EX-99.2 3 d616811dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

KB Financial Group Inc.

Separate Interim Financial Statements

September 30, 2018 and 2017



Report on Review of Interim Financial Statements

(English Translation of a Report Originally Issued in Korean)

To the Shareholders and Board of Directors of

KB Financial Group Inc.

Reviewed Financial Statements

We have reviewed the accompanying separate interim financial statements of KB Financial Group Inc. (the “Company”). These financial statements consist of the separate interim statement of financial position of the Company as of September 30, 2018, and the related separate interim statements of comprehensive income for the three-month and nine-month periods ended September 30, 2018 and 2017, and separate 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 separate interim financial statements in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”) 1034, Interim Financial Reporting, and for such internal control as management determines is necessary to enable the preparation of separate interim financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

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

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


Conclusion

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

Other Matters

We have audited the separate statement of financial position of the Company as of December 31, 2017, and the related separate statements of comprehensive income, changes in equity and cash flows for the year then ended, in accordance with Korean Standards on Auditing. We expressed an unqualified opinion on those financial statements, not presented herein, in our audit report dated March 12, 2018. The separate 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 separate interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

 

2


KB Financial Group Inc.

Separate Interim Statements of Financial Position

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

 

 

(In millions of Korean won)    Notes      September 30, 20181     December 31, 2017  
            (Unaudited)        

Assets

       

Cash and due from financial institutions

     4,5,6,28      W 211,265     W 245,400  

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

     4,5,7        —         284,485  

Financial assets at fair value through profit or loss

     4,5,7        288,157       —    

Loans at amortized cost

     4,5,8        50,000       10,000  

Investments in subsidiaries

     9        24,062,116       24,062,116  

Property and equipment

     10        685       697  

Intangible assets

     11        8,652       8,864  

Net defined benefit assets

     16        —         201  

Deferred income tax assets

     12        7,869       10,282  

Other assets

     4,5,13        751,036       480,789  
     

 

 

   

 

 

 

Total assets

      W 25,379,780     W 25,102,834  
     

 

 

   

 

 

 

Liabilities

       

Debts

     4,5,14      W —       W 300,000  

Debentures

     4,5,15        5,462,828       5,162,600  

Net defined benefit liabilities

     16        1,378       —    

Current income tax liabilities

        613,994       308,854  

Other liabilities

     4,5,17        150,050       204,835  
     

 

 

   

 

 

 

Total liabilities

        6,228,250       5,976,289  
     

 

 

   

 

 

 

Equity

       

Share capital

     18        2,090,558       2,090,558  

Capital surplus

     18        14,742,814       14,742,814  

Accumulated other comprehensive income

     18        (5,342     (5,233

Retained earnings

     18        3,259,694       3,054,379  

Treasury shares

     18        (936,194     (755,973
     

 

 

   

 

 

 

Total equity

        19,151,530       19,126,545  
     

 

 

   

 

 

 

Total liabilities and equity

      W 25,379,780     W 25,102,834  
     

 

 

   

 

 

 

 

1 

The separate statement of financial position as at September 30, 2018 is prepared in accordance with Korean IFRS 1109; however, the comparative separate statement of financial position as at December 31, 2017 was not retrospectively restated to apply Korean IFRS 1109.

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

 

3


KB Financial Group Inc.

Separate 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      20181     2017  
            (Unaudited)     (Unaudited)  
            Three months     Nine months     Three months     Nine months  

Interest income

      W 1,636     W 4,978     W 603     W 3,213  

Interest expense

        (30,948)       (91,309)       (27,273)       (72,877)  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net interest expense

     20        (29,312     (86,331     (26,670     (69,664
     

 

 

   

 

 

   

 

 

   

 

 

 

Fee and commission income

        218       487       240       576  

Fee and commission expense

        (824     (4,724     (1,275     (6,612
     

 

 

   

 

 

   

 

 

   

 

 

 

Net fee and commission expense

     21        (606     (4,237     (1,035     (6,036
     

 

 

   

 

 

   

 

 

   

 

 

 

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

     22        —         —         (1,108     3,777  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net gains on financial assets at fair value

           

through profit or loss

     22        5,133       13,865       —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Net other operating income

     23        —         1,089,556       —         709,544  
     

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative expenses

     24        (12,747     (37,975     (11,856     (38,467
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss) before provision for credit losses

        (37,532     974,878       (40,669     599,154  

Provision for credit losses

        —         —         —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

        (37,532     974,878       (40,669     599,154  

Net non-operating income (expense)

     25        (280     (381     134       94  
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) before income tax

        (37,812     974,497       (40,535     599,248  

Income tax benefit (expense)

     26        (106     (2,454     1,404       1,937  
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) for the period

        (37,918     972,043       (39,131     601,185  
     

 

 

   

 

 

   

 

 

   

 

 

 

Items that will not be reclassified to profit or loss:

           

Remeasurements of net defined benefit liabilities

        (36     (109     (28     (84
     

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss for the period, net of tax

        (36     (109     (28     (84
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the period

      W (37,954   W 971,934     W (39,159   W 601,101  
     

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share

           

Basic earnings (loss) per share

     27      W (96   W 2,451     W (98     1,510  

Diluted earnings (loss) per share

     27        (95     2,437       (97     1,502  

 

1

The separate statement of comprehensive income for the three-month and nine-month period ended September 30, 2018 is prepared in accordance with Korean IFRS 1109; however, the comparative separate statement of comprehensive income for the three-month and nine-month period ended September 30, 2017 was not retrospectively restated to apply Korean IFRS 1109.

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

 

4


KB Financial Group Inc.

Separate Interim Statements of Changes in Equity

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

 

 

(In millions of Korean won)    Share Capital      Capital Surplus      Accumulated
Other
Comprehensive
Income
    Retained
Earnings
    Treasury
Shares
    Total Equity  

Balance at January 1, 2017

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

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

              

Profit for the period

     —          —          —         601,185       —         601,185  

Remeasurements of net defined benefit liabilities

     —          —          (84     —         —         (84
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

     —          —          (84     601,185       —         601,101  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with shareholders

              

Dividends

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

Acquisition of treasury shares

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

Disposal of treasury shares

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

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total transactions with shareholders

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

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2017 (Unaudited)

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

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2018

   W 2,090,558      W 14,742,814      W (5,233   W
 

3,054,379
 
 
  W (755,973   W 19,126,545  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

              

Profit for the period

     —          —          —         972,043       —         972,043  

Remeasurements of net defined benefit liabilities

     —          —          (109     —         —         (109
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

     —          —          (109     972,043       —         971,934  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with shareholders

              

Dividends

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

Acquisition of treasury shares

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

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total transactions with shareholders

     —          —          —         (766,728     (180,221     (946,949
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2018 (Unaudited)1

   W 2,090,558      W 14,742,814      W (5,342   W
 

3,259,694
 
 
  W (936,194   W 19,151,530  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

1 

The separate statement of changes in equity for the nine-month period ended September 30, 2018 is prepared in accordance with Korean IFRS 1109; however, the comparative separate statement of changes in equity for the nine-month period ended September 30, 2017 was not retrospectively restated to apply Korean IFRS 1109.

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

 

5


KB Financial Group Inc.

Separate Interim Statements of Cash Flows

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

 

 

(In millions of Korean won)    Note      20181     2017  
            (Unaudited)     (Unaudited)  

Cash flows from operating activities

       

Profit for the period

      W 972,043     W 601,185  
     

 

 

   

 

 

 

Adjustment for non-cash items

       

Depreciation and amortization

        540       479  

Share-based payments

        977       4,952  

Net interest expense

        2,919       6,677  

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

        —         5,706  

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

        (3,672     —    

Net other expenses

        1,645       1,554  
     

 

 

   

 

 

 
        2,409       19,368  
     

 

 

   

 

 

 

Changes in operating assets and liabilities

       

Deferred income tax assets

        2,413       (1,937

Other assets

        (538     (934

Other liabilities

        (4,629     (7,039
     

 

 

   

 

 

 
        (2,754     (9,910
     

 

 

   

 

 

 

Net cash inflow from operating activities

        971,698       610,643  
     

 

 

   

 

 

 

Cash flows from investing activities

       

Acquisition of subsidiaries

        —         (1,364,034

Acquisition of financial assets at fair value through profit or loss

        —         (50,000

Decrease (increase) in loans at amortized cost

        (40,000     19,415  

Acquisition of property and equipment

        (276     (81

Acquisition of intangible assets

        (52     (334

Disposal of intangible assets

        34       —    

Net increase in guarantee deposits paid

        (365     —    

Other investing activities

        (121     —    
     

 

 

   

 

 

 

Net cash inflow(outflow) from investing activities

        (40,780     (1,395,034
     

 

 

   

 

 

 

Cash flows from financing activities

       

Increase in debts

        —         1,124,675  

Decrease in debts

        (298,485     (1,275,032

Increase in debentures

        778,104       1,836,114  

Decrease in debentures

        (478,921     (149,669

Dividends paid to shareholders

        (766,728     (497,969

Acquisition of treasury shares

        (199,023     (82,110
     

 

 

   

 

 

 

Net cash inflow (outflow) from financing activities

        (965,053     956,009  
     

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

 

     (34,135     171,618  

Cash and cash equivalents at the beginning of the period

     28        245,397       115,062  
     

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

     28      W 211,262     W 286,680  
     

 

 

   

 

 

 

 

1 

The separate statement of cash flows for the nine-month period ended September 30, 2018 is prepared in accordance with Korean IFRS 1109; however, the comparative separate statement of cash flows for the nine-month period ended September 30, 2017 was not retrospectively restated to apply Korean IFRS 1109.

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

 

6


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

1. The Company

KB Financial Group Inc. (the “Company”), in accordance with Financial Holding Companies Act, was established on September 29, 2008, through stock transfers with the former shareholders of Kookmin Bank, KB Investment & Securities Co., Ltd., KB Asset Management Co., Ltd., KB Real Estate Trust Co., Ltd., KB Investment Co., Ltd., KB Futures Co., Ltd., KB Credit Information Co., Ltd., and KB Data Systems Co., Ltd. in order to provide management services and financing to associated companies. The headquarters are located at 26, Gukjegeumyung-ro-8-gil, Yeongdeungpo-gu, Seoul. The Company’s share capital as of September 30, 2018, is W 2,090,558 million. In 2011, Kookmin Bank spun off its credit card business segment and established a new separate credit card company, KB Kookmin Card Co., Ltd., and KB Investment & Securities Co., Ltd. merged with KB Futures Co., Ltd. The Company established KB Savings Bank Co., Ltd. in January 2012, acquired Yehansoul Savings Bank Co., Ltd. in September 2013, and KB Savings Bank Co., Ltd. merged with Yehansoul Savings Bank Co., Ltd. in January 2014. In March 2014, the Company acquired Woori Financial Co., Ltd. and changed the name to KB Capital Co., Ltd. Meanwhile, the Company included LIG Insurance Co., Ltd. as an associate and changed the name to KB Insurance Co., Ltd. in June 2015. Also, the Company included Hyundai Securities Co., Ltd. as an associate in June 2016 and included as a subsidiary on October 2016 by comprehensive exchange of shares. Hyundai Securities Co., Ltd. merged with KB Investment&Securities Co., Ltd. in December 2016 and changed the name to KB Securities Co., Ltd. in January 2017. KB Insurance Co., Ltd. became one of the subsidiaries through a tender offer in May 2017.

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

2. Basis of Preparation

2.1 Application of Korean IFRS

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

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

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

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

 

7


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

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

The Company’s interim separate financial statements as of and for the nine-month period ended September 30, 2018, have been prepared in accordance with Korean IFRS 1034, Interim Financial Reporting. These interim separate financial statements have been prepared in accordance with the Korean IFRS which is effective or early adopted as of September 30, 2018.

The Company 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 impact on the current period or any prior period and is not likely to affect future periods.

 

   

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 Investment Property

An entity shall transfer a property to, or from, investment property when, and only when, there is evidence of the change in use; Paragraph 57 at the Korean IFRS shows the examples of evidence of a change in use. The Korean IFRS, also, clarifies that investments property under construction is included within the scope of this amendment.

 

   

Amendments to Korean IFRS 1102 Share-based Payment

Amendments to Korean IFRS 1102 clarifies accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. And also, clarifies that the measurement approach should treat the terms and conditions of a cash-settled award in the same way as for an equity-settled award.

- 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 of it) 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 Company has 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 adoption does not have a significant impact on the financial statements.

 

   

Enactment of Korean IFRS 1115 Revenue from Contracts with Customers

 

8


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

The Company 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 adoption does not have a significant impact on the financial statements.

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

 

   

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.

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 lessee 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 Company is currently in process of analyzing the potential impact on its financial statements resulting from the application of Korean IFRS 1116.

2.2 Measurement Basis

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

 

9


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

2.3 Functional and Presentation Currency

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

2.4 Critical Accounting Estimates

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

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

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

3. Significant Accounting Policies

The significant accounting policies and calculation methods applied in the preparation of these separate financial statements have been consistently applied to all periods presented, except for the impact of changes due to enactment of new standards, amendments and interpretations disclosed in Note 2.1 and the following paragraph.

3.1 Recognition and Measurement of Financial Instruments

3.1.1 Initial recognition

The Company recognizes a financial asset or a financial liability in its statement of financial position when the Company 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 Company 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 Company 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 separate financial statements.

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.

 

10


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

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.

3.1.2 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 Company 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 Company uses valuation models that are commonly used by market participants and customized for the Company 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 Company 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.

 

11


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

The Company 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 Company 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.

3.1.3 Derecognition

Derecognition is the removal of a previously recognized financial asset or financial liability from the statement of financial position. The Company 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 Company has not retained control. If the Company neither transfers nor disposes of substantially all the risks and rewards of ownership of the financial assets, the Company continues to recognize the financial asset to the extent of its continuing involvement in the financial asset.

If the Company 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 Company continues to recognize the transferred asset in its entirety and recognize a financial liability for the consideration received.

 

12


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

The Company 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 Company 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 Company 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.

3.1.4 Offsetting

Financial assets and liabilities are offset and the net amount reported in the separate 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 Company or the counterparty.

3.2 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.

3.3 Non-derivative Financial Assets

3.3.1 Financial assets at fair value through profit or loss

Financial assets classified as held for trading, financial assets designated by the Company 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 Company 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.

 

13


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

3.3.2 Financial assets at fair value through other comprehensive income

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

 

   

debt instruments with 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.

3.3.3 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.

3.4 Expected Credit Loss of Financial Assets (Debt Instruments)

The Company 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 Company 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.

 

14


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

The Company 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. When the contractual cash flows of a financial asset are renegotiated or otherwise modified, the Company 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;

 

   

debt restructuring (except for impaired financial assets); and

 

   

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

Under simplified approach, the Company shall always measure the loss allowance at an amount equal to lifetime expected credit losses. Under credit-impaired approach, the Company 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 Company uses definition of default as in the new Basel Accord which rules calculation of Capital Adequacy Ratio.

The Company 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;

 

   

debt restructuring.

 

15


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

3.4.1 Forward-looking information

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

The Company 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 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.

3.4.2 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 Company 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 Company 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 cashflows. The Company 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, Probability of Default (PD) for each period and Loss Given Default (LGD) adjusted by change in carrying amount.

 

16


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

3.4.3 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.

3.5 Revenue Recognition

The Company 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.

3.5.1 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 Company 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 Company 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.

 

17


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

3.5.2 Fee and commission income

The Company 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.

3.5.3 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

3.5.4 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.

3.6 Income Tax Expense for the Interim Period

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

 

18


KB Financial Group Inc.

Notes to Separate 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 Company is exposed to are credit risk, market risk, liquidity risk and others.

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

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

4.1.2 Risk management organization

Risk Management Committee

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

Risk Management Council

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

Risk Management Division

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

4.2 Credit Risk

4.2.1 Overview of credit risk

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

 

19


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

4.2.2 Credit risk management

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

4.2.3 Maximum exposure to credit risk

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

 

(In millions of Korean won)    September 30, 2018  

Due from financial institutions

   W 211,265  

Loans at amortized cost

     50,000  

Other financial assets

     21,193  
  

 

 

 
   W 282,458  
  

 

 

 
(In millions of Korean won)    December 31, 2017  

Due from financial institutions

   W 245,400  

Loans

     10,000  

Other financial assets

     16,207  
  

 

 

 
   W 271,607  
  

 

 

 

4.2.4 Credit risk of loans

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

The Company 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. For financial assets at amortized cost, the Company measures the expected credit losses and presents it in the financial statements netting the allowance from the related loans; for financial assets measured at fair value through other comprehensive income, the Company presents it in the statements using other comprehensive income.

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
applying
credit loss
model
     Financial
instruments
not applying
expected
credit losses
     Total  
     Non-impaired      Impaired  

Financial assets at amortized cost

 

Corporate

 

Grade 1

   W 50,000      W —        W —        W —        W —        W 50,000  

Grade 2

     —          —          —          —          —          —    

Grade 3

     —          —          —          —          —          —    

Grade 4

     —          —          —          —          —          —    

Grade 5

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 50,000      W —        W —        W —        W —        W 50,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

20


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

Credit quality of loan is graded according to the probability of default:

 

    

Range of PD (%)

(Probability of Default)

Grade 1

   0.0 ~ 1.0

Grade 2

   1.0 ~ 5.0

Grade 3

   5.0 ~ 15.0

Grade 4

   15.0 ~ 30.0

Grade 5

   30.0 ~

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

 

(In millions of Korean won)    December 31, 2017  
    

Corporate

loans

    

Percentage

(%)

 

Loans

     

Neither past due nor impaired

   W 10,000        100.00  

Past due but not impaired

     —          —    

Impaired

     —          —    
  

 

 

    

 

 

 
     10,000        100.00  
  

 

 

    

 

 

 

Less: Allowances

     —          —    
  

 

 

    

 

 

 

Carrying amount

   W 10,000        100.00  
  

 

 

    

 

 

 

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

 

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

Grade 1

   W 10,000  

Grade 2

     —    

Grade 3

     —    

Grade 4

     —    

Grade 5

     —    
  

 

 

 
   W 10,000  
  

 

 

 

Credit quality of loan is graded according to the probability of default:

 

    

Range of PD (%)

(Probability of Default)

Grade 1

   0.0 ~ 1.0

Grade 2

   1.0 ~ 5.0

Grade 3

   5.0 ~ 15.0

Grade 4

   15.0 ~ 30.0

Grade 5

   30.0 ~

 

21


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

4.2.5 Credit risk of due from financial institutions

Due from Financial Institutions 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
applying
credit loss model
     Financial
instruments
not applying
expected
credit losses
     Total  
     Non-impaired      Impaired  

Due from financial institutions at amortized cost

 

Grade 1

   W  211,265      W  —        W  —        W  —        W  —        W  211,265  

Grade 2

     —          —          —          —          —          —    

Grade 3

     —          —          —          —          —          —    

Grade 4

     —          —          —          —          —          —    

Grade 5

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 211,265      W —        W —        W —        W —        W 211,265  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

4.2.6 Credit risk concentration analysis

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

 

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

Korea

   W  50,000        100.00      W  —        W 50,000  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 50,000        100.00      W —        W  50,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

Korea

   W 10,000        100.00      W  —        W  10,000  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 10,000        100.00      W —        W 10,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

Details of the Company’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  50,000        100.00      W  —        W  50,000  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 50,000        100.00      W —        W 50,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

Financial institutions

   W  10,000        100.00      W  —        W  10,000  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 10,000        100.00      W —        W 10,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

22


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

Details of the Company’s due from financial institutions by industry as of September 30, 2018 is as follows:

 

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

Financial institutions

   W  211,265        100.00      W  —        W  211,265  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  211,265        100.00      W —        W 211,265  
  

 

 

    

 

 

    

 

 

    

 

 

 

Details of the Company’s due from financial institutions by country as of September 30, 2018 is as follows:

 

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

Korea

   W  211,265        100.00      W  —        W  211,265  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 211,265        100.00      W —        W 211,265  
  

 

 

    

 

 

    

 

 

    

 

 

 

4.3 Liquidity Risk

4.3.1 Overview of liquidity risk

Liquidity risk is a risk that the Company 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 Company manages its liquidity risk through analysis of the contractual maturity of interest-bearing assets and liabilities. The Company discloses them by maturity group; such as, on demand, up to one month, between over one month and three months, between over three months and 12 months, between over one year and five years, and over five years.

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

4.3.2. Liquidity risk management

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

 

23


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

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

The remaining contractual maturity of financial assets and liabilities as of September 30, 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 21,276      W —        W  190,797      W —        W —        W —        W 212,073  

Financial assets at fair value through profit or loss2

     —          —          —          —          —          288,157        288,157  

Loans at amortized cost

     —          —          —          51,075        —          —          51,075  

Other financial assets

     —          5,141        —          15,064        —          —          20,205  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W  21,276      W 5,141      W 190,797      W 66,139      W —        W 288,157      W 571,510  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

                    

Debentures

   W —        W 5,254      W 234,271      W  901,578      W 3,572,263      W 1,193,520      W 5,906,886  

Other financial liabilities

     —          5,303        1,952        3,092        —          —          10,347  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W —        W 10,557      W 236,223      W 904,670      W 3,572,263      W 1,193,520      W  5,917,233  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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  245,437      W —        W —        W —        W —        W —        W 245,437  

Financial assets designated at fair value through profit or loss2

     —          —          —          —          —          284,485        284,485  

Loans

     —          —          —          10,096        —          —          10,096  

Other financial assets

     —          795        —          14,699        —          —          15,494  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 245,437      W 795      W —        W 24,795      W —        W 284,485      W 555,512  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

                    

Debts

   W —        W 494      W  300,462      W —        W —        W —        W 300,956  

Debentures

     —          2,726        24,121        767,259        3,592,586        1,192,247        5,578,939  

Other financial liabilities

     —          19,942        —          —          —          —          19,942  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W —        W 23,162      W 324,583      W 767,259      W 3,592,586      W 1,192,247      W  5,899,837  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1

The amount of W 3 million, which is restricted due from the financial institutions as of September 30, 2018 and December 31, 2017, is excluded.

2

Financial assets at fair value through profit or loss and financial assets designated at fair value through profit or loss are hybrid capital instruments and are included in the ‘Over 5 years’ category according to their remaining contractual maturity because the assets’ point of sale is uncertain.

 

24


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

4.4 Market Risk

4.4.1 Concept

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

4.4.2 Interest rate risk

Definition of interest rate risk

Interest rate risk is the risk that the fair value of items in the statement of financial position and cash flaws relating to interest income and interest cost incurred from investing and financing activities change due to interest rate fluctuation.

Observation method and management indicator on interest rate risk

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

 

25


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

5. Financial Assets and Financial Liabilities

5.1 Classification and Fair value of Financial Instruments

The carrying amounts and fair value of financial assets and liabilities by category as of September 30, 2018 and December 31, 2017, are as follows:

 




(In millions of Korean won)
   September 30, 2018  
     Carrying amount      Fair value  

Financial assets

     

Financial assets at fair value through profit or loss

   W 288,157      W 288,157  

Financial assets at amortized cost

     

Due from financial institutions

     211,265        211,265  

Loans

     50,000        50,000  

Other financial assets

     21,193        21,193  
  

 

 

    

 

 

 
   W 570,615      W 570,615  
  

 

 

    

 

 

 

Financial liabilities

     

Financial liabilities at amortized cost

     

Debentures

   W  5,462,828      W 5,447,503  

Other financial liabilities

     22,285        22,285  
  

 

 

    

 

 

 
   W 5,485,113      W  5,469,788  
  

 

 

    

 

 

 

 

(In millions of Korean won)    December 31, 2017  
     Carrying amount      Fair value  

Financial assets

     

Financial assets designated at fair value through profit or loss

   W 284,485      W 284,485  

Loans and receivables

     

Due from financial institutions

     245,400        245,400  

Loans

     10,000        10,000  

Other financial assets

     16,207        16,207  
  

 

 

    

 

 

 
   W 556,092      W 556,092  
  

 

 

    

 

 

 

Financial liabilities

     

Financial liabilities at amortized cost

     

Debts

   W 300,000      W 300,000  

Debentures

     5,162,600        5,094,561  

Other financial liabilities

     29,963        29,963  
  

 

 

    

 

 

 
   W  5,492,563      W  5,424,524  
  

 

 

    

 

 

 

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

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

 

26


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

Cash and due from financial institutions

   The carrying amounts of cash and demand due from financial institutions and payment due from financial institutions are a reasonable approximation of fair values. These financial instruments do not have a fixed maturity and are receivable on demand. Fair value of ordinary due from financial institutions is measured using DCF model.
Investment securities    The fair value of financial instruments that are quoted in active markets is determined using the quoted prices. Fair value is determined through the use of external professional valuation institution where quoted prices are not available. The institutions use one or more of the following valuation techniques including DCF Model, Free Cash Flow to Equity Model, Imputed Market Value Model, Dividend Discount Model, Risk Adjusted Discount Rate Method, and Net Asset Value Method.
Derivatives    For exchange traded derivatives, quoted price in an active market is used to determine fair value and for OTC derivatives, fair value is determined using valuation techniques. The Company uses internally developed valuation models that are widely used by market participants to determine fair values of plain vanilla OTC derivatives including options, interest rate swaps, and currency swaps, based on observable market parameters. However, some complex financial instruments are valued using appropriate models developed from generally accepted market valuation models including the Finite Difference Method and the Monte Carlo Simulation or valuation results from independent external professional valuation institution.
Loans at amortized cost    DCF model is used to determine the fair value of loans. Fair value is determined by discounting the expected cash flows, which are contractual cash flows adjusted by the expected prepayment rate, at appropriate discount rate.
Debts    Carrying amount of overdraft in foreign currency is regarded as representative of fair value because they do not have a fixed maturity and are payable on demand. Fair value of other debts is determined using a DCF model discounting contractual future cash flows at an appropriate discount rate.
Debentures    Fair value is determined by using the valuations of external professional valuation institution, which are calculated using market inputs.
Other financial assets and liabilities    The carrying amounts are reasonable approximation of fair values. These financial instruments are temporary accounts used for other various transactions and their maturities are relatively short or not defined.

Fair value hierarchy

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

 

27


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

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

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

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

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

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

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

The fair value hierarchy of financial assets measured at fair value in the statement of financial position as of September 30, 2018 and December 31, 2017, is as follows:

 

(In millions of Korean won)    September 30, 2018  
     Fair value hierarchy         
     Level 1      Level 2      Level 3      Total  

Financial assets

           

Financial assets at fair value through profit or loss

           

Derivative-linked securities

   W  —        W  —        W  288,157      W  288,157  

 

(In millions of Korean won)    December 31, 2017  
     Fair value hierarchy         
     Level 1      Level 2      Level 3      Total  

Financial assets

           

Financial assets designated at fair value through profit or loss

           

Derivative-linked securities

   W  —        W  —        W  284,485      W  284,485  

 

28


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

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

The fair value hierarchy of financial assets and liabilities whose fair values are disclosed as of September 30, 2018 and December 31, 2017, is as follows:

 

(In millions of Korean won)    September 30, 2018  
     Fair value hierarchy         
     Level 1      Level 2      Level 3      Total  

Financial assets

           

Cash and due from financial institutions1

   W  —        W 21,265      W 190,000      W 211,265  

Loans at amortized cost2

     —          —          50,000        50,000  

Other financial assets3

     —          —          21,193        21,193  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W —        W 21,265      W  261,193      W 282,458  
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Debentures

   W —        W 5,447,503      W —        W  5,447,503  

Other financial liabilities3

     —          —          22,285        22,285  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W —        W  5,447,503      W 22,285      W 5,469,788  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of Korean won)    December 31, 2017  
     Fair value hierarchy         
     Level 1      Level 2      Level 3      Total  

Financial assets

           

Cash and due from financial institutions1

   W  —        W 245,400      W —        W 245,400  

Loans2

     —          —          10,000        10,000  

Other financial assets3

     —          —          16,207        16,207  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W —        W 245,400      W 26,207      W 271,607  
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Debts4

   W —        W 300,000      W —        W 300,000  

Debentures

     —          5,094,561        —          5,094,561  

Other financial liabilities3

     —          —          29,963        29,963  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W —        W  5,394,561      W  29,963      W 5,424,524  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1 

Because due from financial institutions classified as level 2 are deposits on demand, carrying amounts are reasonable approximations of fair values. And due from financial institutions classified as level 3 are due from financial institutions with residual maturity of less than 3 months, carrying amounts are reasonable approximations of fair values.

2 

Because loans at amortized cost and loans classified as level 3 are loans with residual maturity of less than one year, carrying amounts are reasonable approximations of fair values.

3 

For other financial assets and other financial liabilities classified as level 3, carrying amounts are reasonable approximations of fair values.

4 

For debts classified as level 2, carrying amounts are reasonable approximations of fair values.

 

29


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

Valuation techniques and inputs used in the fair value measurement

For financial assets and liabilities whose carrying amount is a reasonable approximation of fair value, we do not disclose valuation techniques and inputs.

Valuation techniques and inputs of financial assets and liabilities whose fair values are disclosed and classified as Level 2 as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    Fair value      Valuation Techniques      Inputs  
     September 30, 2018      December 31, 2017                

Financial liabilities

           

Debentures

   W  5,447,503      W  5,094,561        DCF model        Discount rate  

5.2 Level 3 of the Fair Value Hierarchy Disclosure

5.2.1 Valuation policy and process for fair value measurement categorized as Level 3

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

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

Details of changes in Level 3 of the fair value hierarchy for the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won)    2018  
     Financial assets at
fair value through
profit or loss
 

Beginning balance

   W 284,485  

Total gains or losses

  

- Profit or loss for the period

     3,672  

- Other comprehensive income

     —    

Purchases

     —    

Sales

     —    

Issues

     —    

Settlements

     —    

Transfers into Level 3

     —    

Transfers out of Level 3

     —    
  

 

 

 

Ending balance

   W 288,157  
  

 

 

 

 

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

Beginning balance

   W 246,656  

Total gains or losses

  

- Profit or loss for the period

     (5,706

- Other comprehensive income

     —    

Purchases

     50,000  

Sales

     —    

Issues

     —    

Settlements

     —    

Transfers into Level 3

     —    

Transfers out of Level 3

     —    
  

 

 

 

Ending balance

   W  290,950  
  

 

 

 

 

30


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

In relation to changes in Level 3 of the fair value hierarchy, total gains or losses recognized in profit or loss for the period, and profit or loss from financial instruments held at the end of the reporting period in the statement of comprehensive income for the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won)    2018  
    

Gains (losses) from

financial investments at
fair value through profit or loss

     Other
operating
income
     Net
interest
income
 

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

   W  3,672      W  —        W  —    

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

   W 3,672      W —        W —    
(In millions of Korean won)    2017  
    

Gains (losses) from

financial investments at

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

     Other
operating
income
     Net
interest
income
 

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

   W (5,706    W  —        W  —    

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

   W (5,706    W —        W —    

 

31


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

5.2.3 Sensitivity analysis of changes in unobservable inputs

Information about fair value measurements using unobservable inputs as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)   

September 30, 2018

     Fair value    Valuation technique    Unobservable inputs    Range of
unobservable
inputs (%)
     Relationship
of unobservable
inputs to fair value

Financial assets

              

Financial assets at fair value through profit or loss

              

Derivative-linked securities

   W288,157    Hull and White Model,    Discount rate      2.32~5.03      The lower the discount rate, the higher the fair value
      Monte Carlo Simulation    Volatility of interest rate      0.48      The higher the volatility, the higher the fair value fluctuation

 

(In millions of Korean won)    December 31, 2017
     Fair value      Valuation technique    Unobservable inputs    Range of
unobservable
inputs (%)
     Relationship
of unobservable
inputs to fair value

Financial assets

              

Financial assets designated at fair value through profit or loss

              

Derivative-linked securities

   W 284,485      Hull and White Model,    Discount rate      2.44 ~ 5.10      The lower the discount rate, the higher the fair value
      Monte Carlo Simulation, DCF Model    Volatility of interest rate      0.50      The higher the volatility, the higher the fair value fluctuation

Sensitivity analysis of changes in unobservable inputs

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

 

32


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

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

 

(In millions of Korean won)    September 30, 2018  
     Recognition
in profit or loss
     Other comprehensive
income
 
     Favorable
changes
     Unfavorable
changes
     Favorable
changes
     Unfavorable
changes
 

Financial assets

           

Financial assets at fair value through profit or loss

           

Derivative-linked securities1

   W  6,537      W (6,406    W  —        W  —    

 

(In millions of Korean won)    December 31, 2017  
     Recognition in profit or
loss
    Other comprehensive
income
 
     Favorable
changes
     Unfavorable
changes
    Favorable
changes
     Unfavorable
changes
 

Financial assets

          

Financial assets designated at fair value through profit or loss

          

Derivative-linked securities1

   W  8,563      W   (8,314)    W  —        W  —    

 

1 

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

6. Due from Financial Institution

Details of due from financial institution as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)           Financial
Institution
     Interest rate (%) (As
of September 30, 2018)
     September 30,
2018
     December 31,
2017
 

Due from financial institution in Korean won

    

Due
from
banks
 
 
 
    
Kookmin
Bank
 
 
     0.00 ~ 1.65      W 210,642      W 46,062  
       

Standard
Chartered
Bank
 
 
 
     1.30        623        60,694  
           

 

 

    

 

 

 
       

BNK
Busan
Bank
 
 
 
     —          —          138,644  
            W 211,265      W  245,400  
           

 

 

    

 

 

 

 

33


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

Details of a maturity analysis of due from financial institution, excluding restricted cash, as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018  
    

Up to

3 months

     3~6
months
     6~12
months
     1~3
years
     Over 3
years
     Total  

Due from financial institution in Korean won

   W 211,262      W  —        W  —        W  —        W  —        W 211,262  

 

(In millions of Korean won)    December 31, 2017  
    

Up to

3 months

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

Over

3 years

     Total  

Due from financial institution in Korean won

   W 245,397      W  —        W  —        W  —        W  —        W 245,397  

Restricted cash from financial institution as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    Financial
Institution
     September 30,
2018
     December 31,
2017
     Reason for
restriction
 

Due from financial institution in Korean won

    

Kookmin

Bank

 

 

   W  3      W  3       


Pledged as
collateral for
the overdraft
establishment
 
 
 
 

7. Financial assets at fair value through profit or loss and financial assets at fair value through profit or loss (under Korean IFRS 1039)

Details of financial assets at fair value through profit or loss and financial assets at fair value through profit or loss (under Korean IFRS 1039) as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018      December 31, 2017  

Financial Assets at Fair Value through Profit or Loss and Financial Assets at Fair Value through Profit or Loss (under Korean IFRS 1039)

 

Derivative-linked securities

   W 288,157      W 284,485  

8. Loans at Amortized Cost

Details of loans at amortized cost as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018      December 31, 2017  

Loans at amortized cost

   W 50,000      W  10,000  

Less: Allowances for loan losses

     —          —    
  

 

 

    

 

 

 

Carrying amount

   W 50,000      W 10,000  
  

 

 

    

 

 

 

 

34


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

9. Investments in Subsidiaries

Details of subsidiaries as of September 30, 2018, are as follows:

 

Name of subsidiary    Industry    Location

Kookmin Bank

   Banking and domestic, foreign exchange transaction    Korea

KB Securities Co., Ltd.

   Financial investment    Korea

KB Insurance Co., Ltd

   Insurance    Korea

KB Kookmin Card Co., Ltd.

   Credit card    Korea

KB Life Insurance Co., Ltd.

   Life insurance    Korea

KB Asset Management Co., Ltd.

   Investment advisory and collective investment    Korea

KB Capital Co., Ltd.

   Financial leasing    Korea

KB Savings Bank Co., Ltd.

   Savings banking    Korea

KB Real Estate Trust Co., Ltd.

   Real estate trust management    Korea

KB Investment Co., Ltd.

   Capital investment    Korea

KB Credit Information Co., Ltd.

   Collection of receivables and credit investigation    Korea

KB Data System Co., Ltd.

   System software, development and supply    Korea

Investments in subsidiaries as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won, except for shares and ownership %)    Number of
Issued Shares
     Ownership(%)      Carrying amount  
Name of subsidiary    As of September 30, 2018      September 30,
2018
    

December 31,

2017

 

Kookmin Bank

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

KB Securities Co., Ltd.

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

KB Insurance Co., Ltd.

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

KB Kookmin Card Co., Ltd.

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

KB Life Insurance Co., Ltd.

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

KB Asset Management Co., Ltd.

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

KB Capital Co., Ltd.

     21,492,128        100.00        573,811        573,811  

KB Savings Bank Co., Ltd.

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

KB Real Estate Trust Co., Ltd.

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

KB Investment Co., Ltd.

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

KB Credit Information Co., Ltd.

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

KB Data System Co., Ltd.

     800,000        100.00        6,334        6,334  
        

 

 

    

 

 

 
         W 24,062,116      W 24,062,116  
        

 

 

    

 

 

 

Changes in accumulated impairment losses on investments in subsidiaries for the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won)    2018  
     Beginning      Impairment      Others      Ending  

Accumulated impairment losses on investments in subsidiaries

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

 

35


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

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

Accumulated impairment losses on investments in subsidiaries

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

10. Property and Equipment

Details of property and equipment as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018  
     Acquisition
cost
     Accumulated
depreciation
     Accumulated
impairment losses
     Carrying
amount
 

Leasehold improvements

   W 937      W (812    W —        W  125  

Equipment and others

     3,837        (3,277         560  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  4,774      W (4,089    W  —        W 685  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of Korean won)    December 31, 2017  
     Acquisition
cost
     Accumulated
depreciation
     Accumulated
impairment losses
     Carrying
amount
 

Leasehold improvements

   W 823      W (747    W  —        W 76  

Equipment and others

     3,675        (3,054      —          621  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  4,498      W (3,801    W —        W  697  
  

 

 

    

 

 

    

 

 

    

 

 

 

11. Intangible Assets

Details of intangible assets as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018  
    

Acquisition

cost

    

Accumulated

amortization

     Accumulated
impairment losses
     Carrying
amount
 

Software

   W  3,075      W  (2,697    W —        W 378  

Membership rights

     9,623        —          (1,864      7,759  

Other intangible assets

     4,187        (3,672      —          515  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  16,885      W  (6,369    W  (1,864    W  8,652  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

36


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

(In millions of Korean won)    December 31, 2017  
    

Acquisition

cost

    

Accumulated

amortization

     Accumulated
impairment losses
     Carrying
amount
 

Software

   W 3,072      W  (2,580    W —        W 492  

Membership rights

     9,657        —          (1,864      7,793  

Other intangible assets

     4,116        (3,537      —          579  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  16,845      W  (6,117    W (1,864    W 8,864  
  

 

 

    

 

 

    

 

 

    

 

 

 

12. Deferred Income Tax Assets and Liabilities

Details of deferred income tax assets and liabilities as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018  
     Assets      Liabilities      Net amounts  

Share-based payments

   W 3,200      W —        W 3,200  

Membership rights

     513        —          513  

Defined benefit obligation

     1,718        —          1,718  

Plan assets

     —          (1,402      (1,402

Short-term employee benefits

     533        —          533  

Gains (loss) on valuation of hybrid capital instruments

     3,257        —          3,257  

Others

     247        (197      50  
  

 

 

    

 

 

    

 

 

 
     9,468        (1,599      7,869  
  

 

 

    

 

 

    

 

 

 

Offsetting of deferred tax assets and liabilities

     (1,599      1,599        —    
  

 

 

    

 

 

    

 

 

 
   W 7,869      W —        W 7,869  
  

 

 

    

 

 

    

 

 

 
(In millions of Korean won)    December 31, 2017  
     Assets      Liabilities      Net amounts  

Share-based payments

   W 4,158      W —        W 4,158  

Membership rights

     513        —          513  

Defined benefit obligation

     1,597        —          1,597  

Plan assets

     —          (948      (948

Short-term employee benefits

     571        —          571  

Gains (loss) on valuation of hybrid capital instruments

     4,267        —          4,267  

Others

     124        —          124  
  

 

 

    

 

 

    

 

 

 
     11,230        (948      10,282  
  

 

 

    

 

 

    

 

 

 

Offsetting of deferred tax assets and liabilities

     (948      948        —    
  

 

 

    

 

 

    

 

 

 
   W  10,282      W —        W  10,282  
  

 

 

    

 

 

    

 

 

 

13. Other Assets

Details of other assets as of September 30, 2018 and December 31, 2017, are as follows:

 

37


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

(In millions of Korean won)    September 30, 2018      December 31, 2017  

Other financial assets

     

Receivables

   W 4,586      W 55  

Accrued income

     1,824        1,635  

Guarantee deposits

     14,783        14,517  
  

 

 

    

 

 

 
     21,193        16,207  
  

 

 

    

 

 

 

Other non-financial assets

     

Receivables

     728,569        463,012  

Prepaid expenses

     1,133        1,532  

Advanced payments

     141        38  
  

 

 

    

 

 

 
     729,843        464,582  
  

 

 

    

 

 

 
   W  751,036      W  480,789  
  

 

 

    

 

 

 

14. Debts

Debts as of September 30, 2018 and December 31, 2017, consist of:

 

(In millions of Korean won)    September 30, 2018      December 31, 2017  

Borrowings

   W —        W  300,000  

Details of borrowings as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of
Korean won)
          Lender      Annual interest
rates (%) As of
September 30, 2018
     September 30,
2018
     December 31,
2017
 

Borrowings in Korean won

     Other borrowings        SK Securities Co., Ltd.        —        W —        W  150,000  
        KB Securities Co., Ltd        —          —          150,000  
           

 

 

    

 

 

 
            W —        W 300,000  
           

 

 

    

 

 

 

The maturities of debts as of December 31, 2017, are as follows:

 

(In millions of Korean won)    December 31, 2017  
    

Up to

3 months

    

3~6

months

    

6~12

months

    

1~3

years

    

Over

3 years

     Total  

Borrowings in Korean won

   W 300,000      W —        W —        W —        W —        W 300,000  

15. Debentures

Details of debentures as of September 30, 2018 and December 31, 2017, are as follows:

 

38


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

(In millions of Korean won)  
     Issued date      Expiration
date
     Annual interest
rates (%) As of
September 30, 2018
     September 30,
2018
    December 31,
2017
 

Unguaranteed debentures No. 3-2

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

Unguaranteed debentures No. 3-3

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

Unguaranteed debentures No. 5-1

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

Unguaranteed debentures No. 5-2

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

Unguaranteed debentures No. 6

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

Unguaranteed debentures No. 7

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

Unguaranteed debentures No. 8

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

Unguaranteed debentures No. 9

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

Unguaranteed debentures No. 10

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

Unguaranteed debentures No. 11

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

Unguaranteed debentures No. 12-1

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

Unguaranteed debentures No. 12-2

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

Unguaranteed debentures No. 12-3

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

Unguaranteed debentures No. 13

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

Unguaranteed debentures No. 14-1

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

Unguaranteed debentures No. 14-2

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

Unguaranteed debentures No. 15-1

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

Unguaranteed debentures No. 15-2

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

Unguaranteed debentures No. 15-3

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

Unguaranteed debentures No. 16-1

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

Unguaranteed debentures No. 16-2

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

Unguaranteed debentures No. 16-3

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

Unguaranteed debentures No. 17

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

Unguaranteed debentures No. 18-1

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

Unguaranteed debentures No. 18-2

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

Unguaranteed debentures No. 18-3

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

Unguaranteed debentures No. 19-1

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

Unguaranteed debentures No. 19-2

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

Unguaranteed debentures No. 19-3

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

Unguaranteed debentures No. 20-1

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

Unguaranteed debentures No. 20-2

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

Unguaranteed debentures No. 21

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

Unguaranteed debentures No. 22-1

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

Unguaranteed debentures No. 22-2

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

Unguaranteed debentures No. 23

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

Unguaranteed debentures No. 24

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

Unguaranteed debentures No. 25-1

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

Unguaranteed debentures No. 25-2

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

Unguaranteed debentures No. 25-3

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

Unguaranteed debentures No. 25-4

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

Unguaranteed debentures No. 26-1

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

Unguaranteed debentures No. 26-2

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

Unguaranteed debentures No. 27

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

Unguaranteed debentures No. 28-1

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

Unguaranteed debentures No. 28-2

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

Unguaranteed debentures No. 28-3

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

Unguaranteed debentures No. 29-1

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

Unguaranteed debentures No. 29-2

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

Unguaranteed debentures No. 30

     Jan. 25, 2018        Jan. 25, 2021        2.45        80,000       —    

Unguaranteed debentures No. 31-1

     Feb. 28, 2018        Feb. 26, 2021        2.57        150,000       —    

Unguaranteed debentures No. 31-2

     Feb. 28, 2018        Feb. 28, 2023        2.81        50,000       —    

Unguaranteed debentures No. 31-3

     Feb. 28, 2018        Feb. 28, 2028        3.02        60,000       —    

Unguaranteed debentures No. 32-1

     Apr. 06, 2018        Apr. 06, 2021        2.50        60,000       —    

Unguaranteed debentures No. 32-2

     Apr. 06, 2018        Apr. 06, 2023        2.71        80,000       —    

Unguaranteed debentures No. 32-3

     Apr. 06, 2018        Apr. 06, 2028        2.86        20,000       —    

Unguaranteed debentures No. 33-1

     June 12, 2018        June 12, 2023        2.81        100,000       —    

Unguaranteed debentures No. 33-2

     June 12, 2018        June 12, 2028        2.92        30,000       —    

Unguaranteed debentures No. 34-1

     July 25, 2018        July 23, 2021        2.41        40,000       —    

Unguaranteed debentures No. 34-2

     July 25, 2018        July 25, 2023        2.65        70,000       —    

Unguaranteed debentures No. 34-3

     July 25, 2018        July 25, 2025        2.71        20,000       —    

Unguaranteed debentures No. 34-4

     July 25, 2018        July 25, 2028        2.76        20,000       —    
           

 

 

   

 

 

 
     5,470,000       5,170,000  
     Less: Bond Discounts        (7,172     (7,400
           

 

 

   

 

 

 
            W 5,462,828     W 5,162,600  
           

 

 

   

 

 

 

 

39


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

The maturities of debentures as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018  
    

Up to

3 months

    

3~6

months

    

6~12

months

    

1~3

years

    

Over

3 years

     Total  

Debentures in Korean won

   W 210,000      W 80,000      W 740,000      W 1,910,000      W 2,530,000      W 5,470,000  
(In millions of Korean won)    December 31, 2017  
    

Up to

3 months

    

3~6

months

    

6~12

months

    

1~3

years

    

Over

3 years

     Total  

Debentures in Korean won

   W —        W 150,000      W 540,000      W 1,810,000      W 2,670,000      W 5,170,000  

Changes in debentures based on face value for the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won)    2018  
     Beginning      Issue      Repayment      Ending  

Debentures in Korean won

   W 5,170,000      W 780,000      W (480,000    W 5,470,000  
(In millions of Korean won)    2017  
     Beginning      Issue      Repayment      Ending  

Debentures in Korean won

   W 3,480,000      W 1,840,000      W (150,000 )     W 5,170,000  

16. Net Defined Benefit Liabilities

Defined benefit plan

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

 

   

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

 

   

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

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

Changes in the defined benefit obligation for the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

40


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

(In millions of Korean won)       
     2018  
   Present value of
defined benefit
obligation
     Fair value of plan
assets
     Net defined benefit
liabilities
 

Beginning

   W 16,594      W (16,795    W (201

Current service cost

     1,472        —          1,472  

Interest cost (income)

     359        (363      (4

Remeasurements:

        

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

     —          150        150  

Payments from plans (benefit payments)

     (1,393      1,393        —    

Payments from the Company

     (39      —          (39

Transfer in

     2,844        (2,844      —    

Transfer out

     (2,376      2,376        —    
  

 

 

    

 

 

    

 

 

 

Ending

   W 17,461      W (16,083    W 1,378  
  

 

 

    

 

 

    

 

 

 

 

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

Beginning

   W 15,075      W (15,268    W (193

Current service cost

     1,466        —          1,466  

Interest cost (income)

     292        (296      (4

Remeasurements:

        

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

     —          111        111  

Payments from plans (benefit payments)

     (2,130      2,130        —    

Payments from the Company

     (63      —          (63

Transfer in

     2,801        (2,801      —    

Transfer out

     (1,525      1,525        —    
  

 

 

    

 

 

    

 

 

 

Ending

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

 

 

    

 

 

    

 

 

 

 

41


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

Details of the net defined benefit liabilities (assets) as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018      December 31, 2017  

Present value of defined benefit obligation

   W 17,461      W 16,594  

Fair value of plan assets

     (16,083      (16,795
  

 

 

    

 

 

 

Net defined benefit liabilities (assets)

   W 1,378      W (201
  

 

 

    

 

 

 

Details of post-employment benefits recognized in profit or loss as employee compensation and benefits for the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won)    2018      2017  

Current service cost

   W 1,472      W 1,466  

Net interest expenses of net defined benefit liabilities

     (4      (4
  

 

 

    

 

 

 

Post-employment benefits

   W 1,468      W 1,462  
  

 

 

    

 

 

 

17. Other Liabilities

Details of other liabilities as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018      December 31, 2017  

Other financial liabilities

     

Payables

   W 4,739      W 19,442  

Accrued expenses

     17,546        10,521  
  

 

 

    

 

 

 
     22,285        29,963  
  

 

 

    

 

 

 

Other non-financial liabilities

     

Payables

     9,392        36,899  

Accrued expenses

     117,952        137,243  

Withholding taxes

     421        730  
  

 

 

    

 

 

 
     127,765        174,872  
  

 

 

    

 

 

 
   W 150,050      W 204,835  
  

 

 

    

 

 

 

18. Equity

18.1 Share Capital

Details of share capital and number of issued shares as of September 30, 2018 and December 31, 2017, are as follows:

 

     September 30, 2018      December 31, 2017  
Type of share    Ordinary share      Ordinary share  

Number of authorized shares

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

Par value per share

   W 5,000      W 5,000  

Number of issued shares

     418,111,537        418,111,537  

Share capital1

   W 2,090,558      W 2,090,558  

 

1

In millions of Korean won.

 

42


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

Changes in shares outstanding for the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In number of shares)    2018      2017  

Beginning

     399,037,583        398,357,724  

Increase

     —          4,438,230  

Decrease

     (2,803,909      (1,792,500
  

 

 

    

 

 

 

Ending

     396,233,674        401,003,454  
  

 

 

    

 

 

 

18.2 Capital Surplus

Details of capital surplus as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018      December 31, 2017  

Share premium

   W 13,190,275      W 13,190,275  

Other capital surplus

     1,465,893        1,465,893  

Gain on sales of treasury share

     86,646        86,646  
  

 

 

    

 

 

 
   W 14,742,814      W 14,742,814  
  

 

 

    

 

 

 

18.3 Accumulated Other Comprehensive Income (Loss)

Details of accumulated other comprehensive income (loss) as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018      December 31, 2017  

Remeasurements of net defined benefit liabilities

   W (5,342    W (5,233

Changes in accumulated other comprehensive income (loss) for the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won)    2018  
     Beginning      Changes      Tax effect      Ending  

Remeasurements of net defined benefit liabilities

   W (5,233    W (150    W 41      W (5,342
(In millions of Korean won)    2017  
     Beginning      Changes      Tax effect      Ending  

Remeasurements of net defined benefit liabilities

   W (4,742    W (111    W 27      W (4,826

18.4 Retained Earnings

Details of retained earnings as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018      December 31, 2017  

Legal reserves

   W 390,216      W 334,873  

Voluntary reserves

     982,000        982,000  

Regulatory reserve for credit losses

     2,374        2,498  

Retained earnings before appropriation

     1,885,104        1,735,008  
  

 

 

    

 

 

 
   W 3,259,694      W 3,054,379  
  

 

 

    

 

 

 

 

43


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

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

Regulatory reserve for credit losses

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

Details of the regulatory reserve for credit losses as of September 30, 2018 and December 31, 2017, are as follows:

 

(In millions of Korean won)    September 30, 2018      December 31, 2017  

Beginning

   W 2,374      W 2,498  

Estimated amounts subject to provision (reversal)

     1,552        (124
  

 

 

    

 

 

 

Ending

   W 3,926      W 2,374  
  

 

 

    

 

 

 

The adjustments to the regulatory reserve for credit losses for the three-month and the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won, except per share amounts)    2018  
     Three months      Nine months  

Provision of regulatory reserve for credit losses

   W 898      W 1,552  

Adjusted profit after provision of regulatory reserve for credit losses1

     (38,816      970,491  

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

     (98      2,447  

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

     (97      2,433  
(In millions of Korean won, except per share amounts)    2017  
     Three months      Nine months  

Provision of regulatory reserve for credit losses

   W 913      W (843

Adjusted profit after provision of regulatory reserve for credit losses1

     (40,044      602,028  

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

     (100      1,512  

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

     (99      1,504  

 

1

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

 

44


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

18.5 Treasury Shares

Changes in treasury shares outstanding for the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won and in number of shares)    2018  
     Beginning      Acquisition      Disposal      Ending  

Number of treasury shares1

     19,073,954        2,803,909        —          21,877,863  

Carrying amount1

   W (755,973    W (180,221    W —        W (936,194

 

1

In order to increase shareholder value, the Company entered into another treasury stock trust agreement of W300,000 million with Samsung Securities Co., Ltd. in the fourth quarter of 2017.

 

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

Number of treasury shares1

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

Carrying amount1

   W 719,090      W 82,212      W 165,101      W 636,201  

 

1

The trust agreement with Samsung Securities Co., Ltd. is terminated as the agreement was expired during the nine-month period ended September 30, 2017.

19. Dividends

The dividends to the shareholders of the Company in respect of the year ended December 31, 2017, of W1,920 per share, amounting to total dividends of W766,728 million, were paid in April 2018. The dividends paid to the shareholders of the Company in 2017 were W497,969 million (W1,250 per share).

20. Net Interest Expense

Interest income (expense) and net interest expense for the three-month and the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won)    2018      2017  
     Three months      Nine months      Three months      Nine months  

Interest income

           

Due from financial institutions

   W 1,333      W 4,453      W 495      W 2,929  

Loans at amortized cost

     243        348        44        94  

Other

     60        177        64        190  
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,636        4,978        603        3,213  
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense

           

Debts

     —          973        1,813        7,364  

Debentures

     30,948        90,336        25,460        65,513  
  

 

 

    

 

 

    

 

 

    

 

 

 
     30,948        91,309        27,273        72,877  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest expense

   W (29,312    W (86,331    W (26,670    W (69,664
  

 

 

    

 

 

    

 

 

    

 

 

 

 

45


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

21. Net Fee and Commission Expense

Fee and commission income (expense) and net fee and commission expense for the three-month and the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won)    2018      2017  
     Three months      Nine months      Three months      Nine months  

Fee and commission income

           

Fees in Korean won

   W 218      W 487      W 240      W 576  

Fee and commission expense

           

Fees paid in Korean won

     769        4,597        1,195        6,450  

Fees paid in foreign currency

     55        127        80        162  
  

 

 

    

 

 

    

 

 

    

 

 

 
     824        4,724        1,275        6,612  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net fee and commission expense

   W (606    W (4,237    W (1,035    W (6,036
  

 

 

    

 

 

    

 

 

    

 

 

 

22. Net Gains on Financial Assets at Fair Value through Profit or Loss and Net Gains on Financial Assets at Fair Value through Profit or Loss (under Korean IFRS 1039)

Net gains on financial assets at fair value through profit or loss and net gains on financial assets at fair value through profit or loss (under Korean IFRS 1039) consist of gains or losses related to financial instrument that includes dividend income and gains or losses arising from changes in the fair values, sales and redemptions. Details for the three-month and nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won)    2018      2017  
     Three months      Nine months      Three months      Nine months  

Gains related to financial instruments at fair value through profit or loss (under Korean IFRS 1039)

           

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

   W —        W —        W 3,409      W 9,483  

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

           

Financial assets at fair value through profit or loss

     5,133        13,865        —          —    

Losses related to financial instruments at fair value through profit or loss (under Korean IFRS 1039)

           

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

     —          —          4,517        5,706  

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

           

Financial assets at fair value through profit or loss

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   W 5,133      W 13,865      W (1,108    W 3,777  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

46


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

23. Net Other Operating Income

Other operating income or other operating expense for the three-month and the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won)    2018      2017  
     Three months      Nine months      Three months      Nine months  

Other operating income

           

Dividend income from subsidiaries

   W —        W 1,089,556      W —        W 693,660  

Dividend income from associate

     —          —          —          15,884  
  

 

 

    

 

 

    

 

 

    

 

 

 
     —          1,089,556        —          709,544  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net other operating income

   W —        W 1,089,556      W —        W 709,544  
  

 

 

    

 

 

    

 

 

    

 

 

 

24. General and Administrative Expenses

Details of general and administrative expenses for the three-month and nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won)    2018      2017  
     Three months      Nine months      Three months      Nine months  

Employee benefits

           

Salaries and other short-term employee benefits—Salaries

   W 5,117      W 16,880      W 5,439      W 16,414  

Salaries and other short-term employee benefits—Others

     1,131        3,071        935        2,841  

Post-employment benefits—defined benefit plans

     489        1,468        487        1,462  

Post-employment benefits—defined contribution plans

     —          —          —          1  

Share-based payments

     1,122        977        1,009        4,952  
  

 

 

    

 

 

    

 

 

    

 

 

 
     7,859        22,396        7,870        25,670  
  

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation and amortization

     193        540        132        479  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other general and administrative expenses

           

Travel

     186        479        139        500  

Communications

     76        396        80        379  

Tax and dues

     38        269        43        206  

Publication

     54        184        45        162  

Rental expense

     356        1,078        415        1,153  

Vehicle

     40        102        39        103  

Service fees

     2,127        7,067        1,554        4,841  

Advertising

     30        496        52        440  

Training

     247        568        179        558  

Others

     1,541        4,400        1,308        3,976  
  

 

 

    

 

 

    

 

 

    

 

 

 
     4,695        15,039        3,854        12,318  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 12,747      W 37,975      W 11,856      W 38,467  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

47


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

Share-based Payments

The Company entered into share-based payment plan for executives and employees of the Company and its subsidiaries.

Details of stock grants linked to long-term performance as of September 30, 2018, are as follows:

 

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

KB Financial Group Inc.

 

     

Series 17

     Jan. 01, 2017        16,579     

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

Series 18

     July. 17, 2017        7,444     

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

Series 19

     Nov. 21, 2017        46,890     

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

Series 20

     Jan. 01, 2018        35,330     

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

Deferred grant

     2012        5,415     

Satisfied in 2012

Deferred grant

     2013        588     

Satisfied in 2013

Deferred grant

     2015        15,154     

Satisfied in 2015

Deferred grant

     2016        14,538     

Satisfied in 2016

Deferred grant

     2017        85,491     

Satisfied in 2017

     

 

 

    

Kookmin Bank

        227,429     
     

 

 

    

Series 69

     Jan. 01, 2017        168,360     

Services fulfillment:2years3

Series 71

     Aug. 26, 2017        4,372     

Services fulfillment:2years3

Series 72

     Aug. 28, 2017        5,601     

Services fulfillment:2years3

Series 73

     Nov. 21, 2017        27,786     

Services fulfillment:2years4

Series 74

     Jan. 01, 2018        190,536     

Services fulfillment:2years3

Deferred grant

     2015        33,050     

Satisfied in 2015

Deferred grant

     2016        110,967     

Satisfied in 2016

Deferred grant

     2017        150,212     

Satisfied in 2017

     

 

 

    
        690,884     
     

 

 

    

 

48


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

Other subsidiaries

        

Stock granted in 2010

     —          366      Services fulfillment, Achievement of targets on the basis of market and non-market performance 7, 9

Stock granted in 2011

     —          601     

Stock granted in 2012

     —          2,048     

Stock granted in 2013

     —          3,097     

Stock granted in 2014

     —          4,628     

Stock granted in 2015

     —          66,655     

Stock granted in 2016

     —          121,998     

Stock granted in 2017

     —          233,273     

Stock granted in 2018

     —          107,945     
     

 

 

    
        540,611     
     

 

 

    
        1,458,924     
     

 

 

    

 

1

Granted shares represent the total number of shares initially granted to directors and employees that have residual shares at the end of reporting period (Deferred grants are residual shares at the end of the reporting period).

2

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

3

30%, 40% and 30% of the number of granted shares to be compensated are determined upon the accomplishment of the relative TSR, Performance Results, Evaluation of the Bank president’s performance, respectively. 30% of the number of certain granted shares to be compensated is determined upon the accomplishment of relative TSR, while 70% is determined upon the accomplishment of Performance Results.

4

30% and 70% of the number of granted shares to be compensated are determined upon the accomplishment of relative TSR and Evaluation of the Bank president’s performance, respectively.

5

40%, 30% and 30% of the number of granted shares to be compensated are determined upon the accomplishment of Performance Results, financial results of the Company and relative TSR , respectively. 50% of the number of certain granted shares to be compensated is determined upon the accomplishment of Performance Results, while 50% is determined upon the accomplishment of relative TSR.

6 

35%, 35%, 20%, 5% and 5% of the number of granted shares to be compensated are determined upon the accomplishment of relative TSR, EPS, Asset Quality, HCROI and nonbanking segment profit, respectively.

7

50%, 30% and 20% of the number of granted shares to be compensated are determined upon the accomplishment of Performance Results, subsidiaries’ performance and relative TSR, respectively. 80% of the number of certain granted shares to be compensated is determined upon the accomplishment of subsidiaries’ performance, while 20% is determined upon the accomplishment of relative TSR. 80% of the number of certain granted shares to be compensated is determined upon the accomplishment of Performance Results, while 20% is determined upon the accomplishment of relative TSR. 60%, 30% and 10% of the number of certain granted shares to be compensated are determined upon accomplishment of Performance Results, subsidiaries’ performance and relative TSR, respectively. 90% of the number of certain granted shares to be compensated is determined upon the accomplishment of subsidiaries’ performance, while 10% is determined upon the accomplishment of relative TSR. 90% of the number of certain granted shares to be compensated is determined upon the accomplishment of Performance Results, while 10% is determined upon the accomplishment of relative TSR.

 

49


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

8

40%, 30% and 30% of the number of granted shares to be compensated are determined upon the accomplishment of Performance Results, financial results of the Company and relative TSR , respectively. 70% of the number of certain granted shares to be compensated is determined upon the accomplishment of Performance Results, while 30% is determined upon the accomplishment of relative TSR.

9

30%, 30% and 40% of the number of granted shares to be compensated are determined upon the accomplishment of Performance Results, subsidiaries’ performance and relative TSR, respectively. 60% of the number of certain granted shares to be compensated is determined upon the accomplishment of subsidiaries’ performance, while 40% is determined upon the accomplishment of relative TSR. 40%, 30% and 30% of the number of certain granted shares to be compensated are determined upon accomplishment of Performance Results, subsidiaries’ performance and relative TSR, respectively. 50% of the number of certain granted shares to be compensated is determined upon the accomplishment of subsidiaries’ performance, while 50% is determined upon the accomplishment of relative TSR. 70% of the number of certain granted shares to be compensated is determined upon the accomplishment of subsidiaries’ performance, while 30% is determined upon the accomplishment of relative TSR.

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

Details of stock grants linked to short-term performances as of September 30, 2018, are as follows:

 

     Grant date    Estimated number
of vested shares1
    

Vesting

Conditions

KB Financial Group Inc.

        

Stock granted in 2010

   Jan. 01, 2010      322      Satisfied

Stock granted in 2011

   Jan. 01, 2011      1,728      Satisfied

Stock granted in 2012

   Jan. 01, 2012      2,642      Satisfied

Stock granted in 2013

   Jan. 01, 2013      448      Satisfied

Stock granted in 2015

   Jan. 01, 2015      13,516     

Satisfied

Stock granted in 2016

   Jan. 01, 2016      16,526     

Satisfied

Stock granted in 2017

   Jan. 01, 2017      16,855     

Satisfied

Stock granted in 2018

   Jan. 01, 2018      11,458     

Proportional to service period

Kookmin Bank

        

Stock granted in 2015

   Jan. 01, 2015      56,379     

Satisfied

Stock granted in 2016

   Jan. 01, 2016      83,424     

Satisfied

Stock granted in 2017

   Jan. 01, 2017      80,331     

Satisfied

Stock granted in 2018

   Jan. 01, 2018      69,820     

Proportional to service period

Other subsidiaries

     

Stock granted in 2015

        68,444     

Satisfied

Stock granted in 2016

        154,997     

Satisfied

Stock granted in 2017

        335,810     

Satisfied

Stock granted in 2018

        172,303     

Proportional to service period

 

1

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

 

50


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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

 

 

Share-based payment arrangement for subsidiaries was transferred to the Company in 2010, and the related compensation cost paid to the executives and employees of subsidiaries is reimbursed by these companies. The accrued expenses representing share-based payments as of September 30, 2018 and December 31, 2017, are W115,181 million and W133,496 million, respectively, and the receivables to be reimbursed by the subsidiaries for the compensation costs are W103,543 million and W118,375 million, respectively. The compensation costs from share-based payments that amounts to W977 million and W4,952 million were recognized as an expense for the nine-month periods ended September 30, 2018 and 2017, respectively.

25. Non-operating Income (Expense)

Details of non-operating income and expenses for the three-month and nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won)    2018      2017  
     Three
months
     Nine
months
     Three
months
     Nine
months
 

Non-operating income

           

Reversal of impairment losses on intangible assets

   W —        W —        W 100      W 100  

Others

     323        753        2        605  
  

 

 

    

 

 

    

 

 

    

 

 

 
     323        753        102        705  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-operating expenses

           

Impairment losses on intangible assets

     —          —          (67      2  

Donation

     603        1,133        35        603  

Others

     —          1        —          6  
  

 

 

    

 

 

    

 

 

    

 

 

 
     603        1,134        (32      611  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-operating benefit (expenses)

   W (280    W (381    W 134      W 94  
  

 

 

    

 

 

    

 

 

    

 

 

 

26. Income Tax Expense

Details of income tax benefit for the nine-month periods ended September 30, 2018 and 2017, are as follows:

 

(In millions of Korean won)    2018      2017  

Tax payable

     

Current tax expense

   W —        W —    

Change in deferred tax assets and liabilities

     

Origination and reversal of temporary differences

     (2,413      1,964  

Tax expense recognized directly in equity

     

Remeasurements of net defined benefit liabilities

     (41      (27
  

 

 

    

 

 

 

Income tax benefit (expense)

   W (2,454    W 1,937  
  

 

 

    

 

 

 

 

51


KB Financial Group Inc.

Notes to Separate Interim Financial Statements

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