6-K 1 d709862d6k.htm FORM 6-K Form 6-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2019

Commission File Number: 000-53445

 

 

KB Financial Group Inc.

(Translation of registrant’s name into English)

 

 

26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331, Korea

(Address of principal executive office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ☒     Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

 

 


Audit Report of KB Financial Group Inc. for Fiscal Year 2018

On March 12, 2019, KB Financial Group Inc. (“KB Financial Group”) disclosed audit reports for fiscal year 2018 based on the International Financial Reporting Standards as adopted by the Republic of Korea (including the consolidated and separate financial statements of KB Financial Group as of and for the years ended December 31, 2018 and 2017 and related notes) received from Samil PricewaterhouseCoopers, its independent auditor. The financial statements in such reports have not been approved by the shareholders of KB Financial Group and remain subject to change.

KB Financial Group is furnishing the following documents as exhibits to this Form 6-K filing:

Exhibit 99.1: An English-language translation of the Consolidated Audit Report of KB Financial Group for FY 2018.

Exhibit 99.2: An English-language translation of the Separate Audit Report of KB Financial Group for FY 2018.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

     

KB Financial Group Inc.

      (Registrant)
Date: March 12, 2019      

By: /s/ Ki-Hwan Kim

      (Signature)
      Name:   Ki-Hwan Kim
      Title:   Deputy President and Chief Finance Officer


Exhibit 99.1

KB Financial Group Inc. and Subsidiaries

Consolidated Financial Statements

December 31, 2018 and 2017


KB Financial Group Inc. and Subsidiaries

Index

December 31, 2018 and 2017

 

 

     Page(s)  

Independent Auditor’s Report

     2~6  

Consolidated Financial Statements

  

Consolidated Statements of Financial Position

     7  

Consolidated Statements of Comprehensive Income

     8  

Consolidated Statements of Changes in Equity

     9  

Consolidated Statements of Cash Flows

     10~11  

Notes to the Consolidated Financial Statements

     12~249  

 

1


Independent Auditor’s Report

(English Translation of a Report Originally Issued in Korean)

To the Shareholders and Board of Directors of KB Financial Group Inc.

Opinion

We have audited the accompanying consolidated financial statements of KB Financial Group Inc. and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated statements of financial position as at December 31, 2018 and 2017, and the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS).

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements of the Republic of Korea that are relevant to our audit of the consolidated financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

1. Expected Credit Losses on Loans Measured at Amortized Cost

Why it is determined to be a key audit matter :

Korean IFRS 1109 Financial Instruments, which has been applied on January 1, 2018 by the Group, is a more complex accounting standard which requires considerable amount of judgment and interpretation in its implementation than Korean IFRS 1039 Financial Instruments: Recognition and Measurement, in relation to impairment. This new standard especially requires determination of significant increases in credit risk and measurement of expected credit losses using forward-looking information. Accordingly the Group developed a new measurement model utilizing various types of information.

 

2


The Group measures expected credit losses on loans measured at amortized cost, on an individual or collective basis. The identification of loans that are deteriorating and the assessment of the present value of expected future cash flows in determining expected credit losses are inherently uncertain, involving various assumptions and judgments. In measuring expected losses on a collective basis, a wide range of complex inputs and assumptions are used. Given the extent of judgment involved, we considered expected credit losses to be a key audit matter.

The balances of loans measured at amortized cost subject to individual or collective assessment and loss allowance are W 321,811,284 million and W 2,609,681 million, respectively(See Note 4-2, 10, 11). Significantly affected subsidiaries include Kookmin Bank, KB Kookmin Card and others.

How our audit addressed the key audit matter :

(1) Assessment of expected credit losses on an individual basis

We obtained an understanding and evaluated procedures and controls relating to the assessment of expected credit losses on an individual basis. In particular, we focused our effort on the assumptions used in estimating future cash flows. We evaluated whether management’s estimation was reasonable and sufficiently reviewed over key assumptions in cash flow projection including growth rate of entities subject to individual assessment and valuation of collateral. As part of these procedures, we assessed whether sales growth rate, operating income ratio, and assumptions on investment activities were consistent with historical performance and current market conditions. Furthermore, we challenged appropriateness of collateral valuation by conducting our own research on most recent property prices and engaging independent appraisal specialists in verifying appraisal reports, models and methodologies employed by management.

(2) Assessment of expected credit losses on a collective basis

We obtained an understanding and evaluated the processes and controls relating to the assessment of expected credit losses on a collective basis in accordance with impairment requirements under Korean IFRS 1109 Financial Instruments. As explained in Note 2, management assesses credit rating to recognize lifetime expected credit losses on loans with significant increase in credit risk and impaired loans. Other than these cases, management recognizes 12 month expected credit losses. To calculate expected credit losses, management has applied forward-looking information, probability of default, and loss given default estimated through predetermined internal procedures and controls implemented for various assumptions.

We assessed design and tested operating effectiveness of controls relating to credit ratings that appropriately capture both qualitative and quantitative information. Our substantive test over accuracy and reliability of the information included agreeing qualitative and quantitative information with relevant evidence.

We assessed appropriateness of management accounting policy determining significant increase in credit risk. We confirmed management reasonably performed allocation of Stage 1, 2 and 3 depending on how significantly credit risk was increased and used different models for each stage. We verified that these procedures were performed in accordance with the policy and examined appropriateness of the results.

We involved our own risk specialist to statistically analyze correlation between forward-looking information and probability of defaults and loss given default. We assessed appropriateness of methodologies for adjusting probability of defaults and loss given default to reflect forward-looking information on estimation of expected credit losses. We further tested reasonableness and mathematical accuracy of the information through recalculation and inspection of supporting data.

 

3


We challenged methodologies used by management to verify that probability of default and loss given default were calibrated using sufficient and reasonable historical data. We determined that the default and loss data used were appropriately gathered and applied in accordance with internal control procedures. In addition, we verified reasonableness and accuracy of probability of defaults and losses through procedures including recalculation, and evaluated management’s default and loss data.

2. Valuation of over-the-counter derivatives

Why it is determined to be a key audit matter :

Fair value of large portion of over-the-counter derivatives in the consolidated financial statements is calculated through in-house valuation system. Judgment is required in estimating the fair value of these derivatives held by KB Securities in determining appropriate models, assumptions and inputs. Given the extent of judgment involved in valuing these over-the-counter derivatives, we considered this to be a key audit matter. Over-the-counter derivatives of KB securities subject to fair value measurement amount to W 14,551,811 million including financial liabilities designated as at fair value through profit or loss relevant to structured securities and financial assets at fair value through profit or loss(See Note 6,12,19).

How our audit addressed the key audit matter :

We obtained an understanding and evaluated process and relevant controls in relation to fair value measurement. Our focus was particularly on the accuracy of underlying transaction data used and mathematical calculation in accordance with management’s in-house valuation methodologies.

We assessed design and tested operating effectiveness of controls over accuracy and completeness of key inputs such as underlying transaction data(notional amount, interest rate, maturity etc.) employed in management’s in-house valuation system. We substantively tested transaction data used in valuation by examining supporting evidence including contracts and trade confirmations.

We also evaluated design and tested operating effectiveness of controls over periodic verification of in-house valuation system to ensure the valuation methodologies configured in the system were accurately operating as intended. We involved our own derivative valuation specialist to independently estimate fair values utilizing independent valuation models and variables to see if management’s valuation is outside our ranges.

Other Matter

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

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Korean IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

4


In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

   

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

   

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.

 

   

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

   

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

   

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

   

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

 

5


We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Yeob Yu, Certified Public Accountant.

/s/ Samil PricewaterhouseCoopers

Seoul, Korea

March 12, 2019

 

This report is effective as of March 12, 2019, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

 

6


KB Financial Group Inc. and Subsidiaries

Consolidated Statements of Financial Position

December 31, 2018 and 2017

 

 

(in millions of Korean won)    Notes    2018     2017  

Assets

       

Cash and due from financial institutions

   4,6,7,39    W 20,274,490     W 19,817,825  

Financial assets at fair value through profit or loss

   4,6,12      50,987,847       —    

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

   4,6,12      —         32,227,345  

Derivative financial assets

   4,6,9      2,025,962       3,310,166  

Loans at amortized cost

   4,6,10,11      319,201,603       290,122,838  

Financial investments

   4,6,12      61,665,094       66,608,243  

Investments in associates and joint ventures

   13      504,932       335,070  

Property and equipment

   14      4,272,127       4,201,697  

Investment property

   14      2,119,811       848,481  

Intangible assets

   15      2,755,783       2,943,060  

Net defined benefit assets

   24      —         894  

Current income tax assets

        10,004       6,324  

Deferred income tax assets

   16,33      4,158       3,991  

Assets held for sale

   17      16,952       155,506  

Other assets

   4,6,18      15,749,535       16,204,169  
     

 

 

   

 

 

 

Total assets

      W  479,588,298     W  436,785,609  
     

 

 

   

 

 

 

Liabilities

       

Financial liabilities at fair value through profit or loss

   4,6,19    W 15,326,859     W —    

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

   4,6,19      —         12,023,058  

Derivative financial liabilities

   4,6,9      2,901,247       3,142,765  

Deposits

   4,6,20      276,770,449       255,800,048  

Debts

   4,6,21      33,004,834       28,820,928  

Debentures

   4,6,22      53,278,697       44,992,724  

Provisions

   23      525,859       568,033  

Net defined benefit liabilities

   24      262,213       154,702  

Current income tax liabilities

        698,634       433,870  

Deferred income tax liabilities

   16,33      492,534       533,069  

Insurance contract liabilities

   37      33,412,949       31,801,275  

Other liabilities

   4,6,25      27,200,996       24,470,308  
     

 

 

   

 

 

 

Total liabilities

        443,875,271       402,740,780  
     

 

 

   

 

 

 

Equity

       

Share capital

        2,090,558       2,090,558  

Capital surplus

        17,121,660       17,122,228  

Accumulated other comprehensive income

   35      177,806       537,668  

Retained earnings

        17,282,441       15,044,204  

Treasury shares

        (968,549     (755,973
     

 

 

   

 

 

 

Equity attributable to shareholders of the Parent Company

   26      35,703,916       34,038,685  

Non-controlling interests

        9,111       6,144  
     

 

 

   

 

 

 

Total equity

        35,713,027       34,044,829  
     

 

 

   

 

 

 

Total liabilities and equity

      W 479,588,298     W 436,785,609  
     

 

 

   

 

 

 

 

1 

The consolidated statement of financial position as of December 31, 2018 is prepared in accordance with Korean IFRS 1109 and Korean IFRS 1115, and the comparatives as of December 31, 2017 has not been restated.

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

 

7


KB Financial Group Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2018 and 2017

 

 

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

Interest income

      W 13,734,569     W 11,919,057  

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

        12,986,209       —    

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

        748,360       —    

Interest income from loans and receivables and investments

        —         11,382,452  

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

        —         536,605  

Interest expense

        (4,829,641     (3,672,443
     

 

 

   

 

 

 

Net interest income

   5,27      8,904,928       8,246,614  
     

 

 

   

 

 

 

Fee and commission income

        3,717,720       3,988,250  

Fee and commission expense

        (1,474,344     (1,938,226
     

 

 

   

 

 

 

Net fee and commission income

   5,28      2,243,376       2,050,024  
     

 

 

   

 

 

 

Insurance income

        11,975,070       8,970,992  

Insurance expense

        (11,484,954     (8,377,282
     

 

 

   

 

 

 

Net Insurance income

   5,37      490,116       593,710  
     

 

 

   

 

 

 

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

        350,490       —    

Net gains on overlay adjustment

        813       —    
     

 

 

   

 

 

 

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

   5,29      351,303       —    
     

 

 

   

 

 

 

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

        —         203,724  
     

 

 

   

 

 

 

Net other operating expenses

   5,30      (1,130,036     (901,890
     

 

 

   

 

 

 

General and administrative expenses

   5,31      (5,918,512     (5,628,664
     

 

 

   

 

 

 

Operating profit before provision for credit losses

   5      4,941,175       4,563,518  

Provision for credit losses

   5,7,11,12,18,23      (673,694     (548,244
     

 

 

   

 

 

 

Net operating income

        4,267,481       4,015,274  
     

 

 

   

 

 

 

Share of profit of associates and joint ventures

   13      24,260       84,274  

Net other non-operating income

   32      9,791       38,876  
     

 

 

   

 

 

 

Net non-operating income

        34,051       123,150  
     

 

 

   

 

 

 

Profit before income tax

        4,301,532       4,138,424  

Income tax expense

   33      (1,239,586     (794,963
     

 

 

   

 

 

 

Profit for the year

   5      3,061,946       3,343,461  
     

 

 

   

 

 

 

Items that will not be reclassified to profit or loss:

       

Remeasurements of net defined benefit liabilities

   24      (138,016     22,605  

Share of other comprehensive income of associates and joint ventures

        (74     (145

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

        (31,169     —    

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

        1,484       —    
     

 

 

   

 

 

 
        (167,775     22,460  
     

 

 

   

 

 

 

Items that may be reclassified subsequently to profit or loss:

       

Exchange differences on translating foreign operations

        48,820       (110,037

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

        119,182       —    

Valuation gains on financial investments

        —         89,117  

Shares of other comprehensive income of associates and joint ventures

        (3,659     100,880  

Cash flow hedges

        (9,038     20,959  

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

        (27,134     26,614  

Other comprehensive income arising from separate account

        28,709       (13,767

Net gains on overlay adjustment

   37      413       —    
     

 

 

   

 

 

 
        157,293       113,766  
     

 

 

   

 

 

 

Other comprehensive income for the year, net of tax

        (10,482     136,226  
     

 

 

   

 

 

 

Total comprehensive income for the year

      W 3,051,464     W 3,479,687  
     

 

 

   

 

 

 

Profit attributable to:

   5     

Shareholders of the Parent Company

      W 3,061,191     W 3,311,438  

Non-controlling interests

        755       32,023  
     

 

 

   

 

 

 
      W 3,061,946     W 3,343,461  
     

 

 

   

 

 

 

Total comprehensive income for the year attributable to:

       

Shareholders of the Parent Company

      W 3,050,805     W 3,445,285  

Non-controlling interests

        659       34,402  
     

 

 

   

 

 

 
      W 3,051,464     W 3,479,687  
     

 

 

   

 

 

 

Earnings per share

   36     

Basic earnings per share

      W 7,721     W 8,305  

Diluted earnings per share

        7,676       8,257  

 

1 

The consolidated statement of comprehensive income for the year ended December 31, 2018 is prepared in accordance with Korean IFRS 1109 and Korean IFRS 1115, and the comparatives for the year ended December 31, 2017 has not been restated.

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

 

8


KB Financial Group Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

Years Ended December 31, 2018 and 2017

 

 

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

Balance at January 1, 2017

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Comprehensive income                                                

Profit for the year

      —         —         —         3,311,438       —         32,023       3,343,461  

Remeasurements of net defined benefit liabilities

      —         —         22,685       —         —         (80     22,605  

Exchange differences on translating foreign operations

      —         —         (109,727     —         —         (310     (110,037

Valuation gains/(losses) on financial investments

      —         —         86,176       —         —         2,941       89,117  

Shares of other comprehensive income of associates and joint ventures

 

    —         —         100,735       —         —         —         100,735  

Cash flow hedges

      —         —         21,055       —         —         (96     20,959  

Gain on hedges of a net investment in a foreign operation

      —         —         26,614       —         —         —         26,614  

Other comprehensive income arising from separate account

      —         —         (13,692     —         —         (75     (13,767

Transfer to other accounts

      —         —         (1,507     1,507       —         —         —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

      —         —         132,339       3,312,945       —         34,403       3,479,687  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Transactions with shareholders                                                

Dividends paid to shareholders of the Parent Company

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

Acquisition of treasury shares

      —         —         —         —         (202,051     —         (202,051

Disposal of treasury shares

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

Changes in interest in subsidiaries

      —         41,352       —         —         —         (288,802     (247,450

Others

      —         (1,238     —         —         —         2,340       1,102  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total transactions with shareholders

      —         127,326       —         (497,969     (34,000     (291,618     (696,261
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2017

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2018

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The effect of changing of accounting policy

    46       —         —         (349,476     (71,724     —         —         (421,200

Balance after reflecting the effect of accounting policy

      2,090,558       17,122,228       188,192       14,972,480       (755,973     6,144       33,623,629  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Comprehensive income                                                

Profit for the year

      —         —         —         3,061,191       —         755       3,061,946  

Remeasurements of net defined benefit liabilities

      —         —         (138,016     —         —         —         (138,016

Exchange differences on translating foreign operations

      —         —         48,916       —         —         (96     48,820  

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

      —         —         88,013       15,498       —         —         103,511  

Shares of other comprehensive income of associates and joint ventures

 

    —         —         (3,733     —         —         —         (3,733

Cash flow hedges

      —         —         (9,038     —         —         —         (9,038

Losses on hedges of a net investment in a foreign operation

      —         —         (27,134     —         —         —         (27,134

Other comprehensive income arising from separate account

      —         —         28,709       —         —         —         28,709  

Fair value changes on financial liabilities designated

               

at fair value due to own credit risk

      —         —         1,484       —         —         —         1,484  

Net gains on overlay adjustment

      —         —         413       —         —         —         413  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income/(loss)

      —         —         (10,386     3,076,689       —         659       3,066,962  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Transactions with shareholders                                                

Dividends paid to shareholders of the Parent Company

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

Acquisition of treasury shares

      —         —         —         —         (212,576     —         (212,576

Non-controlling interests changes in business combination

    45       —         —         —         —         —         2,238       2,238  

Others

      —         (568     —         —         —         70       (498
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total transactions with shareholders

      —         (568     —         (766,728     (212,576     2,308       (977,564
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2018

    W 2,090,558     W 17,121,660     W 177,806     W 17,282,441     W (968,549   W 9,111     W 35,713,027  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1 

The consolidated statement of changes in equity for the year ended December 31, 2018 is prepared in accordance with Korean IFRS 1109 and Korean IFRS 1115, and the comparatives for the year ended December 31, 2017 has not been restated.

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

 

9


KB Financial Group Inc. and Subsidiaries

Consolidated Statements of Cash Flows         

Years Ended December 31, 2018 and 2017         

 

 

(in millions of Korean won)   2018     2017  

Cash flows from operating activities

   

Profit for the year

  W 3,061,946     W 3,343,461  
 

 

 

   

 

 

 

Adjustment for non-cash items

   

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

    (104,755     —    

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

    —         (106,868

Net loss on derivative financial instruments for hedging purposes

    186,029       (135,363

Adjustment of fair value of derivative financial instruments

    410       (1,000

Provision for credit loss

    673,694       548,244  

Net loss (gain) on financial investments

    (99,253     110,156  

Share of profit of associates and joint ventures

    (24,260     (84,274

Depreciation and amortization expense

    409,481       371,150  

Depreciation and amortization expense on VOBA

    214,153       179,193  

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

    (138,553     30,893  

Share-based payments

    10,930       73,370  

Policy reserve appropriation

    1,608,175       1,644,389  

Post-employment benefits

    220,215       233,501  

Net interest expense

    277,152       363,803  

Gain on foreign currency translation

    (142,586     (70,399

Gains on bargain purchase

    —         (122,986

Net other expense

    207,025       204,122  
 

 

 

   

 

 

 
    3,297,857       3,237,931  
 

 

 

   

 

 

 

Changes in operating assets and liabilities

   

Financial asset at fair value through profit or loss

    (8,446,927     —    

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

    —         (3,946,805

Derivative financial instruments

    151,297       (295,795

Loans at fair value through other comprehensive income

    (40,413     —    

Loans at amortized cost

    (31,334,606     (22,465,758

Current income tax assets

    (3,668     59,334  

Deferred income tax assets

    (557     3,186  

Other assets

    (2,292,160     (3,938,297

Financial liabilities at fair value through profit or loss

    3,690,005       —    

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

    —         66,222  

Deposits

    20,679,844       18,858,210  

Current income tax liabilities

    264,765       —    

Deferred income tax liabilities

    115,208       108,355  

Other liabilities

    1,899,791       133,931  
 

 

 

   

 

 

 
    (15,317,421     (11,417,417
 

 

 

   

 

 

 

Net cash outflow from operating activities

    (8,957,618     (4,836,025
 

 

 

   

 

 

 

Cash flows from investing activities

   

Net cash flows from derivative financial instruments for hedging purposes

    42,305       —    

Disposal of financial asset at fair value through profit or loss

    9,582,940       —    

Acquisition of financial asset at fair value through profit or loss

    (8,707,420     —    

Disposal of financial investments

    60,773,660       38,050,549  

Acquisition of financial investments

    (64,729,380     (46,538,295

Disposal in investments in associates and joint ventures

    34,717       141,052  

Acquisition of investments in associates and joint ventures

    (187,077     (53,375

Disposal of property and equipment

    2,272       31,167  

Acquisition of property and equipment

    (452,270     (298,368

Disposal of investment property

    140,969       1,593  

Acquisition of investment property

    (1,288,125     (262

Disposal of intangible assets

    10,706       7,603  

Acquisition of intangible assets

    (126,163     (111,894

Net cash flows from the change in subsidiaries

    188,140       (405,817

Others

    234,440       446,628  
 

 

 

   

 

 

 

 

10


KB Financial Group Inc. and Subsidiaries

Consolidated Statements of Cash Flows         

Years Ended December 31, 2018 and 2017         

 

 

(in millions of Korean won)   2018     2017  

Net cash outflow from investing activities

    (4,480,286     (8,729,419
 

 

 

   

 

 

 

Cash flows from financing activities

   

Net cash flows from derivative financial instruments for hedging purposes

    15,044       63,827  

Net increase in debts

    4,216,014       4,272,011  

Increase in debentures

    143,603,589       139,700,967  

Decrease in debentures

    (135,180,630     (129,235,557

Increase in other payables from trust accounts

    267,077       587,523  

Dividends paid to shareholders of the Parent Company

    (766,728     (497,969

Disposal of treasury shares

    —         3,515  

Acquisition of treasury shares

    (224,700     (185,532

Dividends paid to non-controlling interests

    —         (5,156

Increase in non-controlling interests

    —         (163,658

Others

    (185,894     148,775  
 

 

 

   

 

 

 

Net cash inflow from financing activities

    11,743,772       14,688,746  
 

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

    (67,950     (133,240
 

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

    (1,762,082     990,062  

Cash and cash equivalents at the beginning of the year

    8,404,898       7,414,836  
 

 

 

   

 

 

 

Cash and cash equivalents at the end of the year

  W 6,642,816     W 8,404,898  
 

 

 

   

 

 

 

 

1 

The consolidated statement of cash flows for the year ended December 31, 2018 is prepared in accordance with Korean IFRS 1109 and Korean IFRS 1115, and the comparatives for the year ended December 31, 2017 has not been restated.

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

 

11


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

1. The Parent Company

KB Financial Group Inc. (the “Parent Company”) was incorporated on September 29, 2008, under the Financial Holding Companies Act of Korea. KB Financial Group Inc. and its subsidiaries (collectively referred to as the “Group”) derive substantially all of their revenue and income from providing a broad range of banking and related financial services to consumers and corporations primarily in Korea and in selected international markets. The Parent Company’s principal business includes ownership and management of subsidiaries and associated companies that are engaged in financial services or activities. In 2011, Kookmin Bank spun off its credit card business segment and established a new separate credit card company, KB Kookmin Card Co., Ltd., and KB Investment & Securities Co., Ltd. merged with KB Futures Co., Ltd. The Group established KB Savings Bank Co., Ltd. in January 2012, acquired Yehansoul Savings Bank Co., Ltd. in September 2013, and KB Savings Bank Co., Ltd. merged with Yehansoul Savings Bank Co., Ltd. in January 2014. In March 2014, the Group acquired Woori Financial Co., Ltd. and changed the name to KB Capital Co., Ltd. Meanwhile, the Group included LIG Insurance Co., Ltd. as an associate and changed the name to KB Insurance Co., Ltd. in June 2015. Also, the Group included Hyundai Securities Co., Ltd. as an associate in June 2016 and included as a subsidiary in October 2016 by comprehensive exchange of shares. Hyundai Securities Co., Ltd. merged with KB Investment & Securities Co., Ltd. in December 2016 and changed the name to KB Securities Co., Ltd. in January 2017. KB Insurance Co., Ltd. became one of the subsidiaries through a tender offer in May 2017.

The Parent Company’s share capital as of December 31, 2018, is W2,090,558 million. The Parent Company has been listed on the Korea Exchange (“KRX”) since October 10, 2008, and on the New York Stock Exchange (“NYSE”) for its American Depositary Shares (“ADS”) since September 29, 2008. Number of shares authorized in its Articles of Incorporation is 1,000 million.

2. Basis of Preparation

2.1 Application of Korean IFRS

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

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

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

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

 

12


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

The Group has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, 2018. The adoption of these amendments did not have any significant impact on the current period or any prior period and is not likely to affect future periods, with the exception of the application of Korean IFRS 1109 Financial Instruments and IFRS 1115 Revenue from Contracts with Customers discussed below.

 

   

Amendments to Korean IFRS 1028 Investments in Associates and Joint Ventures

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

 

   

Amendments to Korean IFRS 1040 Transfers of Investment Property

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

 

   

Amendments to Korean IFRS 1102 Share-based Payment

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

 

   

Enactment of Korean IFRS 2122 Foreign Currency Transactions and Advance Consideration

According to the enacted interpretation, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part thereof) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the prepayment or receipt of advance consideration. In case there are multiple payments or receipts in advance, the entity should determine a date of the transaction for each payment or receipt of advance consideration.

 

   

Korean IFRS 1109 Financial Instruments

The Group applied Korean IFRS 1109 Financial Instruments with a date of initial application of January 1, 2018. As permitted by the transition requirements of Korean IFRS 1109, comparative periods have not been restated. The Group recognized the difference between the previous carrying amount and the carrying amount at the beginning of the annual reporting period that includes the date of initial application in the opening retained earnings of the annual reporting period that includes the date of initial application. Also, the Group applied “The Overlay Approach” under Korean IFRS 1104 at the initial application of Korean IFRS 1109. For details about impacts of the adoption of this Korean IFRS, see Note 46.

 

13


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

   

Korean IFRS 1115 Revenue from Contracts with Customers

The Group has applied Korean IFRS 1115 Revenue from Contracts with Customers. As permitted by the transition requirements of Korean IFRS 1115, comparative periods have not been restated.

For details about impacts of the application of this Korean IFRS, see Note 28 and 46.

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

 

   

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

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

The consolidated statement of comprehensive income for year ended December 31, 2017, has been restated by adjusting classification of interest income.

The Group does not expect the change in accounting policy to have an impact on the consolidated statements of financial position, and total comprehensive income. The results and impact of the change on the consolidated statement of comprehensive income for the year ended December 31, 2018 and 2017, are as follows:

 

(in millions of Korean won)    2018      2017  

Increase in interest income

   W 748,360      W 536,605  

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

     (748,360      —    

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

     —          (536,605

Certain new accounting standards and interpretations that have been published that are not mandatory for annual reporting period commencing January 1, 2018 and have not been early adopted by the Group are set out below. The Group expects the effect on the financial statements applying the new standard will not be significant, with the exception of the adoption of Korean IFRS 1116 Lease

 

   

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, Interpretation Korean IFRS 2104 Determining whether an Arrangement contains a Lease, Interpretation Korean IFRS 2015 Operating Leases-Incentives, and Interpretation Korean IFRS 2027 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

 

14


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

At inception of a contract, the Group shall assess whether the contract is, or contains, a lease. Also, at the date of initial application, the Group shall assess whether the contract is, or contains, a lease in accordance with the standard. However, the Group may not need to reassess all contracts, if the Group elects to apply the practical expedient not to apply the standard to contracts that were entered into before the date of initial application. At inception of a contract, the Group will assess whether the contract is, or contains, a lease.

For a contract that is, or contains, a lease, the Group shall account for each lease component within the contract as a lease separately from non-lease components of the contract. 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. For the all (or partial) lease agreements, or the agreements including lease components, the Group plans to apply the practical expedient to account for each lease component and any associated non-lease components as a single lease agreement.

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). The Group plans not to apply the requirements to real estates rent for single-use (a lease for education and others) and low value assets (e.g. underlying assets below W5 million and $5,000).

In relation with sale and leaseback transactions, the Group (the seller-lessee) shall apply the requirements for determining when a performance obligation is satisfied in Korean IFRS 1115 ‘Revenue from Contracts with Customers’ to determine whether the transfer of an asset is accounted for as a sale of that asset. However, for those transactions before the date of initial application, the Group shall not reassess them.

The accounting treatment as a lessor did not change significantly from the one under Korean IFRS 1017 Leases. The Bank expects the effect on the financial statements applying the new standard will not be significant as accounting for the Bank, as a lessor, will not significantly change.

A lessee shall apply this standard to its leases either (a) retrospectively to each prior reporting period presented applying Korean IFRS 1008 Accounting Policies, Changes in Accounting Estimates and Errors (Full retrospective application); or (b) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application.

The Group plans to apply Korean IFRS 1116 retrospectively with the cumulative effect of initially applying the standard and as such will not restate any comparative information.

The Group performed an impact assessment to identify potential financial effects of applying Korean IFRS 1116 based on available information as at December 31, 2018 to identify effects on 2019 financial statements.

 

15


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

The total minimum lease payment expected to be paid by the Group in relation to operating leases before discounted to their present value is W591,190 million. When the payment is discounted at incremental borrowing rate of the lessee, the total minimum lease payment amounts to W550,322 million. As a result of the financial effects on the financial statements analyzed, the Group expects the underlying leased asset and a lease liability as at December 31, 2018 to be increased by W580,698 million and W550,322 million, respectively. The difference between the right-of-use asset and the lease liability has been arising from the adjustments made at the right-of-use asset for the lease contracts entered before the date of the adoption of this standard. On the other hand, the results of the assessment may change due to additional information that the Group may obtain after the assessment.

Enactment, Amendments and Annual Improvements

 

   

Amendments to Korean IFRS 1109 Financial Instruments

The narrow-scope amendments made to Korean IFRS 1109 Financial Instruments enable entities to measure certain prepayable financial assets with negative compensation at amortized cost. When a modification of a financial liability measured at amortized cost that does not result in derecognition, a modification gain or loss shall be recognized in profit or loss.

 

   

Amendments to Korean IFRS 1019 Employee Benefits

The amendments require that an entity shall calculate current service cost and net interest for the remainder of the reporting period after a plan amendment, curtailment or settlement based on updated actuarial assumptions from the date of the change. The amendments also require that a reduction in a surplus must be recognized in profit or loss even if that surplus was not previously recognized because of the impact of the asset ceiling.

 

   

Amendments to Korean IFRS 1028 Investments in Associates and Joint Ventures

The amendments clarify that an entity shall apply Korean IFRS 1109 to financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the entity’s net investment in an associate or joint venture. These amendments will be applied for annual periods beginning on or after January 1, 2019, with early adoption permitted. In accordance with the transitional provisions in Korean IFRS 1109, the restatement of the comparative information is not required and the cumulative effects of initially applying the amendments retrospectively should be recognized in the beginning balance of retained earnings (or other components of equity, as appropriate) at the date of initial application.

 

   

Enactment to Interpretation of Korean IFRS 2123 Uncertainty over Income Tax Treatments

The enactment clarifies the accounting for uncertainties in income taxes in the event that the decision of taxation authorities or courts can change tax treatment. The enactment presents calculating methods of disclosure amount based on the possibility of future recognition of the income tax treatment, and requires disclosure of the uncertainty of the amount.

 

   

Annual Improvements to Korean IFRS 1103 Business Combination

The amendments clarify that when a party to a joint arrangement obtains control of a business that is a joint operation, and had rights to the assets and obligations for the liabilities relating to that joint operation immediately before the acquisition date, the transaction is a business combination achieved in stages. In such cases, the acquirer shall remeasure its entire previously held interest in the joint operation.

 

16


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

   

Annual Improvements to Korean IFRS 1111 Joint Agreements

The amendments clarify that when a party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business. In such cases, previously held interests in the joint operation are not remeasured.

 

   

Annual Improvements to Paragraph 57A of Korean IFRS 1012 Income Tax

The amendment is applied to all the income tax consequences of dividends and requires an entity to recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events.

 

   

Annual Improvements to Korean IFRS 1023 Borrowing Cost

The amendments clarify that if a specific borrowing remains outstanding after the related qualifying asset is ready for its intended use (or sale), it becomes part of general borrowings.

2.2 Measurement Basis

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

2.3 Functional and Presentation Currency

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

2.4 Critical Accounting Estimates

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

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

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

 

17


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

2.4.1 Income taxes

The Group is operating in numerous countries and the income generated from these operations is subject to income taxes based on tax laws and interpretations of tax authorities in numerous jurisdictions. There are many transactions and calculations for which the ultimate tax determination is uncertain.

If certain portion of the taxable income is not used for investments, increase in wages, and others in accordance with the Tax System for Promotion of Investment and Collaborative Cooperation (Recirculation of Corporate Income), the Group is liable to pay additional income tax calculated based on the tax laws. The new tax system is effective for three years from 2018. Accordingly, the measurement of current and deferred income tax is affected by the tax effects from the new system. As the Group’s income tax is dependent on the investments, increase in wages, and others, there exists uncertainty with regard to measuring the final tax effects.

2.4.2 Fair value of financial instruments

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

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

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

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

2.4.4 Net defined benefit liability

The present value of net defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number of assumptions (Note 24).

2.4.5 Impairment of goodwill

The recoverable amounts of cash-generating units have been determined based on value-in-use calculations to test whether goodwill has suffered any impairment (Note 15).

 

18


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3. Significant Accounting Policies

The significant accounting policies applied in the preparation of these consolidated financial statements are set out below. The items related to financial instruments on the consolidated financial statements were stated under Korean IFRS 1109 for the current year, and under Korean IFRS 1039 for the year ended December 31, 2017. And The items related to Revenue from Contracts with Customers were stated under Korean IFRS 1115 for the current year, and under Korean IFRS 1018 for the year ended December 31, 2017. The accounting policies on financial instruments were applied for current period, and comparatives are not restated retrospectively. Except for the changes related to financial instruments, these policies have been consistently applied to all periods presented.

3.1 Consolidation

3.1.1 Subsidiaries

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

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

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

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

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

 

19


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

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

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

3.1.2 Associates and joint ventures

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

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

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

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

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

 

20


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

3.1.3 Structured entity

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

3.1.4 Trusts and funds

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

3.1.5 Intra-group transactions

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

3.2 Foreign Currency

3.2.1 Foreign currency transactions

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

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

 

21


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.2.2 Foreign operations

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

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

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

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

3.2.3 Net investment in a foreign operation

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

3.3 Recognition and Measurement of Financial Instruments

3.3.1 Initial recognition

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

 

22


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

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

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

3.3.2 Subsequent measurement

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

Amortized cost

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

 

   

minus the principal repayments

 

   

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

 

   

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

Fair value

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

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

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

 

23


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

In addition, the fair value information recognized in the statements of financial position is classified into the following fair value hierarchy, reflecting the significance of the input variables used in the fair value measurement.

 

Level

1 : quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date

 

Level

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

 

Level

3 : unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety shall be determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety.

If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.

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

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

3.3.3 Derecognition

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

Derecognition of financial assets

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

 

24


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

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

Derecognition of financial liabilities

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

3.3.4 Offsetting

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

3.4 Cash and Due from Financial Institutions

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

3.5 Non-derivative Financial Assets

3.5.1 Financial assets at fair value through profit or loss

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

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

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

 

25


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.5.2 Financial assets at fair value through other comprehensive income

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

 

   

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

 

   

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

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

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

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

3.5.3 Financial assets measured at amortized cost

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

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

3.6 Expected Credit Loss of Financial Assets (Debt Instruments)

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

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

 

26


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

 

   

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

 

   

Simplified approach: for receivables, contract assets and lease receivables

 

   

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

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

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

 

   

more than 30 days past due;

 

   

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

 

   

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

 

   

debt restructuring (except for impaired financial assets); and

 

   

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

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

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

 

   

no less than 90 days past due;

 

   

legal proceedings related to collection;

 

   

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

 

   

corporate borrowers that are rated C or D;

 

   

refinancing; and

 

   

debt restructuring.

 

27


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.6.1 Forward-looking information

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

The Group assumes the risk component has a certain correlation with the business cycle, and calculates the expected credit loss by reflecting the forward-looking information with macroeconomic variables on the measurement inputs.

The correlation between the major macroeconomic variables and the credit risk is as follows;

 

Key macroeconomic variables

   Correlation between the major macroeconomic
variables and the credit risk
Domestic GDP growth rate    (-)
Composite stock index    (-)
Construction investment change rate    (-)
Housing transaction price index    (-)
Consumer price index    (+)
Overnight call rate changes compare to previous year(%P)    (+)
Unemployment rate    (+)
Retail loan change rate    (-)

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

3.6.2 Measuring expected credit losses on financial assets at amortized cost

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

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

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

Individual assessment of impairment

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

 

28


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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’ (PD) on a group of assets and ‘loss given default’ (LGD) by type of recovery method. Also, the expected credit loss model involves certain assumption to determine input based on loss experience and forward-looking information. These models and assumptions are periodically reviewed to reduce gap between loss estimate and actual loss experience.

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

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

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

3.7 Derivative Financial Instruments

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

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

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

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

3.7.1 Derivative financial instruments held for trading

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

 

29


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.7.2 Fair value hedges

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

3.7.3 Cash flow hedges

The effective portion of changes in fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income, limited to the cumulative change in fair value (present value) of the hedged item (the present value of the cumulative change in the future expected cash flows of the hedged item) from the inception of the hedge. The ineffective portion is recognized in gain or loss (other operating income or expense). The associated gains or losses that were previously recognized in other comprehensive income are reclassified from equity to profit or loss as a reclassification adjustment in the same period or periods during which the hedged forecast cash flows affects profit or loss. The associated gains or losses that were previously recognized in other comprehensive income are reclassified from equity to profit or loss as a reclassification adjustment in the same period or periods during which the hedged forecast cash flows affects profit or loss. Cash flow hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. When the cash flow hedge accounting is discontinued, the cumulative gains or losses on the hedging instrument that have been recognized in other comprehensive income are reclassified to profit or loss over the year in which the forecast transaction occurs. If the forecast transaction is no longer expected to occur, the cumulative gains or losses that had been recognized in other comprehensive income are immediately reclassified to profit or loss.

3.7.4 Hedge of net investment

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

3.7.5 Embedded derivatives

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

 

30


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.7.6 Day one gain and loss

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

3.8 Property and Equipment

3.8.1 Recognition and measurement

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

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

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

3.8.2 Depreciation

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

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

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

 

Property and equipment    Depreciation method    Estimated useful life
Buildings and structures    Straight-line    20 ~ 40 years
Leasehold improvements    Declining-balance/ Straight-line    4 ~ 15 years
Equipment and vehicles    Declining-balance/ Straight-line    3 ~ 15 years
Finance leased assets    Declining-balance    8 months ~ 5 years and 8 months

 

31


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

3.9 Investment Properties

3.9.1 Recognition and measurement

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

3.9.2 Depreciation

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

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

 

Investment property    Depreciation method    Estimated useful life
Buildings    Straight-line    20~40 years

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

3.10 Intangible Assets

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

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

 

Intangible assets    Amortization method    Estimated useful life
Industrial property rights    Straight-line    3~19 years
Software    Straight-line    3~5 years
Finance leased assets    Straight-line    8 months ~ 5 years and 8 months
VOBA    Declining-Balance    60 years
Others    Straight-line    1~10 years

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

 

32


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.10.1 Value of business acquired (VOBA)

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

3.10.2 Goodwill

Recognition and measurement

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

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

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

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

Additional acquisitions of non-controlling interest

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

Subsequent measurement

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

 

33


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.10.3 Subsequent expenditure

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

3.11 Leases

3.11.1 Finance lease

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

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

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

3.11.2 Operating lease

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

Leases in the financial statements of lessors

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

Leases in the financial statements of lessees

Lease payments are recognized as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the asset’s benefit, and the incentives from operating lease are recognized as a reduction of lease payments over the lease term.

3.12 Greenhouse Gas Emission Rights and Liabilities

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

 

34


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

3.13 Impairment of Non-Financial Assets

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

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

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

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

 

35


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.14 Non-Current Assets Held for Sale

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

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

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

3.15 Financial Liabilities

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

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

3.15.1 Financial liabilities at fair value through profit or loss

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

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

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

 

36


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.15.2 Other financial liabilities

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

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

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

3.16 Insurance Contracts

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

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

3.16.1 Insurance premiums

The Group recognizes collected premiums as revenue on the due date of collection of premiums from insurance contracts and the collected premium which is not earned at the end of the reporting period is recognized as unearned premium.

3.16.2 Insurance liabilities

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

Premium reserve

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

 

37


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

Reserve for outstanding claims

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

Unearned premium reserve

The premiums that are due before the end of the reporting period but applicable to the next period are included.

Policyholders’ dividends reserve

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

3.16.3 Liability adequacy test

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

3.16.4 Deferred acquisition costs

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

3.17 Provisions

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

 

38


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

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

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

3.18 Financial Guarantee Contracts

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

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

 

  -

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

 

  -

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

3.19 Equity Instruments Issued by the Group

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

3.19.1 Ordinary shares

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

3.19.2 Hybrid capital instruments

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

 

39


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.19.3 Treasury shares

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

3.19.4 Hybrid financial instruments

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

3.20 Revenue Recognition

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

 

   

Step 1: Identify the contract with a customer.

 

   

Step 2: Identify the performance obligations in the contract.

 

   

Step 3: Determine the transaction price.

 

   

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

 

   

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

3.20.1 Interest income and expense

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

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

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

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

 

40


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.20.2 Fee and commission income

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

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

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

Fees earned as services are provided

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

Fees that are earned on the execution of a significant act

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

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

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

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

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

 

   

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

 

   

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

3.20.4 Dividend income

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

 

41


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.21 Employee Compensation and Benefits

3.21.1 Post-employment benefits: defined contribution plans

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

3.21.2 Post-employment benefits: defined benefit plans

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

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

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

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

3.21.3 Short-term employee benefits

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

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

3.21.4 Share-based payment

The Group has provided its directors and employees with stock grant, and mileage stock programs. When stock grant options are exercised, the Group can either select to issue new shares or distribute treasury shares, or compensate the difference in fair value of shares and exercise price. When mileage stock options are exercised, the Group pays the amount equivalent to KB Financial Group’s share price in cash.

 

42


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

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

3.21.5 Termination benefits

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

3.22 Income Tax Expenses

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

3.22.1 Current income tax

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

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

 

43


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.22.2 Deferred income tax

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

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

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

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

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

3.22.3 Uncertain tax positions

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

 

44


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

3.23 Earnings per Share

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

3.24 Operating Segments

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

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

3.25 Overlay Approach

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

 

   

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

 

   

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

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

 

   

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

 

   

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

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

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

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

 

45


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

4. Financial Risk Management

4.1 Summary

4.1.1 Overview of financial risk management policy

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

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

4.1.2 Risk management organization

Risk Management Committee

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

Risk Management Council

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

Risk Management Division

The Risk Management Division is responsible for monitoring and managing the Group’s economic capital limit and managing detailed policies, procedures and working processes relating to the Group’s risk management.

4.2 Credit Risk

4.2.1 Overview of credit risk

Credit risk is the risk of possible losses in an asset portfolio in the event of a counterparty’s default, breach of contract and deterioration in the credit quality of the counterparty. For risk management reporting purposes, the individual borrower’s default risk, country risk, specific risks and other credit risk exposure components are considered as a whole.

The Group uses definition of default as defined and applied in the calculation of Capital Adequacy Ratio (Basel III) in accordance with the new Basel Accord.

 

46


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

4.2.2 Credit risk management

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

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

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

4.2.3 Maximum exposure to credit risk

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

 

(In millions of Korean won)    2018  

Financial assets

  

Due from financial institutions at amortized cost 1

   W 17,216,288  

Financial assets at fair value through profit or loss

  

Due from financial institutions

     381,719  

Securities

     48,285,482  

Loans

     954,176  

Financial instruments indexed to the price of gold

     78,808  

Derivatives

     2,025,962  

Loans at amortized cost1

     319,201,603  

Financial investments

  

Securities measured at fair value through other comprehensive income

     35,243,634  

Securities measured at amortized cost1

     23,661,522  

Loans measured at fair value through other comprehensive income

     389,822  

Other financial assets1

     8,133,556  
  

 

 

 
     455,572,572  
  

 

 

 

Off-balance sheet items

  

Acceptances and guarantees contracts

     7,277,136  

Financial guarantee contracts

     3,626,532  

Commitments

     138,590,372  
  

 

 

 
     149,494,040  
  

 

 

 
   W  605,066,612  
  

 

 

 

 

1 

Due from financial institutions, loans at amortized cost, securities measured at amortized cost and other financial assets are net of allowance.

 

47


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

(In millions of Korean won)    2017  

Financial assets

  

Due from financial institutions

   W 17,219,661  

Financial assets at fair value through profit or loss

  

Financial assets held for trading1

     25,242,193  

Financial assets designated at fair value through profit or loss

     1,982,224  

Derivatives

     3,310,166  

Loans2

     290,122,838  

Financial investments

  

Available-for-sale financial assets

     38,959,401  

Held-to-maturity financial assets

     18,491,980  

Other financial assets2

     10,195,015  
  

 

 

 
     405,523,478  
  

 

 

 

Off-balance sheet items

  

Acceptances and guarantees contracts

     6,977,468  

Financial guarantee contracts

     3,683,875  

Commitments

     102,183,167  
  

 

 

 
     112,844,510  
  

 

 

 
   W 518,367,988  
  

 

 

 

 

1

Including financial instruments indexed to gold amounting to W73,855 million.

2 

Loans and other financial assets are net of allowance.

4.2.4 Credit risk of loans

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

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

 

48


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

Loans as of December 31, 2018, are classified as follows:

(In millions of Korean won)

 

     2018  
     The financial
instruments
applying 12-month
expected credit
losses
     The financial instruments
applying lifetime expected credit
losses
     Financial
instruments
not applying
expected
credit losses
     Total  
     Non-impaired      Impaired  

Loans at amortized cost1

 

Corporate

 

Grade 1

   W 75,785,147      W  2,144,175      W 1,638      W  —        W 77,930,960  

Grade 2

     55,292,251        4,227,041        2,016        —          59,521,308  

Grade 3

     2,957,463        1,757,607        6,579        —          4,721,649  

Grade 4

     484,248        965,094        68,271        —          1,517,613  

Grade 5

     244,593        378,588        1,063,646        —          1,686,827  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     134,763,702        9,472,505        1,142,150        —          145,378,357  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Retail

 

Grade 1

     133,946,705        4,411,122        9,180        —          138,367,007  

Grade 2

     7,819,152        7,497,880        17,767        —          15,334,799  

Grade 3

     1,718,104        1,559,980        6,694        —          3,284,778  

Grade 4

     706,797        421,800        13,318        —          1,141,915  

Grade 5

     14,110        447,064        489,196        —          950,370  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     144,204,868        14,337,846        536,155        —          159,078,869  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Credit card

 

Grade 1

     8,411,723        176,312        —          —          8,588,035  

Grade 2

     4,449,617        587,254        —          —          5,036,871  

Grade 3

     1,460,344        1,228,087        —          —          2,688,431  

Grade 4

     6,004        467,012        —          —          473,016  

Grade 5

     112        148,149        419,444        —          567,705  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     14,327,800        2,606,814        419,444        —          17,354,058  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     293,296,370        26,417,165        2,097,749        —          321,811,284  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans at fair value through other comprehensive income

 

Corporate

 

Grade1

     189,501        25,731        —          —          215,232  

Grade2

     128,712        45,878        —          —          174,590  

Grade3

     —          —          —          —          —    

Grade4

     —          —          —          —          —    

Grade5

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     318,213        71,609        —          —          389,822  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     318,213        71,609        —          —          389,822  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 293,614,583      W 26,488,774      W 2,097,749      W —        W 322,201,106  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1

Before netting of allowance.

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

 

    

Range of Probability of

Default (%)

   Retail    Corporate

Grade 1

   0.0 ~ 1.0    1 ~ 5 grade    AAA ~ BBB+

Grade 2

   1.0 ~ 5.0    6 ~ 8 grade    BBB ~ BB

Grade 3

   5.0 ~ 15.0    9 ~ 10 grade    BB- ~ B

Grade 4

   15.0 ~ 30.0    11 grade    B- ~ CCC

Grade 5

   30.0 ~    12 grade or under    CC or under

 

49


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

(In millions of Korean won)

 

      2017  
Loans    Retail      Corporate      Credit card      Total  
   Amount     %      Amount     %      Amount     %      Amount     %  

Neither past due nor impaired

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

Past due but not impaired

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

Impaired

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

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

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

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Less: Allowances1

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

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Carrying amount

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

 

 

      

 

 

      

 

 

      

 

 

   

 

1

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

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

 

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

Grade 1

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

Grade 2

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

Grade 3

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

Grade 4

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

Grade 5

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

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

 

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

(In millions of Korean won)

 

     2017  
    

1 ~ 29

days

    

30 ~ 59

days

     60 ~ 89
days
    

90 days

or more

     Total  

Retail

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

Corporate

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

Credit card

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans are as follows:

 

(In millions of Korean won)    2017  
     Retail      Corporate      Credit card      Total  
Loans    W 495,546      W  1,419,851      W  349,270      W  2,264,667  
Allowances under            

Individual assessment

     (788      (791,205      —          (791,993

Collective assessment

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

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

 

 

50


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

 

(In millions of Korean won)    2018  
     The financial
instruments
applying
12-month
expected credit
losses
     The financial instruments
applying lifetime expected credit
losses
     Total  
     Non-impaired      Impaired  

Guarantees

   W 60,473,663      W 5,871,980      W  151,180      W 66,496,823  

Deposits and savings

     4,200,448        77,024        6,485        4,283,957  

Property and equipment

     8,644,719        616,318        54,492        9,315,529  

Real estate

     147,682,808        12,828,076        442,287        160,953,171  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  221,001,638      W  19,393,398      W 654,444      W  241,049,480  
  

 

 

    

 

 

    

 

 

    

 

 

 

(In millions of Korean won)

 

     2017  
     Impaired Loans      Non-impaired Loans         
     Individual      Collective      Past due      Not past due      Total  

Guarantees

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

Deposits and savings

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

Property and equipment

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

Real estate

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

4.2.5 Credit quality of securities

Financial assets at fair value through profit or loss and financial investments excluding equity securities that are exposed to credit risk as of December 31, 2018, are as follows:

(In millions of Korean won)

 

     2018  
     The financial
instruments
applying 12-month
expected credit
losses
     The financial
instruments applying
lifetime expected credit
losses
     Financial
instruments
not applying
expected
credit losses
     Total  
     Non-impaired      Impaired  

Securities measured at amortized cost1

 

Grade 1

   W  23,524,120      W  —        W  —        W  —        W  23,524,120  

Grade 2

     120,546        —          —          —          120,546  

Grade 3

     18,572        —          —          —          18,572  

Grade 4

     —          —          —          —          —    

Grade 5

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     23,663,238        —          —          —          23,663,238  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through other comprehensive income

 

Grade 1

     32,498,155        —          —          —          32,498,155  

Grade 2

     2,740,053        —          —          —          2,740,053  

Grade 3

     —          —          —          —          —    

Grade 4

     2,510        —          —          —          2,510  

Grade 5

     —          —          2,916        —          2,916  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     35,240,718        —          2,916        —          35,243,634  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W  58,903,956      W  —        W  2,916      W  —        W  58,906,872  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

51


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

1

Before netting of allowance

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

 

Credit
quality
  

Domestic

  

Foreign

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

Grade 1

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

Grade 2

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

Grade 3

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

Grade 4

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

Grade 5

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

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

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

 

(In millions of Korean won)    2017  

Securities that are neither past due nor impaired

   W 84,597,074  

Impaired securities

     4,869  
  

 

 

 
   W 84,601,943  
  

 

 

 

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

(In millions of Korean won)

 

     2017  
     Grade 1      Grade 2      Grade 3      Grade 4      Grade 5      Total  

Securities that are neither past due nor impaired

 

Financial assets held for trading

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

Financial assets designated at fair value through profit or loss

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

Available-for-sale financial assets

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

Held-to-maturity financial assets

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

52


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

4.2.6 Credit risk of due from financial institutions

The credit quality of due from financial institutions as of December 31, 2018, is classified as follows:

(In millions of Korean won)

 

     2018  
     The financial
instruments applying
12-month expected
credit losses
     The financial instruments
applying lifetime expected
credit losses
     Financial
instruments not
applying
expected credit
losses
     Total  
   Non-impaired      Impaired  

Due from financial institutions at amortized cost1

 

Grade 1

   W  16,374,868      W  —        W  —        W  —        W  16,374,868  

Grade 2

     213,903        —          —          —          213,903  

Grade 3

     608,314        —          —          —          608,314  

Grade 4

     19,531        —          —          —          19,531  

Grade 5

     1,691        —          —          —          1,691  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 17,218,307      W —        W —        W —        W 17,218,307  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1

Before netting of allowance

The credit qualities of due from financial institutions according to the credit ratings by external rating agencies as of December 31, 2018 is same as the credit qualities of securities, excluding equity securities.

4.2.7 Credit risk mitigation of derivatives

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

 

(In millions of Korean won)    2018      2017  

Deposits and savings

   W  460,670      W  1,277,851  
  

 

 

    

 

 

 
     460,670        1,277,851  
  

 

 

    

 

 

 

4.2.8 Credit risk concentration analysis

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

(In millions of Korean won)

 

     2018  
     Retail      Corporate      Credit card      Total      %      Allowances    

Carrying

amount

 

Korea

   W 158,760,865      W 141,864,644      W 17,346,224      W 317,971,733        98.40      W (2,574,236   W 315,397,497  

Europe

     —          649,281        —          649,281        0.20        (512     648,769  

China

     —          2,259,202        807        2,260,009        0.70        (20,570     2,239,439  

Japan

     106        354,181        60        354,347        0.11        (1,900     352,447  

United States

     —          997,321        6,967        1,004,288        0.31        (5,706     998,582  

Others

     317,898        597,726        —          915,624        0.28        (6,757     908,867  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   W 159,078,869      W 146,722,355      W 17,354,058      W 323,155,282        100.00      W (2,609,681   W 320,545,601  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

53


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

1 

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

(In millions of Korean won)

 

     2017  
     Retail      Corporate      Credit card      Total      %      Allowances    

Carrying

amount

 

Korea

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

Europe

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

China

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

Japan

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

United States

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

Others

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

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

 

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

Financial institutions

   W 14,193,442        9.67      W (45,473    W 14,147,969  

Manufacturing

     42,672,986        29.08        (449,406      42,223,580  

Service

     61,467,174        41.89        (270,846      61,196,328  

Wholesale & Retail

     16,739,852        11.41        (102,197      16,637,655  

Construction

     3,282,508        2.24        (291,211      2,991,297  

Public sector

     873,281        0.60        (3,301      869,980  

Others

     7,493,112        5.11        (93,409      7,399,703  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 146,722,355        100.00      W (1,255,843    W 145,466,512  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

Financial institutions

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

Manufacturing

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

Service

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

Wholesale & Retail

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

Construction

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

Public sector

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

Others

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

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

 

 

54


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

 

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

Housing

   W 70,916,004        40.19      W (29,369)      W 70,886,635  

General

     88,162,865        49.97        (613,528      87,549,337  

Credit card

     17,354,058        9.84        (710,941      16,643,117  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 176,432,927        100.00      W (1,353,838    W 175,079,089  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

Housing

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

General

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

Credit card

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

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

 

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

Details of the Group’s credit risk concentration of due from financial institutions, securities, excluding equity securities, and derivative financial instruments as of December 31, 2018, are as follows:

 

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

Due from financial institutions at amortized cost

 

Banking and insurance

   W  17,218,307        100.00      W  (2,019)      W  17,216,288  
  

 

 

    

 

 

    

 

 

    

 

 

 
     17,218,307        100.00        (2,019      17,216,288  
  

 

 

    

 

 

    

 

 

    

 

 

 

Due from financial institutions at fair value through profit or loss

 

Banking and insurance

     381,719        100.00        —          381,719  
  

 

 

    

 

 

    

 

 

    

 

 

 
     381,719        100.00        —          381,719  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through profit or loss

 

Government and government funded institutions

     14,354,157        29.73        —          14,354,157  

Banking and insurance

     27,273,372        56.48        —          27,273,372  

Others

     6,657,953        13.79        —          6,657,953  
  

 

 

    

 

 

    

 

 

    

 

 

 
     48,285,482        100.00        —          48,285,482  
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivatives

 

Government and government funded institutions

     39,290        1.94        —          39,290  

Banking and insurance

     1,849,078        91.27        —          1,849,078  

Others

     137,594        6.79        —          137,594  
  

 

 

    

 

 

    

 

 

    

 

 

 
     2,025,962        100.00        —          2,025,962  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through other comprehensive income

 

Government and government funded institutions

     9,504,156        26.97        —          9,504,156  

Banking and insurance

     21,210,983        60.18        —          21,210,983  

Others

     4,528,495        12.85        —          4,528,495  
  

 

 

    

 

 

    

 

 

    

 

 

 
     35,243,634        100.00        —          35,243,634  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at amortized cost

 

Government and government funded institutions

     10,321,667        43.62        (25      10,321,642  

Banking and insurance

     11,424,418        48.28        (1,399      11,423,019  

Others

     1,917,153        8.10        (292      1,916,861  
  

 

 

    

 

 

    

 

 

    

 

 

 
     23,663,238        100.00        (1,716      23,661,522  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 126,818,342         W (3,735    W 126,814,607  
  

 

 

       

 

 

    

 

 

 

 

55


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

 

(In millions of Korean won)    2017  
     Amount      %  

Financial assets held for trading

     

Government and government funded institutions

   W 8,345,463        33.16  

Banking and insurance

     11,486,321        45.64  

Others

     5,336,554        21.20  
  

 

 

    

 

 

 
     25,168,338        100.00  
  

 

 

    

 

 

 

Financial assets designated at fair value through profit or loss

     

Banking and insurance and others

     1,982,224        100.00  
  

 

 

    

 

 

 
     1,982,224        100.00  
  

 

 

    

 

 

 

Derivative financial assets

     

Government and government funded institutions

     12,099        0.37  

Banking and insurance

     3,098,350        93.60  

Others

     199,717        6.03  
  

 

 

    

 

 

 
     3,310,166        100.00  
  

 

 

    

 

 

 

Available-for-sale financial assets

     

Government and government funded institutions

     9,498,819        24.38  

Banking and insurance

     23,314,336        59.84  

Others

     6,146,246        15.78  
  

 

 

    

 

 

 
     38,959,401        100.00  
  

 

 

    

 

 

 

Held-to-maturity financial assets

     

Government and government funded institutions

     8,449,839        45.69  

Banking and insurance

     6,765,593        36.59  

Others

     3,276,548        17.72  
  

 

 

    

 

 

 
     18,491,980        100.00  
  

 

 

    

 

 

 
   W  87,912,109     
  

 

 

    

 

56


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

Details of the Group’s credit risk concentration of due from financial institutions, securities, excluding equity securities, and derivative financial instruments by country, as of December 31, 2018, is as follows:

 

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

Due from financial institutions at amortized cost

 

Korea

   W 13,497,329        78.39      W (338    W 13,496,991  

United States

     826,660        4.80        (16      826,644  

Others

     2,894,318        16.81        (1,665      2,892,653  
  

 

 

    

 

 

    

 

 

    

 

 

 
     17,218,307        100.00        (2,019      17,216,288  
  

 

 

    

 

 

    

 

 

    

 

 

 

Due from financial institutions at fair value through profit or loss

 

Korea

     381,719        100.00        —          381,719  
  

 

 

    

 

 

    

 

 

    

 

 

 
     381,719        100.00        —          381,719  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through profit or loss1

 

Korea

     43,697,736        90.50        —          43,697,736  

United States

     1,813,902        3.76        —          1,813,902  

Others

     2,773,844        5.74        —          2,773,844  
  

 

 

    

 

 

    

 

 

    

 

 

 
     48,285,482        100.00        —          48,285,482  
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivatives

 

Korea

     1,024,392        50.56        —          1,024,392  

United States

     316,482        15.62        —          316,482  

France

     237,080        11.70        —          237,080  

Singapore

     109,101        5.39        —          109,101  

Japan

     97,351        4.81        —          97,351  

Others

     241,556        11.92        —          241,556  
  

 

 

    

 

 

    

 

 

    

 

 

 
     2,025,962        100.00        —          2,025,962  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through other comprehensive income

 

Korea

     33,156,041        94.08        —          33,156,041  

United States

     1,100,199        3.12        —          1,100,199  

Others

     987,394        2.80        —          987,394  
  

 

 

    

 

 

    

 

 

    

 

 

 
     35,243,634        100.00        —          35,243,634  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at amortized cost

 

Korea

     21,175,749        89.49        (1,136      21,174,613  

United States

     1,252,426        5.29        (216      1,252,210  

Others

     1,235,063        5.22        (364      1,234,699  
  

 

 

    

 

 

    

 

 

    

 

 

 
     23,663,238        100.00        (1,716      23,661,522  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 126,818,342         W (3,735    W 126,814,607  
  

 

 

       

 

 

    

 

 

 

 

57


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

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

 

(In millions of Korean won)    2017  
     Amount      %  

Financial assets held for trading

     

Korea

   W 23,462,909        93.22  

United States

     643,249        2.56  

Others

     1,062,180        4.22  
  

 

 

    

 

 

 
     25,168,338        100.00  
  

 

 

    

 

 

 

Financial assets designated at fair value through profit or loss

 

  

Korea

     1,178,197        59.44  

United States

     120,000        6.05  

Others

     684,027        34.51  
  

 

 

    

 

 

 
     1,982,224        100.00  
  

 

 

    

 

 

 

Derivative financial assets

     

Korea

     1,743,201        52.66  

United States

     325,909        9.85  

Others

     1,241,056        37.49  
  

 

 

    

 

 

 
     3,310,166        100.00  
  

 

 

    

 

 

 

Available-for-sale financial assets

     

Korea

     36,705,979        94.22  

United States

     1,110,157        2.85  

Others

     1,143,265        2.93  
  

 

 

    

 

 

 
     38,959,401        100.00  
  

 

 

    

 

 

 

Held-to-maturity financial assets

     

Korea

     16,243,987        87.84  

United States

     1,076,331        5.82  

Others

     1,171,662        6.34  
  

 

 

    

 

 

 
   W 18,491,980        100.00  
  

 

 

    

 

 

 
   W 87,912,109     
  

 

 

    

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

 

58


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

4.3 Liquidity Risk

4.3.1 Overview of liquidity risk

Liquidity risk is a risk that the Group becomes insolvent due to uncertain liquidity caused by unexpected cash outflows, or a risk of borrowing high interest debts or disposal of liquid and other assets at a substantial discount. The Group manages its liquidity risk through analysis of the contractual maturity of interest-bearing assets and liabilities, assets and liabilities related to the other financing, and off-balance sheet items related to cash flow of currency derivative instruments and others.

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

4.3.2. Liquidity risk management and indicator

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

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

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

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

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

 

59


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

(In millions of Korean won)    2018  
    

On

demand

    

Up to

1 month

    

1-3

months

    

3-12

months

    

1-5

years

    

Over 5

years

     Total  

Financial assets

 

Cash and due from financial institutions1

   W 5,636,123      W 1,481,598      W 242,353      W 538,579      W 81,646      W —        W 7,980,299  

Financial assets at fair value through profit or loss2

     50,139,812        672,326        162,459        254,632        215,436        1,113,694        52,558,359  

Derivatives held for trading2

     1,915,532        —          —          —          —          —          1,915,532  

Derivatives held for fair value hedging3

     —          4,344        1,724        17,948        21,367        40,830        86,213  

Loans at amortized cost

     3,180,412        27,520,126        32,374,297        116,479,553        84,600,284        102,789,366        366,944,038  

Financial investments4

                    

Financial assets measured at fair value through other comprehensive income

     2,117,560        1,812,270        2,694,083        11,210,903        18,626,405        2,728,392        39,189,613  

Securities measured at amortized cost

     —          1,245,353        1,483,667        4,412,816        8,932,468        14,380,433        30,454,737  

Other financial assets

     89,890        5,454,381        160,182        1,488,164        53,425        37,841        7,283,883  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 63,079,329      W 38,190,398      W 37,118,765      W 134,402,595      W 112,531,031      W 121,090,556      W 506,412,674  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

60


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

(In millions of Korean won)    2018  
    

On

demand

    

Up to

1 month

   

1-3

months

   

3-12

months

   

1-5

years

    

Over 5

years

     Total  

Financial liabilities

 

Financial liabilities at fair value through profit or loss2

   W 2,823,820      W —       W —       W —       W —        W —        W 2,823,820  

Financial liabilities designated at fair value through profit or loss2

     12,503,039        —         —         —         —          —          12,503,039  

Derivatives held for trading2

     2,724,994        —         —         —         —          —          2,724,994  

Derivatives held for fair value hedging3

     —          (2,403     (8,231     (37,851     13,831        31        (34,623

Deposits5

     126,781,682        16,852,129       28,053,517       95,568,339       11,284,243        2,608,630        281,148,540  

Debts

     5,909,297        10,355,022       3,975,372       7,205,116       4,714,743        1,249,785        33,409,335  

Debentures

     30,160        1,699,165       5,875,093       13,471,021       32,474,579        2,489,146        56,039,164  

Other financial liabilities

     91,381        15,943,018       170,851       275,135       581,537        65,721        17,127,643  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   W 150,864,373      W 44,846,931     W 38,066,602     W 116,481,760     W 49,068,933      W 6,413,313      W 405,741,912  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Off- balance sheet items

 

Commitments6

   W 138,590,372      W —       W —       W —       W —        W —        W 138,590,372  

Financial guarantee contract7

     3,626,532        —         —         —         —          —          3,626,532  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   W 142,216,904      W —       W —       W —       W —        W —        W 142,216,904  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

1

The amounts of W12,394,461 million, which is restricted due from the financial institutions as of December 31, 2018, is excluded.

2 

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

3

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

4

The equity securities designated as financial assets measured at fair value through other comprehensive income are are included under the ‘On demand’ category as they can be disposed without difficulty. However, the equity securities restricted from disposal are included on the category that the releasing date of restriction is belonged to.

5

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

6

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

7

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

 

61


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

(In millions of Korean won)    2017  
     On
demand
     Up to
1 month
     1-3
months
     3-12
months
     1-5
years
   

Over 5

years

     Total  

Financial assets

                   

Cash and due from financial institutions1

   W 6,355,289      W 1,842,808      W 319,173      W 324,703      W 357,340     W 11,462      W 9,210,775  

Financial assets held for trading2

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

Financial assets designated at fair value through profit or loss2

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

Derivatives held for trading2

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

Derivatives held for hedging3

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

Loans

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

Available-for-sale financial assets4

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

Held-to-maturity financial assets

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

Other financial assets

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

62


KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

 

Financial liabilities

  

Financial liabilities held for trading2

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

Financial liabilities designated at fair value through profit or loss2

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

Derivatives held for trading2

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

Derivatives held for hedging3

     404        3,740        (4,715     (19,705</