce the carrying amount. |
December 31, 2018 | ||||||||||||||||
Collateral value | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Loans and other financial assets at amortized cost |
161,494,496 | 8,815,347 | 673,396 | 170,983,239 | ||||||||||||
Korean treasury and government agencies |
11,600 | | | 11,600 | ||||||||||||
Banks |
360,102 | 3,334 | | 363,436 | ||||||||||||
Corporates |
50,464,533 | 2,492,375 | 405,277 | 53,362,185 | ||||||||||||
General business |
18,803,891 | 1,150,747 | 220,602 | 20,175,240 | ||||||||||||
Small- and medium-sized enterprise |
29,779,557 | 1,291,223 | 184,675 | 31,255,455 | ||||||||||||
Project financing and others |
1,881,085 | 50,405 | | 1,931,490 | ||||||||||||
Consumers |
110,658,261 | 6,319,638 | 268,119 | 117,246,018 | ||||||||||||
Securities at amortized cost |
| | | | ||||||||||||
Financial assets at FVTOCI (*3) |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
161,494,496 | 8,815,347 | 673,396 | 170,983,239 | ||||||||||||
|
|
|
|
|
|
|
|
- | 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 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 32 -
- | Debt securities |
The Bank manages debt securities based on the external credit rating. Credit quality 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 December 31, 2018 as follows (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||||||||||
Financial assets |
Stage 1 | Stage 2 | Stage3 | Total | ||||||||||||||||||||
Above appropriate credit rating (*1) |
Less than a limited credit rating (*3) |
Above appropriate credit rating (*2) |
Less than a limited credit rating (*3) |
|||||||||||||||||||||
Off-balance accounts |
||||||||||||||||||||||||
Guarantees |
12,800,981 | 806,487 | 7,147 | 254,487 | 121,348 | 13,990,450 | ||||||||||||||||||
Loan commitments |
60,405,878 | 2,663,904 | 1,404,007 | 538,959 | | 65,012,748 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
73,206,859 | 3,470,391 | 1,411,154 | 793,446 | 121,348 | 79,003,198 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6. |
(*2) | Credit grade of corporates are A- ~ BBB, and consumers are grades 1 ~ 6. |
(*3) | 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 December 31, 2018, there are no financial assets that do not recognize the allowance for losses just because financial assets have collateral.
5) For the financial assets that record loss allowance as total expected credit loss, the amortized cost before the change in contractual cash flows is 23,132 million won, and the net loss due to the change is 239 million won.
6) As the Bank manages receivables that have not lost the right of claim to the debtor for the grounds of incomplete statute limitation and uncollected receivables under the related laws as receivable charge-offs, the balance as of December 31, 2018 is 8,009,143 million won.
(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.
- 33 -
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 VaRs calculation. The actual results are periodically monitored to examine the validity of the assumptions and variables and factors that are used in VaRs 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 year ended December 31, 2018 and 2017, respectively, and the VaR as of December 31, 2018 and 2017, respectively, are as follows (Unit: Korean Won in millions):
December 31, 2018 |
For the year ended December 31, 2018 |
December 31, 2017 |
For the year ended December 31, 2017 |
|||||||||||||||||||||||||||||
Risk factor |
Average | Maximum | Minimum | Average | Maximum | Minimum | ||||||||||||||||||||||||||
Interest rate |
3,107 | 3,702 | 5,528 | 1,730 | 4,183 | 3,799 | 4,918 | 2,467 | ||||||||||||||||||||||||
Stock price |
2,353 | 2,669 | 5,081 | 1,138 | 909 | 2,863 | 4,419 | 909 | ||||||||||||||||||||||||
Foreign currencies |
4,972 | 4,678 | 6,136 | 3,439 | 4,750 | 5,051 | 6,636 | 4,061 | ||||||||||||||||||||||||
Commodity |
| 3 | 24 | | | 31 | 188 | | ||||||||||||||||||||||||
Diversification |
(4,445 | ) | (4,869 | ) | (8,155 | ) | (1,815 | ) | (4,472 | ) | (4,621 | ) | (6,798 | ) | (2,067 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total VaR(*) |
5,987 | 6,183 | 8,614 | 4,492 | 5,370 | 7,123 | 9,363 | 5,370 | ||||||||||||||||||||||||
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|
(*) | VaR (Value at Risk): Maximum expected losses |
- 34 -
b) Non-trading activities
The NII and NPV are calculated for the assets and liabilities owned by the Bank, respectively, by using the simulation method. The scenario responding to interest rate (IR) changes are as follows (Unit: Korean Won in millions):
Name of scenario |
December 31, 2018 | December 31, 2017 | ||||||||||||||
NII(*1) | NPV(*2) | NII(*1) | NPV(*2) | |||||||||||||
Base case |
4,886,919 | 24,635,872 | 4,936,457 | 23,487,317 | ||||||||||||
Base case (Prepay) |
4,881,567 | 24,225,127 | 4,936,334 | 23,178,467 | ||||||||||||
IR 100bp up |
5,580,848 | 24,414,552 | 5,394,161 | 22,900,740 | ||||||||||||
IR 100bp down |
4,321,315 | 24,906,922 | 4,401,735 | 24,141,984 | ||||||||||||
IR 200bp up |
6,622,298 | 24,231,110 | 5,851,632 | 22,386,912 | ||||||||||||
IR 200bp down |
3,500,800 | 25,245,603 | 3,462,869 | 24,844,803 | ||||||||||||
IR 300bp up |
7,593,109 | 24,077,356 | 6,309,102 | 21,943,972 | ||||||||||||
IR 300bp down |
3,344,206 | 25,680,348 | 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):
December 31, 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 |
145,015,086 | 43,247,365 | 7,827,430 | 9,077,245 | 41,492,032 | 3,419,576 | 250,078,734 | |||||||||||||||||||||
Financial assets at FVTPL |
117,324 | 50 | 160 | 49 | 2,281 | 27,536 | 147,400 | |||||||||||||||||||||
Financial assets at FVTOCI |
2,137,253 | 1,667,291 | 1,404,980 | 2,170,105 | 9,146,385 | 153,545 | 16,679,559 | |||||||||||||||||||||
Securities at amortized cost |
2,410,986 | 2,249,552 | 1,735,698 | 1,944,756 | 15,140,236 | 373,268 | 23,854,496 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
149,680,649 | 47,164,258 | 10,968,268 | 13,192,155 | 65,780,934 | 3,973,925 | 290,760,189 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Liability: |
||||||||||||||||||||||||||||
Deposits due to customers |
96,816,710 | 41,903,982 | 28,169,284 | 33,573,893 | 38,622,661 | 64,425 | 239,150,955 | |||||||||||||||||||||
Borrowings |
8,806,595 | 1,290,054 | 580,935 | 460,078 | 2,664,135 | 495,516 | 14,297,313 | |||||||||||||||||||||
Debentures |
1,723,882 | 1,972,348 | 1,693,796 | 1,839,700 | 13,675,096 | 2,387,717 | 23,292,539 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
107,347,187 | 45,166,384 | 30,444,015 | 35,873,671 | 54,961,892 | 2,947,658 | 276,740,807 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | |||||||||||||||||||||
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|
|
- 35 -
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):
December 31, 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 |
18,333 | 20,497,663 | 167,282 | 1,694,870 | 2,761 | 449,355 | 1,977 | 2,528,998 | 2,569,555 | 27,740,441 | |||||||||||||||||||||||||||||||
Financial assets at FVTPL |
72 | 80,953 | 1,425 | 14,434 | | | 59 | 75,169 | 90,925 | 261,481 | ||||||||||||||||||||||||||||||||
Financial assets at FVTOCI |
1,472 | 1,646,081 | | | | | | | 187,959 | 1,834,040 | ||||||||||||||||||||||||||||||||
Securities at amortized cost |
52 | 58,489 | | | | | | | 45,013 | 103,502 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total |
19,929 | 22,283,186 | 168,707 | 1,709,304 | 2,761 | 449,355 | 2,036 | 2,604,167 | 2,893,452 | 29,939,464 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Liability |
Financial liabilities at FVTPL |
118 | 131,927 | 1,956 | 19,815 | | | 55 | 70,250 | 121,658 | 343,650 | |||||||||||||||||||||||||||||||
Deposits due to customers |
10,114 | 11,307,931 | 169,742 | 1,719,796 | 1,660 | 270,215 | 886 | 1,132,860 | 1,226,881 | 15,657,683 | ||||||||||||||||||||||||||||||||
Borrowings |
6,372 | 7,123,977 | 3,749 | 37,985 | 26 | 4,169 | 270 | 344,905 | 81,868 | 7,592,904 | ||||||||||||||||||||||||||||||||
Debentures |
3,145 | 3,516,034 | | | | | | | 103,050 | 3,619,084 | ||||||||||||||||||||||||||||||||
Other financial liabilities |
2,387 | 2,669,323 | 28,955 | 293,362 | 1,282 | 208,665 | 188 | 240,478 | 94,540 | 3,506,368 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total |
22,136 | 24,749,192 | 204,402 | 2,070,958 | 2,968 | 483,049 | 1,399 | 1,788,493 | 1,627,997 | 30,719,689 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Off-balance accounts |
7,047 | 7,892,048 | 33,346 | 337,852 | 992 | 161,534 | 465 | 594,603 | 496,243 | 9,482,280 | ||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 customers |
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 | ||||||||||||||||||||||||||||||||
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|
|
|
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|
|
|
|
|
|
|
|
- 36 -
(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): |
December 31, 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 |
191,825 | | | | | | 191,825 | |||||||||||||||||||||
Deposits due to customers |
139,983,251 | 32,838,781 | 20,969,174 | 40,220,788 | 5,701,940 | 509,189 | 240,223,123 | |||||||||||||||||||||
Borrowings |
4,979,142 | 2,682,745 | 1,775,656 | 1,512,857 | 2,917,566 | 495,516 | 14,363,482 | |||||||||||||||||||||
Debentures |
1,723,882 | 1,972,348 | 1,693,796 | 1,839,700 | 13,675,096 | 2,387,717 | 23,292,539 | |||||||||||||||||||||
Other financial liabilities |
14,057,046 | | | | | 2,182,602 | 16,239,648 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
160,935,146 | 37,493,874 | 24,438,626 | 43,573,345 | 22,294,602 | 5,575,024 | 294,310,617 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 37 -
b) | Cash flows of principals and interests by expected maturities of non-derivative financial liabilities are as follows (Unit: Korean Won in millions): |
December 31, 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 |
191,825 | | | | | | 191,825 | |||||||||||||||||||||
Deposits due to customers |
158,276,249 | 36,903,728 | 19,594,060 | 21,300,055 | 3,549,305 | 965 | 239,624,362 | |||||||||||||||||||||
Borrowings |
4,979,142 | 2,682,745 | 1,775,656 | 1,512,857 | 2,917,566 | 495,516 | 14,363,482 | |||||||||||||||||||||
Debentures |
1,723,882 | 1,972,348 | 1,693,796 | 1,839,700 | 13,675,096 | 2,387,717 | 23,292,539 | |||||||||||||||||||||
Other financial liabilities |
14,057,046 | | | | | 2,182,602 | 16,239,648 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
179,228,144 | 41,558,821 | 23,063,512 | 24,652,612 | 20,141,967 | 5,066,800 | 293,711,856 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | |||||||||||||||||||||
|
|
|
|
|
|
|
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|
|
|
|
|
|
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 December 31, 2018 and 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 | ||||||||||||||||||||||
December 31, 2018 |
2,087,548 | | | | 17,654 | | 2,105,202 | |||||||||||||||||||||
December 31, 2017 |
3,139,218 | | | 381 | 11,722 | | 3,151,321 |
4) | Maturity analysis of off-balance accounts (Guarantees and loan commitments) |
The Bank provides guarantees on behalf of customers. A financial guarantee represents an irrevocable undertaking that the Bank should meet customers 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):
December 31, 2018 | December 31, 2017 | |||||||
Guarantees |
13,990,450 | 13,589,728 | ||||||
Loan commitments |
65,012,748 | 50,214,855 |
- 38 -
(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 consolidated financial statements of the Group.
According to the above regulations, the Bank is required to meet the following new minimum requirements: Common Equity Tier 1 capital ratio of 7.13% and 6.25%, Tier capital 1 ratio of 8.63% and 7.75% and a minimum total capital ratio of 10.63% and 9.75% as of December 31, 2018 and 2017, respectively.
Details of the Groups capital adequacy ratio as of December 31, 2018 and 2017, and are as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||
Tier 1 capital |
17,275,539 | 16,074,987 | ||||||
Other Tier 1 capital |
3,147,680 | 3,041,664 | ||||||
Tier 2 capital |
3,827,573 | 3,486,555 | ||||||
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|
|
|
|||||
Total risk-adjusted capital |
24,250,792 | 22,603,206 | ||||||
|
|
|
|
|||||
Risk-weighted assets for credit risk |
142,626,069 | 134,767,711 | ||||||
Risk-weighted assets for market risk |
2,372,451 | 2,316,938 | ||||||
Risk-weighted assets for operational risk |
9,972,430 | 9,677,559 | ||||||
|
|
|
|
|||||
Total risk-weighted assets |
154,970,950 | 146,762,208 | ||||||
|
|
|
|
|||||
Common Equity Tier 1 ratio |
11.15 | % | 10.95 | % | ||||
|
|
|
|
|||||
Tier 1 capital ratio |
13.18 | % | 13.03 | % | ||||
|
|
|
|
|||||
Total capital ratio |
15.65 | % | 15.40 | % | ||||
|
|
|
|
- 39 -
5. | OPERATING SEGMENTS |
In evaluating the results of the Bank and allocating resources, the Banks 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 Banks reporting segments comprise the following customers: consumer banking, corporate banking, investment banking, capital market and headquarters and others. The reportable segments are classified based on the target customers for whom the service is being provided:
| Consumer banking: Loans/deposits and financial services for retail and individual consumers, etc. |
| Corporate banking: Loans/deposits and export/import, financial services for corporations, etc. |
| Investment banking: Domestic/foreign investment, structured finance, M&A, equity & fund investment-related business, venture advisory related tasks, real estate SOC development practices, etc. |
| Capital market: Fund management, investment securities and derivatives business, etc. |
| Headquarters and others: Segments that do not belong to above operating segments |
The details of operating income by each segment are as follows (Unit: Korean Won in millions):
For the year ended December 31, 2018 | ||||||||||||||||||||||||||||||||
Consumer banking |
Corporate banking |
Investment banking |
Capital market |
Headquarters and others |
Sub-total | Adjustments (*) |
Total | |||||||||||||||||||||||||
Net interest income(expense) |
||||||||||||||||||||||||||||||||
Interest income |
3,529,645 | 3,409,835 | 152,273 | 8,945 | 896,479 | 7,997,177 | 334,790 | 8,331,967 | ||||||||||||||||||||||||
Interest expense |
(1,021,639 | ) | (2,168,000 | ) | (150 | ) | | (685,647 | ) | (3,875,436 | ) | 271,187 | (3,604,249 | ) | ||||||||||||||||||
Intersegment |
(634,110 | ) | 833,224 | (163,962 | ) | 25,963 | (61,115 | ) | | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
1,873,896 | 2,075,059 | (11,839 | ) | 34,908 | 149,717 | 4,121,741 | 605,977 | 4,727,718 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net non-interest income(expense) |
||||||||||||||||||||||||||||||||
Non-interest income |
678,360 | 721,096 | 230,357 | 7,020,740 | 475,258 | 9,125,811 | (7,648,476 | ) | 1,477,335 | |||||||||||||||||||||||
Non-interest expense |
(143,704 | ) | (290,347 | ) | (53,671 | ) | (6,964,671 | ) | (165,937 | ) | (7,618,330 | ) | 7,077,127 | (541,203 | ) | |||||||||||||||||
Intersegment |
132,690 | 70,016 | | | (202,706 | ) | | | | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
667,346 | 500,765 | 176,686 | 56,069 | 106,615 | 1,507,481 | (571,349 | ) | 936,132 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Other income(expense) |
||||||||||||||||||||||||||||||||
General and administrative expense |
(1,865,933 | ) | (868,608 | ) | (14,318 | ) | (18,452 | ) | (422,025 | ) | (3,189,336 | ) | | (3,189,336 | ) | |||||||||||||||||
Reversal of allowance for credit loss and impairment losses due to credit loss |
(127,220 | ) | (61,064 | ) | 62,454 | (16,861 | ) | 118,496 | (24,195 | ) | (34,628 | ) | (58,823 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
(1,993,153 | ) | (929,672 | ) | 48,136 | (35,313 | ) | (303,529 | ) | (3,213,531 | ) | (34,628 | ) | (3,248,159 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Operating income |
548,089 | 1,646,152 | 212,983 | 55,664 | (47,197 | ) | 2,415,691 | | 2,415,691 | |||||||||||||||||||||||
Non-operating income (expense) |
(20,208 | ) | 900 | 32,738 | | 56,510 | 69,940 | | 69,940 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income before income tax expense |
527,881 | 1,647,052 | 245,721 | 55,664 | 9,313 | 2,485,631 | | 2,485,631 | ||||||||||||||||||||||||
Income tax expense |
(145,167 | ) | (445,619 | ) | (67,573 | ) | (15,308 | ) | (1,060 | ) | (674,727 | ) | | (674,727 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income |
382,714 | 1,201,433 | 178,148 | 40,356 | 8,253 | 1,810,904 | | 1,810,904 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) | These adjustments are performed in order to present intersegment profit or loss adjustments based on managerial accounting as profit or loss in accordance with K-IFRS. |
- 40 -
For the year ended December 31, 2017 | ||||||||||||||||||||||||||||||||
Consumer banking |
Corporate banking |
Investment banking |
Capital market |
Headquarters and others |
Sub-total | Adjustments (*) |
Total | |||||||||||||||||||||||||
Net interest income |
||||||||||||||||||||||||||||||||
Interest income |
3,149,625 | 2,964,813 | 148,500 | 18,834 | 786,889 | 7,068,661 | 317,060 | 7,385,721 | ||||||||||||||||||||||||
Interest expense |
(955,836 | ) | (1,681,652 | ) | (243 | ) | | (624,394 | ) | (3,262,125 | ) | 267,007 | (2,995,118 | ) | ||||||||||||||||||
Intersegment |
(490,850 | ) | 512,216 | (136,133 | ) | 18,049 | 96,718 | | | | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
1,702,939 | 1,795,377 | 12,124 | 36,883 | 259,213 | 3,806,536 | 584,067 | 4,390,603 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Non-interest income(expense) |
||||||||||||||||||||||||||||||||
Non-interest income |
802,387 | 680,778 | 366,523 | 9,548,399 | 1,944,670 | 13,342,757 | (12,009,317 | ) | 1,333,440 | |||||||||||||||||||||||
Non-interest expense |
(253,961 | ) | (170,268 | ) | (214,355 | ) | (9,478,728 | ) | (1,703,600 | ) | (11,820,912 | ) | 11,569,356 | (251,556 | ) | |||||||||||||||||
Intersegment |
101,524 | 60,826 | | | (162,350 | ) | | | | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
649,950 | 571,336 | 152,168 | 69,671 | 78,720 | 1,521,845 | (439,961 | ) | 1,081,884 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Other income(expense) |
||||||||||||||||||||||||||||||||
General and administrative expense |
(1,808,974 | ) | (832,429 | ) | (12,881 | ) | (16,567 | ) | (457,874 | ) | (3,128,725 | ) | | (3,128,725 | ) | |||||||||||||||||
Reversal of allowance for credit loss and impairment losses due to credit loss |
(97,587 | ) | (316,859 | ) | (50,954 | ) | 31,229 | 25,073 | (409,098 | ) | (144,106 | ) | (553,204 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
(1,906,561 | ) | (1,149,288 | ) | (63,835 | ) | 14,662 | (432,801 | ) | (3,537,823 | ) | (144,106 | ) | (3,681,929 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Operating income |
446,328 | 1,217,425 | 100,457 | 121,216 | (94,868 | ) | 1,790,558 | | 1,790,558 | |||||||||||||||||||||||
Non-operating income (expense) |
(98,510 | ) | (3,153 | ) | 39,350 | | (108,023 | ) | (170,336 | ) | | (170,336 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income before income tax expense |
347,818 | 1,214,272 | 139,807 | 121,216 | (202,891 | ) | 1,620,222 | | 1,620,222 | |||||||||||||||||||||||
Income tax expense |
(84,172 | ) | (296,634 | ) | (33,834 | ) | (29,335 | ) | 99,865 | (344,110 | ) | | (344,110 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income |
263,646 | 917,638 | 105,973 | 91,881 | (103,026 | ) | 1,276,112 | | 1,276,112 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) | These adjustments are performed in order to present intersegment profit or loss adjustments based on managerial accounting as profit or loss in accordance with K-IFRS. |
(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 Banks revenue (interest income and non-interest income) from services, revenue from the domestic customers for the years ended December 31, 2018 and 2017, amounted to 9,288,996 million Won and 8,329,303 million Won, respectively, and revenue from the foreign customers amounted to 520,306 million Won and 389,858 million Won, respectively. Of the Banks non-current assets (investments in subsidiaries and associates, investment properties, premises and equipment and intangible assets), non-current assets attributed to domestic subsidiaries as of December 31, 2018 and 2017, are 7,256,271 million Won and 7,168,942 million Won, respectively, and foreign subsidiaries are 8,130 million Won and 8,003 million Won, respectively.
(4) | Information about major customers |
The Bank does not have any single customer that generates 10% or more of the Banks total revenue.
- 41 -
6. | CASH AND CASH EQUIVALENTS |
(1) | Details of cash and cash equivalents are as follows (Unit: Korean Won in millions): |
December 31, 2018 |
December 31, 2017 |
|||||||
Cash |
2,207,844 | 1,970,810 | ||||||
Foreign currencies |
670,829 | 578,281 | ||||||
Demand deposits |
2,618,265 | 2,407,731 | ||||||
Fixed deposits |
226,863 | 372,138 | ||||||
|
|
|
|
|||||
Total |
5,723,801 | 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 years ended December 31 |
||||||||
2018 | 2017 | |||||||
Changes in other comprehensive income related to valuation of financial assets at FVTOCI |
6,795 | | ||||||
Changes in other comprehensive income related to available-for-sale securities |
| (48,139 | ) | |||||
Changes in investments in subsidiaries and associates due to debt-equity swap |
| 49,599 | ||||||
Changes in financial assets at FVTOCI as a result of debt-equity swap |
14,378 | | ||||||
Changes in investments in subsidiaries and associates due to accounts transfer |
(223,366 | ) | (52,107 | ) | ||||
Changes in accrued dividends of hybrid equity securities |
(3,569 | ) | (10,658 | ) | ||||
Changes in intangible assets related to accounts payable |
35,585 | | ||||||
Classified to assets held for distribution (sale) from premises and equipment |
7,163 | | ||||||
Classified to assets held for distribution (sale) from other assets |
26,997 | |
(3) | Adjustments of liabilities from financing activities in current year are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||||
January 1, 2018 | Cash flow | Not involving cash inflows and outflows | December 31, 2018 |
|||||||||||||||||||||
Foreign exchange |
Variation of gains on valuation of hedged items |
Others | ||||||||||||||||||||||
Borrowings |
13,662,984 | 258,766 | 159,261 | | 81 | 14,081,092 | ||||||||||||||||||
Debentures |
21,707,466 | (275,471 | ) | 240,828 | (25,498 | ) | 19,006 | 21,666,331 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
35,370,450 | (16,705 | ) | 400,089 | (25,498 | ) | 19,087 | 35,747,423 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2017 | ||||||||||||||||||||||||
January 1, 2017 | Cash flow | Not involving cash inflows and outflows | December 31, 2017 |
|||||||||||||||||||||
Foreign exchange |
Variation of gains on valuation of hedged items |
Others | ||||||||||||||||||||||
Borrowings |
16,060,821 | (1,946,265 | ) | (452,075 | ) | | 503 | 13,662,984 | ||||||||||||||||
Debentures |
18,166,057 | 3,988,956 | (417,542 | ) | (39,373 | ) | 9,368 | 21,707,466 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
34,226,878 | 2,042,691 | (869,617 | ) | (39,373 | ) | 9,871 | 35,370,450 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
- 42 -
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):
December 31, 2018 | December 31, 2017 | |||||||
Deposits: |
||||||||
Gold banking assets |
26,935 | 25,972 | ||||||
Securities: |
||||||||
Debt securities |
||||||||
Korean treasury and government agencies |
| 191,383 | ||||||
Financial institutions |
| 817,444 | ||||||
Equity securities |
410,604 | 156 | ||||||
Capital contributions |
386,096 | | ||||||
Beneficiary certificates |
997,743 | | ||||||
|
|
|
|
|||||
Sub-total |
1,794,443 | 1,008,983 | ||||||
|
|
|
|
|||||
Loans |
21,492 | | ||||||
Derivative assets |
2,034,988 | 3,098,769 | ||||||
|
|
|
|
|||||
Total |
3,877,858 | 4,133,724 | ||||||
|
|
|
|
There are no financial assets at fair value through profit or loss designated as upon initial recognition as of December 31, 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 December 31, 2018 are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||
Debt securities: |
||||
Korean treasury and government agencies |
1,353,401 | |||
Financial institutions |
11,252,790 | |||
Corporates |
1,774,332 | |||
Bond denominated in foreign currencies |
1,834,040 | |||
|
|
|||
Sub-total |
16,214,563 | |||
|
|
|||
Equity securities |
786,082 | |||
Beneficiary certificates |
| |||
Securities loaned |
40,029 | |||
|
|
|||
Total |
17,040,674 | |||
|
|
(2) | Details of equity securities designated as financial assets at FVTOCI are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||
Purpose of acquisition |
Fair value | |||
Strategic business partnership |
498,092 | |||
Debt-equity swap |
287,990 | |||
|
|
|||
Total |
786,082 | |||
|
|
- 43 -
(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 year ended December 31, 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 |
(1,704 | ) | | | (1,704 | ) | ||||||||||
Disposal |
| | | | ||||||||||||
Others (*2) |
69 | | | 69 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
(5,413 | ) | | | (5,413 | ) | ||||||||||
|
|
|
|
|
|
|
|
(*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 year ended December 31, 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 |
12,718,786 | | | 12,718,786 | ||||||||||||
Disposal |
(8,851,549 | ) | | | (8,851,549 | ) | ||||||||||
Gain (loss) on valuation |
69,825 | | | 69,825 | ||||||||||||
Amortization on the effective interest method |
6,894 | | | 6,894 | ||||||||||||
Others (*) |
63,013 | | | 63,013 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
16,254,592 | | | 16,254,592 | ||||||||||||
|
|
|
|
|
|
|
|
(*) | 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 years ended December 31, 2018. The fair value and accumulative gain on valuation of that equity securities at disposal date are 9,379 million Won and 1,392 million Won, respectively. |
(5) | Details of AFS financial assets as of December 31, 2017 are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2017 | ||||||||||||||||
Amortized cost | Cumulative gains on valuation |
Cumulative losses on valuation |
Fair value | |||||||||||||
Debt securities: |
||||||||||||||||
Korean treasury and government agencies |
2,315,022 | 1,375 | (10,443 | ) | 2,305,954 | |||||||||||
Financial institutions |
5,225,922 | 1,504 | (10,159 | ) | 5,217,267 | |||||||||||
Corporates |
2,662,170 | 974 | (5,112 | ) | 2,658,032 | |||||||||||
Bond denominated in foreign currencies |
1,904,303 | 1,202 | (9,391 | ) | 1,896,114 | |||||||||||
Sub-total |
12,107,417 | 5,055 | (35,105 | ) | 12,077,367 | |||||||||||
Equity securities |
829,443 | 390,404 | (3,038 | ) | 1,216,809 | |||||||||||
Beneficiary certificates |
705,290 | 20,626 | (3,644 | ) | 722,272 | |||||||||||
Securities loaned |
169,989 | 664 | (397 | ) | 170,256 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
13,812,139 | 416,749 | (42,184 | ) | 14,186,704 | |||||||||||
|
|
|
|
|
|
|
|
- 44 -
9. | SECURITIES AT AMORTIZED COST AND HTM FINANCIAL ASSETS |
(1) | Details of securities at amortized cost as of December 31, 2018 and HTM financial assets as of December 31, 2017 are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||
Korean treasury and government agencies |
7,523,458 | |||
Financial institutions |
9,474,922 | |||
Corporates |
5,707,063 | |||
Bond denominated in foreign currencies |
103,502 | |||
Loss allowance |
(6,895 | ) | ||
|
|
|||
Total |
22,802,050 | |||
|
|
(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 year ended December 31, 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 |
(1,921 | ) | | | (1,921 | ) | ||||||||||
Disposal |
22 | | | 22 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
(6,895 | ) | | | (6,895 | ) | ||||||||||
|
|
|
|
|
|
|
|
(*) | The beginning balance was restated in accordance with K-IFRS 1109. |
2) | Gross carrying amount |
For the year ended December 31, 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 |
15,575,213 | | | 15,575,213 | ||||||||||||
Disposal / Redemption |
(9,400,576 | ) | | | (9,400,576 | ) | ||||||||||
Amortization on the effective interest method |
(8,349 | ) | | | (8,349 | ) | ||||||||||
Others (*) |
3,930 | | | 3,930 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
22,808,945 | | | 22,808,945 | ||||||||||||
|
|
|
|
|
|
|
|
(*) | Others consist of foreign currencies translation, etc. |
(3) | Details of HTM financial assets as of December 31, 2017 are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2017 | ||||||||||||||||
Amortized cost |
Cumulative gains on valuation |
Cumulative losses on valuation |
Fair value | |||||||||||||
Korean treasury and government agencies |
3,994,857 | 6,944 | (15,267 | ) | 3,986,534 | |||||||||||
Financial institutions |
7,245,426 | 2,923 | (15,067 | ) | 7,233,282 | |||||||||||
Corporates |
5,311,970 | 12,367 | (25,326 | ) | 5,299,011 | |||||||||||
Bond denominated in foreign currencies |
86,474 | 281 | (649 | ) | 86,106 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
16,638,727 | 22,515 | (56,309 | ) | 16,604,933 | |||||||||||
|
|
|
|
|
|
|
|
- 45 -
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 December 31, 2018 and loans and receivables as of December 31, 2017 are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Due from banks |
12,268,372 | 7,392,805 | ||||||
Loans |
241,285,766 | 235,237,937 | ||||||
Other financial assets(Other receivables) |
6,796,811 | 6,179,882 | ||||||
|
|
|
|
|||||
Total |
260,350,949 | 248,810,624 | ||||||
|
|
|
|
(2) | Details of due from banks are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Due from banks in local currency: |
||||||||
Due from The Bank of Korea (BOK) |
11,034,602 | 6,246,496 | ||||||
Others |
81,889 | 79,394 | ||||||
Loss allowance |
(2,660 | ) | (1,541 | ) | ||||
|
|
|
|
|||||
Sub-total |
11,113,831 | 6,324,349 | ||||||
|
|
|
|
|||||
Due from banks in foreign currencies: |
||||||||
Due from banks on demand |
622,354 | 660,582 | ||||||
Due from banks on time |
40,527 | 65,052 | ||||||
Others |
493,204 | 343,361 | ||||||
Loss allowance |
(1,544 | ) | (539 | ) | ||||
|
|
|
|
|||||
Sub-total |
1,154,541 | 1,068,456 | ||||||
|
|
|
|
|||||
Total |
12,268,372 | 7,392,805 | ||||||
|
|
|
|
(3) | Details of restricted due from banks are as follows (Unit: Korean Won in millions): |
Counterparty | December 31, 2018 | Reason of restriction | ||||||
Due from banks in local currency: |
||||||||
Due from BOK |
The BOK | 11,034,602 | Reserve deposits under the BOK Act | |||||
Others |
The Korea Exchange and others | 81,889 | Central counterparty KRW margin and others | |||||
|
|
|||||||
Sub-total |
11,116,491 | |||||||
|
|
|||||||
Due from banks in foreign currencies: |
||||||||
Due from banks on demand |
The BOK and others | 620,452 | Reserve deposits under the BOK Act and others | |||||
Others |
Korea Investment & Securities Co., Ltd. and others | 493,204 | Deposits for foreign futures and options trading and others | |||||
|
|
|||||||
Sub-total |
1,113,656 | |||||||
|
|
|||||||
Total |
12,230,147 | |||||||
|
|
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 | |||||||
|
|
- 46 -
(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 year ended December 31, 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 |
(1,740 | ) | | | (1,740 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
(4,204 | ) | | | (4,204 | ) | ||||||||||
|
|
|
|
|
|
|
|
(*) | The beginning balance was restated in accordance with K-IFRS 1109. |
2) | Gross carrying amount |
For the year ended December 31, 2018 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance |
7,394,885 | | | 7,394,885 | ||||||||||||
Transfer to 12-month expected credit losses |
| | | | ||||||||||||
Transfer to lifetime expected credit losses |
| | | | ||||||||||||
Transfer to credit-impaired financial assets |
| | | | ||||||||||||
Net increase |
4,877,691 | | | 4,877,691 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
12,272,576 | | | 12,272,576 | ||||||||||||
|
|
|
|
|
|
|
|
(5) | Details of loans are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Loans in local currency |
208,837,131 | 198,504,623 | ||||||
Loans in foreign currencies |
8,958,771 | 7,543,489 | ||||||
Domestic bankers letter of credit |
2,910,115 | 2,516,907 | ||||||
Bills bought in foreign currencies |
7,727,904 | 8,071,263 | ||||||
Bills bought in local currency |
19,385 | 194,234 | ||||||
Factoring receivables |
45,661 | 134,634 | ||||||
Advances for customers on guarantees |
12,364 | 21,512 | ||||||
Private placement bonds |
81,368 | 158,193 | ||||||
Call loans |
1,944,678 | 2,389,325 | ||||||
Bonds purchased under resale agreements |
11,605,383 | 16,726,510 | ||||||
Others |
590 | 626 | ||||||
Loan origination costs and fees |
539,470 | 489,008 | ||||||
Discounted present value |
| (7,272 | ) | |||||
Loss allowance |
(1,397,054 | ) | (1,505,115 | ) | ||||
|
|
|
|
|||||
Total |
241,285,766 | 235,237,937 | ||||||
|
|
|
|
- 47 -
(6) | Changes in the loss allowance on loans for the years ended December 31, 2018 are as follows (Unit: Korean Won in millions): |
Consumers | Corporates | Sub-total | ||||||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | ||||||||||||||||||||||||||||
Beginning balance (*1) |
(89,404 | ) | (32,352 | ) | (108,689 | ) | (342,921 | ) | (251,368 | ) | (849,467 | ) | (432,325 | ) | (283,720 | ) | (958,156 | ) | ||||||||||||||||||
Transfer to 12-month expected credit losses |
(8,720 | ) | 7,900 | 820 | (24,116 | ) | 22,451 | 1,665 | (32,836 | ) | 30,351 | 2,485 | ||||||||||||||||||||||||
Transfer to lifetime expected credit losses |
5,058 | (6,222 | ) | 1,164 | 14,736 | (407,442 | ) | 392,706 | 19,794 | (413,664 | ) | 393,870 | ||||||||||||||||||||||||
Transfer to credit-impaired financial assets |
66,967 | 36,871 | (103,838 | ) | 62,709 | 97,697 | (160,406 | ) | 129,676 | 134,568 | (264,244 | ) | ||||||||||||||||||||||||
Net reversal (provision) of loss allowance |
(72,546 | ) | (47,613 | ) | (39,332 | ) | (61,605 | ) | 201,879 | (85,654 | ) | (134,151 | ) | 154,266 | (124,986 | ) | ||||||||||||||||||||
Recoveries of loans previously charged off |
| | (50,381 | ) | | | (137,334 | ) | | | (187,715 | ) | ||||||||||||||||||||||||
Charge-off |
| | 176,792 | | | 276,489 | | | 453,281 | |||||||||||||||||||||||||||
Disposal |
| 33 | 1,633 | | 237 | 49,902 | | 270 | 51,535 | |||||||||||||||||||||||||||
Unwinding effect |
| | 7,945 | | | 23,274 | | | 31,219 | |||||||||||||||||||||||||||
Others (*2) |
| | | 33,616 | | (188 | ) | 33,616 | | (188 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Ending balance |
(98,645 | ) | (41,383 | ) | (113,886 | ) | (317,581 | ) | (336,546 | ) | (489,013 | ) | (416,226 | ) | (377,929 | ) | (602,899 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | The beginning balance was restated in accordance with K-IFRS 1109. |
(*2) | Others consist of debt-equity swap, foreign currencies translation and etc. |
Changes in the loss allowance on loans and receivables for the year ended December 31, 2017, are as follows (Unit: Korean Won in millions):
For the year ended December 31, 2017 | ||||||||||||||||
Consumers | Corporates | Others | Total | |||||||||||||
Beginning balance |
(155,338 | ) | (1,467,030 | ) | (171,593 | ) | (1,793,961 | ) | ||||||||
Net reversal (provision) of loss allowance |
(129,319 | ) | (528,377 | ) | 31,660 | (626,036 | ) | |||||||||
Recoveries of written-off loans |
(45,053 | ) | (82,463 | ) | | (127,516 | ) | |||||||||
Charge-off |
138,771 | 434,160 | 54,793 | 627,724 | ||||||||||||
Disposal |
898 | 65,145 | 29,265 | 95,308 | ||||||||||||
Unwinding effect |
8,639 | 36,390 | | 45,029 | ||||||||||||
Others (*) |
| 218,462 | | 218,462 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
(181,402 | ) | (1,323,713 | ) | (55,875 | ) | (1,560,990 | ) | ||||||||
|
|
|
|
|
|
|
|
(*) | Others consist of debt-equity swap, foreign currencies translation and etc. |
(7) | Changes in the gross carrying amount of loans are as follows (Unit: Korean Won in millions): |
Consumers | Corporates | Sub-total | ||||||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | ||||||||||||||||||||||||||||
Beginning balance |
100,815,109 | 5,432,359 | 309,302 | 124,381,464 | 4,246,421 | 1,506,875 | 225,196,573 | 9,678,780 | 1,816,177 | |||||||||||||||||||||||||||
Transfer to 12-month expected credit losses |
1,912,698 | (1,903,350 | ) | (9,348 | ) | 1,078,166 | (1,074,810 | ) | (3,356 | ) | 2,990,864 | (2,978,160 | ) | (12,704 | ) | |||||||||||||||||||||
Transfer to lifetime expected credit losses |
(3,163,028 | ) | 3,176,368 | (13,340 | ) | (2,250,991 | ) | 2,708,867 | (457,876 | ) | (5,414,019 | ) | 5,885,235 | (471,216 | ) | |||||||||||||||||||||
Transfer to credit-impaired financial assets |
(197,915 | ) | (115,696 | ) | 313,611 | (348,147 | ) | (274,987 | ) | 623,134 | (546,062 | ) | (390,683 | ) | 936,745 | |||||||||||||||||||||
Charge-off |
| | (176,792 | ) | | | (276,489 | ) | | | (453,281 | ) | ||||||||||||||||||||||||
Disposal |
| (478 | ) | (31,910 | ) | | (2,782 | ) | (166,346 | ) | | (3,260 | ) | (198,256 | ) | |||||||||||||||||||||
Net increase (decrease) |
7,740,501 | (612,440 | ) | (32,192 | ) | 658,391 | (792,401 | ) | (315,772 | ) | 8,398,892 | (1,404,841 | ) | (347,964 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Ending balance |
107,107,365 | 5,976,763 | 359,331 | 123,518,883 | 4,810,308 | 910,170 | 230,626,248 | 10,787,071 | 1,269,501 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 48 -
(8) | Details of other financial assets (other receivables) are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Receivables |
4,528,060 | 4,201,407 | ||||||
Accrued income |
879,274 | 927,297 | ||||||
Telex and telephone subscription rights and refundable deposits |
951,761 | 947,341 | ||||||
Other receivables |
500,958 | 157,632 | ||||||
Loss allowance |
(63,242 | ) | (53,795 | ) | ||||
|
|
|
|
|||||
Total |
6,796,811 | 6,179,882 | ||||||
|
|
|
|
(9) | Changes in the loss allowance on other financial assets are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance (*) |
(1,302 | ) | (960 | ) | (52,496 | ) | (54,758 | ) | ||||||||
Transfer to 12-month expected credit losses |
(93 | ) | 83 | 10 | | |||||||||||
Transfer to lifetime expected credit losses |
62 | (373 | ) | 311 | | |||||||||||
Transfer to credit-impaired financial assets |
6,444 | 207 | (6,651 | ) | | |||||||||||
Net reversal (provision) of loss allowance |
(6,231 | ) | 205 | (31,735 | ) | (37,761 | ) | |||||||||
Charge-off |
| | 28,012 | 28,012 | ||||||||||||
Disposal |
| 2 | 1,263 | 1,265 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
(1,120 | ) | (836 | ) | (61,286 | ) | (63,242 | ) | ||||||||
|
|
|
|
|
|
|
|
(*) | The beginning balance was restated in accordance with K-IFRS 1109. |
(10) | Changes in the gross carrying amount of other financial assets are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance |
6,134,524 | 21,013 | 78,140 | 6,233,677 | ||||||||||||
Transfer to 12-month expected credit losses |
6,227 | (6,210 | ) | (17 | ) | | ||||||||||
Transfer to lifetime expected credit losses |
(9,744 | ) | 10,059 | (315 | ) | | ||||||||||
Transfer to credit-impaired financial assets |
(7,375 | ) | (925 | ) | 8,300 | | ||||||||||
Charge-off |
| | (28,012 | ) | (28,012 | ) | ||||||||||
Disposal |
| (6 | ) | (1,639 | ) | (1,645 | ) | |||||||||
Net increase (decrease) |
645,981 | (4,202 | ) | 14,254 | 656,033 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
6,769,613 | 19,729 | 70,711 | 6,860,053 | ||||||||||||
|
|
|
|
|
|
|
|
11. | FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES |
(1) | The fair value hierarchy |
The fair value hierarchy is determined by the levels of judgment involved in estimating fair values of financial assets and liabilities. The specific financial instruments characteristics and market conditions, such as volume of transactions and transparency, are reflected to the market observable inputs. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities. The Bank maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value of its financial assets and financial liabilities. Fair value is measured based on the perspective of a market participant. As such, even when market assumptions are not readily available, the Banks own assumptions reflect those that market participants would use for measuring the assets or liabilities at the measurement date.
- 49 -
The fair value measurement is described in one of the following three levels used to classify fair value measurements:
| Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. The types of financial assets or liabilities generally included in Level 1 are publicly traded equity securities, derivatives and debt securities issued by governmental bodies. |
| Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e., prices) or indirectly (i.e., derived from prices). The types of financial assets or liabilities generally included in Level 2 are debt securities not traded in active markets and derivatives traded in the OTC market but do not require significant judgment. |
| Level 3 fair value measurements are those derived from valuation techniques that include inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). The types of financial assets or liabilities generally included in Level 3 are non-public securities and derivatives and debt securities whose valuation techniques require significant judgments and subjectivity. |
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Banks assessment of the significance of a particular input to a fair value measurement in its entirety requires judgment and consideration of inherent factors of the asset or liability.
(2) | Fair value hierarchy of financial assets and liabilities measured at fair value are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||||||||||||||
Level 1 (*1) | Level 2 (*1) | Level 3 | Total | |||||||||||||
Financial assets: |
||||||||||||||||
Financial assets at fair value through profit or loss mandatorily measured at fair value |
||||||||||||||||
Deposits |
26,935 | | | 26,935 | ||||||||||||
Equity securities |
37,420 | | 373,184 | 410,604 | ||||||||||||
Capital contributions |
| | 386,096 | 386,096 | ||||||||||||
Beneficiary certificates |
| 125,720 | 872,023 | 997,743 | ||||||||||||
Loans |
| | 21,492 | 21,492 | ||||||||||||
Derivative assets |
13,216 | 1,972,831 | 48,941 | 2,034,988 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
77,571 | 2,098,551 | 1,701,736 | 3,877,858 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial assets at FVTOCI |
||||||||||||||||
Debt securities |
1,757,107 | 14,457,456 | | 16,214,563 | ||||||||||||
Equity securities |
482,310 | | 303,772 | 786,082 | ||||||||||||
Securities loaned |
| 40,029 | | 40,029 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
2,239,417 | 14,497,485 | 303,772 | 17,040,674 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative assets (Held for hedging) |
| 35,503 | | 35,503 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
2,316,988 | 16,631,539 | 2,005,508 | 20,954,035 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities: |
||||||||||||||||
Financial liabilities at fair value through profit or loss mandatorily measured at fair value |
||||||||||||||||
Deposit due to customers |
27,058 | | | 27,058 | ||||||||||||
Derivative liabilities |
2,245 | 2,068,612 | 16,691 | 2,087,548 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
29,303 | 2,068,612 | 16,691 | 2,114,606 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities at fair value through profit or loss designated as upon initial recognition |
||||||||||||||||
Equity-linked securities |
| | 164,767 | 164,767 | ||||||||||||
Derivative liabilities (Held for hedging) |
| 17,654 | | 17,654 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
29,303 | 2,086,266 | 181,458 | 2,297,027 | ||||||||||||
|
|
|
|
|
|
|
|
- 50 -
December 31, 2017 | ||||||||||||||||
Level 1 (*1) | Level 2 (*1) | Level 3 (*2) | Total | |||||||||||||
Financial assets: |
||||||||||||||||
Financial assets held for trading |
||||||||||||||||
Deposits |
25,972 | | | 25,972 | ||||||||||||
Debt securities |
191,383 | 817,444 | | 1,008,827 | ||||||||||||
Equity securities |
156 | | | 156 | ||||||||||||
Derivative assets |
1,021 | 3,076,369 | 21,379 | 3,098,769 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
218,532 | 3,893,813 | 21,379 | 4,133,724 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
AFS financial assets |
||||||||||||||||
Debt securities |
2,536,578 | 9,540,789 | | 12,077,367 | ||||||||||||
Equity securities |
398,756 | | 818,053 | 1,216,809 | ||||||||||||
Beneficiary certificates |
| 66,765 | 655,507 | 722,272 | ||||||||||||
Securities loaned |
69,778 | 100,478 | | 170,256 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
3,005,112 | 9,708,032 | 1,473,560 | 14,186,704 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative assets (Held for hedging) |
| 59,272 | | 59,272 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
3,223,644 | 13,661,117 | 1,494,939 | 18,379,700 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities: |
||||||||||||||||
Financial liabilities held for trading |
||||||||||||||||
Deposit due to customers |
25,964 | | | 25,964 | ||||||||||||
Derivative liabilities |
2,613 | 3,115,664 | 20,941 | 3,139,218 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
28,577 | 3,115,664 | 20,941 | 3,165,182 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities designated as at FVTPL |
||||||||||||||||
Equity-linked securities |
| | 160,057 | 160,057 | ||||||||||||
Debentures |
| 91,739 | | 91,739 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-Total |
| 91,739 | 160,057 | 251,796 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities (Held for hedging) |
| 12,103 | | 12,103 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
28,577 | 3,219,506 | 180,998 | 3,429,081 | ||||||||||||
|
|
|
|
|
|
|
|
(*1) | There were no transfers between Level 1 and Level 2 of financial assets and liabilities measured at fair value. The Bank recognizes transfers among levels at the end of reporting period in which events have occurred or conditions have changed. |
(*2) | Certain AFS unquoted equity securities were measured at cost as of December 31, 2017, that amounted to 17,260 million Won. These unquoted equity instruments mostly represent minority investments in structured entity vehicles, such as asset securitization structures. They are measured at cost because (a) observable inputs of financial information to measure fair value were not available to obtain, (b) there was a significant variance in likely estimated cash flows or (c) the probabilities for various estimated cash flows could not be measured reliably. In addition, the Bank has no intention to dispose these investments in the foreseeable future. |
Financial assets and liabilities at fair value through profit or loss mandatorily measured at fair value, financial liabilities at fair value through profit or loss designated as upon initial recognition, financial assets at FVTOCI, and derivative assets (Held for hedging) and liabilities (Held for hedging) are recognized at fair value. Fair value is the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
- 51 -
Financial instruments are measured at fair value using a quoted market price in active markets. If there is no active market for a financial instrument, the Bank determines the fair value using valuation techniques. Valuation method and input variables for each type of financial instruments are as follows:
Valuation methods |
Input variables | |||
Loans |
The fair value of Loans is measured by the Binomial tree given the values of underlying assets and volatility. | Values of underlying assets, Volatility | ||
Debt securities |
The fair value is measured by discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the securities. | Risk-free market rate, credit spread | ||
Equity securities, capital contributions and beneficiary certificates |
Among Discounted Cash Flow (DCF) model, free cash flow to equity model, comparable company analysis, dividend discount model, risk-adjusted rate of return method and net asset value method, more than one method is used given the characteristic of the subject of fair value measurement. | Risk-free market rate, market risk premium, Beta, etc. | ||
Derivatives |
The in-house developed model is based on the models that are used by market participants in the valuation of general OTC derivative products, such as options, interest rate swaps, currency swap and currency forward that are based on inputs observable in the market. However, for some complicated financial instruments whose valuation should be based on some assumptions since some significant or all inputs to be used in the model are not observable in the market, the in-house derived model is developed from the general valuation models, such as Finite Difference Method (FDM) or Monte Carlo Simulation. | Risk-free market rate, forward rate, volatility, foreign exchange rate, stock prices, etc. | ||
Equity-linked securities |
The fair value of security linked to stock prices or derivatives is measured by the models such as DCF model, FDM model or Monte Carlo Simulation given the natures of the securities or underlying assets. | Values of underlying assets, risk-free market rate, market rate, dividend and convenience yield, volatility, correlation coefficient, credit spread and foreign exchange rate | ||
Debentures |
The fair value is measured by discounting the projected cash flows of a debenture by applying the market discount rate that is reflecting credit rating of the Bank. | Risk-free market rate of return and forward rate |
Valuation methods of the financial assets and financial liabilities measured at fair value and classified into Level 3 and significant but unobservable inputs are as follows:
Fair value measurement technique |
Input variable |
Range | Impact of changes in significant unobservable inputs on fair value measurement | |||||
Loans |
Binomial tree | Price of stock, Volatility of underlying asset | 15.49%~36.96% | Fair value increases as volatility of underlying asset increases. | ||||
Derivative assets |
Option valuation model and others |
Correlation coefficient | 0.90~0.98 | Variation of fair value increases as correlation coefficient increases. | ||||
Volatility of underlying asset | 14.00%~34.28% | Variation of fair value increases as volatility increases. | ||||||
Derivative liabilities |
Option valuation model and others |
Correlation coefficient | 0.90~0.98 | Variation of fair value increases as correlation coefficient increases. | ||||
Volatility of underlying asset | 14.00%~34.28% | Variation of fair value increases as volatility increases. | ||||||
Equity-linked securities |
Monte Carlo Simulation and others |
Correlation coefficient | 0.005~0.658 | Equity-linked securities variation of fair value increases if both volatility and correlation coefficient increase. However, when correlation coefficient decreases despite the increase in volatility, the variation of fair value of a compound financial instrument may decrease. | ||||
Volatility of underlying asset | 22.09%~31.19% | |||||||
Equity securities, capital contributions and beneficiary certificates |
External appraisal value and others |
Terminal growth rate | 0.00% | Fair value increases as terminal growth rate increases. | ||||
Discount rate | 3.67%~17.40% | Fair value increases as discount rate decreases. | ||||||
Volatility of real estate sale price | 0.00% | Fair value increases as volatility or real estate sale price increases. |
- 52 -
Fair value of financial assets and liabilities classified into Level 3 is measured by the Bank using its own valuation methods or using external specialists. Unobservable inputs used in the fair value measurements are produced by the internal system of the Bank and the appropriateness of inputs is reviewed regularly.
(3) | Changes in financial assets and liabilities measured at fair value classified into Level 3 are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||||||||
January 1, 2018 |
Net Income (loss) (*1) |
Other comprehensive income |
Purchases/ issuances |
Disposals/ settlements |
Transfer to or out of Level 3 (*2) |
December 31, 2018 |
||||||||||||||||||||||
Financial assets: |
||||||||||||||||||||||||||||
Financial assets at fair value through profit or loss mandatorily measured at fair value |
||||||||||||||||||||||||||||
Equity securities |
260,085 | 55,759 | | 57,953 | (613 | ) | | 373,184 | ||||||||||||||||||||
Capital contributions |
273,789 | 15,888 | | 121,577 | (25,158 | ) | | 386,096 | ||||||||||||||||||||
Beneficiary certificates |
655,507 | 17,006 | | 311,672 | (115,472 | ) | 3,310 | 872,023 | ||||||||||||||||||||
Loans |
52,854 | (1,118 | ) | | 24,830 | (55,074 | ) | | 21,492 | |||||||||||||||||||
Derivative assets |
19,243 | 75,839 | | 4,722 | (50,863 | ) | | 48,941 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Sub-total |
1,261,478 | 163,374 | | 520,754 | (247,180 | ) | 3,310 | 1,701,736 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Financial assets at FVTOCI |
||||||||||||||||||||||||||||
Equity securities |
285,397 | | 20,714 | 220 | (2,559 | ) | | 303,772 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
1,546,875 | 163,374 | 20,714 | 520,974 | (249,739 | ) | 3,310 | 2,005,508 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Financial liabilities: |
||||||||||||||||||||||||||||
Financial liabilities at fair value through profit or loss mandatorily measured at fair value |
||||||||||||||||||||||||||||
Derivative liabilities |
20,941 | 46,409 | | 255 | (50,911 | ) | (3 | ) | 16,691 | |||||||||||||||||||
Financial liabilities at fair value through profit or loss designated as upon initial recognition |
||||||||||||||||||||||||||||
Equity-linked securities |
160,057 | (16,243 | ) | | 183,039 | (162,086 | ) | | 164,767 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
180,998 | 30,166 | | 183,294 | (212,997 | ) | (3 | ) | 181,458 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | The losses that increase financial liabilities are presented as positive amounts, and the gains that decrease financial liabilities are presented as negative amounts. The gain amounting to 138,718 million Won for the years ended December 31, 2018, which is from financial assets and liabilities that the Bank holds as at the end of the periods, has been recognized in net gain (loss) on financial instruments at FVTPL and net gain (loss) on financial assets at FVTOCI in the separate statement of comprehensive income. |
(*2) | The Bank recognizes transfers between levels at the end of reporting period within which events have occurred or conditions have changed. |
- 53 -
For the year ended December 31, 2017 | ||||||||||||||||||||||||||||
January 1, 2017 |
Net Income (loss) (*1) |
Other comprehensive income |
Purchases/ issuances |
Disposals/ settlements |
Transfer to or out of Level 3 (*2) |
December 31, 2017 |
||||||||||||||||||||||
Financial assets: |
||||||||||||||||||||||||||||
Financial assets held for trading |
||||||||||||||||||||||||||||
Derivative assets |
23,062 | 22,351 | | 1,398 | (25,432 | ) | | 21,379 | ||||||||||||||||||||
AFS financial assets |
||||||||||||||||||||||||||||
Equity securities |
855,006 | 27,994 | 18,680 | 46,401 | (130,028 | ) | | 818,053 | ||||||||||||||||||||
Beneficiary certificates |
512,569 | 2,312 | (3,062 | ) | 247,582 | (103,894 | ) | | 655,507 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Sub-total |
1,367,575 | 30,306 | 15,618 | 293,983 | (233,922 | ) | | 1,473,560 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Derivative assets |
99 | 329 | | | (428 | ) | | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
1,390,736 | 52,986 | 15,618 | 295,381 | (259,782 | ) | | 1,494,939 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Financial liabilities: |
||||||||||||||||||||||||||||
Financial liabilities held for trading |
||||||||||||||||||||||||||||
Derivative liabilities |
33,436 | 24,943 | | 500 | (37,938 | ) | | 20,941 | ||||||||||||||||||||
Financial liabilities designated at FVTPL |
||||||||||||||||||||||||||||
Equity-linked securities |
673,709 | 112,015 | | | (625,667 | ) | | 160,057 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
707,145 | 136,958 | | 500 | (663,605 | ) | | 180,998 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | The losses that increase financial liabilities are presented as positive amounts, and the gains that decrease financial liabilities are presented as negative amounts. The loss amounting to 34,992 million Won for the years ended December 31, 2017 which is from financial assets and liabilities that the Bank holds as at the end of the periods, has been recognized in net gain (loss) on financial instruments at FVTPL and net gain (loss) on AFS financial assets in the separate statement of comprehensive income. |
(*2) | The Bank recognizes transfers between levels at the end of reporting period within which events have occurred or conditions have changed. |
(4) | Sensitivity analysis on the unobservable inputs used for measuring Level 3 financial instruments. |
The sensitivity analysis of the financial instruments has been performed by classifying with favorable and unfavorable changes based on how changes in unobservable assumptions would have effects on the fluctuations of financial instruments value. When the fair value of a financial instrument is affected by more than one unobservable assumption, the below table reflects the most favorable or the most unfavorable changes that resulted from varying the assumptions individually. The sensitivity analysis was performed for two types of Level 3 financial instruments: (1) interest rate-related derivatives, currency-related derivatives, equity-related derivatives, equity-linked securities beneficiary certificates and loans of which fair value changes are recognized as net income; (2) equity securities of which fair value changes are recognized as other comprehensive income.
The equity investments classified as Level 3 equity securities whose costs (2,186,966 million Won and 1,675,937 million Won as of December 31, 2018 and 2017)are considered to provide the best estimate of fair value are excluded from sensitivity analysis(1,392,874 million Won and 1,062,218 million Won as of December 31, 2018 and 2017).
- 54 -
The following table shows the sensitivity analysis to disclose the effect of reasonably possible volatility on the fair value of Level 3 financial instruments (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||
Net income (loss) | Other comprehensive income (loss) |
|||||||||||||||
Favorable | Unfavorable | Favorable | Unfavorable | |||||||||||||
Financial assets: |
||||||||||||||||
Financial assets at FVTPL |
||||||||||||||||
Derivative assets (*1) |
4,579 | (4,352 | ) | | | |||||||||||
Loans |
146 | (127 | ) | | | |||||||||||
Equity securities (*2) |
11,854 | (8,420 | ) | | | |||||||||||
Beneficiary certificates (*3) |
1,441 | (1,440 | ) | | | |||||||||||
Financial assets at FVTOCI |
||||||||||||||||
Equity securities (*2) |
| | 14,517 | (7,128 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
18,020 | (14,339 | ) | 14,517 | (7,128 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities: |
||||||||||||||||
Financial liabilities at fair value through profit or loss mandatorily measured at fair value |
||||||||||||||||
Derivative liabilities (*1) |
2,433 | (2,751 | ) | | | |||||||||||
Financial liabilities at fair value through profit or loss designated as upon initial recognition |
||||||||||||||||
Equity-linked securities (*1) |
1,561 | (1,669 | ) | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
3,994 | (4,420 | ) | | | |||||||||||
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||
Net income (loss) | Other comprehensive income (loss) |
|||||||||||||||
Favorable | Unfavorable | Favorable | Unfavorable | |||||||||||||
Financial assets: |
||||||||||||||||
Financial assets held for trading |
||||||||||||||||
Derivative assets (*1) |
1,234 | (526 | ) | | | |||||||||||
AFS financial assets |
||||||||||||||||
Equity securities (*2) (*3) |
| | 20,594 | (12,398 | ) | |||||||||||
Beneficiary certificates (*3) |
| | 1,749 | (1,695 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
1,234 | (526 | ) | 22,343 | (14,093 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities: |
||||||||||||||||
Financial liabilities held for trading |
||||||||||||||||
Derivative liabilities (*1) |
5 | (513 | ) | | | |||||||||||
Financial liabilities designated as at FVTPL |
||||||||||||||||
Equity-linked securities (*1) |
8 | (7 | ) | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
13 | (520 | ) | | | |||||||||||
|
|
|
|
|
|
|
|
(*1) | Fair value changes of equity-related derivative assets and liabilities and equity-linked securities are calculated by increasing or decreasing historical volatility of stock price and correlation, which are major unobservable variables, by 10%. In the case of interest rate-related derivative assets and liabilities, fair value changes are calculated by increasing or decreasing volatility of interest, which are major unobservable variables, by 10%. |
(*2) | Fair value changes of equity securities are calculated by increasing or decreasing growth rate (0%1%) and discount rate or liquidation value (-1%1%) and discount rate. The growth rate, discount rate and liquidation value are major unobservable variables. |
(*3) | Even if the sensitivity analysis of the capital contributions and beneficiary certificates is not possible in practice, fair value changes of beneficiary certificates and other securities whose major unobservable variables are composed of the real estate are calculated by increasing or decreasing price fluctuation of real estate which is underlying assets and discount rate by 1%. |
- 55 -
(5) | Fair value and carrying amount of financial assets and liabilities that are recorded at amortized cost are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||||||||||||||||||
Fair value | Book value |
|||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Financial assets: |
||||||||||||||||||||
Securities at amortized cost |
3,604,176 | 19,300,641 | | 22,904,817 | 22,802,050 | |||||||||||||||
Loans and other financial assets at amortized cost |
| | 263,712,018 | 263,712,018 | 260,350,949 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits due to customers |
| 237,496,448 | | 237,496,448 | 237,426,765 | |||||||||||||||
Borrowings |
| 14,081,175 | | 14,081,175 | 14,081,092 | |||||||||||||||
Debentures |
| 21,689,756 | | 21,689,756 | 21,666,331 | |||||||||||||||
Other financial liabilities |
| 20,097,664 | | 20,097,664 | 20,097,011 |
December 31, 2017 | ||||||||||||||||||||
Fair value | Book value |
|||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Financial assets: |
||||||||||||||||||||
HTM financial assets |
1,206,292 | 15,398,641 | | 16,604,933 | 16,638,727 | |||||||||||||||
Loans and receivables assets |
| | 247,784,211 | 247,784,211 | 248,810,624 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits due to customers |
| 224,355,148 | | 224,355,148 | 224,384,156 | |||||||||||||||
Borrowings |
| 13,631,522 | | 13,631,522 | 13,662,984 | |||||||||||||||
Debentures |
| 21,733,045 | | 21,733,045 | 21,707,466 | |||||||||||||||
Other financial liabilities |
| 13,028,595 | | 13,028,595 | 13,029,421 |
The fair values of financial instruments are measured using quoted market price in active markets. In case there is no active market for financial instruments, the Bank determines the fair value using valuation methods. Valuation methods and input variables for financial assets and liabilities that are measured at amortized costs are given as follows:
Valuation methods |
Input variables | |||
Securities at amortized cost (HTM financial assets in previous year) |
The fair value is measured by discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the securities. | Risk-free market rate and credit spread | ||
Loans and other financial assets at amortized cost (Loans and other receivables in previous year) |
The fair value is measured by discounting the projected cash flows of loan products by applying the market discount rate that has been applied to a proxy company or individual and consumer borrowers that has similar credit rating. | Risk-free market rate, credit spread and prepayment rate | ||
Deposits due to customers, borrowings, debentures and other financial liabilities |
The fair value is measured by discounting the projected cash flows of debt products by applying the market discount rate that is reflecting credit rating of the Bank. | Risk-free market rate and forward rate |
- 56 -
(6) | Financial instruments by category |
Carrying amounts of financial assets and liabilities are as follows (Unit: Korean Won in millions):
Financial assets |
December 31, 2018 | |||||||||||||||||||
Financial asset at FVTPL |
Financial assets at FVTOCI |
Financial assets at amortized cost |
Derivatives assets (Held for hedging) |
Total | ||||||||||||||||
Deposits |
26,935 | | 12,268,372 | | 12,295,307 | |||||||||||||||
Securities |
1,794,443 | 17,040,674 | 22,802,050 | | 41,637,167 | |||||||||||||||
Loans |
21,492 | | 241,285,766 | | 241,307,258 | |||||||||||||||
Derivative assets |
2,034,988 | | | 35,503 | 2,070,491 | |||||||||||||||
Other financial assets |
| | 6,796,811 | | 6,796,811 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
3,877,858 | 17,040,674 | 283,152,999 | 35,503 | 304,107,034 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
December 31, 2018 | |||||||||||||||
Financial liabilities at FVTPL |
Financial liabilities at amortized cost |
Derivatives liabilities (Held for hedging) |
Total | |||||||||||||
Deposits due to customers |
27,058 | 237,426,765 | | 237,453,823 | ||||||||||||
Borrowings |
164,767 | 14,081,092 | | 14,245,859 | ||||||||||||
Debentures |
| 21,666,331 | | 21,666,331 | ||||||||||||
Derivative liabilities |
2,087,548 | | 17,654 | 2,105,202 | ||||||||||||
Other financial liabilities(*) |
| 20,148,283 | | 20,148,283 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
2,279,373 | 293,322,471 | 17,654 | 295,619,498 | ||||||||||||
|
|
|
|
|
|
|
|
(*) | Other financial liabilities include 51,272 million Won of financial guarantee liabilities measured at amortized cost included in provisions. |
December 31, 2017 | ||||||||||||||||||||||||
Financial assets |
Financial assets at FVTPL |
AFS financial assets |
HTM financial assets |
Loans and receivables |
Derivatives assets (Held for hedging) |
Total | ||||||||||||||||||
Deposits |
25,972 | | | 7,392,805 | | 7,418,777 | ||||||||||||||||||
Securities |
1,008,983 | 14,186,704 | 16,638,727 | | | 31,834,414 | ||||||||||||||||||
Loans |
| | | 235,237,937 | | 235,237,937 | ||||||||||||||||||
Derivative assets |
3,098,769 | | | | 59,272 | 3,158,041 | ||||||||||||||||||
Other financial assets |
| | | 6,179,882 | | 6,179,882 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
4,133,724 | 14,186,704 | 16,638,727 | 248,810,624 | 59,272 | 283,829,051 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
December 31, 2017 | |||||||||||||||
Financial liabilities at FVTPL |
Financial liabilities at amortized cost |
Derivatives liabilities (Held for hedging) |
Total | |||||||||||||
Deposits due to customers |
25,964 | 224,384,156 | | 224,410,120 | ||||||||||||
Borrowings |
160,057 | 13,662,984 | | 13,823,041 | ||||||||||||
Debentures |
91,739 | 21,707,466 | | 21,799,205 | ||||||||||||
Derivative liabilities |
3,139,218 | | 12,103 | 3,151,321 | ||||||||||||
Other financial liabilities(*) |
| 13,103,698 | | 13,103,698 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
3,416,978 | 272,858,304 | 12,103 | 276,287,385 | ||||||||||||
|
|
|
|
|
|
|
|
(*) | Other financial liabilities include 74,277 million Won of financial guarantee liabilities measured at amortized cost included in provisions. |
- 57 -
(7) | Income or expense from financial instruments per category |
Income or expense from financial assets and liabilities per each category during the years ended December 31, 2018 and 2017 are as follows (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||||||
Interest income(expense) |
Fees and commissions income(expense) |
Provision(reversal) of credit loss |
Others | Total | ||||||||||||||||
Financial assets at fair value through profit or loss (FVTPL) (K-IFRS 1109) |
6,047 | 88,149 | | 250,854 | 345,050 | |||||||||||||||
Financial assets at fair value through other comprehensive income (FVTOCI) |
256,995 | 66 | (1,704 | ) | 13,630 | 268,987 | ||||||||||||||
Securities at amortized cost |
372,006 | | (1,921 | ) | 431 | 370,516 | ||||||||||||||
Loans and other financial assets at amortized cost |
7,696,919 | 144,479 | (144,372 | ) | 43,735 | 7,740,761 | ||||||||||||||
Financial liabilities at FVTPL (K-IFRS 1109) |
(3,164 | ) | | | 17,484 | 14,320 | ||||||||||||||
Financial liabilities at amortized cost |
(3,601,085 | ) | 27,138 | | 25,498 | (3,548,449 | ) | |||||||||||||
Derivatives assets(liabilities)(Held for hedging) |
| | | (27,362 | ) | (27,362 | ) | |||||||||||||
Off-balance provisions |
| | 89,174 | | 89,174 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
4,727,718 | 259,832 | (58,823 | ) | 324,270 | 5,252,997 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||||
Interest income(expense) |
Fees and commissions income(expense) |
Provision(reversal) of credit loss |
Others | Total | ||||||||||||||||
Financial assets at FVTPL (K-IFRS 1039) |
10,887 | | | 14,403 | 25,290 | |||||||||||||||
Available for sale (AFS) financial assets |
209,594 | 79,825 | (29,266 | ) | 303,880 | 564,033 | ||||||||||||||
Held to maturity (HTM) financial assets |
303,348 | | | | 303,348 | |||||||||||||||
Loans and receivables |
6,855,044 | 144,708 | (626,036 | ) | 192,679 | 6,566,395 | ||||||||||||||
Financial liabilities at FVTPL (K-IFRS 1039) |
| | | (111,240 | ) | (111,240 | ) | |||||||||||||
Financial liabilities at amortized cost |
(2,988,270 | ) | | | 39,373 | (2,948,897 | ) | |||||||||||||
Derivatives assets(liabilities)(Held for hedging) |
| | | (52,959 | ) | (52,959 | ) | |||||||||||||
Off-balance provisions |
| | 72,832 | | 72,832 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
4,390,603 | 224,533 | (582,470 | ) | 386,136 | 4,418,802 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
- 58 -
12. | DERECOGNITION AND OFFSET OF FINANCIAL INSTRUMENTS |
(1) | Derecognition of financial instruments |
Transferred financial assets that do not meet the condition of derecognition in their entirety.
a) | Bonds sold under repurchase agreements |
The financial instruments that were disposed but the Bank agreed to repurchase at the fixed amounts at the same time, so that they did not meet the conditions of derecognition, are as follows (Unit: Korean Won in millions):
December 31, 2018 |
December 31, 2017 |
|||||||||
Assets transferred |
AFS financial assets | | 9,998 | |||||||
Securities at amortized cost | 5,552 | | ||||||||
HTM financial assets | | 5,436 | ||||||||
|
|
|
|
|||||||
Total | 5,552 | 15,434 | ||||||||
|
|
|
|
|||||||
Related liabilities |
Bonds sold under repurchase agreements | 2,129 | 3,173 | |||||||
|
|
|
|
b) | Securities loaned |
When the Bank loans its securities to outside parties, the legal ownerships of the securities are transferred; however, they should be returned at the end of lending period. Therefore, the Bank does not derecognize them from the separate financial statements as it owns majority of risks and benefits from the securities continuously, regardless of the transfer of legal ownership. The carrying amounts of the securities loaned are as follows (Unit: Korean Won in millions):
December 31, 2018 |
December 31, 2017 |
Loaned to | ||||||||||
Financial assets at FVTOCI |
Korean financial institutions debt securities and others |
40,029 | | Korea Securities Finance Corporation | ||||||||
AFS financial assets |
Korean treasury, government bonds and others |
| 170,256 | Korea Securities Finance Corporation and others | ||||||||
|
|
|
|
|||||||||
Total | 40,029 | 170,256 | ||||||||||
|
|
|
|
The details of the transferred financial assets that are not meet the condition of derecognition in their entirety, such as bonds sold under repurchase agreements or securities loaned, are explained in Note 18.
(2) | The offset of financial assets and liabilities |
The Bank possesses both the uncollected domestic exchange receivables and the unpaid domestic exchange payable, which satisfy offsetting criteria of K-IFRS 1032. Therefore, the total number of uncollected domestic exchange receivables or unpaid domestic exchange payable has been offset with part of unpaid domestic exchange payable or uncollected domestic exchange receivables and has been disclosed in loans at amortized cost and other financial assets (loans and receivables in previous year) or other financial liabilities of the Banks separate statements of financial position.
The Bank possesses the derivative assets, derivative liabilities, receivable spot exchange and payable spot exchange that do not satisfy the offsetting criteria of K-IFRS 1032, but provide the Bank under the circumstances of the trading partys defaults, insolvency or bankruptcy, the right of offsetting. Item such as cash collateral cannot satisfy the offsetting criteria of K-IFRS 1032, but in accordance with the collateral arrangements and under the circumstances of the trading partys default, insolvency or bankruptcy, the net amount of derivative assets and derivative liabilities, receivable spot exchange and payable spot exchange can be offset.
- 59 -
The Bank has entered into a resale and repurchase agreement and accounted it as a collateralized borrowing. The Bank has also entered into a resale and repurchase agreement and accounted it as a secured loans. The resale and repurchase agreements can have the offsetting right only under the trading partys default, insolvency or bankruptcy, which do not satisfy the offsetting criteria of K-IFRS 1032. The Bank recorded the collateralized borrowing in borrowings and the secured loans in loans and receivables. The Bank under the repurchase agreements has offsetting right only upon the counterpartys default, insolvency or bankruptcy; thus, the repurchase agreements are applied by the TBMA/ISMA Global Master Repurchase Agreement, which does not satisfy the offsetting criteria of K-IFRS 1032. The Bank disclosed bonds purchased under agreements as loan at amortized cost and other financial assets (loans and receivables in previous year) and bonds sold under repurchase agreements as borrowings.
As of December 31, 2018 and 2017, the financial instruments to be off set and may be covered by master netting agreements and similar agreements are as follows (Unit: Korean Won in millions):
December 31, 2018 | ||||||||||||||||||||||||
Gross amounts of recognized financial assets |
Gross amounts of recognized financial assets setoff |
Net amounts of financial assets presented |
Related amounts not setoff in the statement of financial position |
Net amounts |
||||||||||||||||||||
Netting agreements and others |
Cash collateral received |
|||||||||||||||||||||||
Financial assets: |
||||||||||||||||||||||||
Derivative assets (*1) |
1,905,771 | | 1,905,771 | 5,439,720 | 66,857 | 485,781 | ||||||||||||||||||
Receivable spot exchange (*2) |
4,086,587 | | 4,086,587 | |||||||||||||||||||||
Bonds purchased under repurchase agreements (*2) |
11,605,383 | | 11,605,383 | 11,605,383 | | | ||||||||||||||||||
Domestic exchanges receivable (*2) (*6) |
30,084,899 | 29,699,412 | 385,487 | | | 385,487 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
47,682,640 | 29,699,412 | 17,983,228 | 17,045,103 | 66,857 | 871,268 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 | ||||||||||||||||||||||||
Gross amounts of recognized financial liabilities |
Gross amounts of recognized financial liabilities setoff |
Net amounts of financial liabilities presented |
Related amounts not setoff in the statement of financial position |
Net amounts |
||||||||||||||||||||
Netting agreements and others |
Cash collateral pledged |
|||||||||||||||||||||||
Financial liabilities: |
||||||||||||||||||||||||
Derivative liabilities (*1) |
1,859,865 | | 1,859,865 | 5,452,751 | 115,615 | 548,321 | ||||||||||||||||||
Equity-linked securities index in short position (*3) |
164,767 | | 164,767 | |||||||||||||||||||||
Payable spot exchange (*4) |
4,092,055 | | 4,092,055 | |||||||||||||||||||||
Bonds sold under repurchase agreements (*5) |
2,129 | | 2,129 | 2,129 | | | ||||||||||||||||||
Domestic exchanges payable (*4) (*6) |
36,825,514 | 29,699,412 | 7,126,102 | 6,231,538 | | 894,564 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
42,944,330 | 29,699,412 | 13,244,918 | 11,686,418 | 115,615 | 1,442,885 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | The items include derivatives held for trading, derivatives designated for hedging. |
(*2) | The items are included in loans at amortized cost and other financial assets. |
(*3) | The items are equity linked securities related to derivatives and are included in financial liabilities at FVTPL. |
(*4) | The items are included in other financial liabilities. |
(*5) | The items are included in borrowings. |
(*6) | Certain financial assets and liabilities are presented as net amounts. |
- 60 -
December 31, 2017 | ||||||||||||||||||||||||
Gross amounts of recognized financial assets |
Gross amounts of recognized financial assets setoff |
Net amounts of financial assets presented |
Related amounts not setoff in the statement of financial position |
Net amounts |
||||||||||||||||||||
Netting agreements and others |
Cash collateral received |
|||||||||||||||||||||||
Financial assets: |
||||||||||||||||||||||||
Derivative assets (*1) |
2,979,492 | 1,710 | 2,977,782 | 5,694,421 | 174,415 | 783,810 | ||||||||||||||||||
Receivable spot exchange (*2) |
3,674,864 | | 3,674,864 | |||||||||||||||||||||
Bonds purchased under resale agreements (*2) |
16,726,510 | | 16,726,510 | 16,726,510 | | | ||||||||||||||||||
Domestic exchanges receivable (*2) (*6) |
39,045,597 | 38,985,354 | 60,243 | | | 60,243 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
62,426,463 | 38,987,064 | 23,439,399 | 22,420,931 | 174,415 | 844,053 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||||||||
Gross amounts of recognized financial liabilities |
Gross amounts of recognized financial liabilities setoff |
Net amounts of financial liabilities presented |
Related amounts not setoff in the statement of financial position |
Net amounts |
||||||||||||||||||||
Netting agreements and others |
Cash collateral pledged |
|||||||||||||||||||||||
Financial liabilities: |
||||||||||||||||||||||||
Derivative liabilities (*1) |
2,977,240 | 1,710 | 2,975,530 | 5,817,331 | 157,750 | 835,243 | ||||||||||||||||||
Equity-linked securities index in short position(*3) |
160,057 | | 160,057 | |||||||||||||||||||||
Payable spot exchange (*4) |
3,674,737 | | 3,674,737 | |||||||||||||||||||||
Bonds sold under repurchase agreements (*5) |
3,173 | | 3,173 | 3,173 | | | ||||||||||||||||||
Domestic exchanges payable (*4) (*6) |
40,279,285 | 38,985,354 | 1,293,931 | 1,293,931 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
47,094,492 | 38,987,064 | 8,107,428 | 7,114,435 | 157,750 | 835,243 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | The items include derivatives held for trading, derivatives designated for hedging. |
(*2) | The items are included in loans and receivables. |
(*3) | The items are equity linked securities related to derivatives and are included in financial liabilities at fair value through profit or loss mandatorily measured at fair value. |
(*4) | The items are included in other financial liabilities. |
(*5) | The items are included in borrowings. |
(*6) | Certain financial assets and liabilities are presented as net amounts. |
- 61 -
13. | INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES |
(1) | The Bank has the following subsidiaries (Unit: Korean Won in 100 million, USD in 10 thousand, CNY in 100 million, RUB in 100 million, IDR in 100 million, BRL in 10 thousand, PHP in 100 million, VND in trillion): |
Subsidiaries |
Location |
Capital stock |
Main business | |||||
Woori FIS Co., Ltd. |
Korea | KRW | 245 | System software development and maintenance | ||||
Woori Private Equity Asset Management Co., Ltd. |
Korea | KRW | 300 | Finance | ||||
Woori Finance Research Institute Co., Ltd. |
Korea | KRW | 30 | Other service business | ||||
Woori Card Co., Ltd. |
Korea | KRW | 8,963 | Finance | ||||
Woori Investment Bank Co., Ltd. |
Korea | KRW | 3,371 | Other credit finance business | ||||
Woori Credit Information Co., Ltd. |
Korea | KRW | 50 | Credit information | ||||
Woori America Bank |
America | USD | 19,250 | Finance | ||||
PT Bank Woori Saudara Indonesia 1906 Tbk |
Indonesia | IDR | 6,720 | Finance | ||||
Woori Global Markets Asia Limited |
Hong Kong | USD | 10,000 | Finance | ||||
Woori Bank China Limited |
China | CNY | 21.6 | Finance | ||||
AO Woori Bank |
Russia | RUB | 14.5 | Finance | ||||
Banco Woori Bank do Brasil S.A. |
Brazil | BRL | 7,709 | Finance | ||||
Korea BTL Infrastructure Fund |
Korea | KRW | 7,755 | Finance | ||||
Woori Fund Service Co., Ltd. |
Korea | KRW | 100 | Finance | ||||
Woori Finance Cambodia PLC. |
Cambodia | USD | 1,300 | Finance | ||||
Woori Finance Myanmar Co., Ltd. |
Myanmar | USD | 1,200 | Finance | ||||
Wealth Development Bank |
Philippine | PHP | 7.7 | Finance | ||||
Woori Bank Vietnam Limited |
Vietnam | VND | 4.6 | Finance | ||||
WB Finance Co., Ltd. |
Cambodia | USD | 3,100 | Finance | ||||
Woori Bank Europe |
Germany | EUR | 5,000 | Finance |
December 31, 2018 | December 31, 2017 | |||||||||||||||||||
Subsidiaries |
Number of shares owned |
Percentage of ownership (%) |
Financial statements as of |
Number of shares owned |
Percentage of ownership (%) |
Financial statements as of | ||||||||||||||
Woori FIS Co., Ltd. |
4,900,000 | 100.0 | Dec.31,2018 | 4,900,000 | 100.0 | Dec.31,2017 | ||||||||||||||
Woori Private Equity Asset Management Co., Ltd. |
6,000,000 | 100.0 | Dec.31,2018 | 6,000,000 | 100.0 | Dec.31,2017 | ||||||||||||||
Woori Finance Research Institute Co., Ltd. |
600,000 | 100.0 | Dec.31,2018 | 600,000 | 100.0 | Dec.31,2017 | ||||||||||||||
Woori Card Co., Ltd. |
179,266,200 | 100.0 | Dec.31,2018 | 179,266,200 | 100.0 | Dec.31,2017 | ||||||||||||||
Woori Investment Bank Co., Ltd. |
403,404,538 | 59.8 | Dec.31,2018 | 403,404,538 | 59.8 | Dec.31,2017 | ||||||||||||||
Woori Credit Information Co., Ltd. |
1,008,000 | 100.0 | Dec.31,2018 | 1,008,000 | 100.0 | Dec.31,2017 | ||||||||||||||
Woori America Bank |
38,500,000 | 100.0 | Dec.31,2018 | 38,500,000 | 100.0 | Dec.31,2017 | ||||||||||||||
PT Bank Woori Saudara Indonesia 1906 Tbk |
5,256,690,211 | 79.9 | Dec.31,2018 | 5,256,690,211 | 79.9 | Dec.31,2017 | ||||||||||||||
Woori Global Markets Asia Limited |
78,000,000 | 100.0 | Dec.31,2018 | 78,000,000 | 100.0 | Dec.31,2017 | ||||||||||||||
Woori Bank China Limited |
| 100.0 | Dec.31,2018 | | 100.0 | Dec.31,2017 | ||||||||||||||
AO Woori Bank |
57,999,999 | 100.0 | Dec.31,2018 | 57,999,999 | 100.0 | Dec.31,2017 | ||||||||||||||
Banco Woori Bank do Brasil S.A. |
77,093,999 | 100.0 | Dec.31,2018 | 77,093,999 | 100.0 | Dec.31,2017 | ||||||||||||||
Korea BTL Infrastructure Fund (*1) |
154,910,839 | 99.9 | Dec.31,2018 | 155,805,801 | 99.9 | Dec.31,2017 | ||||||||||||||
Woori Fund Service Co., Ltd. |
2,000,000 | 100.0 | Dec.31,2018 | 2,000,000 | 100.0 | Dec.31,2017 | ||||||||||||||
Woori Finance Cambodia PLC. |
13,000,000 | 100.0 | Dec.31,2018 | 13,000,000 | 100.0 | Dec.31,2017 | ||||||||||||||
Woori Finance Myanmar Co., Ltd. |
1,200,000 | 100.0 | Dec.31,2018 | 1,200,000 | 100.0 | Dec.31,2017 | ||||||||||||||
Wealth Development Bank |
3,931,365 | 51.0 | Dec.31,2018 | 3,931,365 | 51.0 | Dec.31,2017 | ||||||||||||||
Woori Bank Vietnam Limited(*2) |
| 100.0 | Dec.31,2018 | | 100.0 | Dec.31,2017 | ||||||||||||||
WB Finance Co., Ltd.(*3)(*4) |
1,200,000 | 100.0 | Dec.31,2018 | | | | ||||||||||||||
Woori Bank Europe(*3) |
50,000,000 | 100.0 | Dec.31,2018 | | | |
(*1) | The Banks capital stock and number of shares owned have decreased, attributed to paid capital reduction of the subsidiary during the year ended December 31, 2018. |
(*2) | The Banks capital stock have increased, attributed to paid capital added of the subsidiary during the year ended December 31, 2018. |
(*3) | The Bank acquired over 50% ownership of WB Finance Co., Ltd. during the year ended December 31, 2018. |
(*4) | The capital has increased, attributed to capital increase without consideration from the subsidiary. |
- 62 -
(2) | As for the structured entities in accordance with K-IFRS 1110 and K-IFRS 1112, it is determined that the Bank controls the entity after considering facts and circumstances, such as the Banks power over the entitys related business activities, the Banks exposure to variable returns from the its involvement with the entity and the Banks ability to affect the returns through its power over the entity. |
1) | Details of structured entities that the Bank controls are as follows: |
December 31, 2018 | ||||||||||
Structured entities |
Location | Main business |
Percentage of ownership (%) |
Financial statements as of | ||||||
Structured entities established for securitization of financial assets (*1) | ||||||||||
Kumho Trust First Co., Ltd. and 27 structured entities |
Korea | Asset securitization | | Dec. 31, 2018 | ||||||
KAMCO Value Recreation First Securitization Specialty Co., Ltd. |
Korea | Asset securitization | 15.0 | Dec. 31, 2018 | ||||||
Money Trust by Trust Business Act (*2) | ||||||||||
Principal Guaranteed Trust and Principal and Interest Guaranteed Trust |
Korea | Trust | | Dec. 31, 2018 | ||||||
Structured entities established for investment in securities and others | ||||||||||
G5 Pro Short-term Bond Investment Fund 13 |
Korea | Investment securities | 100.0 | Dec. 31, 2018 | ||||||
Heungkuk Global Private Placement Investment Trust No. 1 |
Korea | Investment securities | 98.5 | Dec. 31, 2018 | ||||||
HeungkukWoori Tech Company Private Placement Investment Trust No. 1 |
Korea | Investment securities | 98.0 | Dec. 31, 2018 | ||||||
AI Partners Water Supply Private Placement Investment Trust No.2 |
England | Investment securities | 97.3 | Dec. 31, 2018 | ||||||
Consus Sakhalin Real Estate Investment Trust 1st |
Korea |
Investment securities | 75.0 | Dec. 31, 2018 |
December 31, 2017 | ||||||||||
Structured entities |
Location | Main business |
Percentage of ownership (%) |
Financial statements as of | ||||||
Structured entities established for securitization of financial assets (*1) | ||||||||||
Kumho Trust First Co., Ltd. and 19 structured entities |
Korea | Asset securitization | | Dec. 31, 2017 | ||||||
KAMCO Value Recreation First Securitization Specialty Co., Ltd. |
Korea | Asset securitization | 15.0 | Dec. 31, 2017 | ||||||
Money Trust by Trust Business Act (*2) | ||||||||||
Principal Guaranteed Trust and Principal and Interest Guaranteed Trust |
Korea | Trust | | Dec. 31, 2017 | ||||||
Structured entities established for investment in securities and others | ||||||||||
G5 Pro Short-term Bond Investment Fund 13 and 3 structured entities |
Korea | Investment securities | 100.0 | Dec. 31, 2017 | ||||||
HeungkukWoori Tech Company Private Placement Investment Trust No. 1 |
Korea | Investment securities | 98.0 | Dec. 31, 2017 | ||||||
Consus Sakhalin Real Estate Investment Trust 1st |
Korea | Investment securities | 75.0 | Dec. 31, 2017 |
(*1) | It is determined that the Bank controls the entity after considering all the facts and circumstances, such as the Banks power over the entitys related business activities, the Banks exposure to variable returns from its involvement with the entity and the Banks ability to affect the returns through its power over the entity, even though the Bank holds less than 50% ownership interest of the entity. |
(*2) | The Bank controls the trust because it has power that determines the management performance over the trust and is exposed to variable returns to absorb losses through the guarantees of payment of principal and fixed rate of return. |
- 63 -
2) | The following companies have been excluded from the consolidation scope despite the Banks majority ownership interest as of December 31, 2018 and 2017: |
December 31, 2018 | ||||||||
Subsidiaries |
Location | Main business |
Percentage of ownership (%) |
|||||
Golden Bridge NHN Online Private Equity Investment (*) |
Korea | Investment securities | 60.0 | |||||
Mirae Asset Seobu Underground Expressway Professional Investment (*) |
Korea | Investment securities | 65.8 | |||||
Mirae Asset Maps Clean Water Private Equity Investment Trust 7th(*) |
Korea | Investment securities | 59.7 | |||||
Kiwoom Yonsei Private Equity Investment Trust(*) |
Korea | Investment securities | 88.9 | |||||
Hana Qualified Investor Private Real Estate Investment Trust No. 41-1 (*) |
Korea | Investment securities | 77.0 | |||||
IGIS Europe Private Placement Real Estate Fund No. 163-2 (*) |
Korea | Investment securities | 97.9 | |||||
IGIS Global Private Placement Real Estate Fund No. 148-1 (*) |
Korea | Investment securities | 69.0 | |||||
IGIS Global Private Placement Real Estate Fund No. 148-2 (*) |
Korea | Investment securities | 69.0 | |||||
KB Nongso Sewage Treatment Equipment Private Special Asset (*) |
Korea | Investment securities | 50.0 | |||||
Mirae Asset Seoul Ring Expressway Private Special Asset Fund(*) |
Korea | Investment securities | 66.2 | |||||
Hangang Sewage Treatment Plant Fund (*) |
Korea | Investment securities | 55.6 | |||||
Consus KyungJu Green Private Placement Real Estate Fund 1(*) |
Korea | Investment securities | 52.4 | |||||
December 31, 2017 | ||||||||
Subsidiaries |
Location | Main business |
Percentage of ownership (%) |
|||||
Golden Bridge NHN Online Private Equity Investment (*) |
Korea | Investment securities | 60.0 | |||||
Mirae Asset Maps Clean Water Private Equity Investment Trust 7th (*) |
Korea | Investment securities | 59.7 | |||||
Kiwoom Yonsei Private Equity Investment Trust (*) |
Korea | Investment securities | 88.9 | |||||
Hana Qualified Investor Private Real Estate Investment Trust No. 41-1 (*) |
Korea | Investment securities | 77.0 | |||||
IGIS Global Private Placement Real Estate Fund No. 148-1(*) |
Korea | Investment securities | 69.0 | |||||
IGIS Global Private Placement Real Estate Fund No. 148-2(*) |
Korea | Investment securities | 69.0 |
(*) | The Bank owns the majority ownership interest in these structured entities, but has no power over the investees relevant activities. As a result, it is deemed that the Bank has no power or control over the structured entities. |
(3) | Investments in associates are as follows (Unit: Korean Won in 100 million): |
Location | Capital | Main business |
December 31, 2018 | |||||||||||||||
Investees |
Number of shares owned |
Percentage of ownership (%) |
Financial statements as of | |||||||||||||||
Kumho Tire Co., Inc. (*1) |
Korea | | Manufacturing | | | | ||||||||||||
Woori Service Networks Co., Ltd. (*3) |
Korea | 5 | Freight and staffing | 4,704 | 4.9 | Nov. 30, 2018(*6) | ||||||||||||
Korea Credit Bureau Co., Ltd. (*2) |
Korea | 100 | Credit information | 180,000 | 9.9 | Dec. 31, 2018 | ||||||||||||
Korea Finance Security Co., Ltd. (*3) |
Korea | 60 | Security Service | 180,000 | 15.0 | Nov. 30, 2018(*6) | ||||||||||||
Chin Hung International Inc. (*5) |
Korea | 733 | Construction | 37,059,405 | 25.3 | Nov. 30, 2018(*6) | ||||||||||||
Poonglim Industrial Co., Ltd. (*7) |
Korea | | Construction | | | | ||||||||||||
STX Engine Co., Ltd. (*9) |
Korea | | Manufacturing | | | | ||||||||||||
STX Corporation (*9) |
Korea | | Wholesale of non-specialized goods | | | | ||||||||||||
Saman Corporation (*2) |
Korea | 7 | General construction and technology service | 12,542 | 9.2 | Sep. 30, 2018(*6) | ||||||||||||
Dongwoo C & C Co., Ltd. (*4) |
Korea | 7 | Construction | 13,317 | 23.2 | | ||||||||||||
SJCO Co., Ltd. (*4) |
Korea | 26 | Aggregate transportation and wholesale | 70,529 | 26.5 | | ||||||||||||
G2 Collection Co., Ltd. (*4) |
Korea | 2 | Wholesale and retail sales | 12,574 | 28.9 | | ||||||||||||
The Base Enterprise Co., Ltd. (*4) |
Korea | 7 | Manufacturing | 68,470 | 48.4 | | ||||||||||||
Kyesan Engineering Co., Ltd. (*4) |
Korea | 13 | Construction | 60,581 | 23.2 | | ||||||||||||
Good Software Lab Co., Ltd. (*4) |
Korea | 3 | Service | 17,121 | 28.9 | | ||||||||||||
Wongwang Co., Ltd. (*4) |
Korea | 1 | Wholesale and real estate | 2,590 | 29.0 | | ||||||||||||
Sejin Construction Co., Ltd. (*4) |
Korea | 4 | Construction | 12,123 | 29.6 | | ||||||||||||
QTS Shipping Co., Ltd. (*4) |
Korea | 4 | Complex transportation brokerage | 17,460 | 49.4 | | ||||||||||||
Reading Doctors Co., Ltd. (*4) |
Korea | 1 | Other services | 7,398 | 35.4 | | ||||||||||||
PREXCO Co., Ltd. (*4) |
Korea | 16 | Manufacturing | 919,972 | 28.1 | | ||||||||||||
Hyunwoo International Co., Ltd. (*12) |
Korea | | Manufacturing | | | | ||||||||||||
Jiwon Plating Co., Ltd. (*4) |
Korea | 7 | Plating | 28,705 | 20.5 | | ||||||||||||
Cultizm Korea LTD Co., Ltd. (*4) |
Korea | 0.14 | Wholesale and retail sales | 858 | 31.3 | | ||||||||||||
Gil Co., Ltd. (*4) |
Korea | 9 | Manufacturing | 44,662 | 26.1 | | ||||||||||||
NK Eng Co., Ltd. (*4) |
Korea | 15 | Manufacturing | 697,033 | 23.1 | |
- 64 -
Location | Capital | Main business |
December 31, 2018 | |||||||||||||||
Investees |
Number of shares owned |
Percentage of ownership (%) |
Financial statements as of | |||||||||||||||
Woori Growth Partnerships New Technology Private Equity Fund (*14) |
Korea | 1,182 | Other financial services | 27,282 | 23.1 | Dec. 31, 2018 | ||||||||||||
DAEA SNC Co., Ltd. (*4) |
Korea | 1 | Wholesale and retail sales | 1,253 | 24.0 | | ||||||||||||
ARES-TECH Co., Ltd. (*4) |
Korea | 2 | Electronic component manufacturing | 7,187 | 23.4 | | ||||||||||||
Force TEC Co., Ltd.(*4)(10) |
Korea | 93 | Manufacturing | 4,780,907 | 25.8 | | ||||||||||||
Sinseong Trading Co., Ltd.(*4)(*10) |
Korea | 1 | Manufacturing | 2,584 | 27.2 | | ||||||||||||
2016KIF-IMM Woori Bank Technology Venture Fund (*11) |
Korea | 750 | Other financial services | 15,000,000,000 | 20.0 | Dec. 31, 2018 | ||||||||||||
K BANK Co., Ltd. (*2)(*11) |
Korea | 4,775 | Finance | 13,468,600 | 14.1 | Nov. 30, 2018(*6) | ||||||||||||
Smart Private Equity Fund No. 2 |
Korea | 150 | Other financial services | 3,000 | 20.0 | Dec. 31, 2018 | ||||||||||||
Woori Bank-Company K Korea Movie Asset Fund |
Korea | 120 | Other financial services | 3,000 | 25.0 | Dec. 31, 2018 | ||||||||||||
Well to Sea No. 3 Private Equity Fund(*13) |
Korea | 2,051 | Finance | 102,500,000,000 | 50.0 | Sep. 30, 2018(*6) | ||||||||||||
Youngdong Sea Food Co., Ltd. (*4)(*10) |
Korea | 3 | Processed sea food manufacturing | 12,106 | 24.0 | | ||||||||||||
Partner One Value Up 1st Private Equity Fund (*8) |
Korea | 430 | Other financial services | 10,000,000,000 | 23.3 | Dec. 31, 2018 | ||||||||||||
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership(*8) |
Korea | 221 | Other financial services | 4,426,000,000 | 20.0 | Dec. 31, 2018 | ||||||||||||
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund(*8) |
Korea | 121 | Other financial services | 3,025,000,000 | 25.0 | Dec. 31, 2018 | ||||||||||||
Location | Capital | Main business |
December 31, 2017 | |||||||||||||||
Investees |
Number of shares owned |
Percentage of ownership (%) |
Financial statements as of | |||||||||||||||
Kumho Tire Co., Inc. (*1) |
Korea | 7,900 | Manufacturing | 22,357,561 | 14.2 | Sep. 30, 2017(*6) | ||||||||||||
Woori Service Networks Co., Ltd. (*3) |
Korea | 5 | Freight and staffing | 4,704 | 4.9 | Nov. 30, 2017(*6) | ||||||||||||
Korea Credit Bureau Co., Ltd. (*2) |
Korea | 100 | Credit information | 180,000 | 9.9 | Dec. 31, 2017 | ||||||||||||
Korea Finance Security Co., Ltd. (*3) |
Korea | 60 | Security Service | 180,000 | 15.0 | Nov. 30, 2017(*6) | ||||||||||||
Chin Hung International Inc. (*5) |
Korea | 733 | Construction | 37,059,405 | 25.3 | Nov. 30, 2017(*6) | ||||||||||||
Poonglim Industrial Co., Ltd. (*7) |
Korea | 736 | Construction | 4,142,782 | 29.0 | Sep. 30, 2017(*6) | ||||||||||||
STX Engine Co., Ltd. (*9) |
Korea | 691 | Manufacturing | 8,082,650 | 29.2 | | ||||||||||||
STX Corporation (*9) |
Korea | 478 | Wholesale of non-specialized goods | 3,772,400 | 19.7 | Sep. 30, 2017(*6) | ||||||||||||
Saman Corporation (*2) |
Korea | 7 | General construction and technology service | 12,542 | 9.2 | Sep. 30, 2017(*6) | ||||||||||||
Dongwoo C & C Co., Ltd. (*4) |
Korea | 7 | Construction | 13,317 | 23.2 | | ||||||||||||
SJCO Co., Ltd. (*4) |
Korea | 26 | Aggregate transportation and wholesale | 70,529 | 26.5 | | ||||||||||||
G2 collection Co., Ltd. (*4) |
Korea | 2 | Wholesale and retail sales | 12,574 | 28.9 | | ||||||||||||
The Base Enterprise Co., Ltd. (*4) |
Korea | 7 | Manufacturing | 68,470 | 48.4 | | ||||||||||||
Kyesan Engineering Co., Ltd. (*4) |
Korea | 13 | Construction | 60,581 | 23.2 | | ||||||||||||
Good Software Lab Co., Ltd. (*4) |
Korea | 3 | Service | 17,121 | 28.9 | | ||||||||||||
Wongwang Co., Ltd. (*4) |
Korea | 1 | Wholesale and real estate | 2,590 | 29.0 | | ||||||||||||
Sejin Construction Co., Ltd. (*4) |
Korea | 4 | Construction | 12,123 | 29.6 | | ||||||||||||
QTS Shipping Co., Ltd. (*4) |
Korea | 4 | Complex transportation brokerage | 17,460 | 49.4 | | ||||||||||||
Reading Doctors Co., Ltd. (*4) |
Korea | 1 | Other services | 7,398 | 35.4 | | ||||||||||||
PREXCO Co., Ltd. (*4) |
Korea | 16 | Manufacturing | 919,972 | 28.1 | | ||||||||||||
Hyunwoo International Co., Ltd. (*12) |
Korea | 12 | Manufacturing | 59,873 | 25.9 | | ||||||||||||
Jiwon Plating Co., Ltd. (*4) |
Korea | 7 | Plating | 28,705 | 20.5 | | ||||||||||||
Cultizm Korea LTD Co., Ltd. (*4) |
Korea | 0.14 | Wholesale and retail sales | 858 | 31.3 | | ||||||||||||
Gil Co., Ltd. (*4) |
Korea | 9 | Manufacturing | 44,662 | 26.1 | | ||||||||||||
NK Eng Co., Ltd. (*4) |
Korea | 15 | Manufacturing | 697,033 | 23.1 | | ||||||||||||
Woori Growth Partnerships New Technology Private Equity Fund (*14) |
Korea | 1,249 | Other financial services | 28,833 | 23.1 | Dec. 31, 2017 | ||||||||||||
DAEA SNC Co., Ltd. (*4) |
Korea | 1 | Wholesale and retail sales | 1,253 | 24.0 | | ||||||||||||
ARES-TECH Co., Ltd. (*4) |
Korea | 2 | Electronic component manufacturing | 7,187 | 23.4 | | ||||||||||||
2016KIF-IMM Woori Bank Technology Venture Fund (*11) |
Korea | 342 | Other financial services | 6,840,000,000 | 20.0 | Dec. 31, 2017 | ||||||||||||
K BANK Co., Ltd. (*2)(*11) |
Korea | 3,500 | Finance | 9,078,462 | 13.0 | Nov. 30, 2017(*6) | ||||||||||||
Smart Private Equity Fund No. 2 |
Korea | 150 | Other financial services | 3,000 | 20.0 | Dec. 31, 2017 | ||||||||||||
Woori Bank-Company K Korea Movie Asset Fund |
Korea | 120 | Other financial services | 3,000 | 25.0 | Dec. 31, 2017 | ||||||||||||
Well to Sea No. 3 Private Equity Fund (*13) |
Korea | 2,051 | Finance | 102,500,000,000 | 50.0 | Sep. 30, 2017(*6) |
- 65 -
(*1) | The Bank did not have significant influence over the entity due to the termination of the joint management procedures of the creditors financial institution, and thus the entity was excluded from the investment in associates for the year ended December 31, 2018. |
(*2) | The Bank can participate in the decision-making body and exercise significant influence over the associates through business partnerships. |
(*3) | Most of the significant business transactions are with the Bank as of December 31, 2018 and 2017. |
(*4) | There is no investment amount as of December 31, 2018 and 2017. |
(*5) | The investments in associates that have quoted market prices are Chin Hung International Inc. (current years: KRW 2,065, previous year: KRW 1,915). |
(*6) | The significant transactions and events at the end of reporting period of the associates and the Bank have been properly incorporated. |
(*7) | The Bank lost significant influence over the entity due to the stock consolidation and the capital increase of the associate during the year ended December 31, 2018, and thus the entity was excluded from the list of associates. |
(*8) | Due to capital contribution by the Bank for the year ended December 31, 2018, the entities were included in the investment in associates. |
(*9) | The entity was sold after it was transferred to assets held for distribution (sale) and was excluded from the investment in associates. |
(*10) | Even though the Banks ownership ratio of the entity was more than 20%, the Bank did not have significant influence over the entity because the entity was going through workout process under receivership and thus was excluded from the investment in associates. However, as the workout process was completed for the year ended December 31, 2018, it has been included in the investment in associates. |
(*11) | Due to paid capital increase of associates, the Banks capital stock and number of holding shares increased during the year ended December 31, 2018. |
(*12) | The entity was excluded from the associate as the bank sold its entire stake during the year ended December 31, 2018. |
(*13) | The Bank has entered into a contract whereas the Bank (or a third party designated by the Bank) obtains a preemptive right to acquire the base assets (Aju Capital Co. Ltd.) of Well to Sea No. 3 Private Equity Fund, an affiliate of the Bank, when the Fund disposes them. |
(*14) | Due to paid capital reduction, the Banks capital stock and number of holding shares decreased for the year ended December 31, 2018. |
(4) | The entities excluded from associates, although the Banks ownership interest in them is higher than 20% as of December 31, 2018 and 2017, are as follows: |
December 31, 2018 | ||||||||
Associate (*) |
Number of shares owned | Ownership (%) | ||||||
Orient Shipyard Co., Ltd. |
464,812 | 21.4 | ||||||
Saenuel Co., Ltd. |
3,531 | 37.4 | ||||||
E Mirae Tech Co., Ltd. |
7,696 | 41.0 | ||||||
Jehin Trading Co., Ltd. |
81,610 | 27.3 | ||||||
The Season Company Co., Ltd. |
18,187 | 30.1 | ||||||
Yuil PESC Co., Ltd. |
8,642 | 24.0 | ||||||
CL Tech Co., Ltd. |
13,759 | 38.6 |
December 31, 2017 | ||||||||
Associate (*) |
Number of shares owned | Ownership (%) | ||||||
Orient Shipyard Co., Ltd. |
465,050 | 21.4 | ||||||
Saenuel Co., Ltd. |
3,531 | 37.4 | ||||||
E Mirae Tech Co., Ltd. |
7,696 | 41.0 | ||||||
Jehin Trading Co., Ltd. |
81,610 | 27.3 | ||||||
The Season Company Co., Ltd. |
18,187 | 30.1 | ||||||
Yuil PESC Co., Ltd. |
8,642 | 24.0 | ||||||
Youngdong Sea Food Co., Ltd. |
12,106 | 24.0 | ||||||
Sinseong Trading Co., Ltd. |
2,584 | 27.2 | ||||||
CL Tech Co., Ltd. |
13,759 | 38.6 | ||||||
Force TEC Co., Ltd. |
4,780,907 | 25.8 | ||||||
Protronics Co., Ltd. |
95,921 | 48.1 | ||||||
Instern Co., Ltd. |
14,296 | 20.1 |
(*) | Even though the Banks ownership interest in the entity is more than 20%, it is determined that the Bank does not have significant influence over the entity since it is going through workout process under receivership; thus, it is excluded from the investment in associates. |
- 66 -
(5) | Changes in carrying value of investments in subsidiaries and associates are as follows (Korean Won in millions). Because the investments associated with structured entities were classified as financial assets at FVTPL (K-IFRS 1109) for the year ended December 31, 2018 and AFS securities (K-IFRS 1039) for the year ended December 31, 2017, they were excluded from the carrying value of investments in subsidiaries and associates. |
For the year ended December 31, 2018 | ||||||||||||||||||||
Investees |
January 1, 2018 |
Acquisitions | Disposals and others(*) |
Impairment | December 31, 2018 |
|||||||||||||||
Woori FIS Co., Ltd. |
35,362 | | (35,362 | ) | | | ||||||||||||||
Woori Private Equity Asset Management Co., Ltd. |
43,227 | | (43,227 | ) | | | ||||||||||||||
Woori Finance Research Institute Co., Ltd. |
3,364 | | (3,364 | ) | | | ||||||||||||||
Woori Card Co., Ltd. |
1,274,260 | | | | 1,274,260 | |||||||||||||||
Woori Investment Bank |
143,814 | | | | 143,814 | |||||||||||||||
Woori Credit Information Co., Ltd. |
24,666 | | (24,666 | ) | | | ||||||||||||||
Woori America Bank |
281,471 | | | | 281,471 | |||||||||||||||
PT Bank Woori Saudara Indonesia 1906 Tbk |
328,012 | | | | 328,012 | |||||||||||||||
Woori Global Markets Asia Limited |
113,858 | | | | 113,858 | |||||||||||||||
Woori Bank China Limited |
427,802 | | | | 427,802 | |||||||||||||||
AO Woori Bank |
51,780 | | | | 51,780 | |||||||||||||||
Banco Woori Bank do Brasil S.A. |
44,045 | | | | 44,045 | |||||||||||||||
Korea BTL Infrastructure Fund |
783,164 | 7,500 | (12,044 | ) | | 778,620 | ||||||||||||||
Woori Fund Service Co., Ltd. |
10,000 | | (10,000 | ) | | | ||||||||||||||
Woori Finance Cambodia PLC. |
15,850 | | | | 15,850 | |||||||||||||||
Woori Finance Myanmar Co., Ltd. |
13,649 | | | | 13,649 | |||||||||||||||
Wealth Development Bank |
24,355 | | | | 24,355 | |||||||||||||||
Woori Bank Vietnam Limited |
155,400 | 77,440 | | | 243,840 | |||||||||||||||
WB Finance Co., Ltd. |
| 88,216 | (654 | ) | | 87,562 | ||||||||||||||
Woori Bank Europe |
| 64,062 | | | 64,062 | |||||||||||||||
Kumho Tire Co., Inc. |
98,932 | | (98,932 | ) | | | ||||||||||||||
Woori Service Networks Co., Ltd. |
108 | | | | 108 | |||||||||||||||
Korea Credit Bureau Co., Ltd. |
3,313 | | | | 3,313 | |||||||||||||||
Korea Finance Security Co., Ltd. |
3,267 | | | | 3,267 | |||||||||||||||
Chin Hung International Inc. |
70,969 | | | | 70,969 | |||||||||||||||
Poonglim Industrial Co., Ltd. |
6 | | (6 | ) | | | ||||||||||||||
STX Corporation |
7,809 | | (7,809 | ) | | | ||||||||||||||
Saman Corporation |
1,255 | | | (241 | ) | 1,014 | ||||||||||||||
Woori Growth Partnerships New Technology Private Equity Fund |
28,833 | 360 | (3,346 | ) | | 25,847 | ||||||||||||||
2016KIF-IMM Woori Bank Technology Venture Fund |
6,840 | 8,160 | | | 15,000 | |||||||||||||||
K BANK Co., Ltd. |
45,392 | 21,951 | | | 67,343 | |||||||||||||||
Smart Private Equity Fund No. 2 |
3,000 | | | | 3,000 | |||||||||||||||
Woori Bank-Company K Korea Movie Asset Fund |
3,000 | | | | 3,000 | |||||||||||||||
Well to Sea No. 3 Private Equity Fund |
101,992 | | (509 | ) | | 101,483 | ||||||||||||||
Partner One Value Up 1st Private Equity Fund |
| 10,000 | | | 10,000 | |||||||||||||||
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership |
| 4,426 | | | 4,426 | |||||||||||||||
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund |
| 3,025 | | | 3,025 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
4,148,795 | 285,140 | (239,919 | ) | (241 | ) | 4,193,775 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
(*) | The amount replaced from investments in associates to assets held for distribution (sale) is 116,619 million Won. The amount replaced from investments in joint ventures and associates to assets financial assets at FVOCI (K-IFRS 1109) is 6 million Won and the amount replaced from investments in joint ventures and associates to financial assets at FVTPL (K-IFRS 1109) is 98,932 million Won. |
- 67 -
For the year ended December 31, 2017 | ||||||||||||||||||||
Investees |
January 1, 2017 |
Acquisitions (*) |
Disposals and others |
Impairment | December 31, 2017 |
|||||||||||||||
Woori FIS Co., Ltd. |
35,362 | | | | 35,362 | |||||||||||||||
Woori Private Equity Asset Management Co., Ltd. |
43,227 | | | | 43,227 | |||||||||||||||
Woori Finance Research Institute Co., Ltd. |
3,364 | | | | 3,364 | |||||||||||||||
Woori Card Co., Ltd. |
1,174,260 | 100,000 | | | 1,274,260 | |||||||||||||||
Woori Investment Bank |
79,992 | 63,822 | | | 143,814 | |||||||||||||||
Woori Private Equity Fund |
9,018 | | (9,018 | ) | | | ||||||||||||||
Woori Credit Information Co., Ltd. |
24,666 | | | | 24,666 | |||||||||||||||
Woori America Bank |
202,371 | 79,100 | | | 281,471 | |||||||||||||||
PT Bank Woori Saudara Indonesia 1906 Tbk |
215,400 | 112,612 | | | 328,012 | |||||||||||||||
Woori Global Markets Asia Limited |
113,858 | | | | 113,858 | |||||||||||||||
Woori Bank China Limited |
427,802 | | | | 427,802 | |||||||||||||||
AO Woori Bank |
51,780 | | | | 51,780 | |||||||||||||||
Banco Woori Bank do Brazil S.A. |
44,045 | | | | 44,045 | |||||||||||||||
Korea BTL Infrastructure Fund |
780,525 | 2,698 | (59 | ) | | 783,164 | ||||||||||||||
Woori Fund Service Co., Ltd. |
10,000 | | | | 10,000 | |||||||||||||||
Woori Finance Cambodia PLC. |
4,600 | 11,250 | | | 15,850 | |||||||||||||||
Woori Finance Myanmar Co., Ltd. |
2,389 | 11,260 | | | 13,649 | |||||||||||||||
Wealth Development Bank |
25,675 | | (1,320 | ) | | 24,355 | ||||||||||||||
Woori Bank Vietnam Limited |
155,400 | | | | 155,400 | |||||||||||||||
Kumho Tire Co., Inc. |
175,652 | | | (76,720 | ) | 98,932 | ||||||||||||||
Woori Blackstone Korea Opportunity No.1 Private Equity Fund |
5,418 | | (5,418 | ) | | | ||||||||||||||
Woori Service Networks Co., Ltd. |
108 | | | | 108 | |||||||||||||||
Korea Credit Bureau Co., Ltd. |
3,313 | | | | 3,313 | |||||||||||||||
Korea Finance Security Co., Ltd. |
3,267 | | | | 3,267 | |||||||||||||||
Chin Hung International Inc. |
67,467 | 41,053 | | (37,551 | ) | 70,969 | ||||||||||||||
Poonglim Industrial Co., Ltd. |
4,256 | | | (4,250 | ) | 6 | ||||||||||||||
STX Engine Co., Ltd. |
44,615 | | (44,615 | ) | | | ||||||||||||||
SamHo Co., Ltd. |
7,492 | | (7,492 | ) | | | ||||||||||||||
STX Corporation |
7,424 | 8,546 | | (8,161 | ) | 7,809 | ||||||||||||||
Saman Corporation |
8,521 | | | (7,266 | ) | 1,255 | ||||||||||||||
Woori Growth Partnerships New Technology Private Equity Fund |
13,602 | 15,729 | (498 | ) | | 28,833 | ||||||||||||||
2016KIF-IMM Woori Bank Technology Venture Fund |
1,800 | 5,040 | | | 6,840 | |||||||||||||||
K BANK Co. Ltd. |
32,500 | 12,892 | | | 45,392 | |||||||||||||||
Smart Private Equity Fund No.2 |
| 3,000 | | | 3,000 | |||||||||||||||
Woori Bank-Company K Korea Movie Asset Fund |
| 3,000 | | | 3,000 | |||||||||||||||
Well to Sea No.3 Private Equity Fund |
| 102,500 | (508 | ) | | 101,992 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
3,779,169 | 572,502 | (68,928 | ) | (133,948 | ) | 4,148,795 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
(*) | Changes in investments in associates due to debt-equity swaps are 49,599 million Won. |
14. | INVESTMENT PROPERTIES |
(1) | Details of investment properties are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Acquisition cost |
399,805 | 378,004 | ||||||
Accumulated depreciation |
(32,688 | ) | (27,769 | ) | ||||
|
|
|
|
|||||
Net carrying value |
367,117 | 350,235 | ||||||
|
|
|
|
(2) | Changes in investment properties are as follows (Unit: Korean Won in millions): |
For the year ended December 31 | ||||||||
2018 | 2017 | |||||||
Beginning balance |
350,235 | 348,393 | ||||||
Acquisition |
12,957 | 3,029 | ||||||
Depreciation |
(3,723 | ) | (3,580 | ) | ||||
Transfers from(to) premises and equipment |
7,623 | 2,472 | ||||||
Foreign currencies translation adjustments |
25 | (79 | ) | |||||
|
|
|
|
|||||
Ending balance |
367,117 | 350,235 | ||||||
|
|
|
|
- 68 -
(3) | Fair value of investment properties is amounting to 427,329 million won and 372,596 million won as of December 31, 2018 and 2017, respectively. The fair value of investment properties has been assessed on the basis of recent similar real estate market price and officially assessed land price in the area of the investment properties, is classified as Level 3 on the fair value hierarchy. |
(4) | Rental fee earned from investment properties is amounting to 14,402 million Won and 13,918 million Won for the years ended December 31, 2018 and 2017, respectively. |
15. | PREMISES AND EQUIPMENT |
(1) | Details of premises and equipment are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||||||||||||||||||||||
Land | Building | Equipment and vehicles |
Leasehold improvement |
Construction in progress |
Total | |||||||||||||||||||
Acquisition cost |
1,466,639 | 852,662 | 609,709 | 396,751 | 7,720 | 3,333,481 | ||||||||||||||||||
Accumulated depreciation |
| (202,213 | ) | (424,871 | ) | (356,055 | ) | | (983,139 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net carrying value |
1,466,639 | 650,449 | 184,838 | 40,696 | 7,720 | 2,350,342 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2017 | ||||||||||||||||||||||||
Land | Building | Equipment and vehicles |
Leasehold improvement |
Construction in progress |
Total | |||||||||||||||||||
Acquisition cost |
1,472,170 | 848,668 | 498,298 | 385,398 | 64,241 | 3,268,775 | ||||||||||||||||||
Accumulated depreciation |
| (178,845 | ) | (379,232 | ) | (336,108 | ) | | (894,185 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net carrying value |
1,472,170 | 669,823 | 119,066 | 49,290 | 64,241 | 2,374,590 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(2) Details of changes in premises and equipment are as follows (Unit: Korean Won in millions): |
| |||||||||||||||||||||||
For the year ended December 31, 2018 | ||||||||||||||||||||||||
Land | Building | Equipment and vehicles |
Leasehold improvement |
Construction in progress |
Total | |||||||||||||||||||
Beginning balance |
1,472,170 | 669,823 | 119,066 | 49,290 | 64,241 | 2,374,590 | ||||||||||||||||||
Acquisitions |
990 | 13,088 | 55,710 | 12,567 | 7,059 | 89,414 | ||||||||||||||||||
Disposals |
(29 | ) | | (24 | ) | (731 | ) | (187 | ) | (971 | ) | |||||||||||||
Depreciation |
| (25,103 | ) | (52,431 | ) | (27,852 | ) | | (105,386 | ) | ||||||||||||||
Classified to assets held for distribution (sale) |
(3,651 | ) | (2,592 | ) | (920 | ) | | | (7,163 | ) | ||||||||||||||
Transfer |
(2,863 | ) | (4,760 | ) | 63,283 | | (63,283 | ) | (7,623 | ) | ||||||||||||||
Foreign currencies translation adjustments |
22 | 5 | 122 | 82 | (110 | ) | 121 | |||||||||||||||||
Others |
| (12 | ) | 32 | 7,340 | | 7,360 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
1,466,639 | 650,449 | 184,838 | 40,696 | 7,720 | 2,350,342 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the year ended December 31, 2017 | ||||||||||||||||||||||||
Land | Building | Equipment and vehicles |
Leasehold improvement |
Construction in progress |
Total | |||||||||||||||||||
Beginning balance |
1,472,720 | 679,766 | 121,573 | 54,558 | 13,663 | 2,342,280 | ||||||||||||||||||
Acquisitions |
4,244 | 21,065 | 40,717 | 17,367 | 50,878 | 134,271 | ||||||||||||||||||
Disposals |
(1,840 | ) | (2,593 | ) | (106 | ) | (1,191 | ) | | (5,730 | ) | |||||||||||||
Depreciation |
| (25,140 | ) | (42,847 | ) | (27,444 | ) | | (95,431 | ) | ||||||||||||||
Classified to assets held for sale |
(2,693 | ) | (1,059 | ) | | | | (3,752 | ) | |||||||||||||||
Transfer |
(196 | ) | (2,134 | ) | 64 | | (206 | ) | (2,472 | ) | ||||||||||||||
Foreign currencies translation adjustments |
(65 | ) | (70 | ) | (125 | ) | (202 | ) | (94 | ) | (556 | ) | ||||||||||||
Others |
| (12 | ) | (210 | ) | 6,202 | | 5,980 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
1,472,170 | 669,823 | 119,066 | 49,290 | 64,241 | 2,374,590 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
- 69 -
16. | INTANGIBLE ASSETS |
(1) | Details of intangible assets are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||||||||||||||||||||||
Industrial property rights |
Development cost |
Others | Membership deposit |
Construction in progress |
Total | |||||||||||||||||||
Acquisition cost |
1,143 | 284,898 | 667,262 | 12,438 | 10,415 | 976,156 | ||||||||||||||||||
Accumulated amortization |
(623 | ) | (64,330 | ) | (557,329 | ) | | | (622,282 | ) | ||||||||||||||
Accumulated impairment losses |
| | | (707 | ) | | (707 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net carrying value |
520 | 220,568 | 109,933 | 11,731 | 10,415 | 353,167 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||||||||
Industrial property rights |
Development cost |
Others | Membership deposit |
Construction in progress |
Total | |||||||||||||||||||
Acquisition cost |
951 | 81,224 | 575,148 | 11,870 | 153,209 | 822,402 | ||||||||||||||||||
Accumulated amortization |
(471 | ) | (26,827 | ) | (489,433 | ) | | | (516,731 | ) | ||||||||||||||
Accumulated impairment losses |
| | | (2,346 | ) | | (2,346 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net carrying value |
480 | 54,397 | 85,715 | 9,524 | 153,209 | 303,325 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(2) | Details of changes in intangible assets are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||||
Industrial property rights |
Development cost |
Others | Membership deposit |
Construction in progress |
Total | |||||||||||||||||||
Beginning balance |
480 | 54,397 | 85,715 | 9,524 | 153,209 | 303,325 | ||||||||||||||||||
Acquisitions |
192 | 18,594 | 42,382 | 2,811 | 97,067 | 161,046 | ||||||||||||||||||
Disposal |
| | (196 | ) | (1,021 | ) | | (1,217 | ) | |||||||||||||||
Amortization (*) |
(152 | ) | (38,790 | ) | (69,023 | ) | | | (107,965 | ) | ||||||||||||||
Reversal of impairment loss |
| | | 403 | | 403 | ||||||||||||||||||
Transfer |
| 188,189 | 51,672 | | (239,861 | ) | | |||||||||||||||||
Classified to assets held for distribution (sale) |
| (1,822 | ) | (630 | ) | | | (2,452 | ) | |||||||||||||||
Foreign currencies translation adjustments |
| | 32 | 14 | | 46 | ||||||||||||||||||
Others |
| | (19 | ) | | | (19 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
520 | 220,568 | 109,933 | 11,731 | 10,415 | 353,167 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*) | Amortization of other intangible assets amounting to 51,770 million Won is included in other operating expenses. |
For the year ended December 31, 2017 | ||||||||||||||||||||||||
Industrial property rights |
Development cost |
Others | Membership deposit |
Construction in progress |
Total | |||||||||||||||||||
Beginning balance |
258 | 41,026 | 131,514 | 9,618 | 59,814 | 242,230 | ||||||||||||||||||
Acquisitions |
326 | 23,198 | 16,395 | 302 | 93,395 | 133,616 | ||||||||||||||||||
Disposal |
| | | (316 | ) | | (316 | ) | ||||||||||||||||
Amortization (*) |
(104 | ) | (9,736 | ) | (56,243 | ) | | | (66,083 | ) | ||||||||||||||
Impairment loss |
| | | (43 | ) | | (43 | ) | ||||||||||||||||
Foreign currencies translation adjustments |
| | (25 | ) | (37 | ) | | (62 | ) | |||||||||||||||
Others |
| (91 | ) | (5,926 | ) | | | (6,017 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
480 | 54,397 | 85,715 | 9,524 | 153,209 | 303,325 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*) | Amortization of other intangible assets amounting to 48,292 million Won is included in other operating expenses. |
- 70 -
17. | ASSETS HELD FOR DISTRIBUTION (SALE) |
(1) Assets held for distribution (sale) are as follows (Unit: Korean Won in millions):
December 31, 2018 |
December 31, 2017 |
|||||||
Disposal group as held for distribution |
141,143 | | ||||||
Investments in subsidiaries and associates |
| 44,615 | ||||||
Premises and equipment(*) |
2,145 | 1,568 | ||||||
|
|
|
|
|||||
Total |
143,288 | 46,183 | ||||||
|
|
|
|
(*) | The Bank classifies premises and equipment, which are highly likely to be distributed within one year as assets held for distribution (sale). |
(2) | Disposal group and Liabilities as held for distribution |
In accordance with the establishment of financial holding company and plans on share transfer, the Bank classified assets, liabilities and equity of each subsidiary as of the end of the reporting period. The details of disposal group held for distribution as of December 31, 2018 as follows (Unit: KRW won in millions)
December 31, 2018 | ||||||
Disposal group as held for distribution |
||||||
Investment securities of subsidiaries |
Woori FIS Co., Ltd | 35,362 | ||||
Woori Private Equity Asset Management Co., Ltd | 43,227 | |||||
Woori Finance Research Institute Co., Ltd. | 3,364 | |||||
Woori Credit Information Co., Ltd. | 24,666 | |||||
Woori Fund Service Co., Ltd. | 10,000 | |||||
Other assets |
Wibee members | 30,370 | ||||
Impairment loss |
(5,846 | ) | ||||
|
|
|||||
Total |
141,143 | |||||
|
|
|||||
Liabilities as held for distribution |
||||||
Other liabilities |
Wibee members | 72,361 | ||||
|
|
Bank calculated net fair value of each subsidiary subject to future distribution as of December 31, 2018 based on the value of net asset and net income. The computed value is classified as Level 3 in the fair value, hierarchy.
The Bank estimates the assets held for distribution (sale) the lower of net fair value and book value, and thus 5,846 million won is recognized as impairment loss as the end of December 2018.
18. | ASSETS SUBJECT TO LIEN AND ASSETS ACQUIRED THROUGH FORECLOSURES |
(1) | Assets subjected to lien are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||||||||
Collateral given to |
Amount | Reason for collateral | ||||||||
Loans at amortized cost and other financial assets |
Due from banks in local currency | Samsung Securities Co., Ltd. and others | 38,112 | Margin deposit for futures or options | ||||||
Due from banks in foreign currencies | Korea Investment & Securities Co., Ltd. and others | 202,156 | Foreign margin deposit for futures or options and others | |||||||
Financial assets at FVTOCI |
Korean financial institutions debt securities and others | The BOK and others | 2,887,218 | Settlement risk and others | ||||||
Securities at amortized cost |
Korean treasury and government bonds | Korea Securities Depository | 5,552 | Related to bonds sold under repurchase agreements (*) | ||||||
Korean treasury government bonds and others | The BOK and others | 6,378,398 | Settlement risk and others | |||||||
|
|
|||||||||
Total | 9,511,436 | |||||||||
|
|
- 71 -
December 31, 2017 | ||||||||||
Collateral given to |
Amount | Reason for collateral | ||||||||
Loans and receivables |
Due from banks in local currency | Samsung Securities Co., Ltd. and others | 10,809 | Margin deposit for futures or options | ||||||
Due from banks in foreign currencies | Korea Investment & Securities Co., Ltd. and others | 9,135 | Foreign margin deposit for futures or options and others | |||||||
Financial assets at FVTPL |
Korean financial institutions debt securities and others | Yuanta Securities Co., Ltd. and others | 501,523 | Substitute securities and others | ||||||
AFS financial assets |
Korean treasury and corporate bonds | Korea Securities Depository |
9,998 | Related to bonds sold under repurchase agreements (*) | ||||||
Korean treasury, government bonds and others | The BOK and others | 1,540,985 | Settlement risk and others | |||||||
HTM financial assets |
Korean treasury and government bonds | Korea Securities Depository |
5,436 | Related to bonds sold under repurchase agreements (*) | ||||||
Korean financial institutions debt securities and others | The BOK and others | 7,601,016 | Settlement risk and others | |||||||
|
|
|||||||||
Total | 9,678,902 | |||||||||
|
|
(*) | The Bank has the agreements to repurchase the sold assets at the predetermined price or the price that includes the rate of return and to provide the guarantee on the assets. The transferee has the right to sell or to provide as guarantee. Therefore, the Bank does not derecognize the assets, but recognizes the relevant amounts as liability (bonds sold under repurchase agreements). |
(2) | The Bank does not have assets acquired through foreclosure as of December 31, 2018 and 2017 |
(3) | Securities loaned are as follows (Unit: Korean Won in millions): |
December 31, 2018 |
December 31, 2017 |
Loaned to | ||||||||||
Financial assets at FVTOCI |
Korean financial institutions debt securities and others |
40,029 | | Korea Securities Finance Corporation | ||||||||
AFS financial assets |
Korean treasury, government bonds and others |
| 170,256 | Korea Securities Finance Corporation and others | ||||||||
|
|
|
|
|||||||||
Total |
40,029 | 170,256 | ||||||||||
|
|
|
|
Securities loaned are lending of specific securities to borrowers who agree to return the same quantity of the same security at the end of lending period. As the Bank does not derecognize these securities, there are no liabilities recognized through such transactions related to securities loaned.
(4) | Collaterals held that can be disposed and re-subjected to lien regardless of defaults of counterparties |
Fair values of collaterals held that can be disposed and re-subjected to lien regardless of defaults of counterparties as of December 31, 2018 and 2017, are as follows (Unit: Korean Won in millions):
December 31, 2018 | ||||||||
Fair values of collaterals | Fair values of collaterals were disposed or re-subjected to lien | |||||||
Securities |
12,165,473 | |
December 31, 2017 | ||||||||
Fair values of collaterals | Fair values of collaterals were disposed or re-subjected to lien | |||||||
Securities |
17,538,936 | |
- 72 -
19. | OTHER ASSETS |
Details of other assets are as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||
Prepaid expenses |
140,843 | 113,835 | ||||||
Advance payments |
3,007 | 839 | ||||||
Others |
3,145 | 3,215 | ||||||
|
|
|
|
|||||
Total |
146,995 | 117,889 | ||||||
|
|
|
|
20. | FINANCIAL LIABILITIES AT FVTPL |
(1) | Financial liabilities at FVTPL are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Financial liabilities at fair value through profit or loss mandatorily measured at fair value |
2,114,606 | | ||||||
Financial liabilities held for trading |
| 3,165,182 | ||||||
Financial liabilities at fair value through profit or loss designated as upon initial recognition |
164,767 | | ||||||
Financial liabilities designated as at FVTPL |
| 251,796 | ||||||
|
|
|
|
|||||
Total |
2,279,373 | 3,416,978 | ||||||
|
|
|
|
(2) | Financial liabilities at fair value through profit or loss mandatorily measured at fair value(Financial liabilities held for trading) are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Deposits |
||||||||
Gold banking liabilities |
27,058 | 25,964 | ||||||
Derivative liabilities |
2,087,548 | 3,139,218 | ||||||
|
|
|
|
|||||
Total |
2,114,606 | 3,165,182 | ||||||
|
|
|
|
(3) | Financial liabilities at fair value through profit or loss designated as upon initial recognition(Financial liabilities designated as at FVTPL) are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Equity-linked securities index |
||||||||
Equity-linked securities index in short position |
164,767 | 160,057 | ||||||
Debentures |
||||||||
Debentures in local currency |
| 91,739 | ||||||
|
|
|
|
|||||
Total |
164,767 | 251,796 | ||||||
|
|
|
|
Financial liabilities at fair value through profit or loss designated as upon initial recognition are designated in order to eliminate or significantly reduce accounting mismatch arising from recognition or measurement.
(4) | Accumulated changes in credit risk adjustments to financial liabilities at fair value through profit or loss designated as upon initial recognition does not have. |
The adjustment to reflect Banks credit risk is considered in measuring the fair value of equity-linked securities index and debentures. The Banks credit risk is determined by adjusting credit spread observed in credit rating of Bank.
(5) | The difference between financial liabilities at fair value through profit or loss designated as upon initial recognitions(Financial liabilities designated as at FVTPL) carrying amount and nominal amount at maturity are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31,2017 | |||||||
Carrying amount |
164,767 | 251,796 | ||||||
Nominal amount at maturity |
217,280 | 255,408 | ||||||
|
|
|
|
|||||
Difference |
(52,513 | ) | (3,612 | ) | ||||
|
|
|
|
- 73 -
(6) | Changes in equity in relation to financial liabilities at fair value through profit or loss designated as upon initial recognition |
The cumulative gain or loss realized as a result of the derecognition of financial liabilities designated as at FVTPL that is presented in other comprehensive income and transferred within equity is 4 million Won (after income tax expense) for the year ended December 31, 2018.
21. | DEPOSITS DUE TO CUSTOMERS |
Details of deposits due to customers by type are as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||
Deposits in local currency: |
||||||||
Deposits on demand |
11,081,708 | 9,354,122 | ||||||
Deposits at termination |
204,215,703 | 194,426,228 | ||||||
Mutual installment |
30,783 | 34,055 | ||||||
Certificate of deposits |
6,510,571 | 4,341,643 | ||||||
|
|
|
|
|||||
Sub-total |
221,838,765 | 208,156,048 | ||||||
|
|
|
|
|||||
Deposits in foreign currency: |
||||||||
Deposits in foreign currencies |
15,657,683 | 16,263,301 | ||||||
|
|
|
|
|||||
Present value discount |
(69,683 | ) | (35,193 | ) | ||||
|
|
|
|
|||||
Total |
237,426,765 | 224,384,156 | ||||||
|
|
|
|
22. | BORROWINGS AND DEBENTURES |
(1) | Details of borrowings are as follows (Unit: Korean Won in millions): |
December 31, 2018 |
||||||||||
Lender |
Interest rate (%) | Amount | ||||||||
Borrowings in local currency: |
||||||||||
Borrowings from The BOK |
The BOK | 0.5 ~ 0.8 | 1,335,459 | |||||||
Borrowing from government funds |
Small Enterprise and Market Service and others | 0.0 ~ 3.5 | 1,771,379 | |||||||
Others |
The Korea Development Bank and others | 0.0 ~ 3.8 | 3,359,968 | |||||||
|
|
|||||||||
Sub-total |
6,466,806 | |||||||||
|
|
|||||||||
Borrowings in foreign currencies: |
||||||||||
Borrowings in foreign currencies |
The Export-Import Bank of Korea and others | 0.0 ~ 3.7 | 6,961,717 | |||||||
Offshore borrowings in foreign currencies |
JPMORGAN CHASE BANK | 2.9 | 33,543 | |||||||
|
|
|||||||||
Sub-total |
6,995,260 | |||||||||
|
|
|||||||||
Bills sold |
Others | 0.0 ~ 1.8 | 19,336 | |||||||
Call money |
Banks and others | 0.0 ~ 7.3 | 597,645 | |||||||
Bonds sold under repurchase agreements |
Other financial institutions | 0.8 ~ 12.7 | 2,129 | |||||||
Present value discount |
(84 | ) | ||||||||
|
|
|||||||||
Total |
14,081,092 | |||||||||
|
|
December 31, 2017 |
||||||||||
Lender |
Interest rate (%) | Amount | ||||||||
Borrowings in local currency: |
||||||||||
Borrowings from The BOK |
The BOK | 0.5 ~ 0.8 | 1,404,087 | |||||||
Borrowing from government funds |
Small Enterprise and Market Service and others | 0.0 ~ 2.9 | 1,723,340 | |||||||
Others |
The Korea Development Bank and others | 0.0 ~ 3.2 | 3,106,303 | |||||||
|
|
|||||||||
Sub-total |
6,233,730 | |||||||||
|
|
|||||||||
Borrowings in foreign currencies: |
||||||||||
Borrowings in foreign currencies |
The Export-Import Bank of Korea and others | 0.0 ~ 3.1 | 6,884,235 | |||||||
Offshore borrowings in foreign currencies |
Commonwealth Bank | 1.8 | 28,285 | |||||||
|
|
|||||||||
Sub-total |
6,912,520 | |||||||||
|
|
|||||||||
Bills sold |
Others | 0.0 ~ 1.2 | 36,953 | |||||||
Call money |
Banks and others | 1.5 ~ 2.7 | 476,773 | |||||||
Bonds sold under repurchase agreements |
Other financial institutions | 0.6 ~ 12.7 | 3,173 | |||||||
Present value discount |
(165 | ) | ||||||||
|
|
|||||||||
Total |
13,662,984 | |||||||||
|
|
- 74 -
(2) | Details of debentures are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||||||||||
Interest rate (%) | Amount | Interest rate (%) | Amount | |||||||||||||
Face value of bond (*): |
||||||||||||||||
Ordinary bonds |
1.6 ~ 4.5 | 16,346,278 | 1.5 ~ 5.8 | 16,965,338 | ||||||||||||
Subordinated bonds |
3.0 ~ 5.9 | 5,343,478 | 3.4 ~ 5.9 | 4,765,501 | ||||||||||||
|
|
|
|
|||||||||||||
Sub-total |
21,689,756 | 21,730,839 | ||||||||||||||
|
|
|
|
|||||||||||||
Discount on bonds |
(23,425 | ) | (23,373 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total |
21,666,331 | 21,707,466 | ||||||||||||||
|
|
|
|
(*) | Included debentures under fair value hedge relationships are 2,956,565 million Won and 3,089,751million Won as of December 31, 2018 and 2017, respectively. |
23. | PROVISIONS |
(1) | Details of provisions are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Asset retirement obligation |
61,477 | 56,243 | ||||||
Provisions for guarantees (*1) |
92,636 | 185,557 | ||||||
Provisions for unused loan commitments |
71,368 | 36,031 | ||||||
Provisions for customer reward credits |
| 37,256 | ||||||
Other provisions (*2) |
58,020 | 52,940 | ||||||
|
|
|
|
|||||
Total |
283,501 | 368,027 | ||||||
|
|
|
|
(*1) | Provisions for guarantees include provision for financial guarantee of 51,272 million Won and 74,277 million Won as of December 31, 2018 and 2017, respectively. |
(*2) | Other provisions consist of provision for litigation and others. |
(2) | Changes in provisions for guarantees and unused loan commitments are as follows (Unit: Korean Won in millions): |
1) | Provisions for guarantees |
For the year ended December 31, 2018 | ||||||||||||||||
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Beginning balance (*1) |
49,384 | 18,102 | 127,511 | 194,997 | ||||||||||||
Replaced with 12-month expected credit loss |
84 | (84 | ) | | | |||||||||||
Replaced with expected credit loss for the entire period |
(236 | ) | 91,007 | (90,771 | ) | | ||||||||||
Replaced with credit-impaired financial assets |
(38 | ) | (29 | ) | 67 | | ||||||||||
Provisions used |
(20,429 | ) | | | (20,429 | ) | ||||||||||
Net reversal of unused amount |
(4,118 | ) | (75,298 | ) | (25,729 | ) | (105,145 | ) | ||||||||
Others (*2) |
23,213 | | | 23,213 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
47,860 | 33,698 | 11,078 | 92,636 | ||||||||||||
|
|
|
|
|
|
|
|
(*1) | The beginning balance was restated in accordance with K-IFRS 1109. |
(*2) | This is the effect of new financial guarantee contracts that are initially measured at fair value. |
For the year ended December 31, 2017 |
||||
Beginning balance |
240,023 | |||
Provisions provided |
2,443 | |||
Provisions used |
(24,826 | ) | ||
Reversal of provisions unused |
(57,452 | ) | ||
Others |
25,369 | |||
|
|
|||
Ending balance |
185,557 | |||
|
|
- 75 -
2) | Provisions for unused loan commitments |
For the year ended December 31, 2018 | ||||||||||||||||
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Beginning balance (*) |
42,106 | 13,100 | 167 | 55,373 | ||||||||||||
Replaced with 12-month expected credit loss |
1,708 | (1,551 | ) | (157 | ) | | ||||||||||
Replaced with expected credit loss for the entire period |
(820 | ) | 825 | (5 | ) | | ||||||||||
Replaced with credit-impaired financial assets |
(77 | ) | (1,329 | ) | 1,406 | | ||||||||||
Net provision(reversal) of unused amount |
(2,128 | ) | 19,510 | (1,411 | ) | 15,971 | ||||||||||
Others |
24 | | | 24 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
40,813 | 30,555 | | 71,368 | ||||||||||||
|
|
|
|
|
|
|
|
(*) | The beginning balance was restated in accordance with K-IFRS 1109. |
For the year ended December 31, 2017 |
||||
Beginning balance |
53,919 | |||
Provisions used |
(65 | ) | ||
Reversal of unused amount |
(17,823 | ) | ||
|
|
|||
Ending balance |
36,031 | |||
|
|
(3) | Changes in asset retirement obligation are as follows (Unit: Korean Won in millions): |
For years ended December 31 | ||||||||
2018 | 2017 | |||||||
Beginning balance |
56,243 | 52,838 | ||||||
Provisions provided |
1,361 | 2,033 | ||||||
Provisions used |
(822 | ) | (1,131 | ) | ||||
Reversal of provisions unused |
(989 | ) | (715 | ) | ||||
Amortization |
562 | 426 | ||||||
Increase in restoration costs and others |
5,122 | 2,792 | ||||||
|
|
|
|
|||||
Ending balance |
61,477 | 56,243 | ||||||
|
|
|
|
The amount of the asset retirement obligation is the present value of the best estimate of future expected expenditure to settle the obligation -arising from leased premises as of December 31, 2018, discounted by appropriate discount rate. The restoration cost is expected to occur by the end of each premises lease period, and the Bank has used average lease period of each category of leases terminated during the past years in order to rationally estimate the lease period. In addition, the Bank used average amount of actual recovery cost for the past 3 years and the inflation rate for last year in order to estimate future recovery cost.
(4) | Changes in other provisions are as follows (Unit: Korean Won in millions): |
For year ended December 31, 2018 | ||||||||||||
Provisions for customer reward credits |
Other provisions |
Total | ||||||||||
Beginning balance |
37,256 | 52,940 | 90,196 | |||||||||
Provisions provided |
2,050 | 7,795 | 9,845 | |||||||||
Provisions used |
(80,629 | ) | (5,015 | ) | (85,644 | ) | ||||||
Transfer (*) |
59,924 | | 59,924 | |||||||||
Classified as held for sale |
(46,140 | ) | (2,055 | ) | (48,195 | ) | ||||||
Others |
27,539 | 4,355 | 31,894 | |||||||||
|
|
|
|
|
|
|||||||
Ending balance |
| 58,020 | 58,020 | |||||||||
|
|
|
|
|
|
For the years ended December 31, 2017 | ||||||||||||
Provisions for customer reward credits |
Other provisions |
Total | ||||||||||
Beginning balance |
18,170 | 15,523 | 33,693 | |||||||||
Provisions provided |
7,626 | 41,699 | 49,325 | |||||||||
Provisions used |
(67,528 | ) | (4,282 | ) | (71,810 | ) | ||||||
Transfer (*) |
60,057 | | 60,057 | |||||||||
Others |
18,931 | | 18,931 | |||||||||
|
|
|
|
|
|
|||||||
Ending balance |
37,256 | 52,940 | 90,196 | |||||||||
|
|
|
|
|
|
(*) | As the credits of the affiliates were transferred to the Bank, the allowance for the provisions for customer reward credits increased for the year ended December 31, 2018 and 2017, respectively. |
- 76 -
(5) | Others |
The Bank provides settlement services for payments in Korean Won to facilitate trade transactions between Korea and Iran. In connection with these services, the Bank is currently being investigated by US government agencies including US prosecutors (United States Attorneys Office and New York State Attorney Generals Office) as to whether the Bank has violated United States laws by participating in prohibited transactions involving the following countries: Iran, Sudan, Syria and Cuba, which have been sanctioned by the US.
24. | NET DEFINED BENEFIT LIABILITIES |
The characteristics of the Banks defined benefit retirement pension plans are as follows:
Employees and directors with one or more years of service are entitled to receive a payment upon termination of their employment, based on their length of service and salary at the time of termination. The assets of the plans are measured at fair value at the end of reporting date. Plan liabilities are measured using the projected unit method, which takes account of projected earnings increase, using actuarial assumptions that give the best estimate of the future cash flows that will arise under the plan liabilities.
The Bank is exposed to various risks through defined benefit retirement pension plan, and the most significant risks are as follows:
Volatility of asset | The defined benefit obligation was estimated with an interest rate calculated based on blue-chip corporate bonds earnings. A deficit may occur if the rate of return of plan assets falls short of the interest rate. | |
Decrease in profitability of blue-chip bonds |
A decrease in profitability of blue-chip bonds will be offset by some increase in the value of debt securities that the employee benefit plan owns, but will bring an increase in the defined benefit obligation. | |
Risk of inflation | Defined benefit obligations are related to inflation rate; the higher the inflation rate is, the higher the level of liabilities. Therefore, deficit occurs in the system if an inflation rate increases. |
(1) | Details of net defined benefit liabilities are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Present value of defined benefit obligation |
1,175,650 | 990,007 | ||||||
Fair value of plan assets |
(1,039,487 | ) | (975,723 | ) | ||||
|
|
|
|
|||||
Net defined benefit liabilities |
136,163 | 14,284 | ||||||
|
|
|
|
(2) | Changes in the carrying value of defined benefit obligation are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Beginning balance |
990,007 | 919,707 | ||||||
Current service cost |
130,006 | 135,129 | ||||||
Interest cost |
30,604 | 25,517 | ||||||
Remeasurements |
95,848 | (27,009 | ) | |||||
Foreign currencies translation adjustments |
29 | (109 | ) | |||||
Retirement benefit paid |
(70,844 | ) | (52,300 | ) | ||||
Curtailment or settlement |
| (10,928 | ) | |||||
|
|
|
|
|||||
Ending balance |
1,175,650 | 990,007 | ||||||
|
|
|
|
- 77 -
(3) | Changes in the plan assets are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Beginning balance |
975,723 | 990,645 | ||||||
Interest income |
32,163 | 29,436 | ||||||
Remeasurements |
(13,999 | ) | (13,432 | ) | ||||
Employers contributions |
117,000 | 32,000 | ||||||
Retirement benefit paid |
(69,109 | ) | (49,353 | ) | ||||
Curtailment or settlement |
| (11,052 | ) | |||||
Others |
(2,291 | ) | (2,521 | ) | ||||
|
|
|
|
|||||
Ending balance |
1,039,487 | 975,723 | ||||||
|
|
|
|
(4) | Plan assets wholly consist of fixed deposits as of December 31, 2018 and 2017. Among plan assets, realized returns on plan assets amount to 18,164 million Won and 16,004 million Won for the years ended December 31, 2018 and 2017, respectively. |
Meanwhile, the contribution expected to be paid in the next accounting year amounts to 140,519 million Won.
(5) | Current service cost, net interest income, loss(gain) on the curtailment or settlement and re-measurements recognized in the separate statements comprehensive income are as follows (Unit: Korean Won in millions): |
For the year ended December 31 | ||||||||
2018 | 2017 | |||||||
Current service cost |
130,006 | 135,129 | ||||||
Net interest income |
(1,559 | ) | (3,919 | ) | ||||
Loss (gain) on the curtailment or settlement |
| 124 | ||||||
|
|
|
|
|||||
Cost recognized in net income |
128,447 | 131,334 | ||||||
Remeasurements |
109,847 | (13,577 | ) | |||||
|
|
|
|
|||||
Cost recognized in total comprehensive income |
238,294 | 117,757 | ||||||
|
|
|
|
Retirement benefit service costs related to defined contribution plans amount to 1,873 million Won and 3,200 million Won for the years ended December 31, 2018 and 2017, respectively.
(6) | Key actuarial assumptions used in net defined benefit liability measurement are as follows: |
December 31, 2018 |
December 31, 2017 | |||
Discount rate |
2.69% | 3.18% | ||
Future wage growth rate |
6.18% | 6.18% | ||
Mortality rate |
Issued by Korea Insurance Development Institute | Issued by Korea Insurance Development Institute | ||
Retirement rate |
Experience rate for each employment classification | Experience rate for each employment classification |
The weighted average maturity of defined benefit liability is 13.21 years.
(7) | The sensitivity to actuarial assumptions used in the assessment of defined benefit obligation is as follows (Unit: Korean Won in millions): |
December 31, 2018 (*) | December 31, 2017 (*) | |||||||||
Discount rate |
Increase by 1% point | (113,874 | ) | (91,364 | ) | |||||
Decrease by 1% point | 133,530 | 106,296 | ||||||||
Future wage growth rate |
Increase by 1% point | 132,324 | 105,849 | |||||||
Decrease by 1% point | (115,041 | ) | (92,682 | ) |
(*) | The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to changes in principal actuarial assumptions is calculated using the projected unit credit method, the same method applied when calculating the defined benefit obligations recognized on the statement of financial position. |
- 78 -
25. | OTHER FINANCIAL LIABILITIES AND OTHER LIABILITIES |
Other financial liabilities and other liabilities are as follows (Unit: Korean Won in millions):
December 31, 2018 | December 31, 2017 | |||||||
Other financial liabilities: |
||||||||
Accounts payable |
4,360,077 | 4,079,676 | ||||||
Accrued expenses |
2,018,814 | 1,874,837 | ||||||
Borrowing from trust accounts |
3,850,860 | 3,363,579 | ||||||
Agency business revenue |
396,735 | 344,591 | ||||||
Foreign exchanges payable |
520,815 | 576,525 | ||||||
Domestic exchanges payable |
7,127,706 | 1,304,416 | ||||||
Other miscellaneous financial liabilities |
1,822,657 | 1,486,567 | ||||||
Present value discount |
(653 | ) | (770 | ) | ||||
|
|
|
|
|||||
Sub-total |
20,097,011 | 13,029,421 | ||||||
|
|
|
|
|||||
Other liabilities: |
||||||||
Unearned income |
56,502 | 55,019 | ||||||
Other miscellaneous liabilities |
116,999 | 80,667 | ||||||
|
|
|
|
|||||
Sub-total |
173,501 | 135,686 | ||||||
|
|
|
|
|||||
Total |
20,270,512 | 13,165,107 | ||||||
|
|
|
|
26. | DERIVATIVES |
(1) | Derivative assets and derivative liabilities are as follows (Unit: Korean Won in millions): |
December 31, 2018 | ||||||||||||||||||||
Assets | Liabilities | |||||||||||||||||||
Notional amount |
For fair value hedge |
For trading |
For fair value hedge |
For trading |
||||||||||||||||
Interest rate: |
||||||||||||||||||||
Futures |
| | | | | |||||||||||||||
Swaps |
151,908,990 | 35,503 | 229,811 | 17,654 | 266,596 | |||||||||||||||
Purchase options |
530,000 | | 10,461 | | | |||||||||||||||
Written options |
525,000 | | | | 12,438 | |||||||||||||||
Currency: |
||||||||||||||||||||
Futures |
294,172 | | | | | |||||||||||||||
Forwards |
87,625,827 | | 840,859 | | 774,241 | |||||||||||||||
Swaps |
66,419,673 | | 761,907 | | 772,805 | |||||||||||||||
Purchase options |
1,933,454 | | 17,544 | | | |||||||||||||||
Written options |
3,134,774 | | | | 20,739 | |||||||||||||||
Equity: |
||||||||||||||||||||
Futures |
186,737 | | | | | |||||||||||||||
Swaps |
441,573 | | 31,377 | | 1,217 | |||||||||||||||
Purchase options |
4,925,315 | | 143,029 | | | |||||||||||||||
Written options |
6,145,935 | | | | 239,512 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
324,071,450 | 35,503 | 2,034,988 | 17,654 | 2,087,548 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
- 79 -
December 31, 2017 | ||||||||||||||||||||
Assets | Liabilities | |||||||||||||||||||
Notional amount |
For fair value hedge |
For trading |
For fair value hedge |
For trading |
||||||||||||||||
Interest rate: |
||||||||||||||||||||
Futures |
75,845 | | | | | |||||||||||||||
Swaps |
130,861,378 | 59,272 | 224,660 | 12,103 | 257,905 | |||||||||||||||
Purchase options |
630,000 | | 12,346 | | | |||||||||||||||
Written options |
795,000 | | | | 12,869 | |||||||||||||||
Currency: |
||||||||||||||||||||
Futures |
290,457 | | | | | |||||||||||||||
Forwards |
71,333,635 | | 1,301,850 | | 1,360,945 | |||||||||||||||
Swaps |
47,445,136 | | 1,347,815 | | 1,347,905 | |||||||||||||||
Purchase options |
2,291,154 | | 64,267 | | | |||||||||||||||
Written options |
4,038,237 | | | | 58,687 | |||||||||||||||
Equity: |
||||||||||||||||||||
Futures |
91,436 | | | | | |||||||||||||||
Purchase options |
5,060,706 | | 146,775 | | | |||||||||||||||
Written options |
4,504,290 | | | | 99,770 | |||||||||||||||
Others: |
||||||||||||||||||||
Futures |
| | | | | |||||||||||||||
Swaps |
7,805 | | 1,056 | | 1,037 | |||||||||||||||
Purchase options |
| | | | | |||||||||||||||
Written options |
5,000 | | | | 100 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
267,430,079 | 59,272 | 3,098,769 | 12,103 | 3,139,218 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Derivatives held for trading are classified into financial assets at FVTPL (Note 7) and financial liabilities at FVTPL (Note 20), and derivatives held for hedging assets and liabilities are presented as a separate line item in the separate statements of financial position.
(2) | Overview of the Banks hedge accounting |
As of the year end, the Bank has applied fair value hedge on fixed interest rate foreign currency denominated debentures amounting to 2,956,565 million Won. The purpose of the hedging is to avoid fair value change risk of fixed interest rate foreign currency denominated debentures derived from fluctuations of market interest rate, and as such the Bank entered into interest rate swap agreements designated as hedging instruments.
Pursuant to the interest rate swap agreement, by swapping the calculated difference between the fixed interest rate and floating interest rate applied to the nominal value, the fair value fluctuation risk is hedged as the foreign currency denominated debentures fixed interest rate terms are converted to floating interest rate. Pursuant to the interest rate swap agreement, hedge ratio is determined by matching the nominal value to the face value of the hedging instrument.
In this hedging relationship, only the market interest rate fluctuation, which is the most significant part of the fair value change of the hedged item, is designated as the hedged risk, and other risk factors including credit risk are not included in the hedged risk. Therefore, the ineffective portion of the hedge could arise from difference in the timing of the cash flow of the hedged item, price margin set by the counterparty of hedging instruments, or unilateral credit risk fluctuation of either party of the hedging instrument.
The interest rate swap agreements and the hedged items are subject to fluctuations in the underlying market rate of interest and the Bank expects the fair value of the interest rate swap contract and the value of the hedged item to generally change in the opposite direction.
The fair value of the interest rate swap at the end of the reporting period is determined by discounting future cash flows estimated using the yield curve at the end of the reporting period and the credit risk embedded in the contract and the average interest rate is determined based on the outstanding balance at the end of the reporting period. The variable interest rate applied to the interest rate swap is USD Libor 3M (6M) plus spread. In accordance with the terms of each interest rate swap contract designated as a hedging instrument, the Bank receives interest at a fixed interest rate and pays interest at a variable interest rate.
- 80 -
(3) | The nominal amounts of the hedging instrument as of December 31, 2018 are as follows (Unit: USD): |
1 year or less |
1 year to 5 years |
More than 5 years |
Total | |||||||||||||
Fair value hedge |
||||||||||||||||
Interest rate risk |
||||||||||||||||
Interest rate swap(USD) |
| 1,350,000,000 | 1,300,000,000 | 2,650,000,000 |
(4) | The average interest rate and average interest rate of the hedging instrument as of December 31, 2018 are as follows: |
Average interest rate | ||
Fair value hedge |
||
Interest rate risk |
fixed 3.96% receipt/Libor 3M+1.61% paid | |
Interest rate swap(USD) |
fixed 5.88% receipt/Libor 6M+2.15% paid |
(5) | The amounts related to items designated as hedging instruments as of December 31, 2018 are as follows (Unit: USD and Korean Won in millions): |
Nominal amounts of the hedging instrument |
Carrying amounts of the |
Line item in the statement of financial position where the hedging instrument is located |
Changing in fair value used for calculating hedge ineffectiveness |
|||||||||||||||||
Assets | Liabilities | |||||||||||||||||||
Fair value hedge |
||||||||||||||||||||
Interest rate risk |
||||||||||||||||||||
Interest rate swap(USD) |
2,650,000,000 | 35,503 | 17,654 | |
Derivative assets (Held for hedging) Derivative liabilities |
|
(27,362 | ) |
(6) | Details of carrying amount to hedged and amount adjusted due to hedge accounting as of December 31, 2018 are as follows (Unit: Korean Won in millions): |
Carrying amounts of the hedging item |
Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item |
Line item in the statement of financial position in which the hedged item is included |
Changing in fair value used for calculating hedge ineffectiveness |
|||||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||||
Fair value hedge |
||||||||||||||||||||||||
Interest rate risk |
||||||||||||||||||||||||
Debentures |
| 2,956,565 | | 5,200 | Debentures | 25,498 |
(7) | Amounts recognized in profit or loss due to the ineffective portion of fair value hedges during the current period are as follows (Unit: Korean Won in millions): |
Hedge ineffectiveness recognized in profit |
Line item in the profit that includes hedge ineffectiveness |
|||||||||||
Fair value hedge |
Interest rate risk | (1,864 | ) | Other net operating income |
- 81 -
27. | DEFERRED DAY 1 PROFITS OR LOSSES |
Changes in deferred day 1 profits or losses are as follows (Unit: Korean Won in millions):
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Beginning balance |
7,416 | 13,422 | ||||||
New transactions |
23,744 | 500 | ||||||
Amounts recognized in losses |
(5,645 | ) | (6,506 | ) | ||||
|
|
|
|
|||||
Ending balance |
25,515 | 7,416 | ||||||
|
|
|
|
In case some variables to measure fair values of financial instruments are not observable in the market, valuation techniques are utilized to evaluate such financial instruments. Those financial instruments are recorded the transaction price as at the time of acquisition, even though there are differences noted between the transaction price and the fair value. The table above presents the differences yet to be realized as profit or losses.
28. | CAPITAL STOCK AND CAPITAL SURPLUS |
(1) | The number of shares authorized and others are as follows: |
December 31, 2018 | December 31, 2017 | |||||||
Shares of common stock authorized |
5,000,000,000 shares | 5,000,000,000 shares | ||||||
Par value |
5,000 Won | 5,000 Won | ||||||
Shares of common stock issued |
676,000,000 shares | 676,000,000 shares | ||||||
Capital stock |
3,381,392 million Won | 3,381,392 million Won |
(2) | There are no changes in the number of shares issued and outstanding for the years ended December 31, 2018 and 2017. |
(3) | Details of capital surplus are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Capital in excess of par value |
269,533 | 269,533 |
29. | HYBRID SECURITIES |
The bond-type hybrid securities classified as equity are as follows (Unit: Korean Won in millions):
Issue date | Maturity | Interest rates (%) |
December 31, 2018 |
December 31, 2017 |
||||||||||||
Securities in local currency |
June 20, 2008 | June 20, 2038 | 7.7 | | 255,000 | |||||||||||
April 25, 2013 | April 25, 2043 | 4.4 | 500,000 | 500,000 | ||||||||||||
November 13, 2013 | November 13, 2043 | 5.7 | 200,000 | 200,000 | ||||||||||||
December 12, 2014 | December 12, 2044 | 5.2 | 160,000 | 160,000 | ||||||||||||
June 3, 2015 | June 3, 2045 | 4.4 | 240,000 | 240,000 | ||||||||||||
July 26, 2018 | | 4.4 | 400,000 | | ||||||||||||
Securities in foreign currencies |
June 10, 2015 | June 10, 2045 | 5.0 | 559,650 | 559,650 | |||||||||||
September 27, 2016 | | 4.5 | 553,450 | 553,450 | ||||||||||||
May 16, 2017 | | 5.3 | 562,700 | 562,700 | ||||||||||||
Issuance cost |
(13,837 | ) | (12,912 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total |
3,161,963 | 3,017,888 | ||||||||||||||
|
|
|
|
The hybrid securities mentioned above are either without a maturity date or its maturity can be extended indefinitely at the maturity date without change of terms.
- 82 -
30. | OTHER EQUITY |
(1) | Details of other equity are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Accumulated other comprehensive loss: |
||||||||
Net loss on valuation of financial assets at FVTOCI |
(116,032 | ) | | |||||
Gain on valuation of AFS financial assets |
| 271,559 | ||||||
Net gain on financial liabilities at fair value through profit or loss designated as upon initial recognition due to own credit risk |
| | ||||||
Loss on foreign currency translation of foreign operations |
(18,811 | ) | (26,693 | ) | ||||
Remeasurement loss related to defined benefit plan |
(217,516 | ) | (137,877 | ) | ||||
|
|
|
|
|||||
Sub-total |
(352,359 | ) | 106,989 | |||||
|
|
|
|
|||||
Treasury shares |
(34,113 | ) | (34,113 | ) | ||||
Other capital adjustments |
(368 | ) | (208,158 | ) | ||||
|
|
|
|
|||||
Total |
(386,840 | ) | (135,282 | ) | ||||
|
|
|
|
(2) | Changes in the accumulated other comprehensive gain (loss) are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||
Beginning balance (*1) |
Increase (decrease) (*2)(*3) |
Reclassification adjustments |
Income tax effect |
Ending balance |
||||||||||||||||
Net gain (loss) on valuation of financial assets at FVTOCI |
(121,818 | ) | (34 | ) | 8,015 | (2,195 | ) | (116,032 | ) | |||||||||||
Gain (loss) on financial liabilities at fair value through profit or loss designated as upon initial recognition due to own credit risk |
(96 | ) | 132 | | (36 | ) | | |||||||||||||
Gain (loss) on foreign currency translation of foreign operations |
(26,693 | ) | 10,872 | | (2,990 | ) | (18,811 | ) | ||||||||||||
Remeasurement gain (loss) related to defined benefit plan |
(137,877 | ) | (109,847 | ) | | 30,208 | (217,516 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
(286,484 | ) | (98,877 | ) | 8,015 | 24,987 | (352,359 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
(*1) | The beginning balance was adjusted in accordance with K-IFRS 1109. |
(*2) | Net gain (loss) on valuation of financial assets at FVTOCI included the 1,009 million Won transfered to retained earnings due to disposal of equity securities. |
(*3) | Gain (loss) on financial liabilities at fair value through profit or loss designated as upon initial recognition due to own credit risk included the 4 million Won and is transfered to retained earnings due to redemption. |
For the year ended December 31, 2017 | ||||||||||||||||||||
Beginning balance |
Increase (decrease) (*) |
Reclassification adjustments (*) |
Income tax effect |
Ending balance |
||||||||||||||||
Gain (loss) on valuation of AFS financial assets |
319,698 | 77,862 | (125,063 | ) | (938 | ) | 271,559 | |||||||||||||
Gain (loss) on foreign currencies translation of foreign operations |
7,400 | (46,581 | ) | | 12,488 | (26,693 | ) | |||||||||||||
Remeasurement gain (loss) related to defined benefit plan |
(154,443 | ) | 13,576 | | 2,990 | (137,877 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
172,655 | 44,857 | (125,063 | ) | 14,540 | 106,989 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
(*) | For the change in gain (loss) on valuation of AFS financial assets, increase (decrease) represents change due to the valuation during the period and reclassification adjustments represents disposal or recognition of impairment losses on AFS financial assets. |
- 83 -
31. | RETAINED EARNINGS AND OTHER RESERVES |
(1) | Details of retained earnings are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||||
Legal reserve |
Earned surplus reserve | 1,857,754 | 1,729,754 | |||||||
Other legal reserve | 46,384 | 45,668 | ||||||||
|
|
|
|
|||||||
Sub-total | 1,904,138 | 1,775,422 | ||||||||
|
|
|
|
|||||||
Voluntary reserve |
Business rationalization reserve | 8,000 | 8,000 | |||||||
Reserve for financial structure improvement | 235,400 | 235,400 | ||||||||
Additional reserve | 7,759,804 | 7,418,806 | ||||||||
Regulatory reserve for credit loss | 2,091,721 | 2,017,342 | ||||||||
Revaluation reserve | 715,860 | 751,964 | ||||||||
Other voluntary reserve | | 11,700 | ||||||||
|
|
|
|
|||||||
Sub-total | 10,810,785 | 10,443,212 | ||||||||
|
|
|
|
|||||||
Retained earnings before appropriation |
1,908,029 | 1,041,925 | ||||||||
|
|
|
|
|||||||
Total | 14,622,952 | 13,260,559 | ||||||||
|
|
|
|
i. | Earned surplus reserve |
In accordance with Article 40 the Banking Act, earned surplus reserve is appropriated as at least one-tenth of the earnings after tax on every dividend declaration, not exceeding the paid-in capital. This reserve may not be used other than for offsetting a deficit or transferring to capital.
ii. | Other legal reserve |
Other legal reserves were appropriated in the branches located in Japan, Vietnam and Bangladesh according to the banking laws of Japan, Vietnam and Bangladesh and may be used to offset any deficit incurred in those branches.
iii. | Business rationalization reserve |
Pursuant to the Restriction of Special Taxation Act, the Bank was previously required to appropriate, as a reserve for business rationalization, amounts equal to tax reductions arising from tax exemptions and tax credits up to December 31, 2001. The requirement was no longer effective from 2002.
iv. | Reserve for financial structure improvement |
From 2002 to 2014, the Finance Supervisory Services recommended banks in Korea to appropriate at least 10% of net income after accumulated deficit for financial structure improvement until tangible common equity ratio equals 5.5%, but this reserve is not available for payment of cash dividends; however, it can be used to reduce a deficit or be transferred to capital. The reserve and appropriation are an autonomous judgment matter of the Bank since 2015.
v. | Additional reserve |
Additional reserve was appropriated for capital adequacy and other management purpose.
vi. | Regulatory reserve for credit loss |
In accordance with paragraphs 1 and 2 of Article 29 of the Regulation on Supervision of Banking Business (RSBB), if provisions for credit loss under K-IFRS for the accounting purpose are lower than provisions under RSBB, the Bank limits such shortfall amount as regulatory reserve for credit loss.
- 84 -
vii. | Revaluation reserve |
In accordance with attached table 3 of the Regulation on Supervision of Banking Business Enforcement Rules Revaluation reserve is the amount of limited dividends set by the board of directors to be recognized as complementary capital when the gain or loss occurred in the property revaluation by adopting K-IFRS.
(2) | Statements of appropriations of retained earnings (plan) are as follows (Unit: Korean won in millions): |
2018(*) | 2017 | |||||||
Unappropriated retained earnings: |
||||||||
Beginning of year |
842 | 213 | ||||||
Interim dividend |
| (67,328 | ) | |||||
Adjustment of K-IFRS 1109 implementation effect |
246,464 | | ||||||
Disposal gain or loss in FVOCI financial assets |
1,013 | | ||||||
Net income |
1,810,904 | 1,276,112 | ||||||
Dividend on/repayment of hybrid equity securities |
(151,194 | ) | (167,072 | ) | ||||
|
|
|
|
|||||
1,908,029 | 1,041,925 | |||||||
|
|
|
|
|||||
Transfer from retained earnings: |
||||||||
Provision of revaluation excess |
1,842 | 36,105 | ||||||
Credit loss |
202,905 | | ||||||
Reserves for research and personnel development |
| 11,700 | ||||||
|
|
|
|
|||||
204,747 | 47,805 | |||||||
|
|
|
|
|||||
Appropriation of retained earnings: |
||||||||
Legal reserve |
182,000 | 128,000 | ||||||
Regulatory reserve for credit loss |
| 74,379 | ||||||
Other reserve |
251 | 715 | ||||||
Amortization of loss of repayment of hybrid equity securities |
368 | 208,158 | ||||||
Cash dividend (dividend per share (%)) |
437,626 | 336,636 | ||||||
Additional reserve |
816,300 | 341,000 | ||||||
|
|
|
|
|||||
1,436,545 | 1,088,888 | |||||||
|
|
|
|
|||||
Unappropriated retained earnings to be carried forward to next year |
676,231 | 842 | ||||||
|
|
|
|
(*) | Retained earnings in the current period is restated in accordance with K-IFRS 1109. |
32. | REGULATORY RESERVE FOR CREDIT LOSS |
In accordance with paragraphs 1 and 2 of Article 29 of the Regulation on the Supervision of Banking Business (RSBB), the Bank shall disclose the difference as the planned regulatory reserve for credit loss. The planned provision(reversal) is recognized subsequent to December 31, 2018.
(1) | Balance of the planned regulatory reserve for credit loss is as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Balance as at December 31 |
2,091,721 | 2,017,342 | ||||||
Planned provision (reversal) of regulatory reserve for credit loss |
(202,905 | ) | 74,379 | |||||
|
|
|
|
|||||
Balance after recognizing the planned provision(reversal) |
1,888,816 | 2,091,721 | ||||||
|
|
|
|
- 85 -
(2) | Planned reserves provided, adjusted net income after the planned reserves provided and adjusted EPS after the planned reserves provided are as follows (Unit: Korean Won in millions, except for EPS amount): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Net income before the provision of regulatory reserve |
1,810,904 | 1,276,112 | ||||||
Provision(reversal) of regulatory reserve for credit loss (*) |
(8,628 | ) | 74,379 | |||||
Adjusted net income after the provision of regulatory reserve |
1,819,532 | 1,201,733 | ||||||
Adjusted EPS after the provision of regulatory reserve (Unit: Korean Won) |
2,479 | 1,537 |
(*) | The amount of reserve for credit loss for the year ended December 31, 2018 is calculated considering only the change in the reserve for credit loss after the accounting policy change due to adoption of K-IFRS 1109. Therefore, the effect of reducing the reserve for credit losses due to changes in accounting policies was excluded. |
33. | DIVIDENDS |
The Banks dividends for the years ended December 31, 2018 and 2017, are 650 won and 500 won per share, respectively, and total dividend payments amount to 437,626 million won and 336,636 million won, respectively. Dividends for the current period will be brought up as an agenda in the annual shareholders meeting scheduled for March 27, 2019.
34. | NET INTEREST INCOME |
(1) | Interest income recognized is as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Financial assets at FVTPL (K-IFRS 1109) |
6,047 | | ||||||
Financial assets at FVTOCI |
256,995 | | ||||||
Financial assets at amortized cost: |
||||||||
Securities at amortized cost |
372,006 | | ||||||
Loans and other financial assets at amortized cost: |
||||||||
Interest on due from banks |
96,901 | | ||||||
Interest on loans |
7,578,302 | | ||||||
Interest of other receivables |
21,716 | | ||||||
|
|
|
|
|||||
Sub-total |
8,068,925 | | ||||||
|
|
|
|
|||||
Financial assets at FVTPL (K-IFRS 1039) |
| 17,735 | ||||||
AFS financial assets |
| 209,594 | ||||||
HTM financial assets |
| 303,348 | ||||||
Loans and receivables: |
||||||||
Interest on due from banks |
| 69,007 | ||||||
Interest on loans |
| 6,764,407 | ||||||
Interest of other receivables |
| 21,630 | ||||||
|
|
|
|
|||||
Sub-total |
| 6,855,044 | ||||||
|
|
|
|
|||||
Total |
8,331,967 | 7,385,721 | ||||||
|
|
|
|
(2) | Interest expenses recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Interest on deposits due to customers |
2,704,194 | 2,209,408 | ||||||
Interest on borrowings |
252,140 | 212,632 | ||||||
Interest on debentures |
558,328 | 499,873 | ||||||
Other interest expense |
89,587 | 73,205 | ||||||
|
|
|
|
|||||
Total |
3,604,249 | 2,995,118 | ||||||
|
|
|
|
- 86 -
35. | NET FEES AND COMMISSIONS INCOME |
(1) | Details of fees and commissions income recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Fees and commission received for brokerage |
301,106 | 303,715 | ||||||
Fees and commission received related to credit |
163,489 | 160,048 | ||||||
Fees and commission received for electronic finance |
121,712 | 110,379 | ||||||
Fees and commission received on foreign exchange handling |
51,977 | 50,699 | ||||||
Fees and commission received on foreign exchange |
25,390 | 23,621 | ||||||
Fees and commission received for guarantee |
73,302 | 70,707 | ||||||
Fees and commission received on securities business |
88,149 | 79,225 | ||||||
Fees and commission from trust management |
185,239 | 148,969 | ||||||
Other fees |
140,837 | 125,475 | ||||||
|
|
|
|
|||||
Total |
1,151,201 | 1,072,838 | ||||||
|
|
|
|
(2) | Details of fees and commissions expense incurred are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Fees and commissions paid |
148,296 | 141,574 | ||||||
Others |
258 | 243 | ||||||
|
|
|
|
|||||
Total |
148,554 | 141,817 | ||||||
|
|
|
|
36. | DIVIDEND INCOME |
(1) | Details of dividend income recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Financial assets at FVTPL (K-IFRS 1109) |
63,690 | | ||||||
Financial assets at FVTPL (K-IFRS 1039) |
| 146 | ||||||
Financial assets at FVTOCI |
12,296 | | ||||||
AFS financial assets |
| 125,453 | ||||||
|
|
|
|
|||||
Total |
75,986 | 125,599 | ||||||
|
|
|
|
(2) | Details of net gain or loss on financial instrument 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): |
For the year ended December 31, 2018 |
||||
Dividend income recognized from assets held |
||||
Equity securities |
12,022 | |||
Dividend income recognized in assets derecognized |
274 | |||
|
|
|||
Total |
12,296 | |||
|
|
- 87 -
37. | NET GAIN OR LOSS ON FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS MANDATORILY MEASURED AT FAIR VALUE (K-IFRS 1109 AND 1039) |
(1) | Details of gain or loss related to net gain or loss on financial instruments at FVTPL (K-IFRS 1109 and 1039) are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Gain on financial instruments at fair value through profit or loss mandatorily measured at fair value |
187,165 | | ||||||
Gain on financial instruments held for trading |
| 14,257 | ||||||
Gain on financial instruments at fair value through profit or loss designated as upon initial recognition |
17,484 | | ||||||
Loss on financial instruments designed as at fair value through profit or loss |
| (111,240 | ) | |||||
|
|
|
|
|||||
Total |
204,649 | (96,983 | ) | |||||
|
|
|
|
(2) | Details of Gain (loss) on financial instruments at fair value through profit or loss mandatorily measured at fair value and Gain (loss) on financial instruments held for trading are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||||||
2018 | 2017 | |||||||||||
Financial assets at FVTPL (financial assets held for trading) |
Securities | Gain on valuation | 113,618 | 705 | ||||||||
Gain on disposals | 28,136 | 7,695 | ||||||||||
Loss on valuation | (20,479 | ) | (2,429 | ) | ||||||||
Loss on disposals | (11,745 | ) | (654 | ) | ||||||||
|
|
|
|
|||||||||
Sub-total |
109,530 | 5,317 | ||||||||||
|
|
|
|
|||||||||
Loans | Gain on valuation | 1,606 | ||||||||||
Gain on disposals | 4,136 | |||||||||||
Loss on valuation | (4,805 | ) | ||||||||||
Loss on disposals | (117 | ) | ||||||||||
|
|
|
|
|||||||||
Sub-total |
820 | |||||||||||
|
|
|
|
|||||||||
Other financial assets | Gain on valuation | 2,050 | 6,524 | |||||||||
Gain on disposals | 530 | 2,353 | ||||||||||
Loss on valuation | (2,280 | ) | (7,885 | ) | ||||||||
Loss on disposals | (86 | ) | (619 | ) | ||||||||
|
|
|
|
|||||||||
Sub-total |
214 | 373 | ||||||||||
|
|
|
|
|||||||||
Sub-total |
110,564 | 5,690 | ||||||||||
|
|
|
|
|||||||||
Derivatives (for trading) |
Interest rate derivatives | Gain on transactions and valuation | 1,269,528 | 1,088,055 | ||||||||
Loss on transactions and valuation | (1,302,937 | ) | (1,050,244 | ) | ||||||||
|
|
|
|
|||||||||
Sub-total |
(33,409 | ) | 37,811 | |||||||||
|
|
|
|
|||||||||
Currency derivatives | Gain on transactions and valuation | 4,888,508 | 7,197,779 | |||||||||
Loss on transactions and valuation | (4,780,695 | ) | (7,340,708 | ) | ||||||||
|
|
|
|
|||||||||
Sub-total |
107,813 | (142,929 | ) | |||||||||
|
|
|
|
|||||||||
Equity derivatives | Gain on transactions and valuation | 481,123 | 511,080 | |||||||||
Loss on transactions and valuation | (478,946 | ) | (397,411 | ) | ||||||||
|
|
|
|
|||||||||
Sub-total |
2,177 | 113,669 | ||||||||||
|
|
|
|
|||||||||
Other derivatives | Gain on transactions and valuation | 2,099 | 4,056 | |||||||||
Loss on transactions and valuation | (2,079 | ) | (4,040 | ) | ||||||||
|
|
|
|
|||||||||
Sub-total |
20 | 16 | ||||||||||
|
|
|
|
|||||||||
Sub-total |
76,601 | 8,567 | ||||||||||
|
|
|
|
|||||||||
Total |
187,165 | 14,257 | ||||||||||
|
|
|
|
- 88 -
(3) | Details of Gain (loss) on financial instruments at fair value through profit or loss designated as upon initial recognition and Loss on financial instruments designed as at fair value through profit or loss are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Gain (loss) on equity-linked securities: |
||||||||
Loss on disposal of equity-linked securities |
(2,058 | ) | (79,965 | ) | ||||
Gain(loss) on valuation of equity-linked securities |
17,945 | (32,511 | ) | |||||
|
|
|
|
|||||
Sub-total |
15,887 | (112,476 | ) | |||||
|
|
|
|
|||||
Gain(loss) on other financial instruments: |
||||||||
Gain on valuation of other financial instruments |
1,597 | 1,236 | ||||||
|
|
|
|
|||||
Total |
17,484 | (111,240 | ) | |||||
|
|
|
|
38. | NET GAIN OR LOSS ON FINANCIAL ASSETS AT FVTOCI AND AFS FINANCIAL ASSETS |
Details of net gain or loss on financial assets at FVTOCI and AFS financial assets recognized are as follows (Unit: Korean Won in millions):
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Gains on redemption of securities |
28 | | ||||||
Gains on transactions of securities |
1,305 | 164,269 | ||||||
Impairment loss on securities |
| (29,266 | ) | |||||
|
|
|
|
|||||
Total |
1,333 | 135,003 | ||||||
|
|
|
|
39. | IMPAIRMENT REVERSAL(LOSS) DUE TO CREDIT LOSS |
Impairment reversal (loss) due to credit loss are as follows (Unit: Korean Won in millions):
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Impairment loss due to credit loss on financial assets measured at FVTOCI |
(1,704 | ) | | |||||
Impairment loss due to credit loss on securities at amortized cost |
(1,921 | ) | | |||||
Reversal(provision) for credit loss on loan and other financial assets at amortized cost |
(144,372 | ) | | |||||
Impairment loss due to credit loss |
| (626,036 | ) | |||||
Reversal of provision on guarantee |
105,145 | 55,009 | ||||||
Reversal of provision on (provision for) unused loan commitment |
(15,971 | ) | 17,823 | |||||
|
|
|
|
|||||
Total |
(58,823 | ) | (553,204 | ) | ||||
|
|
|
|
- 89 -
40. | GENERAL AND ADMINISTRATIVE EXPENSES AND OTHER NET OPERATING INCOME (EXPENSES) |
(1) | Details of general and administrative expenses recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||||||
2018 | 2017 | |||||||||||
Salaries |
Short-term employee benefits | Salaries | 1,229,278 | 1,104,755 | ||||||||
Employee benefits | 411,175 | 510,583 | ||||||||||
Retirement benefit service costs | 130,320 | 134,534 | ||||||||||
Termination | 221,677 | 298,496 | ||||||||||
|
|
|
|
|||||||||
Sub-total | 1,992,450 | 2,048,368 | ||||||||||
|
|
|
|
|||||||||
Depreciation and amortization |
161,581 | 113,223 | ||||||||||
|
|
|
|
|||||||||
Other general and administrative expenses |
Rent | 255,594 | 251,739 | |||||||||
Taxes and public dues | 92,816 | 88,631 | ||||||||||
Service charges | 199,221 | 176,908 | ||||||||||
Computer and IT related | 262,477 | 226,315 | ||||||||||
Telephone and communication | 36,663 | 32,902 | ||||||||||
Operating promotion | 36,804 | 37,927 | ||||||||||
Advertising | 66,341 | 62,956 | ||||||||||
Printing | 7,073 | 7,258 | ||||||||||
Traveling | 8,805 | 9,398 | ||||||||||
Supplies | 5,154 | 5,161 | ||||||||||
Insurance premium | 2,997 | 3,295 | ||||||||||
Reimbursement | 21,147 | 25,380 | ||||||||||
Maintenance | 14,312 | 13,163 | ||||||||||
Water, light and heating | 12,428 | 12,105 | ||||||||||
Vehicle maintenance | 7,653 | 7,785 | ||||||||||
Others | 5,820 | 6,211 | ||||||||||
|
|
|
|
|||||||||
Sub-total | 1,035,305 | 967,134 | ||||||||||
|
|
|
|
|||||||||
Total |
3,189,336 | 3,128,725 | ||||||||||
|
|
|
|
(2) | Details of other operating income recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Gains on transactions of foreign exchange |
982,555 | 3,040,858 | ||||||
Gains on disposals of loans and receivables (*1) |
| 201,631 | ||||||
Gains related to derivatives (Designated for hedging) |
9,126 | | ||||||
Gains on fair value hedged items |
42,797 | 53,532 | ||||||
Others (*2) |
55,016 | 58,180 | ||||||
|
|
|
|
|||||
Total |
1,089,494 | 3,354,201 | ||||||
|
|
|
|
(*1) | Gain (loss) on disposal of loan and receivables occurred during the years ended December 31, 2018 was presented as a separate account named Net gain related to financial assets at amortized cost in accordance with the adoption of K-IFRS 1109. |
(*2) | Other income includes such income, amounting to 29,316 million Won and 29,336 million Won, respectively for years ended December 31, 2018 and 2017 that the Bank recognized for it to receive from other creditor financial institutions in accordance with the creditor financial institutions committee agreement. |
- 90 -
(3) | Details of other operating expenses recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Losses on transactions of foreign exchange |
724,229 | 2,612,797 | ||||||
KDIC deposit insurance premium |
311,662 | 300,505 | ||||||
Contribution to miscellaneous funds |
295,909 | 283,551 | ||||||
Loss on disposals of loans and receivables(*1) |
| 8,952 | ||||||
Losses related to derivatives (Designated for hedging) |
36,488 | 52,959 | ||||||
Losses on fair value hedged items |
17,299 | | ||||||
Others (*2) |
96,556 | 108,193 | ||||||
|
|
|
|
|||||
Total |
1,482,143 | 3,366,957 | ||||||
|
|
|
|
(*1) | Loss on disposal of loan and receivables occurred during the years ended December 31, 2018 was presented as a separate account named Net gain related to financial assets at amortized cost in accordance with the adoption of K-IFRS 1109. |
(*2) | For the years ended December 31, 2018 and 2017, other expense includes losses amounting to 1,594 million Won and 5,237 million Won, respectively, which are related to the Banks expected payments to other creditor financial institutions in accordance with the creditor financial institutions committee agreement. In addition, it includes 51,770 million Won and 48,292 million Won of intangible asset amortization expense. |
41. | OTHER NON-OPERATING INCOME (EXPENSES) |
(1) | Details of losses on valuation of investments in subsidiaries and associates are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Impairment losses of investments in subsidiaries and associates |
(241 | ) | (133,948 | ) |
(2) | Details of other non-operating income and expenses recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Other non-operating incomes |
149,165 | 95,999 | ||||||
Other non-operating expenses |
(78,984 | ) | (132,387 | ) | ||||
|
|
|
|
|||||
Total |
70,181 | (36,388 | ) | |||||
|
|
|
|
(3) | Details of other non-operating income recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Rental fee income |
15,022 | 14,375 | ||||||
Dividends from investments in subsidiaries and associates |
37,481 | 34,004 | ||||||
Gains on disposal of investments in subsidiaries and associates |
35,409 | 9,256 | ||||||
Gains on disposal of premises and equipment, intangible assets and other assets |
25,537 | 12,950 | ||||||
Reversal of impairment loss of premises and equipment, intangible assets and other assets |
491 | 141 | ||||||
Others |
35,225 | 25,273 | ||||||
|
|
|
|
|||||
Total |
149,165 | 95,999 | ||||||
|
|
|
|
- 91 -
(4) | Details of other non-operating expenses recognized are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Depreciation of investment properties |
3,723 | 3,580 | ||||||
Interest expenses of refundable deposits |
620 | 458 | ||||||
Losses on disposals of premises and equipment, intangible assets and other assets |
933 | 1,714 | ||||||
Impairment loss on premises and equipment, intangible assets and other assets |
5,933 | 184 | ||||||
Donation |
47,542 | 95,040 | ||||||
Others |
20,233 | 31,411 | ||||||
|
|
|
|
|||||
Total |
78,984 | 132,387 | ||||||
|
|
|
|
42. | INCOME TAX EXPENSE |
(1) | Details of income tax expense are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Current tax expense: |
||||||||
Current tax expense with respect to the current period |
355,754 | 410,282 | ||||||
Adjustments recognized in the current period in relation to the tax expense of prior periods |
6,283 | (4,381 | ) | |||||
|
|
|
|
|||||
Sub-total |
362,037 | 405,901 | ||||||
|
|
|
|
|||||
Deferred tax expense(income): |
||||||||
Changes in deferred tax assets (liabilities) relating to the temporary differences |
312,690 | (61,791 | ) | |||||
|
|
|
|
|||||
Income tax expense |
674,727 | 344,110 | ||||||
|
|
|
|
(2) | Income tax expense reconciled to net income before income tax expense is as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Net income before income tax expense |
2,485,631 | 1,620,222 | ||||||
Tax calculated at statutory tax rate (*) |
683,086 | 391,632 | ||||||
Adjustments: |
||||||||
Effect of income that is exempt from taxation |
(44,151 | ) | (43,775 | ) | ||||
Effect of expenses that are not deductible in determining taxable income |
11,339 | 10,291 | ||||||
Adjustments recognized in the current period in relation to the current tax of prior periods |
6,283 | (4,381 | ) | |||||
Others |
18,170 | (9,657 | ) | |||||
|
|
|
|
|||||
Sub-total |
(8,359 | ) | (47,522 | ) | ||||
|
|
|
|
|||||
Income tax expense |
674,727 | 344,110 | ||||||
|
|
|
|
|||||
Effective tax rate |
27.2 | % | 21.2 | % |
(*) | The applicable income tax rate: 1) 11% for taxable income below 200 million Won, 2) 22% for above 200 million Won and below 20 billion Won, 3) 24.2% for above 20 billion Won and below 300 billion Won, 4) 27.5% for above 300 billion Won. |
- 92 -
(3) | Changes in cumulative temporary differences for the years ended December 31, 2018 and 2017, are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||||||||
K-IFRS 1109 adoption effect | ||||||||||||||||||||||||||||
Beginning balance |
Recognized as retained earnings |
Recognized as other comprehensive income |
Beginning balance after K-IFRS 1109 adoption |
Recognized as income (loss) |
Recognized as other comprehensive income (loss) |
Ending balance |
||||||||||||||||||||||
Gain (loss) on financial assets at FVTPL |
494,159 | (150,140 | ) | 149,247 | 493,266 | (100,500 | ) | (2,231 | ) | 390,535 | ||||||||||||||||||
Loss on valuation of derivatives |
(9,828 | ) | (3,990 | ) | | (13,818 | ) | (14,033 | ) | | (27,851 | ) | ||||||||||||||||
Accrued income |
(60,460 | ) | | | (60,460 | ) | 4,989 | | (55,471 | ) | ||||||||||||||||||
Provision for loan losses |
572 | 46,870 | | 47,442 | (46,286 | ) | | 1,156 | ||||||||||||||||||||
Loans and receivables written off |
7,776 | | | 7,776 | (3,211 | ) | | 4,565 | ||||||||||||||||||||
Loan origination costs and fees |
(134,477 | ) | 36 | | (134,441 | ) | (13,913 | ) | | (148,354 | ) | |||||||||||||||||
Defined benefit liability |
266,785 | | | 266,785 | 25,175 | 30,208 | 322,168 | |||||||||||||||||||||
Deposits with employee retirement insurance trust |
(277,130 | ) | | | (277,130 | ) | (21,385 | ) | | (298,515 | ) | |||||||||||||||||
Provisions for guarantees |
30,602 | 1,370 | | 31,972 | (20,597 | ) | | 11,375 | ||||||||||||||||||||
Other provision |
34,712 | 7,732 | | 42,444 | 15,399 | | 57,843 | |||||||||||||||||||||
Others |
(114,168 | ) | 5,395 | | (108,773 | ) | (138,328 | ) | (2,990 | ) | (250,091 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net deferred tax assets (liabilities) |
238,543 | (92,727 | ) | 149,247 | 295,063 | (312,690 | ) | 24,987 | 7,360 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2017 | ||||||||||||||||
Beginning balance |
Recognized as income (loss) |
Recognized as other comprehensive income (loss) |
Ending balance |
|||||||||||||
Gain (loss) on financial assets at FVTPL |
424,035 | 71,062 | (938 | ) | 494,159 | |||||||||||
Gain (loss) on valuation of derivatives |
(42,730 | ) | 32,902 | | (9,828 | ) | ||||||||||
Accrued income |
(69,769 | ) | 9,309 | | (60,460 | ) | ||||||||||
Provision for loan losses |
1,017 | (445 | ) | | 572 | |||||||||||
Loans and receivables written off |
51,393 | (43,617 | ) | | 7,776 | |||||||||||
Loan origination costs and fees |
(108,192 | ) | (26,285 | ) | | (134,477 | ) | |||||||||
Defined benefit liability |
211,353 | 52,442 | 2,990 | 266,785 | ||||||||||||
Deposits with employee retirement insurance trust |
(217,764 | ) | (59,366 | ) | | (277,130 | ) | |||||||||
Provisions for guarantees |
41,108 | (10,506 | ) | | 30,602 | |||||||||||
Other provision |
21,203 | 13,509 | | 34,712 | ||||||||||||
Others |
(149,443 | ) | 22,786 | 12,489 | (114,168 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net deferred tax assets (liabilities) |
162,211 | 61,791 | 14,541 | 238,543 | ||||||||||||
|
|
|
|
|
|
|
|
(4) | Unrealizable temporary differences are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Deductible temporary differences |
264,972 | 220,345 | ||||||
Tax loss carry forward |
56,513 | 56,513 | ||||||
Taxable temporary differences |
(866,294 | ) | (866,294 | ) | ||||
|
|
|
|
|||||
Total |
(544,809 | ) | (589,436 | ) | ||||
|
|
|
|
No deferred income tax asset has been recognized for the deductible temporary difference of KRW 226,191 million associated with investments in subsidiaries and associates as of December 31, 2018, because it is not probable that the temporary differences will be reversed in the foreseeable future. KRW 38,781 million associated with others, respectively, as of December 31, 2018, due to the uncertainty that these will be realized in the future.
- 93 -
No deferred income tax liability has been recognized for the taxable temporary difference of KRW 866,294 million associated with investment in subsidiaries and associates as of December 31, 2018, due to the following reasons:
- | The Bank is able to control the timing of the reversal of the temporary differences. |
- | It is probable that the temporary differences will not be reversed in the foreseeable future. |
As of December 31, 2018, the expected extinctive date of tax loss carry forward that are not recognized as deferred tax assets are as follows (Unit: Korean Won in millions):
1 year or less | 1 2 years | 2 3 years | More than 3 years | |||||||||||||
Tax loss carry forward |
| | | 56,513 |
(5) | Details of accumulated deferred tax charged directly to other equity are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Net gain on valuation of financial assets at FVTOCI |
44,012 | | ||||||
Loss on valuation of AFS securities |
| (103,005 | ) | |||||
Gain on foreign currency translation of foreign operations |
7,135 | 10,125 | ||||||
Remeasurement of the net defined benefit liability |
82,506 | 52,298 | ||||||
|
|
|
|
|||||
Total |
133,653 | (40,582 | ) | |||||
|
|
|
|
(6) | Current tax assets and liabilities are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Current tax assets |
| | ||||||
Current tax liabilities |
110,127 | 212,376 |
43. | EARNINGS PER SHARE(EPS) |
Basic EPS is calculated by dividing net income attributable to common shareholders by weighted-average number of common shares outstanding (Unit: Korean Won in millions, except for EPS and number of shares):
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Net income attributable to common shareholders |
1,810,904 | 1,276,112 | ||||||
Dividends to hybrid securities |
(151,194 | ) | (167,072 | ) | ||||
Net income attributable to common shareholders |
1,659,710 | 1,109,040 | ||||||
Weighted-average number of common shares outstanding |
673 million shares | 673 million shares | ||||||
Basic EPS (Unit: Korean Won) |
2,466 | 1,648 |
Diluted EPS is equal to basic EPS because there is no dilution effect for the years ended December 31, 2018 and 2017.
- 94 -
44. | CONTINGENT LIABILITIES AND COMMITMENTS |
(1) | Details of guarantees are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Confirmed guarantees: |
||||||||
Guarantees for loans |
125,870 | 157,299 | ||||||
Acceptances |
257,203 | 229,705 | ||||||
Guarantees in acceptance of imported goods |
158,179 | 108,238 | ||||||
Other confirmed guarantees |
6,638,359 | 6,322,111 | ||||||
|
|
|
|
|||||
Sub-total |
7,179,611 | 6,817,353 | ||||||
|
|
|
|
|||||
Unconfirmed guarantees: |
||||||||
Local letters of credit |
305,057 | 383,117 | ||||||
Letters of credit |
3,276,807 | 3,615,934 | ||||||
Other unconfirmed guarantees |
647,968 | 485,123 | ||||||
|
|
|
|
|||||
Sub-total |
4,229,832 | 4,484,174 | ||||||
|
|
|
|
|||||
Commercial paper purchase commitments and others |
2,581,007 | 2,288,201 | ||||||
|
|
|
|
|||||
Total |
13,990,450 | 13,589,728 | ||||||
|
|
|
|
(2) | Details of unused loan commitments and other commitments are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Loan commitments |
65,012,748 | 50,214,855 | ||||||
Other commitments |
2,173,333 | 1,902,703 |
(3) | Litigation case |
Legal cases where the Bank is involved in are as follows (Unit: Korean Won in millions):
December 31, 2018 | ||||||||
As plaintiff | As defendant | |||||||
Number of cases (*) |
54 cases | 132 cases | ||||||
Amount of litigation |
448,357 | 245,287 | ||||||
Provisions for litigations |
16,770 |
December 31, 2017 | ||||||||
As plaintiff | As defendant | |||||||
Number of cases (*) |
65 cases | 130 cases | ||||||
Amount of litigation |
403,832 | 242,858 | ||||||
Provisions for litigations |
7,750 |
(*) | The number of lawsuits as of December 31, 2018 and 2017 does not include fraud lawsuits, etc. and those lawsuits that are filed only to extend the statute of limitation. |
- 95 -
45. | RELATED-PARTY TRANSACTIONS |
Related parties of the Bank as of December 31, 2018 and 2017, and assets and liabilities recognized, guarantees and commitments, major transactions with related parties and compensation to key management for the years ended December 31, 2018 and 2017 are as follows:
(1) | Related parties |
Related parties | ||
Subsidiaries | Woori FIS Co., Ltd., Woori Private Equity Asset Management Co., Ltd., Woori Finance Research Institute Co., Ltd., Woori Card Co., Ltd., Woori Investment Bank Co., Ltd., Woori Credit Information Co., Ltd., Woori America Bank, PT Bank Woori Saudara Indonesia 1906 Tbk, Woori Global Markets Asia Limited, Woori Bank China Limited, AO Woori Bank, Banco Woori Bank do Brasil S.A., Korea BTL Infrastructure Fund, Woori Fund Service Co., Ltd., Woori Finance Cambodia PLC., Woori Finance Myanmar Co., Ltd., Wealth Development Bank, Woori Bank Vietnam Limited, WB Finance Co., Ltd., Woori Bank Europe, TUTU Finance-WCI Myanmar Co., Ltd., Woori Bank Principal and Interest Guaranteed Trust, Woori Bank Principal Guaranteed Trust, Kumho Trust First Co., Ltd. and 37 SPCs, Heungkuk Woori Tech Company Private Placement Investment Trust No. 1 and 4 beneficiary certificates | |
Associates | Woori Service Networks Co., Ltd., Korea Credit Bureau Co., Ltd., Korea Finance Security Co., Ltd., Chin Hung International Inc, 2016KIF-IMM Woori Bank Technology Venture Fund, K BANK Co., Ltd., Well to Sea No. 3 Private Equity Fund, and others (Dongwoo C & C Co., Ltd. and 28 associates) |
(2) | Assets and liabilities from transactions with related parties are as follows (Unit: Korean Won in millions): |
Related parties |
A title of account |
December 31, 2018 | December 31, 2017 | |||||||||
Subsidiaries |
Woori FIS Co., Ltd. | Other assets | 61 | 114 | ||||||||
Deposits due to customers | 51,057 | 27,216 | ||||||||||
Other liabilities | 16,498 | 18,365 | ||||||||||
Woori Private Equity Asset Management Co., Ltd. | Deposits due to customers | 1,323 | 2,410 | |||||||||
Other liabilities | | 1 | ||||||||||
Woori Finance Research Institute Co., Ltd. | Deposits due to customers | 2,741 | 2,718 | |||||||||
Other liabilities | 588 | 517 | ||||||||||
Woori Card Co., Ltd. | Other assets | 14,820 | 20,209 | |||||||||
Deposits due to customers | 78,490 | 65,326 | ||||||||||
Other liabilities | 14,656 | 14,457 | ||||||||||
Derivative liabilities | 271 | 1,232 | ||||||||||
Woori Investment Bank Co., Ltd. | Cash and cash equivalents | 100,000 | | |||||||||
Loans | 37,900 | 22,600 | ||||||||||
Loss allowance | (81 | ) | (23 | ) | ||||||||
Other assets | 6,712 | | ||||||||||
Deposits due to customers | 6,050 | 7,755 | ||||||||||
Other liabilities | 9,237 | 2,391 | ||||||||||
Woori Credit Information Co., Ltd. |
Other assets | | 2 | |||||||||
Deposits due to customers | 14,674 | 15,585 | ||||||||||
Other liabilities | 10,945 | 10,739 | ||||||||||
Woori America Bank | Cash and cash equivalents | 12,354 | 3,658 | |||||||||
Loans | 15,350 | | ||||||||||
Loss allowance | (4 | ) | | |||||||||
PT Bank Woori Saudara Indonesia 1906 Tbk | Cash and cash equivalents | 11,110 | 5,180 | |||||||||
Loans | 368,973 | 160,710 | ||||||||||
Loss allowance | (791 | ) | (166 | ) | ||||||||
Other assets | 1,463 | | ||||||||||
Deposits due to customers | | 72 |
- 96 -
Related parties |
A title of account |
December 31, 2018 | December 31, 2017 | |||||||||
Subsidiaries |
Woori Global Markets Asia Limited |
Loans | 354,364 | 172,184 | ||||||||
Loss allowance | (369 | ) | (70 | ) | ||||||||
Deposits due to customers | 2,613 | 6,057 | ||||||||||
Borrowings | 3,041 | | ||||||||||
Other liabilities | | 23 | ||||||||||
Banco Woori Bank do Brasil S.A. |
Loans | 1,006 | 1,607 | |||||||||
Loss allowance | (1 | ) | (1 | ) | ||||||||
Woori Bank China Limited |
Cash and cash equivalents | 38,312 | 23,602 | |||||||||
Loans | 325,060 | 246,422 | ||||||||||
Loss allowance | (697 | ) | (230 | ) | ||||||||
Other assets | 3,853 | 108,650 | ||||||||||
Deposits due to customers | 61,526 | 73,264 | ||||||||||
Other liabilities | 2,492 | 107,791 | ||||||||||
Derivative liabilities | 9 | | ||||||||||
AO Woori Bank | Cash and cash equivalents | 16,699 | 16,222 | |||||||||
Loans | 54,687 | 53,426 | ||||||||||
Loss allowance | (117 | ) | (55 | ) | ||||||||
Other assets | 79 | 44 | ||||||||||
Korea BTL Infrastructure Fund |
Other assets | 9 | 9 | |||||||||
Woori Fund Service Co., Ltd. |
Deposits due to customers | 8,605 | 6,458 | |||||||||
Other liabilities | 1,128 | 829 | ||||||||||
Woori Finance Cambodia PLC. |
Loans | 69,099 | 32,142 | |||||||||
Loss allowance | (72 | ) | (13 | ) | ||||||||
Other liabilities | 6 | 2 | ||||||||||
Woori Finance Myanmar Co., Ltd. |
Loans | 4,472 | 4,286 | |||||||||
Loss allowance | (5 | ) | (2 | ) | ||||||||
Woori Bank Vietnam Limited |
Loans | 16,883 | 17,410 | |||||||||
Loss allowance | (159 | ) | (143 | ) | ||||||||
Other assets | 165,560 | 111,705 | ||||||||||
Deposits due to customers | 195 | | ||||||||||
Borrowings | 16,772 | | ||||||||||
WB Finance Co., Ltd. (*1) |
Loan | 122,991 | | |||||||||
Loss allowance | (128 | ) | | |||||||||
Other liabilities | 13 | | ||||||||||
Woori Bank Principal and Interest Guaranteed Trust and Principal Guaranteed Trust |
Other assets | 565 | 1,510 | |||||||||
Other liabilities | 103,367 | 91,762 | ||||||||||
Structured entities |
Loans | 2,882 | 2,102 | |||||||||
Loss allowance | (4 | ) | (302 | ) | ||||||||
Other assets | 121 | 40 | ||||||||||
Derivative assets | 11,671 | 725 | ||||||||||
Deposits due to customers | 6,485 | 11,853 | ||||||||||
Other liabilities | 3,706 | 1,629 | ||||||||||
Derivative liabilities | 126 | 2,740 | ||||||||||
Beneficiary certificates | Other assets | 20 | 2 |
- 97 -
Related parties |
A title of account |
December 31, 2018 | December 31, 2017 | |||||||||
Associates |
Kumho Tire Co., Inc.(*2) |
Loans | | 170,553 | ||||||||
Loss allowance | | (156,621 | ) | |||||||||
Deposits due to customers | | 666 | ||||||||||
Other liabilities | | 1 | ||||||||||
Woori Service Networks Co., Ltd. |
Deposits due to customers | 1,967 | 1,311 | |||||||||
Other liabilities | 312 | 325 | ||||||||||
Korea Credit Bureau Co., Ltd. |
Deposits due to customers | 6,494 | 5,586 | |||||||||
Other liabilities | 19 | 54 | ||||||||||
Korea Finance Security Co., Ltd. |
Deposits due to customers | 5,040 | 2,854 | |||||||||
Other liabilities | 6 | 7 | ||||||||||
Chin Hung International Inc. |
Deposits due to customers | 11,605 | 46,220 | |||||||||
Other liabilities | 2,960 | 1,656 | ||||||||||
Poonglim Industrial Co., Ltd. (*3) |
Deposits due to customers | | 4 | |||||||||
STX Engine Co., Ltd. (*4) |
Loans | | 106,044 | |||||||||
Loss allowance | | (88,603 | ) | |||||||||
Deposits due to customers | | 18,092 | ||||||||||
Other liabilities | | 29 | ||||||||||
STX Corporation(*4) | Loans | | 47,664 | |||||||||
Loss allowance | | (31,164 | ) | |||||||||
Deposits due to customers | | 77,555 | ||||||||||
Other liabilities | | 27 | ||||||||||
Well to Sea No. 3 Private Equity Fund |
Loans | 1,857 | 73,810 | |||||||||
Loss allowance | (9 | ) | (39 | ) | ||||||||
Deposits due to customers | 356 | 61 | ||||||||||
Other liabilities | 64 | 27 | ||||||||||
Others (*5) | Loans | 260 | 499 | |||||||||
Loss allowance | (234 | ) | (471 | ) | ||||||||
Other assets | | 1 | ||||||||||
Deposits due to customers | 8,049 | 2,906 | ||||||||||
Other liabilities | 165 | 73 |
(*1) | The Bank acquired over 50% ownership of WB Finance Co., Ltd. during the year ended December 31, 2018. |
(*2) | The Bank lost significant influence over the entity due to the termination of the joint management procedures of the creditors financial institution during the year ended December 31, 2018, and thus the entity was excluded from the list of associates. |
(*3) | The Bank lost significant influence over the entity due to the stock consolidation and the capital increase of the associate during the year ended December 31, 2018, and thus the entity was excluded from the list of associates. |
(*4) | The shares of the entity were sold after it was transferred to assets held for distribution (sale) during the year ended December 31, 2018 and thus was excluded from the list of associates. |
(*5) | Others include Saman Corporation, Kyesan Engineering Co., Ltd, DAEA SNC Co., Ltd., etc., as of December 31, 2018 and 2017. |
- 98 -
(3) | Gain or loss from transactions with related parties is as follows (Unit: Korean Won in millions): |
A title of account |
For the years ended December 31 |
|||||||||||
Related parties |
2018 | 2017 | ||||||||||
Corporation that has significant influence over the Bank |
KDIC(*1) | Interest expenses | | 15,331 | ||||||||
Subsidiaries |
Woori FIS Co., Ltd. | Fees income | 537 | 514 | ||||||||
Other income | 7,507 | 7,473 | ||||||||||
Interest expenses | 16 | | ||||||||||
Other expenses | 238,312 | 215,371 | ||||||||||
Woori Private Equity Asset Management Co., Ltd. | Fees income | 20 | 12 | |||||||||
Interest expenses | 8 | 9 | ||||||||||
Woori Finance Research Institute Co., Ltd. | Fees income | 10 | 9 | |||||||||
Interest expenses | 51 | 41 | ||||||||||
Fees expenses | 4,650 | 4,680 | ||||||||||
Woori Card Co., Ltd. | Interest income | 689 | | |||||||||
Fees income | 142,552 | 142,968 | ||||||||||
Gains related to derivatives |
961 | | ||||||||||
Other income | 798 | 785 | ||||||||||
Interest expenses | 39 | 53 | ||||||||||
Fees expenses | 76 | 8 | ||||||||||
Losses related to derivatives |
| 1,359 | ||||||||||
Woori Investment Bank Co., Ltd. | Fees income | 669 | 616 | |||||||||
Interest income | 1,853 | 1,805 | ||||||||||
Other income | 538 | 4,061 | ||||||||||
Interest expenses | 20 | 20 | ||||||||||
Other expenses | | 7,020 | ||||||||||
Impairment losses due to credit loss | 58 | 23 | ||||||||||
Woori Private Equity Fund(*2) | Fees income | | 1 | |||||||||
Interest expenses | | 1 | ||||||||||
Woori Credit Information Co., Ltd. | Fees income | 69 | 58 | |||||||||
Dividends income | | 504 | ||||||||||
Other income | 408 | 392 | ||||||||||
Interest expenses | 232 | 172 | ||||||||||
Fees expenses | 12,668 | 11,250 | ||||||||||
Woori America Bank | Fees income | 343 | | |||||||||
Other income | 13 | | ||||||||||
PT Bank Woori Saudara Indonesia 1906 Tbk | Interest income | 1,463 | 2,525 | |||||||||
Fees income | 121 | 111 | ||||||||||
Dividends income | 6,127 | 3,300 | ||||||||||
Impairment losses due to credit loss (reversal of provision for credit loss) | 625 | (74 | ) | |||||||||
Woori Global Markets Asia Limited | Interest income | 7,162 | 2,633 | |||||||||
Fees income | 19 | 56 | ||||||||||
Interest expenses | 3 | 7 | ||||||||||
Impairment losses due to credit loss (reversal of provision for credit loss) | 299 | (117 | ) |
- 99 -
A title of account |
For the years ended December 31 |
|||||||||||
Related parties |
2018 | 2017 | ||||||||||
Subsidiaries |
Woori Bank China Limited | Interest income | 7,589 | 3,114 | ||||||||
Fees income | 438 | 486 | ||||||||||
Gains related to derivatives | 7 | | ||||||||||
Interest expenses | 612 | 657 | ||||||||||
Fees expenses | 1 | | ||||||||||
Other expenses | 1 | | ||||||||||
Impairment gain(loss) due to credit loss (reversal of provision for credit loss) | 467 | (117 | ) | |||||||||
AO Woori Bank | Interest income | 965 | 567 | |||||||||
Impairment losses due to credit loss(reversal of provision for credit loss) | 62 | (12 | ) | |||||||||
Banco Woori Bank do Brasil S. A | Interest income | 45 | 27 | |||||||||
Reversal of provision for credit loss | | (3 | ) | |||||||||
Korea BTL Infrastructure Fund | Dividends income | 30,185 | 27,290 | |||||||||
Fees income | 77 | 78 | ||||||||||
Woori Fund Service Co., Ltd. | Fees income | 21 | 19 | |||||||||
Other income | 192 | 164 | ||||||||||
Interest expenses | 140 | 98 | ||||||||||
Woori Finance Cambodia PLC. | Interest income | 2,126 | 658 | |||||||||
Fees income | 12 | 10 | ||||||||||
Impairment losses due to credit loss (reversal of provision for credit loss) | 59 | (12 | ) | |||||||||
Woori Finance Myanmar Co., Ltd. | Interest income | 158 | 114 | |||||||||
Fees income | 5 | | ||||||||||
Impairment losses due to credit loss | 3 | | ||||||||||
Woori Bank Vietnam Limited |
Interest income | 618 | 708 | |||||||||
Fees income | 62 | | ||||||||||
Interest expense | 2,186 | | ||||||||||
Impairment losses due to credit loss | 16 | 143 | ||||||||||
WB Finance Co., Ltd. (*3) | Interest income | 1,453 | | |||||||||
Impairment losses due to credit loss | 128 | | ||||||||||
Woori Bank Principal and Interest Guaranteed Trust and Principal Guaranteed Trust | Other income | 8,282 | 7,389 | |||||||||
Interest expenses | 1,626 | 727 | ||||||||||
Other expenses | 33 | 32 | ||||||||||
Structured entities | Interest income | 106 | 14 | |||||||||
Fees income | 10,150 | 7,111 | ||||||||||
Gains related to derivatives | 13,187 | 725 | ||||||||||
Interest expenses | 9 | 9 | ||||||||||
Reversal of provision for credit loss | (298 | ) | (3,845 | ) | ||||||||
Losses related to derivatives | | 5,840 | ||||||||||
Beneficiary certificates | Dividends income | 852 | 12,461 | |||||||||
Fees income | 774 | |
- 100 -
A title of account |
For the years ended December 31 |
|||||||||||
Related parties |
2018 | 2017 | ||||||||||
Associates |
Kumho Tire Co., Inc.(*4) | Interest income | 1,098 | 2,641 | ||||||||
Fees income | | 5 | ||||||||||
Interest expenses | | 1 | ||||||||||
Impairment losses due to credit loss (reversal of provision for credit loss) | (156,621 | ) | 155,971 | |||||||||
Woori Blackstone Korea Opportunity No.1 Private Equity Fund(*5) | Dividends income | | 2,700 | |||||||||
Woori Service Networks Co., Ltd. | Dividends income | 2 | 8 | |||||||||
Other income | 30 | 30 | ||||||||||
Interest expenses | 14 | 24 | ||||||||||
Korea Credit Bureau Co., Ltd. | Dividends income | 113 | 149 | |||||||||
Interest expenses | 62 | 82 | ||||||||||
Korea Finance Security Co., Ltd. |
Dividends income | 54 | 54 | |||||||||
Interest expenses | 12 | 12 | ||||||||||
Chin Hung International Inc. | Interest income | | 364 | |||||||||
Fees income | | 1 | ||||||||||
Interest expenses | 43 | 27 | ||||||||||
Reversal of provision for credit loss | | (4,011 | ) | |||||||||
STX Engine Co., Ltd.(*6) | Interest income | 333 | 1,417 | |||||||||
. | Fees income | | 57 | |||||||||
Interest expenses | 86 | 147 | ||||||||||
Reversal of provision for credit loss | (88,603 | ) | (833 | ) | ||||||||
Samho International Co., Ltd.(*7) |
Interest income | | 486 | |||||||||
Fees income | | 6 | ||||||||||
Interest expenses | | 334 | ||||||||||
Reversal of provision for credit loss | | (628 | ) | |||||||||
STX Corporation(*6) | Interest income | | 219 | |||||||||
Fees income | | 30 | ||||||||||
Interest expenses | 2 | 6 | ||||||||||
Reversal of provision for credit loss | (31,164 | ) | (61,451 | ) | ||||||||
Well to Sea No. 3 Private Equity Fund (*8) |
Interest income | 2,179 | 982 | |||||||||
Dividends income | 517 | | ||||||||||
Interest expenses | 9 | 4 | ||||||||||
Impairment losses due to credit loss (reversal of provision for credit loss) | (30 | ) | 39 | |||||||||
Others (*9) | Dividends income | 484 | | |||||||||
Other income | 14 | | ||||||||||
Interest expenses | 40 | 13 | ||||||||||
Impairment losses due to credit loss (reversal of provision for credit loss) | (237 | ) | 218 |
(*1) | As its ownership interest in the Bank is lower than 20% as of December 31, 2017, it has been excluded from the corporation that has significant influence over the Bank category. |
(*2) | The entity is not in scope for consolidation due to its liquidation for the year ended December 31, 2017 |
(*3) | The Bank acquired over 50% ownership of WB Finance Co., Ltd. during the year ended December 31, 2018. |
(*4) | The Bank lost significant influence over the entity due to the termination of the joint management procedures of the creditors financial institution during the year ended December 31, 2018, and thus the entity was excluded from the list of associates. |
(*5) | The entity is excluded from the list of associates due to its liquidation for the year ended December 31, 2017. |
- 101 -
(*6) | The shares of the entity were sold after it was transferred to assets held for distribution (sale) during the year ended December 31, 2018 and thus was excluded from the list of associates. |
(*7) | The shares of the entity were sold after it was transferred to assets held for distribution (sale) during the year ended December 31, 2017 and thus was excluded from the list of associates. |
(*8) | Due to capital contribution, the entity was included in the list of associates during the year ended December 31, 2017. |
(*9) | Others include the amount transacted with Saman Corporation, Kyesan Engineering Co., Ltd., DAEA SNC Co., Ltd., etc., for the years ended December 31, 2018 and 2017. |
(4) | Major loan transactions with related parties for the years ended December 31, 2018 and 2017 are as follows (Unit: Korean Won in millions): |
For the year ended December 31, 2018 | ||||||||||||||||||||||
Related parties |
Beginning balance |
Loan | Collection | Others | Ending balance(*1) |
|||||||||||||||||
Subsidiaries |
PT Bank Woori Saudara Indonesia 1906 Tbk | 160,710 | 346,809 | 142,341 | 3,795 | 368,973 | ||||||||||||||||
Woori Global Markets Asia Limited | 172,184 | 732,518 | 553,559 | 3,221 | 354,364 | |||||||||||||||||
Woori Bank China Limited | 246,422 | 713,980 | 647,078 | 11,736 | 325,060 | |||||||||||||||||
AO Woori Bank | 53,426 | 208,783 | 207,522 | | 54,687 | |||||||||||||||||
Banco Woori Bank do Brasil S.A. | 1,607 | 2,230 | 2,682 | (149 | ) | 1,006 | ||||||||||||||||
Woori Finance Cambodia PLC. | 32,142 | 34,963 | | 1,994 | 69,099 | |||||||||||||||||
Woori Finance Myanmar Co., Ltd. | 4,286 | | | 186 | 4,472 | |||||||||||||||||
Woori Bank Vietnam Limited | 17,410 | | 1,283 | 756 | 16,883 | |||||||||||||||||
WB Finance Co., Ltd. (*2) | | 122,602 | | 389 | 122,991 | |||||||||||||||||
Woori America Bank | | 15,350 | | | 15,350 | |||||||||||||||||
Woori Investment Bank Co., Ltd. | 22,600 | 44,900 | 29,600 | | 37,900 | |||||||||||||||||
Structured entities | 2,102 | 1,026 | 463 | 217 | 2,882 | |||||||||||||||||
Associates |
Kumho Tire Co., Inc.(*3) | 57,470 | | 7,057 | (50,413 | ) | | |||||||||||||||
Well to Sea No. 3 Private Equity Fund (*4) | 73,810 | 16,857 | 88,810 | | 1,857 | |||||||||||||||||
STX Engine Co., Ltd. (*5) | 39,886 | | 2,177 | (37,709 | ) | |
For the years ended December 31, 2017 | ||||||||||||||||||||||
Related parties |
Beginning balance |
Loan | Collection | Others | Ending balance(*1) |
|||||||||||||||||
Subsidiaries |
PT Bank Woori Saudara Indonesia 1906 Tbk | 157,105 | 132,191 | 112,927 | (15,659 | ) | 160,710 | |||||||||||||||
Woori Global Markets Asia Limited | 146,724 | 412,194 | 382,397 | (4,337 | ) | 172,184 | ||||||||||||||||
Woori Bank China Limited | 247,743 | 329,844 | 313,783 | (17,382 | ) | 246,422 | ||||||||||||||||
AO Woori Bank | 43,861 | 169,254 | 159,798 | 109 | 53,426 | |||||||||||||||||
Banco Woori Bank do Brasil S.A. | 1,813 | | | (206 | ) | 1,607 | ||||||||||||||||
Woori Finance Cambodia PLC. | 24,170 | 19,197 | 8,341 | (2,884 | ) | 32,142 | ||||||||||||||||
Woori Finance Myanmar Co., Ltd. | 2,417 | 2,232 | | (363 | ) | 4,286 | ||||||||||||||||
Woori Bank Vietnam Limited | | 24,843 | 6,325 | (1,108 | ) | 17,410 | ||||||||||||||||
Woori Investment Bank Co., Ltd. | | 27,600 | 5,000 | | 22,600 | |||||||||||||||||
Structured entities | 13,627 | 295 | 12,315 | 495 | 2,102 | |||||||||||||||||
Associates |
Kumho Tire Co., Inc.(*3) | 50,413 | 7,057 | | | 57,470 | ||||||||||||||||
Well to Sea No. 3 Private Equity Fund (*4) | | 83,810 | 10,000 | | 73,810 | |||||||||||||||||
STX Engine Co., Ltd. (*5) | 44,797 | 2,177 | 7,088 | | 39,886 |
(*1) | Settlement payment from normal operation among the related parties were excluded, and in the case of a limited loan, it was presented as a net increase or decrease. |
(*2) | The Bank acquired over 50% ownership of WB Finance Co., Ltd. during the year ended December 31, 2018. |
(*3) | The Bank lost significant influence over the entity due to the termination of the joint management procedures of the creditors financial institution during the year ended December 31, 2018, and thus the entity was excluded from the list of associates. |
(*4) | Due to capital contribution, the entity was included in the list of associates during the year ended December 31, 2017. |
(*5) | The shares of the entity were sold after it was transferred to assets held for distribution (sale) during the year ended December 31, 2018 and thus was excluded from the list of associates. |
- 102 -
(5) | There are no major borrowing transactions with related parties other than those of 16,772 million Won and 3,041 million Won in foreign currency call-money transactions with Woori Bank Vietnam Limited and Woori Global Markets Asia Limited, respectively, during the year ended December 31, 2018. And there are no major borrowing transactions with related parties for the year ended December 31, 2017. |
(6) | Guarantees provided to the related parties are as follows (Unit: Korean Won in millions): |
Warranty |
December 31, 2018 |
December 31, 2017 |
||||||||
Woori Card Co., Ltd. |
Unused loan commitment |
500,000 | 500,000 | |||||||
Woori Investment Bank Co., Ltd. |
Unused loan commitment |
50,000 | 50,000 | |||||||
Woori America Bank |
Confirmed guarantees in foreign currencies |
| 1,388 | |||||||
PT Bank Woori Saudara Indonesia 1906 Tbk |
Confirmed guarantees in foreign currencies and others |
161,758 | 151,385 | |||||||
Woori Bank China Limited |
Confirmed guarantees in foreign currencies and others |
92,545 | 69,940 | |||||||
AO Woori Bank |
Confirmed guarantees in foreign currencies |
27,826 | 34,683 | |||||||
Banco Woori Bank do Brasil S.A. |
Confirmed guarantees in foreign currencies and others |
21,017 | 22,987 | |||||||
Woori Global Markets Asia Limited |
Confirmed guarantees in foreign currencies |
47,799 | | |||||||
Korea BTL Infrastructure Fund |
Securities purchase contract |
303,578 | 311,078 | |||||||
Woori Finance Cambodia PLC. |
Unused loan commitment |
20,349 | 16,071 | |||||||
Woori Bank Vietnam Limited |
Confirmed guarantees in foreign currencies and others |
40,398 | 26,285 | |||||||
WB Finance Co., Ltd. (*1) |
Unused loan commitment |
44,724 | | |||||||
Kumho Tire Co., Inc.(*2) |
Import credit in foreign currencies and others |
| 4,181 | |||||||
Chin Hung International Inc. |
Unused loan commitment |
31,749 | 31,749 | |||||||
STX Engine Co., Ltd. (*3) |
Import credit in foreign currencies and others |
| 68,858 | |||||||
STX Corporation(*3) |
Import credit in foreign currencies and others |
| 17,557 | |||||||
Well to Sea No. 3 Private Equity Fund |
Unused loan commitment |
208,143 | 236,190 | |||||||
Structured entities |
Loan commitment in local currency |
1,320,420 | 830,100 | |||||||
Unused loan commitment |
1,618 | 810 | ||||||||
Securities purchase contract |
1,274 | |
(*1) | The Bank acquired over 50% ownership of WB Finance Co., Ltd. during the year ended December 31, 2018. |
(*2) | The Bank lost significant influence over the entity due to the termination of the joint management procedures of the creditors financial institution during year ended December 31, 2018, and thus the entity was excluded from the list of associates. |
(*3) | The shares of the entity were sold after it was transferred to assets held for distribution (sale) during the year ended December 31, 2018 and thus was excluded from the list of associates. |
For the guarantees provided to the related parties, the Bank recognized provisions for guarantees amounting to 3,510 million Won and 74,205 million Won as of December 31, 2018 and 2017, respectively.
The amount of guarantees and unused loan commitments provided by the related parties to the Bank as of December 31, 2018 and 2017 are as follows (Unit: Korean Won in millions):
Warranty | December 31, 2018 | December 31, 2017 | ||||||||||
Woori Card Co., Ltd. |
Loan commitment in local currency | 174,287 | 178,893 |
(7) | Commitments of derivatives to the related parties are as follows (Unit: Korean Won in millions): |
Warranty | December 31, 2018 |
December 31, 2017 |
||||||||||
Woori Card Co., Ltd. |
Unsettled commitment | 100,000 | 100,000 | |||||||||
Woori Bank China Limited |
Unsettled commitment | 203 | | |||||||||
Structured entities |
Unsettled commitment | 1,198,500 | 782,914 |
- 103 -
(8) | Details of compensation to key management are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Short-term employee salaries |
12,326 | 12,024 | ||||||
Retirement benefit service costs |
489 | 472 | ||||||
|
|
|
|
|||||
Total |
12,815 | 12,496 | ||||||
|
|
|
|
Key management includes registered executives and non-registered executives. Outstanding assets and liabilities from transactions with key management amount to 2,816 million Won and 6,096 million Won, respectively, as of December 31, 2018, and with respect to the assets, the Bank has not recognized any allowance nor related impairment loss due to credit losses.
(9) | The Bank and Woori Card Co., Ltd. have joint obligation on the liability of the Bank that arose prior to the spin-off of Woori Card Co., Ltd. |
46. | TRUST ACCOUNTS |
(1) | Trust accounts of the Bank are as follows (Unit: Korean Won in millions): |
Total assets | Operating income | |||||||||||||||
December 31, 2018 |
December 31, 2017 |
For the years ended December 31 | ||||||||||||||
2018 | 2017 | |||||||||||||||
Trust accounts |
53,560,071 | 43,895,511 | 1,049,105 | 1,029,501 |
(2) | Receivables and payables between the Bank and trust accounts are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Receivables: |
||||||||
Trust fees receivable |
28,703 | 25,286 | ||||||
Payables: |
||||||||
Deposits due to customers |
574,330 | 585,832 | ||||||
Borrowings from trust accounts |
3,020,371 | 2,711,529 | ||||||
|
|
|
|
|||||
Total |
3,594,701 | 3,297,361 | ||||||
|
|
|
|
(3) | Significant transactions between the Bank and trust accounts are as follows (Unit: Korean Won in millions): |
For the years ended December 31 | ||||||||
2018 | 2017 | |||||||
Revenue: |
||||||||
Trust fees |
177,913 | 141,999 | ||||||
Termination fees |
5,885 | 1,565 | ||||||
|
|
|
|
|||||
Total |
183,798 | 143,564 | ||||||
|
|
|
|
|||||
Expense: |
||||||||
Interest expenses on deposits due to customers |
7,813 | 17,768 | ||||||
Interest expenses on borrowings from trust accounts |
38,873 | 31,956 | ||||||
|
|
|
|
|||||
Total |
46,686 | 49,724 | ||||||
|
|
|
|
- 104 -
(4) | Principal guaranteed trusts and principal and interest guaranteed trusts are as follows: |
1) | The carrying values of principal guaranteed trusts and principal and interest guaranteed trusts are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Principal guaranteed trusts: |
||||||||
Old-age pension trusts |
3,564 | 4,058 | ||||||
Personal pension trusts |
521,200 | 530,556 | ||||||
Pension trusts |
819,102 | 791,920 | ||||||
Retirement trusts |
42,187 | 50,035 | ||||||
New personal pension trusts |
8,104 | 8,563 | ||||||
New old-age pension trusts |
2,134 | 2,467 | ||||||
|
|
|
|
|||||
Sub-total |
1,396,291 | 1,387,599 | ||||||
|
|
|
|
|||||
Principal and interest guaranteed trusts: |
||||||||
Development trusts |
19 | 19 | ||||||
Unspecified money trusts |
835 | 801 | ||||||
|
|
|
|
|||||
Sub-total |
854 | 820 | ||||||
|
|
|
|
|||||
Total |
1,397,145 | 1,388,419 | ||||||
|
|
|
|
2) | The amounts that the Bank must pay by the operating results of the principal guaranteed trusts or the principal and interest guaranteed trusts are as follows (Unit: Korean Won in millions): |
December 31, 2018 | December 31, 2017 | |||||||
Liabilities for the account (subsidy for trust account adjustment) |
33 | 32 |
47. | EVENT AFTER THE REPORTING PERIOD |
After the end of the reporting period, the financial holding company was established on January 11, 2019. In accordance with the established of financial holding company, six companies, Bank, Woori FIS Co., Ltd., Woori Finance Research Institute Co., Ltd., Woori Credit Information Co., Ltd., Woori Fund Service Co., Ltd., Woori Private Equity Asset Management Co., Ltd. became fully owned subsidiaries of the said financial holding company.
After the financial holding company is established, the shares of the Bank was delisted from the Korea Stock Exchange and New York Stock Exchange on January 11, 2019, and the shares of the newly established financial holding company was listed on February 13, 2019, both Korea Stock Exchange and New York Stock Exchange.
- 105 -
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