6-K 1 d257868d6k.htm FORM 6-K Form 6-K
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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 2022

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.

 

 

 


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Audit Report of KB Financial Group Inc. for Fiscal Year 2021

On March 17, 2022, KB Financial Group Inc. (“KB Financial Group”) disclosed audit reports for fiscal year 2021 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, 2021 and 2020 and related notes) received from KPMG Samjong Accounting Corp., 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 2021.

Exhibit 99.2: An English-language translation of the Separate Audit Report of KB Financial Group for FY 2021.


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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 17, 2022     By:   /s/ Scott Y. H. Seo
    (Signature)
    Name: Scott Y. H. Seo
    Title: Senior Managing Director and Chief Finance Officer


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Exhibit 99.1

KB Financial Group Inc. and Subsidiaries

Consolidated Financial Statements

December 31, 2021 and 2020

(With Independent Auditors’ Report Thereon)


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Independent Auditors’ Report

Based on a report originally issued in Korean

The Board of Directors and Stockholders

KB Financial Group Inc.:

Opinion

We have audited the consolidated financial statements of KB Financial Group Inc. and its subsidiaries (“the Group”), which comprise the consolidated statements of financial position as of December 31, 2021 and 2020, the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2021 and 2020, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing (KSAs). Our responsibilities under those standards are further described in the Auditors’ 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 that are relevant to our audit of the consolidated financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter

As a matter that does not affect our audit opinion, we draw attention to the following matter.

As described in note 40.6.h) to the consolidated financial statements, the proliferation of COVID-19 has had a negative influence on the global economy, which may have a greater impact on expected credit losses and potential impairment of assets in a particular portfolio, and it could negatively affect the revenue generation capability of the Group.

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 statement as of and for the year ended December 31, 2021. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

(1) Assessment of the allowances for credit losses for loans

As discussed in Notes 3.6, 4.2, 10 and 11 to the consolidated financial statements, the Group recognized an allowance for credit losses using the Expected Credit Loss (ECL) impairment model for loans at amortized cost amounting to KRW 3,684,055 million as of December 31, 2021. A lifetime ECL is recognized for those loans that have experienced a Significant Increase in Credit Risk (SICR) since initial recognition or are credit impaired, otherwise a 12-month ECL is recognized. The Group measures ECL allowances on an individual basis for individually significant corporate loans which are credit impaired and for those which have experienced a SICR and demonstrate certain other high risk indicators (for example, debt restructuring). The individual assessment involves judgment by the Group in estimating the future cash flows expected from collateral. The allowance for credit losses for other loans are measured on a collective basis. For these loans, the Group measures ECL based on its estimates of the Probability of Default (PD), the Loss Given Default (LGD) and the Exposure at Default (EAD) as well as the impact of Forward-Looking Information (FLI). For the corporate loans measured on a collective basis, one of the relevant inputs for determining PD is the internal credit risk rating of the borrower. The internal credit risk rating of the borrower is defined by the Group using quantitative and qualitative factors. The evaluation of the qualitative factors involves a high level of judgment by the Group.

 

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We identified the following risks in accordance with the assessment of the allowances for credit losses for loans as a key audit matter, considering likelihood of error, management judgement, and risk of material misstatement;

 

 

Risk that the Group’s estimation of future cash flows for the corporate loans to be individually assessed for ELC is inappropriate due to over or under estimation of assets held as collateral by the Group

 

 

Risks that (i) the analysis of the qualitative factors in determining the internal credit risk ratings of the corporate loans to be collectively assessed for ELC is inappropriate; (ii) the calculation of 12 month and lifetime PD, the calculation of LGD, and the evaluation if FLI incorporated in the measurement of collective ECL is inappropriate due to fraud or error

The following are the primary procedures we performed to address this key audit matter.

 

 

We evaluated the design and tested the operating effectiveness of certain internal controls related to: (i) the estimates of future cash flows for individually assessed corporate loans, including controls over the work of external valuation professionals engaged by the Group to assess the value of collateral; (ii) the validation of the models used to determine the inputs to the collective ECL calculation and the impact of FLI; (iii) the assessment of qualitative factors in the process of determining the internal credit risk rating of the loans; (iv) the completeness and accuracy of quantitative data used in the credit risk ratings; and (v) the process that the qualitative factors and quantitative data are applied to the internal credit risk rating by involving information technology professionals

 

 

We assessed the estimates of future cash flows expected from collateral on a sample of individually assessed corporate loans by (i) comparing assumptions made with information obtained from internal and external sources; and (ii) assessing the reliability of information used in the estimates, including the qualification of external valuation professionals engaged by the Group.

 

 

We involved credit risk professionals with specialized skills, industry knowledge and relevant experience who assisted in: (i) evaluating the methodology and key judgments used in determining the PD and LGD parameters; (ii) evaluating how FLI was incorporated in the collective ECL model; and (iii) recalculating forward-looking PD, and a sample of LGD.

 

 

We evaluated whether, for a sample of corporate loans with ECL measured on a collective basis, Group policy was applied in the internal credit risk rating process.

(2) Internally measured fair value of level 3 derivatives, and level 3 derivative-linked securities

As discussed in Notes 3.3.2 and 6.1.2 to the consolidated financial statements, the Group classifies financial instruments measured at fair value using valuation techniques where one or more significant inputs are not based on observable market data as level 3 in the fair value hierarchy. Those financial instruments measured at fair value classified as level 3 include derivatives and derivative-linked securities both held and issued by KB Securities Co., Ltd. (a subsidiary of the Group), of which fair value is measured by the internally developed valuation models. The fair value of such derivative assets and liabilities as of December 31, 2021 was KRW 209,809 million and KRW 168,464 million, respectively. Also, the fair value of such derivative-linked securities held (presented as ‘financial assets at fair value through profit or loss – debt securities’) and issued (presented as ‘financial liabilities designated at fair value through profit or loss’) as of December 31, 2021 was KRW 128,083 million and KRW 7,829,041 million, respectively. In order to measure the fair value of these financial instruments, the Group uses valuation models such as discounted cash flow models and option models. These models use various inputs and assumptions, depending on the nature of the financial instruments.

We identified the following risks in accordance with the measurement of fair value of the derivatives and derivative-linked securities as a key audit matter considering the level of judgement;

 

 

Risks that (i) the models used by the Group to value the level 3 financial instruments are inappropriate; (ii) the models’ significant inputs which are not directly observable in financial markets, (such as volatility of underlying assets, correlations, regression coefficients, discount rates, etc.) are inappropriate

 

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The following are the primary procedures we performed to address this key audit matter.

 

 

We evaluated the design and tested the operating effectiveness of certain internal controls related to the measurement of fair value of the derivatives and derivative-linked securities. This included controls related to (i) the development, validation and changes in the models used to value derivatives and derivative-linked securities, (ii) the development and application of the significant unobservable inputs and assumptions used in the measurement of fair values, and (iii) the monitoring of changes to these inputs and assumptions.

 

 

We involved valuation professionals with specialized skills and knowledge, who assisted in: (i) evaluating the valuation techniques and significant unobservable inputs on a selection of the derivatives and derivative-linked securities; and (ii) developing models and significant unobservable inputs independently for a selection of the derivatives and derivative-linked securities and comparing the resulting fair value estimates to the Group’s fair value measurements.

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 K-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.

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, or has no realistic alternative but to do so.

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

Auditors’ 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 auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with KSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

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

 

 

Identify and assess the risks of material misstatement of the consolidated financial statements, 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 Group’s internal control.

 

 

Evaluate the appropriateness of accounting policies used in the preparation of the consolidated financial statements 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 auditors’ 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 auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

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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.

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 the internal controls 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 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 auditors’ 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 auditors’ report is Young-Min Kwon.

/s/ KPMG Samjong Accounting Corp.

Seoul, Korea

March 17, 2022

 

 

This report is effective as of March 17, 2022, 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 the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 

 

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KB Financial Group Inc. and Subsidiaries

Consolidated Statements of Financial Position

December 31, 2021 and 2020

 

 

(in millions of Korean won)    Notes      December 31, 2021     December 31, 2020  

Assets

       

Cash and due from financial institutions

     4,6,7,8,39      W 31,009,374     W 25,608,842  

Financial assets at fair value through profit or loss

     4,6,8,12        66,005,815       61,035,455  

Derivative financial assets

     4,6,9        3,721,370       5,545,385  

Loans measured at amortized cost

     4,6,10,11        417,900,273       377,166,984  

Financial investments

     4,6,8,12        104,847,871       98,695,426  

Investments in associates and joint ventures

     13        448,718       771,435  

Property and equipment

     14        5,239,898       5,433,554  

Investment property

     14        2,514,944       2,533,539  

Intangible assets

     15        3,266,357       3,351,133  

Net defined benefit assets

     25        100,083       50,597  

Current income tax assets

        98,798       109,772  

Deferred income tax assets

     17,34        159,093       65,058  

Assets held for sale

     18        237,318       197,727  

Assets of a disposal group held for sale

     18        171,749       —    

Other assets

     4,6,19        28,174,173       30,155,037  
     

 

 

   

 

 

 

Total assets

      W 663,895,834     W 610,719,944  
     

 

 

   

 

 

 

Liabilities

       

Financial liabilities at fair value through profit or loss

     4,6,20      W 12,088,980     W 11,810,058  

Derivative financial liabilities

     4,6,9        3,682,258       5,222,897  

Deposits

     4,6,21        372,023,918       338,580,220  

Borrowings

     4,6,22        56,912,374       49,827,156  

Debentures

     4,6,23        67,430,188       62,760,687  

Provisions

     24        808,604       714,903  

Net defined benefit liabilities

     25        225,521       239,567  

Current income tax liabilities

        662,672       764,981  

Deferred income tax liabilities

     17,34        1,470,981       1,177,799  

Insurance liabilities

     38        57,165,936       54,415,296  

Other liabilities

     4,6,26        43,130,482       41,804,023  
     

 

 

   

 

 

 

Total liabilities

        615,601,914       567,317,587  
     

 

 

   

 

 

 

Equity

       

Share capital

        2,090,558       2,090,558  

Hybrid securities

        2,838,221       1,695,988  

Capital surplus

        16,940,231       16,723,589  

Accumulated other comprehensive income

     36        1,047,274       630,011  

Accumulated other comprehensive income relating to assets of a disposal group held for sale

     18, 36        7,671       —    

Retained earnings

        25,672,815       22,540,616  

Treasury shares

        (1,136,188     (1,136,188
     

 

 

   

 

 

 

Equity attributable to shareholders of the Parent Company

     27        47,460,582       42,544,574  

Non-controlling interests

        833,338       857,783  
     

 

 

   

 

 

 

Total equity

        48,293,920       43,402,357  
     

 

 

   

 

 

 

Total liabilities and equity

      W 663,895,834     W 610,719,944  
     

 

 

   

 

 

 

The above consolidated statements of financial position should be read in conjunction with the accompanying notes.

 

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KB Financial Group Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2021 and 2020

 

 

(in millions of Korean won, except per share amounts)    Notes      2021     2020  

Interest income

      W 15,210,878     W 14,485,747  

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

        14,620,490       13,826,382  

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

        590,388       659,365  

Interest expense

        (3,981,306     (4,763,473
     

 

 

   

 

 

 

Net interest income

     5,28        11,229,572       9,722,274  
     

 

 

   

 

 

 

Fee and commission income

        5,323,606       4,527,024  

Fee and commission expense

        (1,698,023     (1,568,085
     

 

 

   

 

 

 

Net fee and commission income

     5,29        3,625,583       2,958,939  
     

 

 

   

 

 

 

Insurance income

        16,107,858       14,386,640  

Insurance expense

        (15,551,147     (14,086,647
     

 

 

   

 

 

 

Net insurance income

     5,38        556,711       299,993  
     

 

 

   

 

 

 

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

        1,160,981       1,221,610  

Losses on overlay adjustments

        (165,677     (210,244
     

 

 

   

 

 

 

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

     5,30        995,304       1,011,366  
     

 

 

   

 

 

 

Net other operating expenses

     5,31        (1,923,567     (1,499,930
     

 

 

   

 

 

 

General and administrative expenses

     5,32        (7,200,853     (6,814,812
     

 

 

   

 

 

 

Operating income before provision for credit losses

     5        7,282,750       5,677,830  
     

 

 

   

 

 

 

Provision for credit losses

     5,7,11,12,19,24        (1,185,133     (1,043,498
     

 

 

   

 

 

 

Net operating income

        6,097,617       4,634,332  
     

 

 

   

 

 

 

Share of profit (loss) of associates and joint ventures

     13        93,526       (43,750

Net other non-operating income (expenses)

     33        (109,537     189,390  
     

 

 

   

 

 

 

Net non-operating income (expenses)

        (16,011     145,640  
     

 

 

   

 

 

 

Profit before income tax expense

        6,081,606       4,779,972  

Income tax expense

     34        (1,697,225     (1,264,394
     

 

 

   

 

 

 

Profit for the year

     5        4,384,381       3,515,578  
     

 

 

   

 

 

 

Items that will not be reclassified to profit or loss:

       

Remeasurements of net defined benefit liabilities

     25      W (45,510   W (13,434

Share of other comprehensive income (loss) of associates and joint ventures

        51       (1

Gains on equity securities at fair value through other comprehensive income

        903,398       822,140  

Fair value changes of financial liabilities designated at fair value through profit or loss due to own credit risk

        13,715       8,819  
     

 

 

   

 

 

 
        871,654       817,524  
     

 

 

   

 

 

 

Items that may be reclassified subsequently to profit or loss:

 

    

Currency translation differences

        255,907       (187,283

Losses on debt securities at fair value through other comprehensive income

        (924,698     (356,572

Share of other comprehensive income (loss) of associates and joint ventures

        498       (6,846

Gains (losses) on cash flow hedging instruments

     9        20,864       (1,264

Gains (losses) on hedging instruments of net investments in foreign operations

     9        (57,935     64,269  

Other comprehensive loss arising from separate account

 

     (63,814     (9,683

Gains on overlay adjustment

     38        120,282       152,125  
     

 

 

   

 

 

 
        (648,896     (345,254
     

 

 

   

 

 

 

Other comprehensive income for the year, net of tax

 

     222,758       472,270  
  

 

 

   

 

 

 

Total comprehensive income for the year

      W 4,607,139     W 3,987,848  
     

 

 

   

 

 

 

Profit attributable to:

     5       

Shareholders of the Parent Company

      W 4,409,543     W 3,468,448  

Non-controlling interests

        (25,162     47,130  
     

 

 

   

 

 

 
      W 4,384,381     W 3,515,578  
     

 

 

   

 

 

 

Total comprehensive income for the year attributable to:

 

    

Shareholders of the Parent Company

      W 4,610,549     W 3,966,361  

Non-controlling interests

        (3,410     21,487  
     

 

 

   

 

 

 
      W 4,607,139     W 3,987,848  
     

 

 

   

 

 

 

Earnings per share

     37       

Basic earnings per share

      W 11,134     W 8,843  

Diluted earnings per share

        10,890       8,730  

The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.

 

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KB Financial Group Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

Years Ended December 31, 2021 and 2020

 

 

          Equity attributable to shareholders of the Parent Company              
                            Accumulated    

Accumulated

other
comprehensive
income relating to

                         
                            other     assets of a                          
(in millions of Korean won)         Share     Hybrid     Capital     comprehensive     disposal group     Retained     Treasury     Non-controlling     Total  
    Notes     capital     securities     surplus     income     held for sale     earnings     shares     interests     equity  

Balance as of January 1, 2020

    W 2,090,558     W 399,205     W 17,122,777     W 348,021     W —       W 19,709,545     W (1,136,188   W 585,407     W 39,119,325  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of accouting policy change

    2       —         —         —         20,723       —         9,927       —         —         30,650  

Restated balance after accounting policy change

      2,090,558       399,205       17,122,777       368,744       —         19,719,472       (1,136,188     585,407       39,149,975  

Comprehensive income for the year

                      —    

Profit for the year

      —         —         —         —         —         3,468,448       —         47,130       3,515,578  

Remeasurements of net defined benefit liabilities

      —         —         —         (13,145     —         —         —         (289     (13,434

Currency translation differences

      —         —         —         (162,906     —         —         —         (24,377     (187,283

Gains (losses) on financial instruments at fair value through other comprehensive income and transfer to retained earnings

      —         —         —         229,899       —         236,648       —         (979     465,568  

Share of other comprehensive loss of associates and joint ventures

 

    —         —         —         (6,847     —         —         —         —         (6,847

Losses on cash flow hedging instruments

      —         —         —         (1,264     —         —         —         —         (1,264

Gains on hedging instruments of net investments in foreign operations

      —         —         —         64,269       —         —         —         —         64,269  

Other comprehensive loss arising from separate account

      —         —         —         (9,683     —         —         —         —         (9,683

Fair value changes of financial liabilities designated at fair value through profit or loss due to own credit risk

      —         —         —         8,819       —         —         —         —         8,819  

Gains on overlay adjustments

      —         —         —         152,125       —         —         —         —         152,125  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year

      —         —         —         261,267       —         3,705,096       —         21,485       3,987,848  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with shareholders

                   

Annual dividends paid to shareholders of the Parent Company

      —         —         —         —         —         (861,092     —         —         (861,092

Issuance of hybrid securities

      —         1,296,783       —         —         —         —         —         —         1,296,783  

Dividends on hybrid securities

      —         —         —         —         —         (22,860     —         (25,658     (48,518

Non-controlling interests changes in business combination

      —         —         —         —         —         —         —         247,008       247,008  

Others

      —         —         (399,188     —         —         —         —         29,541       (369,647
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total transactions with shareholders

      —         1,296,783       (399,188     —         —         (883,952     —         250,891       264,534  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2020

    W 2,090,558     W 1,695,988     W 16,723,589     W 630,011     W —       W 22,540,616     W (1,136,188   W 857,783     W 43,402,357  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of January 1, 2021

    W 2,090,558     W 1,695,988     W 16,723,589     W 630,011     W —       W 22,540,616     W (1,136,188   W 857,783     W 43,402,357  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income for the year

                   

Profit for the year

      —         —         —         —         —         4,409,543       —         (25,162     4,384,381  

Remeasurements of net defined benefit liabilities

      —         —         —         (45,742     —         —         —         232       (45,510

Currency translation differences

      —         —         —         241,273       —         —         —         14,634       255,907  

Gains (losses) on financial instruments at fair value through other comprehensive income and transfer to retained earnings

      —         —         —         201,697       —         (223,928     —         931       (21,300

Share of other comprehensive income of associates and joint ventures

 

    —         —         —         549       —         —         —         —         549  

Gains on cash flow hedging instruments

      —         —         —         20,864       —         —         —         —         20,864  

Losses on hedging instruments of net investments in foreign operations

      —         —         —         (57,935     —         —         —         —         (57,935

Other comprehensive loss arising from separate account

      —         —         —         (63,814     —         —         —         —         (63,814

Fair value changes of financial liabilities designated at fair value through profit or loss due to own credit risk

      —         —         —         13,715       —         —         —         —         13,715  

Gains on overlay adjustments

      —         —         —         120,282       —         —         —         —         120,282  

Transfer within equity

      —         —         —         (7,671     7,671       —         —         —         —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year

      —         —         —         423,218       7,671       4,185,615       —         (9,365     4,607,139  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with shareholders

                   

Annual dividends paid to shareholders of the Parent Company

      —         —         —         —         —         (689,653     —         —         (689,653

Quarterly dividends paid to shareholders of the Parent Company

 

    —         —         —         —         —         (292,226     —         —         (292,226

Issuance of hybrid securities

      —         1,142,233       —         —         —         —         —         —         1,142,233  

Dividends on hybrid securities

      —         —         —         —         —         (71,537     —         (24,145     (95,682

Non-controlling interests changes in business combination

      —         —         —         —         —         —         —         1,994       1,994  

Transactions with non-controlling interests

      —         —         216,853       (5,955     —         —         —         (18,306     192,592  

Others

      —         —         (211     —         —         —         —         25,377       25,166  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total transactions with shareholders

      —         1,142,233       216,642       (5,955     —         (1,053,416     —         (15,080     284,424  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2021

    W 2,090,558     W 2,838,221     W 16,940,231     W 1,047,274     W 7,671     W 25,672,815     W (1,136,188   W 833,338     W 48,293,920  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.

 

7


Table of Contents

KB Financial Group Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31, 2021 and 2020

 

 

(in millions of Korean won)    Notes      2021     2020  
Cash flows from operating activities        

Profit for the year

                    W 4,384,381     W 3,515,578  
     

 

 

   

 

 

 

Adjustment for non-cash items

       

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

        (274,515     (566,447

Net losses (gains) on derivative financial instruments for hedging purposes

        213,996       (52,696

Adjustment of fair value of derivative financial instruments

        —         (3,198

Provision for credit losses

        1,185,133       1,043,498  

Net losses (gains) on financial investments

        97,813       (278,805

Share of loss (profit) of associates and joint ventures

        (93,526     43,750  

Depreciation and amortization expense

        850,614       874,911  

Amortization expense of VOBA

        156,074       173,866  

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

        1,974       (124,218

Share-based payments

        101,935       49,364  

Provision for policy reserves

        2,761,135       2,709,818  

Post-employment benefits

        237,315       216,891  

Net interest income

        256,736       458,210  

Gains on foreign currency translation

        (665,282     (116,786

Gain on a bargain purchase

        (288     (145,067

Other expenses

        721,459       524,742  
     

 

 

   

 

 

 
        5,550,573       4,807,833  
     

 

 

   

 

 

 

Changes in operating assets and liabilities

       

Financial asset at fair value through profit or loss

        (6,149,781     (7,139,647

Derivative financial instruments

        39,343       (38,376

Loans measured at fair value through other comprehensive income

        (24,618     81,803  

Loans measured at amortized cost

        (41,457,544     (31,126,636

Current income tax assets

        10,581       (54,539

Deferred income tax assets

        (92,967     (15,108

Other assets

        (3,724,562     (9,126,046

Financial liabilities at fair value through profit or loss

        759,989       (3,247,108

Deposits

        32,497,922       27,381,662  

Current income tax liabilities

        (102,273     323,313  

Deferred income tax liabilities

        294,130       (120,023

Other liabilities

        1,314,561       3,216,600  
     

 

 

   

 

 

 
        (16,635,219     (19,864,105
     

 

 

   

 

 

 

Net cash outflow from operating activities

        (6,700,265     (11,540,694
     

 

 

   

 

 

 

Cash flows from investing activities

       

Net cash flows from derivative financial instruments for hedging purposes

        427       (64,177

Disposal of financial asset at fair value through profit or loss

        13,788,604       14,169,758  

Acquisition of financial asset at fair value through profit or loss

        (12,298,792     (13,923,371

Disposal of financial investments

        50,825,909       83,143,443  

Acquisition of financial investments

        (56,633,996     (92,206,817

Disposal of investments in associates and joint ventures

        678,636       210,266  

Acquisition of investments in associates and joint ventures

        (261,881     (515,342

Disposal of property and equipment

        7,016       6,465  

Acquisition of property and equipment

        (286,613     (424,862

Disposal of investment property

        177,033       646,263  

Acquisition of investment property

        (118,961     (53,196

Disposal of intangible assets

        8,203       14,303  

Acquisition of intangible assets

        (191,696     (182,859

Net cash flows from changes in ownership of subsidiaries

        374,992       (1,951,245

Others

        75,105       142,961  
     

 

 

   

 

 

 

Net cash outflow from investing activities

        (3,856,014     (10,988,410
     

 

 

   

 

 

 

Cash flows from financing activities

       

Net cash flows from derivative financial instruments for hedging purposes

        5,870       (16,202

Net increase in borrowings

        7,321,582       10,683,659  

Increase in debentures

        121,767,039       119,705,016  

Decrease in debentures

        (117,509,585     (107,760,800

Increase (decrease) in other payables to trust accounts

        (509,106     2,326,495  

Dividends paid to shareholders of the Parent Company

        (981,879     (861,092

Dividends paid on hybrid securities

        (71,537     (22,860

Issuance of hybrid securities

        1,142,233       1,296,783  

Decrease in non-controlling interests

        (24,145     (25,658

Redemption of principal elements of lease payments

        (253,248     (235,498

Others

        (65,826     172,433  
     

 

 

   

 

 

 

Net cash inflow from financing activities

        10,821,398       25,262,276  
     

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

        158,249       (171,805
     

 

 

   

 

 

 

Net increase in cash and cash equivalents

        423,368       2,561,367  

Cash and cash equivalents at the beginning of the year

     39        8,685,092       6,123,725  
     

 

 

   

 

 

 

Cash and cash equivalents at the end of the year

     39      W 9,108,460     W 8,685,092  
     

 

 

   

 

 

 

The above consolidated statements of cash flows should be read in conjunction with the accompanying notes.

 

8


Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

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 (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. The Parent Company’s main business purpose is to control subsidiaries that engage in the financial business or subsidiaries closely related to the financial business through the stock ownership. The Parent Company’s headquarter is located at 26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul. 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, and KB Insurance Co., Ltd. became one of the subsidiaries through a tender offer in May 2017. 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 its name to KB Securities Co., Ltd. in January 2017. In August 2020, the Group acquired Prudential Life Insurance Company of Korea Ltd., which was classified as a subsidiary.

The Parent Company’s share capital as of December 31, 2021, is W 2,090,558 million. The Parent Company has been listed on the Korea Exchange (“KRX”) since October 10, 2008, and on the New York Stock Exchange (“NYSE”) for its American Depositary Shares (“ADS”) since September 29, 2008. Number of shares authorized in its Articles of Incorporation is 1,000 million.

2. Basis of Preparation

2.1 Application of Korean IFRS

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

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

The preparation of the 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 that require a more complex and higher level of judgment or areas that require significant assumptions and estimations are disclosed in Note 2.4.

 

9


Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

2.1.1 The Group has applied the following amended standards for the first time for its annual reporting period commencing January 1, 2021.

 

   

Amendments to Korean IFRS No.1116 Leases – Practical Expedient for COVID-19-Related Rent Exemption, Concessions, Suspension

As a practical expedient, a lessee may elect not to assess whether a rent concession occurring as a direct consequence of the COVID-19 pandemic is a lease modification, and the amounts recognized in profit or loss as a result of applying this exemption should be disclosed. These amendments do not have a significant impact on the consolidated financial statements.

 

   

Amendments to Korean IFRS No.1109 Financial Instruments, Korean IFRS No.1039 Financial Instruments: Recognition and Measurement, Korean IFRS No.1107 Financial Instruments: Disclosure, Korean IFRS No.1104 Insurance Contracts, and Korean IFRS No.1116 Leases – Interest Rate Benchmark Reform

In relation to interest rate benchmark reform, the amendments provide a practical expedient allowing entities to change the effective interest rate instead of changing the carrying amount and apply hedge accounting without discontinuance although the interest rate benchmark is replaced in hedging relationship. These amendments do not have a significant impact on the consolidated financial statements.

2.1.2 The Group has changed the following accounting policy for its annual reporting period commencing January 1, 2021.

 

   

Korean IFRS No.1019 Employee Benefits – Attributing Retirement Benefit to Periods of Services

The Group maintains defined benefit plan which pays a lump sum retirement benefit to employees who retire at a specific age before the mandatory retirement age and meet required minimum service periods as of retirement date. For the periods prior to the year beginning on January 1, 2021, the Group attributed the retirement benefit of this plan from the date the employee starts working with the Group until the retirement date, regardless of minimum service periods. However, from 2021, the Group retrospectively applied the accounting policy in accordance with the International Financial Reporting Interpretation Committee (“IFRIC”) agenda decision in May 2021, which requires attribution of the retirement benefit over the minimum service periods just before the retirement date. The restated comparative consolidated financial statements reflect adjustments resulting from the retrospective application.

The effects of this change in accounting policy to the consolidated statements of financial position as of December 31, 2021 and 2020, January 1, 2020 and to the consolidated statements of comprehensive income for the years ended December 31, 2021 and 2020, are as follows:

2.1.2.1 Effects on consolidated statements of financial position

 

(In millions of Korean won)    December 31,
2021
     December 31,
2020
     January 1,
2020
 

Increase in net defined benefit assets

   W 46,420      W 47,752      W 25,019  

Decrease in net defined benefit liabilities

     —          8,659        17,258  

Increase in deferred income tax liabilities

     12,766        15,513        11,627  

Increase in accumulated other comprehensive income

     11,034        17,674        20,723  

Increase in retained earnings

     22,620        23,224        9,927  

 

10


Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

2.1.2.2 Effects on consolidated statements of comprehensive income

 

(In millions of Korean won, except for per share amounts)    2021      2020  

Increase (decrease) in general and administrative expenses

   W 833      W (18,340

Increase (decrease) in income tax expense

     (229      5,043  

Decrease in other comprehensive income

     6,640        3,049  

Increase (decrease) in basic earnings per share

     (2      34  

Increase (decrease) in diluted earnings per share

     (2      33  

2.1.3 The following new and amended standards have been published that are not mandatory for December 31, 2021 reporting period and have not been adopted by the Group.

 

   

Amendments to Korean IFRS No.1116 Leases – COVID-19-Related Rent Concessions, etc. beyond June 30, 2021

The application of the practical expedient, a lessee may elect not to assess whether a rent concession occurring as a direct consequence of the COVID-19 pandemic is a lease modification, is extended to lease payments originally due on or before 30 June 2022. A lessee shall apply the practical expedient consistently to eligible contracts with similar characteristics and in similar circumstances. The amendments should be applied for annual reporting periods beginning on or after April 1, 2021, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

   

Amendments to Korean IFRS No.1103 Business Combination – Reference to the Conceptual Framework

The amendments update a reference of definition of assets and liabilities to qualify for recognition in revised Conceptual Framework for Financial Reporting. However, the amendments add an exception for the recognition of liabilities and contingent liabilities within the scope of Korean IFRS No.1037 Provisions, Contingent Liabilities and Contingent Assets, and Korean IFRS No.2121 Levies. The amendments also confirm that contingent assets should not be recognized at the acquisition date. The amendments should be applied for annual reporting periods beginning on or after January 1, 2022, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

   

Amendments to Korean IFRS No.1016 Property, Plant and Equipment – Proceeds Before Intended Use

The amendments prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while the entity is preparing the asset for its intended use. Instead, the entity will recognize the proceeds from selling such items, and the costs of producing those items, as profit or loss. The amendments should be applied for annual reporting periods beginning on or after January 1, 2022, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

   

Amendments to Korean IFRS No.1037 Provisions, Contingent Liabilities and Contingent Assets – Onerous Contracts: Cost of Fulfilling a Contract

The amendments clarify that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts when assessing whether the contract is onerous. The amendments should be applied for annual reporting periods beginning on or after January 1, 2022, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

11


Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

2.1.3 The following new and amended standards have been published that are not mandatory for December 31, 2021 reporting period and have not been adopted by the Group. (cont’d)

 

   

Amendments to Korean IFRS No.1001 Presentation of Financial Statements – Classification of Liabilities as Current or Non-current

The amendments clarify that liabilities are classified as either current or non-current, depending on the substantive rights that exist at the end of the reporting period. Classification is unaffected by the likelihood that an entity will exercise the right to defer settlement of the liability or the management’s expectations thereof. Also, the settlement of liability includes the transfer of the entity’s own equity instruments; however, it would be excluded if an option to settle the liability by the transfer of the entity’s own equity instruments is recognized separately from the liability as an equity component of a compound financial instrument. The amendments should be applied for annual reporting periods beginning on or after January 1, 2023, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

   

Issuance of Korean IFRS No.1117 Insurance Contracts

(a) Major changes in accounting policy

Korean IFRS No.1117 Insurance Contracts will replace Korean IFRS No.1104 Insurance Contracts. This standard requires an entity to estimate future cash flows of an insurance contract and measure insurance liabilities using discount rates applied with assumptions and risks at the measurement date and recognize insurance revenue on an accrual basis including services (insurance coverage) provided to the policyholder by each annual reporting period. In addition, investment components (refunds due to termination and maturity) repaid to a policyholder even if an insured event does not occur, are excluded from insurance revenue, and net insurance income and net investment income are presented separately to enable users of the information to understand the sources of net income. This standard should be applied for annual reporting periods beginning on or after January 1, 2023, and earlier application is permitted for entities that applied Korean IFRS No.1109 Financial Instruments. The Group is scheduled to apply this standard for annual reporting period beginning on January 1, 2023. If the Group prepares consolidated financial statements by applying Korean IFRS No.1117, the following parts are expected to make significant differences with the current consolidated financial statements. It does not mean to include all differences that are arising in the future and can be changed based on the future additional analysis results.

(Measurement of Insurance liabilities, etc.)

Under Korean IFRS No.1117, the Group estimates all cash flows from insurance contracts and measures the insurance liabilities using discount rate that reflects assumptions and risks at the reporting date.

In details, the Group identifies a portfolio of insurance contracts that comprises contracts exposed to similar risks and managed together, then separates the contracts with similar profitability within the portfolio as groups of insurance contracts. The groups of insurance contracts are measured as the sum of the estimate of future cash flows (including cash flows related to policy loans and reflecting time value of money, etc.), risk adjustment, and the contractual service margin. With the adoption of Korean IFRS No.1117, account of the contractual service margin will be introduced, which means unearned profit that would be recognized by providing insurance service in the future.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

2.1.3 The following new and amended standards have been published that are not mandatory for December 31, 2021 reporting period and have not been adopted by the Group. (cont’d)

 

Meanwhile, reinsurance contracts mean insurance contracts issued by a reinsurance company to compensate claims arising from original insurance contracts issued by other insurance companies. The groups of insurance contracts also apply assumptions consistent with the groups of original insurance contracts when estimating the present value of future cash flows for the groups of insurance contracts ceded.

(Recognition and measurement of financial performance)

Under Korean IFRS No.1117, the Group recognizes insurance revenue on an accrual basis for services (insurance coverage) provided to the policyholder by each annual reporting period, excluding investment component (refunds due to termination and maturity) to be paid to the policyholder regardless of the insured event. In addition, net insurance income and net investment income are presented separately to enable users of the information to understand the sources of net income.

The Group also includes the time value of money, financial risk and effects of their fluctuations related to the group of insurance contracts and the Group should select accounting policy whether the insurance finance income or expenses for the periods are divided to profit or loss, or other comprehensive income.

(Accounting policy for transition of insurance contracts)

Under transition requirements of Korean IFRS No.1117, the Group shall adjust the original cost-based measurement to current measurement by applying the fully retrospective approach, modified retrospective approach or fair value approach, for the group of insurance contracts issued before the transition date (the beginning of the annual reporting period immediately preceding initial application date of January 1, 2022).

In principle, the Group shall identify, recognize and measure each group of insurance contracts as if Korean IFRS No.1117 had always applied before the transition date. If this method is impracticable, the Group can apply the modified retrospective approach or the fair value approach. However, the fair value approach can be applied even though it is possible to apply the fully retrospective approach for the group of insurance contracts with direct participation features that meet specific requirements.

Meanwhile, the modified retrospective approach is a way to obtain results very close to the fully retrospective approach by using all reasonable and supportable information available without undue cost or effort. The fair value approach is a way to measure group of insurance contracts using fair value measurements based on Korean IFRS No.1113 Fair Value Measurements. When applying the fair value approach, contractual service margin or loss component of the liability for remaining coverage at the transition date are measured as the difference between the fair value of a group of insurance contracts at that date and the fulfilment cash flows measured at that date.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

2.1.3 The following new and amended standards have been published that are not mandatory for December 31, 2021 reporting period and have not been adopted by the Group. (cont’d)

 

Key changes in accounting policies expected by adopting Korean IFRS No.1117 are as follows:

 

   

Korean IFRS No.1104

 

Korean IFRS No.1117

Insurance liability measurement

 

Measure at cost using the past information

 

Measure at current value using information at the reporting date

 

Need to choose transition method to adjust the existing group of insurance contracts to current measurement at the transition date (among the fully retrospective approach, modified retrospective approach or fair value approach)

Recognition of insurance revenue

 

Apply cash basis to recognize the received premium as insurance revenue

 

Recognize revenue by reflecting services provided to the policyholder by each annual reporting period (accrual basis)

 

Include investment component, such as refunds due to termination and maturity, to insurance revenue

 

Exclude investment component (refunds due to termination and maturity) from insurance revenue

Net insurance income and net investment income (financial income) are presented separately

Deferred acquisition cost

 

Recognize deferred acquisition cost as a separate asset

 

Do not recognize deferred acquisition cost as a separate asset

 

Estimate insurance liability based on net insurance premium (excluding administration expenses)

 

Estimate insurance liability based on operating insurance premium (including administration expenses)

(b) Status of preparation for Korean IFRS No.1117 adoption

In order for the Group to smoothly adopt Korean IFRS No.1117, it is necessary to prepare a separate implementation department, implement an accounting system, train executives and employees, and analyze financial impact and etc.

Above all, for the adequacy of insurance liability evaluation, the stability of the accounting system and the conformity of system calculations must be secured, and accounting policies and actuarial assumptions must be established reasonably and applied consistently every period. For this, the Group needs to verify the system continually, and prepare various internal control procedures. In particular, the Group shall implement and comply with an internal control over financial reporting suitable for the changed accounting environment so that reliable accounting information can be prepared and disclosed after the adoption of the new accounting standard.

The adoption of Korean IFRS No.1117 will not only change accounting standard, but will also affect insurance product development, sales strategies, and long-term business strategies. Accordingly, it is necessary for the Group to re-establish various business strategies after the adoption of the new accounting standard, provide continual training for related executives and employees and report preparations for adoption and future plans to management.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

2.1.3 The following new and amended standards have been published that are not mandatory for December 31, 2021 reporting period and have not been adopted by the Group. (cont’d)

 

The detailed preparations for adoption and future plans are as follows:

(KB Insurance Co., Ltd.)

 

Key activity

  

Progress (at the reporting date)

    

Future plan

Implementation department

  

(Feb. 2017) Organize the implementation department of Korean IFRS No.1117

    

Continuous operation of the implementation department

  

(Apr. 2018) Expand the implementation department of Korean IFRS No.1117 (currently, total 14 personnel who are fully in charge of)

    

Implementation of accounting system        

  

(Feb. 2017) Start implementation of the integrated actuarial system

    

Stabilization of the system (dual closing)

  

(Jun. 2018) Complete implementation of the system

(Sep. 2018) Start implementation of the accounting system

    

Implementation of the internal control over financial reporting

  

(Nov. 2020) Complete implementation of the system Currently, pilot operation

    

Training for executives and employees

  

Prepare and implement training for executives/head of departments and employees in related departments

    

Plan to expand training target

Reporting to management    

  

Report implementation of the system, financial effects, etc.

    

Report issues in relation to the dual closing

(Prudential Life Insurance Company of Korea Ltd.)

 

Key activity

  

Progress (at the reporting date)

    

Future plan

Implementation department

  

(Apr. 2016) Organize the implementation department of Korean IFRS No.1117 (currently, total 10 personnel who are fully in charge of)

    

Continuous operation of the implementation department

Implementation of accounting system        

  

(Nov. 2017) Start implementation of the integrated actuarial system

    

Advancement of the system (dual closing)

  

(Nov. 2018) Complete implementation of the system

(Nov. 2020) Start implementation of the accounting system

    

Implementation of the internal control over financial reporting

  

(Dec. 2021) Complete implementation of the system

    

Training for executives and employees

  

Implement training for employees

    

Expansion of training target etc.

Reporting to management    

  

Report the implementation of the system, financial effect of insurance supervisory accounting for adoption of Korean IFRS No.1117

    

Report issues in relation to dual closing

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

2.1.3 The following new and amended standards have been published that are not mandatory for December 31, 2021 reporting period and have not been adopted by the Group. (cont’d)

 

(KB Life Insurance Co., Ltd)

 

Key activity

  

Progress (at the reporting date)

    

Future plan

Implementation department    

  

(Jul. 2018) Organize the responsive team for Korean IFRS No.1117

(Mar. 2019) Organize and operate TF for Korean IFRS No.1117

    

Progress works in relation to transition to new accounting standards

Supplement personnel who are fully in charge of, etc.

Implementation of accounting system        

  

(Mar. 2019) Start implementation of the accounting system

(Dec. 2020) Complete implementation of the system

Currently, pilot operation

    

Stabilization of the system (dual closing)

Implementation of internal control over financial reporting

Training for executives and employees

  

Prepare and implement training for executives/head of departments and employees in related departments (total 20 trainings)

(Nov. 2020) Open online training

(Dec. 2021) Implement non-face-to-face training

    

Plan to increase training courses and expand training target

Reporting to management    

  

Report implementation of the system, financial effects, etc.

    

Report issues in relation to the dual closing and financial effect

(c) Financial effect evaluation

As the adoption of Korean IFRS No.1117 changes the measurement method of insurance liability and insurance revenue recognition, financial volatility is expected to occur in the consolidated financial statements for 2023.

In 2021, the Group carried out continual system conformity verification and stabilization, and preparation for dual closing in 2022. Accordingly, in 2021, the preliminary and potential impact of the adoption of Korean IFRS No.1117 are disclosed, and detailed results of financial impact will be disclosed in the annual consolidated financial statements for 2022.

The Group is currently analyzing the impact of the measurement of insurance contract liabilities after the adoption of Korean IFRS No.1117 due to changes in the insurance liability measurement method and revenue recognition method.

As of December 31, 2021, the Group has a total insurance contract liabilities of W 57,165,936 million, and savings type insurance accounts for 28% (W 4,467,242 million) of the total insurance premium income.

 

   

Amendments to Korean IFRS No.1001 Presentation of Financial Statements – Accounting Policy Disclosure

The amendments require an entity to define and disclose their material accounting policy information. IFRS Practice Statement 2 Making Materiality Judgements was amended to explain and demonstrate how to apply the concept of materiality. The amendments should be applied for annual reporting periods beginning on or after January 1, 2023, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

2.1.3 The following new and amended standards have been published that are not mandatory for December 31, 2021 reporting period and have not been adopted by the Group. (cont’d)

 

   

Amendments to Korean IFRS No.1008 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Accounting Estimates

The amendments introduce the definition of accounting estimates and clarify how to distinguish changes in accounting estimates from changes in accounting policies. The amendments should be applied for annual reporting periods beginning on or after January 1, 2023, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

   

Amendments to Korean IFRS No.1012 Income Taxes – Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction

The amendments narrow the scope of the deferred tax recognition exemption so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The amendments should be applied for annual reporting periods beginning on or after January 1, 2023, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

   

Annual improvements to Korean IFRS 2018-2020

Annual improvements of Korean IFRS 2018-2020 Cycle should be applied for annual reporting periods beginning on or after January 1, 2022, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

   

Korean IFRS No.1101 First-time Adoption of Korean International Financial Reporting Standards – Subsidiaries that are first-time adopters

   

Korean IFRS No.1109 Financial Instruments – Fees related to the 10% test for derecognition of financial liabilities

   

Korean IFRS No.1116 Leases – Lease incentives

   

Korean IFRS No.1041 Agriculture – Measuring fair value

2.2 Measurement Basis

The consolidated financial statements have been prepared based on the historical cost accounting model 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 (“functional currency”). The consolidated financial statements are presented in Korean won, which is the Parent Company’s functional and presentation currency.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

2.4 Critical Accounting Estimates

The Group applies accounting policies and uses judgements, accounting estimates, and assumptions that may have a significant impact on the assets (liabilities) and incomes (expenses) in preparing the consolidated financial statements. Management’s estimates of outcomes may differ from actual outcomes if management’s estimates and assumptions based on management’s best judgment are different from the actual environment.

Estimates and underlying assumptions are continually evaluated, and changes in accounting estimates are recognized in the period in which the estimates are changed and in any future periods affected.

Uncertainties in estimates and assumptions with significant risks that may result in material adjustments to the consolidated financial statements are as follows:

2.4.1 Income taxes

As the income taxes on the Group’s taxable income is calculated by applying the tax laws of various countries and the decisions of tax authorities, there is uncertainty in calculating the final tax effect.

If a certain portion of the taxable income is not used for investments, wages, etc. in accordance with the Korean regulation called ‘Special Taxation for Facilitation of Investment and Mutually-beneficial Cooperation’, the Group is liable to pay additional income tax calculated based on the tax laws. Therefore, the effect of recirculation of corporate income should be reflected in current and deferred income tax. As the Group’s income tax is dependent on the actual investments, wages, etc. per each year, there are uncertainties in measuring the final tax effects during the period when the tax law is applied.

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, assumptions in fair value 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 Allowances and provisions for credit losses

The Group recognizes and measures allowances for credit losses of debt instruments measured at amortized cost, debt instruments measured at fair value through other comprehensive income, and lease receivables. Also, the Group recognizes and measures provisions for credit losses of acceptances and guarantees, and unused loan commitments. Accuracy of allowances and provisions for credit losses is dependent upon estimation of expected cash flows of the borrower subject to individual assessment of impairment, and upon assumptions and variables of model used in collective assessment of impairment and estimation of provisions for credit losses of acceptances and guarantees, and unused loan commitments.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

2.4.4 Net defined benefit liability

The present value of the net defined benefit liability is affected by changes in the various factors determined by the actuarial method.

2.4.5 Impairment of goodwill

The recoverable amounts of cash-generating units are determined based on value-in-use calculations to test whether impairment of goodwill has occurred.

2.4.6 Estimated claims for Incurred But Not Reported (“IBNR”)

An amount of IBNR is the total sum of estimated insurance claims that shall be paid for accidents that occurred but have not been reported to the Group and estimated insurance claims that shall be additionally paid upon resumption of payment claims. The Group calculates IBNR by applying statistical methods in risk units prescribed in Detailed Regulations on Supervision of Insurance Business, and records IBNR in reserve for outstanding claims of insurance liability. IBNR based on statistical methods requires significant accounting estimates in determining the application methodology for each accident year (PLDM, ILDM, BFM, and others) and determining the loss development factor.

2.4.7 Assessment of expected credit losses of financial instruments related to COVID-19

The proliferation of COVID-19 in 2021 negatively affected the global economy, despite various forms of government support policy. Accordingly, the Group was provided with various economic forecasting scenarios from KB Research, assuming macroeconomic changes due to the level of COVID-19 pandemic. The Group reviewed the possibilities of each scenario comprehensively, updated the forward-looking information, and reflected its effect on expected credit losses through the statistical method. In addition, for financial assets in risky industries vulnerable to the impact of COVID-19, the Group measured expected credit losses using a conservative scenario comparing to the forecasted forward-looking information and reflected credit risk that will increase in the future, such as by expanding the scope of loans subject to lifetime expected credit losses (non-impaired). The Group will continue to monitor the impact of COVID-19 on the expected credit losses by comprehensively considering the duration of the impact on the entire economy and the government’s policies.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

3. Significant Accounting Policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

For the comparative purpose, certain information in the notes for the year ended December 31, 2020 have been reclassified to conform to the presentation for the year ended December 31, 2021.

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. Also, the existence and effects of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls the investee. 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 that subsidiary’s financial statements in preparing the consolidated financial statements to ensure conformity with the Group’s accounting policies.

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

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

When the Group loses control, any investment retained in the former subsidiary is recognized at its fair value at the date when control is lost, with the resulting difference recognized in profit or loss. This fair value will be the fair value on initial recognition of a financial asset in accordance with Korean IFRS No.1109 or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture. In addition, all amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for on the same basis as would be required if the Group had directly disposed of the related assets or liabilities. Therefore, amounts previously recognized in other comprehensive income are reclassified to profit or loss.

The Group accounts for each business combination by applying the acquisition method. The consideration transferred is measured at fair value, and identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are initially measured at acquisition-date fair values. For each business combination, the Group measures non-controlling interests in the acquiree that entitle their holders to a proportionate share of the acquiree’s net assets in the event of liquidation at either (a) fair value or (b) the proportionate share in the recognized amounts of the acquiree’s identifiable net assets. Acquisition-related costs are expensed in the periods in which the costs are incurred.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

3.1.1 Subsidiaries (cont’d)

 

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 directly disposed of the previously held equity interest.

The Group applies the book-value method to account for business combinations of entities under common control. Identifiable assets acquired and liabilities assumed in a business combination are measured at their book value on the consolidated financial statements of the Group. In addition, the difference between (a) the sum of consolidated net book value of the assets and liabilities transferred and accumulated other comprehensive income and (b) 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 over the financial and operating policy decisions. Generally, if the Group holds 20% or more of the voting power of the investee, it is presumed that the Group has significant influence.

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

Investments in associates and joint ventures are initially recognized at cost and equity method is applied after initial recognition. 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. Distributions received from an investee reduce the carrying amount of the investment. Unrealized gains and losses resulting from transactions between the Group and associates are eliminated to the extent of the Group’s share in associates. If unrealized losses are an indication of an impairment that requires recognition in the consolidated financial statements, those losses are recognized for the period.

If associates or joint ventures use accounting policies other than those of the Group for like transactions and events in similar circumstances, if necessary, adjustments shall be made to make the associates or joint ventures’ accounting policies conform to those of the Group when the associates or joint ventures’ financial statements are used by the Group in applying the equity method.

If the Group’s share of losses of associates and joint ventures equals or exceeds its interest in the associates (including long-term interests that, in substance, form part of the Group’s net investment in the associates), the Group discontinues recognizing its share of further losses. After the Group’s interest 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.

The Group determines at each reporting period whether there is any objective evidence that the investments in the associates 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 amount and recognizes the amount as non-operating expenses in the consolidated statement of comprehensive income.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

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 over the structured entities in which the Group has interests, it considers factors such as the purpose, the form, the substantive 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 Funds management

The Group manages and operates trust assets, collective investment, and other funds on behalf of investors. These trusts and funds are not consolidated, except for trusts and funds over which the Group has control.

3.1.5 Intragroup transactions

Intragroup balances, income, expenses, and any unrealized gains and losses resulting from intragroup transactions are eliminated in full, in preparing the consolidated financial statements. If unrealized losses are an indication of an impairment that requires recognition in the consolidated financial statements, those losses are recognized for the period.

3.2 Foreign Currency

3.2.1 Foreign currency transactions

A foreign currency transaction is recorded, at initial recognition in the functional currency, by applying to the foreign currency amount 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 exchange rate at the date when the fair value was measured and non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Except for the exchange differences for the net investment in a foreign operation and the financial liability designated as a hedging instrument of net investment, exchange differences arising on the settlement of monetary items or on translating monetary items are recognized in profit or loss. When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income, conversely, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.

3.2.2 Foreign operations

The results and financial position of a foreign operation, whose functional currency differs from the Group’s presentation currency, are translated into the Group’s presentation currency based on the following procedures.

If the functional currency of a foreign operation is not the currency of a hyperinflationary economy, 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, income and expenses for each statement of comprehensive income presented (including comparatives) are translated using the average exchange rates for the period. All resulting exchange differences are recognized in other comprehensive income.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

3.2.2 Foreign operations (cont’d)

 

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on 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 gain or loss on disposal is recognized. On the partial disposal of a subsidiary that includes a foreign operation, the Group re-attributes 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 Translation of the net investment in a foreign operation

A monetary item that is receivable from or payable to a foreign operation, for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the Group’s net investment in that foreign operation, then foreign currency difference arising from that monetary item is recognized in the other comprehensive income and shall be reclassified to profit or loss on disposal of the net 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 consolidated statement of financial position when the Group becomes 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 asset within the time frame established generally by regulation or convention in the marketplace concerned) is recognized and derecognized using trade date accounting.

For financial reporting purpose, the Group classifies (a) 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 and (b) financial liabilities as financial liabilities at fair value through profit or loss, or other financial liabilities. These classifications are based on the business model for managing financial instruments and the contractual cash flow characteristics of the financial instrument at initial recognition.

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 price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. 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.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

3.3.2.1 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 at 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 and, for financial assets, adjusted for any loss allowance.

3.3.2.2 Fair value

The Group uses quoted price in an active market which is based on listed market price or dealer price quotations of financial instruments traded in an active market as best estimate 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, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

If there is no active market for a financial instrument, 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 and willing parties, if available, referencing 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. However, for some complex financial instruments that require fair value measurement by valuation techniques based on certain assumptions because some or all inputs used in the model are not observable in the market, the Group uses internal valuation models developed from general valuation models or valuation results from independent external valuation institutions.

In addition, the fair value information recognized in the consolidated statement 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 Group 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 fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. 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 using unobservable inputs, that measurement is a Level 3 measurement.

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

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

3.3.2.2 Fair value (cont’d)

 

The Group uses valuation technique which maximizes the use of market inputs and minimizes the use of entity-specific inputs. It incorporates all factors that market participants would consider in pricing the asset or liability 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 consolidated statement of financial position. The derecognition criteria for financial assets and financial liabilities are as follows:

3.3.3.1 Derecognition of financial assets

A financial asset is derecognized when the contractual rights to the cash flows from the financial assets expire or the Group transfers substantially all the risks and rewards of ownership of the financial asset, or the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset and the Group has not retained control. Therefore, if the Group does not transfer substantially all the risks and rewards of ownership of the financial asset, the Group continues to recognize the financial asset to the extent of its continuing involvement in the financial asset.

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

The Group writes off a financial asset when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. In general, the Group considers write-off when it is determined that the debtor does not have sufficient funds or income to cover the principal and interest. The write-off decision is made in accordance with internal regulations. After the write-off, the Group can continue to collect the written-off loans according to the internal policy. Recovered amounts from financial assets previously written-off are recognized in profit or loss.

3.3.3.2 Derecognition of financial liabilities

A financial liability is derecognized from the consolidated statement of financial position when it is extinguished (i.e., the obligation specified in the contract is discharged, canceled or expires).

3.3.4 Offsetting

A financial asset and a financial liability are offset, and the net amount is presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on a future event and must be legally enforceable in the normal course of business, the event of default, and the event of insolvency or bankruptcy of the Group and all of the counterparties.

 

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Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

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 are classified as financial assets at fair value through profit or loss unless they are classified as financial assets at amortized cost or at fair value through other comprehensive income.

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 fair value are recognized in profit or loss. Interest income using the effective interest method and dividend income from financial assets at fair value through profit or loss are also recognized in profit or loss.

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 held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and where the assets’ cash flows represent solely payments of principal and interest on the principal amount outstanding and;

 

   

Equity instruments that are not held for short-term trading but held for strategic investment, and 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. Gains or losses arising from a change in fair value, other than dividend income, interest income calculated using the effective interest method and exchange differences arising on monetary items which are recognized directly in profit or loss, are recognized in other comprehensive income in equity.

When the financial assets at fair value through other comprehensive income is disposed of, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. However, cumulative gain or loss of equity instruments designated at fair value through other comprehensive income is reclassified to retained earnings not to profit or loss at disposal.

A financial asset at fair value through other comprehensive income denominated in foreign currency is translated at the closing rate. Exchange differences resulting from changes in amortized cost are recognized in profit or loss, and other changes are recognized in equity.

 

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Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

3.5.3 Financial assets at amortized cost

A financial asset, which is held within the business model whose objective is achieved by collecting contractual cash flows, and where the assets’ cash flows represent solely payments of principal and interest on the principal amount outstanding, is classified as a financial asset at amortized cost. After initial recognition, a financial asset at amortized cost is measured at amortized cost using the effective interest method and interest income is calculated using the effective interest method.

3.6 Expected Credit Losses of Financial Assets (Debt Instruments)

The Group recognizes loss allowances for expected credit losses at the end of the reporting period for financial assets at amortized cost and fair value through other comprehensive income except for financial assets at fair value through profit or loss.

Expected credit losses are estimated at present value of probability-weighted amount that is determined by evaluating a range of possible outcomes. The Group measures expected credit losses by reflecting all reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions, and forecasts of future economic conditions.

The approaches of measuring expected credit losses in accordance with Korean IFRS are as follows:

 

   

General approach: for financial assets and unused loan commitments not subject to the below 2 approaches

 

   

Simplified approach: for trade receivables, contract assets, and lease receivables

 

   

Credit-impaired approach: for financial assets that are credit-impaired at the time of acquisition

Application of general approach is differentiated depending on whether credit risk has increased significantly after initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measures loss allowances for that financial instrument at an amount equal to 12-month expected credit losses, whereas if the credit risk on a financial instrument has increased significantly since initial recognition, the Group measures loss allowances for a financial instrument at an amount equal to the lifetime expected credit losses. Lifetime is the period until the contractual maturity date of financial instruments and means the expected life.

The Group assesses whether the credit risk has increased significantly using the following criteria, and if one or more of the following criteria are met, it is deemed as significant increase in credit risk. Criterion of more than 30 days past due is applied to all subsidiaries, and other criteria are applied selectively considering specific indicators of each subsidiary or additionally considering specific indicators of each subsidiary. If the contractual cash flows of a financial asset have been renegotiated or modified, the Group assesses whether the credit risk has increased significantly using the same following criteria.

 

   

More than 30 days past due

 

   

Decline in credit rating at the end of the reporting period by certain notches or more compared to the time of initial recognition

 

   

Subsequent managing ratings below certain level in the early warning system

 

   

Debt restructuring (except for impaired financial assets) and

 

   

Credit delinquency information of Korea Federation of Banks, etc.

 

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Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

3.6 Expected Credit Losses of Financial Assets (Debt Instruments) (cont’d)

 

Under simplified approach, the Group always measures loss allowances at an amount equal to lifetime expected credit losses. Under credit-impaired approach, the Group only recognizes the cumulative changes in lifetime expected credit losses since initial recognition as loss allowances at the end of the reporting period. 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 considers the loan to be credit-impaired if one or more of the following criteria are met:

 

   

90 days or more past due

 

   

Legal proceedings related to collection

 

   

A borrower registered on the credit management list of Korea Federation of Banks

 

   

A corporate borrower with the credit rating C and D

 

   

Refinancing and

 

   

Debt restructuring, etc.

3.6.1 Forward-looking information

The Group uses forward-looking information, when determining whether credit risk has increased significantly and measuring expected credit losses.

The Group assumes that the risk components have a constant correlation with the economic cycle and uses statistical methodologies to estimate the relation between key macroeconomic variables and risk components for the expected credit losses.

The correlation between the major macroeconomic variables and the credit risk are as follows:

 

Key macroeconomic variables

   Correlation between the major macroeconomic
variables and the credit risk
Domestic GDP growth rate    (-)
Composite stock index    (-)
Rate of change of construction investment    (-)
Rate of change of housing transaction price index    (-)
Interest rate spread    (+)
Private consumption growth rate    (-)
Change of call rate compared to the previous year (%p)    (+)
Rate of change of household loan    (-)

Forward-looking information used in calculation of expected credit losses is based on the macroeconomic forecasts utilized by management of the Group for its business plan considering reliable external agency’s forecasts and others. The forward-looking information is generated by KB Research with a comprehensive approach to capture the possibility of various economic forecast scenarios that are derived from the internal and external viewpoints of the macroeconomic situation. The Group determines the macroeconomic variables to be used in forecasting future conditions of the economy, considering the direction of the forecast scenario and the significant relationship between macroeconomic variables and time series data. And there are some changes compared to the macroeconomic variables used in the previous year.

In order to reflect additional credit risk for financial assets whose industries are highly affected by COVID-19, the Group measures expected credit losses using a conservative scenario compared to the forecasted forward-looking information.

 

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Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

3.6.2 Measuring expected credit losses on financial assets at amortized cost

The expected credit losses of financial assets at amortized cost are measured as present value of the difference between the contractual cash flows to be received and the cash flows expected to be received. The Group estimates expected future cash flows for financial assets that are individually significant. The Group selects the individually significant financial assets by comprehensively considering quantitative and qualitative factors (such as debt restructuring or negative net assets, etc.) among financial assets with the credit risk has increased significantly or credit-impaired (individual assessment of impairment).

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

3.6.2.1 Individual assessment of impairment

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

3.6.2.2 Collective assessment of impairment

Collective assessment of impairment losses is performed by using a methodology based on historical loss experience and reflecting forward-looking information. Such a process incorporates factors such as type of collateral, type of product, type of borrower, 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 Group applies certain assumptions to model expected credit losses assessment and to determine input based on loss experience and forward-looking information. These models and assumptions are periodically reviewed to reduce the gap between loss estimate and actual loss experience.

The lifetime expected credit losses are measured by applying the PD to the carrying amount calculated by deducting the expected principal repayment amount from the carrying amount as of the reporting date and the LGD adjusted to reflect changes in the carrying amount.

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

The Group measures expected credit losses on financial assets at fair value through other comprehensive income in a manner that is consistent with the requirements that are applicable to financial assets at amortized cost. However, loss allowances are recognized in other comprehensive income. Upon disposal or repayment of financial assets at fair value through other comprehensive income, the amount of the loss allowances is reclassified from other comprehensive income to profit or loss.

 

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Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

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 interest rate risk, currency risk, and others. The Group’s derivative financial instruments business focuses on addressing the needs of the Group’s corporate clients to hedge their risk exposure and to hedge the Group’s risk exposure that results from such client contracts. These derivative financial instruments are presented as derivative financial instruments in the consolidated financial statements irrespective of transaction purpose and subsequent measurement requirement.

The Group designates certain derivative financial instruments 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 certain derivative and non-derivative financial instruments as hedging instruments to hedge the currency risk of the net investment in a foreign operation (hedge of net investment).

At the inception of the hedging relationship, 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, the nature of the risk being hedged, the inception date of hedging relationship and how the Group will assess the hedging instrument’s effectiveness in offsetting the changes in the hedged item’s fair value or cash flows attributable to the hedged risk.

Derivative financial instruments are initially recognized at fair value. After initial recognition, derivative financial instruments 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 changes in fair value are recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss.

3.7.2 Derivative financial instruments for fair value hedges

If derivative financial instruments are designated and qualify for fair value hedges, changes in fair value of the hedging instrument and changes in fair value of the hedged item attributable to the hedged risk are recognized in profit or loss as part of other operating income or expenses. If the hedged items are equity instruments for which the Group has elected to present changes in fair value in other comprehensive income, changes in fair value of the hedging instrument and changes in fair value of the hedged item attributable to the hedged risk are recognized in other comprehensive income.

Fair value hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedging relationship ceases to meet the qualifying criteria. Once fair value hedge accounting is discontinued, the adjustment to the carrying amount of a hedged item is amortized to profit or loss by the maturity of the financial instrument using the effective interest method.

 

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Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

3.7.3 Derivative financial instruments for cash flow hedges

The effective portion of changes in fair value of derivative financial instruments that are designated and qualify for 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 hedged expected future cash flows) from inception of the hedge. The ineffective portion is recognized in profit or loss as other operating income or expenses. The associated gains or losses that were previously recognized in other comprehensive income are reclassified from equity to profit or loss (other operating income or expenses) as a reclassification adjustment in the same period or periods during which the hedged forecast cash flows affect profit or loss. Cash flow hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedging relationship ceases to meet the qualifying criteria. 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 period in which the forecast transaction occurs. If the forecast transaction is no longer expected to occur, the cumulative gains or losses that have been recognized in other comprehensive income are immediately reclassified to profit or loss.

3.7.4 Derivative and non-derivative financial instruments designated for net investments hedges

If derivative and non-derivative financial instruments are designated and qualify for the net investment hedge, the effective portion of changes in fair value of the hedging instrument is recognized in other comprehensive income and the ineffective portion is recognized in profit or loss as other operating income or expenses. The cumulative gains or losses on the hedging instrument relating to the effective portion of the hedge that have been accumulated 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.

3.7.5 Embedded derivatives

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

3.7.6 Day one gains or losses

If the Group uses a valuation technique that incorporates unobservable inputs for the fair value of the OTC derivatives at initial recognition, there may be a difference between the transaction price and the amount determined using that valuation technique. In these circumstances, the difference is not recognized in profit or loss but deferred and amortized using the straight-line method over the life of the financial instrument. If the fair value is subsequently determined using observable 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 or expenses.

 

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Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

3.8 Property and Equipment

3.8.1 Recognition and measurement

Property and equipment that qualify for recognition as an asset are measured at cost and subsequently carried at its 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 property and equipment 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.

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 life of property and equipment are as follows:

 

Property and equipment

  

Depreciation method

  

Estimated useful life

Buildings    Straight-line    20~40 years
Leasehold improvements    Declining-balance/ Straight-line    4~15 years
Equipment and vehicles    Declining-balance/ Straight-line    3~15 years

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

 

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December 31, 2021 and 2020

 

 

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 life of investment properties are as follows:

 

Investment properties

  

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 and, 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 or declining-balance method with no residual value over their estimated useful life since the assets are available for use.

 

Intangible assets

  

Amortization method

  

Estimated useful life

Industrial property rights    Straight-line    3 ~ 19 years
Software    Straight-line    3 ~ 5 years
Value of business acquired    Declining-balance    30, 60 years
Others    Straight-line / Declining-balance    1 ~ 13 years

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

 

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December 31, 2021 and 2020

 

 

3.10.1 Value of business acquired (“VOBA”)

In the case of acquisition of insurance company, the Group recognizes the difference amount as VOBA in intangible assets, if the fair value of the acquired insurance liability is less than the carrying amount based on the acquiree’s accounting policy. In the opposite case, the difference amount is recognized as negative VOBA and included in premium reserve. VOBA is an estimated present value of profits inherent in the future cash flow of insurance contracts at the acquisition date. VOBA is amortized over the above estimated useful life using declining balance method, and the amortization is recognized as insurance expense.

3.10.2 Goodwill

3.10.2.1 Recognition and measurement

Goodwill related to 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 consideration transferred over the fair value of net identifiable assets acquired and liabilities assumed. If the fair value of net identifiable assets acquired and liabilities assumed exceeds the consideration transferred, the difference is recognized in profit or loss.

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

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.

3.10.2.2 Additional acquisitions of non-controlling interests

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

3.10.2.3 Subsequent measurement

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

3.10.3 Subsequent expenditures

Subsequent expenditures are capitalized only when they enhance values of the assets. Internally generated intangible assets, such as goodwill and trade name, are not recognized as assets but expensed as incurred.

 

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December 31, 2021 and 2020

 

 

3.11 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 (a) deferred income tax assets, (b) assets arising from employee benefits and (c) 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 (a) goodwill acquired in a business combination, (b) intangible assets with an indefinite useful life and (c) 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. 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 of disposal and its value in use. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit that are discounted by a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss and recognized immediately in profit or loss. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units that is 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.

3.12 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 (a) its carrying amount measured in accordance with the applicable Korean IFRS, immediately before the initial classification of the asset (or disposal group) as held for sale and (b) fair value less costs to sell.

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. Gain is 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.

 

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December 31, 2021 and 2020

 

 

3.13 Financial Liabilities

The Group classifies 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.

3.13.1 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 at initial recognition. After 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. At 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, when the Group borrows securities from the Korea Securities Depository and others, these transactions are managed as off-balance sheet items. The borrowed securities are treated as financial liabilities at fair value through profit or loss when they are sold. Changes in fair value at the end of the reporting period and difference between carrying amount at redemption and purchased amount are recognized in profit or loss.

In addition, the change in fair value of the financial liability designated at fair value through profit or loss that is attributable to change 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 in accordance with Korean IFRS No.1109. However, if this treatment creates or enlarges an accounting mismatch, the Group recognizes this change in profit or loss.

3.13.2 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, borrowings, debentures, and others. At initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. After initial recognition, other financial liabilities are measured at amortized cost, and its interest expense is recognized, using the effective interest method.

When an asset is sold under repurchase agreement, the Group continues to recognize the asset with the amount sold being accounted for as borrowings. 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, canceled or expires).

 

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December 31, 2021 and 2020

 

 

3.14 Insurance Contracts

KB Insurance Co., Ltd., KB Life Insurance Co., Ltd., and Prudential Life Insurance Company of Korea 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 No.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 No.1104 Insurance Contracts. The Group recognizes assets and liabilities relating to insurance contracts as other assets and insurance liabilities in the consolidated statement of financial position, and income and expense relating to insurance contracts as insurance income and expenses in the consolidated statement of comprehensive income, respectively.

3.14.1 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.

3.14.2 Insurance liabilities

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

3.14.2.1 Premium reserve

The Group accumulates the amount calculated based on the net insurance premium already received for future claim payments for insurance contracts maintained at the end of the reporting period. It is calculated as the greater of the amount using standard interest rate and standard risk ratio defined by director of the Financial Supervisory Services and the amount using the basic ratios that have been used in premium calculation.

3.14.2.2 Reserve for outstanding claims

When the insured event has occurred before the end of the reporting period, but the claim amount is not confirmed, reserve for outstanding claims is calculated based on the estimated amount to be paid.

3.14.2.3 Unearned premium reserve

Unearned premium reserve is the premium which is to be allocated to the following period among the premium which is due before the end of the reporting period.

3.14.2.4 Reserve for dividend to policyholders

Reserve for dividend to policyholders including dividend of interest rate differential, rate of risk differential, and business expenses differential is recognized for the purpose of provisioning for policyholders’ dividends in the future in accordance with statutes or insurance terms and conditions.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

3.14.3 Liability adequacy test (“LAT”)

The Group conducts a liability adequacy test for all contracts to which Korean IFRS No.1104 Insurance Contracts apply, in consideration of current estimates of all cash inflows and cash outflows from the insurance contracts at the end of the reporting period including options, guarantees, claims handling costs, and policy loans. If the assessment shows that the carrying amount of its insurance liabilities is inadequate in the light of the estimated future cash flows, the entire deficiency is recognized in profit or loss.

Future cash flows from long-term insurance are discounted at interest rate scenario, which is a risk-free rate scenario adjusted by liquidity premium, whereas future cash flows from general insurance are not discounted to present value. In the case of insurance premium and unearned premium reserve, all future cash flows such as payment of claims, administration expenses, and premium received from policyholders are considered for the liability adequacy test. And in the case of reserve for outstanding claims, the adequacy of individually estimated claims is evaluated by applying models among various statistical methods that are considered appropriate for claim development trend.

3.14.4 Deferred acquisition costs

The Group recognizes acquisition cost incurred by the long-term insurance contract as an asset and amortizes it evenly over the premium payment period. If the premium payment period exceeds seven years, the amortization period shall be seven years. If the insurance contract is surrendered or lapsed due to payment overdue, the remaining balances of deferred acquisition cost are fully amortized in the period in which the contract is surrendered or lapsed.

3.15 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. Inevitable risks and uncertainties surrounding related events and circumstances are considered in measuring the best estimate of the provisions, and where the effect of the time value of money is material, the amount of provisions is the present value of the expenditures expected to be required to settle the obligation.

Provisions for confirmed and unconfirmed acceptances and guarantees, and unused credit lines of consumer and corporate loans are recognized using a valuation model that applies the credit conversion factor, PD, and LGD.

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.

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 least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it. If the Group has a contract that is onerous, the present obligation under the contract is recognized and measured as provisions.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

3.16 Financial Guarantee Contracts

Financial guarantee contracts require the issuer 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 and classified 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 No.1109 Financial Instruments and

 

   

The amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with Korean IFRS No.1115 Revenue from Contracts with Customers.

3.17 Equity Instrument 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.

3.17.1 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.

3.17.2 Hybrid securities

The financial instruments can be classified as either financial liabilities or equity in accordance with the terms of the contract. The Group classifies hybrid securities as an equity if the Group has the unconditional right to avoid any contractual obligation to deliver cash or another financial asset in relation to the financial instruments. However, hybrid securities issued by subsidiaries are classified as non-controlling interests, dividends are recognized in the consolidated statement of comprehensive income as profit attributable to non-controlling interests.

3.17.3 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 retirement 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.

3.17.4 Compound financial instruments

A compound 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 compound 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 method until it is extinguished by conversion or matured. Equity component is initially measured at fair value of compound financial instrument in its entirety less fair value of liability component net of tax effect, and it is not remeasured subsequently.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

3.18 Revenue Recognition

The Group recognizes revenues in accordance with the following steps determined in accordance with Korean IFRS No.1115 Revenue from Contracts with Customers.

 

   

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.

3.18.1 Interest income and expense

Interest income and expense on debt securities at fair value through profit or loss (excluding beneficiary certificates, equity investments, and other debt instruments), loans, financial instruments at amortized cost, and debt securities at fair value through other comprehensive income are recognized in the consolidated statement of comprehensive income using the effective interest method in accordance with Korean IFRS No.1109 Financial Instruments. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and 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 gross carrying amount of a financial asset or to the amortized cost of a financial liability. When calculating the effective interest rate, the Group estimates expected cash flows by considering all contractual terms of the financial instrument but does not consider expected credit losses. The calculation includes all fees and points paid (main components of effective interest rate 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 reliably estimate the cash flows and the expected life of a financial instrument, the Group uses the contractual cash flows over the full contractual term of the financial instrument.

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

Interest income on debt securities at fair value through profit or loss is also classified as interest income in the consolidated statement of comprehensive income.

3.18.2 Fee and commission income

The Group recognizes financial service fees in accordance with the purpose of charging the fees and the accounting standards of the financial instrument related to the fees earned.

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

Such fees are generally treated as adjustments of effective interest rate. 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 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.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

3.18.2.2 Fees related to performance obligations satisfied over time

If the control of a good or service is transferred over time, the Group recognizes revenue related to performance obligations over the period of performance obligations. Fees charged in return for the services for a certain period of time, such as asset management fees, consignment business fees, etc. are recognized over the period of performance obligations.

3.18.2.3 Fees related to performance obligations satisfied at a point in time

Fees earned at a point in time are recognized as revenue when a customer obtains controls of a promised good or service and the Group satisfies a performance obligation.

Commission on negotiation or participation in negotiation for the third party such as trading stocks or other securities, arranging merger and acquisition of business, is recognized as revenue when the transaction has been completed.

If the Group arranges a syndicated loan but does not participate in the syndicated loan or participates in the syndicated loan with the same effective profit as other participants, a syndication arrangement fee is recognized as revenue at the completion of the syndication service.

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

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

 

   

Gains or losses relating to financial instruments at fair value through profit or loss (excluding interest income using the effective interest rate method)

 

   

Gains or losses relating to derivative financial instruments for trading (including derivative financial instruments for hedging purpose but do not qualify for hedge accounting)

3.18.4 Dividend income

Dividend income is recognized in profit or loss when the right to receive payment is established. Dividend income is recognized as net gains or losses on financial instruments at fair value through profit or loss or other operating income depending on the classification of equity securities.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

3.19 Employee Compensation and Benefits

3.19.1 Post-employment benefits

3.19.1.1 Defined contribution plans

When an employee has rendered service to the Group during a period, the Group recognizes the contribution payable to a defined contribution plan in exchange for that service as post-employment benefits for the period.

3.19.1.2 Defined benefit plans

All post-employment benefits, other than defined contribution plans, are classified as defined benefit plans. The amount recognized as a net 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 resulted from changes in actuarial assumptions and experience adjustments are recognized in other comprehensive income.

When 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 for employee service in prior periods, resulting from the introduction or changes to a defined benefit plan. Such past service cost is immediately recognized as an expense for the period.

3.19.2 Short-term employee benefits

Short-term employee benefits are employee benefits that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service as an expense for the period.

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

3.19.3 Share-based payment

The Group provides its executives and employees with stock grants, mileage stock, and long-term share-based payments programs. When stock grants are exercised, the Group can either select to distribute newly issued shares or treasury shares or compensate in cash based on the share price. When mileage stock and long-term share-based payments are exercised, the Group pays the amount equivalent to share price of KB Financial Group Inc. in cash.

 

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Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

3.19.3 Share-based payment (cont’d)

 

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 accounts for the transaction in accordance with the requirements applying to cash-settled share-based payment transactions because the Group determines that it has a present obligation to settle in cash based on a past practice and a stated policy of settling in cash. Therefore, the Group measures the liability incurred as consideration for the service received at fair value and recognizes related expense and accrued expense over the vesting periods. For mileage stock and long-term share-based payments program, the Group accounts for the transaction in accordance with the requirements applying to cash-settled share-based payment transactions, which are recognized as expense and accrued expenses at the time of vesting.

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 as share-based payments.

3.19.4 Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or an employee’s decision to accept an offer of benefits in exchange for the termination of employment. The Group recognizes 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 No.1037 and involves the payment of termination benefits. If the termination benefits are not expected to be settled wholly before twelve months after the end of the annual reporting period, then the termination benefits are discounted to present value.

3.20 Income Tax Expense

Income tax expense comprises current tax expense and deferred income tax expense. Current and deferred income tax are recognized as income or expense and included in profit or loss for the period, except to the extent that the tax arises from (a) a transaction or 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.

3.20.1 Current income tax

Current income tax is the amount of income tax payable (recoverable) in respect of the taxable profit (tax 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 for the current and prior periods are measured using the tax rates 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 set off the recognized amounts and (b) intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

3.20.2 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 assets and liabilities are not recognized if they arise from the initial recognition of an asset or liability in a transaction that is not a business combination, and at the time of the transaction, affects neither accounting nor taxable profit or loss.

The Group recognizes a deferred income tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and joint ventures, except to the extent that the Group is able to control the timing of the reversal of the temporary difference, 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 if, and only if the Group has a legally enforceable right to set off 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.

3.20.3 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, such as a claim for rectification, a claim for a refund related to additional tax or a tax investigation by the tax authorities. The Group recognizes its uncertain tax positions in the consolidated financial statements in accordance with Korean IFRS No.1012 and Interpretation of Korean IFRS No.2123. The income tax asset is recognized if a tax refund is probable for taxes levied by the tax authority, and the amount to be paid as a result of the tax investigation and others is recognized as the current tax payable. However, penalty tax and additional refund on tax are regarded as penalty or interest and are accounted for in accordance with Korean IFRS No.1037.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

3.21 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 consolidated 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. Diluted earnings per share is calculated by adjusting the profit or loss attributable to ordinary equity holders of the Parent Company and weighted average number of shares outstanding, taking into account all potential dilution effects, such as exchangeable bonds and share-based payments given to employees.

3.22 Lease

The Group as a lessor recognizes lease payments from operating leases as income on a straight-line basis over the lease term. Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset and recognized as expense over the lease term on the same basis as lease income. The respective leased assets are included in the consolidated statement of financial position based on their nature.

A lessee is required to recognize a right-of-use asset (lease assets) representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Assets and liabilities arising from a lease are initially measured at the present value.

Lease liabilities include the net present value of the following lease payments:

 

   

Fixed payments (including in-substance fixed payments), less any lease incentives receivable

 

   

Variable lease payments that depend on an index or a rate

 

   

Amounts expected to be payable by the lessee under residual value guarantees

 

   

The exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and

 

   

Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease

The lease payments are discounted using the interest rate implicit in the lease if that rate can be readily determined. If that rate cannot be readily determined, the lessee’s incremental borrowing rate is used, which is the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.

Right-of-use assets are measured at cost comprising the following:

 

   

The amount of the initial measurement of the lease liability

 

   

Any lease payments made at or before the commencement date, less any lease incentives received

 

   

Any initial direct costs incurred by the lessee, and

 

   

An estimate of restoration costs

However, the Group can elect not to apply the requirements of Korean IFRS No.1116 to short-term lease (lease that, at the commencement date, has a lease term of 12 months or less) and leases for which the underlying asset is of low value (for example, underlying leased asset under USD 5,000).

 

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Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

3.22 Lease (cont’d)

 

The right-of-use asset is depreciated from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.

For sale and leaseback transactions, the Group applies the requirements of Korean IFRS No.1115 Revenue from Contracts with Customers, to determine whether the transfer of an asset is accounted for as a sale of that asset.

3.23 Operating Segments

The Group identifies its operating segments based on internal reports which are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.

Segment information includes items which are directly attributable and can be allocated to the segment on a reasonable basis.

3.24 Overlay Approach

The Group applies the overlay approach in accordance with Korean IFRS No.1104 and a 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 No.1109 but would not have been measured at fair value through profit or loss in its entirety applying Korean IFRS No.1039 and

 

   

It is not held in respect of an activity that is unconnected with contracts within the scope of Korean IFRS No.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 No.1109 and

 

   

The amount that would have been reported in profit or loss for the designated financial assets if the insurer had applied Korean IFRS No.1039.

The Group is permitted to apply the overlay approach either at initial recognition or it may subsequently designate financial assets that newly meet criterion of not being held in respect of an activity that is unconnected with insurance contract, 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 cannot subsequently apply the overlay approach, if it stops using this approach because it is no longer an insurer.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

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.

This note regarding financial risk management provides information about the risks that the Group is exposed to and about its objectives, policies, risk assessment and management procedures, and capital management. Additional quantitative information is disclosed throughout the consolidated financial statements.

The Group’s risk management system focuses on efficiently supporting long-term strategy and management decisions of the Group by increasing risk transparency, preventing risk transfer between subsidiaries and preemptive response to rapidly changing financial environments. Credit risk, market risk, operational risk, interest rate risk, insurance risk, liquidity risk, credit concentration risk, strategy risk, and reputation risk are recognized as the Group’s significant risks and measured and managed by quantifying them in the form of internal capital or Value at Risk (“VaR”) using statistical methods.

4.1.2 Risk management organization

4.1.2.1 Risk Management Committee

The Risk Management Committee, as the ultimate decision-making body, deals with risk-related issues, such as establishing risk management strategies in accordance with the strategic direction determined by the board of directors, determining the affordable level of risk appetite, reviewing the level of risk and the status of risk management activities, approving the application of risk management systems, methodologies, and major improvements, and establishing and approving risk management policies and procedures to timely recognize, measure, monitor, and control risks arising from various transactions by the Group.

4.1.2.2 Risk Management Council

The Risk Management Council is responsible for consulting on matters delegated by the Risk Management Committee and requests for review by the Management Executive Committee, consulting on details of each subsidiary’s risk management policies and procedures, monitoring the Group’s risk management status, and establishing and implementing necessary measures.

4.1.2.3 Risk Management Department

The Risk Management Department performs the Group’s risk management detailed policies, procedures, and business processes, and is responsible for calculating the Group’s risk-weighted assets, monitoring and managing internal capital limits.

 

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Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

4.2 Credit Risk

4.2.1 Overview of credit risk

Credit risk is the risk of loss from the portfolio of assets held due to the counterparty’s default, breach of contract, and deterioration of credit quality. For risk management purposes, the Group manages all factors of credit risk exposure, such as default risk of individual borrowers, country risk, and risk of specific sectors in an integrated way.

4.2.2 Credit risk management

The Group measures the expected loss and internal capital for the assets subject to credit risk management, including on-balance and off-balance assets, and uses them as management indicators. The Group allocates and manages credit risk internal capital limits.

In addition, to prevent excessive concentration of exposures by borrower and industry, the total exposure limit at the Group level is introduced, applied, and managed to control the credit concentration risk.

All of the Kookmin Bank’s loan customers (individuals and corporates) are assigned a credit rating and managed by a comprehensive internal credit evaluation system. For individuals, the credit rating is evaluated by utilizing personal information, income and job information, asset information, and bank transaction information. For corporates, the credit rating is evaluated by analyzing and utilizing financial and non-financial information which measures current and future corporate value and ability to repay the debt. Also, the extent to which corporates have the ability to meet debt obligations is comprehensively considered.

The credit rating, once assigned, serves as the fundamental instrument in Kookmin Bank’s credit risk management, and is applied in a wide range of credit risk management processes, including credit approval, credit limit management, loan pricing, and assessment of allowances for credit losses. For corporates, Kookmin Bank conducts a regular credit evaluation at least once a year, and the review and supervision departments regularly validate the adequacy of credit ratings to manage credit risks.

KB Kookmin Card Co., Ltd.’s credit scoring system is divided into Application Scoring System (“ASS”) and Behavior Scoring System (“BSS”). For applications that meet the eligibility criteria for card issuance, the card will be issued only if the ASS credit rating is above the standard. KB Kookmin Card Co., Ltd.’s internal information, external information from the credit bureau company and others, and personal information on the application are used to calculate the ASS credit rating. The BSS, which is recalculated on a weekly basis, predicts the delinquency probability of cardholders, and utilizes it to monitor cardholders and portfolio risk.

In order to establish a credit risk management system, the Group manages credit risk by forming a separate risk management organization. In particular, independently of the Sales Group, the Credit Management & Analysis Group of Kookmin Bank, a subsidiary, is in charge of loan policy, loan system, credit rating, credit analysis, follow-up management, and corporate restructuring. The Risk Management Group of Kookmin Bank is responsible for establishing policies on credit risk management, measuring and limiting internal capital of credit risk, setting credit limits, credit review, and verification of credit rating models.

 

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Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

4.2.3 Maximum exposure to credit risk

The Group’s maximum exposures to credit risk without consideration of collateral values in relation to financial instruments other than equity securities as of December 31, 2021 and 2020, are as follows:

 

(In millions of Korean won)    December 31,
2021
     December 31,
2020
 

Financial assets

     

Due from financial institutions measured at amortized cost *

   W 28,362,387      W 22,720,091  

Financial assets at fair value through profit or loss:

     

Due from financial institutions measured at fair value through profit or loss

     200,742        100,094  

Securities measured at fair value through profit or loss

     63,002,692        58,415,100  

Loans measured at fair value through profit or loss

     269,296        337,983  

Financial instruments indexed to the price of gold

     113,622        89,965  

Derivatives

     3,721,370        5,545,385  

Loans measured at amortized cost *

     417,900,273        377,166,984  

Financial investments:

     

Securities measured at fair value through other comprehensive income

     56,259,511        58,456,889  

Securities measured at amortized cost *

     44,471,628        36,870,229  

Loans measured at fair value through other comprehensive income

     313,604        293,409  

Other financial assets *

     10,755,350        14,167,689  
  

 

 

    

 

 

 
     625,370,475        574,163,818  
  

 

 

    

 

 

 

Off-balance sheet items

     

Acceptances and guarantees contracts

     10,199,689        8,548,928  

Financial guarantee contracts

     6,892,464        4,964,468  

Commitments

     170,218,143        159,133,983  
  

 

 

    

 

 

 
     187,310,296        172,647,379  
  

 

 

    

 

 

 
   W 812,680,771      W 746,811,197  
  

 

 

    

 

 

 

 

*

After netting of allowance

4.2.4 Credit risk of loans

The Group maintains allowances for loan losses associated with credit risk of loans to manage its credit risk.

The Group assesses expected credit losses and recognizes loss allowances of financial assets at amortized cost and financial assets at fair value through other comprehensive income. Financial assets at fair value through profit or loss are excluded. Expected credit losses are a probability-weighted estimate of possible credit losses occurring in a certain range by reflecting reasonable and supportable information that is reasonably available at the end of the reporting period without undue cost or effort, including information about past events, current conditions, and forecasts of future economic conditions. The Group measures the expected credit losses of loans classified as financial assets at amortized cost, by deducting allowances for credit losses. The expected credit losses of loans classified as financial assets at fair value through other comprehensive income are presented in other comprehensive income in the consolidated financial statements.

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

4.2.4.1 Credit risk exposure

Credit qualities of loans as of December 31, 2021 and 2020, are as follows:

(In millions of Korean won)

 

     December 31, 2021  
     12-month
expected credit
losses
     Lifetime expected credit losses      Not applying
expected credit
losses
     Total  
   Non-impaired      Impaired  

Loans measured at amortized cost *

 

        

Corporate

              

Grade 1

   W 111,284,284      W 5,345,956      W 3,705      W     —        W 116,633,945  

Grade 2

     68,050,042        7,847,126        4,338        —          75,901,506  

Grade 3

     5,323,745        2,850,266        2,949        —          8,176,960  

Grade 4

     586,857        1,037,461        7,570        —          1,631,888  

Grade 5

     12,877        352,046        2,143,708        —          2,508,631  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     185,257,805        17,432,855        2,162,270        —          204,852,930  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Retail

              

Grade 1

     170,810,128        4,593,302        11,609        —          175,415,039  

Grade 2

     9,093,868        4,209,451        35,097        —          13,338,416  

Grade 3

     3,410,624        1,414,439        23,467        —          4,848,530  

Grade 4

     235,150        400,029        17,998        —          653,177  

Grade 5

     495,987        445,588        710,341        —          1,651,916  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     184,045,757        11,062,809        798,512        —          195,907,078  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Credit card

              

Grade 1

     10,640,412        1,113,400        —          —          11,753,812  

Grade 2

     3,919,053        1,027,546        —          —          4,946,599  

Grade 3

     1,360,908        1,412,951        —          —          2,773,859  

Grade 4

     82,565        608,250        —          —          690,815  

Grade 5

     1,267        130,712        527,256        —          659,235  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     16,004,205        4,292,859        527,256        —          20,824,320  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     385,307,767        32,788,523        3,488,038        —          421,584,328  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans measured at fair value through other comprehensive income

 

     

Corporate

              

Grade1

     233,868        —          —          —          233,868  

Grade2

     79,736        —          —          —          79,736  

Grade3

     —          —          —          —          —    

Grade4

     —          —          —          —          —    

Grade5

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     313,604        —          —          —          313,604  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     313,604        —          —          —          313,604  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 385,621,371      W 32,788,523      W 3,488,038      W —        W 421,897,932  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

50


Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

4.2.4.1 Credit risk exposure (cont’d)

 

(In millions of Korean won)

 

     December 31, 2020  
     12-month
expected credit
losses
     Lifetime expected credit losses      Not applying
expected credit
losses
     Total  
   Non-impaired      Impaired  

Loans measured at amortized cost *

 

        

Corporate

              

Grade 1

   W 93,033,311      W 4,646,801      W 7,042      W     —        W 97,687,154  

Grade 2

     61,701,031        7,060,916        7,817        —          68,769,764  

Grade 3

     2,702,369        2,507,455        3,055        —          5,212,879  

Grade 4

     611,743        1,085,704        8,562        —          1,706,009  

Grade 5

     18,792        394,935        2,162,732        —          2,576,459  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     158,067,246        15,695,811        2,189,208        —          175,952,265  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Retail

              

Grade 1

     163,261,012        3,536,290        6,789        —          166,804,091  

Grade 2

     8,828,445        4,197,409        34,896        —          13,060,750  

Grade 3

     2,519,004        1,322,878        9,012        —          3,850,894  

Grade 4

     225,262        402,881        8,352        —          636,495  

Grade 5

     39,466        636,361        672,397        —          1,348,224  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     174,873,189        10,095,819        731,446        —          185,700,454  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Credit card

              

Grade 1

     8,210,540        412,555        —          —          8,623,095  

Grade 2

     5,831,625        708,405        —          —          6,540,030  

Grade 3

     1,526,382        1,216,434        —          —          2,742,816  

Grade 4

     16,978        247,241        —          —          264,219  

Grade 5

     2,101        118,907        506,462        —          627,470  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     15,587,626        2,703,542        506,462        —          18,797,630  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     348,528,061        28,495,172        3,427,116        —          380,450,349  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans measured at fair value through other comprehensive income

 

     

Corporate

              

Grade1

     235,469        —          —          —          235,469  

Grade2

     57,940        —          —          —          57,940  

Grade3

     —          —          —          —          —    

Grade4

     —          —          —          —          —    

Grade5

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     293,409        —          —          —          293,409  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     293,409        —          —          —          293,409  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 348,821,470      W 28,495,172      W 3,427,116      W     —        W 380,743,758  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

*

Before netting of allowance

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

4.2.4.1 Credit risk exposure (cont’d)

 

Credit qualities of loans graded according to internal credit ratings as of December 31, 2021 and 2020, 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

4.2.4.2 Quantification of the extent to which collateral and other credit enhancements mitigate credit risk of loans as of December 31, 2021 and 2020, are as follows:

 

(In millions of Korean won)    December 31, 2021  
     12-month
expected credit
losses
     Lifetime expected credit losses      Total  
     Non-impaired      Impaired  

Guarantees

   W 90,696,507      W 6,604,758      W 396,097      W 97,697,362  

Deposits and savings

     5,723,090        98,389        79,229        5,900,708  

Property and equipment

     13,205,822        597,251        319,697        14,122,770  

Real estate

     182,139,890        13,736,634        1,990,847        197,867,371  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 291,765,309      W 21,037,032      W 2,785,870      W 315,588,211  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of Korean won)    December 31, 2020  
     12-month
expected credit
losses
     Lifetime expected credit losses      Total  
     Non-impaired      Impaired  

Guarantees

   W 79,088,720      W 5,732,814      W 187,512      W 85,009,046  

Deposits and savings

     5,210,681        149,745        67,047        5,427,473  

Property and equipment

     11,607,675        808,476        120,471        12,536,622  

Real estate

     170,171,707        12,836,286        1,836,865        184,844,858  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 266,078,783      W 19,527,321      W 2,211,895      W 287,817,999  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

4.2.5 Credit risk of securities

Credit qualities of securities exposed to credit risk other than equity securities among financial investments as of December 31, 2021 and 2020, are as follows:

(In millions of Korean won)

 

     December 31, 2021  
     12-month
expected credit
losses
     Lifetime expected credit losses      Not applying
expected credit
losses
     Total  
   Non-impaired      Impaired  

Securities measured at amortized cost *

 

Grade 1

   W 43,427,028      W     —        W     —        W     —        W 43,427,028  

Grade 2

     1,039,757        —          —          —          1,039,757  

Grade 3

     1,371        7,641        —          —          9,012  

Grade 4

     —          —          —          —          —    

Grade 5

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     44,468,156        7,641        —          —          44,475,797  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through other comprehensive income

 

Grade 1

     51,490,960        —          —          —          51,490,960  

Grade 2

     4,682,582        —          —          —          4,682,582  

Grade 3

     42,861        3,973        —          —          46,834  

Grade 4

     39,135        —          —          —          39,135  

Grade 5

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     56,255,538        3,973        —          —          56,259,511  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 100,723,694      W 11,614      W     —        W     —        W 100,735,308  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(In millions of Korean won)

 

     December 31, 2020  
     12-month
expected credit
losses
     Lifetime expected credit losses      Not applying
expected credit
losses
     Total  
   Non-impaired      Impaired  

Securities measured at amortized cost *

 

Grade 1

   W 36,467,719      W     —        W     —        W     —        W 36,467,719  

Grade 2

     359,551        —          —          —          359,551  

Grade 3

     38,847        7,061        —          —          45,908  

Grade 4

     —          —          —          —          —    

Grade 5

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     36,866,117        7,061        —          —          36,873,178  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through other comprehensive income

 

Grade 1

     54,576,777        —          —          —          54,576,777  

Grade 2

     3,746,200        —          —          —          3,746,200  

Grade 3

     126,391        —          —          —          126,391  

Grade 4

     7,521        —          —          —          7,521  

Grade 5

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     58,456,889        —          —          —          58,456,889  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W   95,323,006      W   7,061      W     —        W     —        W   95,330,067  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

*

Before netting of allowance

 

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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

4.2.5 Credit risk of securities (cont’d)

 

Credit qualities of securities other than equity securities, according to the credit ratings by external credit rating agencies as of December 31, 2021 and 2020, 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 above, and those denominated in foreign currencies are based on the lowest credit rating by the foreign credit rating agencies above.

4.2.6 Credit risk of due from financial institutions

Credit qualities of due from financial institutions as of December 31, 2021 and 2020, are as follows:

(In millions of Korean won)

 

     December 31, 2021  
     12-month
expected credit
losses
     Lifetime expected credit losses      Not applying
expected credit
losses
     Total  
   Non-impaired      Impaired  

Due from financial institutions measured at amortized cost *

 

Grade 1

   W 26,548,145      W     —        W     —        W     —        W 26,548,145  

Grade 2

     1,305,539        —          —          —          1,305,539  

Grade 3

     61,177        —          —          —          61,177  

Grade 4

     439,511        —          —          —          439,511  

Grade 5

     10,984        —          —          —          10,984  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 28,365,356      W     —        W     —        W     —        W 28,365,356  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(In millions of Korean won)

 

     December 31, 2020  
     12-month
expected credit
losses
     Lifetime expected credit losses      Not applying
expected credit
losses
     Total  
   Non-impaired      Impaired  

Due from financial institutions measured at amortized cost *

 

Grade 1

   W 21,437,207      W     —        W     —        W     —        W 21,437,207  

Grade 2

     334,371        —          —          —          334,371  

Grade 3

     445,732        13,099        —          —          458,831  

Grade 4

     479,142        —          —          —          479,142  

Grade 5

     13,520        —          283        —          13,803  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 22,709,972      W 13,099      W 283      W     —        W 22,723,354  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

*

Before netting of allowance

The classification criteria of the credit qualities of due from financial institutions as of December 31, 2021 and 2020, are the same as the criteria for securities other than equity securities.

 

54


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KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

4.2.7 Credit risk mitigation of derivative financial instruments

Quantification of the extent to which collateral mitigates credit risk of derivative financial instruments as of December 31, 2021 and 2020, are as follows:

 

(In millions of Korean won)    December 31,
2021
     December 31,
2020
 

Deposits, savings, securities, and others

   W 834,175      W 1,651,322  

4.2.8 Credit risk concentration analysis

4.2.8.1 Classifications of loans by country as of December 31, 2021 and 2020, are as follows:

(In millions of Korean won)

 

     December 31, 2021 *  
     Retail      Corporate      Credit card      Total      %      Allowances     Carrying
amount
 

Korea

   W 191,601,232      W 183,222,201      W 20,766,535      W 395,589,968        93.70      W (2,653,256   W 392,936,712  

Europe

     —          2,673,817        —          2,673,817        0.63        (29,015     2,644,802  

China

     34,982        6,743,756        327        6,779,065        1.61        (34,316     6,744,749  

Japan

     86        1,039,453        8        1,039,547        0.25        (2,227     1,037,320  

United States

     —          3,555,723        —          3,555,723        0.84        (28,113     3,527,610  

Cambodia

     1,985,808        3,115,992        —          5,101,800        1.21        (70,660     5,031,140  

Indonesia

     1,666,850        3,710,586        55,520        5,432,956        1.29        (841,145     4,591,811  

Others

     618,120        1,374,302        1,930        1,994,352        0.47        (25,323     1,969,029  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   W 195,907,078      W 205,435,830      W 20,824,320      W 422,167,228        100.00      W (3,684,055   W 418,483,173  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

(In millions of Korean won)

 

     December 31, 2020 *  
     Retail      Corporate      Credit card      Total      %      Allowances     Carrying
amount
 

Korea

   W 182,344,832      W 160,385,598      W 18,734,570      W 361,465,000        94.85      W (2,433,702   W 359,031,298  

Europe

     —          2,042,979        —          2,042,979        0.54        (11,141     2,031,838  

China

     —          4,518,737        654        4,519,391        1.19        (20,489     4,498,902  

Japan

     94        923,354        10        923,458        0.24        (1,249     922,209  

United States

     —          1,962,377        —          1,962,377        0.51        (21,489     1,940,888  

Cambodia

     1,444,906        2,280,180        —          3,725,086        0.98        (89,652     3,635,434  

Indonesia

     1,483,345        3,637,351        60,959        5,181,655        1.36        (699,947     4,481,708  

Others

     427,276        833,080        1,437        1,261,793        0.33        (5,694     1,256,099  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   W 185,700,453      W 176,583,656      W 18,797,630      W 381,081,739        100.00      W (3,283,363   W 377,798,376  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

*

Amount includes loans measured at fair value through profit or loss, other comprehensive income, and amortized cost.

 

55


Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

4.2.8.2 Classifications of corporate loans by industry as of December 31, 2021 and 2020, are as follows:

 

(In millions of Korean won)    December 31, 2021  
     Loans      %      Allowances      Carrying
amount
 

Financial institutions

   W 22,059,895        10.74      W (32,856    W 22,027,039  

Manufacturing

     49,149,918        23.92        (510,762      48,639,156  

Service

     86,926,095        42.31        (450,272      86,475,823  

Wholesale and retail

     26,862,247        13.08        (257,541      26,604,706  

Construction

     5,683,471        2.77        (228,803      5,454,668  

Public sector

     2,070,960        1.01        (95,053      1,975,907  

Others

     12,683,244        6.17        (311,629      12,371,615  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 205,435,830        100.00      W (1,886,916    W 203,548,914  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of Korean won)    December 31, 2020  
     Loans      %      Allowances      Carrying
amount
 

Financial institutions

   W 16,044,243        9.09      W (20,987    W 16,023,256  

Manufacturing

     45,884,606        25.98        (473,360      45,411,246  

Service

     76,001,877        43.04        (385,093      75,616,784  

Wholesale and retail

     23,129,457        13.10        (241,021      22,888,436  

Construction

     4,397,814        2.49        (190,819      4,206,995  

Public sector

     1,660,370        0.94        (74,839      1,585,531  

Others

     9,465,289        5.36        (285,660      9,179,629  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 176,583,656        100.00      W (1,671,779    W 174,911,877  
  

 

 

    

 

 

    

 

 

    

 

 

 

4.2.8.3 Classifications of retail loans and credit card receivables as of December 31, 2021 and 2020, are as follows:

 

(In millions of Korean won)    December 31, 2021  
     Loans      %      Allowances      Carrying
amount
 

Housing loan

   W 93,695,479        43.23      W (71,424    W 93,624,055  

General loan

     102,211,599        47.16        (933,571      101,278,028  

Credit card

     20,824,320        9.61        (792,144      20,032,176  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 216,731,398        100.00      W (1,797,139    W 214,934,259  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of Korean won)    December 31, 2020  
     Loans      %      Allowances      Carrying
amount
 

Housing loan

   W 87,312,052        42.70      W (61,155    W 87,250,897  

General loan

     98,388,401        48.11        (848,933      97,539,468  

Credit card

     18,797,630        9.19        (701,496      18,096,134  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 204,498,083        100.00      W (1,611,584    W 202,886,499  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

56


Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

4.2.8.4 Classifications of due from financial institutions, securities other than equity securities, and derivative financial assets by industry as of December 31, 2021 and 2020, are as follows:

 

 

(In millions of Korean won)    December 31, 2021  
     Amount      %      Allowances      Carrying
amount
 

Due from financial institutions measured at amortized cost

 

Finance and insurance

   W 28,365,356        100.00      W (2,969    W 28,362,387  
  

 

 

    

 

 

    

 

 

    

 

 

 
     28,365,356        100.00        (2,969      28,362,387  
  

 

 

    

 

 

    

 

 

    

 

 

 

Due from financial institutions measured at fair value through profit or loss

 

Finance and insurance

     200,742        100.00        —          200,742  
  

 

 

    

 

 

    

 

 

    

 

 

 
     200,742        100.00        —          200,742  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through profit or loss

 

Government and government funded institutions

     16,101,187        25.56        —          16,101,187  

Finance and insurance

     35,025,800        55.59        —          35,025,800  

Others

     11,875,705        18.85        —          11,875,705  
  

 

 

    

 

 

    

 

 

    

 

 

 
     63,002,692        100.00        —          63,002,692  
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial assets

 

Government and government funded institutions

     6,985        0.19        —          6,985  

Finance and insurance

     3,554,783        95.52        —          3,554,783  

Others

     159,602        4.29        —          159,602  
  

 

 

    

 

 

    

 

 

    

 

 

 
     3,721,370        100.00        —          3,721,370  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through other comprehensive income

 

Government and government funded institutions

     24,609,458        43.74        —          24,609,458  

Finance and insurance

     22,669,379        40.29        —          22,669,379  

Others

     8,980,674        15.97        —          8,980,674  
  

 

 

    

 

 

    

 

 

    

 

 

 
     56,259,511        100.00        —          56,259,511  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at amortized cost

 

Government and government funded institutions

     31,996,180        71.94        (34      31,996,146  

Finance and insurance

     10,450,497        23.50        (3,337      10,447,160  

Others

     2,029,120        4.56        (798      2,028,322  
  

 

 

    

 

 

    

 

 

    

 

 

 
     44,475,797        100.00        (4,169      44,471,628  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 196,025,468         W (7,138    W 196,018,330  
  

 

 

       

 

 

    

 

 

 

 

57


Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

4.2.8.4 Classifications of due from financial institutions, securities other than equity securities, and derivative financial assets by industry as of December 31, 2021 and 2020, are as follows: (cont’d)

 

 

(In millions of Korean won)    December 31, 2020  
     Amount      %      Allowances      Carrying
amount
 

Due from financial institutions measured at amortized cost

 

Finance and insurance

   W 22,723,354        100.00      W (3,263    W 22,720,091  
  

 

 

    

 

 

    

 

 

    

 

 

 
     22,723,354        100.00        (3,263      22,720,091  
  

 

 

    

 

 

    

 

 

    

 

 

 

Due from financial institutions measured at fair value through profit or loss

 

Finance and insurance

     100,094        100.00        —          100,094  
  

 

 

    

 

 

    

 

 

    

 

 

 
     100,094        100.00        —          100,094  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through profit or loss

 

Government and government funded institutions

     16,902,284        28.94        —          16,902,284  

Finance and insurance

     34,244,398        58.62        —          34,244,398  

Others

     7,268,418        12.44        —          7,268,418  
  

 

 

    

 

 

    

 

 

    

 

 

 
     58,415,100        100.00        —          58,415,100  
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial assets

 

Government and government funded institutions

     44,670        0.81        —          44,670  

Finance and insurance

     4,925,535        88.82        —          4,925,535  

Others

     575,180        10.37        —          575,180  
  

 

 

    

 

 

    

 

 

    

 

 

 
     5,545,385        100.00        —          5,545,385  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through other comprehensive income

 

Government and government funded institutions

     26,205,864        44.83        —          26,205,864  

Finance and insurance

     24,847,602        42.51        —          24,847,602  

Others

     7,403,423        12.66        —          7,403,423  
  

 

 

    

 

 

    

 

 

    

 

 

 
     58,456,889        100.00        —          58,456,889  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at amortized cost

 

Government and government funded institutions

     24,018,884        65.14        (30      24,018,854  

Finance and insurance

     11,019,911        29.89        (2,475      11,017,436  

Others

     1,834,383        4.97        (445      1,833,938  
  

 

 

    

 

 

    

 

 

    

 

 

 
     36,873,178        100.00        (2,950      36,870,228  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 182,114,000         W (6,213    W 182,107,787  
  

 

 

       

 

 

    

 

 

 

 

58


Table of Contents

KB Financial Group Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

 

 

4.2.8.5 Classifications of due from financial institutions, securities other than equity securities, and derivative financial assets by country as of December 31, 2021 and 2020, are as follows:

 

(In millions of Korean won)    December 31, 2021  
     Amount      %      Allowances      Carrying
amount
 

Due from financial institutions measured at amortized cost

 

Korea

   W 21,051,229        74.21      W (574    W 21,050,655  

United States

     2,875,884        10.14        (136      2,875,748  

Others

     4,438,243        15.65        (2,259      4,435,984  
  

 

 

    

 

 

    

 

 

    

 

 

 
     28,365,356        100.00        (2,969      28,362,387  
  

 

 

    

 

 

    

 

 

    

 

 

 

Due from financial institutions measured at fair value through profit or loss

 

Korea

     200,742        100.00        —          200,742  
  

 

 

    

 

 

    

 

 

    

 

 

 
     200,742        100.00        —          200,742  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities measured at fair value through profit or loss

 

Korea

     56,920,225        90.35        —          56,920,225  

United States

     3,334,888        5.29        —          3,334,888  

Others

     2,747,579        4.36        —          2,747,579  
  

 

 

    

 

 

    

 

 

    

 

 

 
     63,002,692        100.00        —          63,002,692  
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial assets

 

Korea

     1,639,657        44.06        —          1,639,657  

United States

     753,896        20.26   &n