EX-99.2 3 d494866dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

KB Financial Group Inc.

Separate Interim Financial Statements

September 30, 2017 and 2016


KB Financial Group Inc.

Index

September 30, 2017 and 2016

 

 

     Page(s)  

Report on Review of Interim Financial statements

     1~2  

Separate Interim Financial Statements

  

Separate Interim Statements of Financial Position

     3  

Separate Interim Statements of Comprehensive Income

     4  

Separate Interim Statements of Changes in Equity

     5  

Separate Interim Statements of Cash Flows

     6  

Notes to the Separate Interim Financial Statements

     7~54  


Report on Review of Interim Financial Statements

(English Translation of a Report Originally Issued in Korean)

To the Shareholders and Board of Directors of

KB Financial Group Inc.

Reviewed Financial Statements

We have reviewed the accompanying separate interim financial statements of KB Financial Group Inc. (the Company). These financial statements consist of the separate interim statement of financial position of the Company as of September 30, 2017, and the related separate interim statements of comprehensive income for the three-month and nine-month periods ended September 30, 2017 and 2016, and separate interim statements of changes in equity and cash flows for the nine-month periods ended September 30, 2017 and 2016, and a summary of significant accounting policies and other explanatory notes, expressed in Korean won.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these separate interim financial statements in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS) 1034, Interim Financial Reporting, and for such internal control as management determines is necessary to enable the preparation of separate interim financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to issue a report on these separate interim financial statements based on our reviews

We conducted our review in accordance with quarterly or semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.


Conclusion

Based on our reviews, nothing has come to our attention that causes us to believe the accompanying separate interim financial statements are not presented fairly, in all material respects, in accordance with Korean IFRS 1034, Interim Financial Reporting.

Other Matters

We have audited the separate statement of financial position of the Company as of December 31, 2016, and the related separate statements of comprehensive income, changes in equity and cash flows for the year then ended, in accordance with Korean Standards on Auditing. We expressed an unqualified opinion on those financial statements, not presented herein, in our audit report dated March 14, 2017. The separate statement of financial position as of December 31, 2016, presented herein for comparative purposes, is consistent, in all material respects, with the above audited statement of financial position as of December 31, 2016.

Review standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to review such financial statements may differ from those generally accepted and applied in other countries.

Samil PricewaterhouseCoopers

Seoul, Korea

November 14, 2017

 

This report is effective as of November 14, 2017, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying separate interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

 

2


KB Financial Group Inc.

Separate Interim Statements of Financial Position

September 30, 2017 and December 31, 2016

 

 

(In millions of Korean won)    Notes      September 30, 2017     December 31, 2016  
            (Unaudited)        

Assets

       

Cash and due from financial institutions

     4,5,6,29      W 286,683     W 115,065  

Financial assets at fair value through profit or loss

     4,5,7        290,950       246,656  

Loans

     4,5,8        10,000       29,415  

Investments in subsidiaries

     9        24,062,116       21,392,745  

Investments in associates

     10        —         1,053,690  

Property and equipment

     11        384       469  

Intangible assets

     12        8,140       8,092  

Deferred income tax assets

     13        6,568       4,604  

Other assets

     4,5,14        340,034       519,223  
     

 

 

   

 

 

 

Total assets

      W 25,004,875     W 23,369,959  
     

 

 

   

 

 

 

Liabilities

       

Debts

     4,5,15      W 200,000     W 350,000  

Debentures

     4,5,15        5,161,946       3,474,200  

Net defined benefit liabilities

     17        1,317       (193

Current income tax liabilities

        188,487       419,607  

Other liabilities

     4,5,18        158,641       104,528  
     

 

 

   

 

 

 

Total liabilities

        5,710,391       4,348,142  
     

 

 

   

 

 

 

Equity

       

Share capital

     19        2,090,558       2,090,558  

Capital surplus

     19        14,742,814       14,656,168  

Accumulated other comprehensive income

     19        (4,826     (4,742

Retained earnings

     19        3,102,139       2,998,923  

Treasury shares

     19        (636,201     (719,090
     

 

 

   

 

 

 

Total equity

        19,294,484       19,021,817  
     

 

 

   

 

 

 

Total liabilities and equity

      W 25,004,875     W 23,369,959  
     

 

 

   

 

 

 

The accompanying notes are an integral part of these interim separate financial statements.

 

3


KB Financial Group Inc.

Separate Interim Statements of Comprehensive Income

Three-Month and Nine-Month Periods Ended September 30, 2017 and 2016

 

 

            Period Ended September 30  
(In millions of Korean won, except per share amounts)    Notes      2017
(Unaudited)
    2016
(Unaudited)
 
            Three months     Nine months     Three months     Nine months  

Interest income

      W 603     W 3,213     W 1,144     W 3,870  

Interest expense

        (27,273     (72,877     (17,465     (42,152
     

 

 

   

 

 

   

 

 

   

 

 

 

Net interest expense

     21        (26,670     (69,664     (16,321     (38,282
     

 

 

   

 

 

   

 

 

   

 

 

 

Fee and commission income

        240       576       43       43  

Fee and commission expense

        (1,275     (6,612     (1,818     (4,894
     

 

 

   

 

 

   

 

 

   

 

 

 

Net fee and commission expense

     22        (1,035     (6,036     (1,775     (4,851
     

 

 

   

 

 

   

 

 

   

 

 

 

Net gains(losses) on financial assets at fair value through profit or loss

     23        (1,108     3,777       1,456       7,149  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net other operating income

     24        —         709,544       —         694,908  
     

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative expenses

     25        (11,856     (38,467     (12,056     (31,810
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss) before provision for credit losses

        (40,669     599,154       (28,696     627,114  

Provision for credit losses

        —         —         —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

        (40,669     599,154       (28,696     627,114  

Net non-operating income (expenses)

     26        134       94       324       (234
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) before income tax

        (40,535     599,248       (28,372     626,880  

Income tax benefit

     27        1,404       1,937       635       (1,232
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) for the period

        (39,131     601,185       (27,737     625,648  
     

 

 

   

 

 

   

 

 

   

 

 

 

Items that will not be reclassified to profit or loss:

           

Remeasurements of net defined benefit liabilities

        (28     (84     (23     (79
     

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income for the period, net of tax

        (28     (84     (23     (79
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the period

      W (39,159   W 601,101     W (27,760   W 625,569  
     

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (losses) per share

           

Basic earnings (losses) per share

     28      W (98   W 1,510     W (74   W 1,646  

Diluted earnings (losses) per share

     28        (97     1,502       (73     1,638  

The accompanying notes are an integral part of these interim separate financial statements.

 

4


KB Financial Group Inc.

Separate Interim Statements of Changes in Equity

Nine-Month Periods Ended September 30, 2017 and 2016

 

 

(In millions of Korean won)   

Share

Capital

    

Capital

Surplus

     Accumulated
Other
Comprehensive
Income
    Retained
Earnings
    Treasury
Shares
   

Total

Equity

 

Balance at January 1, 2016

   W 1,931,758      W 13,513,809      W (4,979   W 2,787,416     W —       W 18,228,004  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

              

Profit for the period

     —          —          —         625,648       —         625,648  

Remeasurements of net defined benefit liabilities

     —          —          (79     —         —         (79
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

     —          —          (79     625,648       —         625,569  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with shareholders

              

Dividends

     —          —          —         (378,625     —         (378,625

Acquisition of treasury Shares

     —          —          —         —         (476,076     (476,076
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total transactions with shareholders

     —          —          —         (378,625     (476,076     (854,701
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2016 (Unaudited)

   W 1,931,758      W 13,513,809      W (5,058   W 3,034,439     W (476,076   W 17,998,872  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2017

   W 2,090,558      W 14,656,168      W (4,742   W 2,998,923     W (719,090   W 19,021,817  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

              

Profit for the period

     —          —          —         601,185       —         601,185  

Remeasurements of net defined benefit liabilities

     —          —          (84     —         —         (84
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

     —          —          (84     601,185       —         601,101  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with shareholders

              

Dividends

     —          —          —         (497,969     —         (497,969

Acquisition of treasury shares

     —          —          —         —         (82,212     (82,212

Sales of treasury shares

     —          86,646        —         —         165,101       251,747  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total transactions with shareholders

     —          86,646        —         (497,969     82,889       (328,434
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2017 (Unaudited)

   W 2,090,558      W 14,742,814      W (4,826   W 3,102,139     W (636,201   W 19,294,484  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these interim separate financial statements.

 

5


KB Financial Group Inc.

Separate Interim Statements of Cash Flows

Nine-Month Periods Ended September 30, 2017 and 2016

 

 

          Nine-Month Period Ended September 30  
(In millions of Korean won)    Note    2017     2016  
          (Unaudited)     (Unaudited)  

Cash flows from operating activities

       

Profit for the period

      W 601,185     W 625,648  
     

 

 

   

 

 

 

Adjustment for non-cash items

       

Depreciation and amortization

        479       600  

Share-based payments

        4,952       1,858  

Net interest expense

        6,677       612  

Net losses (gains) from valuation on financial assets at fair value through profit or loss

        5,706       (1,920

Net other expenses

        1,554       1,723  
     

 

 

   

 

 

 
        19,368       2,873  
     

 

 

   

 

 

 

Changes in operating assets and liabilities

       

Deferred income tax assets

        (1,937     1,206  

Other assets

        (934     11,062  

Other liabilities

        (7,039     (13,994
     

 

 

   

 

 

 
        (9,910     (1,726
     

 

 

   

 

 

 

Net cash inflow from operating activities

        610,643       626,795  
     

 

 

   

 

 

 

Cash flows from investing activities

       

Acquisition of investment in subsidiaries

        (1,364,034     —    

Acquisition of investment in associates

        —         (1,349,850

Acquisition of financial assets at fair value through profit or loss

        (50,000     (100,000

decrease(Increase) in loans

        19,415       (36,525

Acquisition of property and equipment

        (81     (105

Acquisition of intangible assets

        (334     (105

Disposal of intangible assets

        —         10  

Net increase in guarantee deposits provided

        —         (966
     

 

 

   

 

 

 

Net cash outflow from investing activities

        (1,395,034     (1,487,541
     

 

 

   

 

 

 

Cash flows from financing activities

       

Net decrease in debts

        (150,357     —    

Proceeds from issuance of debentures

        1,836,114       1,875,939  

Repayments of debentures

        (149,669     (150,000

Dividends paid

        (497,969     (378,625

Acquisition of treasury shares

        (82,110     (460,834
     

 

 

   

 

 

 

Net cash inflow from financing activities

        956,009       886,480  
     

 

 

   

 

 

 

Net increase in cash and cash equivalents

        171,618       25,734  

Cash and cash equivalents at the beginning of the period

   29      115,062       324,944  
     

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

   29    W 286,680     W 350,678  
     

 

 

   

 

 

 

The accompanying notes are an integral part of these interim separate financial statements.

 

6


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

1. The Company

KB Financial Group Inc. (the Company), in accordance with Financial Holding Companies Act, was established on September 29, 2008, through stock transfers with the former shareholders of Kookmin Bank, KB Investment & Securities Co., Ltd., KB Asset Management Co., Ltd., KB Real Estate Trust Co., Ltd., KB Investment Co., Ltd., KB Futures Co., Ltd., KB Credit Information Co., Ltd., and KB Data Systems Co., Ltd. in order to provide management services and financing to associated companies. The headquarters are located at 84, Namdaemunro, Jung-gu, Seoul. The Company’s share capital as of September 30, 2017, is W 2,090,558 million. In 2011, Kookmin Bank spun off its credit card business segment and established a new separate credit card company, KB Kookmin Card Co., Ltd., and KB Investment & Securities Co., Ltd. merged with KB Futures Co., Ltd. The Company established KB Savings Bank Co., Ltd. in January 2012, acquired Yehansoul Savings Bank Co., Ltd. in September 2013, and KB Savings Bank Co., Ltd. merged with Yehansoul Savings Bank Co., Ltd. in January 2014. In March 2014, the Company acquired Woori Financial Co., Ltd. and changed the name to KB Capital Co., Ltd. Meanwhile, the Company included LIG Insurance Co., Ltd. as an associate and changed the name to KB Insurance Co., Ltd. in June 2015. Also, the Company included Hyundai Securities Co., Ltd. as an associate in June 2016 and included as a subsidiary on October 2016 by comprehensive exchange of shares. Hyundai Securities Co., Ltd. merged with KB Investment & Securities Co., Ltd. in December 2016 and changed the name to KB Securities Co., Ltd. in January 2017. KB Insurance Co., Ltd. became one of the subsidiaries through a tender offer in May 2017.

The Company has been listed on the Korea Exchange (“KRX”) since October 10, 2008, and on the New York Stock Exchange (“NYSE”) for its American Depositary Shares (“ADS”) since September 29, 2008. Number of shares authorized on its Articles of Incorporation is 1,000 million.

2. Basis of Preparation

2.1 Application of Korean IFRS

The Company maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS). The accompanying separate interim financial statements have been condensed, restructured and translated into English from the Korean language financial statements.

Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Company’s financial position, financial performance or cash flows, is not presented in the accompanying separate interim financial statements.

The separate financial statements of the Company have been prepared in accordance with Korean IFRS. These are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board (“IASB”) that have been adopted by the Republic of Korea.

The preparation of financial statements requires the use of certain critical accounting estimates. Management also needs to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the separate financial statements are disclosed in Note 2.4.

 

7


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

The separate financial statements were prepared in accordance with Korean IFRS 1027, Separate Financial Statements.

The Company’s condensed separate interim financial statements for the nine-month period ended September 30, 2017, have been prepared in accordance with Korean IFRS 1034, Interim Financial Reporting. These condensed separate interim financial statements have been prepared in accordance with Korean IFRS which is effective or early adopted as of September 30, 2017.

The Company has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, 2017. The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods.

 

  Amendments to Korean IFRS 1007, Statement of Cash Flows

Amendments to Korean IFRS 1007 Statement of Cash flows requires to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash flows.

 

  Amendments to Korean IFRS 1012, Income Tax

Amendments to Korean IFRS 1012 clarify how to account for deferred tax assets related to debt instruments measured at fair value. Korean IFRS 1012 provides requirements on the recognition and measurement of current or deferred tax liabilities or assets. The amendments issued clarify the requirements on recognition of deferred tax assets for unrealized losses, to address diversity in practice.

 

  Amendments to Korean IFRS 1112, Disclosure of Interests in Other Entities

Amendments to Korean IFRS 1112 clarify when an entity’s interest in a subsidiary, a joint venture or an associate is classified as held for sales in accordance with Korean IFRS 1105, the entity is required to disclose other information except for summarized financial information in accordance with Korean IFRS 1112.

Certain new accounting standards and interpretations that have been published that are not mandatory for annual reporting period commencing January 1, 2017 and have not been early adopted by the Company are set out below.

 

  Amendments to Korean IFRS 1028 Investments in Associates and Joint Ventures

When an investment in an associate or a joint venture is held by, or it held indirectly through, an entity that is a venture capital organization, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure that investment at fair value through profit or loss in accordance with Korean IFRS 1109. The amendments clarify that an entity shall make this election separately for each associate of joint venture, at initial recognition of the associate or joint venture. The Company will apply these amendments retrospectively for annual periods beginning on or after January 1, 2018, and early adoption is permitted. The Company does not expect the amendments to have a significant impact on the consolidated financial statements because the Company is not a venture capital organization.

 

8


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

  Amendments to Korean IFRS 1102 Share-based Payment

Amendments to Korean IFRS 1102 clarifies accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. And also, clarifies that the measurement approach should treat the terms and conditions of a cash-settled award in the same way as for an equity-settled award. The Company will apply the amendments for annual periods beginning on or after January 1, 2018 with early application permitted. The Company does not expect the amendments to have a significant impact on the separate financial statements.

 

  Enactments to Interpretation IFRIC 2122, Foreign Currency Transactions and Advance Consideration

According to these enactments, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an 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 entity shall determine a date of the transaction for each payment or receipt of advance consideration. These enactments will be effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Company does not expect the enactments to have a significant impact on the consolidated financial statements.

 

  Korean IFRS 1109 Financial Instruments

The new standard for financial instruments issued on September 25, 2015 is effective for annual periods beginning on or after January 1, 2018 with early application permitted. This standard will replace Korean IFRS 1039 Financial Instruments: Recognition and Measurement. The Company will apply the standards for annual periods beginning on or after January 1, 2018.

The standard requires retrospective application with some exceptions. For example, an entity is not required to restate prior periods in relation to classification, measurement and impairment of financial instruments. The standard requires prospective application of its hedge accounting requirements for all hedging relationships except the accounting for time value of options and other exceptions.

Korean IFRS 1109 Financial Instruments requires all financial assets to be classified and measured on the basis of the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial assets. A new impairment model, an expected credit loss model, is introduced and any subsequent changes in expected credit losses will be recognized in profit or loss. Also, hedge accounting rules amended to extend the hedging relationship, which consists only of eligible hedging instruments and hedged items, qualifies for hedge accounting.

An effective implementation of Korean IFRS 1109 requires preparation processes including financial impact assessment, accounting policy establishment, accounting system development and the system stabilization. The impact on the Company’s financial statements due to the application of the standard is dependent on judgements made in applying the standard, financial instruments held by the Company and macroeconomic variables.

 

9


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Within the Company, Korean IFRS 1109 Task Force Team (‘TFT’) has been set up to prepare for implementation of Korean IFRS 1109 since October 2015. There are three stages for implementation of Korean IFRS, such as analysis, design and implementation, and preparation for application. The Company is analyzing financial impacts of Korean IFRS 1109 on its separate financial statements.

 

Stage

  

Period

  

Process

1    From Oct. to Dec. 2015 (for 3 months)   

Analysis of GAAP differences and development of methodology

2    From Jan. to Dec. 2016 (for 12 months)   

Development of methodology, definition of business requirement, and the system development and test.

3    From Jan. 2017 to Mar. 2018 (for 15 months)   

Preparation for opening balances of the financial statements

Meanwhile, the following areas are likely to be affected in general.

(a) Classification and Measurement of Financial Assets

When implementing Korean IFRS 1109, the classification of financial assets will be driven by the Company’s business model for managing the financial assets and contractual terms of cash flow. The following table shows the classification of financial assets measured subsequently at amortized cost, at fair value through other comprehensive income and at fair value through profit or loss. If a hybrid contract contains a host that is a financial asset, the classification of the hybrid contract shall be determined for the entire contract without separating the embedded derivative.

 

    

Contractual cash flows characteristics

Business model   

Solely represent payments of

principal and interest

   All other

Hold the financial asset for the collection of the contractual cash flows

   Measured at amortized cost1    Recognized at fair value through profit
or loss2

Hold the financial asset for the collection of the contractual cash flows and trading

   Measured at fair value through other comprehensive income1   

Hold for trading and others

   Measured at fair value through profit or loss   

 

1 A designation at fair value through profit or loss is allowed only if such designation mitigates an accounting mismatch (irrevocable).
2 A designation at fair value through other comprehensive income is allowed only if the financial instrument is the equity investment that is not held for trading (irrevocable).

With the implementation of Korean IFRS 1109, the criteria to classify the financial assets at amortized cost or at fair value through other comprehensive income are more strictly applied than the criteria applied with Korean IFRS 1039. Accordingly, the financial assets at fair value through profit or loss may increase by implementing Korean IFRS 1109 and may result an extended fluctuation in profit or loss.

 

10


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

(b) Classification and Measurement of Financial Liabilities

Korean IFRS 1109 requires the amount of the change in the liability’s fair value attributable to changes in the credit risk to be recognized in other comprehensive income, unless this treatment of the credit risk component creates or enlarges a measurement mismatch. Amounts presented in other comprehensive income are not subsequently transferred to profit or loss.

Under Korean IFRS 1039, all financial liabilities designated at fair value through profit or loss recognized their fair value movements in profit or loss. However, under Korean IFRS 1109, certain fair value movements will be recognized in other comprehensive income and as a result, profit or loss from fair value movements may decrease.

(c) Impairment: Financial Assets and Contract Assets

The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under Korean IFRS 1039. It applies to financial assets classified at amortized cost, debt instruments measured at fair value through other comprehensive income, contract assets, lease receivables, loan commitments and certain financial guarantee contracts.

Under Korean IFRS 1109 ‘expected loss’ model, a credit event (or impairment ‘trigger’) no longer has to occur before credit losses are recognized. The Company will always recognize (at a minimum) 12-month expected credit losses in profit or loss. Lifetime expected losses will be recognized on assets for which there is a significant increase in credit risk after initial recognition.

 

Stage

  

 

  

Loss allowance

1    No significant increase in credit risk after initial recognition    12-month expected credit losses: expected credit losses that result from those default events on the financial instrument that are possible within 12 months after the reporting date
2    Significant increase in credit risk after initial recognition    Lifetime expected credit losses: expected credit losses that result from all possible default events over the life of the financial instrument
3    Credit-impaired     

Under Korean IFRS 1109, the asset that is credit-impaired at initial recognition would recognize all changes in lifetime expected credit losses since the initial recognition as a loss allowance with any changes recognized in profit or loss.

(d) Hedge Accounting

Hedge accounting mechanics (fair value hedges, cash flow hedges and hedge of net investments in a foreign operations) required by Korean IFRS 1039 remains unchanged in Korean IFRS 1109, however, the new hedge accounting rules will align the accounting for hedging instruments more closely with the Company’s risk management practices. As a general rule, more hedge relationships might be eligible for hedge accounting, as the standard introduces a more principles-based approach. Korean IFRS 1109 allows more hedging instruments and hedged items to qualify for hedge accounting, and relaxes the hedge accounting requirement by removing two hedge effectiveness tests that are a prospective test to ensure that the hedging relationship is expected to be highly effective and a quantitative retrospective test (within range of 80-125%) to ensure that the hedging relationship has been highly effective throughout the reporting period.

 

11


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

With implementation of Korean IFRS 1109, volatility in profit or loss may be reduced as some items that were not eligible as hedged items or hedging instruments under Korean IFRS 1039 are now eligible under Korean IFRS 1109.

 

  Korean IFRS 1115, Revenue from Contracts with Customers

Korean IFRS 1115 Revenue from Contracts with Customers issued on November 6, 2015 replaces Korean IFRS 1018 Revenue, Korean IFRS 1011 Construction Contracts, Interpretation 2031 Revenue-Barter Transactions Involving Advertising Services, Interpretation 2113 Customer Loyalty Programs, Interpretation 2115 Agreements for the Construction of Real Estate and Interpretation 2118 Transfers of assets from customers.

Korean IFRS 1018 and other, the current standard, provide revenue recognition criteria by type of transactions; such as, sales goods, the rendering of services, interest income, royalty income, dividend income, and construction contracts. However, Korean IFRS 1115, the new standard is based on the principle that revenue is recognized when control of a good or service transfers to a customer – so the notion of control replaces the existing notion of risks and rewards. A new five-step process must be applied before revenue from contract with customer can be recognized:

 

  Identify contracts with customers

 

  Identify the separate performance obligation

 

  Determine the transaction price of the contract

 

  Allocate the transaction price to each of the separate performance obligations, and

 

  Recognize the revenue as each performance obligation is satisfied.

The Company will apply new standard for annual reporting periods beginning on or after January 1, 2018, and early adoption is permitted. The Company does not expect the amendments to have a significant impact on the separate financial statements.

2.2 Measurement Basis

The separate financial statements have been prepared under the historical cost convention unless otherwise specified.

2.3 Functional and Presentation Currency

Items included in the separate financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates (“the functional currency”). The separate financial statements are presented in Korean won, which is the Company’s functional and presentation currency.

 

12


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

2.4 Critical Accounting Estimates

The preparation of separate financial statements requires the application of accounting policies, certain critical accounting estimates and assumptions that may have a significant impact on the assets (liabilities) and incomes (expenses). Management’s estimates of outcomes may differ from actual outcomes if management’s estimates and assumptions based on management’s best judgment at the reporting date are different from the actual environment.

Estimates and assumptions are continually evaluated and any change in an accounting estimate is recognized prospectively by including it in profit or loss in the period of the change, if the change affects that period only. Alternatively, if the change in accounting estimate affects both the period of change and future periods, that change is recognized in the profit or loss of all those periods.

The significant accounting estimates and assumptions are consistently applied to all periods presented, except for the assumptions for income tax expense.

3. Significant Accounting Policies

The significant accounting policies and calculation methods applied in the preparation of these condensed separate interim financial statements are the same as those that applied to the separate financial statements for the year ended December 31, 2016, except for the impact of changes due to enactment of new standards, amendments and interpretations disclosed in Note 2.1 and the following paragraph.

3.1 Income Tax Expenses for the Interim Period

Income tax expense for the interim period is measured by expected average annual income tax rate applicable on expected total annual income.

4. Financial Risk Management

4.1 Summary

4.1.1 Overview of Financial Risk Management Policy

The financial risks that the Company is exposed to are credit risk, market risk, liquidity risk and others.

The note regarding financial risk management provides information about the risks that the Company is exposed to, including the objectives, policies, assessment and management process of risks. Additional quantitative information is disclosed throughout the separate financial statements.

The Company’s risk management system focuses on increasing transparency, developing the risk management environment, and the preemptive response to risk due to rapid changes in the financial environment to support the Company’s long-term strategy and business decisions efficiently. Credit risk, market risk and liquidity risk have been recognized as the Company’s key risks. These risks are measured and managed in Internal Capital or VaR (Value at Risk) using a statistical method.

 

13


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

4.1.2 Risk Management Organization

Risk Management Committee

The Risk Management Committee establishes risk management strategies in accordance with the directives of the Board of Directors and determines the Company’s target risk appetite. The committee approves significant risk matters and reviews the level of risks that the Company is exposed to and the appropriateness of the Company’s risk management operations as an ultimate decision-making authority.

Risk Management Council

The Risk Management Council is a consultative group which reviews and makes decisions on matters delegated by the Risk Management Committee, and discusses the detailed issues relating to the Company’s risk management.

Risk Management Division

The Risk Management Division is responsible for conducting detailed policies, procedures and working processes relating to the Company’s risk management.

4.2 Credit Risk

4.2.1 Overview of Credit Risk

Credit risk is the risk of possible losses in an asset portfolio in the event of counterparty’s default, breach of contract and deterioration in the credit quality of the counterparty. For risk management reporting purposes, the individual borrower’s default risk is considered.

4.2.2 Credit Risk Management

The Company measures expected losses on assets that are subject to credit risk management and uses it as a management indicator.

4.2.3 Maximum Exposure to Credit Risk

The Company’s maximum exposures of financial instruments to credit risk without consideration of collateral values as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017      December 31, 2016  

Due from financial institutions

   W 286,683      W 115,065  

Loans

     10,000        29,415  

Other financial assets

     23,600        18,625  
  

 

 

    

 

 

 
   W   320,283      W   163,105  
  

 

 

    

 

 

 

 

14


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

4.2.4 Credit Risk of Loans

The Company maintains an allowance for loan losses associated with credit risk on loans to manage its credit risk.

The Company recognizes an impairment loss on loans carried at amortized cost when there is any objective indication of impairment. Under Korean IFRS, an impairment loss is based on losses incurred at the end of the reporting period. Therefore, the Company does not recognize losses expected as a result of future events. The Company measures inherent incurred losses on loans and presents them in the separate financial statements through the use of an allowance account which is offset against the related loans.

Loans are classified as follows:

 

(In millions of Korean won)    September 30, 2017      December 31, 2016  
Loans    Corporate
loans
    

Percentage

(%)

     Corporate
loans
    

Percentage

(%)

 

Neither past due nor impaired

   W 10,000        100.00      W 29,415        100.00  

Past due but not impaired

     —          —          —          —    

Impaired

                         —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     10,000        100.00        29,415        100.00  
  

 

 

    

 

 

    

 

 

    

 

 

 

Less: Allowances for loan losses

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amount

   W 10,000        100.00      W 29,415        100.00  
  

 

 

    

 

 

    

 

 

    

 

 

 

Credit quality of loans that are neither past due nor impaired are as follows:

 

     Corporate Loans  
(In millions of Korean won)    September 30, 2017      December 31, 2016  

Grade 1

   W 10,000      W 29,415  

Grade 2

     —          —    

Grade 3

               —    

Grade 4

     —          —    

Grade 5

     —          —    
  

 

 

    

 

 

 
   W 10,000      W 29,415  
  

 

 

    

 

 

 

Credit quality of loans graded according to the probability of default are as follows:

 

    

Range of PD (%)

(Probability of Default)

Grade 1

   0.0 ~ 1.0

Grade 2

   1.0 ~ 5.0

Grade 3

   5.0 ~ 15.0

Grade 4

   15.0 ~ 30.0

Grade 5

   30.0 ~

 

15


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

4.2.5 Credit Risk Concentration Analysis

Details of the Company’s loans by country as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017  
     Corporate loans      %      Allowances      Carrying amount  

Korea

   W 10,000        100.00      W —        W 10,000  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 10,000        100.00      W —        W 10,000  
  

 

 

    

 

 

    

 

 

    

 

 

 
(In millions of Korean won)    December 31, 2016  
     Corporate loans      %      Allowances      Carrying amount  

Korea

   W 29,415        100.00      W —        W 29,415  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 29,415        100.00      W —        W 29,415  
  

 

 

    

 

 

    

 

 

    

 

 

 

Details of the Company’s corporate loans by industry as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017  
     Loans      %      Allowances      Carrying amount  

Financial institutions

   W 10,000        100.00        —        W 10,000  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 10,000        100.00        —        W 10,000  
  

 

 

    

 

 

    

 

 

    

 

 

 
(In millions of Korean won)    December 31, 2016  
     Loans      %      Allowances      Carrying amount  

Financial institutions

   W 29,415        100.00      W —        W 29,415  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 29,415        100.00      W —        W 29,415  
  

 

 

    

 

 

    

 

 

    

 

 

 

4.3 Liquidity Risk

4.3.1 Overview of Liquidity Risk

Liquidity risk is a risk that the Company becomes insolvency due to uncertain liquidity caused by unexpected cash outflows, or a risk of borrowing high interest debts or disposal of liquid and other assets at a substantial discount. The Company manages its liquidity risk through analysis of the contractual maturity of all financial assets and liabilities. The Company discloses them by maturity group; such as, on demand, up to one month, between over one month and three months, between over three months and 12 months, between over one year and five years, and over five years.

Cash flows disclosed for the maturity analysis are undiscounted contractual principal and interest to be received (paid) and; thus, are not identical to the amount in the financial statements that are based on the present value of expected cash flows in some cases. The amount of interest to be received or paid on floating rate assets and liabilities is measured on the assumption that the current interest rate would be the same through the maturity.

 

16


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

4.3.2. Liquidity Risk Management

The liquidity risk is managed by liquidity management principles and related guidelines which are applied to the risk management policies and procedures that address all the possible risks that arise from the overall business of the Company.

4.3.3. Analysis of Remaining Contractual Maturity of Financial Assets and Liabilities

The remaining contractual maturity of financial assets and liabilities as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)       
     September 30, 2017  
    

On

demand

    

Up to

1 month

    

1-3

months

    

3-12

months

    

1-5

years

    

Over 5

years

     Total  

Financial assets

                    

Cash and due from financial institutions1

   W 286,780      W —        W —        W —        W —        W —        W 286,780  

Financial assets designated at fair value through profit or loss2

     —          —          —          —          —          290,950        290,950  

Loans

     —          —          —          10,000                  —          10,000  

Other financial assets

     —          4,266        —          18,817                  —          23,083  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 286,780      W 4,266      W         W 28,817      W         W 290,950      W 610,813  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

                    

Debts

   W         W 200,090      W         W         W         W         W 200,090  

Debentures

     —          2,726        24,121        559,799        3,740,310        1,278,830        5,605,786  

Other financial liabilities

     —          4,606                  3,546                  —          8,152  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W         W 207,422      W 24,121      W 563,345      W 3,740,310      W 1,278,830      W 5,814,028  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of Korean won)                                                 
     December 31, 2016  
     On
demand
     Up to
1 month
     1-3
months
     3-12
months
     1-5
years
     Over 5
years
     Total  

Financial assets

                    

Cash and due from financial institutions1

   W 115,173      W —        W —        W —        W —        W —        W 115,173  

Financial assets designated at fair value through profit or loss2

     —          —          —          —          —          246,656        246,656  

Loans

     —          29,415        —          —          —          —          29,415  

Other financial assets

     —          1        —          18,197        —          —          18,198  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 115,173      W 29,416      W —        W 18,197      W —        W 246,656      W 409,442  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

                    

Debts

   W —        W 547      W 180,517      W 170,026      W —        W —        W 351,090  

Debentures

     —          1,322        166,637        50,477        2,691,848        852,433        3,762,717  

Other financial liabilities

     —          3,831        —          —          —          —          3,831  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W —        W 5,700      W 347,154      W 220,503      W 2,691,848      W 852,433      W 4,117,638  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

1 The amount of W3 million, which is restricted amount due from the financial institutions as of September 30, 2017 and December 31, 2016, is excluded.
2 Financial assets designated at fair value through profit or loss and hybrid capital instruments are included in the ‘Over 5 years’ category according to their remaining contractual maturity because the assets’ point of sale is uncertain.

4.4 Market Risk

4.4.1 Concept

Market risk is the risk of possible losses which arise from changes in market factors; such as, interest rate, stock price, foreign exchange rate and other market factors that affect the fair value or future cash flows of financial instruments. The most significant risk of the Company is interest rate risk.

4.4.2 Interest Rate Risk

Definition of interest rate risk

Interest rate risk is the risk that the fair value or future cash flows arising from interest income and interest cost that will fluctuate due to changes in interest.

Observation method and management indicator on interest rate risk

The main objective of interest rate risk management is to protect asset values against interest rate fluctuations. The Company manages the risk through Value at Risk measurement and management for the interest rate.

 

18


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

5. Financial Assets and Financial Liabilities

5.1 Classification and Fair value of Financial Instruments

The carrying amounts and fair value of financial assets and liabilities by category as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017  
     Carrying amount      Fair value  

Financial assets

     

Financial assets designated at fair value through profit or loss

   W 290,950      W 290,950  

Loans and receivables

     

Cash and due from financial institutions

     286,683        286,683  

Loans

     10,000        10,000  

Other financial assets

     23,600        23,600  
  

 

 

    

 

 

 
   W 611,233      W 611,233  
  

 

 

    

 

 

 

Financial liabilities

     

Financial liabilities at amortized cost

     

Debts

   W 200,000      W 200,000  

Debentures

     5,161,946        5,122,209  

Other financial liabilities

     18,077        18,077  
  

 

 

    

 

 

 
   W 5,380,023      W 5,340,286  
  

 

 

    

 

 

 

 

(In millions of Korean won)    December 31, 2016  
     Carrying amount      Fair value  

Financial assets

     

Financial assets designated at fair value through profit or loss

   W 246,656      W 246,656  

Loans and receivables

     

Cash and due from financial institutions

     115,065        115,065  

Loans

     29,415        29,415  

Other financial assets

     18,625        18,625  
  

 

 

    

 

 

 
   W 409,761      W 409,761  
  

 

 

    

 

 

 

Financial liabilities

     

Financial liabilities at amortized cost

     

Debts

   W 350,000      W 350,000  

Debentures

     3,474,200        3,465,441  

Other financial liabilities

     10,450        10,450  
  

 

 

    

 

 

 
   W 3,834,650      W 3,825,891  
  

 

 

    

 

 

 

Fair value is the amount for which an asset could be exchanged, or a liability could be settled, between knowledgeable, willing parties in an arm’s length transaction. For each class of financial assets and financial liabilities, the Company discloses the fair value of that class of assets and liabilities in a way that permits it to be compared with its carrying amount at the end of each reporting period. The best evidence of fair value of financial instruments is quoted price in an active market.

 

19


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Methods of determining fair value of financial instruments are as follows:

 

Cash and due from financial institutions

  

The carrying amounts of cash and demand due from financial institutions and payment due from financial institutions are a reasonable approximation of fair values. These financial instruments do not have a fixed maturity and are receivable on demand. Fair value of ordinary due from financial institutions is measured using DCF model.

Investment securities

  

The fair value of financial instruments that are quoted in active markets is determined using the quoted prices. Fair value is determined through the use of external professional valuation institution where quoted prices are not available. The institutions use one or more of the following valuation techniques including DCF Model, Free Cash Flow to Equity Model, Imputed Market Value Model, Dividend Discount Model, Risk Adjusted Discount Rate Method, and Net Asset Value Method.

Derivatives

  

For exchange traded derivatives, quoted price in an active market is used to determine fair value and for OTC derivatives, fair value is determined using valuation techniques. The Company uses internally developed valuation models that are widely used by market participants to determine fair values of plain vanilla OTC derivatives including options, interest rate swaps, and currency swaps, based on observable market parameters. However, some complex financial instruments are valued using appropriate models developed from generally accepted market valuation models including the Finite Difference Method and the Monte Carlo Simulation or valuation results from independent external professional valuation institution.

Loans

  

DCF model is used to determine the fair value of loans. Fair value is determined by discounting the expected cash flows, which are contractual cash flows adjusted by the expected prepayment rate, at appropriate discount rate.

Debts

  

Carrying amount of overdraft in foreign currency is regarded as representative of fair value because they do not have a fixed maturity and are payable on demand. Fair value of other debts is determined using a DCF model discounting contractual future cash flows at an appropriate discount rate.

Debentures

  

Fair value is determined by using the valuations of external professional valuation institution, which are calculated using market inputs.

Other financial assets and liabilities

  

The carrying amounts are reasonable approximation of fair values. These financial instruments are temporary accounts used for other various transactions and their maturities are relatively short or not defined.

Fair value hierarchy

The Company believes that valuation methods used for measuring the fair values of financial instruments are reasonable and that the fair values recognized in the statements of financial position are appropriate. However, the fair values of the financial instruments recognized in the statements of financial position may be different if other valuation methods or assumptions are used. Additionally, as there is a variety of valuation techniques and assumptions used in measuring fair value, it may be difficult to reasonably compare the fair value with that of other financial institutions.

 

20


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

The Company classifies and discloses fair value of the financial instruments into the three-level hierarchy as follows:

Level 1: The fair values are based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

Level 2: The fair values are based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: The fair values are based on unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety shall be determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.

Fair value hierarchy of financial assets and liabilities measured at fair value in the statements of financial position

The fair value hierarchy of financial assets measured at fair value in the statement of financial position as of September 30, 2017 and December 31, 2016, is as follows:

 

(In millions of Korean won)    September 30, 2017  
     Fair value hierarchy         
     Level 1      Level 2      Level 3      Total  

Financial assets

           

Financial assets designated at fair value through profit or loss

           

Derivative-linked securities

   W  —      W  —      W  290,950      W 290,950  

 

(In millions of Korean won)    December 31, 2016  
     Fair value hierarchy         
     Level 1      Level 2      Level 3      Total  

Financial assets

           

Financial assets designated at fair value through profit or loss

           

Derivative-linked securities

   W    —      W    —      W    246,656      W   246,656  

 

21


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Fair value hierarchy of financial assets and liabilities whose fair values are disclosed

The fair value hierarchy of financial assets and liabilities whose fair values are disclosed as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017  
     Fair value hierarchy         
     Level 1      Level 2      Level 3      Total  

Financial assets

           

Cash and due from financial institutions1

   W —        W 286,683      W         W 286,683  

Loans2

               —          10,000        10,000  

Other financial assets3

                         23,600        23,600  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W         W 286,683      W 33,600      W 320,283  
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Debts4

   W   —        W 200,000      W         W 200,000  

Debentures

               5,122,209                  5,122,209  

Other financial liabilities3

                         18,077        18,077  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W         W   5,322,209      W 18,077      W   5,340,286  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of Korean won)    December 31, 2016  
     Fair value hierarchy         
     Level 1      Level 2      Level 3      Total  

Financial assets

           

Cash and due from financial institutions1

   W —        W 115,065      W —        W 115,065  

Loans2

     —          —          29,415        29,415  

Other financial assets3

     —          —          18,625        18,625  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W —        W 115,065      W 48,040      W 163,105  
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Debts4

   W —        W 350,000      W —        W 350,000  

Debentures

     —          3,465,441        —          3,465,441  

Other financial liabilities3

     —          —          10,450        10,450  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   —        W   3,815,441      W   10,450      W   3,825,891  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1  Because due from financial institutions classified as level 2 are deposits on demand, we regarded the carrying amount as representative of fair value.
2  Because loans classified as level 3 are loans with residual maturity of less than one year, we regarded the carrying amount as representative of fair value.
3  Other financial assets and other financial liabilities classified as level 3 are regarded as the carrying amount as representative of fair value.
4  Debts classified as level 2 are regarded as the carrying amount as representative of fair value.

 

22


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Valuation techniques and inputs used in the fair value measurement

Financial assets and liabilities whose carrying amount is a reasonable approximation of fair value are not subject to disclose valuation techniques and inputs.

Valuation techniques and inputs of financial assets and liabilities whose fair values are disclosed and classified as Level 2 as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    Fair value      Valuation
Techniques
     Inputs  
     September 30, 2017      December 31, 2016                

Financial liabilities

           

Debentures

   W 5,122,209      W 3,465,441        DCF model        Discount rate  

5.2 Level 3 of the Fair Value Hierarchy Disclosure

5.2.1 Valuation Policy and Process for Fair Value Measurement Categorized Within Level 3

The Company uses external, independent and qualified professional valuer’s valuation to determine the fair value of the Company’s assets at the end of every reporting period.

5.2.2 Changes in fair value (Level 3) measured using valuation technique based on assumption that is unobservable in the market

Details of changes in Level 3 of the fair value hierarchy for the nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)    2017  
     Financial assets at
fair value
through profit

or loss
 
    

Financial assets
designated at

fair value
through profit

or loss

 

Beginning balance

   W 246,656  

Total gains or losses

  

- Profit or loss for the period

     (5,706

- Other comprehensive income

         

Purchases

     50,000  

Sales

         

Issues

         

Settlements

         

Transfers into Level 3

         

Transfers out of Level 3

         
  

 

 

 

Ending balance

   W  290,950  
  

 

 

 

 

23


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

(In millions of Korean won)    2016  
     Financial assets at
fair value
through profit

or loss
 
    

Financial assets
designated at

fair value
through profit

or loss

 

Beginning balance

   W 99,118  

Total gains or losses

  

- Profit or loss for the period

     1,920  

- Other comprehensive income

      

Purchases

     100,000  

Sales

      

Issues

      

Settlements

      

Transfers into Level 3

      

Transfers out of Level 3

      
  

 

 

 

Ending balance

   W 201,038  
  

 

 

 

In relation to changes in Level 3 of the fair value hierarchy, total gains or losses recognized in profit or loss for the period, and profit or loss from financial instruments held at the end of the reporting period in the statement of comprehensive income for the nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)    2017  
     Losses from financial
investments at fair value
through profit or loss
     Other
operating
income
     Net interest
income
 

Total gains or losses included in profit or loss for the period

   W (5,706    W  —        W  —    

Total gains or losses included in profit or loss for the period for financial instruments held at the end of the reporting period

   W (5,706      —          —    
(In millions of Korean won)    2016  
     Gains from financial
investments at fair value
through profit or loss
     Other
operating
income
     Net interest
income
 

Total gains or losses included in profit or loss for the period

   W  1,920      W —        W —    

Total gains or losses included in profit or loss for the period for financial instruments held at the end of the reporting period

     1,920        —          —    

 

24


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

5.2.3 Sensitivity Analysis of Changes in Unobservable Inputs

Information about fair value measurements using unobservable inputs as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017
     Fair value      Valuation
technique
   Inputs    Unobservable
inputs
     Range of
unobservable
inputs (%)
     Relationship of
unobservable inputs to
fair value

Financial assets

 

              

Financial assets designated at fair value through profit or loss

                 

Derivative-linked securities

   W 290,950     

Hull and White Model, Monte Carlo Simulation, DCF Model

  

Discount rate, Volatility of interest rate

     Discount rate        2.21~5.05     

The lower the discount rate, the higher the fair value

             

Volatility of
interest
rate
 
 
 
     0.53     

The higher the volatility, the higher the fair value fluctuation

(In millions of Korean won)    December 31, 2016
     Fair value      Valuation
technique
   Inputs    Unobservable
inputs
     Range of
unobservable
inputs (%)
     Relationship of
unobservable inputs to
fair value

Financial assets

 

              

Financial assets designated at fair value through profit or loss

                 

Derivative-linked securities

   W   246,656     

Hull and White Model, Monte Carlo Simulation, DCF Model

  

Discount rate, Volatility of interest rate

    
Discount
rate
 
 
     2.56~4.92     

The lower the discount rate, the higher the fair value

             

Volatility of
interest
rate
 
 
 
     0.54     

The higher the volatility, the higher the fair value fluctuation

Sensitivity analysis of changes in unobservable inputs

Sensitivity analysis of financial instruments is performed to measure favorable and unfavorable changes in the fair value of financial instruments which are affected by the unobservable parameters, using a statistical technique. When the fair value is affected by more than two input parameters, the amounts represent the most favorable or most unfavorable outcome. There are derivative-linked securities whose fair value changes are recognized in profit or loss.

 

25


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

The results of the sensitivity analysis from changes in inputs are as follows:

 

(In millions of Korean won)    September 30, 2017  
     Recognition
in profit or loss
     Other comprehensive
income
 
     Favorable
changes
     Unfavorable
changes
     Favorable
changes
     Unfavorable
changes
 

Financial assets

           

Financial assets designated at fair value through profit or loss

           

Derivative-linked securities1

   W   9,243      W   (8,952    W   —        W   —    
(In millions of Korean won)    December 31, 2016  
     Recognition
in profit or loss
     Other comprehensive
income
 
     Favorable
changes
     Unfavorable
changes
     Favorable
changes
     Unfavorable
changes
 

Financial assets

           

Financial assets designated at fair value through profit or loss

           

Derivative-linked securities1

   W 8,827      W (8,577    W —        W —    

 

1  For equity securities, the changes in fair value are calculated by shifting principal unobservable input parameters; such as, discount rate, the correlation of rates of long-term interest rate and short-term interest rate, or the volatility of the interest rate is shifted by ± 1%.

5.3 Offsetting Financial Assets and Financial Liabilities

The Company entered into master netting agreement with the counterparty through International Derivatives Swaps and Dealers Association (“ISDA”) or other similar agreements in relation to Over-the-counter derivatives and foreign exchange spot transaction. Repurchase agreements and stock lending and borrowing transactions of the Company are offset through similar netting agreements as derivatives. In accordance with the master netting agreement, the contact with the counterparty is terminated in certain circumstances; such as, bankruptcy or insolvency. At the termination, the receivables and payment of the counterparty offset, and receive/pay the net balance from/to the counterparty. Besides the financial instruments mentioned above, the Company has other financial instruments; such as, domestic exchange transactions and marketable securities, receivables and payable relating to derivative instruments. Theses financial instruments are settled at net basis in accordance with the legal net obligations; therefore, they are presented in the statement of financial position after offset.

 

26


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Details of financial assets subject to offsetting, enforceable master netting arrangements or similar agreement as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017  
                          Amount not offset         
     Gross assets      Gross liabilities
offset
     Net amounts
presented in
the statement
of financial
position
     Financial
instruments
     Cash
collateral
     Net amount  

Reverse repurchase agreements

   W —        W —        W —        W —        W —        W —    

 

(In millions of Korean won)    December 31, 2016  
                          Amount not offset         
     Gross assets      Gross liabilities
offset
     Net amounts
presented in
the statement
of financial
position
     Financial
instruments
    Cash
collateral
     Net amount  

Reverse repurchase agreements

   W 29,415      W —        W 29,415      W (29,415   W —        W —    

6. Due from Financial Institution

Details of due from financial institution as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)     

Financial

Institution

  

Interest rate (%)

(As of
September 30, 2017)

     September 30, 2017      December 31, 2016  

Due from financial institution in Korean won

     Due from banks     

Kookmin Bank

    

0.00
~
0.96
 
 
 
   W 286,683      W 57,967  
     

Standard Chartered Bank

     —          —          863  
     

KEB Hana Bank

     —          —          3,294  
     Due from others     

The Korea Securities Finance

Corporation

     —          —          52,941  
           

 

 

    

 

 

 
            W 286,683      W 115,065  
           

 

 

    

 

 

 

 

27


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Details of a maturity analysis of due from financial institution, excluding restricted cash, as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017  
    

Up to

3 months

     3~6
months
     6~12
months
     1~3
years
    

Over

3 years

     Total  

Due from financial institution in Korean won

   W 286,680      W —        W —        W —        W —        W 286,680  
(In millions of Korean won)    December 31, 2016  
    

Up to

3 months

     3~6
months
     6~12
months
     1~3
years
    

Over

3 years

     Total  

Due from financial institution in Korean won

   W 115,062      W —        W —        W —        W —        W 115,062  

Restricted cash from financial institution as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    Financial
Institution
   September 30, 2017      December 31, 2016      Reason for restriction

Due from financial institution in Korean won

   Kookmin Bank    W 3      W 3      Pledged as collateral for the overdraft establishment

7. Financial Assets at Fair Value through Profit or Loss

Financial assets at fair value through profit or losses as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017      December 31, 2016  

Financial assets designated at fair value through profit or loss

     

Derivative-linked securities

   W 290,950      W 246,656  

8. Loans

Details of loans as of September 30, 2017 and December 31, 2016 are as follows:

 

(In millions of Korean won)    September 30, 2017      December 31, 2016  

Loans

   W 10,000      W 29,415  

Less: Allowances for loan losses

     —          —    
  

 

 

    

 

 

 

Book amount

   W 10,000      W 29,415  
  

 

 

    

 

 

 

 

28


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

9. Investments in Subsidiaries

Details of subsidiaries as of September 30, 2017, are as follows:

 

Name of subsidiary    Industry   Location
Kookmin Bank    Banking and domestic, foreign exchange transaction   Korea
KB Securities Co., Ltd.    Financial investment   Korea
KB Insurance Co., Ltd.    Non-life insurance   Korea
KB Kookmin Card Co., Ltd.    Credit card   Korea
KB Life Insurance Co., Ltd.    Life insurance   Korea
KB Asset Management Co., Ltd.    Investment advisory and collective investment   Korea
KB Capital Co., Ltd.    Financial leasing   Korea
KB Savings Bank Co., Ltd.    Savings banking   Korea
KB Real Estate Trust Co., Ltd.    Real estate trust management   Korea
KB Investment Co., Ltd.    Capital investment   Korea
KB Credit Information Co., Ltd.    Collection of receivables and credit investigation   Korea
KB Data System Co., Ltd.    System software, development and supply   Korea

Investments in subsidiaries as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won, except for shares and ownership %)    Number of
Issued Shares
     Ownership(%)      Carrying amount  
Name of subsidiary    As of September 30, 2017      September 30, 2017      December 31, 2016  

Kookmin Bank

     404,379,116        100.00        14,821,721        14,821,721  

KB Securities Co., Ltd.

     298,620,424        100.00        3,342,391        3,342,391  

KB Insurance Co., Ltd.

     66,500,000        100.00        2,375,430        —    

KB Kookmin Card Co., Ltd.

     92,000,000        100.00        1,953,175        1,953,175  

KB Life Insurance Co., Ltd.

     91,200,000        100.00        485,314        485,314  

KB Asset Management Co., Ltd.

     7,667,550        100.00        96,312        96,312  

KB Capital Co., Ltd.

     21,492,128        100.00        573,811        279,870  

KB Savings Bank Co., Ltd.

     8,001,912        100.00        157,544        157,544  

KB Real Estate Trust Co., Ltd.

     16,000,000        100.00        121,553        121,553  

KB Investment Co., Ltd.

     8,951,797        100.00        104,910        104,910  

KB Credit Information Co., Ltd.

     1,252,400        100.00        23,621        23,621  

KB Data System Co., Ltd.

     800,000        100.00        6,334        6,334  
        

 

 

    

 

 

 
         W 24,062,116      W 21,392,745  
        

 

 

    

 

 

 

Changes in accumulated impairment losses on investments in subsidiaries for the nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)    2017  
     Beginning      Impairment      Others      Ending  

Accumulated impairment losses on investments in subsidiaries1

   W (51,742    W —        W —        W (51,742

 

29


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

(In millions of Korean won)    2016  
     Beginning      Impairment      Others      Ending  

Accumulated impairment losses on investments in subsidiaries1

   W (51,742    W —        W —        W (51,742

 

1  The industry environment of savings banks has deteriorated continuously and their performance fell short of expectations primarily due to a decline of benchmark interest rate. Considering the recent downturn, the Company recognized the impairment loss on investment in KB Savings Bank Co., Ltd.

10. Investments in Associates

Details of investments in associates as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017
Name of associate    Ownership
(%)
     Acquisition
cost
    

Share of

net asset
amount

     Carrying
amount
     Industry    Location

KB Insurance Co., Ltd.

     —        W —        W —        W —        —      —  
(In millions of Korean won)    December 31, 2016
Name of associate    Ownership
(%)
     Acquisition
cost
    

Share of

net asset
amount

     Carrying
amount
     Industry    Location

KB Insurance Co., Ltd.

     39.81      W 1,053,690      W 1,393,320      W 1,053,690      Non-life insurance    Korea

Changes in investments in associates for nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)    2017  
     Beginning      Acquisition      Disposal      Impairment      Reclassification     Ending  
Name of associate                                         

KB Insurance Co., Ltd.

   W 1,053,690      W —        W —        W —        W (1,053,690   W —    
(In millions of Korean won)    2016  
     Beginning      Acquisition      Disposal      Impairment      Reclassification     Ending  
Name of associate                                         

KB Insurance Co., Ltd.

   W 883,065      W —        W —        W —        W —       W 883,065  

Hyundai Securities Co., Ltd.

     —          1,349,850        —          —          —         1,349,850  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   W 883,065      W 1,349,850      W —        W —        W —       W 2,232,915  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

30


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

11. Property and Equipment

Details of property and equipment as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017  
     Acquisition
cost
     Accumulated
depreciation
     Accumulated
impairment
losses
     Carrying
amount
 

Leasehold improvements

   W 823      W (728    W —        W 95  

Equipment and others

     5,055        (4,766      —          289  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 5,878      W (5,494    W —        W 384  
  

 

 

    

 

 

    

 

 

    

 

 

 
(In millions of Korean won)    December 31, 2016  
     Acquisition
cost
     Accumulated
depreciation
     Accumulated
impairment
losses
     Carrying
amount
 

Leasehold improvements

   W 791      W (679    W —        W 112  

Equipment and others

     5,046        (4,689      —          357  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 5,837      W (5,368)      W —        W 469  
  

 

 

    

 

 

    

 

 

    

 

 

 

12. Intangible Assets

Details of intangible assets as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017  
    

Acquisition

Cost

    

Accumulated

amortization

     Accumulated
impairment
losses
     Carrying
amount
 

Software

   W 2,623      W (2,557    W —        W 66  

Membership rights

     9,623        —          (1,863      7,760  

Other intangible assets

     3,820        (3,506      —          314  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 16,066      W (6,063)      W (1,863)      W 8,140  
  

 

 

    

 

 

    

 

 

    

 

 

 
(In millions of Korean won)    December 31, 2016  
    

Acquisition

Cost

    

Accumulated

amortization

     Accumulated
impairment
losses
     Carrying
amount
 

Software

   W 2,615      W (2,450    W —        W 165  

Membership rights

     9,531        —          (1,962      7,569  

Other intangible assets

     3,657        (3,299      —          358  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 15,803      W (5,749    W (1,962    W 8,092  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

31


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

13. Deferred Income Tax Assets and Liabilities

Details of deferred income tax assets and liabilities as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017  
     Assets      Liabilities      Net amounts  

Share-based payments

   W 2,969      W —        W 2,969  

Membership rights

     451        —          451  

Defined benefit obligation

     957        —          957  

Plan assets

     —          (526      (526

Short-term employee benefits

     445        —          445  

Others

     2,446        (174      2,272  
  

 

 

    

 

 

    

 

 

 
     7,268        (700      6,568  
  

 

 

    

 

 

    

 

 

 

Offsetting of deferred tax assets and liabilities

     (700      700        —    
  

 

 

    

 

 

    

 

 

 
   W   6,568      W   —        W   6,568  
  

 

 

    

 

 

    

 

 

 
(In millions of Korean won)    December 31, 2016  
     Assets      Liabilities      Net amounts  

Share-based payments

   W 2,189      W —        W 2,189  

Membership rights

     475        —          475  

Defined benefit obligation

     1,267        —          1,267  

Plan assets

     —          (736      (736

Short-term employee benefits

     381        —          381  

Others

     1,028        —          1,028  
  

 

 

    

 

 

    

 

 

 
     5,340        (736      4,604  
  

 

 

    

 

 

    

 

 

 

Offsetting of deferred tax assets and liabilities

     (736      736        —    
  

 

 

    

 

 

    

 

 

 
   W   4,604      W   —        W   4,604  
  

 

 

    

 

 

    

 

 

 

14. Other Assets

Details of other assets as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017      December 31, 2016  

Other financial assets

     

Receivables

   W 4,265      W —    

Accrued income

     1,438        663  

Guarantee deposits provided

     17,897        17,962  
  

 

 

    

 

 

 
     23,600        18,625  
  

 

 

    

 

 

 

Other non-financial assets

     

Receivables

     315,156        498,866  

Prepaid expenses

     1,195        1,725  

Advance payments

     83        7  
  

 

 

    

 

 

 
     316,434        500,598  
  

 

 

    

 

 

 
   W 340,034      W 519,223  
  

 

 

    

 

 

 

 

32


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

15. Debts

Debts as of September 30, 2017 and December 31, 2017, consist of:

 

(In millions of Korean won)    September 30, 2017      December 31, 2016  

Borrowings

   W   200,000      W   350,000  

Details of borrowings as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    Lender   

Annual interest

rates (%)

As of September 30, 2017

     September 30,
2017
     December 31, 2016  

Borrowings in Korean won

   Other borrowings   

KTB Investment & Securities Co., Ltd. and Others

     —        W —        W 180,000  
     

Samsung Securities Co., Ltd.

     —          —          170,000  
     

SK Securities Co., Ltd.

     —          —       
     

KB Securities Co., Ltd and Others

     1.64        200,000        —    
           

 

 

    

 

 

 
      W   200,000      W   350,000  
           

 

 

    

 

 

 

The maturities of debts as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017  
    

Up to

3 months

    

3~6

months

    

6~12

months

    

1~3

years

    

Over

3 years

     Total  

Borrowings in Korean won

   W 200,000      W —        W —        W —        W —        W 200,000  
(In millions of Korean won)    December 31, 2016  
    

Up to

3 months

    

3~6

months

    

6~12

months

    

1~3

years

    

Over

3 years

     Total  

Borrowings in Korean won

   W 180,000      W 170,000      W —        W —        W —        W 350,000  

16. Debentures

Details of debentures as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)                       
     Issued date      Expiration date     

Annual interest
rates (%)

As of
September 30, 2017

     September 30, 2017      December 31, 2016  

Unguaranteed debentures No. 3-2

     Aug. 13, 2013        Aug. 13, 2018        3.46        130,000      W 130,000  

Unguaranteed debentures No. 3-3

     Aug. 13, 2013        Aug. 13, 2020        3.65        70,000        70,000  

 

33


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Unguaranteed debentures No. 4

   Mar. 17, 2014      Mar. 17, 2017        3.02                  150,000  

Unguaranteed debentures No. 5-1

   Mar. 19, 2014      Mar. 19, 2019        3.31        80,000        80,000  

Unguaranteed debentures No. 5-2

   Mar. 19, 2014      Mar. 19, 2021        3.50        50,000        50,000  

Unguaranteed debentures No. 6

   Feb. 26, 2015      Feb. 26, 2022        2.38        30,000        30,000  

Unguaranteed debentures No. 7

   June 23, 2015      June 23, 2018        1.98        150,000        150,000  

Unguaranteed debentures No. 8

   June 23, 2015      June 23, 2020        2.34        100,000        100,000  

Unguaranteed debentures No. 9

   June 23, 2015      June 23, 2022        2.52        150,000        150,000  

Unguaranteed debentures No. 10

   Sept. 17, 2015      Sept. 17, 2020        2.16        20,000        20,000  

Unguaranteed debentures No. 11

   Sept. 23, 2015      Sept. 23, 2020        2.06        30,000        30,000  

Unguaranteed debentures No. 12-1

   Nov. 27, 2015      Nov. 27, 2018        2.07        80,000        80,000  

Unguaranteed debentures No. 12-2

   Nov. 27, 2015      Nov. 27, 2020        2.26        110,000        110,000  

Unguaranteed debentures No. 12-3

   Nov. 27, 2015      Nov. 27, 2022        2.38        50,000        50,000  

Unguaranteed debentures No. 13

   Dec. 04, 2015      Dec. 04, 2018        2.09        130,000        130,000  

Unguaranteed debentures No. 14-1

   Dec. 09, 2015      Dec. 09, 2020        2.27        140,000        140,000  

Unguaranteed debentures No. 14-2

   Dec. 09, 2015      Dec. 09, 2022        2.38        30,000        30,000  

Unguaranteed debentures No. 15-1

   May 12, 2016      May 12, 2019        1.61        180,000        180,000  

Unguaranteed debentures No. 15-2

   May 12, 2016      May 12, 2021        1.72        220,000        220,000  

Unguaranteed debentures No. 15-3

   May 12, 2016      May 12, 2026        2.01        200,000        200,000  

Unguaranteed debentures No. 16-1

   May 27, 2016      May 27, 2019        1.67        240,000        240,000  

Unguaranteed debentures No. 16-2

   May 27, 2016      May 27, 2021        1.78        60,000        60,000  

Unguaranteed debentures No. 16-3

   May 27, 2016      May 27, 2023        1.91        150,000        150,000  

Unguaranteed debentures No. 17

   June 27, 2016      June 27, 2021        1.51        50,000        50,000  

Unguaranteed debentures No. 18-1

   July 25, 2016      July 25, 2019        1.38        170,000        170,000  

Unguaranteed debentures No. 18-2

   July 25, 2016      July 25, 2021        1.45        110,000        110,000  

Unguaranteed debentures No. 18-3

   July 25, 2016      July 25, 2026        1.69        80,000        80,000  

Unguaranteed debentures No. 19-1

   Aug. 25, 2016      Aug. 24, 2018        1.35        200,000        200,000  

Unguaranteed debentures No. 19-2

   Aug. 25, 2016      Aug. 25, 2021        1.46        100,000        100,000  

Unguaranteed debentures No. 19-3

   Aug. 25, 2016      Aug. 25, 2026        1.69        120,000        120,000  

Unguaranteed debentures No. 20-1

   Nov. 28, 2016      Nov. 28, 2019        2.13        50,000        50,000  

 

34


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Unguaranteed debentures No. 20-2

   Nov. 28, 2016      Nov. 28, 2021        2.28        50,000       50,000  

Unguaranteed debentures No. 21

   Jan. 25, 2017      Jan. 23, 2020        1.82        100,000       —    

Unguaranteed debentures No. 22-1

   Feb. 28, 2017      Feb. 28, 2020        1.89        120,000       —    

Unguaranteed debentures No. 22-2

   Feb. 28, 2017      Feb. 28, 2022        2.11        110,000       —    

Unguaranteed debentures No. 23

   Mar. 23, 2017      Mar. 23, 2020        1.95        80,000       —    

Unguaranteed debentures No. 24

   Apr. 06, 2017      Apr. 06, 2020        1.97        70,000           

Unguaranteed debentures No. 25-1

   May 24, 2017      May 24, 2019        1.79        150,000           

Unguaranteed debentures No. 25-2

   May 24, 2017      May 24, 2020        1.97        100,000           

Unguaranteed debentures No. 25-3

   May 24, 2017      May 24, 2022        2.23        270,000           

Unguaranteed debentures No. 25-4

   May 24, 2017      May 24, 2027        2.62        80,000           

Unguaranteed debentures No. 26-1

   June 27, 2017      June 27, 2022        2.18        50,000           

Unguaranteed debentures No. 26-2

   June 27, 2017      June 27, 2024        2.34        200,000           

Unguaranteed debentures No. 27

   July 19, 2017      July 19, 2024        2.41        100,000    

Unguaranteed debentures No. 28-1

   Aug. 30, 2017      Aug. 30, 2022        2.30        60,000    

Unguaranteed debentures No. 28-2

   Aug. 30, 2017      Aug. 30, 2024        2.43        30,000    

Unguaranteed debentures No. 28-3

   Aug. 30, 2017      August. 30, 2027        2.60        60,000    

Unguaranteed debentures No. 29-1

   Sept. 19, 2017      Sept. 19, 2022        2.29        150,000    
             

Unguaranteed debentures No. 29-2

   Sept. 19, 2017      Sept. 19, 2024        2.44        110,000    
           

 

 

   

 

 

 
              5,170,000       3,480,000  
              (8,054     (5,800
     

 

 

   

 

 

 
            W 5,161,946     W 3,474,200  
           

 

 

   

 

 

 

The maturities of debentures as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017  
    

Up to

3 months

    

3~6

months

    

6~12

months

    

1~3

years

    

Over

3 years

     Total  

Debentures in Korean won

   W   —        W   —        W   480,000      W   1,770,000      W   2,920,000      W   5,170,000  
(In millions of Korean won)    December 31, 2016  
    

Up to

3 months

    

3~6

months

    

6~12

months

    

1~3

years

    

Over

3 years

     Total  

Debentures in Korean won

   W   150,000      W   —        W   —        W   1,410,000      W   1,920,000      W   3,480,000  

 

35


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Changes in debentures based on face value for the nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)    2017  
     Beginning      Issue      Repayment      Ending  

Debentures in Korean won

   W   3,480,000      W   1,840,000      W   150,000      W   5,170,000  
(In millions of Korean won)    2016  
     Beginning      Issue      Repayment      Ending  

Debentures in Korean won

   W   1,650,000      W   1,880,000      W   150,000      W   3,380,000  

17. Net Defined Benefit Liabilities

Defined benefit plan

The Company operates defined benefit plans which have the following characteristics:

 

  The Company has the obligation to pay the agreed benefits to all its current and former employees.

 

  Actuarial risk (that benefits will cost more than expected) and investment risk fall, in substance, on the Company.

The net defined benefit liability recognized in the statements of financial position is calculated in accordance with actuarial valuation methods using market data; such as, interest rates, future salary increase rate and mortality rate based on historical data. Actuarial assumptions may differ from actual results, due to changes in the market, economic trends and mortality trends.

Changes in the defined benefit obligation for the nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)                     
     2017  
   Present value of
defined benefit
obligation
     Fair value of plan
assets
     Net defined benefit
liabilities
 

Beginning

   W 15,075      W (15,268    W (193

Current service cost

     1,466                  1,466  

Interest expense(income)

     292        (296      (4

Remeasurements:

        

Return on plan assets (excluding amounts included in interest income)

     —          111        111  

Payments from plans (benefit payments)

     (2,130      2,130        —    

Payments from the Company

     (63      —          (63

Transfer in

     2,801        (2,801      —    

Transfer out

     (1,525      1,525        —    
  

 

 

    

 

 

    

 

 

 

Ending

   W   15,916      W (14,599    W   1,317  
  

 

 

    

 

 

    

 

 

 

 

36


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

(In millions of Korean won)                     
     2016  
   Present value of
defined benefit
obligation
     Fair value of plan
assets
     Net defined benefit
liabilities
 

Beginning

   W 15,385      W (14,794    W 591  

Current service cost

     1,526        —          1,526  

Interest expense (income)

     286        (275      11  

Remeasurements:

        

Return on plan assets (excluding amounts included in interest income)

     —          104        104  

Payments from plans (benefit payments)

     (1,436      1,436        —    

Payments from the Company

     (2      —          (2

Transfer in

     1,206        (1,156      50  

Transfer out

     (2,000      2,000        —    
  

 

 

    

 

 

    

 

 

 

Ending

   W   14,965      W (12,685    W   2,280  
  

 

 

    

 

 

    

 

 

 

Details of the net defined benefit liabilities as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017      December 31, 2016  

Present value of defined benefit obligation

   W 15,916      W 15,075  

Fair value of plan assets

     (14,599      (15,268
  

 

 

    

 

 

 

Net defined benefit liabilities

   W   1,317      W   (193
  

 

 

    

 

 

 

Details of post-employment benefits recognized in profit or loss as employee compensation and benefits for the nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)    2017      2016  

Current service cost

   W 1,466      W 1,526  

Net interest expenses of net defined benefit liabilities

     (4      11  
  

 

 

    

 

 

 

Post-employment benefits

   W   1,462      W   1,537  
  

 

 

    

 

 

 

18. Other Liabilities

Details of other liabilities as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017      December 31, 2016  

Other financial liabilities

     

Payables

   W 4,418      W 2,759  

Accrued expenses

     13,659        7,691  
  

 

 

    

 

 

 
   W 18,077        10,450  
  

 

 

    

 

 

 

Other non-financial liabilities

     

Payables

   W 29,043        10,989  

Accrued expenses

     110,989        82,474  

Withholding taxes

     532        615  
  

 

 

    

 

 

 
     140,564        94,078  
  

 

 

    

 

 

 
   W   158,641      W   104,528  
  

 

 

    

 

 

 

 

37


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

19. Equity

19.1 Share Capital

Details of share capital and number of issued shares as of September 30, 2017 and December 31, 2016, are as follows:

 

     September 30, 2017      December 31, 2016  
Type of share    Ordinary share      Ordinary share  

Number of authorized shares

     1,000,000,000        1,000,000,000  

Par value per share

   W 5,000      W 5,000  

Number of issued shares

     418,111,537        418,111,537  

Share capital1

   W   2,090,558      W   2,090,558  

 

1 In millions of Korean won.

Changes in shares outstanding for the nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In number of shares)    2017      2016  

Beginning

     398,357,724        386,351,693  

Increase

     4,438,230            

Decrease

     (1,792,500)        (13,806,975)  

Ending

     401,003,454        372,544,718  

19.2 Capital Surplus

Details of capital surplus as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017      December 31, 2016  

Share premium

   W 13,190,275      W 13,190,275  

Other capital surplus

     1,465,893        1,465,893  

Gain on sales of treasury share

     86,646            
  

 

 

    

 

 

 
   W 14,742,814      W 14,656,168  
  

 

 

    

 

 

 

19.3 Accumulated Other Comprehensive Income

Details of accumulated other comprehensive income as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017      December 31, 2016  

Remeasurements of net defined benefit liabilities

   W (4,826    W (4,742

 

38


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Changes in accumulated other comprehensive income for the nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)    2017  
     Beginning      Changes      Tax effect      Ending  

Remeasurements of net defined benefit liabilities

   W (4,742    W (111    W 27      W (4,826
(In millions of Korean won)    2016  
     Beginning      Changes      Tax effect      Ending  

Remeasurements of net defined benefit liabilities

   W (4,979    W (104    W 25      W (5,058

19.4 Retained Earnings

Details of retained earnings as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017      December 31, 2016  

Legal reserves

   W 334,873      W 275,860  

Voluntary reserves

     982,000        982,000  

Regulatory reserve for credit losses

     2,498        604  

Retained earnings before appropriation

     1,782,768        1,740,459  
  

 

 

    

 

 

 
   W   3,102,139      W   2,998,923  
  

 

 

    

 

 

 

With respect to the allocation of net profit earned in a fiscal term, the Company must set aside in its legal reserve an amount equal to at least 10% of its net income after tax as reported in the separate statement of comprehensive income each time it pays dividends on its net profits earned until its legal reserve reaches at least the aggregate amount of its share capital in accordance with Article 53 of the Financial Holding Company Act. The reserve is not available for the payment of cash dividends, but may be transferred to share capital, or used to reduce accumulated deficit.

Regulatory reserve for credit losses

Measurement and disclosure of regulatory reserve for credit losses are required in accordance with Articles 26 through 28 of the Supervisory Regulations on Financial Holding Companies.

Details of the regulatory reserve for credit losses as of September 30, 2017 and December 31, 2016, are as follows:

 

(In millions of Korean won)    September 30, 2017      December 31, 2016  

Beginning

   W 2,498      W 604  

Estimated amounts subject to provision (reversal)

     (843      1,894  
  

 

 

    

 

 

 

Ending

   W 1,655      W 2,498  
  

 

 

    

 

 

 

The adjustments to the regulatory reserve for credit losses for the three-month and nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won, except per share amounts)    2017  
     Three months      Nine months  

Provision(reversal) of regulatory reserve for credit losses

   W 913      W (843

Adjusted profit(losses) after provision of regulatory reserve for credit losses1

     (40,044      602,028  

Adjusted basic earnings(losses) per share after provision of regulatory reserve for credit losses1

     (100      1,512  

Adjusted diluted earnings(losses) per share after provision of regulatory reserve for credit losses1

     (99      1,504  

 

39


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

(In millions of Korean won, except per share amounts)    2016  
     Three months      Nine months  

Provision(reversal) of regulatory reserve for credit losses

   W 742      W 1,536  

Adjusted profit(losses) after provision of regulatory reserve for credit losses1

     (28,479      624,112  

Adjusted basic earnings(losses) per share after provision of regulatory reserve for credit losses1

     (76      1,642  

Adjusted diluted earnings(losses) per share after provision of regulatory reserve for credit losses1

     (75      1,634  

 

1 Adjusted profit after provision (reversal) of regulatory reserve for credit losses is not in accordance with Korean IFRS and calculated on the assumption that provision (reversal) of regulatory reserve for credit losses before income tax is adjusted to the profit for the period.

19.5 Treasury Shares

Changes in treasury shares outstanding for the nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won and in number of shares)    2017  
     Beginning      Acquisition      Disposal      Ending  

Number of treasury shares1

     19,753,813        1,792,500        4,438,230        17,108,083  

Carrying amount1

   W 719,090      W 82,212      W 165,101      W 636,201  
(In millions of Korean won and in number of shares)    2016  
     Beginning      Acquisition      Disposal      Ending  

Number of treasury shares2

     —          13,806,975        —          13,806,975  

Carrying amount2

   W —        W 476,076      W —        W 476,076  

 

1  The trust agreement with Samsung Securities Co., Ltd. is terminated as the agreement was expired during the nine-month period ended September 30, 2017.
2  The Company had entered into a trust agreement with Samsung Securities Co., Ltd. to acquire treasury shares amounting to W800,000 million in order to enhance shareholder value in the prior quarter.

20. Dividends

The dividends to the shareholders of the Company in respect of the year ended December 31, 2016, of W 1,250 per share, amounting to total dividends of W 497,969 million were paid in April 2017. The dividends paid to the shareholders of the Company in 2016 were W 378,625 million (W980 per share).

 

40


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

21. Net Interest Expense

Interest income (expense) and net interest expense for the three-month and nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)    2017      2016  
     Three months      Nine months      Three months      Nine months  

Interest income

           

Due from financial institutions

   W 495      W 2,929      W 791      W 2,631  

Loans

     44        94        283        1,032  

Other

     64        190        70        207  
  

 

 

    

 

 

    

 

 

    

 

 

 
     603        3,213        1,144        3,870  
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense

           

Debts

     1,813        7,364        456        753  

Debentures

     25,460        65,513        17,009        41,399  
  

 

 

    

 

 

    

 

 

    

 

 

 
     27,273        72,877        17,465        42,152  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest expense

   W (26,670    W (69,664    W (16,321    W (38,282
  

 

 

    

 

 

    

 

 

    

 

 

 

22. Net Fee and Commission Expense

Fee and commission income (expense) and net fee and commission expense for the three-month and nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)    2017     2016  
     Three months     Nine months     Three months     Nine months  

Fee and commission income

        

Fees in Korean won

   W 240     W 576     W 43     W 43  

Fee and commission expense

        

Fees paid in Korean won

     1,195       6,450       1,756       4,807  

Fees paid in foreign currency

     80       162       62       87  
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,275       6,612       1,818       4,894  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net fee and commission expense

   W (1,035   W (6,036   W (1,775   W (4,851
  

 

 

   

 

 

   

 

 

   

 

 

 

23. Net Gains or Losses on Financial Instruments at Fair Value through Profit or Loss

Net gains or losses on financial instruments at fair value through profit or loss consists of gains or losses related to financial instrument that includes interest income, dividend income and gains or losses arising from changes in the fair values, sales and redemptions. Details for the three-month and nine-month periods ended September 30, 2017 and 2016, are as follows:

 

41


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

(In millions of Korean won)    2017      2016  
     Three months     Nine months      Three months      Nine months  

Gains related to financial instruments at fair value through profit or loss

          

Financial assets designated at fair value through profit or loss

   W 3,409     W 9,483      W 1,651      W 7,344  

Losses related to financial instruments at fair value through profit or loss

          

Financial assets designated at fair value through profit or loss

     4,517       5,706        195        195  
  

 

 

   

 

 

    

 

 

    

 

 

 

Net gains(losses) on financial instruments at fair value through profit or loss

   W (1,108   W 3,777      W 1,456      W 7,149  
  

 

 

   

 

 

    

 

 

    

 

 

 

24. Net Other Operating Income

Other operating income and other operating expense for the three-month and nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)    2017      2016  
     Three months      Nine months      Three months      Nine months  

Other operating income

           

Dividend income from subsidiaries

   W —        W 693,660      W —        W 686,919  

Dividend income from associate

     —          15,884        —          7,989  
  

 

 

    

 

 

    

 

 

    

 

 

 
     —          709,544        —          694,908  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other operating expense

     —          —          —          —    

Net other operating income

   W         W 709,544      W —        W 694,908  
  

 

 

    

 

 

    

 

 

    

 

 

 

25. General and Administrative Expenses

Details of general and administrative expenses for the three-month and nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)    2017      2016  
     Three months      Nine months      Three months      Nine months  

Employee benefits

           

Salaries and other short-term employee benefits - Salaries

   W 5,439      W 16,414      W 5,105      W 14,715  

Salaries and other short-term employee benefits - Others

     935        2,841        879        2,601  

Post-employment benefits - defined benefit plans

     487        1,462        512        1,537  

Post-employment benefits - defined contribution plans

     —          1        6        13  

Share-based payments

     1,009        4,952        1,652        1,858  
  

 

 

    

 

 

    

 

 

    

 

 

 
     7,870        25,670        8,154        20,724  
  

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation and amortization

     132        479        202        600  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other general and administrative expenses

           

Travel

     139        500        92        232  

Communications

     80        379        79        341  

Tax and dues

     43        206        36        231  

Publication

     45        162        41        150  

Rental expense

     415        1,153        385        1,139  

Vehicle

     39        103        37        95  

Service fees

     1,554        4,841        1,367        3,572  

Advertising

     52        440        31        444  

Training

     179        558        138        337  

Others

     1,308        3,976        1,494        3,945  
  

 

 

    

 

 

    

 

 

    

 

 

 
     3,854        12,318        3,700        10,486  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 11,856      W 38,467      W 12,056      W 31,810  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

42


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Share-based Payments

Share-based payment plan, where the number of granted shares is determined by the long-term achievement, for executives and employees of the Company and its subsidiaries as of September 30, 2017, is as follows:

 

(In number of shares)    Grant date      Number
of granted
shares1
     Vesting conditions

KB Financial Group Inc.

Series 4

     July 13, 2010        12,429     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 2,3

Series 8

     Jan. 01, 2012        13,471     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 2,4

Series 9

     July 17, 2013        11,486     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 2,4

Series 12

     Nov. 21, 2014        32,449     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 2,5

Series 14

     July 17, 2015        11,363     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 2,6

Series 15

     Jan. 01, 2016        72,843     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 2,6

Series 17

     Jan. 01, 2017        42,032     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 2,10

Series 18

     July 17, 2017        7,444     

Achievement of targets on the basis of market and non-market performance 2,10

Deferred grant in 2014

     —          5,286     

Satisfied

Deferred grant in 2015

     —          14,961     

Satisfied

Deferred grant in 2016

     —          15,338     

Satisfied

     

 

 

    
        239,102     
     

 

 

    

 

43


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Kookmin Bank

        

Series 64

     July 24, 2015        11,133     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 2,7

Series 65

     Aug. 26, 2015        11,587     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 2,7

Series 66

     Nov. 21, 2014        28,392     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 2,5

Series 67

     Jan. 01, 2016        135,934     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 2,8

Series 68

     July 05, 2016        9,621     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 2,8

Series 69

     Jan. 01, 2017        330,194     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 2,11

Series 70

     July 24, 2017        8,743     

Series 71

     Aug. 26, 2017        8,744     

Series 72

     Aug. 28, 2017        5,601     

Deferred grant in 2014

     —          35,312     

Satisfied

Deferred grant in 2015

     —          61,328     

Satisfied

Deferred grant in 2016

     —          155,407     

Satisfied

     

 

 

    
        801,996     
     

 

 

    

Other subsidiaries and associate

 

     

Stock granted in 2010

     —          2,096     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 9,12

Stock granted in 2011

     —          2,633     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 9,12

Stock granted in 2012

     —          7,788     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 9,12

Stock granted in 2013

     —          21,289     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 9,12

 

44


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Stock granted in 2014

     —          45,426     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 9,12

Stock granted in 2015

     —          197,609     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 9,12

Stock granted in 2016

               181,527     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 9,12

Stock granted in 2017

     —          278,065     

Services fulfillment,

Achievement of targets on the basis of market and non-market performance 9,12

     

 

 

    
        736,433     
     

 

 

    
        1,777,531     
     

 

 

    

 

1 Granted shares represent the total number of shares initially granted to directors and employees that have residual shares at the end of reporting period (Deferred grants are residual shares as of September 30, 2017).
2 Executives and employees were given the option of deferring payment of the granted shares (after the date of retirement), payment ratio, and payment period. Accordingly, a certain percentage of the granted amount is deferred for up to five years after the date of retirement when the deferred grant has been confirmed.
3 37.5%, 37.5% and 25% of the number of granted shares to be compensated are determined upon the accomplishment of relative TSR(Total Shareholder Return), EPS and qualitative indicators, respectively. 30%, 30% and 40% of the number of certain granted shares to be compensated are determined upon the accomplishment of Performance Results, financial results of the Group and relative TSR, respectively. 40%, 40% and 20% of the number of certain granted shares to be compensated are determined upon the accomplishment of EPS, relative TSR and qualitative indicators, respectively.
4 30%, 30% and 40% of the number of granted shares to be compensated are determined upon the accomplishment of Performance Results, financial results of the Group and relative TSR, respectively. 50% of the number of certain granted shares to be compensated is determined upon the accomplishment of Performance Results, while 50% is determined upon the accomplishment of relative TSR.
5  35%, 35% and 30% of the number of granted shares to be compensated are determined upon the accomplishment of relative TSR, EPS and Asset Quality, respectively.
6 40%, 30% and 30% of the number of granted shares to be compensated are determined upon the accomplishment of the Performance Results, financial results of the Group and relative TSR, respectively. 50% of the number of certain granted shares to be compensated is determined upon the accomplishment of Performance Results, while 50% is determined upon the accomplishment of relative TSR.

 

45


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

7 30%, 40% and 30% of the number of granted shares to be compensated are determined upon the accomplishment of relative TSR, Performance Results and financial results of Kookmin Bank, respectively. 50% of the number of certain granted shares to be compensated is determined upon the accomplishment of relative TSR, while 50% is determined upon the accomplishment of Performance Results.
8 30%, 40% and 30% of the number of granted shares to be compensated are determined upon the accomplishment of relative TSR, Performance Results and Evaluation of the Bank president’s performance, respectively. 50% of the number of certain granted shares to be compensated is determined upon the accomplishment of relative TSR, while 50% is determined upon the accomplishment of Performance Results.
9 30%, 30% and 40% of the number of granted shares to be compensated are determined upon the accomplishment of Performance Results, subsidiaries’ performance and relative TSR, respectively. 60% of the number of certain granted shares to be compensated is determined upon the accomplishment of subsidiaries’ performance, while 40% is determined upon the accomplishment of relative TSR. 40%, 30% and 30% of the number of certain granted shares to be compensated are determined upon accomplishment of Performance Results, subsidiaries’ performance and relative TSR, respectively. 50% of the number of certain granted shares to be compensated is determined upon the accomplishment of subsidiaries’ performance, while 50% is determined upon the accomplishment of relative TSR. 70% of the number of certain granted shares to be compensated is determined upon the accomplishment of subsidiaries’ performance, while 30% is determined upon the accomplishment of relative TSR.
10 40%, 30% and 30% of the number of granted shares to be compensated are determined upon the accomplishment of Performance Results, results of the Group and relative TSR respectively. 70% of the number of certain granted shares to be compensated is determined upon the accomplishment of Performance Results, while 30% is determined upon the accomplishment of relative TSR.
11 40%, 30% and 30% of the number of granted shares to be compensated are determined upon the accomplishment of Performance Results, relative TSR and Evaluation of the Bank president’s performance, respectively. 30% of the number of certain granted shares to be compensated is determined upon the accomplishment of relative TSR, while 70% is determined upon the accomplishment of Performance Results.
12 50%, 30% and 20% of the number of granted shares to be compensated are determined upon the accomplishment of Performance Results, subsidiaries’ performance and relative TSR, respectively. 80% of the number of certain granted shares to be compensated is determined upon the accomplishment of subsidiaries’ performance, while 20% is determined upon the accomplishment of relative TSR. 80% of the number of certain granted shares to be compensated is determined upon the accomplishment of Performance Results, while 20% is determined upon the accomplishment of relative TSR. 60%, 30% and 10% of the number of certain granted shares to be compensated are determined upon accomplishment of Performance Results, subsidiaries’ performance and relative TSR, respectively. 90% of the number of certain granted shares to be compensated is determined upon the accomplishment of subsidiaries’ performance, while 10% is determined upon the accomplishment of relative TSR. 90% of the number of certain granted shares to be compensated is determined upon the accomplishment of Performance Results, while 10% is determined upon the accomplishment of relative TSR.

 

46


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

The stock grant award program is an incentive plan that sets, on grant date, the maximum amount of shares that can be awarded. Actual stock granted at the end of the vesting period is determined in accordance with achievement of pre-specified targets over the vesting period.

Details of stock grants linked to short-term performance as of September 30, 2017, are as follows:

 

     Grant date      Estimated
number of
vested shares1
    

Vesting

conditions

 

KB Financial Group Inc.

        

Stock granted in 2010

     Jan. 01, 2010        322        Satisfied  

Stock granted in 2011

     Jan. 01, 2011        1,728        Satisfied  

Stock granted in 2012

     Jan. 01, 2012        2,642        Satisfied  

Stock granted in 2013

     Jan. 01, 2013        448        Satisfied  

Stock granted in 2014

     Jan. 01, 2014        7,079        Satisfied  

Stock granted in 2015

     Jan. 01, 2015        16,730        Satisfied  

Stock granted in 2016

     Jan. 01, 2016        20,523        Satisfied  

Stock granted in 2017

     Jan. 01, 2017        14,784        Proportional to service period  

Kookmin Bank

        

Stock granted in 2013

     Jan. 01, 2013        685        Satisfied  

Stock granted in 2014

     Jan. 01, 2014        66,695        Satisfied  

Stock granted in 2015

     Jan. 01, 2015        103,061        Satisfied  

Stock granted in 2016

     Jan. 01, 2016        140,918        Satisfied  

Stock granted in 2017

     Jan. 01, 2017        81,305        Proportional to service period  

Other subsidiaries and associate

        

Stock granted in 2014

     —          24,976        Satisfied  

Stock granted in 2015

     —          117,127        Satisfied  

Stock granted in 2016

     —          204,810        Satisfied  

Stock granted in 2017

     —          158,283        Proportional to service period  

 

1 Executives and employees were given the option of deferring payment of the granted shares (after the date of retirement), payment ratio, and payment period. Accordingly, a certain percentage of the granted amount is deferred for up to five years after the date of retirement when the deferred grant has been confirmed.

Share-based payment arrangement for subsidiaries and associate was transferred to the Company in 2010, and the related compensation cost paid to the executives and employees of subsidiaries and associate is reimbursed by these companies. The accrued expenses representing share-based payments as of September 30, 2017 and December 31, 2016, are W108,163 million and W79,742 million, respectively, and the receivables to be reimbursed by the subsidiaries and associate for the compensation costs are W95,893 million and W70,697 million, respectively. The compensation costs from share-based payments that amounts to W4,952 million and W1,858 million were recognized as an expense for the nine-month periods ended September 30, 2017 and 2016, respectively.

 

47


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

26. Non-operating Income (Expense):

Details of non-operating income and expenses for the three-month and nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)    2017      2016  
  

 

 

    

 

 

 
     three months      Nine months      three months      Nine months  

Non-operating income

           

Reversal of impairment losses on intangible assets

   W 100      W 100      W —        W 100  

Others

     2        605        485        525  
  

 

 

    

 

 

    

 

 

    

 

 

 
     102        705        485        625  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-operating expenses

           

Impairment losses on intangible assets

     (67      2        —          1  

Donation

     35        603        160        855  

Others

     —          6        1        3  
  

 

 

    

 

 

    

 

 

    

 

 

 
     (32      611        161        859  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-operating income (expenses)

   W 134      W 94      W 324      W (234
  

 

 

    

 

 

    

 

 

    

 

 

 

27. Income Tax Benefit(Expense)

Details of income tax benefit(expense) for the nine-month periods ended September 30, 2017 and 2016, are as follows:

 

(In millions of Korean won)    2017      2016  

Tax payable

     

Current tax expense

   W     —        W     —    
  

 

 

    

 

 

 

Change in deferred tax assets and liabilities

     

Origination and reversal of temporary differences

     1,964        (1,207

Tax expense recognized directly in equity

     

Remeasurements of net defined benefit liabilities

     (27      (25
  

 

 

    

 

 

 

Income tax benefit(expense)

   W 1,937      W (1,232
  

 

 

    

 

 

 

28. Earnings per Share

Calculations of basic earnings per share on the profit attributable to ordinary shares are as follows:

 

48


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Weighted average number of ordinary shares outstanding:

 

(In number of shares)    2017  
     Three months      Nine months  

Beginning (A)

     418,111,537        418,111,537  

Acquisition of treasury shares (B)

     21,546,313        21,407,000  

Disposal of treasury shares (C)

     4,148,780        1,398,124  
  

 

 

    

 

 

 

Weighted average number of ordinary shares outstanding (A - B+C)

     400,714,004        398,102,661  
  

 

 

    

 

 

 
(In number of shares)    2016  
     Three months      Nine months  

Beginning (A)

     386,351,693        386,351,693  

Acquisition of treasury shares (B)

     10,415,671        6,224,768  
  

 

 

    

 

 

 

Weighted average number of ordinary shares outstanding (A - B)

     375,936,022        380,126,925  
  

 

 

    

 

 

 

Basic earnings(losses) per share

 

(In Korean won and in number of shares)    2017  
     Three months      Nine months  

Profit (loss) attributable to ordinary shares1 (C)

   W (39,131,431,545    W 601,184,568,378  

Weighted average number of ordinary shares outstanding (D)

     400,714,004        398,102,661  

Basic earnings (losses) per share (E = C / D)

   W (98    W 1,510  
(In Korean won and in number of shares)    2016  
     Three months      Nine months  

Profit (loss) attributable to ordinary shares1 (C)

   W (27,736,989,354    W 625,648,009,075  

Weighted average number of ordinary shares outstanding (D)

     375,936,022        380,126,925  

Basic earnings (losses) per share (E = C / D)

   W (74    W 1,646  

 

1 Profit (loss) attributable to ordinary shares is the same as profit (loss) for the period in the statements of comprehensive income.

Diluted earnings per share

Diluted earnings per share is calculated using the weighted average number of ordinary shares outstanding which is adjusted by the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. The Company’s dilutive potential ordinary shares include stock grants.

A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average market share price of the Company’s outstanding shares for the period) based on the monetary value of the subscription rights attached to the stock grants. The number of shares calculated above is compared with the number of shares that would have been issued assuming the exercise of stock grants.

 

49


KB Financial Group Inc.

Notes to the Separate Interim Financial Statements

September 30, 2017 and 2016 (Unaudited), and December 31, 2016

 

 

Adjusted profit(loss) to calculate diluted earnings per share:

 

(In Korean won)    2017  
     Three months      Nine months  

Profit (loss) attributable to ordinary shares

   W (39,131,431,545    W 601,184,568,378  

Adjustment

                   
  

 

 

    

 

 

 

Adjusted profit (loss) for diluted earnings per share

   W (39,131,431,545    W 601,184,568,378  
  

 

 

    

 

 

 

 

(In Korean won)    2016  
     Three months      Nine months  

Profit (loss) attributable to ordinary shares

   W (27,736,989,354    W 625,648,009,075  

Adjustment

     —          —    
  

 

 

    

 

 

 

Adjusted profit (loss) for diluted earnings per share

   W (27,736,989,354    W 625,648,009,075  
  

 

 

    

 

 

 

Adjusted weighted average number of ordinary shares outstanding to calculate diluted earnings per share:

 

(In number of shares)    2017  
     Three months      Nine months  

Weighted average number of ordinary shares outstanding

     400,714,004        398,102,661  

Adjustment

     

Stock grants

     2,054,206        2,175,864  
  

 

 

    

 

 

 

Adjusted weighted average number of ordinary shares outstanding for diluted earnings (losses) per share

     402,768,210        400,278,525