EX-99.1 2 d616811dex991.htm EX-99.1 EX-99.1
Table of Contents

Exhibit 99.1

KB Financial Group Inc. and Subsidiaries

Consolidated Interim Financial Statements

September 30, 2018 and 2017


Table of Contents

KB Financial Group Inc. and Subsidiaries

Index

September 30, 2018 and 2017

 

 

     Page(s)  

Report on Review of Interim Financial statements

     1~2  
Consolidated Interim Financial Statements   

Consolidated Interim Statements of Financial Position

     3  

Consolidated Interim Statements of Comprehensive Income

     4  

Consolidated Interim Statements of Changes in Equity

     5  

Consolidated Interim Statements of Cash Flows

     6  

Notes to the Consolidated Interim Financial Statements

     7~187  


Table of Contents

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 consolidated interim financial statements of KB Financial Group Inc. and its subsidiaries (collectively referred to as the “Group”). These financial statements consist of the consolidated interim statement of financial position of the Group as of September 30, 2018, and the related consolidated interim statements of comprehensive income for the three-month and nine-month periods ended September 30, 2018 and 2017, and consolidated interim statements of changes in equity and cash flows for the nine-month periods ended September 30, 2018 and 2017, 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 consolidated 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 consolidated 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 consolidated interim financial statements based on our review.

We conducted our review in accordance with quarterly and 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.


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Conclusion

Based on our review, nothing has come to our attention that causes us to believe the accompanying consolidated 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 consolidated statement of financial position of the Group as of December 31, 2017, and the related consolidated 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 12, 2018. The statement of financial position as of December 31, 2017, presented herein for comparative purposes, is consistent, in all material respects, with the above audited statement of financial position as of December 31, 2017.

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.

/s/ Samil PricewaterhouseCoopers

Seoul, Korea

November 14, 2018

 

This report is effective as of November 14, 2018, 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 consolidated 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


Table of Contents

KB Financial Group Inc. and Subsidiaries

Consolidated Interim Statements of Financial Position

September 30, 2018 (Unaudited) and December 31, 2017

 

 

(in millions of Korean won)    Notes      September 30, 2018     December 31, 2017  
            (Unaudited)        

Assets

       

Cash and due from financial institutions

     4,6,7,37      W 18,349,698     W 19,817,825  

Financial assets at fair value through profit or loss

     4,6,11        51,020,841       —    

Financial assets at fair value through profit or loss (under Korean IFRS 1039)

     4,6,11        —         32,227,345  

Derivative financial assets

     4,6,8        2,206,870       3,310,166  

Loans at amortized cost

     4,6,9,10        316,430,970       290,122,838  

Financial investments

     4,6,11        59,193,078       66,608,243  

Investments in associates and joint ventures

     12        485,966       335,070  

Property and equipment

     13        4,155,629       4,201,697  

Investment property

     13        1,755,451       848,481  

Intangible assets

     14        2,782,013       2,943,060  

Net defined benefit assets

     23        —         894  

Current income tax assets

     32        15,682       6,324  

Deferred income tax assets

     15,32        739       3,991  

Assets held for sale

     16        16,503       155,506  

Other assets

     4,6,17        21,302,186       16,204,169  
     

 

 

   

 

 

 

Total assets

      W 477,715,626     W 436,785,609  
     

 

 

   

 

 

 

Liabilities

       

Financial liabilities at fair value through profit or loss

     4,6,18      W 16,033,010     W —    

Financial liabilities at fair value through profit or loss (under Korean IFRS 1039)

     4,6,18        —         12,023,058  

Derivative financial liabilities

     4,6,8        2,605,969       3,142,765  

Deposits

     4,6,19        271,155,184       255,800,048  

Debts

     4,6,20        31,902,454       28,820,928  

Debentures

     4,6,21        51,549,915       44,992,724  

Provisions

     22        515,421       568,033  

Net defined benefit liabilities

     23        286,130       154,702  

Current income tax liabilities

     32        623,779       433,870  

Deferred income tax liabilities

     15,32        611,651       533,069  

Insurance contract liabilities

     36        33,154,402       31,801,275  

Other liabilities

     4,6,24        33,688,472       24,470,308  
     

 

 

   

 

 

 

Total liabilities

        442,126,387       402,740,780  
     

 

 

   

 

 

 

Equity

       

Share capital

     25        2,090,558       2,090,558  

Capital surplus

     25        17,121,970       17,122,228  

Accumulated other comprehensive income

     25,34        230,212       537,668  

Retained earnings

     25        17,074,126       15,044,204  

Treasury shares

     25        (936,194     (755,973
     

 

 

   

 

 

 

Equity attributable to shareholders of the Parent Company

        35,580,672       34,038,685  

Non-controlling interests

        8,567       6,144  
     

 

 

   

 

 

 

Total equity

        35,589,239       34,044,829  
     

 

 

   

 

 

 

Total liabilities and equity

      W 477,715,626     W 436,785,609  
     

 

 

   

 

 

 

 

1 

The consolidated interim statement of financial position as of September 30, 2018 is prepared in accordance with Korean IFRS 1109, and the comparatives as of December 31, 2017 has not been restated.

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

 

3


Table of Contents

KB Financial Group Inc. and Subsidiaries

Consolidated Interim Statements of Comprehensive Income

Three-Month and Nine-Month Periods Ended September 30, 2018 and 2017 (Unaudited)

 

 

(In millions of Korean won, except per share amounts)   Notes   2018
(Unaudited)
    2017
(Unaudited)
 
       

Three

months

   

Nine

months

   

Three

months

   

Nine

months

 

Interest income

    W 3,515,063     W 10,073,077     W 3,081,977     W 8,772,564  

Interest income from financial instruments at fair value through other comprehensive income and amortized cost

      3,320,153       9,532,011       —         —    

Interest income from financial instruments at fair value through profit or loss

      194,910       541,066       —         —    

Interest income from loans and receivables and investments

      —         —         2,939,921       8,378,734  

Interest income from financial instruments at fair value through profit or loss (under Korean IFRS 1039)

      —         —         142,056       393,830  

Interest expense

      (1,263,764     (3,481,623     (918,471     (2,691,762
   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

  5,26     2,251,299       6,591,454       2,163,506       6,080,802  
   

 

 

   

 

 

   

 

 

   

 

 

 

Fee and commission income

      1,078,898       3,365,109       999,403       2,930,452  

Fee and commission expense

      (555,930     (1,617,432     (508,075     (1,408,276
   

 

 

   

 

 

   

 

 

   

 

 

 

Net fee and commission income

  5,27     522,968       1,747,677       491,328       1,522,176  
   

 

 

   

 

 

   

 

 

   

 

 

 

Insurance income

      2,932,133       8,928,242       2,955,149       6,130,566  

Insurance expense

      (2,809,440     (8,484,530     (2,762,360     (5,730,619
   

 

 

   

 

 

   

 

 

   

 

 

 

Net Insurance income

  5,36     122,693       443,712       192,789       399,947  
   

 

 

   

 

 

   

 

 

   

 

 

 

Net gains on financial instruments at fair value through profit or loss before applying overlay approach

      185,224       285,851       —         —    

Net gains/(losses) on overlay adjustment

      (3,047     113,044       —         —    
   

 

 

   

 

 

   

 

 

   

 

 

 

Net gains on financial assets/liabilities at fair value through profit or loss

  5,28     182,177       398,895       —         —    
   

 

 

   

 

 

   

 

 

   

 

 

 

Net gains/(losses) on financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039)

      —         —         (71,050     32,509  
   

 

 

   

 

 

   

 

 

   

 

 

 

Net other operating expenses

  5,29     (273,973     (800,358     (131,936     (590,520
   

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative expenses

  5,23,30     (1,330,540     (4,074,271     (1,307,043     (3,796,635
   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit before provision for credit losses

  5     1,474,624       4,307,109       1,337,594       3,648,279  

Provision for credit losses

  5,7,10,11,17,22     (146,432     (427,761     (172,190     (479,888
   

 

 

   

 

 

   

 

 

   

 

 

 

Net operating income

  5     1,328,192       3,879,348       1,165,404       3,168,391  
   

 

 

   

 

 

   

 

 

   

 

 

 

Share of profit of associates and joint ventures

  5,12     5,436       18,158       19,004       78,119  

Net other non-operating income (expense)

  5,31     (4,754     77,892       15,115       165,282  
   

 

 

   

 

 

   

 

 

   

 

 

 

Net non-operating income

      682       96,050       34,119       243,401  
   

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

  5     1,328,874       3,975,398       1,199,523       3,411,792  

Income tax expense

  5,32     (374,901     (1,106,239     (302,121     (622,052
   

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

  5     953,973       2,869,159       897,402       2,789,740  
   

 

 

   

 

 

   

 

 

   

 

 

 

Items that will not be reclassified to profit or loss:

         

Remeasurements of net defined benefit liabilities

  23     (3,780     (6,317     (2,835     (9,962

Share of other comprehensive income of associates and joint ventures

      (1     (1     —         (131

Revaluation gains on equity instruments at fair value through other comprehensive income

      39,073       40,432       —         —    

Fair value changes on financial liabilities designated at fair value due to own credit risk

      (4,518     (169     —         —    
   

 

 

   

 

 

   

 

 

   

 

 

 
      30,774       33,945       (2,835     (10,093
   

 

 

   

 

 

   

 

 

   

 

 

 

Items that may be reclassified subsequently to profit or loss:

         

Exchange differences on translating foreign operations

      (38,357     35,085       (1,249     (33,184

Net gains on financial instruments at fair value through other comprehensive income

      30,141       53,627       —         —    

Valuation gains/(losses) on financial investments

      —         —         (32,869     196,580  

Shares of other comprehensive income of associates

      (927     (3,100     (1,145     101,724  

Cash flow hedges

      162       9,550       2,952       5,539  

Gains/(losses) on hedges of a net investment in a foreign operation

      8,020       (22,649     (4,304     423  

Other comprehensive income arising from separate account

      8,506       17,147       (6,611     (7,929

Net gains/(losses) on overlay adjustment

  36     2,193       (81,807     —         —    
   

 

 

   

 

 

   

 

 

   

 

 

 
      9,738       7,853       (43,226     263,153  
   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income for the period, net of tax

      40,512       41,798       (46,061     253,060  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

    W 994,485     W 2,910,957     W 851,341     W 3,042,800  
   

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to:

         

Shareholders of the Parent Company

  5   W 953,769     W 2,868,752     W 897,504     W 2,757,686  

Non-controlling interests

  5     204       407       (102     32,054  
   

 

 

   

 

 

   

 

 

   

 

 

 
  5   W 953,973     W 2,869,159     W 897,402     W 2,789,740  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period attributable to:

         

Shareholders of the Parent Company

    W 994,509     W 2,910,772     W 851,531     W 3,007,929  

Non-controlling interests

      (24     185       (190     34,871  
   

 

 

   

 

 

   

 

 

   

 

 

 
    W 994,485     W 2,910,957     W 851,341     W 3,042,800  
   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

  35        

Basic earnings per share

    W 2,407     W 7,233     W 2,240     W 6,927  

Diluted earnings per share

      2,394       7,191       2,228       6,890  

 

1 

The consolidated interim statement of comprehensive income for the three-month and nine-month period ended September 30, 2018 is prepared in accordance with Korean IFRS 1109, and the comparatives for the the three-month and nine-month period ended September 30, 2017 has not been restated.

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

 

4


Table of Contents

KB Financial Group Inc. and Subsidiaries

Consolidated Interim Statements of Changes in Equity

Nine-Month Periods Ended September 30, 2018 and 2017 (Unaudited)

 

 

    Equity attributable to shareholders of the Parent Company              
(in millions of Korean won)   Share
Capital
    Capital
Surplus
    Accumulated
Other
Comprehensive
Income
    Comprehensive
Income of
Disposal group
Held for sale
    Retained
Earnings
    Treasury
Shares
    Non-controlling
Interests
   

Total

Equity

 

Balance at January 1, 2017

  W 2,090,558     W 16,994,902     W 405,329     W —       W 12,229,228     W (721,973   W 263,359     W 31,261,403  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

               

Profit for the period

    —         —         —         —         2,757,686       —         32,054       2,789,740  

Remeasurements of net defined benefit liabilities

    —         —         (9,882     —         —         —         (80     (9,962

Exchange differences on translating foreign operations

    —         —         (33,312     —         —         —         128       (33,184

Change in value of financial investments

    —         —         193,640       —         —         —         2,940       196,580  

Shares of other comprehensive income of associates and joint ventures

    —         —         101,593       —         —         —         —         101,593  

Cash flow hedges

    —         —         5,635       —         —         —         (96     5,539  

Gain on hedges of a net investment in a foreign operation

    —         —         423       —         —         —         —         423  

Other comprehensive income arising from separate account

    —         —         (7,854     —         —         —         (75     (7,929

Transfer to other accounts

    —         —         (2,368     (1,124     3,492       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

    —         —         247,875       (1,124     2,761,178       —         34,871       3,042,800  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with shareholders

               

Dividends paid to shareholders of the Parent Company

    —         —         —         —         (497,969     —         (5,156     (503,125

Acquisition of treasury shares

    —         —         —         —         —         (82,279     —         (82,279

Disposal of treasury shares

    —         87,212       —         —         —         168,051       —         255,263  

Changes in interest in subsidiaries

    —         41,352       —         —         —         —         (288,954     (247,602

Others

    —         (1,599     —         —         —         —         2,340       741  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total transactions with shareholders

    —         126,965       —         —         (497,969     85,772       (291,770     (577,002
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2017 (Unaudited)

  W 2,090,558     W 17,121,867     W 653,204     W (1,124   W 14,492,437     W (636,201   W 6,460     W 33,727,201  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2018

  W 2,090,558     W 17,122,228     W 537,668     W —       W 15,044,204     W (755,973   W 6,144     W 34,044,829  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The effect of changing of accounting policy

    —         —         (349,476     —         (72,102     —         —         (421,578

Balance after reflecting the effect of accounting policy

    2,090,558       17,122,228       188,192       —         14,972,102       (755,973     6,144       33,623,251  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

               

Profit for the period

    —         —         —         —         2,868,752       —         407       2,869,159  

Remeasurements of net defined benefit liabilities

    —         —         (6,317     —         —         —         —         (6,317

Exchange differences on translating foreign operations

    —         —         35,307       —         —         —         (222     35,085  

Net gains on financial instruments at fair value through other comprehensive income

    —         —         94,059       —         —         —         —         94,059  

Shares of other comprehensive income of associates and joint ventures

    —         —         (3,101     —         —         —         —         (3,101

Cash flow hedges

    —         —         9,550       —         —         —         —         9,550  

Losses on hedges of a net investment in a foreign operation

    —         —         (22,649     —         —         —         —         (22,649

Other comprehensive income arising from separate account

    —         —         17,147       —         —         —         —         17,147  

Fair value changes on financial liabilities designated at fair value due to own credit risk

    —         —         (169     —         —         —         —         (169

Net losses on overlay adjustment

    —         —         (81,807     —         —         —         —         (81,807
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

    —         —         42,020       —         2,868,752       —         185       2,910,957  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with shareholders

               

Dividends paid to shareholders of the Parent Company

    —         —         —         —         (766,728     —         —         (766,728

Acquisition of treasury shares

    —         —         —         —         —         (180,221     —         (180,221

Non-controlling interests changes in business combination

    —         —         —         —         —         —         2,238       2,238  

Others

    —         (258     —         —         —         —         —         (258
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total transactions with shareholders

    —         (258     —         —         (766,728     (180,221     2,238       (944,969
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2018 (Unaudited)

  W 2,090,558     W 17,121,970     W 230,212     W —       W 17,074,126     W (936,194   W 8,567     W 35,589,239  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1 

The consolidated interim statement of changes in equity for the nine-month period ended September 30, 2018 is prepared in accordance with Korean IFRS 1109, and the comparatives for the nine-month period ended September 30, 2017 has not been restated.

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

 

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Table of Contents

KB Financial Group Inc. and Subsidiaries

Consolidated Interim Statements of Cash Flows

Nine-Month Periods Ended September 30, 2018 and 2017 (Unaudited)

 

 

(in millions of Korean won)    2018      2017  
     (Unaudited)      (Unaudited)  

Cash flows from operating activities

     

Profit for the period

   W 2,869,159      W 2,789,740  
  

 

 

    

 

 

 

Adjustment for non-cash items

     

Net gain on financial assets/liabilities at fair value through profit or loss

     (232,873      —    

Net loss on financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039)

     —          94,090  

Net loss on derivative financial instruments for hedging purposes

     201,077        101,385  

Adjustment of fair value of derivative financial instruments

     962        (683

Provision for credit loss

     427,761        479,888  

Net loss (gain) on financial investments

     (80,005      60,722  

Share of profit of associates and joint ventures

     (18,158      (78,119

Depreciation and amortization expense

     280,343        258,332  

Depreciation and amortization expense on VOBA

     162,874        121,717  

Other net losses (gains) on property and equipment/intangible assets

     (143,506      12,513  

Share-based payments

     13,775        48,074  

Policy reserve appropriation

     1,346,370        1,191,392  

Post-employment benefits

     162,706        174,863  

Net interest expense

     293,784        302,054  

Gain on foreign currency translation

     (159,870      (259,709

Gains on bargain purchase

     —          (122,986

Net other expense

     129,035        168,054  
  

 

 

    

 

 

 
     2,384,275        2,551,587  
  

 

 

    

 

 

 

Changes in operating assets and liabilities

     

Financial asset at fair value through profit or loss

     (10,240,218      —    

Financial asset at fair value through profit or loss (under Korean IFRS 1039)

     —          (2,911,811

Derivative financial instruments

     139,002        (53,741

Loans at amortized cost

     (28,075,267      (16,884,957

Current income tax assets

     (9,382      47,865  

Deferred income tax assets

     2,982        30,294  

Other assets

     (6,302,762      (7,092,979

Financial liabilities at fair value through profit or loss

     4,054,298        —    

Financial liabilities at fair value through profit or loss (under Korean IFRS 1039)

     —          1,074,658  

Deposits

     15,130,815        13,645,523  

Tax liabilities for current period

     189,909        —    

Deferred income tax liabilities

     218,352        157,721  

Other liabilities

     9,775,112        (100,045
  

 

 

    

 

 

 
     (15,117,159      (12,087,472
  

 

 

    

 

 

 

Net cash outflow from operating activities

     (9,863,725      (6,746,145
  

 

 

    

 

 

 

Cash flows from investing activities

     

Net cash flows from derivative financial instruments for hedging purposes

     (35,550      —    

Disposal of financial asset at fair value through profit or loss

     6,826,968        —    

Acquisition of financial asset at fair value through profit or loss

     (4,557,791      —    

Disposal of financial investments

     44,867,272        29,715,736  

Acquisition of financial investments

     (46,603,570      (34,454,670

Disposal in investments in associates and joint ventures

     27,385        133,874  

Acquisition of investments in associates and joint ventures

     (163,948      (42,369

Disposal of property and equipment

     889        21,086  

Acquisition of property and equipment

     (251,400      (188,665

Disposal of investment property

     142,044        2,871  

Acquisition of investment property

     (901,786      (256

Disposal of intangible assets

     10,063        5,641  

Acquisition of intangible assets

     (86,250      (70,830

Net cash flows from the change in subsidiaries

     255,192        (362,764

Others

     198,563        181,517  
  

 

 

    

 

 

 

Net cash outflow from investing activities

     (271,919      (5,058,829
  

 

 

    

 

 

 

Cash flows from financing activities

     

Net cash flows from derivative financial instruments for hedging purposes

     138,925        37,182  

Net increase in debts

     3,077,700        4,259,665  

Increase in debentures

     109,798,010        103,381,766  

Decrease in debentures

     (103,272,964      (95,472,496

Increase in other payables from trust accounts

     (607,862      1,162,753  

Dividends paid to shareholders of the Parent Company

     (766,728      (497,968

Disposal of treasury shares

     —          3,515  

Acquisition of treasury shares

     (199,023      (82,177

Dividends paid to non-controlling interests

     —          (5,156

Increase in non-controlling interests

     —          (163,660

Others

     (164,741      (22,781
  

 

 

    

 

 

 

Net cash inflow from financing activities

     8,003,317        12,600,643  
  

 

 

    

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (26,963      (60,936
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     (2,159,290      734,733  

Cash and cash equivalents at the beginning of the period

     8,404,898        7,414,836  
  

 

 

    

 

 

 

Cash and cash equivalents classified as disposal group held for sale

     —          31,704  

Cash and cash equivalents at the end of the period

   W 6,245,608      W 8,181,273  
  

 

 

    

 

 

 

 

1 

The consolidated interim statement of cash flows for the nine-month period ended September 30, 2018 is prepared in accordance with Korean IFRS 1109, and the comparatives for the nine-month period ended September 30, 2017 has not been restated.

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

 

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Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

1. The Parent Company

KB Financial Group Inc. (the “Parent Company”) was incorporated on September 29, 2008, under the Financial Holding Companies Act of Korea. KB Financial Group Inc. and its subsidiaries (collectively referred to as the “Group”) derive substantially all of their revenue and income from providing a broad range of banking and related financial services to consumers and corporations primarily in Korea and in selected international markets. The Parent Company’s principal business includes ownership and management of subsidiaries and associated companies that are engaged in financial services or activities. 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 Group 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 Group acquired Woori Financial Co., Ltd. and changed the name to KB Capital Co., Ltd. Meanwhile, the Group included LIG Insurance Co., Ltd. as an associate and changed the name to KB Insurance Co., Ltd. in June 2015. Also, the Group included Hyundai Securities Co., Ltd. as an associate in June 2016 and included as a subsidiary in 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 Parent Company’s share capital as of September 30, 2018, is W 2,090,558 million. The Parent 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 in its Articles of Incorporation is 1,000 million.

2. Basis of Preparation

2.1 Application of Korean IFRS

The Group maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (“Hangeul”) in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”). The accompanying consolidated 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 Group’s financial position, financial performance or cash flows, is not presented in the accompanying consolidated financial statements.

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

 

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Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

The Group has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, 2018. The adoption of these amendments did not have any significant impact on the current period or any prior period and is not likely to affect future periods, with the exception of the adoption of Korean IFRS 1109 Financial Instruments discussed below.

 

   

Amendments to Korean IFRS 1028 Investments in Associates and Joint Ventures

Amendments to Korean IFRS 1028 clarifies that a venture capital organization or a mutual fund, and similar entities may elect, at initial recognition, to measure investments in an associate or joint venture at fair value through profit or loss separately for each associate or joint venture.

 

   

Amendments to Korean IFRS 1040 Transfers of Investment Property

Amendments to Korean IFRS 1040 clarifies that a transfer to, or from, investment property, including property under construction, can only be made if there has been a change in use that is supported by evidence. Paragraph 57 of the standard provides a list of such circumstances as examples.

 

   

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. Also, it 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.

 

   

Enactment of Korean IFRS 2122 Foreign Currency Transactions and Advance Consideration

According to the enacted interpretation, 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 thereof) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the prepayment or receipt of advance consideration. In case there are multiple payments or receipts in advance, the entity should determine a date of the transaction for each payment or receipt of advance consideration.

 

   

Enactment of Korean IFRS 1109 Financial Instruments

The Group adopted Korean IFRS 1109 Financial Instruments with a date of initial application of January 1, 2018. As permitted by the transition requirements of Korean IFRS 1109, comparative periods have not been restated. The Group recognized the difference between the previous carrying amount and the carrying amount at the beginning of the annual reporting period that includes the date of initial application in the opening retained earnings (or other component of equity, as appropriate) of the annual reporting period that includes the date of initial application. Also, the Group applied “The Overlay Approach” under Korean IFRS 1104 at the initial application of Korean IFRS 1109. For details about impacts of the adoption of this Korean IFRS, see Note 43.

 

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Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

   

Enactment of Korean IFRS 1115 Revenue from Contracts with Customers

The Group has adopted Korean IFRS 1115 Revenue from Contracts with Customers. As permitted by the transition requirements of Korean IFRS 1115, comparative periods have not been restated. The Group does not expect the amendments to have a significant impact on the consolidated financial statements.

The Group has changed the accounting policy for their annual reporting period commencing January 1, 2018.

 

   

Presentation of interest income arising from financial assets measured at fair value through profit or loss

The Group previously recognized interest income arising from financial assets at fair value through profit or loss as net gains (losses) on financial assets/liabilities at fair value through profit or loss in the consolidated statements of comprehensive income. From January 1, 2018, the Group changed the accounting policy, and corresponding interest income is presented as a portion of interest income in the consolidated statements of comprehensive income. The Group expects the change in accounting policy provides results in more relevant information.

The consolidated interim statement of comprehensive income for nine-month period ended September 30, 2017, has been restated by adjusting classification of interest income.

The Group does not expect the change in accounting policy to have an impact on the consolidated statements of financial position, and total comprehensive income. The results and impact of the change on the consolidated interim statement of comprehensive income for the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(in millions of Korean won)    2018      2017  

Increase in interest income

   W 541,066      W 393,830  

Decrease in net gains (losses) on financial assets/liabilities at fair value through profit or loss

     (541,066      —    

Decrease in net gains (losses) on financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039)

     —          (393,830

Certain new accounting standards and interpretations that have been published that are not mandatory for annual reporting period commencing January 1, 2018 and have not been early adopted by the Group are set out below.

 

   

Enactment of Korean IFRS 1116 Leases

Korean IFRS 1116 Leases issued on May 22, 2017 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. This standard will replace Korean IFRS 1017 Leases, Korean IFRS 2104 Determining whether an Arrangement contains a Lease, Korean IFRS 2015 Operating Leases-Incentives, and Korean IFRS 2027 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

 

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Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

At inception of a contract, the entity shall assess whether the contract is, or contains, a lease. Also, at the date of initial application, the entity shall assess whether the contract is, or contains, a lease in accordance with the standard. However, the entity will not need to reassess all contracts with applying the practical expedient because the entity elected to apply the practical expedient only to contracts entered before the date of initial application.

For a contract that is, or contains, a lease, the entity shall account for each lease component within the contract as a lease separately from non-lease components of the contract. A lease is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. The lessee may elect not to apply the requirements to short-term lease (a lease term of 12 months or less at the commencement date) and low value assets (e.g. underlying assets below $ 5,000). In addition, as a practical expedient, the lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component.

The classification criteria between a financial lease and an operating lease for a lessor under Korean IFRS 1116 are similar to Korean IFRS 1017.

The Group is currently in progress of analyzing the potential impact on its consolidated financial statements resulting from the application of Korean IFRS 1116.

2.2 Measurement Basis

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

2.3 Functional and Presentation Currency

Items included in the financial statements of each entity of the Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Korean won, which is the Parent Company’s functional and presentation currency (Notes 3.2.1 and 3.2.2).

2.4 Critical Accounting Estimates

The preparation of consolidated 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.

 

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Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

Uncertainty in estimates and assumptions with significant risk that may result in material adjustment to the consolidated financial statements are as follows:

2.4.1 Income taxes

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

2.4.2 Fair value of financial instruments

The fair value of financial instruments where no active market exists or where quoted prices are not otherwise available is determined by using valuation techniques. Financial instruments, which are not actively traded in the market and those with less transparent market prices, will have less objective fair values and require broad judgment on liquidity, concentration, uncertainty in market factors and assumptions in price determination and other risks.

As described in the significant accounting policies in Note 3.3, ‘Recognition and Measurement of Financial Instruments’, diverse valuation techniques are used to determine the fair value of financial instruments, from generally accepted market valuation models to internally developed valuation models that incorporate various types of assumptions and variables.

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

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

2.4.4 Net defined benefit liability

The present value of net defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number of assumptions (Note 23).

2.4.5 Impairment of goodwill

The recoverable amounts of cash-generating units have been determined based on value-in-use calculations to test whether goodwill has suffered any impairment (Note 14).

 

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Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3. Significant Accounting Policies

The significant accounting policies applied in the preparation of these consolidated financial statements are set out below. The items related to financial instruments on the consolidated financial statements were stated under Korean IFRS 1109 for the current nine-month period, and under Korean IFRS 1039 for the nine-month period ended September 30, 2017. The accounting policies on financial instruments were applied for current period, and comparatives are not restated retrospectively. Except for the changes related to financial instruments, these policies have been consistently applied to all periods presented.

3.1 Consolidation

3.1.1 Subsidiaries

Subsidiaries are companies that are controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The existence and effects of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date when control is transferred to the Group and de-consolidated from the date when control is lost.

If a subsidiary uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to make the subsidiary’s accounting policies conform to those of the Group when the subsidiary’s financial statements are used by the Group in preparing the consolidated financial statements.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Parent Company and to the non-controlling interests, if any. Total comprehensive income is attributed to the owners of the Parent Company and to the non-controlling interests even if this results in the non-controlling interests having a negative balance.

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions; that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. Amounts previously recognized in other comprehensive income are reclassified to profit or loss.

The Group applies the acquisition method to account for business combinations. The consideration transferred is measured at the fair values of the assets transferred, and identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis in the event of liquidation, either at fair value or at the non-controlling interest’s proportionate share of the recognized amounts of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

In a business combination achieved in stages, the Group shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss or other comprehensive income, as appropriate. In prior reporting periods, the Group may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognized in other comprehensive income shall be reclassified as profit or loss, or retained earnings, on the same basis as would be required if the Group had disposed directly of the previously held equity interest.

The Group applies the book amount method to account for business combinations of entities under a common control. Identifiable assets acquired and liabilities assumed in a business combination are measured at their book amounts on the consolidated financial statements of the Group. In addition, the difference between the sum of consolidated book amounts of the assets and liabilities transferred and accumulated other comprehensive income; and the consideration paid is recognized as capital surplus.

3.1.2 Associates and joint ventures

Associates are entities over which the Group has significant influence in the financial and operating policy decisions. Generally, if the Group holds 20% to 50% of the voting power of the investee, it is presumed that the Group has significant influence, it is presumed that the Group has significant influence.

Joint ventures are investments in which the Group jointly controls over economic activities pursuant to contractual arrangement. Decisions on financial and operating policies require unanimous consent of the parties sharing control.

Under the equity method, investments in associates and joint ventures are initially recognized at cost and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss of the investee and changes in the investee’s equity after the date of acquisition. The Group’s share of the profit or loss of the investee is recognized in the Group’s profit or loss. Distributions received from an investee reduce the carrying amount of the investment. Profit and loss resulting from ‘upstream’ and ‘downstream’ transactions between the Group and associates are eliminated to the extent at the Group’s interest in associates. Unrealized losses are eliminated in the same way as unrealized gains except that they are only eliminated to the extent that there is no evidence of impairment.

If associates and joint ventures use accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to make the associate’s accounting policies conform to those of the Group when the associate’s financial statements are used by the Group in applying equity method.

After the carrying amount of the investment is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

The Group determines at each reporting period whether there is any objective evidence that the investments in the associates and joint ventures are impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associates and its carrying value and recognizes the amount as ‘non-operating income(expense)’ in the statements of comprehensive income.

3.1.3 Structured entity

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. When the Group decides whether it has power to the structured entities in which the Group has interests, it considers factors such as the purpose, the form, the practical ability to direct the relevant activities of a structured entity, the nature of its relationship with a structured entity and the amount of exposure to variable returns.

3.1.4 Trusts and funds

The Group provides management services for trust assets, collective investment and other funds. These trusts and funds are not consolidated in the Group’s consolidated financial statements, except for trusts and funds over which the Group has control.

3.1.5 Intra-group transactions

All intra-group balances and transactions, and any unrealized gains arising on intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains except that they are only eliminated to the extent that there is no evidence of impairment.

3.2 Foreign Currency

3.2.1 Foreign currency transactions

A foreign currency transaction is recorded, on initial recognition in the functional currency, by applying the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period, foreign currency monetary items are translated using the closing rate which is the spot exchange rate at the end of the reporting period. Non-monetary items that are measured at fair value in a foreign currency are translated using the spot exchange rates at the date when the fair value was determined and non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the spot exchange rate at the date of the transaction.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous consolidated financial statements are recognized in profit or loss in the period in which they arise, except for exchange differences arising on net investments in a foreign operation and financial liability designated as a hedge of the net investment. When gains or losses on a non-monetary item are recognized in other comprehensive income, any exchange component of those gains or losses are also recognized in other comprehensive income. Conversely, when gains or losses on a non-monetary item are recognized in profit or loss, any exchange component of those gains or losses are also recognized in profit or loss.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.2.2 Foreign operations

The financial performance and financial position of all foreign operations, whose functional currencies differ from the Group’s presentation currency, are translated into the Group’s presentation currency using the following procedures.

Assets and liabilities for each statement of financial position presented (including comparatives) are translated at the closing rate at the end of the reporting period, unless the functional currency of the foreign operation is in hyper-inflationary economy. Income and expenses in the statement of comprehensive income presented are translated using the exchange rate at the date of the transaction. All resulting exchange differences are recognized in other comprehensive income.

Any goodwill arising from the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising from the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation. Thus, they are expressed in the functional currency of the foreign operation and are translated into the presentation currency at the closing rate.

On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognized in other comprehensive income and accumulated in the separate component of equity, is reclassified from equity to profit or loss (as a reclassification adjustment) when the gains or losses on disposal are recognized. On the partial disposal of a subsidiary that includes a foreign operation, the Group redistributes the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income to the non-controlling interests in that foreign operation. In any other partial disposal of a foreign operation, the Group reclassifies to profit or loss only the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income.

3.2.3 Net investment in a foreign operation

If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, then foreign currency difference arising on the item which in substance is considered to form part of the net investment in the foreign operation, are recognized in the other comprehensive income and shall be reclassified to profit or loss on disposal of the investment.

3.3 Recognition and Measurement of Financial Instruments

3.3.1 Initial recognition

The Group recognizes a financial asset or a financial liability in its statement of financial position when the Group becomes a party to the contractual provisions of the instrument. A regular way purchase or sale of financial assets (a purchase or sale of a financial asset under a contract whose terms require delivery of the financial instruments within the time frame established generally by market regulation or practice) is recognized and derecognized using trade date accounting.

The Group classifies financial assets as financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, or financial assets at amortized cost. The Group classifies financial liabilities as financial liabilities at fair value through profit or loss, or other financial liabilities. The classification depends on the nature and holding purpose of the financial instrument at initial recognition in the consolidated financial statements.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

At initial recognition, a financial asset or financial liability is measured at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

The fair value is defined as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. The fair value of a financial instrument on initial recognition is normally the transaction price (that is, the fair value of the consideration given or received) in an arm’s length transaction.

3.3.2 Subsequent measurement

After initial recognition, financial instruments are measured at amortized cost or fair value based on classification at initial recognition.

Amortized cost

The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial recognition:

 

   

minus the principal repayments

 

   

plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount

 

   

or any reduction (directly or through the use of an allowance account) due to impairment or uncollectibility

Fair value

Fair values, which the Group primarily uses for the measurement of financial instruments, are the published price quotations based on market prices or dealer price quotations of financial instruments traded in an active market where available. These are the best evidence of fair value. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, an entity in the same industry, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

If the market for a financial instrument is not active, fair value is determined either by using a valuation technique or independent third-party valuation service. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, referencing to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models.

The Group uses valuation models that are commonly used by market participants and customized for the Group to determine fair values of common over-the-counter (OTC) derivatives such as options, interest rate swaps and currency swaps which are based on the inputs observable in markets. For more complex instruments, the Group uses internally developed models, which are usually based on valuation methods and techniques generally used within the industry, or a value measured by an independent external valuation institution as the fair values if all or some of the inputs to the valuation models are not market observable and therefore it is necessary to estimate fair value based on certain assumptions.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

The Group classifies and discloses fair value of financial instruments into the following three-level hierarchy:

 

Level 1 :    quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date
Level 2 :    inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 :    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.

If the valuation technique does not reflect all factors which market participants would consider in setting a price, the fair value is adjusted to reflect those factors. Those factors include counterparty credit risk, bid-ask spread, liquidity risk and others.

The chosen valuation technique makes maximum use of market inputs and relies as little as possible on entity-specific inputs. It incorporates all factors that market participants would consider in setting a price and is consistent with economic methodologies applied for pricing financial instruments. Periodically, the Group calibrates the valuation technique and tests its validity using prices of observable current market transactions of the same instrument or based on other relevant observable market data.

3.3.3 Derecognition

Derecognition is the removal of a previously recognized financial asset or financial liability from the statement of financial position. The Group derecognizes a financial asset or a financial liability when, and only when:

Derecognition of financial assets

Financial assets are derecognized when the contractual rights to the cash flows from the financial assets expire or the financial assets have been transferred and substantially all the risks and rewards of ownership of the financial assets are also transferred, or all the risks and rewards of ownership of the financial assets are neither substantially transferred nor retained and the Group has not retained control. If the Group neither transfers nor disposes of substantially all the risks and rewards of ownership of the financial assets, the Group continues to recognize the financial asset to the extent of its continuing involvement in the financial asset.

If the Group transfers the contractual rights to receive the cash flows of the financial asset, but retains substantially all the risks and rewards of ownership of the financial asset, the Group continues to recognize the transferred asset in its entirety and recognize a financial liability for the consideration received.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

The Group writes off financial assets in its entirety or to a portion thereof when the principal and interest on the principal amount outstanding are determined to be no longer recoverable. In general, the Group considers write-off if significant financial difficulties of the debtor, or delinquency in interest or principal payments is indicated. The write-off decision is made in accordance with internal regulations and may require approval from external institution, if necessary. After the write-off, the Group can collect the written-off loans continuously according to the internal policy. Recovered amounts of financial assets previously written-off are recognized at profit or loss.

Derecognition of financial liabilities

Financial liabilities are derecognized from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expires.

3.3.4 Offsetting

Financial assets and liabilities are offset and the net amount reported in the consolidated statements of financial position where there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the assets and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Group or the counterparty.

3.4 Cash and Due from Financial Institutions

Cash and due from financial institutions include cash on hand, foreign currency, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and due from financial institutions. Cash and due from financial institutions are measured at amortized cost.

3.5 Non-derivative Financial Assets

3.5.1 Financial assets at fair value through profit or loss

Financial assets classified as held for trading, financial assets designated by the Group as at fair value through profit or loss upon initial recognition, and financial assets that are required to be mandatorily measured at fair value through profit or loss are classified as financial assets at fair value through profit or loss

The Group may designate certain financial assets upon initial recognition as at fair value through profit or loss when the designation eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘an accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.

After initial recognition, a financial asset at fair value through profit or loss is measured at fair value and gains or losses arising from a change in the fair value are recognized in profit or loss. Interest income and dividend income from financial assets at fair value through profit or loss are also recognized in the statement of comprehensive income.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.5.2 Financial assets at fair value through other comprehensive income

The Group classifies below financial assets as financial assets at fair value through other comprehensive income;

 

   

debt instruments that are a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and consistent with representing solely payments of principal and interest on the principal amount outstanding or;

 

   

equity instruments, not held for trading with the objective of generating a profit from short-term fluctuations in price or dealer’s margin, designated as financial assets at fair value through other comprehensive income

After initial recognition, a financial asset at fair value through other comprehensive income is measured at fair value. Gain and loss from changes in fair value, other than dividend income and interest income amortized using effective interest method and exchange differences arising on monetary items which are recognized directly in income as interest income or expense, are recognized as other comprehensive income in equity.

At disposal of financial assets at fair value through other comprehensive income, cumulative gain or loss is recognized as profit or loss for the reporting period. However, cumulative gain or loss of equity instrument designated as fair value through other comprehensive income are not recycled to profit or loss at disposal.

Financial assets at fair value through other comprehensive income denominated in foreign currencies are translated at the closing rate. Exchange differences resulting from changes in amortized cost are recognized in profit or loss, and other changes are recognized as equity.

3.5.3 Financial assets measured at amortized cost

A financial asset, which are held within the business model whose objective is to hold assets in order to collect contractual cash flows and consistent with representing solely payments of principal and interest on the principal amount outstanding, are classified as a financial asset at amortized cost.

Financial assets at amortized cost are subsequently measured at amortized cost using the effective interest method after initial recognition and interest income is recognized using the effective interest method.

3.6 Expected Credit Loss of Financial Assets (Debt Instruments)

The Group measures expected credit loss and recognizes loss allowance at the end of the reporting period for financial assets measured at amortized cost and fair value through other comprehensive income with the exception of financial asset measured at fair value through profit or loss.

Expected credit losses are a probability-weighted estimate of credit losses (i.e. the present value of all cash shortfalls) over the expected life of the financial instrument. The Group measures expected credit losses by reflecting reasonable and supportable information that is reasonably available at the reporting date without undue cost or effort, including information about past events, current conditions and forecasts of future economic conditions.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

The Group uses the following three measurement techniques in accordance with Korean IFRS:

 

   

General approach: for financial assets and off-balance-sheet unused credit line that are not applied below two approaches

 

   

Simplified approach: for receivables, contract assets and lease receivables

 

   

Credit-impaired approach: for purchased or originated credit-impaired financial assets

Different measurement approaches are applied depending on significant increase in credit risk. 12 month expected credit losses is recognized when credit risk has not significantly increased since initial recognition. A loss allowance at an amount equal to lifetime expected credit losses is recognized when credit risk has significantly increased since initial recognition. Lifetime is presumed to be a period to the contractual maturity date of a financial asset (the expected life of the financial asset).

One or more of the following items is deemed significant increase in credit risk. 30 days past due presumption is applicable for all consolidated subsidiaries, and other standards are selectively applied considering applicability of each subsidiary with its specific indicators. When the contractual cash flows of a financial asset are renegotiated or otherwise modified, the Group determines whether the credit risk has increased significantly since initial recognition using the following information.

 

   

more than 30 days past due;

 

   

decline in credit rating at period end by more than certain notches as compared to that at initial recognition;

 

   

decline in ratings below certain level in the early warning system;

 

   

debt restructuring (except for impaired financial assets); and

 

   

credit delinquency information on Korea Federation of Banks, and etc.

Under simplified approach, the Group shall always measure the loss allowance at an amount equal to lifetime expected credit losses. Under credit-impaired approach, the Group entity shall only recognize the cumulative changes in lifetime expected credit losses since initial recognition as a loss allowance for purchased or originated credit-impaired financial assets. In assessing credit impairment, the Group uses definition of default as in the new Basel Accord which rules calculation of Capital Adequacy Ratio.

The Group generally deems one or more of the following items credit-impaired:

 

   

no less than 90 days past due;

 

   

legal proceedings related to collection;

 

   

a borrower that has received a warning from the Korea Federation of Banks;

 

   

corporate borrowers that are rated C or D;

 

   

refinancing; and

 

   

debt restructuring.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.6.1 Forward-looking information

The Group uses forward-looking information, when it determines whether the credit risk has increased significantly since initial recognition and measures expected credit losses.

The Group assumes the risk component has a certain correlation with the business cycle, and calculates the expected credit loss by reflecting the forward-looking information with macroeconomic variables such as interest rate, unemployment rate, KOSPI index, GDP and others on the measurement inputs.

Forward looking information used in calculation of expected credit loss is derived by KB Financial Group Research Institute after comprehensive consideration of a variety of factors including scenario in management planning, third party forecast, and others.

3.6.2 Measuring expected credit losses on financial assets at amortized cost

The amount of the loss on financial assets at amortized cost is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate.

The Group estimates expected future cash flows for financial assets that are individually significant (individual assessment of impairment).

For financial assets that are not individually significant, the Group collectively estimates expected credit loss by grouping loans with homogeneous credit risk profile (collective assessment of impairment).

Individual assessment of impairment

Individual assessment of impairment losses are calculated using management’s best estimate on present value of expected future cash flows. The Group uses all the available information including operating cash flow of the borrower and net realizable value of any collateral held.

Collective assessment of impairment

Collective assessment of loss allowance involves historical loss experience along with incorporation of forward-looking information. Such process incorporates factors such as type of collateral, product and borrowers, credit rating, size of portfolio and recovery period and applies probability of default on a group of assets and loss given default by type of recovery method. Also, the expected credit loss model involves certain assumption to determine input based on loss experience and forward-looking information. These models and assumptions are periodically reviewed to reduce gap between loss estimate and actual loss experience.

Lifetime expected credit loss as at the end of the reporting period is calculated by product of carrying amount net of expected repayment, PD for each period and LGD adjusted by change in carrying amount.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.6.3 Measuring expected credit losses on financial assets at fair value through other comprehensive income

Measuring method of expected credit losses on financial assets at fair value through other comprehensive income is equal to the method of financial assets at amortized cost, except for changes in loss allowances that are recognized as other comprehensive income. Amounts recognized in other comprehensive income for sale or repayment of financial assets at fair value through other comprehensive income are reclassified to profit or loss.

3.7 Derivative Financial Instruments

The Group enters into numerous derivative financial instrument contracts such as currency forwards, interest rate swaps, currency swaps and others for trading purposes or to manage its exposures to fluctuations in interest rates and currency exchange, amongst others. These derivative financial instruments are presented as derivative financial instruments within the consolidated financial statements irrespective of transaction purpose and subsequent measurement requirement.

The Group designates certain derivatives as hedging instruments to hedge the risk of changes in fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge) and the risk of changes in cash flow (cash flow hedge). The Group designates non-derivatives as hedging instruments to hedge the risk of foreign exchange of a net investment in a foreign operation (hedge of net investment).

At the inception of the hedge, there is formal designation and documentation of the hedging relationship and the Group’s risk management objective and strategy for undertaking the hedge. This documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value attributable to the hedged risk.

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

3.7.1 Derivative financial instruments held for trading

All derivative financial instruments, except for derivatives that are designated and qualify for hedge accounting, are measured at fair value. Gains or losses arising from a change in fair value are recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss.

3.7.2 Fair value hedges

If derivatives qualify for a fair value hedge, the change in fair value of the hedging instrument and the change in fair value of the hedged item attributable to the hedged risk are recognized in profit or loss as part of other operating income and expenses. If hedged items are equity instruments and designated to present the change in fair value of the hedging instrument in OCI, recognized hedge ineffectiveness are presented in other comprehensive income. Fair value hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. Once fair value hedge accounting is discontinued, the adjustment to the carrying amount of a hedged item is fully amortized to profit or loss by the maturity of the financial instrument using the effective interest method.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.7.3 Cash flow hedges

When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and presented in the hedging reserve within equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

The associated gains or losses that were previously recognized in other comprehensive income are reclassified from equity to profit or loss as a reclassification adjustment in the same period or periods during which the hedged forecast cash flows affects profit or loss. Cash flow hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. When the cash flow hedge accounting is discontinued, the cumulative gains or losses on the hedging instrument that have been recognized in other comprehensive income are reclassified to profit or loss over the year in which the forecast transaction occurs. If the forecast transaction is no longer expected to occur, the cumulative gains or losses that had been recognized in other comprehensive income are immediately reclassified to profit or loss.

3.7.4 Hedge of net investment

If financial liabilities qualify for a net investment hedge, the effective portion of changes in fair value of hedging instrument is recognized in other comprehensive income and the ineffective portion is recognized in profit. The gain or loss on the hedging instrument relating to the effective portion of the hedge that has been recognized in other comprehensive income will be reclassified from other comprehensive income to profit or loss as a reclassification adjustment on the disposal or partial disposal of the foreign operation in accordance with Korean IFRS 1109 Financial Instruments.

3.7.5 Embedded derivatives

If a hybrid contract contains a host that is not an asset an embedded derivative is separated from the host contract and accounted for as a derivative if, and only if the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract and a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the hybrid (combined) instrument is not measured at fair value with changes in fair value recognized in profit or loss. Gains or losses arising from a change in the fair value of an embedded derivative separated from the host contract are recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss.

3.7.6 Day one gain and loss

If the Group uses a valuation technique that incorporates data not obtained from observable markets for the fair value at initial recognition of the financial instrument, there may be a difference between the transaction price and the amount determined using that valuation technique. In these circumstances, the difference is deferred and not recognized in profit or loss, and is amortized by using the straight-line method over the life of the financial instrument. If the fair value of the financial instrument is subsequently determined using observable market inputs, the remaining deferred amount is recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss or other operating income and expenses.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.8 Property and Equipment

3.8.1 Recognition and measurement

All property and equipment that qualify for recognition as an asset are measured at cost and subsequently carried at cost less any accumulated depreciation and any accumulated impairment losses.

The cost of property and equipment includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent expenditures are capitalized only when they prolong the useful life or enhance values of the assets but the costs of the day-to-day servicing of the assets such as repair and maintenance costs are recognized in profit or loss as incurred. When part of an item of an asset has a useful life different from that of the entire asset, it is recognized as a separate asset.

3.8.2 Depreciation

Land is not depreciated, whereas other property and equipment are depreciated using the method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the Group. The depreciable amount of an asset is determined after deducting its residual value. As for leased assets, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life.

Each part of an item of property and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

The depreciation method and estimated useful lives of the assets are as follows:

 

Property and equipment    Depreciation method    Estimated useful life
Buildings and structures    Straight-line    40 years
Leasehold improvements    Declining-balance/ Straight-line    4 years
Equipment and vehicles    Declining-balance/ Straight-line    3 ~ 8 years
Finance leased assets    Declining-balance    8 months ~ 5 years and 8 months

The residual value, the useful life and the depreciation method applied to an asset are reviewed at least at each financial year end. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.9 Investment Properties

3.9.1 Recognition and measurement

Properties held to earn rentals or for capital appreciation or both are classified as investment properties. Investment properties are measured initially at their cost and subsequently the cost model is used.

3.9.2 Depreciation

Land is not depreciated, whereas other investment properties are depreciated using the method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the Group. The depreciable amount of an asset is determined after deducting its residual value.

The depreciation method and estimated useful lives of the assets are as follows:

 

Investment property    Depreciation method    Estimated useful life
Buildings    Straight-line    40 years

The residual value, the useful life and the depreciation method applied to an asset are reviewed at least at each financial year end. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate.

3.10 Intangible Assets

Intangible assets are measured initially at cost and subsequently carried at their cost less any accumulated amortization and any accumulated impairment losses.

Intangible assets, except for goodwill and membership rights, are amortized using the straight-line method or double declining balance method with no residual value over their estimated useful economic life since the asset is available for use.

 

Intangible assets    Amortization method    Estimated useful life
Industrial property rights    Straight-line    3~10 years
Software    Straight-line    3~5 years
Finance leased assets    Straight-line    8 months ~ 5 years and 8 months
VOBA    Declining-Balance    60 years
Others    Straight-line    1~10 years

The amortization period and the amortization method for intangible assets with a finite useful life are reviewed at least at each financial year end. Where an intangible asset is not being amortized because its useful life is considered to be indefinite, the Group carries out a review in each accounting period to confirm whether or not events and circumstances still support the assumption of an indefinite useful life. If they do not, the change from the indefinite to finite useful life is accounted for as a change in an accounting estimate.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.10.1 Value of business acquired (VOBA)

The Group recorded value of business acquired (VOBA) as intangible assets, which are the differences between the fair value of insurance liabilities and book value calculated based on the accounting policy of the acquired company. VOBA is an estimated present value of future cash flow of long-term insurance contracts at the acquisition date. VOBA is amortized for above estimated useful life using declining balance method, the depreciation is recognized as insurance expense.

3.10.2 Goodwill

Recognition and measurement

Goodwill acquired from business combinations before January 1, 2010, is stated at its carrying amount which was recognized under the Group’s previous accounting policy, prior to the transition to Korean IFRS.

Goodwill acquired from business combinations after January 1, 2010, is initially measured as the excess of the aggregate of the consideration transferred, fair value of non-controlling interest and the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the business acquired, the difference is recognized in profit or loss.

For each business combination, the Group decides whether the non-controlling interest in the acquiree is initially measured at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets at the acquisition date.

Acquisition-related costs incurred to effect a business combination are charged to expenses in the periods in which the costs are incurred and the services are received, except for the costs to issue debt or equity securities.

Additional acquisitions of non-controlling interest

Additional acquisitions of non-controlling interests are accounted for as equity transactions. Therefore, no additional goodwill is recognized.

Subsequent measurement

Goodwill is not amortized and is stated at cost less accumulated impairment losses. However, goodwill that forms part of the carrying amount of an investment in associates is not separately recognized and an impairment loss recognized is not allocated to any asset, including goodwill, which forms part of the carrying amount of the investment in the associates.

3.10.3 Subsequent expenditure

Subsequent expenditure is capitalized only when it enhances values of the assets. Internally generated intangible assets, such as goodwill and trade name, are not recognized as assets but expensed as incurred.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.11 Leases

3.11.1 Finance lease

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. At the commencement of the lease term, the Group recognizes finance leases as assets and liabilities in its statements of financial position at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs of the lessee are added to the amount recognized as an asset.

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the Group adopts for depreciable assets that are owned. If there is reasonable certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise, the asset is fully depreciated over the shorter of the lease term and its useful life.

3.11.2 Operating lease

A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Leases in the financial statements of lessors

Lease income from operating leases are recognized in income on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished. Initial direct costs incurred by lessors in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income.

Leases in the financial statements of lessees

Lease payments under an operating lease (net of any incentives received from the lessor) are recognized as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the asset’s benefit.

3.12 Greenhouse Gas Emission Rights and Liabilities

The Group measured at zero the emission rights received free of charge from the government following the Enforcement of Allocation and Trading of Greenhouse Gas Emissions Allowances. Emission rights purchased are measured initially at cost and subsequently carried at their costs less any accumulated impairment losses. Emission liabilities are measured as the sum of the carrying amount of emission allowances held by the Group and best estimate of the expenditure required to settle the obligation for any excess emissions at the end of reporting period. The emission rights and liabilities are classified as ‘intangible assets’ and ‘provisions’, respectively, in the consolidated statement of financial position.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

The emission rights held for trading are measured at fair value and the changes in fair value are recognized in profit or loss. The changes in fair value and gain or loss on disposal are classified as non-operating income and expenses.

3.13 Impairment of Non-Financial Assets

The Group assesses at the end of each reporting period whether there is any indication that a non-financial asset, except for (i) deferred income tax assets, (ii) assets arising from employee benefits and (iii) non-current assets (or group of assets to be sold) classified as held for sale, may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset. However, irrespective of whether there is any indication of impairment, the Group tests (i) goodwill acquired in a business combination, (ii) intangible assets with an indefinite useful life and (iii) intangible assets not yet available for use for impairment annually by comparing their carrying amount with their recoverable amount.

The recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Group determines the recoverable amount of the cash-generating unit to which the asset belongs (the asset’s cash-generating unit). A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit that are discounted by a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss and recognized immediately in profit or loss. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units that are expected to benefit from the synergies of the combination. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit.

An impairment loss recognized for goodwill is not reversed in a subsequent period. The Group assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset, other than goodwill, may no longer exist or may have decreased, and an impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss cannot exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.14 Non-Current Assets Held for Sale

A non-current asset or disposal group is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. A non-current asset (or disposal group) classified as held for sale is measured at the lower of its carrying amount and fair value less costs to sell which is measured in accordance with the applicable Korean IFRS, immediately before the initial classification of the asset (or disposal group) as held for sale.

A non-current asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale is not depreciated (or amortized).

Impairment loss is recognized for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. Gains are recognized for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the cumulative impairment loss that has been recognized.

3.15 Financial Liabilities at Fair Value through Profit or Loss

The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities.

The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.

3.15.1 Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.

In relation to securities lending or borrowing transactions, the Group records transaction using memo value when it borrows securities from Korea Securities Depository etc. The borrowed securities are treated as financial liabilities at fair value through profit and loss when the Group sells them. Changes in fair value at the end of the reporting period and difference between carrying amount at redemption and purchased amount are recognized as profit and loss.

In addition, for the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability, the Group present this change in other comprehensive income, and does not recycle this other comprehensive income to profit or loss, subsequently. When this treatment create or enlarge an accounting mismatch, the Group recognizes this change as profit or loss for the current period.

3.15.2 Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. Other financial liabilities include Deposits, Debts, Debentures and others. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

In case an asset is sold under repurchase agreement, the Group continues to recognize the asset with the amount sold being accounted for as borrowing.

The Group derecognizes a financial liability from the consolidated statement of financial position only when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

3.16 Insurance Contracts

KB Life Insurance Co., Ltd., and KB Insurance Co., Ltd., the subsidiaries of the Group, issue insurance contracts.

Insurance contracts are defined as “a contract under which one party (the insurer) accepts significant insurance risk from another party by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder”. A contract that qualifies as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire. Such a contract that does not contain significant insurance risk is classified as an investment contract and is within the scope of Korean IFRS 1109, Financial Instruments to the extent that it gives rise to a financial asset or financial liability, except if the investment contract contains a Discretionary Participation Features (DPF). If the contract has a DPF, the contract is subject to Korean IFRS 1104, Insurance Contracts. The Group recognizes assets (liabilities) and gains (losses) relating to insurance contracts as other assets (liabilities) in the statements of financial position, and as other operating income (expenses) in the statements of comprehensive income, respectively.

3.16.1 Insurance premiums

The Group recognizes collected premiums as revenue on the due date of collection of premiums from insurance contracts and the collected premium which is unmatured at the end of the reporting period is recognized as unearned premium.

3.16.2 Insurance liabilities

The Group recognizes a liability for future claims, refunds, policyholders’ dividends and related expenses as follows:

Premium reserve

Premium reserve refers to an amount based on the net premium method for payment of future claims with respect to events covered by insurance policies which have not yet occurred as of the reporting period. It is calculated as the greater of the amount using standard interest rate and standard loss ratio defined by Financial Supervisory Services and the amount using the actual underlying data that have been used in premium calculation.

Reserve for outstanding claims

Reserve for outstanding claims refers to the amount not yet paid, out of an amount to be paid or expected to be paid with respect to the insured events which have arisen as of the end of each fiscal year.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

Unearned premium reserve

Unearned premium refers to the portion of the premium that has been paid in advance for insurance that has not yet been provided. An unearned premium reserve refers to the amount maintained by the insurer to refund in the event of either party cancelling the contract.

Policyholders’ dividends reserve

Policyholders’ dividends reserve including an interest rate guarantee reserve, a mortality dividend reserve and an interest rate difference dividend reserve is recognized for the purpose of provisioning for policyholders’ dividends in the future in accordance with statutes or insurance terms and conditions.

3.16.3 Liability adequacy test

The Group assesses at each reporting period whether its insurance liabilities are adequate, using current estimates of all future contractual cash flows and related cash flow such as claims handling cost, as well as cash flows resulting from embedded options and guarantees under its insurance contracts in accordance with Korean IFRS 1104. If the assessment shows that the carrying amount of its insurance liabilities is inadequate in light of the estimated future cash flows, the entire deficiency is recognized in profit or loss and reserved as insurance liabilities. Future cash flows from long-term insurance are discounted at a future rate of return on operating assets, whereas future cash flows from general insurance are not discounted to present value. For liability adequacy tests of premium and unearned premium reserves, the Group considers all cash flow factors such as future insurance premium, deferred acquisition costs, operating expenses and operating premiums. In relation to the reserve for outstanding claims, the Group elects a model that best reflects the trend of paid claims among several statistical methods to perform the adequacy test.

3.16.4 Deferred acquisition costs

Acquisition cost is deferred in an amount actually spent for an insurance contract and equally amortized over the premium payment period or the period in which acquisition costs are charged for the relevant insurance contract. Acquisition costs are amortized over the shorter of seven years or premium payment period; if there is any unamortized acquisition costs remaining as of the date of surrender or lapse, such remainder shall be amortized in the period in which the contract is surrendered or lapsed.

3.17 Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of provisions, and where the effect of the time value of money is material, the amount of provisions are the present value of the expenditures expected to be required to settle the obligation.

Provisions on confirmed and unconfirmed acceptances and guarantees, unfunded commitments of credit cards and unused credit lines of consumer and corporate loans are recognized using a valuation model that applies the credit conversion factor, probability of default, and loss given default.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provisions are reversed.

If the Group has an onerous contract, the present obligation under the contract is recognized and measured as provisions. An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the minimum net cost to exit from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it.

3.18 Financial Guarantee Contracts

A financial guarantee contract requires the issuer (the Group) to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the original or modified terms of a debt instrument.

Financial guarantee contracts are initially recognized at fair value as other liabilities, and are amortized over the contractual term. After initial recognition, financial guarantee contracts are measured at the higher of:

 

   

The amount determined in accordance with Korean IFRS 1109, Financial Instruments and

 

   

The initial amount recognized, less, when appropriate, cumulative amortization recognized in accordance with Korean IFRS 1115, Revenue from Contracts with Customers.

3.19 Equity Instruments Issued by the Group

An equity instrument is any contract or agreement that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

3.19.1 Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or the exercise of stock option are deducted from the equity, net of any tax effects.

3.19.2 Hybrid bonds

The Group classifies issued financial instruments, or their component parts, as a financial liability or an equity instrument depending on the substance of the contractual arrangement of such financial instruments. Hybrid bonds are classified as equity instruments and presented in equity, if the Group has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation are classified as equity instruments and presented in equity.

3.19.3 Treasury shares

If the Group acquires its own equity instruments, these are accounted for as treasury shares and are deducted directly from equity. No gains or losses are recognized in profit or loss on the purchase, sale, issue or cancellation of own equity instruments. If an entity within the Group acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.

 

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September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.19.4 Hybrid financial instruments

A hybrid financial instrument is classified as a financial liability or an equity instrument depending on the substance of the contractual arrangement of such financial instrument. The liability component of the hybrid financial instrument is measured at fair value of the similar liability without conversion option at initial recognition and subsequently measured at amortized cost using effective interest rate method until it is extinguished by conversion or matured. Equity component is initially measured at fair value of hybrid financial instrument in entirety less fair value of liability component net of tax effect and it is not remeasured subsequently.

3.20 Revenue Recognition

The Group recognizes revenues in accordance with the following revenue recognition standard:

 

   

Step 1: Identify the contract with a customer.

 

   

Step 2: Identify the performance obligations in the contract.

 

   

Step 3: Determine the transaction price.

 

   

Step 4: Allocate the transaction price to the performance obligations in the contract.

 

   

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

3.20.1 Interest income and expense

Interest income of financial assets at amortized cost and financial assets at fair value through other comprehensive income, and expense are recognized in statements of comprehensive income using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or groups of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period.

The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid (main components of effective interest rates only) or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. In those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instrument (or group of financial instruments), the Group uses the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments).

Interest on impaired financial assets is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

Interest earned arising from debt investments at fair value through profit or loss is also classified as interest income in statements of comprehensive income.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.20.2 Fee and commission income

The Group recognizes financial service fees in accordance with the accounting standard of the financial instrument related to the fees earned.

Fees that are an integral part of the effective interest of a financial instrument

Such fees are generally treated as adjustments of effective interest. Such fees may include compensation for activities such as evaluating the borrower’s financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating the terms of the instrument, preparing and processing documents and closing the transaction and origination fees received on issuing financial liabilities measured at amortized cost. However, fees relating to the creation or acquisition of a financial instrument at fair value through profit or loss are recognized as revenue immediately.

Fees earned as services are provided

Such fees are recognized as revenue as the services are provided. Fees which can be earned through the certain periods, including account servicing fees, investment management fees, and etc. are recognized when the related services are provided.

Fees that are earned on the execution of a significant act

Such fees are recognized as revenue when the significant act has been completed.

Commission on the allotment of shares to a client is recognized as revenue when the shares have been allotted and placement fees for arranging a loan between a borrower and an investor is recognized as revenue when the loan has been arranged.

A syndication fee received by the Group that arranges a loan and retains no part of the loan package for itself (or retains a part at the same effective interest rate for comparable risk as other participants) is compensation for the service of syndication. Such a fee is recognized as revenue when the syndication has been completed.

3.20.3 Net gains/losses on financial instruments at fair value through profit or loss

Net gains/losses on financial instruments at fair value through profit or loss include profit or loss (changes in fair value, dividends, and gain/loss from foreign currency translation) from following financial instruments:

 

   

Gain or loss from financial instruments at fair value through profit or loss

 

   

Gain or loss from derivatives for trading, including derivatives for hedging that does not meet the condition of hedge accounting

3.20.4 Dividend income

Dividend income is recognized in profit or loss when the right to receive payment is established. Dividend income is recognized as relevant items on statements of profit or loss and other comprehensive income in accordance with the classification of equity instruments.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.21 Employee Compensation and Benefits

3.21.1 Post-employment benefits: defined contribution plans

The contributions are recognized as employee benefit expense when they are due.

3.21.2 Post-employment benefits: defined benefit plans

All post-employment benefits, other than defined contribution plans, are classified as defined benefit plans. The amount recognized as a defined benefit liability is the present value of the defined benefit obligation less the fair value of plan assets at the end of the reporting period.

The present value of the defined benefit obligation is calculated annually by independent actuaries using the Projected Unit Credit method. The rate used to discount post-employment benefit obligations is determined by reference to market yields at the end of the reporting period on high quality corporate bonds. The currency and term of the corporate bonds are consistent with the currency and estimated term of the post-employment benefit obligations. Actuarial gains and losses including experience adjustments and the effects of changes in actuarial assumptions are recognized in other comprehensive income.

When the total of the present value of the defined benefit obligation minus the fair value of plan assets results in an asset, it is recognized to the extent of the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

Past service cost is the change in the present value of the defined benefit obligation, which arises when the Group introduces a defined benefit plan or changes the benefits of an existing defined benefit plan. Such past service cost is immediately recognized as an expense for the reporting period.

3.21.3 Short-term employee benefits

Short-term employee benefits are employee benefits (other than termination benefits) that are due to be settled within 12 months after the end of the period in which the employees render the related service. The undiscounted amount of short-term employee benefits expected to be paid in exchange for that service is recognized as a liability (accrued expense), after deducting any amount already paid.

The expected cost of profit-sharing and bonus payments are recognized as liabilities when the Group has a present legal or constructive obligation to make such payments as a result of past events rendered by employees and a reliable estimate of the obligation can be made.

3.21.4 Share-based payment

The Group has stock option and stock grant programs to directors and employees of the Group. When the options are exercised, the Group can either select to issue new shares or distribute treasury shares, or compensate the difference in fair value of shares and exercise price.

For a share-based payment transaction in which the terms of the arrangement provide the Group with the choice of whether to settle in cash or by issuing equity instruments, the Group determines that it has a present obligation to settle in cash because the Group has a past practice and a stated policy of settling in cash. Therefore, the Group accounts for the transaction in accordance with the requirements of cash-settled share-based payment transactions.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

The Group measures the services acquired and the liability incurred at fair value, and the fair value is recognized as expense and accrued expenses over the vesting period. Until the liability is settled, the Group remeasures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the reporting period.

3.21.5 Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group shall recognize a liability and expense for termination benefits at the earlier of the following dates: when the Group can no longer withdraw the offer of those benefits and when the Group recognizes costs for a restructuring that is within the scope of Korean IFRS 1037 and involves the payment of termination benefits. Termination benefits are measured by considering the number of employees expected to accept the offer in the case of a voluntary early retirement. Termination benefits over 12 months after the reporting period are discounted to present value.

3.22 Income Tax Expenses

Income tax expense comprises current tax expense and deferred income tax expense. Current and deferred income tax are recognized as income or expense for the period, except to the extent that the tax arises from (a) a transaction or an event which is recognized, in the same or a different period outside profit or loss, either in other comprehensive income or directly in equity and (b) a business combination.

3.22.1 Current income tax

Current income tax is the amount of income taxes payable in respect of the taxable profit (loss) for a period. A difference between the taxable profit and accounting profit may arise when income or expense is included in accounting profit in one period, but is included in taxable profit in a different period. Differences may also arise if there is revenue that is exempt from taxation, or expense that is not deductible in determining taxable profit (loss). Current income tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The Group offsets current income tax assets and current income tax liabilities if, and only if, the Group (a) has a legally enforceable right to offset the recognized amounts and (b) intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

3.22.2 Deferred income tax

Deferred income tax is recognized, using the asset-liability method, on temporary differences arising between the tax based amount of assets and liabilities and their carrying amount in the financial statements. Deferred income tax liabilities are recognized for all taxable temporary differences and deferred income tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized. However, deferred income tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except for deferred income tax liabilities for which the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of a deferred income tax asset is reviewed at the end of each reporting period. The Group reduces the carrying amount of a deferred income tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred income tax asset to be utilized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred income tax liabilities and deferred income tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

The Group offsets deferred income tax assets and deferred income tax liabilities when the Group has a legally enforceable right to offset current income tax assets against current income tax liabilities; and the deferred income tax assets and the deferred income tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity; or different taxable entities which intend either to settle current income tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred income tax liabilities or assets are expected to be settled or recovered.

3.22.3 Uncertain tax positions

Uncertain tax positions arise from tax treatments applied by the Group which may be challenged by the tax authorities due to the complexity of the transaction or different interpretation of the tax laws, a claim for rectification brought by the Group, or an appeal for a refund claimed from the tax authorities related to additional assessments. The Group recognizes its uncertain tax positions in the consolidated financial statements based on the guidance in Korean IFRS 1012. The income tax asset is recognized if a tax refund is probable for taxes paid and levied by the tax authority. However, interest and penalties related to income tax are recognized in accordance with Korean IFRS 1037.

3.23 Earnings per Share

The Group calculates basic earnings per share amounts and diluted earnings per share amounts for profit or loss attributable to ordinary equity holders of the Parent Company and presents them in the statement of comprehensive income. Basic earnings per share is calculated by dividing profit or loss attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding during the period. For the purpose of calculating diluted earnings per share, the Group adjusts profit or loss attributable to ordinary equity holders of the Parent Company and the weighted average number of shares outstanding for the effects of all dilutive potential ordinary shares including convertible bonds and share options.

 

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September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

3.24 Operating Segments

Operating segments are components of the Group where separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

Segment information includes items which are directly attributable and reasonably allocated to the segment.

3.25 Overlay Approach

The Group applies the overlay approach in accordance with Korean IFRS 1104, and financial asset is eligible for designation for the overlay approach if, and only if, the following criteria are met:

 

   

It is measured at fair value through profit or loss applying Korean IFRS 1109 but would not have been measured at fair value through profit or loss in its entirety applying Korean IFRS 1039.

 

   

It is not held in respect of an activity that is unconnected with contracts within the scope of Korean IFRS 1104.

The Group reclassifies between profit or loss and other comprehensive income, and the amount reclassified is equal to the difference between:

 

   

The amount reported in profit or loss for the designated financial assets applying Korean IFRS 1109.

 

   

The amount that would have been reported in profit or loss for the designated financial assets if the insurer had applied Korean IFRS 1039.

The Group is permitted to apply this approach either at initial recognition or it may subsequently designate financial assets that newly meet criterion of not being held in respect of activity unconnected with insurance contract, they having previously not met that criterion.

The Group continues to apply the overlay approach to a designated financial asset until that financial asset is derecognized. However, the Group de-designates a financial asset when the financial asset no longer meets the criterion. In this case, the Group reclassifies from accumulated other comprehensive income to profit or loss as a reclassification adjustment any balance relating to that financial asset.

At the beginning of any annual period, the Group may stop applying the overlay approach to all designated financial assets, and shall not subsequently apply the overlay approach, if it stops using this approach because it is no longer an insurer.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

4. Financial Risk Management

4.1 Summary

4.1.1 Overview of financial risk management policy

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

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

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 Group’s target risk appetite. The Committee approves significant risk matters and reviews the level of risks that the Group is exposed to and the appropriateness of the Group’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 Group’s risk management.

Risk Management Division

The Risk Management Division is responsible for monitoring and managing the Group’s economic capital limit and managing detailed policies, procedures and working processes relating to the Group’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 a 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, country risk, specific risks and other credit risk exposure components are considered as a whole.

4.2.2 Credit risk management

The Group measures expected losses and economic capital on assets that are subject to credit risk management whether on- or off-balance sheet items and uses expected losses and economic capital as a management indicator. The Group manages credit risk by allocating credit risk economic capital limits.

 

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September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

In addition, the Group controls the credit concentration risk exposure by applying and managing total exposure limits to prevent an excessive risk concentration to each industry and borrower.

The Group has organized a credit risk management team that focuses on credit risk management in accordance with the Group’s credit risk management policy. Especially, the loan analysis department of Kookmin Bank, one of the subsidiaries, is responsible for loan policy, loan limit, loan review, credit management, restructuring and subsequent event management, independently of operating department. On the other hand, risk management group of Kookmin Bank is responsible for planning risk management policy, applying limits of credit lines, measuring the credit risk economic capital, adjusting credit limits, reviewing credit and verifying credit evaluation models.

4.2.3 Maximum exposure to credit risk

The Group’s maximum exposures of financial instruments, excluding equity securities, to credit risk without consideration of collateral values as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018  

Financial assets

  

Due from financial institutions at amortized cost 2

   W 15,515,475  

Financial assets at fair value through profit or loss

  

Due from financial institutions

     506,245  

Securities1

     34,296,069  

Loans

     844,899  

Derivatives

     2,206,870  

Loans at amortized cost2

     316,430,970  

Financial investments

  

Securities measured at fair value through other comprehensive income

     33,662,743  

Securities measured at amortized cost2

     23,074,564  

Other financial assets2

     13,957,209  
  

 

 

 
     440,495,044  
  

 

 

 

Off-balance sheet items

  

Acceptances and guarantees contracts

     7,819,957  

Financial guarantee contracts

     3,665,581  

Commitments

     134,271,292  
  

 

 

 
     145,756,830  
  

 

 

 
   W  586,251,874  
  

 

 

 

 

1 

Including financial instruments indexed to gold price amounting to W 74,571 million and excluding puttable instruments (investment fund classified as debt securities, etc.) amounting to W 13,816,191 million.

2 

Due from financial institutions, loans and other financial assets are net of allowance.

 

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Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

(In millions of Korean won)    December 31, 2017  

Financial assets

  

Due from financial institutions

   W 17,219,661  

Financial assets at fair value through profit or loss

  

Financial assets held for trading1

     25,242,193  

Financial assets designated at fair value through profit or loss

     1,982,224  

Derivatives

     3,310,166  

Loans2

     290,122,838  

Financial investments

  

Available-for-sale financial assets

     38,959,401  

Held-to-maturity financial assets

     18,491,980  

Other financial assets2

     10,195,015  
  

 

 

 
     405,523,478  
  

 

 

 

Off-balance sheet items

  

Acceptances and guarantees contracts

     6,977,468  

Financial guarantee contracts

     3,683,875  

Commitments

     102,183,167  
  

 

 

 
     112,844,510  
  

 

 

 
   W 518,367,988  
  

 

 

 

 

1

Including financial instruments indexed to gold amounting to W 73,855 million.

2 

Loans and other financial assets are net of allowance.

4.2.4 Credit risk of loans

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

The Group assesses expected credit loss on financial asset at amortized cost and financial asset at fair value through other comprehensive income other than financial asset at fair value through profit or loss and recognizes loss allowance. Expected credit losses are a probability-weighted estimate of possible credit losses within certain range by reflecting reasonable and supportable information that is reasonably available at the reporting date without undue cost or effort, including information about past events, current conditions and forecasts of future economic conditions. The Group assesses the expected credit losses for loans categorized in financial assets at amortized cost, and presents it with the name of account ‘allowance for loan losses’ netting from the related carrying amounts. For the expected credit losses for loans categorized in financial assets at fair value through other comprehensive income, the Group presents it at other comprehensive income.

 

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Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

Loans as of September 30, 2018, are classified as follows:

 

(In millions of Korean won)    September 30, 2018  
     The financial
instruments
applying 12-month
expected credit
losses
     The financial instruments
applying lifetime expected credit
losses
     Financial
instruments
not applying
expected
credit losses
     Total  
     Non-impaired      Impaired  

Financial assets at amortized cost1

 

Corporate

 

Grade 1

   W 77,069,543      W 2,149,063      W 502      W  —        W 79,219,108  

Grade 2

     55,434,803        4,331,859        11,049        —          59,777,711  

Grade 3

     3,076,985        1,796,114        9,236        —          4,882,335  

Grade 4

     507,495        1,041,438        88,883        —          1,637,816  

Grade 5

     397,326        348,592        1,073,608        —          1,819,526  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     136,486,152        9,667,066        1,183,278        —          147,336,496  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Retail

 

Grade 1

     130,305,791        4,424,580        5,933        —          134,736,304  

Grade 2

     7,898,031        7,584,793        10,717        —          15,493,541  

Grade 3

     1,890,820        1,270,773        16,577        —          3,178,170  

Grade 4

     569,558        326,777        29,905        —          926,240  

Grade 5

     25,121        384,555        469,551        —          879,227  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     140,689,321        13,991,478        532,683        —          155,213,482  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Credit card

 

Grade 1

     7,585,437        167,710        —          —          7,753,147  

Grade 2

     4,388,481        563,724        —          —          4,952,205  

Grade 3

     1,471,486        1,208,858        —          —          2,680,344  

Grade 4

     7,214        465,466        —          —          472,680  

Grade 5

     5        171,606        399,497        —          571,108  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     13,452,623        2,577,364        399,497        —          16,429,484  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W  290,628,096      W  26,235,908      W  2,115,458      W —        W  318,979,462  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1

Before netting of allowance.

Credit quality of loans graded according to internal credit ratings are as follows:

 

     Range of Probability of
Default (%)
   Retail    Corporate

Grade 1

   0.0 ~ 1.0    1 ~ 5 grade    AAA ~ BBB+

Grade 2

   1.0 ~ 5.0    6 ~ 8 grade    BBB ~ BB

Grade 3

   5.0 ~ 15.0    9 ~ 10 grade    BB- ~ B

Grade 4

   15.0 ~ 30.0    11 grade    B- ~ CCC

Grade 5

   30.0 ~    12 grade or under    CC or under

 

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Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

Loans as of December 31, 2017, are classified as follows:

 

(In millions of Korean won)    December 31, 2017  
Loans    Retail      Corporate      Credit card      Total  
   Amount     %      Amount     %      Amount     %      Amount     %  

Neither past due nor impaired

   W 144,705,621       98.93      W 129,130,466       98.76      W 14,496,109       95.34      W 288,332,196       98.67  

Past due but not impaired

     1,069,813       0.73        206,925       0.16        359,468       2.36        1,636,206       0.56  

Impaired

     495,546       0.34        1,419,851       1.08        349,270       2.30        2,264,667       0.77  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     146,270,980       100.00        130,757,242       100.00        15,204,847       100.00        292,233,069       100.00  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Less: Allowances1

     (429,299     0.29        (1,231,666     0.94        (449,266     2.95        (2,110,231     0.72  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Carrying amount

   W 145,841,681        W 129,525,576        W 14,755,581        W 290,122,838    
  

 

 

      

 

 

      

 

 

      

 

 

   

 

1

Collectively assessed allowances for loans are included as they are not impaired individually.

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

 

(In millions of Korean won)    December 31, 2017  
     Retail      Corporate      Credit card      Total  

Grade 1

   W  124,133,056      W 67,575,021      W 8,095,629      W  199,803,706  

Grade 2

     16,790,644        53,842,610        4,920,767        75,554,021  

Grade 3

     2,701,697        5,703,159        1,379,409        9,784,265  

Grade 4

     851,446        1,390,131        71,207        2,312,784  

Grade 5

     228,778        619,545        29,097        877,420  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 144,705,621      W  129,130,466      W  14,496,109      W 288,332,196  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans that are past due but not impaired are as follows:

 

(In millions of Korean won)    December 31, 2017  
    

1 ~ 29

days

    

30 ~ 59

days

     60 ~ 89
days
    

90 days

or more

     Total  

Retail

   W 890,759      W  117,057      W  59,632      W  2,365      W  1,069,813  

Corporate

     162,668        27,065        17,192        —          206,925  

Credit card

     302,871        35,774        20,823        —          359,468  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W  1,356,298      W 179,896      W 97,647      W 2,365      W 1,636,206  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans are as follows:

 

(In millions of Korean won)    December 31, 2017  
     Retail      Corporate      Credit card      Total  

Loans

   W 495,546      W  1,419,851      W 349,270      W 2,264,667  

Allowances under

           

Individual assessment

     (788      (791,205      —          (791,993

Collective assessment

     (178,337      (90,771      (212,729      (481,837
  

 

 

    

 

 

    

 

 

    

 

 

 
     (179,125      (881,976      (212,729      (1,273,830
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 316,421      W 537,875      W 136,541      W 990,837  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

43


Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

The quantification of the extent to which collateral and other credit enhancements mitigate credit risk as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018  
    

The financial
instruments
applying 12-

month expected

     The financial instruments applying
lifetime expected credit losses
     Total  
     credit losses      Non-impaired      Impaired  

Guarantees

   W 57,909,622      W 5,729,652      W  146,644      W 63,785,918  

Deposits and savings

     3,967,093        79,188        6,192        4,052,473  

Property and equipment

     8,386,575        542,570        43,016        8,972,161  

Real estate

     145,324,573        12,769,926        504,813        158,599,312  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  215,587,863      W  19,121,336      W 700,665      W  235,409,864  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of Korean won)    December 31, 2017  
     Impaired Loans      Non-impaired Loans         
     Individual      Collective      Past due      Not past due      Total  

Guarantees

   W 17,257      W 113,551      W 209,180      W 57,828,611      W 58,168,599  

Deposits and savings

     11,857        5,461        40,833        4,149,157        4,207,308  

Property and equipment

     2,676        30,455        53,647        9,720,857        9,807,635  

Real estate

     189,480        282,327        688,502        148,183,907        149,344,216  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 221,270      W 431,794      W 992,162      W 219,882,532      W 221,527,758  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

4.2.5 Credit quality of securities

Financial assets at fair value through profit or loss and financial investments excluding equity securities and others that are exposed to credit risk as of September 30, 2018, are as follows:

 

(In millions of Korean won)    September 30, 2018  
     The financial
instruments
applying 12-month
expected credit
losses
     The financial
instruments applying
lifetime expected credit
losses
     Financial
instruments
not applying
expected
credit losses
     Total  
    

Non-

impaired

     Impaired  

Securities measured at amortized cost1

              

Grade 1

   W  23,033,633      W  —        W  —        W  —        W  23,033,633  

Grade 2

     38,874        —          —          —          38,874  

Grade 3

     3,863        —          —          —          3,863  

Grade 4

     —          —          —          —          —    

Grade 5

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     23,076,370        —          —          —          23,076,370  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through other comprehensive income1

              

Grade 1

     30,980,859        —          —          —          30,980,859  

Grade 2

     2,442,661        —          —          —          2,442,661  

Grade 3

     123,562        —          —          —          123,562  

Grade 4

     112,795        —          —          —          112,795  

Grade 5

     —          —          2,866        —          2,866  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 33,659,877      W —        W  2,866      W —        W  33,662,743  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1

Before netting of allowance

 

44


Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

The credit qualities of securities, excluding equity securities and others according to the credit ratings by external rating agencies as of September 30, 2018, and December 31, 2017, are as follows:

 

Credit    Domestic    Foreign
  

 

  

 

quality    KIS    NICE P&I    KAP    FnPricing Inc.    S&P    Fitch-IBCA    Moody’s

Grade 1

   AA0 to AAA    AA0 to AAA    AA0 to AAA    AA0 to AAA    A- to AAA    A- to AAA    A3 to Aaa

Grade 2

   A- to AA-    A- to AA-    A- to AA-    A- to AA-    BBB- to BBB+    BBB- to BBB+    Baa3 to Baa1

Grade 3

   BBB0 to BBB+    BBB0 to BBB+    BBB0 to BBB+    BBB0 to BBB+    BB to BB+    BB to BB+    Ba2 to Ba1

Grade 4

   BB0 to BBB-    BB0 to BBB-    BB0 to BBB-    BB0 to BBB-    B+ to BB-    B+ to BB-    B1 to Ba3

Grade 5

   BB- or under    BB- or under    BB- or under    BB- or under    B or under    B or under    B2 or under

Credit qualities of debt securities denominated in Korean won are based on the lowest credit rating by the domestic credit rating agencies above, and those denominated in foreign currencies are based on the lowest credit rating by the foreign credit rating agencies above.

Financial assets at fair value through profit or loss and financial investments excluding equity securities that are exposed to credit risk as of December 31, 2017 are as follows:

 

(In millions of Korean won)    December 31, 2017  

Securities that are neither past due nor impaired

   W 84,597,074  

Impaired securities

     4,869  
  

 

 

 
   W 84,601,943  
  

 

 

 

The credit quality of securities, excluding equity securities, that are neither past due nor impaired as of December 31, 2017, is as follows:

 

(In millions of Korean won)    December 31, 2017  
     Grade 1      Grade 2      Grade 3      Grade 4      Grade 5      Total  

Securities that are neither past due nor impaired

 

Financial assets held for trading

   W 21,002,043      W 3,958,261      W  93,887      W  28,232      W 85,915      W 25,168,338  

Financial assets designated at fair value through profit or loss

     1,550,617        200,633        63,856        60,332        106,786        1,982,224  

Available-for-sale financial assets

     36,471,247        2,433,685        47,079        2,521        —          38,954,532  

Held-to-maturity financial assets

     18,466,624        21,113        4,243        —          —          18,491,980  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 77,490,531      W 6,613,692      W 209,065      W 91,085      W 192,701      W 84,597,074  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

45


Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

4.2.6 Credit risk of due from financial institutions

The credit quality of due from financial institions as of September 30, 2018, is classified as follows:

 

(In millions of Korean won)    September 30, 2018  
     The financial
instruments applying
12-month expected
credit losses
     The financial instruments
applying lifetime
expected credit losses
     Financial
instruments not
applying
expected credit
losses
        
  

Non-

impaired

     Impaired      Total  

Due from financial institutions at amortized cost1

 

Grade 1

   W  14,616,601      W  —        W  —        W  —        W  14,616,601  

Grade 2

     437,222        —          —          —          437,222  

Grade 3

     441,095        —          —          —          441,095  

Grade 4

     19,414        —          —          —          19,414  

Grade 5

     3,034        —          —          —          3,034  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 15,517,366      W —        W —        W —        W 15,517,366  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1

Before netting of allowance

The credit qualities of due from financial institutions according to the credit ratings by external rating agencies as of September 30, 2018 is same as the credit qualities of securities, excluding equity securities and others.

4.2.7 Credit risk concentration analysis

Details of the Group’s loans by jurisdiction as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018  
     Retail      Corporate      Credit card      Total      %      Allowances    

Carrying

amount

 

Korea

   W 154,975,315      W 143,487,354      W 16,426,492      W 314,889,161        98.46      W (2,512,556   W 312,376,605  

Europe

     —          488,898        339        489,237        0.15        (342     488,895  

China

     —          2,328,690        601        2,329,291        0.73        (21,234     2,308,057  

Japan

     162        292,362        292        292,816        0.09        (4,185     288,631  

United States

     —          1,075,760        940        1,076,700        0.34        (5,788     1,070,912  

Others

     238,005        508,331        820        747,156        0.23        (4,387     742,769  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   W 155,213,482      W 148,181,395      W 16,429,484      W 319,824,361        100.00      W (2,548,492   W 317,275,869  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

1 

The above is the Group’s loans at fair value through profit and loss or amortized cost.

 

(In millions of Korean won)    December 31, 2017  
     Retail      Corporate      Credit card      Total      %      Allowances    

Carrying

amount

 

Korea

   W 146,149,814      W 127,298,283      W 15,200,843      W 288,648,940        98.77      W (2,063,919   W 286,585,021  

Europe

     —          192,980        310        193,290        0.07        (2,327     190,963  

China

     —          1,879,030        1,458        1,880,488        0.64        (31,017     1,849,471  

Japan

     539        127,009        339        127,887        0.04        (6,269     121,618  

United States

     —          866,867        1,001        867,868        0.30        (1,600     866,268  

Others

     120,627        393,073        896        514,596        0.18        (5,099     509,497  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   W 146,270,980      W 130,757,242      W 15,204,847      W 292,233,069        100.00      W (2,110,231   W 290,122,838  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

46


Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

Details of the Group’s corporate loans by industry as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018  
     Loans      %      Allowances      Carrying amount  

Financial institutions

   W  14,549,155        9.82      W  (44,149    W  14,505,006  

Manufacturing

     44,046,294        29.72        (450,844      43,595,450  

Service

     60,208,376        40.63        (262,842      59,945,534  

Wholesale & Retail

     16,734,091        11.29        (99,981      16,634,110  

Construction

     4,306,698        2.91        (271,280      4,035,418  

Public sector

     896,147        0.60        (3,911      892,236  

Others

     7,440,634        5.03        (92,682      7,347,952  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  148,181,395        100.00      W  (1,225,689    W  146,955,706  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of Korean won)    December 31, 2017  
     Loans      %      Allowances      Carrying amount  

Financial institutions

   W  11,093,682        8.48      W (47,531    W  11,046,151  

Manufacturing

     40,201,037        30.74        (449,439      39,751,598  

Service

     54,268,271        41.50        (288,521      53,979,750  

Wholesale & Retail

     15,061,632        11.52        (90,390      14,971,242  

Construction

     3,021,889        2.31        (269,535      2,752,354  

Public sector

     1,056,520        0.81        (15,341      1,041,179  

Others

     6,054,211        4.64        (70,909      5,983,302  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  130,757,242        100.00      W  (1,231,666    W  129,525,576  
  

 

 

    

 

 

    

 

 

    

 

 

 

Types of the Group’s retail and credit card loans as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018  
     Loans      %      Allowances      Carrying amount  

Housing

   W  68,349,108        39.82      W  (24,269    W  68,324,839  

General

     86,864,374        50.61        (604,305      86,260,069  

Credit card

     16,429,484        9.57        (694,229      15,735,255  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  171,642,966        100.00      W  (1,322,803    W  170,320,163  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of Korean won)    December 31, 2017  
     Loans      %      Allowances      Carrying amount  

Housing

   W  64,140,941        39.72      W  (18,646    W  64,122,295  

General

     82,130,039        50.86        (410,653      81,719,386  

Credit card

     15,204,847        9.42        (449,266      14,755,581  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  161,475,827        100.00      W  (878,565    W  160,597,262  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

Credit risk concentration of due from financial institutions, securities, excluding equity securities and others, and derivative financial instruments

Details of the Group’s credit risk concentration of due from financial institutions, securities, excluding equity securities and others, and derivative financial instruments as of September 30, 2018, are as follows:

 

(In millions of Korean won)    September 30, 2018  
     Amount      %      Allowances     

Carrying

amount

 

Due from financial institutions at amortized cost

 

Banking and insurance

   W  15,401,447        99.25      W  (1,873    W  15,399,574  

Others

     115,919        0.75        (18      115,901  
  

 

 

    

 

 

    

 

 

    

 

 

 
     15,517,366        100.00        (1,891      15,515,475  
  

 

 

    

 

 

    

 

 

    

 

 

 

Due from financial institutions at fair value through profit or loss

 

Banking and insurance

     506,245        100.00        —          506,245  
  

 

 

    

 

 

    

 

 

    

 

 

 
     506,245        100.00        —          506,245  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through profit or loss1

 

Government and government funded institutions

     13,761,869        40.21        —          13,761,869  

Banking and insurance

     14,259,101        41.67        —          14,259,101  

Others

     6,200,528        18.12        —          6,200,528  
  

 

 

    

 

 

    

 

 

    

 

 

 
     34,221,498        100.00        —          34,221,498  
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivatives

 

Government and government funded institutions

     39,556        1.79        —          39,556  

Banking and insurance

     2,047,954        92.80        —          2,047,954  

Others

     119,360        5.41        —          119,360  
  

 

 

    

 

 

    

 

 

    

 

 

 
     2,206,870        100.00        —          2,206,870  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through other comprehensive income

 

Government and government funded institutions

     10,999,965        32.68        —          10,999,965  

Banking and insurance

     17,911,069        53.21        —          17,911,069  

Others

     4,751,709        14.11        —          4,751,709  
  

 

 

    

 

 

    

 

 

    

 

 

 
     33,662,743        100.00        —          33,662,743  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at amortized cost

 

Government and government funded institutions

     10,454,955        45.31        (20      10,454,935  

Banking and insurance

     10,715,412        46.43        (1,488      10,713,924  

Others

     1,906,003        8.26        (298      1,905,705  
  

 

 

    

 

 

    

 

 

    

 

 

 
     23,076,370        100.00        (1,806      23,074,564  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  109,191,092         W  (3,697    W  109,187,395  
  

 

 

       

 

 

    

 

 

 

 

1 

Excluding puttable instruments (investment fund classified as debt securities, etc.) amounting to W 13,816,191 million.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

Details of the Group’s credit risk of securities, excluding equity securities, and derivative financial instruments by industry as of December 31, 2017, are as follows:

 

(In millions of Korean won)    December 31, 2017  
     Amount      %  

Financial assets held for trading

     

Government and government funded institutions

   W 8,345,463        33.16  

Banking and insurance

     11,486,321        45.64  

Others

     5,336,554        21.20  
  

 

 

    

 

 

 
     25,168,338        100.00  
  

 

 

    

 

 

 

Financial assets designated at fair value through profit or loss

     

Banking and insurance and others

     1,982,224        100.00  
  

 

 

    

 

 

 
     1,982,224        100.00  
  

 

 

    

 

 

 

Derivative financial assets

     

Government and government funded institutions

     12,099        0.37  

Banking and insurance

     3,098,350        93.60  

Others

     199,717        6.03  
  

 

 

    

 

 

 
     3,310,166        100.00  
  

 

 

    

 

 

 

Available-for-sale financial assets

     

Government and government funded institutions

     9,498,819        24.38  

Banking and insurance

     23,314,336        59.84  

Others

     6,146,246        15.78  
  

 

 

    

 

 

 
     38,959,401        100.00  
  

 

 

    

 

 

 

Held-to-maturity financial assets

     

Government and government funded institutions

     8,449,839        45.69  

Banking and insurance

     6,765,593        36.59  

Others

     3,276,548        17.72  
  

 

 

    

 

 

 
     18,491,980        100.00  
  

 

 

    

 

 

 
   W  87,912,109     
  

 

 

    

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

Credit risk concentrations of due from financial institutions, securities, excluding equity securities and others, and derivative financial instruments by country

Details of the Group’s credit risk concentration of due from financial institutions, securities, excluding equity securities and others, and derivative financial instruments by country, as of September 30, 2018, is as follows:

 

(In millions of Korean won)    September 30, 2018  
     Amount      %      Allowances      Carrying amount  

Due from financial institutions at amortized cost

 

Korea

   W  12,162,538        78.38      W (331    W  12,162,207  

United States

     478,189        3.08        (5      478,184  

Others

     2,876,639        18.54        (1,555      2,875,084  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 15,517,366        100.00      W  (1,891    W 15,515,475  
  

 

 

    

 

 

    

 

 

    

 

 

 

Due from financial institutions at fair value through profit or loss

 

Korea

     506,245        100.00        —          506,245  
  

 

 

    

 

 

    

 

 

    

 

 

 
     506,245        100.00        —          506,245  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through profit or loss1

 

Korea

     30,937,303        90.40        —          30,937,303  

United States

     1,221,869        3.57        —          1,221,869  

Others

     2,062,326        6.03        —          2,062,326  
  

 

 

    

 

 

    

 

 

    

 

 

 
     34,221,498        100.00        —          34,221,498  
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivatives

 

Korea

     1,152,050        52.20        —          1,152,050  

United States

     293,723        13.31        —          293,723  

France

     247,502        11.22        —          247,502  

Singapore

     130,707        5.92        —          130,707  

Japan

     93,251        4.23           93,251  

Others

     289,637        13.12        —          289,637  
  

 

 

    

 

 

    

 

 

    

 

 

 
     2,206,870        100.00        —          2,206,870  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through other comprehensive income

 

Korea

     31,920,532        94.82        —          31,920,532  

United States

     844,089        2.51        —          844,089  

Others

     898,122        2.67        —          898,122  
  

 

 

    

 

 

    

 

 

    

 

 

 
     33,662,743        100.00        —          33,662,743  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at amortized cost

 

Korea

     20,642,012        89.45        (1,216      20,640,796  

United States

     1,238,379        5.37        (217      1,238,162  

Others

     1,195,979        5.18        (373      1,195,606  
  

 

 

    

 

 

    

 

 

    

 

 

 
     23,076,370        100.00        (1,806      23,074,564  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 109,191,092         W  (3,697    W 109,187,395  
  

 

 

       

 

 

    

 

 

 

 

1 

Excluding puttable instruments (investment fund classified as debt securities, etc.) amounting to W 13,816,191 million.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

Details of the Group’s regional securities, excluding equity securities, and derivative financial instruments by country, as of December 31, 2017, are as follows:

 

(In millions of Korean won)    December 31, 2017  
     Amount      %  

Financial assets held for trading

     

Korea

   W 23,462,909        93.22  

United States

     643,249        2.56  

Others

     1,062,180        4.22  
  

 

 

    

 

 

 
     25,168,338        100.00  
  

 

 

    

 

 

 

Financial assets designated at fair value through profit or loss

 

  

Korea

     1,178,197        59.44  

United States

     120,000        6.05  

Others

     684,027        34.51  
  

 

 

    

 

 

 
     1,982,224        100.00  
  

 

 

    

 

 

 

Derivative financial assets

     

Korea

     1,743,201        52.66  

United States

     325,909        9.85  

Others

     1,241,056        37.49  
  

 

 

    

 

 

 
     3,310,166        100.00  
  

 

 

    

 

 

 

Available-for-sale financial assets

     

Korea

     36,705,979        94.22  

United States

     1,110,157        2.85  

Others

     1,143,265        2.93  
  

 

 

    

 

 

 
     38,959,401        100.00  
  

 

 

    

 

 

 

Held-to-maturity financial assets

     

Korea

     16,243,987        87.84  

United States

     1,076,331        5.82  

Others

     1,171,662        6.34  
  

 

 

    

 

 

 
   W 18,491,980        100.00  
  

 

 

    

 

 

 
   W 87,912,109     
  

 

 

    

Due from financial institutions, financial assets at fair value through profit or loss and derivatives that we linked to gold price are mostly relevant to financial and insurance industry with high credit ratings.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

4.3 Liquidity Risk

4.3.1 Overview of liquidity risk

Liquidity risk is a risk that the Group becomes insolvent 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 Group manages its liquidity risk through analysis of the contractual maturity of interest-bearing assets and liabilities, assets and liabilities related to the other financing, and off-balance sheet items related to cash flow of currency derivative instruments and others.

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.

4.3.2. Liquidity risk management and indicator

The liquidity risk is managed by risk management policy and liquidity risk management 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 Group.

The Group computes and manages cumulative liquidity gap and liquidity rate subject to all transactions that affect cash flow in Korean won and foreign currencies and off-balance sheet transactions in relation to the liquidity. The Group regularly reports to the Risk Planning Council and Risk Management Committee.

4.3.3. Analysis of remaining contractual maturity of financial assets and liabilities

Cash flows disclosed below are undiscounted contractual principal and interest to be received (paid) and; thus, are not identical to the amount in the consolidated financial statements that are based on the present value of expected cash flows. 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.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

The remaining contractual maturity of financial assets and liabilities, excluding derivatives held for cash flow hedging, as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018  
    

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 5,347,169      W 867,797      W 457,785      W 738,862      W 97,661      W —        W 7,509,274  

Financial assets at fair value through profit or loss

     49,223,328        1,756,775        165,136        332,862        213,598        1,104,625        52,796,324  

Derivatives held for trading2

     2,084,614        —          —          —          —          —          2,084,614  

Derivatives held for fair value hedging3

     —          10,658        2,182        3,356        12,823        41,000        70,019  

Loans at amortized cost

     3,415,331        33,743,651        27,812,164        115,093,486        81,610,613        101,205,306        362,880,551  

Financial investments

                    

Financial assets measured at fair value through other comprehensive income

     2,183,617        1,857,176        3,024,319        10,288,189        17,403,696        2,996,043        37,753,040  

Securities measured at amortized cost

     —          1,134,031        1,393,687        3,664,330        9,241,256        14,434,471        29,867,775  

Other financial assets

     96,285        11,150,253        129,596        1,413,911        53,108        34,246        12,877,399  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W  62,350,344      W  50,520,341      W  32,984,869      W  131,534,996      W  108,632,755      W  119,815,691      W  505,838,996  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

(In millions of Korean won)    September 30, 2018  
    

On

demand

    

Up to

1 month

   

1-3

months

   

3-12

months

   

1-5

years

    

Over 5

years

     Total  

Financial liabilities

 

Financial liabilities at fair value through profit or loss2

   W 3,689,191      W —       W —       W —       W —        W —        W 3,689,191  

Financial liabilities designated at fair value through profit or loss2

     12,343,819        —         —         —         —          —          12,343,819  

Derivatives held for trading2,7

     2,388,003        —         —         —         —          —          2,388,003  

Derivatives held for fair value hedging3

     —          (8,339     (5,611     (52,242     12,143        —          (54,049

Deposits4

     126,336,476        13,493,749       30,320,906       91,319,587       11,343,509        2,645,690        275,459,917  

Debts

     6,027,541        10,540,654       2,790,658       6,838,811       4,887,928        1,224,738        32,310,330  

Debentures

     33,573        2,509,912       4,922,590       12,828,084       31,669,193        2,136,770        54,100,122  

Other financial liabilities

     29,554        23,762,362       190,598       234,015       455,360        139,974        24,811,863  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   W  150,848,157      W  50,298,338     W  38,219,141     W  111,168,255     W  48,368,133      W  6,147,172      W  405,049,196  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Off- balance sheet items

 

Commitments5

   W 134,271,292      W —       W —       W —       W —        W —        W 134,271,292  

Financial guarantee contract6

     3,665,581        —         —         —         —          —          3,665,581  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   W 137,936,873      W —       W —       W —       W —        W —        W 137,936,873  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

1

The amounts of W 10,983,818 million, which is restricted due from the financial institutions as of September 30, 2018, is excluded.

2 

Financial assets/liabilities designated at fair value through profit or loss and derivatives held for trading are not managed by contractual maturity because they are expected to be traded or redeemed before maturity. Therefore, the carrying amounts of those financial instruments are classified as ‘on demand’ category.

3

Cash flows of derivative instruments held for hedging are shown at net cash flow by remaining contractual maturity.

4

Deposits that are contractually repayable on demand or on short notice are classified under the ‘on demand’ category.

5

Commitments are included under the ‘On demand’ category because payments will be made upon request.

6

The financial guarantee contracts are included under the ‘On demand’ category as payments will be made upon request.

7

The cash flows of the embedded derivatives (e.g. conversion options and others) which are separated from their host contracts are considered in the cash flows of the host contracts.

 

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Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

(In millions of Korean won)    December 31, 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 6,355,289      W 1,842,808      W 319,173     W 324,703     W 357,340     W 11,462      W 9,210,775  

Financial assets held for trading2

     30,177,293        —          —         —         —         —          30,177,293  

Financial assets designated at fair value through profit or loss2

     2,050,052        —          —         —         —         —          2,050,052  

Derivatives held for trading2

     2,980,462        —          —         —         —         —          2,980,462  

Derivatives held for hedging3

     559        48,093        29,693       42,163       (2,577     52,698        170,629  

Loans

     3,437,020        22,062,457        30,802,580       103,782,624       75,345,756       96,863,329        332,293,766  

Available-for-sale financial assets

     10,063,251        1,580,946        2,311,652       11,655,746       20,322,800       7,567,341        53,501,736  

Held-to-maturity financial assets

     —          658,856        493,420       3,217,345       6,890,530       13,247,255        24,507,406  

Other financial assets

     8,416        7,934,856        52,757       1,305,410       43,433       16,532        9,361,404  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
   W  55,072,342      W  34,128,016      W  34,009,275     W 120,327,991     W 102,957,282     W 117,758,617      W 464,253,523  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Financial liabilities

  

Financial liabilities held for trading2

   W 1,944,770      W —        W —       W —       W —       W —        W 1,944,770  

Financial liabilities designated at fair value through profit or loss2

     10,078,288        —          —         —         —         —          10,078,288  

Derivatives held for trading2

     3,050,471        —          —         —         —         —          3,050,471  

Derivatives held for hedging3

     404        3,740        (4,715     (19,705     (7,143     244        (27,175

Deposits4

     127,035,944        12,365,158        23,236,756       82,586,445       11,473,834       2,667,969        259,366,106  

Debts

     5,957,108        10,024,019        3,741,022       5,724,453       4,409,543       599,680        30,455,825  

Debentures

     40,655        1,015,298        3,020,683       9,644,135       29,611,835       3,245,342        46,577,948  

Other financial liabilities

     200,082        14,060,432        145,538       229,873       342,397       965,929        15,944,251  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
   W 148,307,722      W  37,468,647      W 30,139,284     W  98,165,201     W  45,830,466     W  7,479,164      W 367,390,484  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Off- balance sheet items

                 

Commitments5

   W 102,183,167      W —        W  —       W  —       W —       W —        W 102,183,167  

Financial guarantee contract6

     3,683,875        —          —         —         —         —          3,683,875  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
   W 105,867,042      W —        W —       W —       W —       W —        W 105,867,042  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

1

The amounts of W 10,669,956 million, which are restricted due from the financial institutions as of December 31, 2017, is excluded.

2 

Financial assets/liabilities held for trading, financial assets/liabilities designated at fair value through profit or loss and derivatives held for trading are not managed by contractual maturity because they are expected to be traded or redeemed before maturity. Therefore, the carrying amounts of those financial instruments are classified as ‘on demand’ category. However, the cash flows of the embedded derivatives (e.g. conversion options and others) which are separated from their host contracts in accordance with the requirement of Korean IFRS 1039, are considered in the cash flows of the host contracts.

3

Cash flows of derivative instruments held for hedging are shown at net cash flow by remaining contractual maturity.

4

Deposits that are contractually repayable on demand or on short notice are classified under the ‘on demand’ category.

5

Commitments are included under the ‘on demand’ category because payments will be made upon request.

6 

The financial guarantee contracts are included under the ‘on demand’ category as payments will be made upon request.

 

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Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Interim Financial Statements

September 30, 2018 and 2017 (Unaudited), and December 31, 2017

 

 

The contractual cash flows of derivatives held for cash flow hedging as of September 30, 2018 and December 31, 2017, are as follows: