6-K

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 registrant’s 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 registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Submission of Audit Report of Woori Bank

Date of Submission by Deloitte Anjin LLC, Woori Bank’s independent auditor: March 19, 2019

Audit reports have been furnished as exhibits 99.1 & 99.2

< Consolidated Audit Report >

1. Independent Auditor’s 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 Auditor’s 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

EX-99.1

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 Group’s 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 Group’s financial reporting process.

Auditor’s 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 auditor’s 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 Group’s 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 management’s 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 Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s 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 auditor’s 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 auditor’s 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 and 26)		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 Bank’s shares to Oligopolistic Shareholders”. In addition to the sale, during the year ended December 31, 2017, KDIC sold additional 33 million shares. As 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 fund’s 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 Group’s 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 Group’s 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 period’s 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 Group’s 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 accordance with K-IFRS 1039	Classification in accordance with 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 accordance with K-IFRS 1039	Classification in accordance with 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.

- 11 -

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 Group’s 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 accordance with 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 issuer’s own credit risk. The Group recognizes the effect of changes in the credit risk of financial liabilities designated as at FVTOCI in other comprehensive income, except for cases where it 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 Group’s risk management activities.

In accordance with the transitional provisions of K-IFRS 1109 on hedge accounting, the Group adopted the hedge accounting provisions of K-IFRS 1109 prospectively from January 1, 2018. As of the date of initial application, the Group 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	)

- 13 -

- 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 employee’s withholding tax to the tax authority for the employee’s 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).

- 14 -

- 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 investment’s initial recognition. In addition, when non-investment companies apply equity method to investment in associates and/or joint ventures that are investment companies, these companies may apply the same fair value measurement used by the said associates to value their own subsidiaries. This accounting treatment may be selectively applied to each associate.

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.

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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 Group’s voting rights in an investee are sufficient to give it power, including:

• The relative size of the Group’s 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 Group’s accounting policies.

All intra-group transactions and, related assets and liabilities, income and expenses are eliminated in full on consolidation.

Changes in the Group’s 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 Group’s 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.

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

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

• liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the 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 Group’s previously held equity interest (if any) in the acquiree over the net of identifiable assets and liabilities assumed of the acquiree at the acquisition date is recognized as goodwill which is included in intangible assets.

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

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

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.

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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 Group’s 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 party’s consolidated financial statements, and the difference between the book value of consideration transferred to and the book value of net assets transferred in is recognized as equity.

(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 Group’s share of the net assets of the joint ventures and associates and any impairment. When the Group’s share of losses of the joint ventures and associates exceeds the Group’s 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 Group’s 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 Group’s 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.

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When the Group’s 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 Group’s 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 Group’s 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 customer’s 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 customer’s 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 instrument’s 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 Group’s 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 interest’s share of accumulated foreign exchange differences related to such foreign operations will be reclassified to profit or loss, while non-controlling interest’s 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 Group’s 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 Group’s 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 Group’s 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 asset’s 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 Group’s financial instrument group (A group composed of a combination of financial asset or liability) according to the Group’s 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 Group’s 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 Group’s 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 counterparty’s 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 Group’s own credit risk when valuing them.

The amount of adjustment is derived from counterparty’s probability of default and loss given default. This adjustment considers contractual matters that are designed to reduce the Group’s exposure to each counterparty’s 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 Group’s 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 Group’s 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 asset’s 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 asset’s carrying amount and the sum of the consideration received and receivable and the cumulated gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

On derecognition of a financial 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 Group’s obligations are discharged, canceled or expired. The difference between paid cost and the carrying amount of financial liabilities is recorded in profit or loss.

5) Fair value of financial 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 Group’s 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 instrument’s 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 Group’s personnel who are familiar with market-related conditions.

b) Derivatives

Quoted market prices are used for the Group’s exchange-traded derivatives, such as certain interest rate futures and option contracts. All of the Group’s 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 derivative’s value is based. If the model inputs for certain derivatives are not observable in a liquid market, significant judgments on the level of inputs used for valuation techniques are required.

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 Group’s 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 Group’s 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 Group’s credit exposure to each counterparty. To the extent derivative assets (liabilities) are subject to master netting arrangements, the exposure used to calculate the credit risk adjustment is net of derivatives in a loss (gain) position with the same counterparty and cash collateral received (paid).

6) Impairment of 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 Group’s usual practice to write-off the asset at the time an impairment loss is recognized. Impaired loans and receivables are written off (i.e. the impairment provision is applied in writing down the loan’s carrying value in full) when the 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 Group’s 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 Group’s 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 Group’s 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.

- 35 -

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 shareholder’s 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 Group’s 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.

- 36 -

(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 Group’s 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 Group’s 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 since initial recognition(*)	Credit risk has significantly increased since initial recognition	Credit has been impaired
Allowance for expected credit losses	Expected 12-month credit losses: Expected credit losses due to possible defaults on financial instruments within a 12-month period from the year-end.	Expected lifetime credit losses: Expected credit losses from all possible defaults during the expected lifetime of the financial instruments.

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

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 instrument’s 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:

- 38 -

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 court’s decision to waive debtor’s obligation, or when it is impossible to recover the loan amount through legal means such as auctioning of debtor’s 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.

- 39 -

4. RISK MANAGEMENT

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

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

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

(1) Credit risk

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

1) Credit risk management

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

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

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

2) Maximum exposure to credit risk

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

- 40 -

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

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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

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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 customer’s obligations to third parties if the customer fails to do so. Under a loan commitment, the Group agrees to make funds available to a customer in the future. Commitments to lend include commercial standby facilities and credit lines, liquidity facilities to commercial paper conduits and utilized overdraft facilities. The maximum limit to be paid by the Group in accordance with guarantees and loan commitment only applies to principal amounts. There are contractual maturities for financial guarantees, such as guarantees for debentures issued or loans, 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 Group’s 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	%

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5. OPERATING SEGMENTS

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

(1) Segment by type of customers

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

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

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

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

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

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

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

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

	For the 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	)		—			—			—
		1,873,896			2,075,059			(11,839	)		34,908			509,598			561,034			5,042,656			608,295			5,650,951
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	)		—			—			—
		667,346			500,765			176,686			56,069			44,847			460,755			1,906,468			(844,511	)		1,061,957
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	)
		(1,993,153	)		(929,672	)		48,136			(35,313	)		(397,909	)		(865,349	)		(4,173,260	)		219,653			(3,953,607	)
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	)
Net income(expense)		382,714			1,201,432			178,148			40,356			114,767			172,181			2,089,598			(37,949	)		2,051,649

(*) 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			—			—			—
		1,702,939			1,795,377			12,124			36,883			463,603			622,790			4,633,716			586,934			5,220,650
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	)		—			—			—
		649,950			571,336			152,168			69,671			73,537			389,004			1,905,666			(653,640	)		1,252,026
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	)
		(1,906,561	)		(1,149,288	)		(63,835	)		14,662			(398,652	)		(939,406	)		(4,443,080	)		127,146			(4,315,934	)
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	)
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	)
Net income(expense)		263,646			917,638			105,973			91,881			101,214			23,050			1,503,402			26,686			1,530,088

(*) 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 Group’s 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 Group’s 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 Group’s total revenue.

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6. CASH AND CASH EQUIVALENTS

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

	December 31, 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
Total		6,712,623		6,908,286

(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
Total		42,654,357		1,859,452		428,417		(25,498	)		12,120		44,928,848

	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
Total		42,334,964		1,182,818			(828,678	)		(39,373	)		4,626		42,654,357

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
Total		6,126,183		5,843,077

(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
Sub-total		3,687,719		2,679,040
Loans		385,450		—
Derivatives assets		2,026,079		3,115,775
Total		6,126,183		5,820,787

- 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

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
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
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
Ending balance		(5,939	)		(238	)		—		(6,177	)

(*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
Ending balance		17,087,096			25,153			—		17,112,249

(*) 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
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 People’s 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 banker’s 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 Group’s own assumptions reflect those that market participants would use for measuring the assets or liabilities at the measurement date.

The fair value measurement is described in the 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 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 Group’s assessment of the significance of a particular input to a fair value measurement in its entirety requires judgment and consideration of inherent factors of the asset or liability.

(2) Fair value hierarchy of financial assets and liabilities measured at 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 technique	Input variable	Range	Impact of changes in significant unobservable inputs on fair value measurement
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 institution’s 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 Group’s 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 party’s defaults, insolvency or bankruptcy, the right of offsetting. Item such as cash collateral cannot satisfy the offsetting criteria of K-IFRS 1032, but in accordance with the collateral arrangements and under the circumstances of the trading party’s default, insolvency or bankruptcy, the 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 party’s 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 counterparty’s default, insolvency or bankruptcy; thus, the repurchase agreements are applied by the TBMA/ISMA Global Master Repurchase Agreement, which does not satisfy the offsetting criteria of K-IFRS 1032. The 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.:
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.:
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 Group’s 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	)		—
		621,299		417,051		3,196			48,272		(93,005	)		(1,170	)		(13,144	)		(177	)		404			361,427

(*) 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
		592,148		439,012		13,389			192,760		(70,946	)		(60,621	)		6,663			(114,903	)		11,697			417,051

(*) 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 Group’s 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 Group’s 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
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
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	)
Net carrying value		378,069			371,301

(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
Ending balance		378,069			371,301

(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 management’s 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 arm’s 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 asset’s 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 Group’s 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 Group’s credit risk is considered in measuring the fair value of equity-linked securities index and debentures. The Group’s 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 premise’s 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 Attorney’s Office and New York State Attorney General’s 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 Group’s 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	)
Employer’s 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 Group’s 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 Group’s 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 instrument is 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 profit or loss that includes hedge ineffectiveness	Amounts reclassified from cash flow hedge reserve to profit or loss			Line item affected in profit or loss because of the reclassification
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

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29. HYBRID SECURITIES

The bond-type hybrid securities classified as owner’s 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 Group’s 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.

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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)

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(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.

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(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.

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(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.

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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

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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 Cambodia’s 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 Group’s 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 -

EX-99.2

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 Bank’s 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 Bank’s financial reporting process.

Auditor’s 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 auditor’s 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 Bank’s 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 management’s 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 Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s 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 auditor’s 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 auditor’s 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 Bank’s shares to Oligopolistic Shareholders”. In addition to the sale, during the year ended December 31, 2017, KDIC sold additional 33 million shares. As 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 period’s 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 Bank’s 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 Bank’s 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 accordance with K-IFRS 1039	Classification in accordance with 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 accordance with K-IFRS 1039	Classification in accordance with 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 Bank’s 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 accordance with 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 issuer’s 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 Bank’s 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 employee’s withholding tax to the tax authority for the employee’s 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 investment’s initial recognition. In addition, when non-investment companies apply equity method to investment in associates and/or joint ventures that are investment companies, these companies may apply the same fair value measurement used by the said associates to value their own subsidiaries. This accounting treatment may be selectively applied to each associate. These amendments should be applied retrospectively and are available for early adoption.

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

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

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

• 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 Bank’s previously held equity interest (if any) in the acquiree over the net of identifiable assets and liabilities assumed of the acquiree at the acquisition date is recognized as goodwill which is included in intangible assets.

If, after reassessment, the Bank’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognized immediately in net income (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 entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable.

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 Bank’s previously held equity interest in the acquiree is remeasured at fair value at the acquisition date (i.e., the date when the Bank obtains control) and the resulting gain or loss, if any, is recognized in net income(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 party’s consolidated financial statements, and the difference between the book value of consideration transferred to and the book value of net assets transferred in is recognized as equity.

(3) Investment in Joint operation

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

- 9 -

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 customer’s 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.

- 10 -

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 customer’s 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 instrument’s 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.

- 11 -

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 Bank’s separate financial statements are presented in Korean Won, which is the functional currency of the Bank. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at its prevailing exchange rates at the date. 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 interest’s share of accumulated foreign exchange differences related to such foreign operations will be reclassified to profit or loss, while non-controlling interest’s 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 Bank’s 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

- 12 -

- 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 Bank’s 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 Bank’s 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 asset’s 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 Bank’s financial instrument group (A group composed of a combination of financial asset or liability) according to the Bank’s 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 Bank’s 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 Bank’s 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 counterparty’s 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 Bank’s own credit risk when valuing them.

The amount of adjustment is derived from counterparty’s probability of default and loss given default. This adjustment considers contractual matters that are designed to reduce the Bank’s exposure to each counterparty’s 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 Bank’s 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 Bank’s 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 asset’s 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 asset’s carrying amount and the sum of the consideration received and receivable and the cumulated gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

On derecognition of a financial asset other than in its entirety the Bank allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair value of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part that is no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair value of those parts.

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

5) Fair value of financial assets and liabilities

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

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

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

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

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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 Bank’s personnel who are familiar with market-related conditions.

b) Derivatives

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

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 Bank’s 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 Bank’s own credit standing.

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

6) Impairment of the financial assets

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

a) Financial assets carried at amortized cost

If there is objective evidence that an impairment loss on a financial asset or group of financial assets classified as HTM investments or as loans and receivables 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 Bank’s usual practice to write off the asset at the time an impairment loss is recognized. Impaired loans and receivables are written off (i.e., the impairment provision is applied in writing down the loan’s carrying value in full) when the Bank concludes that there is no longer any realistic prospect of recovery of part or the entire loan. Amounts recovered after a loan has been written off are reflected to the provision for the period in which they are received.

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 Bank’s 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 Bank’s 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 Bank’s 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.

- 23 -

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 shareholder’s 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.

- 25 -

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 Bank’s 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.

- 26 -

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 Bank’s 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 Bank’s 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 since initial recognition(*)	Credit risk has significantly increased since initial recognition	Credit has been impaired
Allowance for expected credit losses	Expected 12-month credit losses: Expected credit losses due to possible defaults on financial instruments within a 12-month period from the year-end.	Expected lifetime credit losses: Expected credit losses from all possible defaults during the expected lifetime of the financial instruments.

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

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.

- 27 -

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 instrument’s 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 (Capital impairment, Adverse opinion or Disclaimer of audit opinion)
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.

- 28 -

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 court’s decision to waive debtor’s obligation, or when it is impossible to recover the loan amount through legal means such as auctioning of debtor’s 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 Bank’s operating activity is exposed to various financial risks. The Bank is required to analyze and assess the level of complex risks, and determine the permissible level of risks and manage such risks. The Bank’s risk management procedures have been established to improve the quality of assets for holding or investment purposes by making decisions as how to avoid or mitigate risks through the identification of the source of the potential risks and their impact.

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

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

(1) Credit risk

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

1)    Credit risk management

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

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

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

- 29 -

2) Maximum exposure to credit risk

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

- 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 VaR’s calculation. The actual results are periodically monitored to examine the validity of the assumptions and variables and factors that are used in VaR’s calculations. However, this approach cannot prevent the loss when the market fluctuation exceeds expectation.

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

a) Trading activities

The minimum, maximum and average VaR for the 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

(*) 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

- 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

		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

- 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

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

	December 31, 2018		December 31, 2017
Guarantees		13,990,450		13,589,728
Loan commitments		65,012,748		50,214,855

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(4) Operational risk

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

1) Operational risk management

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

2) Operational risk measurement

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

(5) Capital management

The Bank complies with the 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 Group’s 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
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 Bank’s Chief Operation Decision Maker (“CODM”) utilizes the information per type of customers. This financial information of the segments is regularly reviewed by the CODM to make decisions about resources to be allocated to each segment and evaluate its performance.

(1) Segment by type of customers

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

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

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

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

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

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

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

	For the 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 Bank’s 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 Bank’s non-current assets (investments in subsidiaries and associates, investment properties, premises and equipment and intangible assets), non-current assets attributed to domestic subsidiaries as of December 31, 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 Bank’s 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

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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 banker’s 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

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(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

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(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 Bank’s own assumptions reflect those that market participants would use for measuring the assets or liabilities at the measurement date.

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

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

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

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

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

(2) Fair value hierarchy of financial assets and liabilities measured at 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

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	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.

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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.

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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.

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	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).

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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 institution’s 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 Bank’s separate statements of financial position.

The Bank possesses the derivative assets, derivative liabilities, receivable spot exchange and payable spot exchange that do not satisfy the offsetting criteria of K-IFRS 1032, but provide the Bank under the circumstances of the trading party’s defaults, insolvency or bankruptcy, the right of offsetting. Item such as cash collateral cannot satisfy the offsetting criteria of K-IFRS 1032, but in accordance with the collateral arrangements and under the circumstances of the trading party’s default, insolvency or bankruptcy, the 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 party’s default, insolvency or bankruptcy, which do not satisfy the offsetting criteria of K-IFRS 1032. The Bank recorded the collateralized borrowing in borrowings and the secured loans in loans and receivables. The Bank under the repurchase agreements has offsetting right only upon the counterparty’s default, insolvency or bankruptcy; thus, the repurchase agreements are applied by the TBMA/ISMA Global Master Repurchase Agreement, which does not satisfy the offsetting criteria of K-IFRS 1032. The Bank disclosed bonds 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 Bank’s 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 Bank’s 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 Bank’s power over the entity’s related business activities, the Bank’s exposure to variable returns from the its involvement with the entity and the Bank’s ability to affect the returns through its power over the entity.

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

	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 Bank’s power over the entity’s related business activities, the Bank’s exposure to variable returns from its involvement with the entity and the Bank’s ability to affect the returns through its power over the entity, even though the Bank holds less than 50% ownership interest of the entity.

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

- 63 -

2) The following companies have been excluded from the consolidation scope despite the Bank’s 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 Bank’s ownership ratio of the entity was more than 20%, the Bank did not have significant influence over the entity because the entity was going through workout process under receivership and thus was excluded from the investment in associates. However, as the workout process was completed 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 Bank’s 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 Bank’s capital stock and number of holding shares decreased for the year ended December 31, 2018.

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

- 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 Bank’s credit risk is considered in measuring the fair value of equity-linked securities index and debentures. The Bank’s 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 recognition’s(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 premise’s 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 Attorney’s Office and New York State Attorney General’s 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 Bank’s 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	)
Employer’s 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.

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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 Bank’s 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.

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(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 hedging instrument				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 (Held for hedging)		(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

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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.

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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 (%)) 2018: 650 won (13%), 2017: 500 won (10%)		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 Bank’s 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

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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

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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 Bank’s 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 -