SMART & trusted partner
2 0 1 0A n n u a l

R e p o r t

KEB’s corporate identity (CI) encapsulates
our strategic vision as a global bank expanding throughout
Asia and the world. It also symbolizes our unfaltering desire
to provide our customers with the highest level of service.

C o n t e n t s

001

Profile002	Letter to Shareholders from the chairman & CEO
006	Financial Highlights
008	Review of Operations
044	Management Discussion & Analysis
052	Financial Statements
200	Organization Chart
201

Board of Directors & Managing Directors

202	Global Directory
203	Overseas Network
205	Domestic Network

Profile

SMART & trusted
partner
KEB is relentlessly moving forward to
become a leading customer-centeredbank providing expertise and highcaliber services in a wide range ofareas.
In 2010, we celebrated the 44th
anniversary and continued to berecognized for our extensive global
network and expertise in foreignexchange and trade finance. Our
strategic marketing practices, effective
use of corporate resources, highquality staff and advanced business
infrastructure have enabled KEB to
become an industry leader that sets
the pace for other banks to follow.
In 2011, we aim to remain Korea’s
most globalized bank with exceptional
strengths in asset quality and capital
adequacy.

• Largest capital reserve, highest• A dominant player in trade financelevel of profitability, and ideal level ofasset soundness

and international trade

Despite the economic downturnand global financial crisis in 2009,
KEB achieved annual net income of
KRW 891.7 billion that year, whichamounted to a 13.9% year-on-yearincrease. We continued to enhance
our strength in capital by improving
business performance and carefully
managing our risk-weighted assets.
In 2010, we focused on reinforcing theareas of our core competitiveness—foreign exchange and trade finance—
while prudently managing ourportfolio and credit risks. As a result,net income increased 14.5% year on
year to reach KRW 1.02 trillion, while
maintaining strong asset quality androbust profitability.

Korea Exchange Bank was founded
in 1967 as a state-sponsored bankspecializing in foreign exchange. We
went on to become Korea’s leadingbank in trade finance and international
finance, contributing to Korea’s tradedriven economic growth in the 1970s
and 1980s.
In the midst of the 1998 Asian financial
crisis, our people marshaled theirresources and embraced change,
which ultimately improved our overall
revenue structure. We have remainedcommitted to our foreign exchange
business, a unique strength at
KEB, as a means of sharpening ourcompetitive edge.
KEB has earned recognition fromsome of the world’s most prominent
finance journals for our expertise intrade finance, FX and international
finance. Such accolades have further
solidified our position as a leading
global bank with representation in
more than 49 offices in 21 countries.

Letter to Shareholders
from the chairman & CEO

Larry A. Klane
chairman & CEO

3

To Our Shareholders

It has been a great honor for me to serve during the past year as President and Chief Executive Officer
as well as the Chairman of the Board after Mr. Richard F. Wacker’s departure in November. I am mostproud to report to you that the dedicated men and women of KEB delivered strong financial results whilesafeguarding our capital and portfolio.
We achieved strong income growth in 2010. KEB reported net income of KRW 1,021 billion, up 14.5% from2009. Return on equity rose to 12.6% in 2010 from 12.3% in 2009. KEB also strengthened its capital position
to an exceptional level, with total shareholders’ equity increasing to KRW 8.4 trillion. Our Tier 1 capitalratio increased to 12.15% after the year-end dividend of KRW 850 per share, up from 11.04% at the end of
2009. Our tangible common equity ratio—a metric investors frequently use to gauge the quality of a bank’s
capital—climbed to 8.7% from 8.2% a year earlier. In September, Fitch Ratings upgraded our Support Ratingto 1 from 2 and our Support Rating Floor to A- from BBB+, reflecting Fitch’s recognition of KEB’s importanceas one of the key local banks in terms of facilitating trade finance and foreign currency operations.
I would like to put our performance in a broader context. In 2010, the Korean economy recovered from theglobal and economic crisis that began in 2008 and continued into 2009. Amid solid growth prospects, theBank of Korea began raising the short-term policy rate in the second half of the year and this monetary
policy contributed to an expansion in our net interest margin, an influential driver of our revenues. Credit
quality improved significantly with the economic recovery and we ended the year with an industry-leading
NPL ratio and sufficient reserves for loan losses.
Our normalized net income, which excludes significant non-recurring items, increased 32.7% to KRW 760
billion from KRW 573 billion in 2009. As I highlighted earlier in this letter, our solid growth was driven byhigher net interest income and lower credit costs. Our net interest income rose to KRW 2,153 billion in 2010
from KRW 1,918 billion in 2009, driven by an expansion in our net interest margin to 2.69% from 2.39%. Loanloss provision expenses in 2010 fell to KRW 498 billion from KRW 666 billion in 2009, and we ended the yearwith a NPL ratio of 1.34% and a NPL coverage ratio of 124.8%.

Korea Exchange Bank 2010 Annual Report4

We also maintained our strong competitive position in FX and trade finance. Our market shares in 2010 were 46% in FX,
31% in export finance and 28% in import finance, despite aggressive marketing efforts by our competitors. We continued toreceive awards for our performance in FX and trade finance in 2010. Global Finance , an industry publication, named KEB
as Best Trade Finance Provider in Korea for the 10th consecutive year and Best Foreign Exchange Provider in Korea for the
9th consecutive year. Asia Money chose KEB for its 2010 Best Domestic Provider of Foreign Exchange Services in Korea
award, while FinanceAsia named KEB as Best Foreign Exchange Bank in Korea for the 3rd consecutive year and Best
Trade Finance Bank in Korea. The Asian Banker presented KEB with the Achievement Award for Trade Finance.
Faced with a challenging business environment, we reported to you at the general shareholders’ meeting a year ago
that our strategic objectives included generating sustainable, prudent and profitable growth, allocating more resources
to enhance KEB’s competitiveness and differentiation, and continuing to improve our operations, ensuring that they arecompliant and controlled. Even though such objectives appeared quite ambitious at that time, we have made significant
progress and I believe that this result is a strongly positive testimony to KEB’s improved operational capabilities as well as
the resiliency and resourcefulness of the KEB family.
I believe that our business results demonstrate the fundamental value of KEB. We have created this value through ourdifferentiated business focus and more productive workforce and distribution network, amplified by prudent and systematic
risk management systems and culture, and backed by strong capital levels. Reflecting KEB’s commitment to enhance its
human capital, our employees held 2,720 personal finance-related certifications, 1,326 FX and trade-related certifications
and 8,188 investment-related certifications by the end of 2010.
KEB also continued to invest in growth opportunities in 2010. For instance, during the second quarter, we obtained official
approval from the China Banking Regulatory Commission to establish a China subsidiary, which is headquartered in
Tianjin with seven existing branches and with paid-in-capital of CNY 2.2 billion (USD 324 million as of June 30). KEB was
the first Korean lender to enter China in 1992 when Korea and China formed diplomatic relations.
Looking forward, most observers are anticipating a benign overall business environment, despite moderating economic
growth. In such a macro environment, I expect KEB’s normalized profitability to improve modestly, as we are likely toexperience moderate loan growth, expanding net interest margin and declining loan loss provision.
Several important challenges remain. KEB faces intensifying competition and we operate within a regulatory environmentthat is implementing tougher rules regarding capital and liquidity. There is also less room for further improvement inprovisioning expenses as the credit cost ratio reaches cyclically low levels. However, as our track record during the recent
global financial crisis and 2010 demonstrates, I am confident that KEB can navigate through these challenges and remain
as the Best Bank in Korea.

5

For 2011 and beyond, there are four strategic priorities for KEB management. First, we will continue to focus on
generating sustainable and profitable growth. We plan to accelerate loan growth, augment our active customer base moreaggressively, continue to allocate capital and corporate resources efficiently, and maintain strong credit quality.
Second, we will strive to enhance KEB’s competitiveness and differentiation. We aim to deliver integrated “One KEB”
experience to customers, strengthen our market positions, and embed synergy into the organization with a refined systemof performance measurements and rewards.
Third, we will augment our capability to execute our business plan. We will accelerate the speed of decision making
and implementation so that KEB can benefit from a rapidly changing business environment and maneuver through theintensifying competition. We aim to redeploy personnel strategically to client-facing functions, institutionalize stronger
measures to cooperate across organizational boundaries, and continue to improve the operational productivity andoperating leverage.
Fourth, we will ensure that our businesses are compliant and well-controlled through robust risk management. We
will improve our credit underwriting and other risk models to capture incremental growth opportunities while reducing
compliance risks through additional automated processes and monitoring. We will continue to strengthen the audit andcompliance functions.
In 2011, we will continue to focus on making progress on the above-mentioned four strategic priorities: growth, competitive
differentiation, execution and risk management. With the continued support and encouragement of our shareholders, wewill continue to build KEB into the Best Bank in Korea and our clients’ most trusted and smartest financial partner.
Thank you and I would like to wish you and your families a peaceful and healthy 2011.

Larry A. Klane
chairman & CEO6

Korea Exchange Bank 2010 Annual Reportfinancial highlights(In billions of KRW )Classification
Balance Sheet
Total Asset
Total Credit
Corporate
Household
Credit Card
Substandard & Below Ratio
Delinquency Ratio
Total Deposit
Total Shareholders' Equity
Paid-in Capital
BIS Ratio (Basel II)
Tier I Ratio
Income Statement
Net Interest Margin
Income Before Provision
Net Income
Return On Asset (ROA)
Return On Equity (ROE)

Total Assets(in billions of KRW)

115,116.0

114,351.9

2009

2010

YoY

107,728.9
70,550.5
50,529.7
17,596.4
2,424.4
0.94%
0.50%
56,951.9
7,954.8
3,225.4
14.93%
11.04%

115,116.0
69,181.6
47,222.5
19,373.0
2,586.1
1.34%
0.47%
60,704.2
8,375.7
3,225.4
15.24%
12.15%

+6.9%
-1.9%
-6.5%
+10.1%+6.7%+0.40%p-0.03%p+6.6%+5.3%+0.31%p+1.11%p

2.39%
1,559.3891.7
0.88%
12.27%

2.69%
2,002.2
1,021.4
1.03%
12.57%+0.30%p+28.4%+14.5%+0.15%p+0.30%p

Total Credit(in billions of KRW)

70,945.9

70,550.5

107,728.9

2008

2009

69,181.6

2010

2008

2009

2010

7

Total Shareholders’ Equity(in billions of KRW)Net Income(in billions of KRW)

8,375.7

1,021.4

7,954.8

891.7
782.6

6,663.5

2008

2009

2010

Substandard & Below Ratio

2009

15.24%
14.93%

0.94%

2009

2010

BIS Ratio (Basel II)

1.34%

1.09%

2008

2008

12.65%

2010

2008

2009

2010

Korea Exchange Bank 2010 Annual Report

The Preferred Partner
for Global Banking

Korea Exchange Bank has the most extensive global
presence among Korean Banks, operating a network thatspans 49 locations in 21 countries. Our competitive edge
is particularly strong in FX and trade finance. Strategic
marketing, dedicated bankers and robust capital base makeus a most-trusted financial partner with customers andshareholders alike.

10

Korea Exchange Bank 2010 Annual Report

Global Corporate Bank /Corporate & Capital Markets Bank

KEB’s Global Corporate Bank (GCB) and Corporate & Capital Markets Bank (CCMB) work
seamlessly to serve our corporate banking customers in Korea and around the globe. GCB
consists of World Corporate Group, International Group, Global Products Department, andForeign Customer Marketing Support Department, while CCMB includes Corporate Group andCapital Markets Department.

2010 best foreign exchange provider in korea
from global financeLarge Corporate
Banking2010 best trade finance provider in korea
from global finance2010 Best korean f/x bank award
from asiamoney—
The World Corporate Group(WCG) manages KEB’s business withmajor Korea-based conglomerates
that operate on a global scale. Senior
relationship managers (SRMs), whoare experts in the traditional banking
services as well as in project finance,
vessel finance, M&A’s and otherspecialized areas, provide outstanding
products and services to customers.
Moreover, we have attracted overseas
subsidiaries, employees and venders oflarge companies to transact with KEB,
helping other KEB business units tobroaden their customer bases.

—
During 2010, the WCG saw
both loans and deposits increase.
Compared to the previous year, totalloans to the large corporate customers
increased 17.6% (KRW 1.03 trillion)
to surpass KRW 6.89 trillion, while
total deposits were up 7.0% (KRW 1.27
trillion) to more than KRW 19.42 trillion.

—
The WCG achieved operating
income of KRW 328.6 billion in 2010,
marking the second year for operating
income to exceed KRW 300 billion.
This was accomplished despite theincreasingly fierce competition among
financial institutions to attract quality
large corporate customers.

—
At the same time, the WCG
continued to contribute to KEB’s market
leadership in trade transactions. In
2010, the WCG operated USD 110.4
billion worth of export transactions
with large corporations, representing
23% of the total in Korea, and USD 80.4
billion worth of import transactions,or 19% of the total in Korea. The WCG
bought USD 22.3 billion worth of export
bills on behalf of large corporations andissued USD 10.1 billion worth of letters ofcredit. As such, KEB played an importantrole in boosting the imports and exportsof Korea’s largest companies as well as
those of the nation as a whole.

11

SME Banking—
The WCG is expanding
KEBiNet, in-house banking, firmbanking and other electronic financial
services linked to the ERP systems ofcustomers. At the same time, our newmarket-leading trade finance products
such as e-Nego service and SWIFT
TSU-related transactions are helping
us to maintain strong partnerships withlarge corporations.

—	Going forward, we will strengthen our fee business and expand thecustomer base to diversify income
sources, while efforts to increase highquality assets for sustainable growth
will be continued.

—
The Corporate Group is
focused on serving the needs of small
and medium-sized enterprises (SMEs).
Total credits to SMEs slightly decreased
by KRW 39 billion (0.2%) year on year
at the end of 2010, as corporate
restructuring continued during the year.
However, total deposits and the foreignexchange business saw significant
growth.

—Total deposits were up asignificant 19.4% (KRW 2.14 trillion)
from the year before to reach KRW 13.2
trillion at the end of 2010. Meanwhile,
foreign exchange performanceincreased by 20.7% (USD 19.7 billion)
to USD 95.0 billion, solidifying KEB’s
stature as the Korean FX leader.

12

Korea Exchange Bank 2010 Annual Report

Investment Banking—
Asset quality remained strong
with 53.5% of total SME loans extended
to high credit customers at the end of
2010, up 5.7 percentage points fromthe previous year. We maintained our
top position in Korean trade finance, asegment where we enjoy a competitive
advantage. Our share of the domestic
market for loans on trade bills
amounted to 28.2% in 2010.

—
In 2011, we will continue tostrengthen the brand power of the
Corporate Group by maintaining thelargest share of the foreign exchange
market and our comparative advantage
in trade finance. Moreover, we will
work hard to achieve sustainable
and profitable growth on all fronts
by encouraging preferred customers
to use KEB as their main bank andby promoting bank-wide synergy
marketing.

—Since the global financial
crisis, the Investment Banking (IB)Division strategy has been focused on
raising income based on improving risk
management and asset quality. The
IB business has also been diversified
into overseas project finance, energy
financing and other promising areasthat can serve as new growth enginesfor KEB.

selectively participate in energy project
financing, and increase opportunities
for being the lead arranger of overseas
project financing. Plans also call for
far greater involvement in structured
financing, financing of privatelyfunded infrastructure projects on
a build-transfer-operate (BTO) or
build-transfer-lease (BTL) basis, andcorporate financing in diversified
currencies.

—
Meanwhile, KEB Asia Finance(KAF) was established in Hong Kong in2009 to provide a strategic channel forbolstering the overseas IB business.
—	Going forward, the IB Division
will enhance KEB’s market reputation
by enlarging the investment banking
business. To this end, the following
strategies will be pursued to build aglobal IB growth platform and develop
IB as a major growth driver for KEB:—First, the IB business scope
will be broadened to expand anddiversify the IB asset portfolio. Thismeans that KEB will be involved in
more acquisition financing deals,
either as the arranger or participant,—Meanwhile, fee-based
business opportunities will be
expanded by emphasizing new projectarrangements. At the same time,synergy marketing will be conductedwith other KEB divisions to attract new
IB customers, and new business willbe created by utilizing the overseas IB
network of KAF.

13

FX & Trade Finance—
KEB boasts the broadest
global branch network and mostextensive money exchange and tradefinance operations of any Korean bank.
As such we continued our reign as
Korea’s top foreign exchange specialist.
In 2010, we held onto our leading
position in the domestic FX market forthe 15th consecutive year with a shareof 46% of total transactions handled
by the nation’s seven top commercial
banks. This success was repeated in
the trade finance sector, where werecorded industry-leading market
shares of 31% for export financing and
28% for import financing.
—
Respected international
financial publications praised ourcontinued strong performance inthese core business areas in 2010.
We were named “Best Trade FinanceBank in Korea” (10th consecutiveyear) and “Best Foreign ExchangeBank in Korea” (9th consecutiveyear) by Global Finance . Asiamoney
also selected KEB as “2010 Best
Foreign Exchange Bank in Korea” (5thconsecutive year). And FinanceAsia
selected KEB as “Best Trade FinanceBank in Korea 2010” (3rd consecutiveyear) and “Best Foreign ExchangeBank in Korea 2010” (3rd consecutiveyear).
—KEB is developing newservices to strengthen market
leadership and stay ahead of thecompetition. The Foreign Currency
Collective Purchase Time Deposit was
introduced from January 8, 2010. This
one-of-a-kind product in the Koreanmarket offers higher interest rates thanthose provided through general foreign
currency time deposits. Interest rates
vary depending on the deposit volume,
but even customers making small
deposits will receive preferential rates.

The total sale amount is limited, as is
the subscription period.
—
On March 30, we became
the world’s first to launch an online
negotiation platform. The KEB e-Nego
service allows exporters to request
the bank to purchase export bills via
uTradeHub, a national e-trade network,without having to visit a branch inperson. This platform connects thebank to exporters, the Customs Service,
shippers, insurers and other relatedorganizations online, streamlining thetrade finance process and expediting
payment collection.
—
From April 2010, customers
can check the KEB webpage toascertain, on a real time basis, thestatus of their letter of guarantee (L/G)
issuance.
—
Moreover, we launched an“Auto-Swing” foreign currency deposit

14

Korea Exchange Bank 2010 Annual Reportservice, which features both “swing”
and “reverse-swing” transactions.
The “swing” function means thata pre-set amount or balance of atransactional foreign currency accountis automatically withdrawn andtransferred to a designated foreign
currency savings or money market
deposit account at a scheduled timeafter the bank’s business hours. The“reverse-swing” function operates in
the opposite direction when the foreign

CLS Settlement &Clearing

currency savings account or MMDA
expires.

longer has to initiate each transaction
individually by hand.

—
In October 2010, our foreign
currency transfer service began to
be provided via the Korea Financial
Telecommunications and Clearings
Institute network, in addition to theconventional SWIFT network. Moreover,
we unveiled an automated foreign
currency transfer service for multiple
outward remittances. The remitter no—
We currently can initiate
transfers in 26 different currencies
and money exchange service for
41 currencies, the most diversified
in Korea. In addition, we engage intransactions in more than 100 foreign
currencies, including 70 collection
currencies, making us Korea’s
undisputed FX leader.

—Continuous Linked Settlement(CLS) is a risk-free cross-border
settlement of foreign exchangetransactions among global financial
institutions. One of the key features of
CLS is simultaneous settlement basedon real-time payment versus payment
with the multi-lateral netting.

—Currently KEB settles FX
deals via CLS for nine of the thirteen
local banks and the Seoul branch of aforeign branch, accounting for 66% of
the country’s total CLS volume. KEB
also provides the CLS KRW Nostro
Service, acting as an agent bank forforeign settlement members settling
KRW in CLS. KEB currently serves eightof the thirteen banks that are using theservice.

—
KEB worked closely with the
Korean government and the Bank of
Korea to introduce CLS to Korea andhave the Korean Won designated as
one of 17 CLS-eligible currencies in
December 2004. Since then, KEB has
been acting as the Settlement Memberof and KRW liquidity provider for CLS
Bank International.
—
Starting with FX trades, KEB
extended CLS settlement to nondeliverable forward (NDF) contracts
in July 2008 and is now preparing to
expand into new product areas such as
FX option premiums. Meanwhile, theKorean regulator is planning to allow
securities, insurance and investmentcompanies to participate in CLS
settlement soon, which will further
increase CLS settlement volumes.

—	Given KEB’s strong standing
in the Korean CLS market, we wereappointed as a CLS Services board
member in 2010 representing other
Korean settlement members.
—
Multi-currency interbank
clearing is another competitive
service that we have been providing
for local and overseas banks since
our establishment in 1967. In 2010,
KEB processed 2.7 million inter-banktransfers, accounting for 85% of totalinter-bank foreign currency transfers
in Korea, serving 60 local (including
foreign banks’ Seoul branches) and 122
overseas banks.

15—
We have been upgrading
our IT platform and developing new
products to meet the growing volumeof SWIFT traffic in payments, tradefinance, treasury and securities eachyear. As a result, our inter-bankclearing service marked a record STP(straight through process) ratio of 95%
in 2010. In addition, KEB has been
providing i-Vostro services, an internet-

based foreign currency transfer andinquiry system (www.eFlall.com)
since 2005, offering real-time online
interbank clearing services to local andforeign banks.

Custody &Fund Administration—
As Korea’s leading custodianbank, KEB’s custody and fundadministration services enjoy a broadcustomer base inside and outside of
Korea, including institutional investors,
government entities and foreign
investors. Our high quality fee-based
capital market services encompass
custody, SPC trustee, securities lending
agency, paying agency and escrowagency services. In 2010, assets undercustody totaled KRW 51 trillion.

—
We are also offering Korean
won-related services and regulatory
advisory services to foreign banks
to meet the rising demand for KRW

settlement in the market and for theongoing Won liberalization driven by
the financial regulator. Our provenexpertise, reliability and reputation inboth CLS and interbank clearing arenas
will pave the way for KEB to emerge as
Asia’s clearing hub for domestic andoverseas banks.

—
We are aggressively
responding to the changes brought onby the enactment of Korea’s Financial
Investment Services and Capital Market
Act. Through the complementary
capabilities of our custody businessand the fund accounting services ofour subsidiary KEB Investor Services,
KEB can offer institutional customers
unequalled services that better meettheir needs and growing fiduciary
duties.

16

Korea Exchange Bank 2010 Annual Report

International Group

Overseas Operations—
Our International Groupsupports the needs of our customers
outside of Korea via the most extensive
international financial network among
domestic banks. In 2010, our Chinese
branches were upgraded to subsidiarystatus, establishing a firm strategic
foothold in China, the world’s largest
potential market.
—
As of the end of 2010, 49
offices operate in 21 countries, with
12 branches, 10 local subsidiaries,
5 representative offices and 22 subbranches. Total assets increased by

9% over the previous year to just under
USD 9.5 billion as of the end of 2010.
Deposits grew by USD 369 million year
on year, while loans decreased by USD
227 million as financial stabilizationand increased cash flow in corporations
lowered demand for loans.
—
In 2011, we are planning toestablish new branches in Abu Dhabi,
Chennai and Ho Chi Minh City to bolster
KEB’s strengths in Asia, a region thatpromises high growth and many future
possibilities.

Foreign Customer Marketing
Support Department

Full Service Bank for
Foreign Customers—
Foreigners and foreignbusinesses in Korea present a nascentmarket opportunity for KEB. There areabout 1.4 million registered foreigners
living in Korea and about 14,000 foreigninvested enterprises (FIEs) with one ormore strategic foreign investors. The
Foreign Customer Marketing Support
Department (FCMSD) was establishedin July 2008 to tap into this market andto increase overall marketing efficiency.

Retail Banking—
FCMSD is dedicated todeveloping banking services tailoredfor foreign expatriates living in Korea
and operates 3 Foreign VIP Centers and
19 Global Desks for retail customers.
Fully-trained English speakers areon staff at each of these locations,while consulting desks are run at theSeoul Global Center and KOTRA. KEB
periodically participates and sponsors
cultural wellbeing events to enrich thelives of foreigners and make their stayin Korea more pleasant.

17

Corporate Banking—
We have leveraged ourexpertise as Korea’s foremost FX andtrade finance handler, as well as anadvanced e-banking platform that
includes “Business Online Services”
to become the primary bank fornumerous FIEs operating in Korea.
Many foreign MNCs are classified

Foreign Direct
Investment

as SMEs in Korea because of theirlimited local operations. KEB, however,recognizes the size and status of theparent companies when evaluatingsuch FIEs. Even for start-up FIEs, we
provide credit by considering the credit
rating of their mother companies
proven by international credit rating
agencies Moody’s, S&P and Fitch.

—
The Foreign Customer
Marketing Support Department
currently operates 15 branches acrossKorea for managing our FIE customers.
FCMSD is also planning to use KEB’s
extensive overseas network to offer
the parent or sister companies of ourFIE customers in Korea seamless andcomprehensive banking services.

—
The highly-trained groupof foreign direct investment (FDI)
consultants at KEB assists foreigncompanies investing in Korea. The FDI
team also supports FIEs in performing
FDI reporting, establishing new
businesses and setting up financial
management systems. Furthermore,
the FDI Team assists newly establishedcompanies through cooperative ties
with many FDI-related institutions
such as law firms, accountants, foreignchambers of commerce in Korea,
foreign embassies, international trade& investment bodies and the Korea
Trade-Investment Promotion Agency(KOTRA).
—As of the end of 2010, KEB
maintained its dominant market share(42%) for FDI notification processing,offering consulting services to morethan 6,000 FIEs nationwide during theyear.

Korea Exchange Bank 2010 Annual Report

the reliable partner
to fulfill sophisticated
Individual Needs

we are dedicated to understand and meet the increasingly
sophisticated financial needs of individuals. we are focusedon delivering customized solutions to our customers
without whom we cannot generate any sustainablegrowth.

20

Korea Exchange Bank 2010 Annual Report

Retail Bank

From our traditional deposit and loan products to our advanced private banking,bancassurance, investment product and wealth management services, KEB’s Retail Bank
demonstrates the wisdom of a quality-over-quantity approach to banking.
To “get closer”to our retail customers and better grasp and serve their needs, KEB has refined
relationship management and segment marketing strategies to produce high quality growth.

Customers—
Since 2007, we have
implemented marketing based on
customer segmentation as a tool tomaintain and deepen our relationships
with the best KEB customers. As partof this effort, we are working to raise
loyalty by increasing cross-selling andattract new customers through package
products that target specific customer

Deposits—
Our focus has been on
increasing time deposits and core
deposits (demand deposits) to enhance
the stability and profitability of funding.
The loan-to-deposit ratio including CDs
improved to 96.8% at the end of 2010
from 108.7% a year earlier, while theloan-to-deposit ratio excluding CDs
was 97.3% at the end of 2010.

best customer service award at
the first korea service quality index

best advertising award (finance)of the chosun ilbo advertising awards

segments. In addition, we haveclustered our branches and completed
peer grouping on the basis of customer
mix and neighboring areas. Accordingly,
we differentiate promotions and coreproducts by cluster, raising overallmarketing efficiency.

people in their 20s and 30s signed up
for “Wingo,” while 151,000 salaried
workers applied for “N°N”; 23,000 for
SOHO; 15,000 for “Rainbow” and 15,000
for “Biz Partner.” This success has
prompted plans to expand the branchcluster marketing approach to target
senior citizens, women, and othercustomer segments.

—
The year 2010 witnessed
successful execution of several
marketing initiatives. A total of 194,000—
Total retail deposits rose by
KRW 1.0 trillion (3.8%) year on year to
KRW 28.7 trillion at the end of 2010.
Time deposits were up KRW 2.5 trillion(24.0%) to total KRW 12.7 trillion, while
demand deposits grew by 0.9 trillion
to KRW 8.4 trillion. On the other hand,CDs decreased by 2.2 trillion to KRW 0.1
trillion during the same period.

—
In 2011, we will concentrateon increasing personal time deposits
and installment deposits to securestable long-term funding. Our ability toretain core deposits will be improved
by offering multi-functional payment
services and engaging in intensive
marketing activities.

21

Household Lending—
Our focus on increasing homemortgage and unsecured loans tocreditworthy customers has allowed us
to maintain solid asset quality (0.36%
NPL ratio and 0.44% delinquency rate
at the end of the year). The household

Private Banking—
KEB is developing a suiteof sophisticated services to help VIP
customers invest and manage theirassets more profitably and efficiently.
Our Private Banking (PB) products &services enable customers to broaden
their asset portfolios with innovative
stock, insurance and FX-related
investment instruments. In line with
Korea’s Financial Investment Services
and Capital Market Act, we offer tax
consultation, real-estate management

lending portfolio increased by 10.1%(KRW 1.7 trillion) in 2010, reaching KRW
19.3 trillion from the KRW 17.6 trillion at
the end of 2009. During the same period,
mortgage loans rose by 16.3%, fromKRW 10.4 trillion to KRW 12.1 trillion.
Going forward, we will continue focusing
on residential mortgages, high-quality

unsecured loans and other safe assets
to maintain excellent asset quality amid
concerns over rising household debt
levels in Korea.

and disposal services, wills &inheritance consultation, specialized
financial planning, overseas education& emigration services, and others.

—
KEB provides an unparalleledlevel of personalized services and benefits
to maintain the exclusivity of select“VVIP” customers. Customer loyalty
is cultivated through special advisory
services and invitation-only events suchas the exclusive investment conferences
held overseas. Moreover, we are making
maximum use of KEB’s strengths in the
FX field and our overseas branch network
to market our asset management
services to Koreans residing abroad.

—Our objective is to make KEB
the first choice in Korea’s competitive
PB market by constantly expanding thescope and elevating the quality of ourcomprehensive and professional PB
services. We had 12 Wealth Management
Centers and 76 specially designated PB
Branches at the end of 2010.

22

Korea Exchange Bank 2010 Annual Report

Banccassurance—
KEB started sellingbancassurance in September 2003,
after the Korean bancassurance
market was opened to international
competition. This business has grownsteadily thanks to our strategic
partnerships with Korea’s leading
insurance companies and our ongoingtraining of bancassurance specialists.
We have developed various annuity andendowment insurance plans featuring
low premium rates as a way to offer
more benefits to retail customers.

Investment Products—
In 2010, global bond markets
were stronger than anticipated becauseof a weaker US Dollar and investors’
preference for safer assets in thewake of a series of fiscal crises in theEurozone. Prices of commodities,
gold and petroleum in particular, werealso very high. At the same time, theworld witnessed robust cross-border
movements of investment funds, driven
by economic turnarounds in developed
as well as emerging markets andvaried inflation rates among countries.
—
In the meantime, the supplyof liquidity to global financial markets
and improved performances ofcorporations enabled major stock
markets around the globe to returnto their pre-crisis levels despite belttightening moves on the part of theChinese government and the financial
troubles in the Eurozone. The
KOSPI also broke through the 2000—
The Korea Life Insurance
Association and the General
Insurance Association of Korea
report that insurance companies saw
bancassurance sales rise between April
and December 2010. During the period,
the nation’s 23 life insurers posted
combined initial premium payments of
KRW 3.85 trillion in the bancassurance
sector, up 75.5 % year on year. At
the same time, the performance of
9 non-life insurers stood at KRW
26.19 trillion, up 51.3 % from a year
earlier. Such outstanding results weremade possible because insurers are
expanding their partnerships withbanks to diversify sales channels. The
banks are also aggressively engaging
in bancassurance sales to boost their
non-banking income.

mark again on the back of foreign
net buying of Korean stocks andimproving corporate earnings.

13 asset classes. Our efforts wererecognized in an evaluation of financial
institutions selling investment funds
conducted by the Korea Investors
Protection Foundation in 2010, which
awarded KEB with its highest grade.

—
In 2010, many investors who
had suffered significant losses in theinvestment product market after the
global financial crisis redeemed theirmutual funds as their unrealized losses
decreased. Accordingly, KEB’s year-end
AUM balance dropped approximately
19% from just under KRW 6.7 trillion
in 2009 to almost KRW 5.43 trillion in2010. Still, our income from the saleof investment products grew fromKRW 54.6 billion in 2009 to KRW 58.3
billion in 2010. This improvement is
attributable to stronger sales backed byinvestor confidence in the stock market.
—
KEB provides diverse
investment intelligence services
with high reliability through the FundManagement System, an advisory
support tool for investing customers,
and weekly research reports on—
In 2010, KEB achievedbancassurance sales of KRW 28 billion,
up 14 % over the previous year. Such astrong performance in bancassurance
and other fee-based product areas,
despite a relatively small number ofbranches, demonstrates the appeal of
our product offerings and the quality of
the KEB customer base.

—
KEB’s investment productsales and management philosophy
embraces an “Open Architecture”
strategy, which allows our customers
to build optimal portfolios to suit theirown preferences and needs. As of theend of 2010, KEB offered around 350
onshore and 145 offshore investment
funds.
—In the future, KEB willcontinue to improve investment
advisory services to customers to act intheir best interests and establish solid
partnerships with them.

23

Trust & Pension
Business—
A trust is a product where thesettlor entrusts his property, either
monetary or real, with the trustee,
and the trustee manages the fundor property in the trust according to
the terms of the trust document or
instructions by the settlor. As a trustee,
KEB returns the trust property plus
any gains or losses to the pre-specified
beneficiary without assuming the riskof losses (principal protected trusts
excepted). Profits are realized in theform of trust fees and commissions.

—
Currently, KEB administers
money trusts, retirement pension
trusts, and property trusts and is amajor player in each of these threemarket segments. In particular, ourmarket share has been expanding in
the banking sector of the retirement
pension trust market, which opened in
2005, and we expect to see continued
growth in 2011.
—
In the years to come, we willremain committed to meeting diverse
investment needs of customers bydeveloping stock and bond instruments
as well as structured products. At thesame time, we aim to strengthen ourleading market position in the trust andpension markets.

24

Korea Exchange Bank 2010 Annual Report

Card Bank
Credit Card—
KEB’s Card Bank has beena pioneer in the credit card businessin Korea, introducing the country’s
first Visa Card in 1978. In the midstof fierce competition with large credit
card companies, we have maintained
stable performance through our solid
customer base and sophisticatedcustomer relationship management.
—
In 2010, our credit cardbusiness posted pretax earnings
exceeding KRW 200 billion. Our asset
quality is sound and stable with adelinquency ratio of only 1.5%.
—
In order to sustain our growth
momentum, we will strive to maximize
the efficiency of capital utilization
by establishing and consistently
implementing strategies for optimal
resource allocation. Our emphasis will
be on marketing to core customers
and expanding our product line andcustomer base.
Customers • Attracting quality
customers and managing customer
relationships meticulously are top
priorities for us to strengthen thecustomer basis. The Expat Signature
Card and NoN for Nobles Card wereadded to the premium card lineup to
improve our competitiveness in thatsegment. Leveraging our comparativeadvantages in credit cards for travel
and entertainment, we aim to develop
products that can create a T&E captive
market. Our commitment to thesatisfaction of diverse customer needs
has also led to the launch of NoN OilO
Card and NoN Epass Card, the latest
additions to KEB’s NoN series.
We will continue to identify new revenue
sources and upgrade our productportfolio by steadily examining themarket and customer trends as wellas enhancing the cost effectiveness ofoperational processes.
Marketing • We are reinforcing
our CRM marketing program to retain
our valued customers. Customer
Long Term Value (CLTV), Frequency &Monetary, and other segment models
are applied to assess the current
value and predict the future value ofcustomers.
Our VIP customer retention efforts
include improving VIP selection criteria
focused on long-term usage and cardfinance products usage, customer careprograms such as Cinema Festival, anda dedicated website for VIPs.
In August 2010, we launched an
integrated KEB rewards programthat enables us to share customer
information among various business
units via our Single View marketing
platform. This integrated customer
communications channel is expected
to improve our customer services
and expand the customer base by
maximizing cardholder retention while
attracting new customers. Cardholder
loyalty will also be raised, and the
cardholders will be able to use theircards when doing business with other
KEB units.
Our pricing policy for cash advances,card loans, revolving credit, and othercard-based financial products is basedon both risk and income considerations.
High-risk customers are carefully
screened out to minimize risk, while
differentiated interest rates are offereddepending on the contribution of
the individual cardholder in order

25

to increase revenue. Card loans areavailable 24 hours a day for added userconvenience, and an ATM-based cardloan has been introduced. Cardholder
services will continue to be improved in
the future.
Merchants • To increase credit
card sales, various promotions arebeing offered to both online and offline
merchants. Links to bank branches aremaintained to engage in ongoing affinity
promotions with preferred merchantsin each region of the country.
KEB already has the largest market
share of foreign credit card acquiringin Korea and we aim to increase thevolume further. We are strengthening
our merchant management capabilities
and working diligently to expand card
acceptance and implemented theMerchant Relationship Management(MRM) system in April 2011. The new
MRM system is expected to increase

both credit card purchase volume andrevenue for KEB.
Synergy • Synergy is being
generated through cross-selling andjoint marketing with other KEB units.
The Marketing Synergy Council meetsregularly with representatives from
Retail Banking to discuss ways tomaximize the synergy effect between
our credit card business and retailbanking.
The highly successful WingO check card(for young users with the potential to
become VIP customers) has prompted
the creation of the WingO credit card. A
series of retail-card package products
targeting Private Banking and WealthManagement customers are also being
developed and jointly promoted with
Retail Banking.
A powerful synergy effect is also
generated through providing

information on retail products andservices on credit card statements andYes Magazine as well as holding various
other joint promotion programs.
Close teamwork with Corporate
Banking has resulted in significant
corporate card sales growth by having
corporations charge its Employment
Industrial Accident Insurance on theircorporate cards and through highly
successful promotions. Joint marketingwith major partner companies havealso been carried out to produce
mutually beneficial outcomes.

Korea Exchange Bank 2010 Annual ReportQUALITY SERVICE &ADVANCEDRISK MANAGEMENT

Both our domestic and overseas branches practicecustomer-oriented management. They respond quickly
to the rapidly-changing market environments, maintainreliable infrastructure and apply innovative work
processes based on Six Sigma. A strict risk management
program maintains thorough internal controls, while
compliance functions are steadily being tightened to ward
off foreseeable problems. Going forward, we will continue
our quality management program as we strive to ensurethat the KEB brand always delivers full customer
satisfaction.

28

Korea Exchange Bank 2010 Annual Report

Quality Service Provider

Customers today expect not only competitive deposit and lending rates, but also fastand reliable answers to their questions, simple and clear transactions, and attentive
responsiveness to solve their problems.We minimize the administrative burden on our front-line
staff so that they can devote their attention to understanding and fulfilling customer needs.
KEB has made efficient operational systems and processes a priority, and was the first among
Korean banks to implement a process management system and six sigma approaches in ourcustomer service operations.

KEB Innovation and
Six Sigma

customer service center awarded
top prize in korea service quality index
for 2nd consecutive year

bs 25999 certification for excellence inbusiness continuity plan—
KEB adopted the Six Sigma
program in 2005 as a way to constantly
improve service quality from thecustomers’ perspective, bolster thebank’s overall competitiveness andmaximize efficiency. All internalinnovation activities are currently
integrated within the Six Sigma
framework.

customers, while back office functions
have been primarily relocated tobanking centers. Moreover, aggressive
innovations inside the banking centers
have given rise to a “service quality
guarantee” program, a promise tocustomers that we will deliver the very
best services. If dissatisfied, customers
will receive some form of compensationsuch as lower interest rates. This
campaign boosts our staff’s confidence
in the innovation effort and the level ofquality they deliver.

—
The KEB Six Sigma programis getting employees into the innovation
habit in their everyday work lives. As
such it is a useful tool for efficiently
promoting major strategies designed
to realize the KEB vision, and it isleading the transformation of internalinnovation and organizational culture.
—
The greatest result of Six
Sigma has been the improvement ofcustomer services. Branch operations
have been reorganized so that
employees can focus on front office
functions, which is to deal directly with—The Process Management
System (PMS) is an indispensible
part of KEB’s Six Sigma program that
improves the speed and efficiency ofjob processes. Countless processes
are in place throughout the bank, and
the PMS is used to categorize the core
processes in each work stream, andautomate the production of various
status reports and indices. The
progress of work is graphed in real

29

time without the need to write separate
reports. Top executives and department
heads can use this data to control andmanage core processes efficiently,
making informed decisions quickly.
—
Another importantdevelopment in the Six Sigma program
has been the formation of a 20-member
team of in-house consultants. They
oversee Six Sigma activities without
having to rely on outside help. About 110
employees have qualified for Six Sigmabelts, and they act as trainers at theorganizational unit level. To date, over
120 Six Sigma projects have translated
into KRW 21 billion saved or earned
by the bank through faster settlementof the BIS capital adequacy ratio,
higher BIS ratio accuracy, improved
merchant screening processes, higher
blockage ration for terminated credit
cardholders, upgraded processing of
payments to clear outstanding bills, andso on. More than 2,400 KEB employees

have also completed Six Sigma training
courses online or offline.
—
In 2010, Sis Sigma activities
were conducted with the aim of
maximizing KEB’s competitiveness, instep with the management slogan “Notthe Biggest but the Best” for the year.
In the second half, “KEB Easy Sigma”(KES) was introduced as a simplified Six
Sigma Workout methodology designed
to disseminate the culture of innovation
throughout the bank. KES was carriedout in more than 30 branches toaddress urgent problems effectively
such as expanding the customer base,bolstering employee competencies
and stimulating the work atmosphere.
Employee response to the initiative wasvery favorable.
—
In 2011, KEB has decided onfour major strategies: (1) realize theSmart & Profitable Growth” vision andestablish a solid capital base, (2) raise

asset quality, (3) improve profitability,and (4) elevate cost structure efficiency.
The individual business divisions began
the job of fulfilling these strategies
by establishing a Smart Branch Task
Force and Integrated Mail Center. They
are now upgrading the integrated Help
Desk, improving SOHO processes andexecuting other large-scale projects toraise KEB’s competitiveness. Innovation
experts are being cultivated as the
program expands organization-wide,
which will serve to instill the innovation
mind-set in all employees and boost Six
Sigma innovation activities throughout
the bank.
—	Going forward, a new system
will be built to routinely collect andmanage feedback from customers aswell as employees. The information will
be used to continue innovation activities
from the customers’ perspective andhelp make KEB one of the nation’s
most competitive banks.

30

Korea Exchange Bank 2010 Annual Report

e-Business—
Financial services must evolvein the face of recent changes in thecustomer environment. For examples,companies continue to globalize andemphasize faster work processes, while
retail customers continue to become
more mobile.
—
KEB continued to innovate
electronic banking services in 2010 tobetter support corporate customers’
business strategies and accommodate
retail customers’ mobility. To begin
with, we promoted In-House Banking,an electronic financial management
system customized to our corporate
customers for greater operational
efficiency. Some 400 corporate
customers were using this e-banking
channel as of the end of 2010. In
addition, KEB introduced KEBiNet, a
global network that delivers customizedbanking services to corporate
customers to assist them with theirglobalization strategies.

—
KEBiNet provides integrated
global internet banking services both inKorean and English, targeting Koreabased multinationals and foreign
investment companies. KEBiNet links
with the ERP systems of our corporate
customers abroad, provides them withcustomized banking services, andallows them to manage the level ofauthority granted to users. Since its
launch in July 2010, KEBiNet has been
adopted by some 50 globally active
companies, including Hyundai Mobis,
Korea Electric Power Corp., Finnair,and LSG Sky Chefs Korea as theirprimary financial solution.
—
For retail customers, KEB
initiated KEB mBank in April, 2010.
This service allows a KEB customer
equipped with iPhone or Android
devices to access basic services suchas account inquiries, domestic moneytransfers and international remittances,
as well as smartphone services uniqueto KEB such as currency exchange,
credit card information, and KEB
branch finder based on augmented

reality technology. Around 80,000
customers are using KEB mBank asof the end of 2010, and the number ofusers is growing rapidly.
—
The role of e-banking
channels in financial transaction issignificant. As of the end of 2010, about
60% of all financial transactions in
Korea were completed electronically by
1.62 million retail customers (over 50%)
and 163,000 corporate customers.
—
In 2011, the emergence of
new internet devices such as tablet PCs
and smart TVs coupled with the rapid
increase in mobile internet usage will
accelerate change in financial services.
Together with the standardizationof internet banking services, we will
strengthen our mobile banking services
as a new delivery channel and continue
to develop new customized banking
services to meet the ever-diversifying
needs of corporate customers.

Information & Technology

IT Infrastructure—
In 2010, we continued to makebanking systems more responsive
to customer needs, enhance system
reliability and thus improve the qualityof IT-based services. Various projects
were undertaken to support key
business areas in a timely fashion toenhance competitiveness such as thedevelopment of a customizable web-based global banking service and abanking service via smart phones.
Also during the year, we constructeda cross-border ATM service andcompleted the development of awireless service for credit card issuancein January 2011.
—
Our quality assurance
program was enhanced by engaging
in preventative activities and a data

quality control management program
was also launched during the year. Our
hardware and software support has
improved system reliability and the cost
efficiency of our systems was raised byconsolidating the server and storage
systems and by integrating the Banking
and Card terminal systems.
—
Our employees are regularly
trained to make their own checks

31

as part of internal control, and theself-audit activities at the overseas
Regional Operation Centers have beenenhanced. In addition, we have applied
the results of our bank-wide IT security
inspection to enhance our ability toprevent unwanted system access.

The international presence of KEB will
also be enhanced through the ongoing
upgrade of the overseas internetbanking system and the developmentof a business continuity planning (BCP)
management system in languages
other than Korean.

—
Finally, the competencies of
the IT organization are being improved
so that our overall support function isenhanced. The Business Architect (BA)policy was enacted and its application
is now being expanded, while
supplementary IT training is being
provided.

—
We plan to defend ourleadership in foreign exchange andtrade finance by a system on thee-banking platform that can transfer
foreign currency within Korea in realtime. “Smart branches” will also be
opened as part of efforts to boost ourimage and market position.

—
In 2011, we will continue toprovide timely support to our business
units so that the bank’s competitivenessis strengthened. We will build a nextgeneration customer relationshipmanagement (CRM) system to realize
the full potential of our Retail, Private
Banking and Credit Card operations.

—
We will continue to support
our employees and our customers
in a timely fashion to maximize theirsatisfaction levels. A new system will
be built to support smart phones andother types of new handsets for greater
customer convenience.

—
The platforms of theInformation Development Team will bestandardized through the developmentof common programs. The services andsystems for handling lump transactions
will also be upgraded. An Exclusive TestTeam will be formed and the meta datasystem renovated as part of ongoing
efforts to reinforce data quality control
management.
—
Finally, the competenciesof the IT organization will continue toimprove with the introduction of theBusiness Architect career management
program, which includes a roadmap
and BA training. The organizational
culture will make performance the
top priority with an integration of self
development methodology and thefunction point methodology.

32

Korea Exchange Bank 2010 Annual Report

Risk Management

KEB’s strict and advanced risk management played a significant role in insulating KEB from thenumerous risks that arose after the onset of the 2008 financial crisis.

Capital Adequacy
Framework—
In 2008, the Financial
Supervisory Service (FSS) granted us
permission to apply the advanced BaselII approaches to our risk measurement
program. These include the foundationinternal ratings based approach (F-IRB)or credit risk measurement, an internal
model for market risk measurement,
and the advanced measurement
approach (AMA) for operational risk
measurement. Since the end of 2008,
these approaches have been reflectedin our regulatory capital measurement.
Further, we have successfully
implemented RWA reduction targets,
both bank-wide and by business unit,
for managing credit risk.

—
These efforts have helped us
to overcome the effects of the financial
crisis that broke out in 2008 and toestablish effective measures toaccommodate new capital regulations(Basel III) that have been introduced by
the Basel Committee.
—
Since January 2007, KEB
has used the advanced approaches of
the Basel II Capital Accord to calculate
economic capital (internal capital), anda new capital adequacy framework has
been established. The key feature of
the framework is that banks separate
quantifiable risks from non-quantifiable
risks, and select and manage materialrisk. Credit, market, operational,
interest rate, credit concentration, andstrategic risks are all quantifiable, while
liquidity risk is non-quantifiable but

Credit Risk

unexpected loss (UL) in loan pricing.

—Since 2007, KEB has measured
credit risk according to the advanced
internal ratings based approach (A-IRB)
approach in Basel II, while the measured
credit risk volume is used in setting
and managing risk limits. Credit risk
assessments cover rating systems,
probability of default (PD) and loss given
default (LGD) estimates, and the retailcredit scoring system (CSS) is used for
calculating calibrated credit risk. We
have also established and operate a risk
based pricing system, which uses risk
data to reflect expected loss (EL) and—
KEB has implemented riskadjusted performance measurement(RAPM) in each business unit byadopting risk-adjusted return on capital(RAROC) as an index starting in the firsthalf of 2007. We began reflecting RAPM
in setting business unit targets andevaluating their performance in the firsthalf of 2008, and reflecting RAPM inbranch targets and evaluations in 2009.
—
For regulatory capital (BIS
ratio), KEB has measured credit
risk using the FSS-approved F-IRB

classified as a material risk.At the
beginning of the year, the Risk
Management Committee, a subcommitteeof the Board of Directors, sets the limits
for quantifiable risks, and the Risk
Steering Committee reviews capital
adequacy every month and submits
quarterly status reports to the Risk
Management Committee.
—
The Basel II advanced approachcalls for the advanced internal ratings
based (A-IRB) approach in determining
credit risk, the internal model to measuremarket risk, and the AMA for calculating
operational risk, and sets the confidence
level at 99.9%. A capital buffer of at least
8% of risk volume has also been set,
and a correlation matrix for integrating
various risk volumes has been
introduced.

approach from September 2008. We
set bank-wide and business unit RWA
targets and examined them weekly
starting from early 2009. Our RWA
management enabled us to maintainasset quality and capital adequacy
during the banking crisis.
—
In addition, our internal model
method was completed in December
2009 to measure the EAD of OTC
derivatives with precision. Also, as IFRS
will be applied to listed companies
starting in 2011, we have completed themodification of the risk management
system based on IFRS.

33

Operational Risk—
KEB has implemented
operational risk limits based on AMA
methodologies since 2007. Basel II
AMA-based control self-assessment
was initiated at our Headquarters,
domestic and oversea branches
and subsidiaries in 2008 for internal
control and risk volume measurementof operational risk. The AMA-based
operational risk volume is thencalculated after the AMA-based loss
data is collected and scenarios areassessed.
—
Starting in 2008, the AMAbased operational risk volume wasmeasured for each business unit, and
2% of the operational risk volume
is reflected in the business units’
RAROC. The FSS approved KEB’s AMA
on November 2008 and KEB began
adjusting AMA to calculate regulation
capital from the end of March 2009.

—
The Internal Control Council
is established under the ComplianceDepartment to strengthen internal
control. Council members are theheads of the Operational Risk,
Compliance, Audit & Examination and
Finance Departments.
—
KEB has also developed with
the FSS 31 common Key Operational
Risk Indicators to monitor the risk
status of the bank.
—
In 2011, KEB increased theinternal capital limit to governing
operational risk to absorb an
unexpected loss that may come fromsome future financial incident. Thismeans that KEB is ready to continue
operating the banking business under
any circumstances.

34

Korea Exchange Bank 2010 Annual ReportMarket Risk—
In 2008, we received FSS
approval to use our internal model (750days historical simulation method)and have since used the model for
calculating and managing regulatory
capital. We manage market risk bymonitoring the 10-day value at risk (VaR)
limit by business unit using the internal
model and each day perform stresstesting, which measures possible losses
under various scenarios, to be better
prepared for some possible crises notreflected in recent market trends.

—
KEB assesses model validity
every day by back-testing the P/L and1-day VaR of the previous day. In 2010,
the coverage of market risk internal
model was enhanced by the additionof a new module that measures therisk embedded in exotic interest
rate derivatives. The risk volume
measured by the model is reflected
in setting our risk-limit. Since 2007,
it has been reflected in our RAROC
target and business unit performanceassessments.

Liquidity Risk—
KEB established new
metrics, processes and management
framework of liquidity risk to meet theregulatory guidelines for liquidity risk
announced by the FSS in September
2009. Liquidity risk is systematicallymanaged using risk appetite metrics,
limit metrics and monitoring metrics.
A contingency funding plan was also
prepared after conducting a stress test

to assess the bank’s funding situation
during a liquidity crisis. In preparation
for the implementation of Basel III’sliquidity risk metrics, the liquidity
coverage ratio (effective in 2015) andthe net stable funding ratio (effective in2018) are being managed as one of thelimit metrics.

Strategic Risk—
Strategic risk is hard tomeasure, but KEB has defined it as abusiness risk and started to calculate it
in 2007. We have also established andmanage a strategic risk limit. Strategicrisk volume is measured by the volatilityof actual operating income compared
to forecasts.

Business Continuity Plan—
KEB has maintained abusiness continuity plan (BCP) since2007 to ensure that operations cancontinue with minimal losses to thebank in the event of an accident (fire forexample), manmade or natural disaster(such as a typhoon or terrorist attack)or system failure. Meanwhile, theCrisis Management Committee, which
consists of the CEO and the executives
in charge of Human Resources,
Finance, Systems & Technology, andBusiness Continuity Planning, is readyto respond quickly to any possible
business disruption caused by adisaster or accident.

35—
An alternative office has
been established outside Seoul, 30
kilometers south of KEB Headquarters.
This contingency location is readyto assume the functions of the
Headquarters and other key facilities
should they become inoperable forany reason. The Disaster Recovery(DR) Center is also located over 30
kilometers away from the IT Data
Center as a backup for IT system
failures, ensuring the system remains
in service around the clock.
—Every branch and sub-branch—the units tasked with performing
customer services—have two
designated alternative locations thatcan be used should their operation
be disrupted at any time. One is thebranch (or sub-branch) closest to it(Contingency Location I) and the otheris one located at least 10 kilometers
away (Contingency Location II). This
scheme allows us to respond in theevent of a fire, power failure or otherproblem at a single location as wellas to cope with a widespread disastersuch as a flood or earthquake.
—
KEB has been conducting
emergency simulation tests at least
once a year since 2007. These drills aredesigned to increase the emergency
responsiveness and recovery
capabilities of all employees, including
the CEO. The date for the exercise is
not announced in advance, thereby
adding to the realism and increasing
employees’ ability to actually respond.
—
For example, the June 2010
test simulated flood damage to the
Headquarters from a typhoon, andrequired employees to connect thecomputer network with the alternative
office and the Sang-am IT Center.
Various other disaster scenarios havealso been designed.

—
Meanwhile, a project was
conducted between September 2010
and January 2011 to assess the current
KEB business continuity plan andto revise it to reflect changes in thebusiness environment. All divisions andbranches participated in this project,providing the opportunity to take the
BCP to the next level. Importantly, we
become the first bank in Korea to haveall operations receive the BS 25999
certification, an international standard
for excellence in business continuity
planning.
—	Going forward, we remaincommitted to ensuring that our services
are never interrupted should any kindof accident or disaster occur. In theprocess, we are earning a reputation asa bank where customers can receive
the very best financial services at all
times.

Korea Exchange Bank 2010 Annual Report

TRANSPARENT CORPORATECULTURE & FOUNDATIONFOR SHARING

we practice high ethical standards and transparent management as part ofdedicated efforts to maintain a clean corporate culture. Moreover, the KEB
Foundation leads our Corporate Social Responsibility programs that regularly
return part of profits to society. We are committed to fulfilling our role andresponsibilities as a corporate citizen by supporting charities, giving scholarships
to students in need, assisting local communities and participating in internationalrelief efforts.

Korea Exchange Bank 2010 Annual Report

38

Corporate Ethics

KEB has a responsibility to its employees, customers and shareholders. We honor thiscommitment through internal controls to ensure the highest standards of ethical andtransparent management. We have implemented an ombudsman system, an extensive cadre ofcompliance officers, and other programs that help to instill corporate pride, earn publictrust and enhance our reputation.
Through the KEB Foundation,the Korean financial industry’s flagship charitable organization,
KEB volunteers perform a wide range of activities to assist society’s most needy and neglected
members, build homes for the homeless, support the arts, and provide relief to those struck by
disaster in communities where we operate, both at home and overseas.

—
KEB understands that the reputation of our bank depends on the integrity of our operations. Our staff
conforms to the highest standards for ethical behavior and mindset. KEB pursues transparency in business
management through a comprehensive internal oversight system to protect the bank and our customers, employees,
and shareholders.
—
KEB has reinforced internal control and stepped up the organization-wide activities to prevent financial
misconduct. Training is provided on regulatory compliance and business ethics as well, helping to ensure ethicalconduct at all times. Domestically, we introduced the compliance manager program to all regional headquarters
to strengthen internal oversight and regulatory compliance monitoring in 2009. Overseas offices also implemented
an overseas compliance officer system to emphasize transparent, ethical management and legal compliance.
Additional measures were implemented to enhance internal oversight overseas as well. These included reinforcing theindependence of overseas compliance officers and improving the compliance reporting system.
—
KEB implemented the independent Ombudsman system in 2005 for the first time among Korean banks andapplied it globally in 2009 to facilitate and broaden internal reporting. Now domestic branch employees as well as thoseat all overseas branches and subsidiaries can more readily raise concerns about any ethical problems they may identify.
The Ombudsman is totally independent, protecting the confidentiality of whistleblowers.
—
In August 2009, thirteen people assigned to the Retail Bank received appointments to monitor retail branches
under the various regional headquarters. A year later, four Compliance Monitors (CMs) from the Corporate Group wereassigned to positions that oversee corporate marketing support departments under their Group’s jurisdiction (Kangnam,
Kangdong, Gangseo and Jungang Corporate Marketing Support Departments).
—
To further strengthen our compliance activities, the CM unit was reorganized as the Compliance Support
Team, while CMs were assigned to the Private Banking departments at 11 Wealth Management Centers and 16
branches under the Corporate Group. As a result, the compliance organization was expanded and strengthened, andthe monitors were provided with independent authority to perform their jobs.
—
In 2010, Korea’s Financial Intelligence Unit (FIU) enacted regulations to prevent money laundering and terrorist
financing, prompting us to overhaul our customer verification procedures and computer systems. In December, KEB
received an “Excellent” rating on the FIU’s assessment of the anti-money laundering system.

39

KEB Foundation

CSR Activities that Embody Sharing and Serving—
The KEB Foundation (KEBF) was established in December 2005 as the first non-profit charity organization by
a Korean bank and directs our corporate social responsibility programs. Over the past six years, the KEBF has paid out
some KRW 13.6 billion to carry out diverse community service activities. As Korea’s leading international bank since
our founding in 1967, our support programs for multicultural families, migrant workers and North Korean defectors aswell as our contributions to international relief efforts have been strategically important in promoting our image as aninternational brand.
—
In October 2010, the KEBF was named “exemplary organization for social cohesion” at the 2010 National
Multicultural Family Support Network Conference, cosponsored by the Ministry of Gender Equality and Family, National
Brand Committee, and Presidential Committee on Social Cohesion. The Bank was presented with a Presidential
Commendation, elevating the public stature of the KEB Foundation.

Support for Needy Children—
KEBF has welfare and education programs targeting children in need such as orphaned teenagers whoare caring for younger siblings, children in the care of grandparents and single-parent families. KEBF also sponsors
outings for disabled children in collaboration with Holt Children’s Services and other welfare facilities for handicappedchildren.
—Among many activities in this area, the One to One Sponsorship Program is noteworthy. KEBF has helped
KEB employees to forge ties with underprivileged children inside and outside of Korea in cooperation with World Vision,
Korea Food for the Hungry International, Leftovers Love Sharing Community and other renowned Korean NPOs. Today,
800 children are receiving about KRW 21 million a month (KRW 252 million a year) in financial assistance.

Korea Exchange Bank 2010 Annual Report

KEB Foundation

Support for Low-Income Families and Underprivileged People—
In 2009, KEB instituted Korea’s first annual awards for multicultural families to support foreigners adjusting
to living in Korea. In 2010, a new award category, the “Happy Helper Award”, was established to encourage individuals
and groups to assist multicultural families and awarded to a social worker and five social working groups. Fifteen
exemplary migrant housewives won the “Happy Home Award” and “Promising Home Award” with recipients receiving
all-expenses-paid trips to their native home. Cash prizes were also awarded totaling KRW 76 million.
—
An essay contest cohosted with the Sookmyung Women’s University Research Institute of Asian Women
invited foreign spouses to write in their native language about their experiences while living in a Korean family setting.
A total of 33 people received prizes, helping to raise awareness of need for bilingual skills in a multicultural society.
The Motherland Tour program, organized in cooperation with Pearl S. Buck Foundation Korea, helps children in
multicultural families to find their identity. In 2010, the program paid for fourteen Vietnamese brides and their children
to visit birth parents in Vietnam for a week.
—
The KEBF has, since its establishment five years ago, continued a monthly food serving program in Seoul’s
Cheongryang-ri district for the homeless and underprivileged elderly. The KEBF also regularly worked with non-profit
organizations Friends of Love and the Purme Foundation to provide food and necessities to low-income families.

Community Services—
The “KEB Love Sharers” is a volunteer group with a registered membership of 1,086 KEB employees and theirfamily members. Members volunteer their time to help out at various charity events and social welfare organizations,such as building homes for low-income families in cooperation with Korea Habitat for Humanity.
—“KEB Nanum (Sharing) Deposit” is a special bank account that serves the public good by contributing a
portion of the savings to charitable causes inside and outside of Korea. In 2010, 26 holders of this bank account visited
Ulaanbaatar, Mongolia, for six days to help build homes for local underprivileged people. This voluntary campaign was
subsequent to the 2008 event in Vietnam and 2009 event in Indonesia.

40

41

KEB Foundation

Educational Scholarships—
The KEB Scholarship program, launched in 1989, is now operated under KEBF. KEBF has provided a total of
KRW 924 million in grants to 912 middle school, high school and university students from low-income families between
2006 and 2010. KEBF has also paid the expenses for 13 KEB Scholarship recipients, including two in 2010, to attend
eight-week English language programs in the US since 2007. KEB pledged to donate KRW 500 million to the Korea
Student Aid Foundation, which provides students from low–income families with opportunities to receive a college
education, and KRW 400 million of this total was handed over by the end of 2010 through the KEBF.
—
In addition, the KEB Global Scholarship program was started in 2009 to assist foreign students fromdeveloping countries who are studying at Korean universities and demonstrate financial need. To date, a total of KRW
63 million has been given to 21 students including 11 students in 2010. Over the past five years, KEB international
scholarships worth KRW 330 million have also been given to 1,061 underprivileged university students in developing
nations in Southeast Asia where we are operating, including Vietnam, Indonesia, and the Philippines.

International Relief Programs—
KEB has the most extensive global network among Korean banks and has actively engaged in internationalrelief activities. In 2010, the Foundation supported international emergency assistance to victims of earthquakes in
Haiti, Chile and Indonesia as well as a volcano in Indonesia.
—
KEBF has continued to expand the number of “Happy Home School” programs. The first of these local centers
for children from low-income families was established in Panchasari, Indonesia in 2006. Happy Home School No. 2
opened in Vinh Puc Province of northern Vietnam in 2008; No. 3, in Manila, the Philippines in 2009; and No. 4 in theKumi District of eastern Uganda in 2010.
—
The year 2010 marked the 60th anniversary of the outbreak of the Korean War. On this occasion, KEB increased its
support programs for the needy people in Ethiopia, the Philippines and other nations that came to the aid of the Republic ofKorea during that terrible conflict. Programs such as these underscores how Korea has grown from being an aid recipient tobeing an aid donor and conveys the image that Koreans that have not forgotten their debt of gratitude.

Korea Exchange Bank 2010 Annual Report

KEB Foundation

Special Projects—
At the end of 2009, part of the salaries for KEB executives was donated to the KEBF and earmarked forspecial projects. The goal of these projects was to bring tangible, long-term results in line with the KEB image, thereby
underscoring the significance of executives giving back to society. Major non-profit organizations were publicly invited tosubmit proposals, which were carefully screened by an external panel of experts. A total of 20 programs and activities
were selected.
—
The initial projects in this series were launched in 2010: “Future Growth Libraries” were established atchildren’s centers across the country, and a program was begun to help integrate biracial children into Korean society.
Musical plays were put on to bring Korean and biracial children together. The volunteer community service groupconsisting of KEB employees’ children helped to build homes for low-income people in China’s Sichuan Province. A
food distribution center was remodeled in Nepal and a “Global Library” built for children in Vietnam. Support was also
given to a program that provides free eyesight recovery operations in African countries including Ethiopia. A second
round of projects is slated for 2011.
—
In 2010, KEB provided KRW 2.3 billion in regular funding for these diverse CSR activities both in Korea andoverseas. In addition, KEB employees donated KRW 775 million from their own pockets with 3,617 employees, or 49
percent of the total workforce, participating in automatic monthly donations.

42Financial
Statements

p44

Management Discussion & Analysisp52

Non-Consolidated Financial Statements- Independent Auditors’ Reportp53	Non-Consolidated Statements of Financial
Position
p54

Non-Consolidated Statements of Incomep56Non-Consolidated Statements ofAppropriations of Retained Earnings

p57	Non-Consolidated Statements of Changes inShareholders’ Equity
p58

Non-Consolidated Statements of Cash Flows

p60	Notes to Non-Consolidated Financial
Statements
p123

Independent Accountants’ Review Report on

p124

Consolidated Financial Statements

Internal Accounting Control System (“IACS”)- Independent Auditors’ Report
p125

Consolidated Statements of Financial Position

p126

Consolidated Statements of Income

p128	Consolidated Statements of Changes inShareholders’ Equity
p129

Consolidated Statements of Cash Flows

p131

Notes to Consolidated Financial Statements

44

Korea Exchange Bank 2010 Annual ReportManagement Discussion & Analysis

1 . K e y F i n a n c i a l D ata(In billions of KRW)

Operating Results
Total Income
Net Interest Income
Fees & Commissions
Non Interest Income
Total Expenses (G&A)
Operating Income
Net Income
Profitability Indices
Net Interest Margin (NIM)
Return on Assets
Return on Equity
Balance Sheet Data at Year-End (inclg. Trust Account)
Total Assets
Total Credits
Total Deposits
Asset Quality
NPL Ratio
NPL Coverage Ratio
Precautionary & Below Ratio
Pre & Bel. Coverage Ratio
Delinquency Ratio
Capital Adequacy
BIS Ratio
Tier I Ratio
Tier II Ratio

2009

2010

YoY

2,540.8
1,917.9463.2
159.7
1,223.7
1,317.2
891.7

2,799.0
2,152.8
459.3
186.9
1,173.1
1,625.8
1,021.4+10.2%+12.2%-0.8%+17.0%-4.1%+23.4%+14.5%

2.39%
0.88%
12.27%

2.69%
1.03%
12.57%+0.30%p+0.15%p+0.30%p

107,728.9
70,550.5
67,371.3

115,116.0
69,181.6
74,873.8

+6.9%
-1.9%
+11.1%

0.94%
152.5%
2.27%
63.3%
0.50%

1.34%
124.8%
3.21%
52.0%
0.47%

+0.40%p-27.7%p+0.94%p-11.3%p-0.03%p

14.93%
11.04%
3.89%

15.24%
12.15%
3.09%+0.31%p+1.11%p-0.80%pSee accompanying notes to non-consolidated financial statements.

2. Overview
In 2010, we achieved strong income growth as the Korean economy recovered from the global crisis that began in 2008 and continued into 2009.
KEB’s top performance among the domestic banks in terms of profitability, capital adequacy, and asset quality is an achievement that demonstrates
the bank’s exceptional management.
KEB posted a net income of KRW 1,021.4 billion in 2010, up 14.5% from the previous year. Net interest margin expansion and improving credit quality
were key drivers of earnings growth. KEB also strengthened its capital level with its BIS ratio topping 15.24% at the end of 2010, up 31 percentage
points from 14.93% at the end of 2009.

45

Management Discussion & Analysis

3 . I n c o m e S tat e m e n t1) Summary of Profitability(In billions of KRW)

Quarterly
1
Net Interest Income
2
Fees & Commissions
3
Non Interest Income
4 Total Income [1+2+3]
5 Total Expenses
6 Operating Income [4-5]
7 Investment Stock Impairment Loss, etc.
8 Income Before Provisions [6-7]
9 Provisions & Others
10
Loan loss provisioning
11 Income before Tax [8-9]12 Income Tax Expense
13 Net Income [12-13]
14 Earnings per Share (KRW)
15 Dividends per Share (KRW)

Annual

1Q10

2Q10

3Q10

4Q10

2009

2010

YoY

561.4
99.7
55.2
716.3
303.6
412.7
-182.3
594.9
168.3
108.3
426.7
108.5
318.2
493
-

519.5
127.4
90.6
737.5
268.9
468.7
-70.3
539.0
255.0
239.6
284.0
73.1
210.9
327
100

511.2
108.1
49.2
668.4
309.1
359.3
-118.0
477.4
101.8
86.8
375.5
85.6
290.0
450
135

560.7
124.1
-8.1
676.7
291.5
385.2
-5.7
390.9
116.8
63.6
274.1
71.7
202.3
314
850

1,917.9463.2
159.7
2,540.8
1,223.7
1,317.2-242.1
1,559.3
776.1
666.3
783.1
-108.6
891.7
1,383
510

2,152.8459.3
186.9
2,799.0
1,173.1
1,625.8-376.32,002.2
641.9
498.1
1,360.3
338.9
1,021.4
1,584
1,085

+12.2%-0.8%+17.0%+10.2%-4.1%+23.4%
F+28.4%-17.3%-25.2%+73.7%
U+14.5%+14.5%+112.7%

Note: F = Favorable, U=Unfavorable

Our net income growth was driven by the improvement in net interest income and decline in loan loss provisioning. Non-recurring gains from thesale of Hynix shares (KRW 223.3 billion after-tax), and Samsung Life shares (37.4 billion after-tax) also contributed to the increase in net income.
The bank’s profitability indicators, ROA and ROE, came to 1.03% and 12.57%, respectively.

Quarterly Trend of Net Income			(In billions of KRW)

NormalNon-recurring items

Hynix

Samsung Life

Hynix

318.2
290.0
136.0

87.3
210.9
37.4

306.4
182.2

4Q09

1Q10

173.5

2Q10

202.7

202.3

3Q10

4Q10

46

Korea Exchange Bank 2010 Annual ReportManagement Discussion & Analysis

2) Net Interest Income & Net Interest Margin (NIM)(In billions of KRW)

Quarterly
Net Interest Income
Average Earning Assets
Net Interest Margin (NIM)*
KRW
Foreign currency

Annual

1Q10

2Q10

3Q10

4Q10

2009

2010

YoY

561.4
78,425.8
2.83%
3.29%
1.38%

519.5
79,558.4
2.60%
3.09%
1.17%

511.2
80,525.1
2.50%
2.98%
1.08%

560.7
78,847.1
2.82%
3.39%
1.13%

1,917.9
79,513.9
2.39%
2.74%
1.42%

2,152.8
79,286.2
2.69%
3.19%
1.18%

+12.2%-0.3%+0.30%p+0.45%p-0.24%p* Net interest margin is calculated from net interest income adjusted for certain items.

Net interest income (NII) was KRW 2,152.8 billion in 2010, up 12.2% from KRW 2,238.1 billion in the previous year. The main driver was the increase in
the net interest margin, which averaged 2.69% in 2010, up 0.30%p from the previous year.

3) Fees & Commissions and non interest income(In billions of KRW)

Quarterly
Total Fees & Commissions
Gains from FX transactions
Fees & Commissions
KRW currency related
Foreign currency related
Card
OthersNon Interest Income% of Total Income
Total Fees & Commissions
Non Interest Income
Sum

Annual

1Q10

2Q10

3Q10

4Q10

2009

2010

YoY

99.7
60.0
39.7
38.8
33.2
-53.9
21.6
55.2

127.4
70.3
57.1
40.8
36.5
-45.6
25.4
90.6

108.1
63.8
44.3
36.0
33.1
-47.4
22.6
49.2

124.1
70.6
53.5
37.5
40.6
-51.0
26.4
-8.1

463.2
273.3
189.9
138.3
141.1
-178.8
89.3
159.7

459.3
264.7
194.5
153.0
143.3
-197.9
96.0
186.9

-0.9%
-3.1%
+2.4%
+10.7%
+1.6%
U
+7.5%
+17.0%

13.9%
7.7%
21.6%

17.3%
12.3%
29.6%

16.2%
7.4%
23.5%

18.3%
-1.2%
17.1%

18.2%
6.3%
24.5%

16.4%
6.7%
23.1%

-1.8%p
+0.4%p
-1.4%pNote: U = Unfavorable

Sum of total fees & commissions and non interest income was KRW 646.2 billion in 2010, up 3.7% from KRW 623.0 billion in the previous year.
Total fees & commissions were KRW 459.3 billion, compared to KRW 463.2 billion in the previous year, a small decline of 0.9%. Non interest income
was KRW 186.9 billion in 2010, up 17.0% from 2009.

47

Management Discussion & Analysis

KEB’s market-leading position in FX and trade finance business remained strong, with market shares of 46% for FX and 31% for export and 28% forimport financing during 2010.

Market Leadership in FX and Trade Finance			KEB
Bank ABank B
Bank CBank D
Others6%

6%(Annual average for 2010)

46%

14%

8%
9%

31%

28%

18%

7%

FX Market
Share

8%

Export Market
Share

8%
11%

13%

25%

Import Market
Share
19%

27%

16%

* Market share in FX is based on 7 large domestic banks’ transactions, exports/imports are based on national trade volume4) Total Expenses
Total expenses in 2010 were KRW 1,173.1 billion, down 4.1% from KRW 1,223.7 billion in 2009.
The cost/income ratio (total expenses to total income ratio) also improved to 41.9% in 2010, a 6.3%p decline from the previous year.
(In billions of KRW)

Quarterly
Total Expenses
Salaries & Benefits
Operating Expenses
Depreciation
Tax & Dues
% of Total Income
Total Expenses
Salaries & Benefits
Operating Expenses

Annual

1Q10

2Q10

3Q10

4Q10

2009

2010

YoY

303.6
198.7
71.2
24.3
9.3

268.9
156.3
82.5
22.1
8.0

309.1
179.6
95.5
22.6
11.4

291.5
163.8
93.4
24.1
10.2

1,223.7
702.0
368.2
115.2
38.2

1,173.1
698.5
342.7
93.2
38.9

-4.1%
-0.5%
-6.9%
-19.2%
-1.7%

42.4%
27.7%
9.9%

36.5%
21.2%
11.2%

46.2%
26.9%
14.3%

43.1%
24.2%
13.8%

48.2%
27.6%
14.5%

41.9%
25.0%
12.2%

-6.3%p
-2.6%p
-2.3%p

48

Korea Exchange Bank 2010 Annual ReportManagement Discussion & Analysis

5) Provisions & Others
Loan loss provision (LLP) was KRW 498.1 billion in 2010, down 25.2% from KRW 666.3 billion in 2009.
(In billions of KRW)

Quarterly
Total Provisions & Others
Loan Loss Provisioning
Corporate
Household
Card
Other Provisioning
Retirement Allowance

1Q10
168.3
108.3
94.2
10.5
3.6
30.7
29.4

2Q10
255.0
239.6
219.5
13.2
6.8
8.0
7.4

Annual
3Q10
101.8
86.8
65.8
14.5
6.5
1.5
13.6

4Q10
116.8
63.6
40.4
14.6
8.6
40.1
13.2

2009
776.1
666.3
548.0
49.3
68.9
50.1
59.7

2010
641.9
498.1
419.9
52.8
25.5
80.2
63.6

YoY
-17.3%-25.2%-23.4%+7.1%-63.0%+60.1%+6.5%

4 . Ass e t Q u a l i t y a n d B a l a n c e S h e e t ( B a n k A c c o u n t )1) Asset Quality
Non performing loans (NPL) totaled KRW 926.4 billion at the end of 2010, with a corresponding NPL ratio of 1.34%. Reserve coverage ratio (Loan loss
reserve to NPL ratio) was 124.8% at the end of the year.
(End of period, in billions of KRW)

Total Credits
NormalPrecautionary
NPL [5+6+7]
Substandard
Doubtful
Estimated Loss
% of Total Credit
Precautionary
NPL
Reserves for Loan Loss
NPL Coverage Ratio

4Q09
70,550.5
68,948.1
937.3
665.0
448.4
162.8
53.8

1Q10
68,857.4
67,198.1
886.2
773.1
455.2
216.0
101.9

2Q10
69,476.7
67,358.9
1,211.0
906.8
461.8
374.1
70.9

3Q10
69,604.3
67,367.0
1,235.0
1,002.3
585.4
298.3
118.6

4Q10
69,181.6
66,959.1
1,296.1
926.4
420.0
437.6
68.8

YoY
-1.9%
-2.9%
+38.3%+39.3%-6.3%+168.8%+27.9%

1.33%
0.94%
1,014.4
152.5%

1.29%
1.12%
1,063.9
137.6%

1.74%
1.31%
1,147.2
126.5%

1.77%
1.44%
1,169.8
116.7%

1.87%
1.34%
1,156.0
124.8%+0.54%p+0.40%p+14.0%-27.7%p2) Assets
Total assets at the end of 2010 were KRW 95.9 trillion, compared to KRW 96.3 trillion at the end of 2009, a slight decrease of 0.4%.
Loans totaled KRW 62.4 trillion at the end of 2010, similar to KRW 62.6 trillion at the end of 2009.
(End of period, in billions of KRW)Cash & Due from Banks
Securities
Loans
Credit Card Receivables
Other Assets
Merchant Banking Assets
Total Assets

4Q09
5,902.7
13,829.2
62,627.0
2,422.9
12,097.7
1,851.5
96,308.1

1Q10
7,917.4
13,824.9
64,558.5
2,336.0
12,079.5
1,553.5
99,933.8

2Q108,635.9
13,836.7
62,944.1
2,419.8
15,552.7
1,922.5
102,891.8

3Q10
8,581.6
13,377.3
62,263.6
2,440.8
13,997.7
1,011.6
99,231.74Q107,455.4
13,161.6
62,423.8
2,581.0
11,428.7
1,433.9
95,903.5

YoY+26.3%
-4.8%
-0.3%
+6.5%
-5.5%
-22.6%-0.4%

49Management Discussion & Analysis3) Liabilities & Shareholders’ Equity
The overall funding mix improved in 2010. Total deposits increased to KRW 60.7 trillion at the end of 2010, up 6.6% from KRW 57.0 trillion at the endof 2009. Borrowings declined to KRW 8.4 trillion at the end of 2010, down 9.0% from the previous year. Debentures also fell to KRW 4.6 trillion at theend of 2010, down 41.1% from 2009.
Total shareholders’ equity increased to KRW 8.38 trillion at the end of 2010, up 5.3% from KRW 7.95 trillion at the end of 2009.
(End of period, in billions of KRW)

4Q09
56,951.9
9,183.8
7,855.9
13,062.1
1,299.6
7,954.8
96,308.1

Deposits
Borrowings
Debentures
Other Liabilities
Merchant Banking Liabilities
Shareholders’ Equity
Liabilities & Shareholders’ Equity

1Q10
59,526.4
8,710.9
7,259.6
14,712.0
1,847.8
7,877.1
99,933.8

2Q10
60,051.9
9,217.5
6,457.1
17,658.5
1,468.6
8,038.2
102,891.8

3Q10
59,211.2
8,388.1
5,931.5
16,431.3
1,066.2
8,203.5
99,231.7

4Q10
60,704.2
8,356.8
4,627.6
12,844.2
972.7
8,375.7
95,903.5

YoY
+6.6%
-9.0%
-41.1%-1.7%-25.2%+5.3%-0.4%

5 . C a p i t a l Ad e q u a c y
KEB maintained its strong capital position with a BIS capital ratio of 15.24% at the end of 2010, up 31%p from 14.93% at the end of 2009, reflecting
robust earnings performance and disciplined loan portfolio management.
Tier 1 capital ratio was 12.15% at the end of 2010, up 1.11%p from 11.04% at the end of 2009. Tier 2 capital ratio decreased to 3.09% at the end of2010 from 3.89% at the end of 2009.
BIS CAPITAL RATIO			

(%)

Tier I
Tier II

16.02
15.63
15.00

14.93
4.00
3.89

3.05
2.99

11.04

12.02

4Q09

1Q10

12.01

2Q10

15.24
3.09

12.58

12.15

3Q10

4Q10

50

Korea Exchange Bank 2010 Annual ReportManagement Discussion & Analysis

A p p e n d i x : H i s t o r i c a l A n n u a l F i n a n c i a l S t a t e m e n t s - Income Statement(in billions of KRW)

1 Net Interest Income
2 Fees & Commissions
3 Non Interest Income
4 Total Income [1+2+3]
5 Total Expenses
6 Operating Income [4-5]
7 Investment Stock Impairment Loss, etc.
8 Income Before Provisions [6-7]
9 Provisions & Others
10 Loan Loss Provisioning
11 Income before Tax [8-9]12 Income Tax Expense
13 Net Income [12-13]
14 Earnings per Share (KRW)
15 Dividends per Share (KRW)
Note: U = Unfavorable, F = Favorable

2008
2,238.1562.8
217.6
3,018.6
1,145.3
1,873.2-90.7
1,963.8
796.4
726.9
1,167.5
384.9
782.6
1,213
125

2009
1,917.9463.2
159.7
2,540.8
1,223.7
1,317.2-242.1
1,559.3
776.2
666.3
783.1
-108.6
891.7
1,383
510

2010
2,152.8459.3
186.9
2,799.0
1,173.1
1,625.8-376.32,002.2
641.9
498.1
1,360.3
338.9
1,021.4
1,584
1,085

2009 YoY (%)-14.3%-17.7%-26.6%-15.8%+6.8%-29.7%
F-20.6%-2.5%-8.3%-32.9%
F+13.9%+14.0%+308.0%2010 YoY (%)+12.2%-0.8%+17.0%+10.2%-4.1%+23.4%
F+28.4%-17.3%-25.2%+73.7%
U+14.5%+14.5%+112.7%

51

Management Discussion & Analysis

A p p e n d i x : H i s t o r i c a l A n n u a l F i n a n c i a l S t a t e m e n t s - Balance Sheet(End of period, in billions of KRW)

1 Cash & Due from Banks
2 Securities
3 Loans
4 Credit Card Receivables
5 Other Assets
6 Merchant Banking Assets
7 Total Assets
8 Deposits
9 Borrowings
10 Debentures
11 Other Liabilities
12 Merchant Banking Liabilities
13 Shareholders’ Equity
14 Liabilities & Shareholders’ Equity

2008
10,107.7
12,112.6
64,412.3
2,552.6
13,712.6
3,363.1
103,708.3
56,397.4
11,958.8
10,790.6
14,402.5
3,495.6
6,663.5
103,708.3

2009
5,902.7
13,829.2
62,627.0
2,422.9
12,097.7
1,851.5
96,308.1
56,951.9
9,183.8
7,855.9
13,062.1
1,299.6
7,954.8
96,308.1

2010
7,455.4
13,161.6
62,423.8
2,581.0
11,428.7
1,433.9
95,903.5
60,704.2
8,356.8
4,627.6
12,844.2
972.7
8,375.7
95,903.5

2009 YoY (%)-41.6%+14.2%-2.8%-5.1%-11.8%-44.9%-7.1%+1.0%-23.2%-27.2%-9.3%-62.8%+19.4%-7.1%

2010 YoY (%)+26.3%
-4.8%
-0.3%
+6.5%
-5.5%
-22.6%
-0.4%
+6.6%
-9.0%
-41.1%-1.7%-25.2%+5.3%-0.4%

Korea Exchange Bank 2010 Annual Report

52

NON-CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors’ Report
English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of
Korea Exchange Bank:
We have audited the accompanying non-consolidated statements of financial position of Korea Exchange Bank (the “Bank”) as of December 31,
2010 and 2009, and the related non-consolidated statements of income, appropriations of retained earnings, changes in shareholders’ equity andcash flows for the years then ended, all expressed in Korean Won. These financial statements are the responsibility of the Bank’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we planand perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Bank as of December 31,
2010 and 2009, and the results of its operations, changes in its retained earnings and its shareholders’ equity, and its cash flows for the years thenended, in conformity with accounting principles generally accepted in the Republic of Korea.
We have audited the Bank’s financial statements as of and for the year ended December 31, 2010 and originally issued the auditors’ report as ofMarch 14, 2011. However, as discussed in Note 2 to the accompanying financial statements, we reissued the auditors’ report as the Bank amended
its financial statements for the purpose of reflecting a dividend of ￦548,171 million, approved at the shareholders’ meeting held on March 31,
2011, which is different from an originally approved dividend of ￦374,046 million by the board of directors on March 12, 2011. Therefore, the issued
auditors’ report dated March 14, 2011 shall be replaced with this reissued report and the originally issued report dated March 14, 2011 should not bereferred to as an independent auditors’ report for the Bank’s financial statements for the year ended December 31, 2010.
Accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial statements are
not intended to present the financial position, results of operations, changes in shareholders’ equity and cash flows in accordance with accounting
principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the
Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report
and the accompanying financial statements are for use by those knowledgeable about Korean accounting procedures and auditing standards andtheir application in practice.

March 31, 2011

Notice to ReadersThis report is effective as of March 31, 2011, the auditors’ report date. Certain subsequent events or circumstances may have occurred between
the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying
financial statements and may result in modifications to the auditors’ report.

53

NON-CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONKOREA EXCHANGE BANK AS OF DECEMBER 31, 2010 AND 2009

(In millions of KRW)2010
ASSETSCash and due from banks (Notes 3, 18, 19, 24 and 29)
Securities (Notes 4, 17, 18, 19 and 23)
Loans (Notes 5, 6, 7, 17, 18, 19, 23 and 24)
Tangible assets (Note 8)
Other assets (Notes 2, 9, 17, 21 and 24)
Merchant banking account assets (Notes 10 and 24)￦￦
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits (Notes 11, 18, 19 and 24)
Borrowings (Notes 12, 18, 19 and 24)
Other liabilities (Notes 2, 13, 16, 17, 18, 21 and 24)
Merchant banking account liabilities (Note 14)￦

SHAREHOLDERS’ EQUITY (Notes 4, 8, 15, 17 and 21):
Common stock
Capital surplus
Accumulated other comprehensive income
Retained earnings￦
See accompanying notes to non-consolidated financial statements.

7,455,434
13,161,631
62,423,763
1,358,152
10,070,595
1,433,928
95,903,503

60,704,249
12,984,398
12,866,452
972,679
87,527,778

3,224,534
940
1,111,546
4,038,705
8,375,725
95,903,503

2009
￦

￦

￦

￦

5,902,708
13,829,175
62,627,014
1,380,418
10,717,280
1,851,510
96,308,105

56,951,887
17,039,671
13,062,152
1,299,568
88,353,278

3,224,534
940
1,233,556
3,495,797
7,954,827
96,308,105

54

Korea Exchange Bank 2010 Annual Report

NON-CONSOLIDATED STATEMENTS OF INCOME
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(In millions of KRW, except per share amounts)
2010

2009

OPERATING REVENUES:Interest income (Notes 19 and 24):
Interest on due from banks
Interest on trading securities￦

92,704
10,628￦87,31132,014

Interest on available-for-sale securities

177,407257,967Interest on held-to-maturity securities

230,826

186,317

3,613,015

3,896,372

16,714

15,297

4,141,294

4,475,278

Gain on valuation of trading securities

4,245

15,443Gain on disposal of trading securities

28,01646,094

Interest on loans
Other interest income
Gain on valuation and disposal of securities (Note 4):

Reversal of impairment loss on available-for-sale securities

2,387

18,686

390,956

250,810-108425,604

331,141

37,956

16,760Foreign exchange trading income

1,801,635

3,720,056

Gain on trading and valuation of derivatives (Notes 12, 17 and 19)

5,198,268

7,221,653

485,606

467,435

Gain on disposal of available-for-sale securities
Gain on redemption of held-to-maturity securities
Gain on valuation and disposal of loans (Note 5):
Gain on disposal of loans

Commission income (Notes 19 and 24)
Dividends income (Note 19)

20,701

14,203

Other operating revenue (Notes 10, 19 and 25)

118,740

141,716

12,229,804

16,388,242

Interest on deposits

1,337,542

1,545,130Interest on borrowings

460,603

848,822

Total operating revenues
OPERATING EXPENSES:Interest expenses (Notes 19, 24 and 25):

Other interest expenses

26,38632,931

1,824,531

2,426,883

Loss on valuation of trading securities

763

906

Loss on disposal of trading securities

Loss on valuation and disposal of securities (Note 4):15,331

14,624

Impairment loss on available-for-sale securities

67

20,896

Loss on disposal of available-for-sale securities

88

3,742

Loss on redemption of held-to-maturity securities-

7

16,24940,175

Provision for possible loan losses

474,015

648,470

Loss on disposal of loans

78,55433,501

552,569

681,971

Loss on valuation and disposal of loans (Notes 5, 7, 17 and 24):

(Continued)

55

NON-CONSOLIDATED STATEMENTS OF INCOME
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(In millions of KRW, except per share amounts)
2010
Foreign exchange trading losses￦

Loss on trading and valuation of derivatives (Notes 12, 17 and 19)
Commission expenses (Notes 19 and 24)
General and administrative expenses (Notes 19 and 24)
Other operating expenses (Notes 14 and 19)
Total operating expenses
OPERATING INCOME
NON-OPERATING INCOME (Notes 4 and 20)
NON-OPERATING EXPENSES (Notes 4 and 20)
INCOME BEFORE INCOME TAX
INCOME TAX EXPENSE (BENEFITS) (Note 21)

1,549,906

2009￦

2,812,085

5,124,398

7,869,356

291,900

278,602

1,236,718

1,283,401

332,292

280,534

10,928,563

15,673,007

1,301,241715,235

117,505

103,379

58,48035,483

1,360,266

783,131

338,899(108,606)

NET INCOME (Note 23)￦

1,021,367￦

891,737

BASIC NET INCOME PER SHARE (In currency units) (Note 22)

￦

1,584

￦

1,383

DILUTED NET INCOME PER SHARE (In currency units) (Note 22)

￦

1,584

￦

1,383

See accompanying notes to non-consolidated financial statements.

56

Korea Exchange Bank 2010 Annual Report

NON-CONSOLIDATED STATEMENTS OF APPROPRIATIONS OF RETAINED EARNINGS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(In millions of KRW except per share amounts)
2010
RETAINED EARNINGS BEFORE APPROPRIATIONS:
Beginning of the year
Quarterly dividend (Note 28)
Net income￦

TRANSFER FROM VOLUNTARY RESERVES:Other reserve
APPROPRIATIONS:
Legal reserve
Other reserve
Cash dividends (Note 28)[Dividends per share (rate):￦850 (17.0%) at 2010
￦510 (10.2%) at 2009]
UNAPPROPRIATED RETAINED EARNINGS TO BE CARRIEDFORWARD TO SUBSEQUENT YEAR
See accompanying notes to non-consolidated financial statements.

￦

2,657,279(151,553)
1,021,367
3,527,093

2009
2,179,869
891,737
3,071,606

￦

2,885

3,981

102,200
1,787
548,171

89,200206
328,902652,158

418,308

2,877,820￦

2,657,279

57

NON-CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(In millions of KRW)
Capital stock Capital surplus
As of January 1, 2009
Dividend
Negative capital adjustments
Balance after appropriations
Net income￦

3,224,534
3,224,534
-

￦

940
940
-

Accumulated
Capitalother compreadjustments
hensive income￦￦(4,425)
4,425-￦

749,201
749,201-

Retainedearnings￦

2,693,268(80,613)(4,425)2,608,230
891,737

Total￦

6,663,518(80,613)
6,582,905
891,737

Effect of exchange rate
fluctuations for overseas branches

-

-

-

-

(4,170)(4,170)

Valuation of available-for-salesecurities

-

-

-

486,095-

486,095

Valuation of held-to-maturity securities
Changes in equity on equity method

-

-

-

303
906

-

303
906

Negative changes in equity
on equity method

-

-

-

280

-

280

Valuation of tangible assets
As of December 31, 2009
As of January 1, 2010
Dividend
Balance after appropriations
Quarterly dividend
Net income￦￦

3,224,534
3,224,534
3,224,534
-

￦
￦

940
940
940
-

￦
￦

-

￦
￦

(3,229)1,233,556
1,233,556
1,233,556-￦￦

3,495,797
3,495,797(328,902)
3,166,895(151,553)
1,021,367￦￦(3,229)7,954,827
7,954,827(328,902)
7,625,925(151,553)
1,021,367

Effect of exchange rate fluctuations
for overseas branches

-

-

-

-

1,996

1,996

Valuation of available-for-salesecurities

-

-

-

(122,156)-(122,156)

Valuation of held-to-maturity securities
Changes in equity on equity method

-

-

-

16
433

-

16
433

Negative changes in equity
on equity method

-

-

-

(302)

-

(302)

Valuation of tangible assets
As of December 31, 2010￦

3,224,534￦

See accompanying notes to non-consolidated financial statements.

940

￦

-

￦

(1)
1,111,546￦

4,038,705￦(1)
8,375,725

58

Korea Exchange Bank 2010 Annual Report

NON-CONSOLIDATED STATEMENTS OF CASH FLOWSKOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(In millions of KRW)
2009

2010
CASH FLOWS FROM OPERATING ACTIVITIES:Net income￦

1,021,367￦

891,737

Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on valuation of trading securities, net(3,482)(Reversal of) impairment loss on available-for-sale securities, net(2,320)2,210

Gain on valuation of securities using the equity method, net(69,550)(49,416)

Provision for possible loan losses

474,015

648,470

Loss (gain) on disposal of tangible assets, net
Depreciation and amortization
Loss on impairment of tangible assets
Gain on valuation of financial derivatives, net
Provision for severance benefits(14,537)379(2,166)

93,157

115,229-

146(107,703)(206,975)

63,57559,726

Expenses for fringe benefits

14,400-Long-term compensation expense for performance bonus

13,234

9,748

Provision for allowance for other liabilities

77,00743,975(Reversal of) stock option compensation costs, net(433)

12,798Gain on foreign exchange trading, net(2,513)(114,962)

Loss on reserve for acceptances and guarantees

31,89023,793

Loss (gain) on reserve for unused credit limit, net

(920)

6,046

Gain on disposal of securities using the equity method

(16)

-

(48,940)(37,952)

531,780

496,133

849,019

102,656

Others, net
Changes in assets and liabilities resulting from operations:
Net decrease in trading securities
Net decrease in available-for-sale securities

1,516,789

44,328Net increase in held-to-maturity securities(1,414,146)(1,084,811)

Net increase in call loans(1,445,828)(17,374)

Net decrease (increase) in domestic import usance bill

(609,264)

130,745

Net decrease (increase) credit card receivables(185,092)

56,311

Net decrease in bills bought in foreign currencies

142,376452,786(6,767)(12,119)

Net increase in bills bought in Won
Net decrease in bonds purchased under repurchase agreements

1,086,000

554,000

92,426(1,235,884)

Net decrease in loans in foreign currencies

988,631

1,154,882

Net increase in factoring receivables(431,154)(35,836)

Net decrease in advances for customers

2,662

22,129Net decrease in privately placed bonds

124,632

74,667

Net decrease (increase) in deferred loan origination fees and costs(19,564)

4,075

Net decrease in accrued income

29,410138,758

Net decrease (increase) in loans in Won

Net decrease (increase) in prepaid expenses

599(15,838)

Net decrease in financial derivatives assets

630,840

3,276,627

Net increase (decrease) in accrued expenses

10,079(354,581)

Net decrease in unearned revenues(5,485)(25,800)

Payment of severance benefits(21,413)(34,429)

Increase in assets under management of pension benefits(37,225)(508)

Decrease in transfer to National Pension Fund
Increase in deposit of insurance for severance benefits
Decrease in financial derivatives liabilities
Decrease of reserve for acceptances and guarantees

33

87(6,312)(22,103)(555,598)(3,055,056)

(699)

-

59

NON-CONSOLIDATED STATEMENTS OF CASH FLOWSKOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(In millions of KRW)
2009

2010
Net decrease in allowance for unused credit limit
Net decrease in allowance for other liabilities
Net decrease in deferred income tax liabilities

(879)

-

(37,557)(30,771)(1,692)(23,441)

694,82163,5002,247,968

1,451,370

Purchase of securities using the equity method(391,709)(92,503)

Dividend of securities using the equity method

619

2,395

Disposal of securities using the equity method

440-(55,095)(51,240)

Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of tangible assets
Disposal of tangible assets

8,302

7,529

Purchase of intangible assets(27,956)(27,156)

Disposal of intangible assets

123-(8,414)(6,982)

Net increase in accounts receivable(130,608)(155,573)

Net decrease in other assets

118,700

41,518Net decrease in merchant banking account assets

456,633

1,542,016

Net decrease (increase) in restricted due from banks(3,004,869)

4,370,085

Net cash provided by (used in) investing activities(3,033,834)

5,630,089

3,781,197

567,716

Net decrease in borrowings(826,996)(2,774,965)

Net decrease in debentures(3,225,131)(2,834,383)

Net increase in guarantee deposits paid

CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits

Dividend
Net increase (decrease) in other liabilities
Net cash used in financing activities(480,455)(80,613)85,108(1,794,127)(666,277)(6,916,372)

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS(1,452,143)

165,087

CASH AND DUE FROM BANKS, BEGINNING OF YEAR
CASH AND DUE FROM BANKS, END OF YEAR (Note 29)

3,464,991
2,012,848

3,299,904
3,464,991

See accompanying notes to non-consolidated financial statements.

￦

￦

60

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

1. GENERAL:
Korea Exchange Bank (the “Bank”) was established on January 30, 1967 as a government-invested bank to engage in foreign exchange and thetrade finance business under the Korea Exchange Bank Act. On December 30, 1989, the Korea Exchange Bank Act was repealed and the Bank
was converted into a corporation under the Commercial Code of the Republic of Korea. On April 4, 1994, the Bank was listed on the Korean Stock
Exchange. On February 28, 2004, the merger between the Bank and Korea Exchange Bank Credit Service Co., Ltd. (“KEBCS”) was finalized.
The Bank primarily provides commercial banking services, trust banking services, foreign exchange, merchant banking business through the merger
with Korea International Merchant Bank, a domestic subsidiary of the Bank, and other related operations as permitted under the Bank Act and otherrelevant laws and regulations in the Republic of Korea. The Bank operates through 354 branches (including 28 depositary offices) and 3 subsidiaries
in Korea and 19 branches (including 2 depositary offices and 5 offices) and 10 subsidiaries in overseas as of December 31, 2010.
The Bank’s shareholders as of December 31, 2010 are as follows:
Shareholders
LSF-KEB Holdings, SCA
Export-Import Bank of Korea
Bank of Korea
OthersNumber ofshares owned (*1)

Ownership (%)

329,042,672
40,314,387
39,500,000
236,049,767
644,906,826

51.02
6.25
6.12
36.61
100.00(*1) The shareholders’ list as of December 31, 2010

The Bank entered into a Memorandum of Understanding regarding the Share Subscription Agreement with Lone Star Fund IV on August 27, 2003.
On October 30, 2003, the Bank issued 268,750,000 shares of common stock to LSF-KEB Holdings, SCA at ￦4,000 per share (at less than its parvalue) in accordance with a resolution during an extraordinary shareholders’ meeting on September 16, 2003. The balance below the par value isrecognized as a discount on stock issued.
As of December 31, 2010, the total number of authorized shares of the Bank is 1,000 million (par value ￦5,000) while the paid-in capital amounts to￦3,224,534 million (with 644,906,826 shares of common stock outstanding).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:•
Basis of Non-consolidated Financial Statements Presentation
The Bank maintains its official accounting records in Korean Won and prepares statutory non-consolidated financial statements in the Korean
language (Hangul) in conformity with the accounting principles and banking accounting standards generally accepted in the Republic of Korea.
Certain accounting principles and banking accounting standards applied by the Bank that conform with financial accounting standards andaccounting principles in the Republic of Korea may not conform with generally accepted accounting principles and banking accounting practices
in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles
and practices. The accompanying financial statements have been condensed, restructured and translated into English (with certain expanded
descriptions) from the Korean language financial statements. Certain information included in the Korean language financial statements, but notrequired for a fair presentation of the Bank’s financial position, results of operations, changes in shareholders’ equity or cash flows, is not presented
in the accompanying financial statements.
The significant accounting policies followed by the Bank in preparing the accompanying non-consolidated financial statements are summarized
below.
In addition, the Bank’s non-consolidated financial statements as of and for the year ended December 31, 2010 was approved by the board of directors
on March 12, 2011 for submission to an annual shareholders’ meeting. However, at the shareholders’ meeting held on March 31, 2011, dividends
was approved at a revised amount of ￦548,171 million, which was different from an originally approved amount of ￦374,046 million by the board of
directors.
•
Interest Income Recognition
The Bank applies the accrual basis in recognizing interest income related to due from banks, loans and securities. Whereas, interest on loans,
whose principal or interest is past due at the date of the statement of financial position or defaulted loans, not secured by guarantees from financial
institutions or collateral deposits, is recognized on a cash basis. As of December 31, 2010 and 2009, accrued interest income not recognized due tosuch criteria amounts to ￦94,732 million and ￦127,958 million, respectively.
•
Classification of Securities
At acquisition, the Bank classifies securities into one of the following categories: trading, available-for-sale and held-to-maturity, depending onmarketability, purpose of acquisition and ability to hold. Debt and equity securities that are bought and held for the purpose of selling them in thenear term and actively traded are classified as trading securities. Debt securities with fixed and determinable payments and fixed maturity that the
Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity securities. Debt and equity securities not classified as

61

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

the above are categorized as available-for-sale securities.
If the objective and ability to hold securities of the Bank change, available-for-sale securities can be reclassified to held-to-maturity securities andheld-to-maturity securities can be reclassified to available-for-sale securities. Whereas, if the Bank sells held-to-maturity securities or exercises
early redemption right of securities to issuer in the current year or the proceeding two years, and if it reclassifies held-to-maturity securities toavailable-for-sale securities, all debt securities that are owned or purchased cannot be classified as held-to-maturity securities. On the other
hand, trading securities cannot be recategorized to available-for-sale securities or held-to-maturity securities and vice versa. In rare cases, trading
securities can be reclassified to available-for-sale securities only when the trading securities lose their marketability or when the Bank holds themnot to earn gains on trading in short period.
In addition, investments in equity securities of companies, over which the Bank exercises significant influence, are accounted for using the equity
method and classified as securities accounted for using the equity method.
•
Valuation of Securities(1) Valuation of Trading Securities
Trading securities are initially recognized at acquisition cost plus incidental expenses determined by the individual moving average method for equity
securities and the specified identification method for debt securities. When the face value of trading debt securities differs from their acquisition
cost, the effective interest method is applied to amortize the difference over the remaining term of the securities. After initial recognition, if the fairvalue of trading securities differs from the book value, trading securities are stated at fair value and the resulting valuation gain or loss is included incurrent operations.
(2) Valuation of Available-for-sale Securities
Available-for-sale securities are initially recognized at acquisition cost plus incidental expenses, determined by the individual moving average method
for equity securities and the specified identification method for debt securities. The effective interest method is applied to amortize the difference
between the face value and the acquisition cost over the remaining term of the debt security. After initial recognition, available-for­sale securities
are stated at fair value, with the net unrealized gain or loss presented as gain or loss on valuation of available-for-sale securities in accumulated
other comprehensive income (loss), which is charged to current operations in a lump sum at the time of disposal or impairment recognition. Non­marketable equity securities are stated at acquisition cost in the financial statements if the fair value of the securities is not reliably determinable.
If the fair value of equity securities (net asset fair value in case of non-marketable equity securities stated at acquisition cost) is below the acquisition
cost and the pervasive evidence of impairment exists, the carrying value is adjusted to fair value and the resulting valuation loss is charged to current
operations. If the collectible value of debt securities is below the amortized cost and the pervasive evidence of impairment exists, the carrying value
is adjusted to collectible value and the resulting valuation loss is charged to current operations. With respect to impaired securities, any unrealized
valuation gain or loss of securities previously included in accumulated other comprehensive income (loss) is reversed.
(3) Valuation of Held-to-maturity Securities
Held-to-maturity securities are stated at acquisition cost plus incidental expenses, determined by the specific identification method. When theface value of held-to-maturity securities differs from its acquisition cost, the effective interest method is applied to amortize the difference over theremaining term of the securities. If collectible value is below the amortized cost and the pervasive evidence of impairment exists, the carrying
value is adjusted to collectible value and the resulting valuation loss is charged to current operations.
(4) Valuation of Securities using the Equity Method
Equity securities held for investment in companies in which the Bank is able to exercise significant influence over the investees (in accordancewith the Banking Act, if the Bank holds more than 15 percent of the total issued shares, the Bank is considered being able to exercise significant
influence) are accounted for using the equity method. The Bank’s share in net income or net loss of investees is included in current operations.
Changes in the retained earnings of investee are reflected in the retained earnings. Changes in the capital surplus, capital adjustments oraccumulated other comprehensive income (loss) of investee are reflected as gain or loss on valuation of securities using the equity method inaccumulated other comprehensive income (loss).
When the book value of equity securities using the equity method is less than zero due to the cumulative losses of the investees, the Bank
discontinues applying the equity method and does not provide for additional losses. If the investee subsequently reports net income, the Bank
resumes applying the equity method only after its share of that net income equals the share of net losses previously not recognized during the periodthat the equity method was suspended.
In addition, when ownership ratio is increased by increase or decrease in capital stock, the fluctuation of equity is accounted as difference ininvestment. On the other hand, when ownership ratio is decreased, the fluctuation of equity is accounted as loss on disposal of equity securities. Anygain or loss on the disposal of equity securities of certain consolidated subsidiaries is accounted for as accumulated other comprehensive income (loss)
resulting from applying the equity method in the statement of financial position if the subsidiaries are still consolidated even after the Bank disposesof a portion of equity securities.
(5) Reversal of Impairment Loss on Available-for-sale Securities and Held-to-maturity Securities
If the reasons for impairment loss on available-for-sale securities no longer exist, the recovery is recorded in current operations under non-operating
income, up to the previously recognized impairment loss, as a reversal of impairment loss on available-for-sale securities and any excess is included

Korea Exchange Bank 2010 Annual Report

62

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009in accumulated other comprehensive income as gain on valuation of available-for-sale securities. However, if the increases in the fair value of theimpaired securities are not regarded as the recovery of the impairment, the increases in the fair value are recorded as gain on valuation of availablefor-sale securities in accumulated other comprehensive income. For non-marketable equity securities, which are impaired based on the net asset
fair value, the recovery is recorded up to their acquisition cost.
For held-to-maturity securities, the recovery is recorded in current operations under non-operating income within the amount of amortized cost thatwould have been recorded according to the original schedule if the impairment losses had not been recognized as reversal of impairment loss onheld-to-maturity securities.
(6) Reclassification of Securities
When held-to-maturity securities are reclassified to available-for-sale securities, those securities are accounted for at fair value on thereclassification date and the difference between the fair value and book value is reported in accumulated other comprehensive income (loss) as gainor loss on valuation of availablefor-sale securities. When available-for-sale securities are reclassified to held-to-maturity securities, gain or loss
on valuation of available-for-sale securities, which had been recorded until the reclassification date, continue to be included in accumulated othercomprehensive income (loss) and amortized using the effective interest rate method and the amortized amount is charged to interest income until
maturity. The difference between the fair value at the reclassification date and face value of the reclassified securities to held-tomaturity securities isamortized using effective interest rate method and the amortized amount is charged to interest income. In addition, when certain trading securities
are reclassified as available-for-sale securities, the fair market value as of reclassification date is accounted as acquisition cost and the unrealized
gains or losses are recognized as income or loss.
•
Transfer of Securities
When the realization, expiration or sale of the right to obtain the economic benefits arises and the control of securities is lost from the sale of the
securities, the unrealized valuation gain or loss of securities included in accumulated other comprehensive income (loss) is added to or deductedfrom the gain or loss on disposal of securities. The gain or loss is the difference between the net proceeds receivable or received and its carrying
value. When securities are transferred without losing control of the securities, the transaction is recorded as a secured borrowing transaction.
•
Allowance for Possible Losses on Credits
According to the Korea Financial Accounting Standard Article 57 (Valuation of Receivables), allowance for bad debts shall be provided for estimateduncollectible accounts on a reasonable and objective basis. Presently, the historical loss rate (based on mitigation or roll-rate analysis) is one ofthe permitted reasonable and objective methods to estimate allowance for financial institutions. However, the Bank provides loan loss provision
pursuant to the Supervisory Regulation of the Banking Business, which requires providing more than minimum rate of loss provision for each asset
classification category.
The Bank applies the Forward Looking Criteria (“FLC”) for its loan classification for large corporate based on the credit rating to determine allowance
for loan losses. Under this method, the borrowers’ future debt repayment capacity as well as their overall financial health and managementsoundness are considered in developing the credit rating and the reserve for possible loan losses related to large corporate customers.
However, loan classification for the smaller corporate, household loans and credit card receivables is classified based on the delinquency period,
value of collateral and bankruptcy status only. Using such loan classification, the Bank classifies all credits into five categories as normal,
precautionary, substandard, doubtful, or estimated loss and provides the minimum rate of loss provision for each category balance using theprescribed minimum percentages of 0.85 percent (0.9 percent for construction, real estate, wholesale & retail, hotel and restaurant industries) or
more, 7 percent or more, 20 percent or more, 50 percent or more and 100 percent, respectively.
Households’ loans categorized as normal, precautionary, substandard and doubtful are 1 percent or more, 10percent or more, 20 percent or more
and 55 percent or more, respectively. Card receivables under those categories are 1.5 percent or more, 15 percent or more, 20 percent or more and60 percent or more, respectively.
The Bank provides allowance for possible losses on confirmed acceptances and guarantees, unconfirmed acceptances and guarantees, andendorsed notes based on the credit conversion factor and minimum rate of loss provision prescribed by the Financial Supervisory Service (FSS).
In addition, the Bank provides other allowances for the unused limit of credit card (including unused limit of credit card that have not been used atleast once in recent one year) and unused loan commitments for corporate and retail loan customers considering the credit conversion factor andminimum rate of loss provision prescribed by the FSS.
•
Restructuring of Loans
The equity interest in the debtors, net of real estates and/or other assets received as full or partial satisfaction of the Bank’s loans, collected throughreorganization proceedings, court mediation or debt restructuring agreements of parties concerned, is recorded at fair value at the time of therestructuring. In cases where the fair value of the assets received are less than the book value of the loan (book value before allowances), the Bank
offsets first the book value against allowances for loan losses and then recognizes provisions for loan losses. Impairment losses for loans that are
restructured in a troubled debt restructuring involving a modification of terms are computed by the difference between the present value of future
cash flows under debt restructuring agreements discounted at effective interest rates at the time when loans are originated and the book value
before allowances for loan losses.
If the amount of allowances already established is less than the impairment losses, the Bank establishes additional allowances for the difference.
Otherwise, the Bank reverses the allowances for loan losses.

63

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009•
Deferred Loan Origination Fees and Costs
The Bank defers loan origination fees associated with originating loans and loan origination costs that have future economic benefits. Loan balances
are reported net of these loan origination fees and costs. The deferred loan origination fees and costs are amortized using the effective interest
method with the amortization recognized as adjustments to other interest income.
•
Valuation of Receivables and Payables at Present Value
Receivables and payables incurred through long-term installment transactions, long-term borrowing and lending transactions, and other similartransactions are stated at the present value of expected future cash flows, and the gain or loss on valuation of related receivables and payables isreflected in current operations, unless the difference between nominal value and present value is immaterial. Present value discount or premium isamortized using the effective interest rate method and credited or charged to interest income or interest expense.
•
Tangible Assets and Related Depreciation
Tangible assets are recorded at cost or production cost including incidental expenses. Routine maintenance and repairs are expensed as incurred.
Expenditures that result in the enhancement of the value or the extension of the useful lives of the facilities involved are capitalized as additions totangible assets. The Bank adopted the amendment to the Statements of Korea Accounting Standards (“SKAS”) No. 5 “ Property, Plant and Equipment ”,
which permits certain items of its land to be revalued after acquisition date, applying the revaluation models permitted under SKAS No. 5. As aresult of this adoption, gain and loss on revaluation of tangible assets is accounted as accumulated other comprehensive income and non-operating
expenses, respectively.
Depreciation is computed by the straight-line method for building and leasehold improvements and by the declining-balance method for others
based on the estimated useful lives of the assets as follows:
Tangible assets

Estimated useful life

Depreciation method

Buildings
Leasehold improvements
Equipment

40 years
5 years
4 years

Straight-line
Straight-line
Declining balance•
Intangible Assets and Related Amortization
Intangible assets included in other assets are recorded at the production costs or purchase costs plus incidental expenses less discount if any.
Expenditures incurred in conjunction with the development of new products or technology and others, in which the elements of costs can be
individually identifiable and future benefits expected, are capitalized as development costs. Intangible assets are amortized using the straight-line
method over 5 years and presented after deducting amortized amount.
•
Valuation Allowance for Non-Business Use of Property
Non-business use of property included in fixed assets is recorded when the Bank acquires collateral by foreclosure on the mortgage for loans. Suchassets are not depreciated. After foreclosure, the asset is carried at the lower of its carrying amount or fair value determined by the estimated public
auction price. As of December 31, 2010, the Bank does not have non-business use of property.
•
Recognition of Impairment of Assets
When the book value of assets (other than securities and assets valued at present value) exceeds the collective value of the assets due toobsolescence, physical damage or a sharp decrease in market value and the difference is material, the book value are adjusted to collective value inthe statement of financial position and the resulting impairment loss is charged to current operations. If the collective value of the assets increases
in subsequent years, the increase in value is credited to operations as gain until the collective value equals the book value ofassets that would havebeen determined had no impairment loss been recognized. The Bank assessed the collective value based on expected selling price or appraisal
value.
•
Amortization of Discounts (Premiums) on Debentures
Discounts or premiums on debentures issued are amortized over the period from issuance to maturity using the effective interest rate method.
Amortization of discounts or premiums is recognized as interest expense on the debentures.
•
Securities under Resale or Repurchase Agreements
Securities purchased under resale agreements are recorded as loans, and securities sold under repurchase agreements are recorded as borrowings
when the Bank purchases or sells securities under such agreements.
•
Other Reserves
A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one ormore uncertain future events not wholly within the control of the Bank is recognized as a contingent liability when it is probable that an outflow ofresources embodying economic benefits required and the amount of the obligation can be measured with sufficient reliability. Where the effect of thetime value of money is material, the amount of the liabilities is the present value of the expenditures expected to be required to settle the obligation.

Korea Exchange Bank 2010 Annual Report

64

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009•
Accrued Severance Benefits
The accrued severance benefits that would be payable to assuming all eligible employees and directors were to resign are included in otherliabilities. The Bank has purchased severance benefits insurance, which meets the funding requirement for tax purposes, and made deposits with
Samsung Life Insurance Co., Ltd. and others. The deposit for severance benefit is presented as a deduction from accrued severance benefits. The
Bank manages the defined benefit retirement pension plan (DB plan) for the year ended December 31, 2010, and the assets invested in the DB planis accounted as assets under management of pension benefits and presented as a deduction from accrued severance benefits.
The estimated accrued severance benefits, which would be payable assuming all eligible employees and executives were to terminate theiremployment, amounted to ￦356,423 million and ￦316,251 million as of December 31, 2010 and 2009, respectively.
The Bank runs the defined benefit retirement pension plan (DB plan), whose investment manager is Merrill Lynch Trust Company, for retirees ofclosed branches in the U.S. The Bank accounted the present value of estimated pension benefits as of December 31, 2010 as pension benefits
payable. The assets invested in the DB plan is accounted as assets under management of pension benefits and presented as a deduction frompension benefits payable in accordance with Korea Accounting Institute (KAI) Opinion 05-2.
•
Accounting for Derivative Instruments
The Bank accounts for derivative instruments pursuant to the Interpretations on Financial Accounting Standards 53-70 on accounting for derivative
instruments. Derivative instruments are classified as used for trading activities or for hedging activities according to their transaction purpose. All
derivative instruments are accounted for at fair value with the valuation gain or loss recorded as an asset or liability. If the derivative instrument is notpart of a transaction qualifying as a hedge, the adjustment to fair value is reflected in current operations.
The accounting for derivative transactions that are part of a qualified hedge based both on the purpose of the transaction and on meeting thespecified criteria for hedge accounting differs depending on whether the transaction is a fair value hedge or a cash flow hedge. Fair value hedge
accounting is applied to a derivative instrument designated as hedging the exposure to changes in the fair value of an asset or a liability or a firm
commitment (hedged item) that is attributable to a particular risk. The gain or loss both on the hedging derivative instruments and on the hedged
item attributable to the hedged risk is reflected in current operations. Cash flow hedge accounting is applied to a derivative instrument designated as
hedging the exposure to variability in expected future cash flows of an asset or a liability or a forecasted transaction that is attributable to a particularrisk. The effective portion of gain or loss on a derivative instrument designated as a cash flow hedge is recorded as accumulated othercomprehensive income (loss) and the ineffective portion is recorded in current operations.
The effective portion of gain or loss recorded as accumulated other comprehensive income (loss) is reclassified to current earnings in the same
period during which the hedged forecasted transaction affects earnings. If the hedged transaction results in the acquisition of an asset or the
incurrence of a liability, the gain or loss in accumulated other comprehensive income (loss) is added to or deducted from the asset or the liability.
•
Accounting for Share-based Payment
In accordance with the Statements of Korea Accounting Standards No.22 – Share-based Payment and the Interpretations on Financial AccountingStandards 39-35 – Accounting for Stock Options., in case of equitysettled share-based payment transactions, compensation expense for stock option
and stock option (capital adjustment) are recorded at fair value at the grant date through an agreement service period, whereas in case of cashsettled share-based payment transactions, compensation expense for stock option and accrued expenses are recorded at fair value at the grant
date through an agreement service period. In case of cash-settled share-based payment transactions, the other liabilities (accrued expenses) are
assessed at fair value at the date of the statement of financial position or the final settlement. The changes in the fair value of accrued expenses
after the grant date are reflected as compensation expense for stock option. In addition, for share-based payment transactions in which the termsof the arrangement provide a choice for the Bank whether the Bank settles the transaction in cash or by issuing equity instruments, the Bank isrequired to account for that transaction as a cash-settled share-based payment transaction if the Bank has a present obligation to settle in cash, oras an equity-settled share-based payment transaction if no such obligation exists. In case of a cash-settled share-based payment, compensation
cost is recorded as capital adjustment (stock option), and in case of an equity-settled share-based payment, compensation cost is recorded as otherliabilities (accrued expenses).
•
Accounting for Trust Accounts
The Bank separately maintains the books of accounts and financial statements in connection with the trust operations (the trust accounts) fromthose of the bank accounts in accordance with the Financial Investment Services and Capital Markets Act (FSCMA). When surplus funds are
generated through the management of trust assets, such funds are deposited with the Bank and are recorded as due to trust accounts of the bankaccounts. Also, the borrowings from the bank account are recorded as due from trust accounts of the bank accounts. The Bank receives fees for
operation and management of the trust business and accounts for them as fees and commissions from trust accounts.
With respect to certain trust account products, the Bank guarantees the repayment of the principal of the trust accounts and, in certain cases, afixed rate of return. If income from such trust accounts is insufficient to pay the guaranteed amount, such a deficiency is satisfied by using special
reserves maintained in the trust accounts, offsetting trust fee payable to the bank accounts and receiving compensation contributions from the bankaccounts of the Bank. If the Bank pays compensating contributions to the guaranteed return trusts to cover such deficiencies, these contributions
are reflected as operating expense of the bank accounts and as other income of the trust accounts. There is no compensating contribution of the
Bank for the year ended December 31, 2010.

65

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009•
Merchant Banking Accounts
As permitted by the Restructuring of Financial Institutions Act, the Bank may continue its merchant banking operations, including leasing business,
until the existing contracts acquired from Korea International Merchant Bank upon merger are terminated. Significant accounting policies applied to
the Bank’s merchant banking operations are summarized as follows:(1) Revenue Recognition on Discounted Notes
Interest income on discounted notes is accrued over the term of the notes. Income from the sale of discounted notes is recognized at the date of salebased on the difference between the purchase and sales prices of the notes, adjusted for interest earned during the holding period.
(2) Cash Management Accounts (“CMA”)
The Bank recognizes interest income from CMA investments and interest expense from CMA deposits as other income and other expenses,
respectively.
(3) Lease Transactions
The Bank accounts for lease transactions as operating or financing leases, depending on the terms of the lease contracts. In general, noncancelable leases are recognized as financing leases when ownership transfers at expiration of the lease term, when a bargain purchase option
exists, or when the lease term exceeds the estimated economic life of the related asset.
Under the financing lease method, aggregate lease rentals are recorded as financing leases receivable, net of unearned interest, based on the excess
of rental revenue over the cost of the related assets. Unearned interest is recognized as interest income on financing leases using the effective
interest method over the lease term.
•
Income Tax Expense
Income tax expense is the amount currently payable for the period, additional income tax or tax refunds for prior years (except for retroactive
adjustments of tax effect directly added to or deducted from shareholders’ equity) added to or deducted from the changes in deferred income
taxes. However, deferred income tax assets are recognized only if the future tax benefits from accumulated temporary differences and any tax
loss carryforwards are realizable. The difference between the amount currently payable for the period and income tax expense is accounted for asdeferred income tax assets or liabilities, which will be charged or credited to income tax expense in the period the related temporary difference
reverses in the future. Deferred income tax assets or liabilities are calculated based on the expected tax rate to be applied at the reversal period of
the related assets or liabilities. Tax payable and deferred income tax assets or liabilities relating to certain items are charged or credited directly torelated components of shareholders’ equity.
•
Accounting for Foreign Currency Transactions and Translation
The Bank maintains its accounts in Korean Won. Transactions in foreign currencies are recorded in Korean Won at the exchange rate prevailingon the transaction date. The Korean Won equivalent of assets and liabilities denominated in foreign currencies are translated in these financial
statements based on the basic rate (￦1,138.90 and ￦1,167.60 to US$ 1.00 at December 31, 2010 and 2009, respectively) announced by Seoul Money
Brokerage Service, Ltd. or cross rates for other currencies other than U.S. Dollars at the date of the statement of financial position. Translation gains
and losses are credited or charged to operations. Financial statements of overseas branches are translated based on the basic rate at the date of thestatement of financial position.
•
Application of the Statements of Korea Accounting Standards (“SKAS”)
The Korea Accounting Standard Board (KASB) under the Korea Accounting Institute (KAI) issued the SKAS for achieving a set of Korean accounting
standards that could be internationally acceptable and comparable based on SKAS Act 92. The Bank has adopted SKAS No.1 (Accounting Changes
and Error Corrections) through SKAS No. 25 (Consolidated Financial Statements) (excluding No. 14) as of or before December 31, 2009 and applied
those adopted standards as of and for the year ended December 31, 2010.
In addition, the balance sheet is renamed to statement of financial position based on the revision of the Act on External Audit for Stock Companies in
the Republic of Korea.
•
Reclassification
Certain accounts of the prior year are reclassified to conform to the current year’s presentation for comparative purposes. The reclassifications do
not impact the previously reported prior year’s net income or shareholders’ equity of the Bank.
•

Disclosure in Relation with Adoption of Korean International Financial Reporting Standards (K-IFRS)(1) Preparation and progress of adopting K-IFRS
Beginning January 1, 2011, application of K-IFRS becomes mandatory for all listed companies including banks in Korea. Based on this regulation,
the Bank has set up a task force team for the adoption & implementation of K-IFRS and been performing a preliminary analysis of the impact on
adoption of K-IFRS, establishing a master plan for implementation, determining appropriate accounting treatments under K-IFRS, to design anddevelopment its accounting system, implementing new accounting system and its on-going maintenance. Overall, this transition is currently in process.

66

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

However as of December 30, 2010, the Bank has completed analyzing the impact on adoption of K-IFRS in April 2008, and has completed its design anddevelopment of updated accounting system in 2009. In addition, the Bank has implemented new accounting system and been maintaining beginning 2010.
In addition, in order for the effective and efficient transition to K-IFRS, the Bank is providing on-the-job-training for
applicable employees and team managers.
(2) Expected significant differences between K-IFRS and current accounting standards (K-GAAP)Classification

K-IFRSK-GAAP

Allowance for possible loan losses

Compute by using either a historical loss
experience rate or an expected future cash
flow model, in accordance with the incurred
loss model.

Compute by considering the minimum
accumulation rate in accordance with
Forward Looking Criteria under Regulation
on Supervision of Banking Business

Guarantees/Provisions for unused credit
commitment

Compute by applying a historical credit
conversion factor (CCF) and a historicalloss experience rate in accordance with the
expected loss model

Compute by applying a credit conversion factor(CCF) and the minimum accumulation rate
under Regulation on Supervision of Banking
Business

Loan Origination Cost/Fee (LOC/LOF)

Amortize in accordance with an expectedmaturity

Amortize in accordance with a contracted
maturity

Customer loyalty programmes

Defer revenues related to points and recognize
revenues when used

Expense paid points and reserve provisions

Reversal of impairment loss on securities

Recognize comprehensive income when a fairvalue of available-for-sale security, which
was previously impaired, is recovered

Reverse an impairment loss as net income
within the limit of pre-recognized impairment
loss when a fair value of available-for-salesecurity is recovered

Accumulating compensated absences

Recognize expenses when services, generating
Since no explicit regulations exist, recognize
accumulated compensated absences, areexpenses when paid.
provided

Foreign currency translation

Apply closing rates for monetary items andhistorical rates for non-monetary items

Financial guarantee contracts

In case that the definition of financial guarantee
contracts is satisfied in regard to liability on
No explicit regulations regarding to financial
payment guarantee, an estimated fair value
guarantee contacts exist.
is recognized as a liability

Apply closing rates for all items

Hybrid bonds

Classify as an equity and treat related costs as
dividends

In accordance with a severance benefit rule,estimated severance benefits are accounted
as accrued severance benefits, which will
be paid in case that the entire employees,
who have served over a year as of the endof reporting period, are retired at the sametime.
Classify as a liability and treat related costs asinterest expenses

First-time adoption of K-IFRS (deemed cost)

Valuation gains on fixed assets are recognized
as retained earnings at transition date whenelecting to use deemed cost

Valuation gains on fixed assets are recognizedas other comprehensive income under therevaluation method.

Actuarial valuation on defined benefit plans

In accordance with Projected Unit Credit(PUC) model, the present value of expected
severance benfits, computed using actuarial
method and discount rate, is accounted as adefined benefit obligation

67

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(3) Changes of subsidiaries included in the consolidation
As of December 31, 2010, changes in the scope of consolidation as a result of the Bank’s transition to K-IFRS are as follows.
K-GAAPK-IFRS

Differences

Korea Exchange BankKEB Capital Inc.
KEB Futures Co., Ltd.

Korea Exchange BankKEB Capital Inc.
KEB Futures Co., Ltd.

--KEB Fund Services Co., Ltd.

Excluded according to the Act on External Audit for Stock Companies in the Republic of Korea under K-GAAP while included in the consolidation scope under
K-IFRS

Korea Exchange Bank of
CanadaKorea Exchange Bank of
Canada-KEB Australia Ltd.
PT. Bank KEB Indonesia

KEB Australia Ltd.
PT. Bank KEB Indonesia-

Korea Exchange Bank
(Deutschland) A.G.

Korea Exchange Bank
(Deutschland) A.G.

-

Banco KEB do Brasil S. A.
KEB NY Financial Corp.
KEB LA Financial Corp.

Banco KEB do Brasil S. A.
KEB NY Financial Corp.
KEB LA Financial Corp.

-–

KEB USA Int’l Corp.

Excluded according to the Act on External Audit for Stock Companies in the Republic of Korea under K-GAAP while included in the consolidation scope under
K-IFRSKEB Asia Finance Limited
KEB Bank (China) Co., Ltd.

KEB Asia Finance Limited
KEB Bank (China) Co., Ltd.

-

Trust agreement to preserve
principal-

Excluded from the consolidation scope under K-IFRS

Trust agreement to preserve
IncomeTrust agreement to preserve
Income--KEB 17th Securitization
Specialty Co., Ltd.

Included in the consolidation scope under K-IFRS(4) Information about the effect on financial position and results of operations in accordance with adoption of K-IFRS
The following reconciliation tables explain the principal effects of the Bank’s transition from K-GAAP to KIFRS for its financial position and results ofoperation, on a basis of non-consolidated financial statements. These are subject to changes following further assessment by the Bank of its transition to
K-IFRS and subsequent adoption of amendments to the standards.
1) Details of adjustment for financial position as of January 1, 2010 (transition date) (Unit: In millions):
Classification
K-GAAP
The settled amount :Allowance for possible loan losses
Valuation of derivatives
Actuarial valuation on defined benefit plans
Reversal of impairment loss on securities
Loan Origination Cost/Fee (LOC/LOF)
Customer loyalty programmes
Accumulating compensated absences
Hybrid bonds
Financial guarantee contracts
Foreign currency translation
Tax effect of the settled amount
OthersSum of adjustments
K-IFRS

Assets￦96,308,105￦

263,117(29,877)
31,53830,314454
5,499
301,045
96,609,150

Liabilities￦

88,353,278￦(168,665)(4,047)43,560(328)
17,11467,606(249,802)
32,516281
72,475
17,180(172,110)
88,181,168

Shareholders’ Equity￦

7,954,827￦

431,782
4,047(43,560)(29,877)
31,866(17,114)(67,606)
249,802(2,202)
173(72,475)(11,681)473,155
8,427,982

68

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2) Details of adjustment for financial position as of December 31, 2010 and results of operations for the year ended December 31, 2010 (Unit: In millions):
Classification
K-GAAP
The settled amount :Assets￦Allowance for possible loan
losses95,903,503

Shareholders’EquityLiabilities￦

87,527,778￦

8,375,725

Comprehensive
IncomeNet Income￦

1,021,367￦

901,353

298,868(96,037)

394,905

38,081

38,081

Guarantees/Provisions forunused credit commitment-(101,611)

101,61126,65326,653

Valuation of derivatives-

17,750(17,750)(21,797)(21,796)

Actuarial valuation on defined
benefit plans

190

3,199

(3,009)40,56040,551

Reversal of impairment loss on
securities(18,888)-(18,888)

33,272

10,989Loan Origination Cost/Fee(LOC/LOF)

15,321(50)

15,371(16,495)(16,495)

Customer loyalty programmes-

14,707(14,707)

2,408

2,408

Accumulating compensatedabsences-

70,451(70,451)(2,845)(2,845)Hybrid bonds
Financial guarantee contracts
Foreign currency translation
Tax effect of the settled amount47,256(13,286)-(249,843)
49,182
2,580
74,061

249,843(1,926)(15,866)(74,061)

18,291
276(12,419)(5,772)

18,291276(16,039)(1,585)

Conversion from securities
using the equity method
to cost method(69,202)-(69,202)(69,072)(69,202)

17,935
278,194
96,181,697

19,845(195,766)
87,332,012(1,910)473,960
8,849,685

4,695
35,836
1,057,203

9,769
19,056920,409

OthersSum of adjustments
K-IFRS

￦

￦

￦

￦

￦

69

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

3. CASH AND DUE FROM BANKS:(1) Cash and due from banks as of December 31, 2010 and 2009 consist of (Unit: In millions):
Account
Cash
Foreign currencies on handDue from banks in Won
Due from banks in foreign currencies

￦

￦

2010
998,607412,777
3,719,710
2,324,340
7,455,434

￦

￦

2009
809,276
384,555
3,039,185
1,669,692
5,902,708(2) Due from banks in Won as of December 31, 2010 and 2009 consist of (Unit: In millions):
Account

Financial institution

Reserve deposit
Monetary Stabilization deposits
Due from banks on time deposits
Other due from banks
Other due from banks

The Bank of Korea
The Bank of Korea
Other banks
Other banks
Other financial institutions

2010
￦

￦

3,490,109
200,000
4,506
25,095
3,719,710

2009
￦

￦

1,420,823
576,469
18,016
1,023,877
3,039,185(3) Due from banks in foreign currencies as of December 31, 2010 and 2009 consist of (Unit: In millions):
Account

Financial institution

Reserve deposit
Due from banks on time deposits
Other due from banks
Other due from banks

The Bank of Korea
Overseas financial institutions
Overseas financial institutions
Other financial institutions

2010

Due from banks in other bank–foreign currencies

Overseas financial institutions￦

1,676,055
325,239
56,000
2,685

2009
￦

264,361￦

2,324,340

752,316
214,114522,741
2,748
177,773￦

1,669,692(4) Restricted due from banks in Won and foreign currencies as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Due from banks in Won:
The Bank of Korea

2010￦

The Bank of Korea
Woori Bank and others
Shinhan Investment Corp. and others
Daewoo Securities Co., Ltd.
KEB Trust Pension
Due from banks in foreign currencies:
The Bank of Korea
Other (Bank of China)
Others (Bank of America and others)￦

3,490,109

2009￦

1,420,823

Reason for restriction
Required under Banking Act and others
Deposits in the BOK for the purpose of liquidity
management of the BOK

200,000-

603
965
16,3283,708,005

490
12,456
14,626
1,448,395

Escrow account
Subscription related to derivatives
Stock subscription for Doosan Engine Co., Ltd.
Required under FSCMA

1,676,055
58,526
1,734,581
5,442,586

752,316
190,165
46,841
989,3222,437,717

Required under Banking Act and others
Capital stock paid-up for establishing branch in china
Subscription related to derivatives￦

70

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(5) Term structure of due from banks in Won and foreign currencies as of December 31, 2010 is as follows (Unit: In millions):
Classification
Due in less than one year
Due from one to two years
Due from two to three years
Due from three to five years
Due in five years or more

Due from banks in Won

Due from banks in foreign￦
2,322,706
1,634￦
2,324,340

3,719,710
3,719,710

￦

￦

Total
6,042,416
1,634
6,044,050￦￦

4. SECURITIES:(1) Securities as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification

2010

Trading securities
Available-for-sale securities
Held-to-maturity securities
Securities using the equity method

113,2316,022,943
5,884,844
1,140,613
13,161,631

￦

￦

2009
959,052
7,704,275
4,472,087
693,761
13,829,175￦￦(2) Securities excluding securities using the equity method as of December 31, 2010 consist of (Unit: In millions):
Classification
Trading securities:
Equity securities
Beneficiary certificates
Finance bonds
Corporate bonds￦

Available-for-sale securities:
Equity securities
Equity investments
Beneficiary certificates
Government and public bonds
Financial institution bonds
Corporate bonds
Asset-backed securities
Other debt securities
Held-to-maturity securities:
Government and public bonds
Financial institution bonds
Foreign government bonds
Corporate bonds
Other debt securities￦

10,0007,972
35,30653,278Adjusted byeffective interest
rate method

Acquisition
cost (*1)

Face value￦

56,435
10,482
7,968
34,981
109,866￦

7,736
35,096
42,832

Book value￦

58,252
11,946
7,907
35,126113,231

197,718
179,887
3,498,066
673,682
106,803
87,636
4,743,792

565,498
54,039197,718
184,538
3,490,269
682,272
106,803
87,636
5,368,773

182,7313,492,129
671,970
48,057
29,7994,424,686

1,266,209
46,319218,087
183,132
3,515,048
677,106
50,202
66,8406,022,943

1,259,000
4,299,834
54,222
260,779525
5,874,360
10,671,430

1,264,929
4,299,464
53,739265,346523
5,884,001
11,362,640

1,262,373
4,303,048
53,874265,026523
5,884,844
10,352,362

1,262,373
4,303,048
53,874265,026523
5,884,844
12,021,018(*1) Acquisition cost of trading securities is the book value before valuation.

￦

￦

￦

71

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Securities excluding securities using the equity method as of December 31, 2009 consist of (Unit: In millions):
Classification
Trading securities:
Equity securities
Beneficiary certificates
Government and public bonds
Financial institution bonds
Corporate bonds

Face value￦

Available-for-sale securities:
Equity securities
Equity investments
Beneficiary certificates
Government and public bonds
Financial institution bonds
Corporate bonds
Asset-backed securities
Other debt securities
Held-to-maturity securities:
Government and public bonds
Financial institution bonds
Foreign government bonds
Corporate bonds
Other debt securities￦

15,0001
868,172
38,531
921,704

Acquisition cost (*1)
￦

22,88415,0001
870,456
38,140946,481

Adjusted by effective
interest rate method￦

Book value

1869,722
36,908906,631￦

24,88315,0141880,944
38,210959,052

197,718
329,925
4,476,805
736,398
191,542
87,6366,020,024

726,989
69,059198,117339,188
4,465,486
739,635
275,723
87,636
6,901,833

339,188
4,431,752
719,424
217,567
51,857
5,759,788

1,657,627
64,118205,176
335,155
4,474,568
729,315
208,517
29,7997,704,275

1,130,007
3,157,777
24,079156,393591
4,468,847
11,410,575

1,136,017
3,159,817
23,708156,286588
4,476,416
12,324,730

1,135,246
3,156,073
23,825
156,355588
4,472,087
11,138,506

1,135,246
3,156,073
23,825
156,355588
4,472,087
13,135,414

￦

￦

￦

(*1) Acquisition cost of trading securities is the book value before valuation.
The difference of trading securities recorded at fair value and the adjusted cost using the effective interest rate method (acquisition cost for stocks andbeneficiary certificates) is recorded as gain on valuation of trading securities amounting to ￦4,245 million and ￦15,443 million, and loss on valuation of
trading securities amounting to ￦763 million and ￦906 million for the years ended December 31, 2010 and 2009, respectively.
The fair value of trading and available-for-sale debt securities is assessed by applying the average of base prices as of December 31, 2010, provided by Korea
Bond Pricing & KR Co. (KBP), KIS Pricing Inc. and National Information & Credit Evaluation Inc. (NICE).
The fair value of available-for-sale non-marketable equity securities such as Vogo Fund and 31 others, and the restricted available-for-sale marketable
equity securities such as Hynix Semiconductor Inc. and 7 others is reliably measured by an independent appraisal institute using reasonable judgment.
The fair value is determined based on more than one valuation model such as Discounted Cash Flow (DCF) Model, Imputed Market Value (IMV) Model,
Discounted Free Cash Flow to Equity (FCFE) Model, Dividend Discount (DD) Model and Risk Adjusted Discounted Cash Flow (RADCF) Model depending on
the equity securities. In order to assess the fair value of stocks, a 5-year projection is forecasted based on past operating results. Also, assuming the same
operation is continued during the estimated period, the model is applied using the estimated financial statements from 2010 to 2014. Operating income
and expenses are reasonably estimated based on the past result, the future plan and the expected market condition, and for non-operating incomeand
expenses, gain or loss from irregular transactions such as gain or loss on disposal of tangible assets are excluded. For the equity investment of association,
net assets are calculated by deducting total liabilities from total assets of each equity investment.
(3) Discretionary investing contract assets included in beneficiary certificates of trading securities as of December 31, 2010 and 2009 consist of(Unit: In millions):
Classification
Short-term financial instruments
StocksOthersTotal assets
Total liabilities
Net assets value

2010
￦

￦

503
11,438134
12,075129
11,946

2009
￦

￦

1,147
13,325
2,301
16,773
1,759
15,014

72

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(4) The book value of non-marketable stocks and equity investments among available-for-sale securities, which are not measured at fair value
as of December 31, 2010 and 2009, is as follows (Unit: In millions):
Company

2010

Stocks:Credit Recovery Fund
Alpha Dome City
KAMCO (Korea Asset Management Corporation)
M Cieta Development
Hallyu-Wood
BLADEXOthers62,466
14,751
6,330
1,275
1,200
1,117
4,567
91,706￦Equity investments:
Consolidated Fund for Impaired Loans

18,888110,594￦
Company

2009

Stocks:Credit Recovery Fund
Samsung Life Insurance
Alpha Dome City
KAMCO (Korea Asset Management Corporation)
M Cieta Development
Hallyu-Wood
BLADEXOthers62,46632,939
8,850
6,330
1,275
1,200
1,146
1,594
115,800￦

Equity investments:
Consolidated Fund for Impaired Loans
Others29,877100
29,977
145,777￦(5) The impairment loss and the reversal of impairment loss on available-for-sale securities for the years ended December 31, 2010 and 2009
are as follows (Unit: In millions):
2010
Classification
Equity securities
Corporate bonds
Asset-backed securities
Other securities

Impairment
￦

￦

67
67

2009
Reversal of
impairment loss
2,387
2,387

￦

￦

Reversal of
impairment loss

Impairment
￦

￦

1,237
9,085
10,57420,896

￦

￦

7,879
205
10,602
18,686(6) Securities provided as collateral as of December 31, 2010 are as follows (Unit: In millions):
Provided to
Customers
BOK
BOK
BOK
Other financial institutes

Collateral amount
￦

￦

3,000
1,010,000
110,000
590,000
1,218,200
2,931,200

Book value
￦

￦

3,008
1,012,265
110,805
590,138
1,222,269
2,938,485

Provided forSale to RP to customer
Settlement of difference
RP from BOK
Borrowings from BOK
Derivatives settlement and others

In addition, securities that are possible to be discounted by BOK amounted to ￦4,817,753 million as of December 31, 2010.

73

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(7) Securities using the equity method
1) Securities using the equity method as of December 31, 2010 and 2009 are summarized as follows (Unit: shares in thousands & Won in millions):
Company

2010
No. of shares

Ownership (%)

Domestic stocks:
KEB Capital Inc. (KEBC)KEB Futures Co., Ltd. (KEBF)KEB Fund Services Co., Ltd. (KEBFS) (*1)
MIDAN City Development Co., Ltd. (*2 and *3)
Flossom Co., Ltd. (*2 and *4)

14,976
3,000
510
388
165

99.31
100.00100.002.70
5.00

Foreign stocks:
K.E.B of Canada (KEBOC)KEB Australia Ltd. (KEBA)
K.E.B Deutschland A.G. (KEBDAG)
PT. Bank KEB Indonesia (KEBI)
Banco KEB do Brasil S.A. (KEBB)KEB NY Financial Corp. (NYFinCo)
KEB LA Financial Corp. (LAFinCo)
KEB USA International Corp. (USAI)KEB Asia Finance Limited (KAF)

334
55,00020
133,7260.1
0.2
0.1
50,000100.00100.00100.0099.00
100.00100.00100.00100.00100.0038,032
63,68627,08629,29921,275
22,77845,556
2,847
56,945

123,533
67,74071,084148,095
25,67435,326
34,834
6,921
55,912

123,533
67,74071,084
148,585
25,67435,326
34,834
6,921
55,239-100.00379,520

385,539

385,576

KEB Bank (China) Co., Ltd. (KEB China) (*5)

Acquisition cost￦￦

74,881
15,000
2,550
1,939
825
95,195687,024782,219

Net asset value￦￦

121,304
58,511
9,780
1,518
628
191,741954,658
1,146,399

Book value￦￦

122,894
58,511
2,550
1,518
628
186,101

954,5121,140,613(*1) Securities of KEB Fund Services Co., Ltd. are subject to the Act on External Audit for Stock Companies in the Republic of Korea, and as the valuation
change in these equity securities is not material; investment is not accounted for using the equity method.
(*2) Although the Bank has less than 15 percent ownership, it has significant influence over the company through designation of a director and other.
(*3) Lippo Incheon Development Co., Ltd. has been renamed MIDAN City Development Co., Ltd.
(*4) Soul Flora Co., Ltd. has been renamed Flossom Co., Ltd.
(*5) The Bank established KEB Bank (China) Co., Ltd. and Tianjin, Dalian, Beijing and Shanghai branches were converted into corporations; accordingly, KEB
China has become an investee accounted forunder the equity method.

74

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 20092009

Company

No. of shares

Ownership (%)

Domestic stocks:
KEB Capital Inc. (KEBC)KEB Futures Co., Ltd. (KEBF)KEB Fund Services Co., Ltd. (KEBFS) (*1)
Lippo Incheon Development Co., Ltd. (*2)
Realty Advisors Korea, Ltd. (*2)
Ilsan Project Co., Ltd. (*2)
Soul Flora Co., Ltd. (*2)

14,976
3,000
510
388
200
288
165

99.31
100.00100.00
2.70
14.29
4.80
5.00

Foreign stocks:
K.E.B of Canada (KEBOC)KEB Australia Ltd. (KEBA)
K.E.B Deutschland A.G. (KEBDAG)
PT. Bank KEB Indonesia (KEBI)
Banco KEB do Brasil S.A. (KEBB)KEB NY Financial Corp. (NYFinCo)
KEB LA Financial Corp. (LAFinCo)
KEB USA International Corp. (USAI)KEB Asia Finance Limited (KAF)

334
55,00020
133,7260.1
0.2
0.1
50,000100.00100.00100.0099.00
100.00100.00100.00100.00100.00Acquisition cost
74,881
15,000
2,550
1,939
1,000
2,880
825
99,075￦36,97357,47829,96228,65120,80423,352
46,704
2,919
58,380305,223404,298￦

Net asset value

Book value

114,430
52,808
8,006
1,697
1,038
2,602
748
181,329￦￦

111,055
48,79273,698130,399
23,14736,16932,037
6,459
54,212515,968
697,297￦￦

115,295
52,808
2,550
1,697
1,038
2,602
748
176,738
111,055
48,79273,698131,454
23,14736,16932,037
6,459
54,212517,023
693,761(*1) Securities of KEB Fund Services Co., Ltd. are subject to the Act on External Audit for Stock Companies in the Republic of Korea, and as the valuation
change in these equity securities is not material; investment is not accounted for using the equity method.
(*2) Although the Bank has less than 15 percent ownership, it has significant influence over the company through designation of a director and other.
2) The valuation of securities using the equity method for the years ended December 31, 2010 and 2009 is as follows (Unit: In millions):
CompanyKEBC
KEBF
KEBFS (*1)

Acquisition
cost

Jan. 1, 2010

Increase(Decrease)(Dividend)

74,881 ￦15,0002,550

115,295 ￦
52,8082,550

MIDAN City
Development Co.,
Ltd. (*2 and *4)

1,939

Realty Advisors Korea,
Ltd.(*3)

Transfer

Foreignexchange
trading
income (loss)

Equity inearnings(losses)Accumulated
otherDec. 31, 2010
comprehensive income

- ￦
-

- ￦
-

- ￦
-

8,452 ￦
4,683
-

1,697

-

-

-

1,000

1,038

(424)

(539)

Ilsan Project Co.,Ltd.
(*3)

2,880

2,602

-

Flossom Co., Ltd.
(*2 and *5)

825

748

38,032
63,68627,08629,29921,275
22,77845,556
2,847
56,945379,520
786,099 ￦111,055
48,79273,698131,454
23,14736,16932,037
6,459
54,212
693,761 ￦

￦

KEBOC
KEBA
KEBDAGKEBIKEBBNYFinCoLAFinCoUSAIKAFKEB China￦(853) ￦
1,020-

122,894
58,511
2,550

(179)

-

1,518

-

(75)

-

-

(2,509)

-

(93)

-

-

-

-

-

(120)

-

628

(619)
391,709
390,666 ￦(3,048) ￦

3,178
5,269
(7,073)
2,973
524
(888)
(787)
(158)
(1,332)(12,189)(10,483) ￦9,300
13,6795,078
14,158
2,003
45
3,584
620
2,359
6,056
69,550 ￦123,533
67,74071,084
148,585
25,67435,326
34,834
6,921
55,239385,576167 ￦ 1,140,613

75

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(*1) Securities of KEB Fund Services Co., Ltd. are subject to the Act on External Audit for Stock Companies in the Republic of Korea, and as the valuation
change in these equity securities is not material; investment is not accounted for using the equity method.
(*2) Although the Bank has less than 15 percent ownership, it has significant influence over the company through designation of a director and other.
(*3) The Bank do not exercise significant influence over the company due to resignation of a director and others who were appointed by the Bank.
Accordingly, securities can no longer be accounted for using the equity method and are reclassified as available-for-sale securities.
(*4) Lippo Incheon Development Co., Ltd. has been renamed MIDAN City Development Co., Ltd.
(*5) Soul Flora Co., Ltd. has been renamed Flossom Co., Ltd.

Acquisition
cost

CompanyKEBC
KEBF
KEBFS (*1)

￦74,881
15,0002,550

Increase(Decrease)(Dividend)

Jan. 1,
2009￦

107,696
41,1052,550-￦

Foreignexchange
trading
income (loss)-￦

Accumulated
Equity inotherearnings
comprehensive(losses)income￦6,763
11,006
-

￦

836
697
-

Dec. 31,2009￦

115,295
52,8082,550

Lippo Incheon
Development Co., Ltd. (*2)

1,939

1,863

-

-

(166)

-

1,697

Realty Advisors Korea, Ltd.
(*2)

1,000

2,955

(1,550)

-

(367)

-

1,038

2,880
825
36,97357,47829,96228,65120,80423,352
46,704
2,919
58,380404,298

2,775
88105,456
33,332
72,993106,953
17,43236,422
6,111
6,399
544,130

725(845)
27,54258,38084,252

6,975
6,706(4,188)8,386
4,251(2,604)(4,626)(458)
14,442(173)(53)(1,376)
8,754
5,738
16,115
1,464
2,351
3,010
518
(4,168)49,416

(12)
1,521

2,602
748
111,055
48,79273,698131,454
23,14736,16932,037
6,459
54,212
693,761

Ilsan Project Co., Ltd. (*2)
Lippo Incheon (*2)
KEBOC
KEBA
KEBDAGKEBIKEBBNYFinCoLAFinCo
USAI
KAF
￦

￦

￦

￦

￦

￦

￦

(*1) Securities of KEB Fund Services Co., Ltd. are subject to the Act on External Audit for Stock Companies in the Republic of Korea, and as the valuation
change in these equity securities is not material; investment is not accounted for using the equity method.
(*2) Although the Bank has less than 15 percent ownership, it has significant influence over the company through designation of a director and other.
3) Elimination of Unrealized Profit from Inter-company Transactions
Material unrealized profit from inter-company transactions is eliminated when equity investments are valued. Unrealized gain from inter-company leasetransaction amount to ￦116 million and ￦152 million as of December 31, 2010 and 2009, respectively. Unrealized expense from inter-company bondissuance amounts to ￦673 million as of December 31, 2010.
4) Summary of Financial Information of Affiliates
The summary of financial information of affiliates using the equity method as of and for the year ended December 31, 2010 is as follows (Unit: In millions):
Classification
Total assets

KEBC￦

890,483

KEBOC￦

1,202,270

KEBA￦

422,463

KEBDAG￦

427,654

Total liabilities

768,337

1,078,737354,723

356,570

Operating revenue

90,39849,30831,192

24,255

Net income

7,782

9,300

13,6795,078

ClassificationKEBI

KEB China

Others

Total

Total assets￦

453,227￦

1,292,077￦

1,791,841￦

6,480,015

Total liabilities

303,636

906,538

1,496,051

5,264,592

Operating revenue

48,325

102,847

112,754459,079

Net income

14,896

6,019

7,231

63,985

76

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Unaudited financial statements as of December 31, 2010 are used for the application of the equity method.
The significant events from the closing dates of the investees to that of the Bank are properly reflected in applying the equity method. The materialtransactions or events from incorporation of each subsidiary to December 31, 2010 are considered in the valuation using the equity method. The Bank has
performed procedures to verify reliability of unaudited financial statements such as obtaining signature of their representatives and internal auditors.
(8) The portfolio of securities excluding securities using the equity method, by industry, as of December 31, 2010 and 2009 is as follows(Unit: In millions):2010

By industry typeTrading securities:
Government and governmentinvested public companies

2009

AmountPercentage (%)

AmountPercentage (%)

￦35,12631.02￦

227,549

23.73￦

22,111
24,134
31,860113,231

19.53
21.31
28.14
100.00￦692,507
16,79522,201
959,052

72.21
1.75
2.31
100.00￦2,551,494

42.36

￦

3,037,711

39.43

￦

1,801,748
764,353905,348
6,022,943

29.91
12.69
15.04
100.00￦2,418,632
1,254,415
993,517
7,704,275

31.39
16.28
12.90
100.00￦5,204,514

88.44

￦

3,803,365

85.05

￦

604,60975,7215,884,844

10.27
1.29
100.00￦608,543
34,98925,1904,472,087

13.61
0.78
0.56
100.00Financial institutions
Manufacturing
OthersAvailable-for-sale securities:
Government and government-invested
public companies
Financial institutions
Manufacturing
Others

Held-to-maturity securities:
Government and governmentinvested public companies
Financial institutions
Manufacturing
Others(9) The portfolio of securities excluding securities using the equity method, by security type, as of December 31, 2010 and 2009 is as follows(Unit: In millions):
2010

By security typeTrading securities:
StocksFixed rate bonds
Floating rate bonds
Subordinated bonds
Beneficiary certificates￦￦
Available-for-sale securities:
StocksFixed rate bonds
Floating rate bonds
Subordinated bonds
Beneficiary certificates
Others￦￦2009

AmountPercentage (%)

58,252
43,033
11,946113,231

51.45
38.00
10.55
100.00￦1,266,209
3,183,651
765,476
476,361
218,087
113,159
6,022,943

21.02
52.86
12.71
7.91
3.62
1.88
100.00￦￦￦

AmountPercentage (%)

24,883751,216
46,141
121,798
15,014
959,052

2.59
78.33
4.81
12.70
1.57
100.001,657,627
3,815,427
1,263,947
668,181205,176
93,917
7,704,275

21.52
49.52
16.41
8.67
2.66
1.22
100.00

77

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 20092010

By security typeHeld-to-maturity securities:
Fixed rate bonds
Floating rate bonds
Subordinated bonds
Others￦￦2009

AmountPercentage (%)

5,731,479
4,350
148,492523
5,884,844

97.39
0.07
2.53
0.01
100.00￦￦

AmountPercentage (%)

4,113,209
39,686318,604588
4,472,087

91.98
0.89
7.12
0.01
100.00(10) The portfolio of securities excluding securities using the equity method, by country, as of December 31, 2010 and 2009 is as follows (Unit: In
millions):2010

By country typeTrading securities:
Korea
OthersPercentage (%)

106,946
6,285
113,23194.45
5.55
100.005,984,762
20,730
3,349
4,955
9,147
6,022,943

99.37
0.34
0.06
0.08
0.15
100.005,830,190
49,5245,130
5,884,844

99.06
0.84
0.10
100.00￦￦Available-for-sale securities:
Korea
Cayman Islands
USA
Hong Kong (China)
UK
Others￦￦
Held-to-maturity securities:
Korea
Singapore
Philippines

￦

￦

2009

Amount

￦
￦

￦

￦

￦

￦

AmountPercentage (%)

958,541511
959,052

99.95
0.05
100.007,640,527
41,166
6,214
4,839
3,140
8,389
7,704,275

99.18
0.53
0.08
0.06
0.04
0.11
100.004,446,897
19,128
6,062
4,472,087

99.43
0.43
0.14
100.00(11) Term structure of securities except for stocks and equity investments as of December 31, 2010 is as follows (Unit: In millions):

Government and public bonds
Financial institution bonds
Foreign government bonds
Corporate bonds
Beneficiary certificates
Asset-backed securities
OthersDue after 1
year through5 years

Due in 1 year or
lessClassification￦￦

982,048
5,247,962
49,537
232,736
230,033
17,542523
6,760,381￦￦

463,457
2,482,270
1,465
744,522
32,6603,724,374

Due after 5
years through10 years￦￦

95,771
2,872
66,840165,483

More than
10 years
￦

￦

-

Total
￦

￦

1,445,505
7,826,003
53,874
977,258
230,033
50,202
67,363
10,650,238

78

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(12) Structured securities relating to stock, interest rate and credit risk as of December 31, 2010 and 2009 are as follows (Unit: In millions):
2010

Classification

Won

Structured notes relating to stock:
Convertible bonds (loans)
Bonds with warrant (loans)￦

Structured notes relating to interest rate:Long-term floating rate government bonds (CMT)(available-for-sale securities)

41,92693,000134,926

Foreign currencies-￦

20,203￦

155,129

Total
41,92693,000134,926￦-￦

20,203
155,129￦

2009
Classification

Won

Structured notes relating to stock:
Convertible bonds (loans)
Bonds with warrant (loans)￦

49,49019,00068,490Foreign currencies
￦

-

Total
49,49019,00068,490￦

Structured notes relating to interest rate:Long-term floating rate government bonds (CMT)(available-for-sale securities)

20,259Structured notes relating to credit risk:
Synthetic CDO (available-for-sale securities)￦

88,749-￦16,788
16,78820,25916,788105,537￦(13) Changes in accumulated other comprehensive income (loss) of available-for-sale securities for the year ended December 31, 2010 are as
follows (Unit: In millions):
Classification
Equity securities
Debt securities

Beginning balance￦
805,518(8,639)￦796,879

Increase (decrease)￦
31,69082,945￦
114,635

Disposal￦￦(272,440)
1,313(271,127)

Deferred income tax￦
52,965(18,629)￦
34,336

Ending balance￦
617,733
56,990￦674,723(14) Changes in accumulated other comprehensive loss of held-to-maturity securities for the year ended December 31, 2010 are as follows (Unit:
In millions):
Classification
Debt securities

Beginning￦(16)

Increase (decrease)￦-

Redemption
21￦

Deferred income tax￦(5)Ending-￦(15) Changes in accumulated other comprehensive income(loss) of securities using the equity method for the year ended December 31, 2010
are as follows (Unit: In millions):
Classification
Changes in equity on equity method
Negative changes in equity on equity method

Increase(decrease)

Beginning
￦
￦

4,595
(10)
4,585

￦
￦

555
(388)
167

Disposal￦￦-

Deferred income
tax
￦
(122)
86
￦
(36)

Ending
￦
￦

5,028
(312)
4,716

79

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

5. LOANS:(1) Loans as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification2010

Call loans￦

3,050,271

2009￦

1,604,443

Domestic import usance bill

3,225,448

2,616,184

Credit card receivables

2,580,981

2,422,944

Bills bought in foreign currencies

3,853,913

3,996,289

Bills bought in Won

97,56590,798

Bonds purchased under repurchase agreements

700,000

1,786,000

Loans in Won

42,129,114

42,532,060

Loans in foreign currencies

6,884,276

7,883,346

Factoring receivables

597,679

166,525

Advances for customers

6,336

8,998

Debt-for-equity swap

7,732

-

Privately placed bonds

413,145537,777

63,546,460

63,645,364(1,087,336)(963,425)

Less: Allowance for possible loan losses (see Notes 6 and 7)
Deferred loan origination fees and costs(35,361)￦

62,423,763(54,925)￦

62,627,014(2) Loans in Won and loans in foreign currencies as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Loans in Won:
Commercial

2010
Financial loans:
Working capital loans
Facilities loans
Loans with government funds:
Working capital loans
Facilities loans

Households

General purpose loans
Housing loans

Public sector and others

Working capital loans
Facilities loans
General purpose loans

Total loans in Won
Loans in foreign currencies:￦

Working capital loans
Facilities loans
OthersInter-bank loans

Total loans in foreign currencies￦

18,794,067
3,425,130
25,245444,108
22,688,550
13,407,247
5,868,317
19,275,564
60,52588,85815,617
165,000
42,129,114
714,390
1,534,576
4,292,155
343,155
6,884,276
49,013,390

2009

￦

￦

21,591,035
2,838,010
48,734447,939
24,925,718
13,403,212
4,096,168
17,499,380
82,898
11,544
12,520106,962
42,532,060
799,646
2,571,530
4,408,295
103,875
7,883,346
50,415,406

80

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(3) Loans in Won, loans in foreign currencies and domestic import usance bill, classified by borrower type, as of December 31, 2010 and 2009
are as follows (Unit: In millions):
By borrower type

Loans in Won

Large corporations
Small and medium
corporations (*)

￦Households
Public sector and others￦

6,383,152

2010
Domestic importusance bill

Loans in foreign
currencies
4,645,145￦

2,536,755￦

Percentage
(%)

Total
13,565,052

￦

￦

25.97

16,305,398

2,239,131

688,693

19,233,222

36.82

19,275,564
165,000
42,129,114

6,884,276

3,225,448

19,275,564
165,000
52,238,838

36.89
0.32
100.00￦￦￦￦(*) Small and medium corporations are prescribed in Article 2 of the Small and Medium-sized Enterprise Basic Act.

By borrower type

Loans in foreign
currencies

Loans in Won

Large corporations
Small and medium
corporations (*)

￦Households
Public sector and others￦

6,138,830

2009
Domestic importusance bill￦

5,718,257

2,089,530￦

Percentage
(%)

Total
13,946,617

￦

￦

26.30

18,786,888

2,165,089

526,654

21,478,631

40.50

17,499,380
106,962
42,532,060

7,883,346

2,616,184

17,499,380
106,962
53,031,590

33.00
0.20
100.00￦￦￦￦(*) Small and medium corporations are prescribed in Article 2 of the Small and Medium-sized Enterprise Basic Act.
(4) Loans in foreign currencies and domestic import usance bill, classified by borrower’s country, as of December 31, 2010 and 2009 are as
follows (Unit: In thousands of U.S. Dollars & in millions of Won):
2010
Classification

Korea
FranceJapan
GermanPanamaOthers$$Loans in foreign currencies

Domestic import usance bill

Loans in U.S.
Dollars (*)

Loans in U.S.
Dollars (*)

4,773,320
352,224
315,246
83,353
72,125448,403
6,044,671

Translation
into Won￦￦

5,436,334
401,148
359,034
94,931
82,143
510,686
6,884,276$$

2,832,073
2,832,073

Translation
into Won￦￦

3,225,448
3,225,448

￦

￦

Total

Percentage( %)8,661,782
401,148
359,034
94,931
82,143
510,686
10,109,724

85.68
3.97
3.55
0.94
0.81
5.05
100.00(*) Foreign currencies other than U.S. Dollars are converted into U.S. Dollars at the basic rate at the date of the statement of financial position.
2009
Classification

Korea
Canada
USA
Japan
China
Others$$Loans in foreign currencies

Domestic import usance bill

Loans in U.S.
Dollars (*)

Loans in U.S.
Dollars (*)

4,585,451
700,795
379,543
323,522
128,308
634,134
6,751,753

Translation
into Won￦￦

5,353,973
818,248
443,154377,744
149,812740,415
7,883,346$$

2,240,651
2,240,651

Translation
into Won￦￦

2,616,184
2,616,184

￦

￦

Total

Percentage( %)7,970,157
818,248
443,154377,744
149,812740,415
10,499,530

75.91
7.79
4.22
3.60
1.43
7.05
100.00(*) Foreign currencies other than U.S. Dollars are converted into U.S. Dollars at the basic rate at the date of the statement of financial position.

81

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(5) Loans on Won, loans in foreign currencies and domestic import usance bill, classified by industry, as of December 31, 2010 and 2009 are as
follows (Unit: In millions):
2010
By borrower type
Corporations:
Manufacturing

Loans in foreign
currencies

Loans in Won
22,688,550
9,209,302￦

Real estate and renting
and leasing
Wholesale & retail
Construction
Transportation business
OthersHouseholds
Public sector and others
Loans to overseas
branches

3,465,500
1,528,483

3,225,448
2,852,276

￦

￦

Total

Percentage (%)

29,379,498
13,590,061

60.18
27.84

3,493,086

112,430-

3,605,516

7.39

2,459,389
2,346,371
915,561
4,264,841
19,275,564
165,000
42,129,114

443,687
16,516
523,567
840,817
3,465,500

340,142
11,747983
20,3003,225,448

3,243,218
2,374,634
1,440,111
5,125,958
19,275,564
165,000
48,820,062

6.64
4.86
2.95
10.50
39.48
0.34
100.00-3,418,776-

3,418,776

42,129,114￦￦

Domestic importusance bill￦

6,884,276

3,225,448￦

52,238,838￦

2009
By borrower type
Corporations:
Manufacturing
Wholesale & retail

Loans in foreign
currencies

Loans in Won
24,925,718
10,478,931
2,891,936￦

Real estate andrenting and leasing
Construction
Transportation business
OthersHouseholds
Public sector and others
Loans to overseas
branches

3,148,189
1,512,454
373,316

2,616,184
2,283,776
302,645

￦

￦

Total

Percentage (%)

30,690,091
14,275,161
3,567,897

63.55
29.55
7.39

3,542,745

131,414-3,674,159

7.61

2,598,340
1,227,702
4,186,064
17,499,380
106,962
42,532,060

16,397547,212567,396
3,148,189

12,414201
17,1482,616,184

2,627,151
1,775,115
4,770,608
17,499,380
106,962
48,296,433

5.44
3.68
9.88
36.23
0.22
100.00-4,735,157-

4,735,157

42,532,060￦￦

Domestic importusance bill￦

7,883,346

2,616,184￦

53,031,590￦(6) Loans to financial institutions as of December 31, 2010 and 2009 are as follows (Unit: In millions):
2010
Classification
Bank
Other financial institutions
Overseas financial institutions

Loans in Won￦￦

191,169
885,689
1,076,858

Loans in foreign
currencies￦
44,002
343,155￦
387,157

Call loans￦￦

2,366,999
683,272
3,050,271

Total
￦

￦

2,558,168
929,691
1,026,427
4,514,286

Percentage (%)
￦

￦

56.67
20.59
22.74
100.002009
Classification
Bank
Other financial institutions
Overseas financial institutions

Loans in Won￦￦

50,152858,782
908,934

Loans in foreign
currencies￦
47,147
103,875￦
151,022

Call loans￦￦

1,289,261
315,182
1,604,443

Total
￦

￦

1,339,413
905,929
419,057
2,664,399

Percentage (%)
￦

￦

50.27
34.00
15.73
100.0082

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(7) The term structure of loans in Won, loans in foreign currencies and domestic import usance bill as of December 31, 2010 are as follows (Unit:
In millions):
2010
Classification

Loans in foreign
currencies

Loans in Won

Due in less than one year
Due from one to two years
Due from two to three years
Due from three to five years
Due in five years or more

30,847,117
2,363,133
2,741,380
1,370,972
4,806,512
42,129,114￦￦

4,917,245
351,823
367,773
409,846
837,5896,884,276￦￦

Domestic importusance bill￦
3,223,637
1,811￦
3,225,448

Total
38,987,999
2,716,767
3,109,153
1,780,818
5,644,101
52,238,838￦￦(8) The changes in deferred loan origination fees and costs for the year ended December 31, 2010 are as follows (Unit: In millions):
Beginning balance￦
54,925

Deferred loan origination fees and costs

Increase
25,615￦Decrease(45,179)￦

Ending balance￦

35,361(9) The disposed loans for the year ended December 31, 2010 are as follows (Unit: In millions):
Purchaser

38,655224,273

Allowance of possible loan
losses at disposal￦
22,752Gain (Loss) on
disposal of loans￦
5,617
26,071

323,016

16,762(68,566)

15,822

1,481(8,001)

Nominal amount

Woori F&I and others (*)
Woori F&I and others￦

Woori F&I & Eugene asset management con
sortium and others
Veritas asset Co., Ltd.
(*) Gains on disposal of bad debts

6. RESTRUCTURED LOANS:(1) Changes in the present value discounts relating to the outstanding restructured loans for the year ended December 31, 2010 are as follows(Unit: In millions):
Classification
Loans:
Court receivership
OthersAmount (*1)

￦

Accounts receivable:
Court receivership
Others￦2,122276,270
278,392
15,416
15,416
293,808

Present value discounts
Beginning balance
￦

￦

181
30,84631,027
4,306
4,306
35,333(*1) Includes only restructured loans discounted at present value.
(*2) Present value discount is included as allowance for possible loan losses.

Increase￦￦

19,267
19,267290
290
19,557

Decrease￦￦(64)(13,974)(14,038)
(956)
(956)
(14,994)

Ending balance (*2)
￦

￦

117
36,13936,2563,640
3,640
39,896

83

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

7. ALLOWANCE FOR POSSIBLE LOAN LOSSES:(1) The allowance for possible loan losses as of December 31, 2010 and 2009 is summarized as follows (Unit: In millions):
Classification
Loans:
Call loans
Allowance
Allowance percentage
Credit loans￦

NormalPrecautionary

3,050,271
2,523,587￦

27,270Substandard￦

398

Estimatedloss

Doubtful￦

24,256￦

5,470

Dec. 31, 2010￦

3,050,271
2,580,981

Allowance

37,8534,186

164

16,4605,470

64,133

Allowance percentage

1.50%

15.35%

41.21%

67.86%

100.00%2.48%

3,917,821

33,657---

3,951,478

Allowance
Allowance percentage

33,3020.85%

6,346
18.85%---

39,6481.00%

Bonds bought under
repurchase agreements

700,000

-

-

-

-

700,000

40,477,909
391,8250.97%
9,468,830
85,7950.91%
343,155
597,679
5,080
0.85%
459
4
0.85%
360,281
3,063
0.85%
539
4
0.85%

913,141
104,168
11.41%
194,741
24,587
12.63%
336
24
7.00%
7,732
3,270
42.29%
50,552
4,794
9.48%
143
17
11.89%

330,31366,54220.15%
58,50911,83720.23%
2,722
545
20.00%
920
184
20.00%
3,817
763
20.00%

343,397
174,698
50.87%
39,867
19,93450.00%
534
267
50.00%
927
464
50.00%
20,201
10,11050.05%

29,292
29,292100.00%3,893
3,893
100.00%2,285
2,285
100.00%214
214
100.00%42,094,052
766,525
1.82%
9,765,840
146,046
1.50%
343,155
597,679
5,080
0.85%
6,336
3,125
49.32%
7,732
3,270
42.29%
412,680
8,505
2.06%
24,914
11,10844.59%

61,440,531
556,926
0.91%
23,594

1,227,572
147,392
12.01%
2,872

396,679
80,03520.18%
4,132

429,182
221,933
51.71%
9,298

41,154
41,154100.00%-63,535,118
1,047,440
1.65%
39,896

Bills bought in foreign
currencies (*1)

Allowance
Allowance percentage
Loans in Won (*2)
Allowance
Allowance percentage
Loans in foreign currencies (*3)
Allowance
Allowance percentage
Inter-bank loans
Allowance
Allowance percentage
Factoring receivables
Allowance
Allowance percentage
Advances for customers
Allowance
Allowance percentage
Debt-for-equity swap
Allowance
Allowance percentage
Privately placed bonds (*4)
Allowance
Allowance percentage
Other accounts (*5)
Allowance
Allowance percentage
Sum:
Loans and other accounts
Allowance
Allowance percentage
Present value discounts
Allowance for possible loan
losses in the statement offinancial position￦

580,520￦150,264￦

84,167￦231,231￦

41,154￦

1,087,336(*1) Bills bought in Won amount to ￦97,565 million is included in bills bought in foreign currencies.
(*2) Present value discount amounting to ￦35,062 million is deducted from loans in Won.
(*3) Domestic import usance bill is included in loans in foreign currencies. Interbank loans in foreign currencies of ￦343,155 million and present value
discount amounting to ￦729 million is deducted.

84

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(*4) Present value discount amounting to ￦465 million is deducted from privately placed bonds.
(*5) Other accounts consist of accounts receivable (transfer-in bills bought in foreign currencies) amounting to ￦2,207 million, suspense payments inrelation with loans amounting to ￦22,184 million and securities (commercial paper) amounting to ￦523 million.
Classification
Loans:
Call loans
Allowance
Allowance percentage
Credit card loans
Allowance
Allowance percentage

Normal
￦ 1,604,443
2,359,511
35,393
1.50%

Bills bought in foreign
currencies (*1)
Allowance
Allowance percentage
Bonds bought under repurchaseagreements
Allowance
Allowance percentage
Loans in Won (*2)
Allowance
Allowance percentage
Loans in foreign currencies (*3)
Allowance
Allowance percentage
Inter-bank loans
Allowance
Allowance percentage
Factoring receivables
Allowance
Allowance percentage
Advances for customers
Allowance
Allowance percentage
Privately placed bonds (*4)
Allowance
Allowance percentage
Other accounts (*5)
Allowance
Allowance percentage
Sum:
Loans and other accounts
Allowance
Allowance percentage
Present value discounts
Allowance for possible loan
losses in the statement offinancial position￦

Precautionary￦

28,8894,676
16.19%

Substandard
￦

468
215
45.94%￦

Doubtful

Estimated loss

Dec. 31, 2009

27,35918,67968.27%

￦

6,717
6,717
100.00%￦ 1,604,443
2,422,944
65,6802.71%

4,053,965

5,196

25,8562,070-

4,087,087

34,4590.85%

984
18.94%

5,171
20.00%

1,035
50.00%-

41,6491.02%

1,786,000

-

-

-

-

1,786,000

41,434,876
401,448
0.97%
10,096,158
94,9030.94%
103,875
166,5251,416
0.85%
529,741
4,503
0.85%
2,854
24
0.85%

683,508
68,87410.08%
143,673
17,37112.09%
276
19
7.00%
2,000
140
7.00%
2,720
194
7.00%

272,754
65,40323.98%
122,288
48,50039.66%
6,134
1,227
20.00%
2,024
405
20.00%
4,149
830
20.00%

73,71041,42456.20%
27,42915,12655.15%
134
67
50.00%
3,532
1,766
50.00%
22,162
11,10150.09%

36,66436,664100.00%5,985
5,985
100.00%2,454
2,454
100.00%123
123
100.00%796
796
100.00%42,501,512
613,813
1.44%
10,395,533
181,885
1.75%
103,875
166,525
1,416
0.85%
8,998
3,767
41.86%
537,420
6,937
1.29%
32,681
12,94539.61%

62,137,948
572,146
0.92%
29,350866,262
92,25810.65%
1,868

433,673
121,751
28.07%
2,955

156,396
89,19857.03%
1,160

52,73952,739100.00%-63,647,018
928,092
1.46%
35,333

601,496￦

94,126￦

124,706￦

90,358￦52,739￦963,425(*1) Bills bought in Won amounting to ￦90,798 million is included in bills bought in foreign currencies.
(*2) Present value discount amounting to ￦30,548 million is deducted from loans in Won.
(*3) Domestic import usance bill is included in loans in foreign currencies. Interbank loans in foreign currencies of ￦103,875 million and present value
discount amounting to ￦122 million is deducted.
(*4) Present value discount amounting to ￦357 million is deducted from privately placed bonds.
(*5) Other accounts consist of accounts receivable (transfer-in bills bought in foreign currencies) amounting to ￦46 million, suspense payments in relation
with loans amounting to ￦32,047 million and securities (commercial paper) amounting to ￦588 million.

85

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(2) The changes in allowance for possible loan losses for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification

2010

Beginning balance
Provision for possible loan losses
Loans written-off and others
Recovery of bad debts and others
Translation adjustments of overseas
Changes in present value discounts
Ending balance

2009

963,425
474,015(487,520)
147,236(418)(9,402)
1,087,336￦￦

1,064,899
648,470(906,480)
168,125(4,443)(7,146)
963,425￦￦(3) The allowance for possible loan losses compared to total loans, net of present value discount, is summarized as follows (Unit: In millions):
Classification

2010

Loans (*1)
Allowance for possible loan losses (*2)
Percentage (%)

59,441,692
1,047,440
1.76

￦

2009

2008

60,152,700
928,092
1.54￦￦

61,471,169
1,026,858
1.67(*1) Call loans, bonds purchased under repurchase agreements and interbank loans in foreign currencies are excluded.
(*2) Present value discounts are excluded.

8 . TA N G I B L E A S S E T S :(1) Tangible assets as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification

2010

Tangible assets
Less:
Accumulated depreciation
Accumulated impairment loss￦

2,184,068￦(820,690)(5,226)
1,358,152

2009￦

2,186,679￦(800,320)(5,941)
1,380,418(2) Tangible assets as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Land (*1)
Buildings
Leasehold improvements
Equipment and vehicles
Construction in progress

Accumulated
depreciation

Acquisition cost￦￦

933,787545,616
122,965
580,650
1,050
2,184,068￦￦(203,113)(101,511)(516,066)(820,690)

Accumulated
impairment loss￦￦

(2,357)(2,869)(5,226)

Dec. 31, 2010￦￦

931,430
339,634
21,45464,5841,050
1,358,152(*1) Gain on revaluation of tangible asset is included in acquisition cost of land.
Classification
Land (*1)
Buildings
Leasehold improvements
Equipment and vehicles
Construction in progress

Accumulated
depreciation

Acquisition cost￦￦

933,891
542,691
120,025589,928144
2,186,679(*1) Gain on revaluation of tangible asset is included in acquisition cost of land.

￦￦(192,790)(90,981)(516,549)(800,320)

Accumulated
impairment loss￦￦

(2,376)(3,565)(5,941)

Dec. 31, 2009￦￦

931,515
346,336
29,04473,379144
1,380,418

86

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(3) The changes in book value of tangible assets for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification

Jan. 1, 2010Land
Buildings

931,515
346,336￦

Acquisition

Disposal

11,130￦(263)(5,142)￦￦(12,796)

Change inforeigncurrencies

Impairment
loss

Depreciation-￦

Dec. 31, 2010

178
106

￦

￦

931,430
339,634

Leaseholdimprovements

29,044

5,285(1,598)(11,433)-

156

21,454Equipment andvehicles

73,37937,774(1,678)(44,923)-

32

64,584

Construction inprogress

144

906

-

-

-

-

1,050

￦

1,380,418

Classification

Jan. 1, 2009Land
Buildings￦

938,810358,489

55,095￦Acquisition
￦

7,630

(8,681)￦

Disposal￦(4,330)(2,166)￦

Depreciation(12,960)￦(69,152)

Impairment
loss (*2)
￦

-

￦

(215)
(3,784)472￦(2,576)-

1,358,152

Change inforeign Dec. 31, 2009
currencies

Revaluation
loss (*1)
￦

￦

￦

(174)
(873)

￦

931,515
346,336

Leaseholdimprovements

35,061

6,458

(10)

(12,149)

(316)

-

(316)

29,044Equipment andvehicles

94,85837,008(421)(57,803)

(263)

-

(263)

73,379Construction inprogress

-

144

-

-

-

-

-

144

(1,626)￦ 1,380,418￦ 1,427,218￦

51,240￦(6,927)(82,912)￦￦(3,999)(2,576)￦￦(*1) Gain on revaluation of tangible asset recognized in fiscal year 2008 in relation to land is reversed up to the amount of impairment loss incurred for theyear ended December 31, 2009.
(*2) The impairment loss amounting to ￦3,853 million is recognized as loss on prior period error correction due to the impairment occurred in fiscal year
2008.
(4) The published value of the domestic land is ￦890,366 million and ￦877,787 million as of December 31, 2010 and 2009, respectively, basedon the Laws on Disclosure of Land Price and Valuation of Land.
(5) Tangible assets, which have been insured as of December 31, 2010 are as follows (Unit: In millions):
Type of insurance

Asset insured

Property composite

Buildings
Leasehold improvements
Equipment and vehicles

Insured balance

Insurance company

339,045
25,727
57,950422,722

Hyundai Marine Fire
Insurance Co., Ltd.

￦￦

(6) The changes in the gain on revaluation of tangible assets for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Land

Jan. 1, 2010￦

432,108

Revaluation￦-

Disposal orreclassification (*1)
￦
(1)

￦

Tax
adjustment
-

￦

Tax
adjustment
911

Dec. 31, 2010￦

432,107(*1) Gain on revaluation of land of ￦1 million is decreased due to the disposal.
Classification
Land

Jan. 1, 2009￦

435,337

Revaluation￦-

Disposal orreclassification (*1)
￦
(4,140)Dec. 31, 2009￦

432,108(*1) Gain on revaluation of land of ￦1,564 million recognized in fiscal year 2008 is reversed up to the amount of impairment loss incurred for the year ended
December 31, 2009.

87

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

9. OTHER ASSETS:(1) Other assets as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification

2010

Guarantee deposits paid
Accounts receivable
Accrued income
Prepaid expenses
Derivatives instruments assets (see Note 17)
Intangible assets
Sundry assets

2009

670,042
6,885,112
210,510
28,165
1,078,698
64,581
1,133,487
10,070,595￦￦

661,628
6,874,097
239,920
28,764
1,599,988
60,696
1,252,187
10,717,280￦￦(2) Intangible assets as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification

Acquisition cost

Development expenditures
Others (*)

￦Classification

Accumulated amortization￦(185,826)(2,064)￦(187,890)

250,225
2,246
252,471￦

Acquisition cost

Development expenditures
Others (*)

Accumulated amortization￦(161,938)(1,874)￦(163,812)

222,269
2,239
224,508￦￦

Dec. 31, 2010
64,399182
64,581￦￦

Dec. 31, 2009
60,331365
60,696￦￦(*) Includes the exchange rate fluctuation effects.
(3) The changes in intangible assets for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Development
expenditures
OthersJan 1, 2010

DisposalAmortization

Change in foreign
currencies

Dec. 31, 2010￦

60,331￦

27,956￦-￦(23,888)￦-￦

64,399￦365
60,696￦

27,956

￦

(123)
(123)

￦

(117)
(24,005)

￦

57
57

￦

182
64,581

Classification
Development
expenditures
OthersAcquisition

Jan 1, 2009

Acquisition

Amortization

Change in foreign
currencies

Dec. 31, 2009￦

65,173￦

27,119￦(31,961)￦-￦

60,331￦732
65,905￦37
27,156￦(356)(32,317)

￦

(48)
(48)

￦

365
60,696(4) Sundry assets as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Domestic exchange settlement debits
Suspense payments in Won
Suspense payments in foreign currencies
Bills unsettled
Supplies
Deposited money
Money transfer receivable
Others2010￦￦

1,042,180
57,665
3,771
7,627
6,934
14,718592
1,133,487

2009
￦

￦

1,134,803
79,597
6,945
9,999
6,477
13,455150761
1,252,187

88

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

10. MERCHANT BANKING ACCOUNT ASSETS:(1) Merchant banking account assets as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification

2010

Loans
Cash management accounts
Trading securities
Allowance for possible loan losses

2009

236,900
335,921864,500(3,393)
1,433,928￦￦

583,100
184,900
1,094,673(11,163)
1,851,510￦￦(2) Loans as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification

2010

Bills discounted
Discount interest rate of short-term bill (%)

2009

236,900
2.08 ~ 10.76￦

583,100
1.71 ~ 10.50￦(3) Cash management accounts as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Cash management accounts (“CMA”) comprise customers’ deposits maturing in 180 days or less which are invested in securities approximating the valueof such deposits. The income from the investments, less management fees, is distributed to the accounts on the contract maturity date. If the deposit iswithdrawn before maturity, distribution is based on a rate computed daily.
CMA assets as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification

2010

Bills discounted
Securities

2009

145,600
190,321335,921￦￦

184,900
184,900￦￦(4) Trading securities of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification

2010

Face value
Adjusted value (*)
Fair value (Book value)2009

866,600
864,414864,500￦

1,097,600
1,094,574
1,094,673￦(*) Accrued interest is reflected.
(5) Asset quality classification and related allowance for loan losses
The asset quality classification and allowance for possible loan losses of the accounts in the merchant banking division of the Bank as of December 31, 2010
and 2009 is as follows (Unit: In millions):
2010
Classification
Loans (*)

￦

NormalPrecautionary

382,500￦-

Substandard￦-

Doubtful￦-

Estimated loss
￦

-

Total
￦

382,500

Allowance forpossible loan
losses￦3,393(*) Including bills discounted in CMA.
2009
Classification
Loans (*)

￦

NormalPrecautionary

713,000￦(*) Including bills discounted in CMA.

55,000Substandard￦-

Doubtful￦-

Estimated loss
￦

-

Total
￦

768,000

Allowance forpossible loan
losses￦

11,163

89

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(6) Operating income of merchant banking accounts for the years ended December 31, 2010 and 2009 is as follows (Unit: In millions):
Classification
Interest income
Commission income
Reversal of allowance for possible loan losses
Other revenues

2010
￦

￦

48,251896
7,770
31,281
88,198

2009￦￦

80,314352
5,985
24,429111,080

11. DEPOSITS:(1) Deposits as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Demand deposits
Time deposits
Negotiable certificates of deposits

2010
￦

￦

24,126,869
35,323,036
1,254,344
60,704,249

2009
￦

￦

19,658,363
28,244,599
9,048,925
56,951,887(2) Details of deposits as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Demand deposits in Won:
Checking deposits
Passbook deposits
Temporary deposits
Public fund deposits
General savings deposits

2010￦

Demand deposits in foreign currencies:
Checking deposits
Passbook deposits
Temporary deposits
Time deposits in Won:
Time deposits
Installment savings deposits
Long-term savings for households and others
Time deposits in foreign currencies:
Time deposits
Notice deposits
OthersMutual installment savings
Negotiable certificates of deposits￦

227,561
1,464,814
740,345
32,291
14,071,952
16,536,963

2009￦

224,694
1,453,713
785,326
25,561
12,102,452
14,591,746

1,316,491
6,252,268
21,1477,589,906

1,024,154
4,011,693
30,7705,066,617

29,374,735
935,466
387,259
30,697,460

18,186,940
973,592
547,570
19,708,102

4,560,164
27,386
4,025
4,591,575
34,001
1,254,344
60,704,249

8,423,049
62,812
4,429
8,490,290
46,207
9,048,925
56,951,887￦

90

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(3) Deposits with financial institutions as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification

Other financial
institution

Bank

Demand deposits:
Demand deposits in Won
Demand deposits in foreign currencies
Time deposits:
Savings deposits in Won
Savings deposits in foreign currencies
Negotiable certificates of deposits

12,092
196,966￦

1,667,206
1,876,264￦

Classification

5,968
122,183￦

1,144,463
8,000
1,280,614￦

109,495
29,758￦￦221,277
427,530￦

Other financial
institution￦

4,586
201,667￦

4,234,053
109,173
1,143,262
5,625,741￦

Bank

Demand deposits:
Demand deposits in Won
Demand deposits in foreign currencies
Time deposits:
Savings deposits in Won
Savings deposits in foreign currencies
Negotiable certificates of deposits

Foreign financial
institution

Dec. 31, 2010￦￦

Foreign financial
institution

184,804
22,342￦

1,746,073
844,480
651,8053,449,504￦

6,171
188,361
107,717
302,249

126,173428,391
6,122,536
109,173
1,143,262
7,929,535

Dec. 31, 2009￦￦

196,943
332,8862,998,253
844,480
659,805
5,032,367(4) Term structures of deposits as of December 31, 2010 are as follows (Unit: In millions):
Classification

Deposits in Won

Due in less than one year
Due from one to two years
Due from two to three years
Due from three to five years
Due in five years or more￦￦

45,625,915
983,180
368,685
154,350
136,294
47,268,424

Deposits inforeign currencies￦
12,137,251
4,334
39,485411￦
12,181,481

Negotiablecertificates of deposits￦
1,248,148
6,196￦
1,254,344

Dec. 31, 2010￦￦

59,011,314
993,710408,170
154,761
136,294
60,704,249

12. BORROWINGS:(1) Borrowings as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification2010

Call money
Bills soldBonds sold under repurchase agreements
Borrowings
Debentures
Less: Discount on debentures

1,166,589
47,712
99,052
7,043,437
4,640,959(13,351)
12,984,398

￦

￦

2009

￦

1,388,605
30,943
140,415
7,623,823
7,880,371(24,486)
17,039,671

2010

2009

￦

(2) Call money as of December 31, 2010 and 2009 consist of (Unit: In millions):
Account

LenderCall money in foreign
currencies

Local & foreign financial
institution and others

Annual interest rates (%)
Dec. 31, 2010
0.29 ~ 1.48￦

1,166,589￦

1,388,605

91

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(3) Bills sold and bonds sold under repurchase agreements as of December 31, 2010 and 2009 consist of the following (Unit: In millions):
Annual interest rates (%)
Dec. 31, 2010

Account

LenderBills soldGeneral customer andothers1.40 ~ 3.29

Bonds sold under
repurchase agreements

General customer andothers3.70 ~ 7.10

2010

2009

47,712￦￦

99,052

140,415

146,764￦

30,943￦

171,358(4) Borrowings as of December 31, 2010 and 2009 consist of (Unit: In millions):
Account

LenderBorrowings in Won:
Borrowings from the BOK

BOKAnnual interest rate (%)
Dec. 31, 2010
1.25

2010
￦

2009

533,097￦

704,953

Borrowings from the Korean
government

Ministry of Finance andEconomy and others

0.00 ~ 4.00

332,650

308,988

Borrowings from banking
institutions

Industrial Bank of Korea
and others

1.06 ~ 5.45

82,487

101,875

Other borrowings

Small BusinessCorporation and others

1.50 ~ 3.75

293,788

1,025,606

1,242,022

2,141,422

Borrowings in foreign
currencies:
Refinance

Wells Fargo Bank and others

0.69 ~ 1.30

Short-term borrowing inforeign currencies
Middle and long-termborrowing in foreign
currencies
Other borrowings

Standard Chartered Bank andothers0.61 ~ 1.66

1,669,470

2,021,322

Bank of Communica- tions
and others

0.99 ~ 5.79

1,310,656

987,705

Foreign financial institutions

0.24 ~ 5.82

2,468,230
5,801,415
7,043,437

2,216,502
5,482,401
7,623,823￦￦

353,059￦￦

256,872(5) In the normal course of funding activities, the Bank provided securities as collateral for borrowings from the Bank of Korea and otherfinancial institutions as of December 31, 2010. See Note 4 (6).
(6) Debentures
1) Debentures as of December 31, 2010 and 2009 consist of (Unit: In millions):
Account
Debentures in Won:
Finance debentures
Subordinated financing debentures
Hybrid debentures

Annual interest rate (%)
Dec. 31, 2010
3.04 ~ 7.73
6.11 ~ 7.80
7.30

2010
￦

Discounts on debentures
Debentures in foreign currencies:
Finance debentures
Subordinated financing debentures

0.48 ~ 5.78-

Discounts on debentures￦

1,920,000
1,100,487
250,000
3,270,487(6,562)
3,263,925
1,370,472
1,370,472(6,789)1,363,683
4,627,608

2009￦

5,370,000
1,101,146
250,000(20,186)
6,700,960￦

803,490355,735
1,159,225(4,300)1,154,925
7,855,885

92

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2) As of December 31, 2010 and 2009, all finance debentures issued in Won are general debentures and consist of (Unit: In millions):
Issued date

Expiration dateJan. 10, 2007
Jan. 11, 2007
Jan. 18, 2007
Jan. 25, 2007
Feb. 5, 2007
Feb. 9, 2007
Feb. 28, 2007
May 14, 2007
May 16, 2007
May 17, 2007
May 21, 2007
May 23, 2007
May 30, 2007
Jun. 1, 2007
Jun. 13, 2007
Jun. 28, 2007
Jul. 24, 2007
Jul. 25, 2007
Jul. 30, 2007
Jul. 31, 2007
Aug. 3, 2007
Aug. 14, 2007
Aug. 23, 2007
Aug. 24, 2007
Sep. 10, 2007
Oct. 10, 2007
Oct. 18, 2007
Oct. 23, 2007
Nov. 8, 2007
Nov. 14, 2007
Nov. 23, 2007
Nov. 26, 2007
Nov. 30, 2007
Dec. 5, 2007
Jan. 15, 2008
Feb. 15, 2008
Apr. 10, 2008
Apr. 15, 2008
Apr. 16, 2008
Apr. 17, 2008
Apr. 18, 2008
Apr. 24, 2008
Apr. 29, 2008
Apr. 30, 2008
May 8, 2008
May 15, 2008
May 16, 2008
May 22, 2008
May 23, 2008
May 26, 2008
May 26, 2008
May 27, 2008
May 28, 2008

Jan. 10, 2010
Jan. 11, 2010
Jan. 18, 2010
Jan. 25, 2010
Feb. 5, 2010
Feb. 9, 2010
Feb. 28, 2010
May 14, 2010
May 16, 2010
May 17, 2010
May 21, 2010
May 23, 2010
May 30, 2010
Jun. 1, 2010
Jun. 13, 2010
Jun. 28, 2010
Jul. 24, 2010
Jul. 25, 2010
Jul. 30, 2010
Jul. 31, 2010
Aug. 3, 2010
Aug. 14, 2010
Aug. 23, 2010
Aug. 24, 2010
Sep. 10, 2010
Oct. 10, 2010
Oct. 18, 2010
Oct. 23, 2010
Nov. 8, 2010
Nov. 14, 2010
Nov. 23, 2010
Nov. 26, 2010
Nov. 30, 2010
Dec. 5, 2010
Jan. 15, 2010
Feb. 15, 2010
Apr. 10, 2010
Apr. 15, 2010
Apr. 16, 2010
Apr. 17, 2010
Apr. 18, 2010
Apr. 24, 2010
Apr. 29, 2010
Apr. 30, 2010
May 8, 2010
May 15, 2010
May 16, 2011
May 22, 2011
May 23, 2011
May 26, 2010
Nov. 26, 2010
May 27, 2010
May 28, 2010

Annual interest rate(%)
Dec. 31, 2010
5.87
5.93
5.92
-

2010
￦

100,000
100,000
30,000-2009￦

50,00050,00030,00030,00050,00050,00030,00040,00050,00050,00030,000100,000
50,00050,00050,00050,00020,00050,00030,00030,00010,00010,00030,00050,000200,000
200,000
70,00010,000200,000
50,00070,000260,000
170,000
140,000
50,00030,000200,000
50,00050,00050,00050,00040,00010,00050,00010,00020,000100,000
100,000
30,00010,00010,00020,00010,00093

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Issued date

Expiration date

May 29, 2008
Jun. 3, 2008
Jun. 5, 2008
Jun. 12, 2008
Jun. 16, 2008
Jun. 19, 2008
Jun. 26, 2008
Jul. 4, 2008
Jul. 16, 2008
Jul. 17, 2008
Jul. 18, 2008
Aug. 21, 2008
Sep. 1, 2008
Sep. 4, 2008
Oct. 29, 2008
Jul. 9, 2009
Jul. 13, 2009
Jul. 15, 2009
Jul. 24, 2009
Jul. 28, 2009
Nov. 24, 2009
Dec. 2, 2009
Dec. 10, 2009
Dec. 16, 2009
Dec. 18, 2009
Feb. 16, 2010
Apr. 9, 2010
Apr. 27, 2010
Apr. 28, 2010
Apr. 29, 2010
May 7, 2010
May 10, 2010
May 12, 2010
May 17, 2010
May 28, 2010
May 28, 2010
Jun. 7, 2010
Jul. 16, 2010
Jul. 22, 2010
Jul. 28, 2010
Oct. 8, 2010
Nov. 29, 2010
Nov. 29, 2010

May 29, 2010
Jun. 3, 2010
Jun. 5, 2010
Jun. 12, 2010
Jun. 16, 2010
Jun. 19, 2010
Jun. 26, 2010
Jul. 4, 2010
Jan. 16, 2010
Jul. 17, 2010
Jan. 18, 2010
Aug. 21, 2010
Sep. 1, 2010
Sep. 4, 2010
Oct. 29, 2011
Jul. 9, 2010
Jul. 13, 2010
Jul. 15, 2010
Jul. 24, 2010
Jul. 28, 2010
Nov. 24, 2010
Dec. 2, 2010
Dec. 10, 2010
Dec. 16, 2010
Dec. 18, 2010
Feb. 16, 2011
Apr. 9, 2013
Apr. 27, 2013
Apr. 28, 2012
Apr. 29, 2013
May 7, 2011
Nov. 10, 2011
May 12, 2011
May 17, 2011
May 28, 2011
Nov. 28, 2011
Jun. 7, 2011
Jul. 16, 2012
Jan. 22, 2012
Jul. 28, 2012
Apr. 8, 2012
Nov. 29, 2011
May 29, 2012

Annual interest rate(%)
Dec. 31, 2010
7.73
3.61
4.08
4.17
3.73
4.06
3.10
3.70
3.14
3.21
3.25
3.75
3.25
4.16
3.88
4.03
3.31
3.13
3.38

2010
￦

￦

200,000
50,00050,00050,00050,00050,00040,000100,000
110,000
100,000
50,000100,000
100,000
90,000110,000
50,000200,000
30,000160,000
1,920,000

2009
￦

￦

50,00020,00060,00070,00040,00010,00030,00010,00040,00010,000200,000
180,000
130,000
120,000
200,000
100,000
100,000
100,000
100,000
50,000100,000
100,000
100,000
100,000
100,000
5,370,000

94

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

3) Finance debentures issued in foreign currencies as of December 31, 2010 and 2009 consist of (Unit: In thousands of U.S. dollars, in millions of Won):
Annual interest
rate (%)
Dec. 31, 2010

2010

2009

3M LIBOR+36.4BP

0.62￦ 341,670(US$300,000)￦ 350,280(US$300,000)

Sep. 7, 2011

6M TIBOR+160BP

0.48

139,708(US$ 122,670)

126,282(US$108,155)

May 26, 2009

May 29, 2012

6M LIBOR+530BP

5.65

56,945(US$50,000)

58,380(US$50,000)

UBS

Jun. 1, 2009

Jun. 1, 2012

3M LIBOR+550BP

5.78

56,945(US$50,000)

58,380(US$50,000)

Morgan StanleyJun. 1, 2009

Jun. 1, 2012

6M LIBOR+535BP

5.66

56,945(US$50,000)

58,380(US$50,000)

BNP PARIBAS

Jun. 5, 2009

Jun. 7, 2011

6M LIBOR+520BP

5.47

56,945(US$50,000)

58,380(US$50,000)

Woori Investment& Securities

Jul. 23, 2009

Jul. 15, 2011

3M LIBOR+340BP

3.69

56,945(US$50,000)

58,380(US$50,000)

HSBC

Aug. 27, 2009

Aug. 24, 2012

3M LIBOR+350BP

3.68

34,167(US$30,000)

35,028(US$30,000)

Citigroup and others (*2)

Jul. 14, 2010

Jan. 14, 2016

6M LIBOR+274.1BP

4.88

570,202(US$500,660)-￦ 1,370,472(US$1,203,330)￦ 803,490(US$688,155)

First underwriter

Issued date

Expiration dateTerms ofinterest rate

Calyon and others

Jul. 20, 2007

Jul. 20, 2012

SMBC, Tokyo (*1)

Sep. 12, 2008

Morgan Stanley(*1) Issued in Yen (JPY) amounting to JPY 10,000 million.
(*2) Certain subordinated debentures are under swap contracts in order to hedge risks from changes in interest rates. In connection with such contracts,
loss on valuation of derivatives amounting to ￦752 million is recognized in connection to such contracts for the year ended December 31, 2010. See
Note 17 (1).

95

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 20094) Subordinated debentures as of December 31, 2010 and 2009 are as follows (Unit: In thousands of U.S. dollars, in millions of Won):
Classification
Debentures in Won:
General sale (*1)
General sale (*1)
General sale (*1)
Underwriting sale(*2)
General sale (*2)
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale

Annual interest rate (%)
Dec. 31, 2010

Issued date

Expiration date

May 28, 2001
Oct. 28, 2002
Mar. 28, 2003

Feb. 28, 2007
Jan. 28, 2008
Dec. 28, 2008-

Mar. 13, 2008

Mar. 13, 2018

6.11

250,000

250,000

Mar. 28, 2008
Nov. 21, 2008
Nov. 24, 2008
Nov. 25, 2008
Nov. 26, 2008
Nov. 27, 2008
Nov. 28, 2008
Dec. 1, 2008
Dec. 19, 2008
Dec. 22, 2008
Dec. 23, 2008
Dec. 24, 2008
Dec. 26, 2008
Dec. 29, 2008
Dec. 30, 2008

Mar. 28, 2018
May 21, 2014
May 24, 2014
May 25, 2014
May 26, 2014
May 27, 2014
May 28, 2014
Jun. 1, 2014
Jun. 19, 2014
Jun. 22, 2014
Jun. 23, 2014
Jun. 24, 2014
Jun. 26, 2014
Jun. 29, 2014
Jun. 30, 2014

6.20
7.70
7.70
7.70
7.70
7.70
7.70
7.70
7.80
7.30
7.30
7.30
7.30
7.30
7.80

50,00060,86032,06027,57040,88037,651
78,92622,053250,000
34,06018,69023,94832,97993,487
46,836
1,100,487

50,00060,86032,06027,57040,88037,651
78,92622,053250,000
34,06018,69023,94832,97993,487
46,836
1,101,146

2010

Jun. 10, 2005

Jun. 10, 2015

-

170
160
157

￦

￦
Debentures in foreign
currencies
CITI group &HSBC (*2 and *3)

￦
￦

2009
223
160
763

￦

￦

1,100,487￦￦

355,735(US$304,672)
1,456,881(*1) The outstanding balance amount was not redeemed at the maturity date, and after the maturity date, interest is not paid.
(*2) After 5 years from issuance date, the early redemption option can be exercised by the Bank.
(*3) Represent the first underwriters.
5) As of December 31, 2010 and 2009, Hybrid Tier 1 bond is as follows (Unit: In millions):
Classification (*1)

Issued period (*2)

Hybrid debentures 2nd

Mar. 31, 2009 ~Mar. 31, 2039

Annual interest rate (%)
(*3)

2010

7.30

￦

250,000

2009
250,000￦(*1) After 5 years from issuance date, call option can be exercised under the authorization of the Governor of the Financial Supervisory Service.
(*2) After expiration, the bond can be extended under the same terms.
(*3) After 10 years from issuance date, the interest rate increases to 8.30 percent.
(7) Term structures of borrowings as of December 31, 2010 are as follows (Unit: In millions):
Classification

Borrowing in Won

Due in less than one year
Due from one to two years
Due from two to three years
Due from three to five years
Due in five years or more￦￦

652,912
127,802
117,028
166,658
177,622
1,242,022

Borrowing in foreign
currencies￦
5,263,197
74,267463,951￦
5,801,415

Debentures in Won￦￦

1,110,487
660,000
150,000
800,000
550,000
3,270,487

Debentures inforeign currencies￦
253,598
546,672
570,202￦
1,370,472

Total
￦

￦

7,280,194
1,408,741
267,028
1,430,609
1,297,824
11,684,396

96

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

13. OTHER LIABILITIES:(1) Other liabilities as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Accounts payable
Accrued expenses
Unearned revenues
Guarantee money received
Accrued payable from foreign exchange
Deferred income tax liabilities (see Note 21)
Derivatives instruments liabilities (see Note 17)
Due to trust accounts
Accrued severance benefits
Pension benefits payables
Less: Asset under management of pension benefits
Less: Transfers to the National Pension Fund
Less: Due to retirement insurance
Reserve for acceptances and guarantees
Reserve for unused credit limit
Allowance for other liabilities
Sundry liabilities

2010
￦

￦

7,088,090
655,878
68,794
128,534
266,968
166,397
951,026
1,002,610
356,423
6,405(40,383)(564)(257,045)
112,257
167,127
197,419
1,996,516
12,866,452

2009
￦

￦

7,136,074
633,018
74,279147,466
265,464
202,383
1,506,624
902,952
316,251
4,580(3,238)(597)(250,733)
81,115
168,950
143,630
1,733,934
13,062,152(2) Accrued severance benefits
1) The changes in accrued severance benefits for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Beginning
Provision
Payment (*1)
Foreign currencies translation

2010￦

Pension benefits payables
Assets under management of pension benefits
Transfers to the National Pension Fund
Due to retirement insurance￦

316,251
61,638(21,698)232
356,423
6,405(40,383)(564)(257,045)
64,836

2009￦￦

291,933
59,347(34,537)(492)
316,251
4,580(3,238)(597)(250,733)
66,263(*1) The payment of severance benefits amounting to ￦285 million and ￦108 million as of December 31, 2010 and 2009, respectively, is accounted as
accounts payable.
As of December 31, 2010, parts of severance benefits are contributed to pension funds of Samsung Life Insurance Co., Ltd. The Bank manages the defined
benefit retirement pension plan (DB plan) for the year ended December 31, 2010, and the assets invested in the DB plan is accounted as assets undermanagement of pension benefits and presented as a deduction from accrued severance benefits. As of December 31, 2010, the assets under managementof pension benefits are as follows (Unit: In millions):
Classification
Cash and due from banks
Securities

Percentage (%)
93.40
6.60
100.00

97

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(3) Reserve for acceptances and guarantees
1) Acceptances and guarantees as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification

2010

Confirmed acceptances and guarantees in Won:
Payment guarantee for issuance of debentures
Acceptances on letters of guarantee for importers
Payment guarantee for loans
Others

2009

4,894
340
72,238921,693
999,165￦

Confirmed acceptances and guarantees in foreign currencies:
Acceptances on letters of credit
Acceptances on letters of guarantee for importers
OthersUnconfirmed acceptances and guarantees:
Letters of credit
OthersBills endorsed [see Note 17(3)]￦6,630
63,425
1,715,378
1,785,433￦

576,152
81,4297,638,638
8,296,219

697,245
102,366
6,972,633
7,772,244

3,840,814
517,9034,358,717
69,77013,723,871

3,853,599
317,495
4,171,094
55,992
13,784,763￦

2) The classification of asset quality for acceptances and guarantees and reserve for acceptances and guarantees as of December 31, 2010 and 2009 is asfollows (Unit: In millions):
Classification

NormalConfirmed
acceptances￦ 9,167,433

Unconfirmed
acceptances

4,339,762

Bills endorsed

69,770￦ 13,576,965

Classification
Confirmed
acceptances

Normal￦Unconfirmed
acceptances
Bills endorsed￦

Precautionary￦

68,525

Substandard
23,340￦13,719￦82,244￦21
23,361￦

Precautionary

8,432

￦

5,215
￦

Substandard

13,647

Doubtful

Reserve forDec. 31, 2010 acceptances andguarantees

Estimatedloss

Doubtful

27,654￦

9,295,384-

4,358,717

27,654

69,770￦ 13,723,871

Estimated loss

Dec. 31, 2009￦

9,519,396 ￦

16,132 ￦14,682 ￦

6,420 ￦

4,153,686

12,172

2,906

2,208

55,992
13,729,074 ￦

28,304 ￦17,588 ￦8,628 ￦

1,047 ￦￦

102,101
9,563

￦

593
112,257

Reserve for
acceptancesandguarantees

9,557,677 ￦

71,677122

4,171,094

8,962

1,169 ￦

55,992
13,784,763 ￦

476
81,1153) Acceptances and guarantees, by industry, except for the portion of overseas branches as of December 31, 2010 and 2009, are as follows (Unit: In millions):
By Industry
Manufacturing
Construction
Wholesale and retail
Finance and insuranceElectricity, gas and water supply
Others￦Confirmed acceptance and guarantees in overseas branches￦

2010

Percentage (%)

4,519,184
2,534,561
662,535
398,495
220,065
491,401
8,826,241
469,143
9,295,384

51.20
28.72
7.51
4.51
2.49
5.57
100.0098

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

By Industry

2009

Manufacturing
Construction
Wholesale and retail
Science and technology service
Electricity, gas and water supply
Others￦Confirmed acceptance and guarantees in overseas branches￦

Percentage (%)

5,458,193
1,577,322
675,814347,609244,686
691,856
8,995,480
562,197
9,557,677

￦

60.69
17.53
7.51
3.86
2.72
7.69
100.004) Confirmed acceptances and guarantees in foreign currencies, by country, as of December 31, 2010 and 2009 are as follows (Unit: In thousands of U.S.
Dollars, in millions of Won):2010
By country
Korea
USA
FranceJapan
Italy
OthersConfirmed acceptances andguarantees in foreign currencies (*)$$

7,125,602
72,223
26,7609,257
8,391
42,1807,284,413

Translation into Won

Percentage (%)

8,115,348
82,25530,477
10,543
9,557
48,0398,296,219

97.81
0.99
0.37
0.13
0.12
0.58
100.00￦￦(*) Foreign currencies other than U.S. Dollars are converted into U.S. Dollars at the basic rates of exchange at the date of the statement of financial position.
2009
By country
Korea
USA
FranceTaiwanUnited Kingdom
OthersConfirmed acceptances andguarantees in foreign currencies (*)$$

6,268,012
94,952
79,37145,27945,274
123,7096,656,597￦￦

Translation into Won

Percentage (%)

7,318,531
110,866
92,67452,86852,862
144,4437,772,244

94.16
1.43
1.19
0.68
0.68
1.86
100.00(*) Foreign currencies other than U.S. Dollars are converted into U.S. Dollars at the basic rates of exchange at the date of the statement of financial position.
5) The percentages of reserves for acceptances and guarantees as of December 31, 2010, 2009 and 2008 are as follows (Unit: In millions):
Classification
Acceptances and guarantees
Reserve
Percentage (%)

2010￦

13,723,871
112,257
0.82

2009
￦

13,784,763
81,115
0.59

2008
￦

11,594,383
57,601
0.50

99

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(4) Reserve for unused credit limit
The calculation of reserve for unused credit limit as of December 31, 2010 and 2009 is as follows (Unit: In millions):
2010
Classification
Card loans
Loans to enterprise (*1)
Loans to household
Loans to public and others

Limit (a)￦￦14,757,880
72,938,420
3,548,468
28,85091,273,618

Balance (b)￦￦1,995,878
37,323,554
1,370,410
9,742
40,699,584

Merchant Banking Account (*2)
Reserve for unused credit limit

Allowance (c) =(a-b) x Reserve for unused credit
credit conversion factor
limit (d)￦￦6,380,842
97,226
9,543,486
88,565441,540
4,415
3,822
32
￦
￦
16,369,690
190,238(23,111)￦167,127(*1) Includes unused credit limit of merchant banking account.
(*2) Included in other liabilities of merchant banking account. See Note 14 (3).
2009Classification
Card loans
Loans to enterprise (*1)
Loans to household
Loans to public and others

Limit (a)￦￦13,678,773
77,680,701
3,482,773
10,63894,852,885

Balance (b)￦￦1,961,693
43,461,439
1,421,990
2,374
46,847,496

Merchant Banking Account (*2)
Reserve for unused credit limit

Allowance (c) =(a-b) x Reserve for unused credit
credit conversion factor
limit (d)￦￦5,858,405
89,1948,980,356
94,578415,635
4,156
1,653
14
￦
￦
15,256,049
187,942(18,992)￦
168,950(*1) Includes unused credit limit of merchant banking account.
(*2) Included in other liabilities of merchant banking account. See Note 14 (3).
(5) Allowance for other liabilities
Allowance for other liabilities as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Reserve for money-back point & yes-point
Reserve for litigation [see Note 17(6))]
Reserve for employees’ accident (*1)
Provision for severance and early retirement benefits (*2)
Reserve for derivatives assets and others (*3)
Others2010￦￦

28,41329,832
42,126
14,51451,73030,804
197,4192009￦￦

27,704
14,2681,700
12,894
82,865
4,199
143,630(*1) Provision is made for 4 suspense payments, which occurred in connection with employees’ illegal act such as embezzlement.
(*2) The Bank reserves for severance and early retirement benefits that is expected to be paid for voluntary retirees who have worked for more than 15 years
and are more than 40 years old.
(*3) The Bank reserves for possible derivatives losses for currency options and others.

100

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(6) Sundry liabilities
Sundry liabilities as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification2010

Suspense receipt
Withholding taxes
Agency business accounts
AgencyCredit control deposits
Guarantee deposits for securities subscription
Domestic exchange settlements credits
Domestic remittance payable
Others￦￦25,257
31,52586,2891,236,016
13,455
598,674
4,032
1,268
1,996,516

2009
￦

￦

22,46828,433
92,940856,635
942
16,921
713,256
1,817
522
1,733,934

14. MERCHANT BANKING ACCOUNT LIABILITIES:(1) Merchant banking account liabilities as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification

2010

Deposits
Other liabilities￦￦

947,430
25,249972,679

2009￦￦

1,277,149
22,4191,299,568(2) Deposits as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Notes payable (*)
Due to CMA

Annual interest rate (%)
Dec. 31, 20102.20 ~ 2.70
2.20 ~ 3.19

2010
￦
￦

537,505
409,925
947,430

2009￦￦

1,069,234
207,915
1,277,149(*) Notes payable matures within a maximum of one year from issue date and bears interest at variable rates according to market conditions and noteterms.
(3) Other liabilities as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Accrued expenses
Unearned income
Reserve [see Note 13(4)]

2010
￦

￦

139
1,999
23,111
25,249

2009
￦

￦

695
2,732
18,992
22,419(4) Operating expenses of merchant banking accounts for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Interest expenses
Transfer to reserve for unused credit limit

2010
￦
￦

35,6004,119
39,7192009￦￦

45,594100
45,694

101

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 200915. SHAREHOLDERS’ EQUITY:(1) Capital stock
Capital stock as of December 31, 2010 and 2009 is as follows (Unit: in Won, shares):Classification
Shares authorized
Per share
Shares issued
Common stock

￦
￦

2010

2009

1,000,000,000
5,000
644,906,826
3,224,534 million

1,000,000,000
5,000
644,906,826
3,224,534 million￦￦(2) Capital surplus
The amount of capital surplus as of December 31, 2010 and 2009 is transferred from stock option balance (accounted for as capital adjustment) since it
lapsed as it is not exercised.
(3) Accumulated other comprehensive income
The changes in accumulated other comprehensive income for the year ended December 31, 2010 are as follows (Unit: In millions):
Classification

Beginning balance

Gain (loss) on valuation ofavailable-for-sale securities￦

796,879

Changes￦

114,635￦

Disposal

Deferred income
tax(271,127)￦

34,336

Ending balance￦

674,723

Gain (loss) on valuation of heldto-maturity securities

(16)

-

21

(5)

-

Changes in equity on equity method

4,595

555

-

(122)

5,028

Negative changes in equity on equity
method

(10)

(388)

-

86

(312)

432,108-(1)-

432,107

Gain on revaluation of tangible
assets￦

1,233,556￦

114,802(271,107)￦￦

34,295￦

1,111,546(4) Statements of comprehensive income
Comprehensive income consist of all changes in equity during a period from transactions and other events except those resulting from investments byowners and distributions to owners. Comprehensive income for the years ended December 31, 2010 and 2009 is as follows (Unit: In millions):
Classification
Net income
Effect of exchange rate fluctuation and others
Other comprehensive income (loss):
Gain (loss) on valuation of available-for-sale securities
Gain on valuation of held-to-maturity securities
Changes in equity on equity method
Negative changes in equity on equity method
Loss on revaluation of tangible assets
Less: Effect of income tax Comprehensive income
Comprehensive income

2010
￦

￦

1,021,367
1,996(156,492)
21
555
(388)
(1)
34,295
901,353

2009￦￦

891,737(4,170)622,888
388
1,162
359
(4,140)(136,302)
1,371,922(5) Retained earnings
Appropriated retained earnings as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Legal reserve (*1)
Other reserves (*2)

2010
￦
￦

460,100
51,512511,612

2009￦￦

370,900
53,291
424,191(*1) The Korean Banking Law requires a bank to appropriate at least 10 percent of net income after income tax to legal reserve, until such reserve equals
100 percent of its paid-in capital. This reserve is not available for payment of cash dividends; however, it can be used to reduce deficit or be transferred tocapital.
(*2) Relevant Japanese regulations require the Bank’s overseas branches located in Japan to appropriate a minimum of 10 percent of annual income after
income tax as a legal reserve, until such reserve equals ¥2,000 million. This reserve is not available for the payment of cash dividends and may beutilized upon liquidation of the Japanese branches. In addition, Singapore and Hanoi branches’ statutory reserves are included in other reserves.

102

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

1 6 . S H A R E - B A S E D PAY M E N T :(1) Stock options
The details of the stock options as of December 31, 2010 are as follows (Unit: in Won, shares):
Grant dateMar. 7, 2005
Jun. 29, 2005
Mar. 7, 2006
Aug. 1, 2006
Mar. 8, 2007
Mar. 29, 2007
Aug. 10, 2007
Mar. 11, 2008
Aug. 1, 2008
Mar. 12, 2009
Mar. 31, 2009 (*2)
Mar. 31, 2009
Aug. 4, 2009
Mar. 10, 2010
Mar. 30, 2010
Aug. 4, 2010
Sep. 29, 2010

Stock option
grantedStock option
expired to date(*1)

Stock option
exercised

Stock option
outstanding

1,355,000
200,000
400,000
200,000
1,090,000
630,000
380,000
510,000
180,000
490,000
900,000
85,000470,000
350,000
360,000
420,000
90,0008,110,000(344,895)(63,230)(112,690)(42,000)(543,900)(340,390)(175,990)(300,130)(105,490)(45,350)(60,000)(8,500)(42,840)(2,185,405)(1,010,105)(136,770)(47,400)(1,194,275)

287,310
110,600
546,100
289,610204,010
209,870
74,510444,650
840,000
76,500427,160
350,000
360,000
420,000
90,0004,730,320

Exercise price
￦

8,800
9,000
13,30011,90013,90014,50013,90013,00013,500
5,800
7,300
6,300
10,90013,20013,50012,40013,500Exercise period
Mar. 8, 2007 ~ Mar. 7, 2010
Jun. 30, 2007 ~ Jun. 29, 2010
Mar. 8, 2008 ~ Mar. 7, 2011
Aug. 2, 2008 ~ Aug. 1, 2011
Mar. 9, 2009 ~ Mar. 8, 2012
Mar. 30, 2009 ~ Mar. 29, 2012
Aug. 11, 2009 ~ Aug. 10, 2012
Mar. 12, 2010 ~ Mar. 11, 2013
Aug. 2, 2010 ~ Aug. 1, 2013
Mar. 13, 2011 ~ Mar. 12, 2016
Apr. 1, 2011 ~ Mar. 31, 2016
Apr. 1, 2011 ~ Mar. 31, 2016
Aug. 5, 2011 ~ Aug. 4, 2016
Mar. 11, 2013 ~ Mar. 10, 2017
Mar. 31, 2013 ~ Mar. 30, 2017
Aug. 5, 2013 ~ Aug. 4, 2017
Sep. 30, 2013 ~ Sep. 29, 2017(*1) Actual number of stock options that expired as a result of retirement or business performance. The expected number of stock options that will expire
as a result of business performance and others is considered together with the actual number of expired stock options when calculating the stockcompensation cost.
(*2) The exercise price is adjusted from ￦6,300 to ￦7,300, in accordance with the resolution of the oard of directors.
When the stock options are exercised, the Bank has the option to settle either through issuance of new shares or treasury stock, or through payment of cash
equivalent to the difference between the market price and the exercise price. The number of exercisable stock option is determined in accordance with the
management performance and the calculation criteria for the number of exercisable shares.
The intrinsic value of compensation cost granted before December 31, 2006 is the difference between the market price and the exercise price pursuant toInterpretations on SKAS 39-35 - Accounting for Stock Options, and the fair value of compensation cost granted after January 1, 2007, is estimated by option
pricing models pursuant to SKAS No.22 - Share-Based Payment. As a result, the pricing models of stock option of the Bank are categorized as the intrinsic
value pricing model and the fair value pricing model. The details of these models as of December 31, 2010 are as follows (Unit: In Won):
Pricing based on the intrinsic value pricing model
Grant dateMar. 7, 2005
Jun. 29, 2005
Mar. 7, 2006
Aug. 1, 2006

Market price (*)
￦11,975
11,975
11,975
11,975

Exercise price
￦

8,800
9,000
13,30011,900Intrinsic value
￦

3,175
2,975
75

(*) Market price represents an average of the weighted average prices for two months, one month and one week in accordance with the Bank’s pricing
method.

103

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Pricing based on the fair value pricing model – Black-Scholes Model
Grant date

Risk free rate (%)

Expected exercise
period (year) (*1)

Volatility of theunderlying stock
price (%) (*2)

Expected dividendrate (%) (*3)

0.98
1.15
2.21
2.98
3.07
3.85
3.87
3.87
3.99
4.11
4.12
4.15
4.16

4.16
4.16
4.16
4.16
4.16
6.16
6.16
6.16
6.16
6.16
6.16
6.16
6.16

25.18
23.94
23.89
30.19
38.60
43.11
42.93
42.93
42.26
41.79
41.64
40.92
40.59

3.44
3.44
3.44
3.44
3.44
3.44
3.44
3.44
3.44
3.44
3.44
3.44
3.44

Mar. 8, 2007
Mar. 29, 2007
Aug. 10, 2007
Mar. 11, 2008
Aug. 1, 2008
Mar. 12, 2009
Mar. 31, 2009
Mar. 31, 2009
Aug. 4, 2009
Mar. 10, 2010
Mar. 30, 2010
Aug. 4, 2010
Sep. 29, 2010

Exercised price
13,90014,50013,90013,00013,500
5,800
7,300
6,300
10,90013,20013,50012,40013,500￦Fair value
￦

110
68
298
1,112
1,652
5,961
5,212
5,695
3,901
3,409
3,342
3,616
3,368

(*1) The expected exercise period is measured based on the probability of the options being exercised which is estimated based on historical experience.
(*2) The volatility of the underlying stock price is measured based on the historical data.
(*3) The expected dividend rate is measured based on the average of 2007, 2008 and 2009.
The changes in long-term accrued expenses recognized for stock option for the year ended December 31, 2010 are as follows (Unit: In millions):
Beginning balance￦
11,026Long-term accrued expenses

Increase￦

Decrease-(1,935)￦Ending balance
￦

9,091

(2) The equity linked special incentive (Rose Bonus, Rose Share)
The Bank granted the equity linked special incentive to employees for the purpose of motivation to improve long-term performance. The equity linked special
incentive as of December 31, 2010 is as follows (Unit: in Won, shares):
Grant date

Rose Bonus

Rose ShareJul. 15, 2005
Dec. 21, 2006
Dec. 12, 2007
Dec. 11, 2009
Aug. 4, 2010
Feb. 19, 2010
Feb. 19, 2010
Mar. 19, 2010
Mar. 19, 2010
Aug. 11, 2010
Aug. 11, 2010

Stock option
grantedStock option
expired todate

Stock option
exercised
(*1)

Stock
optionoutstanding

3,024,400
1,496,510
614,800
1,353,240
794,660
35,06535,065
18,265
18,265
12,695
12,695
7,415,660(55,206)(32,428)(22,254)(21,662)(4,902)(136,452)(2,969,194)(1,344,222)(472,646)(6,968)(838)(4,793,868)

119,860
119,900
1,324,610
788,92035,06535,065
18,265
18,265
12,695
12,695
2,485,340

Exercise
price
￦

￦

-

Exercise period
Jul. 15, 2007 ~ Jul. 14, 2010
Dec. 21, 2008 ~ Dec. 20, 2011
Dec. 12, 2009 ~ Dec. 11, 2012
Dec. 11, 2011 ~ Dec. 10, 2014
Aug. 4, 2012 ~ Aug. 3, 2015
Feb. 19, 2011 ~ Feb. 18, 2015
Feb. 19, 2012 ~ Feb. 18, 2015
Mar. 19, 2011 ~ Mar. 18, 2015
Mar. 19, 2012 ~ Mar. 18, 2015
Aug. 11, 2011 ~ Aug. 10, 2015
Aug. 11, 2012 ~ Aug. 10, 2015(*1) Exercisable if an employee resigns within two years from the grant date except for the cases of death, retirement (because of age), position change orupon the occurrence of certain events imputable to the employee.
The equity linked special incentive is settled in cash. It can be exercised from two years after the grant date for the following three years. However, the equity
linked special incentive, granted in 2010 can be exercised within 5 years from the grant date with the certain deferral payment period of one to two years.
The intrinsic value of “Equity linked special incentive” granted before December 31, 2006 is the difference between the market price and the exercise pricepursuant to Interpretations on SKAS 39-35 - Accounting for Stock Options, and the fair value of “Equity linked special incentive” granted after January 1,
2007, is estimated by option pricing models pursuant to SKAS No.22 - Share-Based Payment. As a result, the pricing models of stock option of the Bank are
categorized as the intrinsic value pricing model and the fair value pricing model.
The details of these models as of December 31, 2010 are as follows (Unit: In Won):

104

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Pricing based on the intrinsic value pricing model
Grant date

Rose Price (*1)

Dec. 21, 2006

Exercise price

14,500￦Intrinsic value-￦

14,500￦(*1) The Rose Price is measured as weighted average price (7: 5) of the average stock price for previous five days and net asset value of most recent quarterly
settlement as of the last day of the previous month of December 31, 2010.
Pricing based on the fair value pricing model – Binomial Model
Grant date
Dec. 11, 2009
Aug. 4, 2010

Risk free rate
(%)
2.73
3.04

Expected
Volatility of the
Expected
exercise underlying stock dividend rate (%)
period (year)
price (%) (*1)
(*2)
1.00
1.60

35.16
42.44

-

Exercised price￦￦

Fair value (*3)-

￦￦

15,30014,800(*1) The volatility of the underlying stock price is measured based on the volatility in the past.
(*2) The expected dividend rate is zero, since a grantee of “Rose bonus” has the right to be provided with dividends from grant date to excise date.
(*3) G enerally, the fair value and the intrinsic value is the same. But the fair value and the intrinsic value of the equity linked special incentive granted on
December 11, 2009 and August 4, 2010 are not the same, since Rose Price is calculated using the upper and lowest limit. Also, the option exercised
price is "zero".
The fair value and the intrinsic value of the equity linked special incentive granted in current year and on December 12, 2007 is the same as ￦14,500, since
the option exercised price is "zero" without any other qualification.
The changes in long -term accrued expenses recognized for “Equity linked special incentive” for the year ended December 31, 2010 are as follows (Unit: In
millions):
Long-term accrued expenses

Beginning balance￦
15,601

Increase￦

13,234

Decrease￦(11,212)Ending balance￦

17,623

105

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

17. CONTINGENCIES AND MAJOR CONTRACTS:(1) Derivative Instruments
The notional amounts outstanding for derivative contracts as of December 31, 2010 and 2009 are as follows (Unit: In millions):
2010

Type (*)
Currency:
Currency forwards
Currency futures
Currency swaps

Trading￦

Currency options
purchased
Currency options soldInterest rate:
Interest rate futures
Interest rate swaps
Index:
Stock index futures
Stock index option
purchased
Stock index option sold
Credit:Credit derivatives sold￦

36,994,684
1,989,638
6,912,220

2009

Hedging
￦

-

Total
￦

36,994,684
1,989,638
6,912,220

Trading￦

38,504,715
1,612,152
8,323,470

Hedging
￦

-

Total
￦

38,504,715
1,612,152
8,323,470

1,362,410-

1,362,410

2,372,032-

2,372,032

1,425,458
48,684,410-

1,425,458
48,684,410

2,054,884
52,867,253-

2,054,884
52,867,253

827,329
42,379,678
43,207,007

624,117624,117827,329
43,003,795
43,831,124

1,437,266
50,652,501
52,089,767

433,180
433,180

1,437,266
51,085,681
52,522,947

9,010

-

9,010

6,898

-

6,898

-

-

-

2,450

-

2,450

24,10633,116-24,10633,11633,741
43,089-33,741
43,08991,924,533￦

624,117￦92,548,650￦

33,484
105,033,593￦

433,180￦

33,484105,466,773(*) For transactions between Won and foreign currencies, unsettled amount of transaction is presented using the basic foreign exchange rate based on thecontract amount in foreign currencies. For transactions between foreign currencies and foreign currencies, unsettled amount is presented using thebasic foreign exchange rate based on foreign currencies purchased at the date of the statement of financial position.

106

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

The details of derivatives as of December 31, 2010, and the valuation of derivatives for the year ended December 31, 2010 are as follows (Unit: In millions):
Statement of income
TradingType

HedgingGain on Loss on valuvaluation
ation

Currency:
Currency
forwards

Statement of financial position

Gain onvaluation

Total
Loss onvaluation

Gain onvaluation

Loss onvaluation

Liabilities

Assets352,388 ￦358,481 ￦

- ￦

- ￦

352,388 ￦358,481 ￦454,041 ￦

346,502

Currency swaps

200,744

77,421--200,744

77,421

326,637

236,184

Currency options
purchased

2,737

17,683

-

-

2,737

17,68332,626-

Currency options
sold18,335

5,828

-

-

18,335

5,828-

37,484574,204

459,413--574,204

459,413

813,304

620,170

188,513

194,855

2,172

116

190,685

194,971

265,394

328,681

14

969

-

-

14

969

-

2,175

762,731 ￦655,237 ￦2,172 ￦

116 ￦

764,903 ￦￦Interest:
Interest rate
swaps
Index:
Stock index
option sold￦

655,353 ￦ 1,078,698 ￦

951,026

The Bank uses various derivative instruments for its trading activities, including interest rate and foreign exchange swaps, futures, forwards and options,
to manage the interest rate characteristics of certain assets or liabilities and to economically hedge against the effects of fluctuations in interest rates orforeign exchange rates.
The Bank holds derivative instruments which it accounts for as fair value hedges in connection to its securities and debentures. The Bank recognized ￦1,207
million and ￦752 million of losses on valuation of derivatives of securities and debentures, respectively, and ￦112 million of gains on valuation of derivativesof securities for the year ended December 31, 2010. See Note 12 (6). The difference between gain (loss) on valuation of derivatives and gain (loss) on valuationof hedged items is due to certain hedge ineffectiveness. In addition, the Bank has interest rate swaps which hedge against exposure from interest rate
fluctuations.

107

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

The details of derivatives as of December 31, 2009 and the valuation of derivatives for the year ended December 31, 2009 are as follows (Unit: In millions):
Statement of income
Trading

Type

Currency:
Currency
forwards

Gain onvaluation

Statement of financial position

Hedging
Loss onvaluation

Gain onvaluation

Total
Loss onvaluation

Gain onvaluation

Loss onvaluation

AssetsLiabilities

415,888 ￦445,320 ￦

- ￦

- ￦

415,888 ￦445,320 ￦868,186 ￦362,642

Currency
swaps

349,525

162,319--

349,525

162,319

327,192

638,964

Currency
optionspurchased

11,75344,624--

11,75344,624

98,345-Currency
options
sold27,051

4,757

-

-

27,051

4,757-

56,226804,217657,020--804,217657,020

1,293,723

1,057,832

369,147

305,586

2,299

7,246

371,446

312,832

305,452

433,280

Stock index
optionpurchased

660

-

-

-

660

-

788

-

Stock index
option sold

176

4,231

-

-

176

4,231

-

15,512

836

4,231

-

-

836

4,231

788

15,512

25

-

-

-

25

-

25

-

1,174,225 ￦966,837 ￦2,299 ￦

7,246 ￦

1,176,524 ￦

974,083 ￦

1,599,988 ￦￦Interest:
Interest rate
swaps
Index:

Credit:Credit swaps
sold￦1,506,624

The Bank uses various derivative instruments for its trading activities, including interest rate and foreign exchange swaps, futures, forwards and options,
to manage the interest rate characteristics of certain assets or liabilities and to economically hedge against the effects of fluctuations in interest rates orforeign exchange rates.
The Bank holds derivative instruments which it accounts for as fair value hedges in connection to its securities and debentures. The Bank recognized ￦6,438
million of gains on valuation of derivatives of securities and debentures, and ￦1,904 million of losses on valuation of derivatives of securities for the year
ended December 31, 2009. See Note 12 (6). In addition, the Bank has interest rate swaps which hedge against exposure from interest rate fluctuations.
(2) The Bank holds written-off loans, on which the relevant statute of limitations has not expired or the Bank has not lost its claim rights toborrowers and guarantors, amounting to ￦1,073,514 million and ￦1,683,663 million as of December 31, 2010 and 2009, respectively.
(3) Endorsed notes with collateral amounted to ￦69,770 million and ￦55,992 million as of December 31, 2010 and 2009, respectively. See Note
13 (3). Endorsed notes without collateral held at the merchant banking accounted amounting to ￦7,123,950 million and ￦7,467,939 million asof December 31, 2010 and 2009, respectively.
(4) The Bank is obliged to repurchase some conditions of the loans previously sold to the Korea Asset Management Corporation (“KAMCO”)
under certain such as the following:- When it is considered impossible to collect the loans and interest due to delay in repayment of loans and interest over six months.
- When it is considered impossible to collect the loans and interest due to the abrogation of courtreceivership process and the cancellation of mediation.
As of December 31, 2010, KAMCO and other loan purchasers may exercise the resale option for loans amounting to ￦1,157 million. An additional loss or
profit may occur, depending on the loan classification on valuation of loans or final arrangement on loans when KAMCO and other loan purchasers exercise
their repurchase agreement.

108

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(5) Loans sold to asset backed securitization (ABS) (Unit: In millions)Classification

Date

KEB 17th Securitization Specialty Co., Ltd.

Dec. 28, 2009

Value of loans￦

110,402

Subordinateddebentures (*1)

Sale price￦

79,000￦11,930(*1) The subordinated debentures are included in sale price.
(6) The Bank has pending litigation as a plaintiff or a defendant in various legal actions arising from the normal course of operation. The
aggregate amounts of these claims brought by and against the Bank are approximately ￦252,592 million (670 cases) and ￦660,980 million (132cases), respectively, as of December 31, 2010. The Bank recognized ￦29,832 million of provisions related to these lawsuits. See Note 13 (5).
Major on-going litigations related to the Bank’s contingencies are as follows:
Defendant

Plaintiff

KEB

Lim Asia MultiStrategy Fund Inc.

KEB

Criminal Procedure(*1)

Amount￦Content

Progress

7,996

Money Collected claim

Lost the case in the first trial, partially
won in the second trial, pending in thethird trial-

Violation of the Securities Exchange
Act related to the merger with KEB
Credit Service Co., Ltd.

Ruled against the Bank in the first trial,
dismissed the first trial ruling in thesecond trial, and remanded the case to
the High Court in the third trial(*1) In February 2008, the local court fined the Bank ￦25 billion for a violation of the Securities Exchange Act related to the merger with KEB Credit Service
Co., Ltd. In June 2008, the High Court ruled in favor of the Bank. On March 11, 2011, the Supreme Court remanded the case to the High court for retrial.
The bank accounted for ￦25 billion as allowance for other liabilities.
In addition, Olympus Capital KEB Cards Ltd. and others (“the applicants”) asked for arbitration compensation of maximum ￦645.5 billion (included ￦220.2
billion of the overdue interest) against the Bank and 5 companies related to Lone Star (“the Banks”) through the Court of International Arbitration.
The applicants argue that the Banks violated the obligation of shareholders’ contract (on December 1, 1999) so the contract of share transfer (on November
20, 2003) is invalid. The result of the arbitration is presently unpredictable.
The Bank believes that the outcome of these matters will not have a material impact on the Bank’s financial position or operations.
(7) Loans to companies under workout program
The loans to companies under court receivership or workout program amounted to ￦2,664,724 million as of December 31, 2010. Actual loss on these loans
can be different from the Bank’s estimation.
(8) Debt to equity swap of Hynix Semiconductor Inc.
The Bank’s outstanding loans (including acceptances and guarantees) and available-for-sale securities convertible to equity securities with respect to Hynix
Semiconductor Inc. (“Hynix”) as of December 31, 2010 amount to ￦314,755 million and ￦458,967 million, respectively. As of December 31, 2010, the Bank’sloans for Hynix are classified as normal. Joint control procedure for Hynix is completed on July 12, 2005. Also, the Bank’s 20,185 thousand shares of Hynix
are restricted for sale until completion of M&A and the gain on valuation of available-for-sale securities amounting to ￦255,470 million is accounted asother comprehensive income as of December 31, 2010.
(9) Debt to equity swap of Hyundai Engineering & Construction Co., Ltd.
As of December 31, 2010, the Bank has loans (including acceptances and guarantees) of ￦941,375 million and available-for-sale securities of ￦622,003
million with respect to Hyundai Engineering & Construction Co., Ltd. and the Bank’s loans for Hyundai Engineering & Construction Co., Ltd. are classified
as normal. The Bank has 9,715 thousand shares of Hyundai Engineering & Construction Co., Ltd., which are restricted for sale until completion of M&A of
Hyundai Engineering & Construction Co., Ltd. With regards to these securities, the gain on valuation of available-for-sale securities amounting to ￦346,493
million is accounted as other comprehensive income as of December 31, 2010.
(10) Commitments related to credit card business
The Bank has entered into trademark license (membership) agreements with VISA Worldwide Pte. Limited in 2008, under which the rights have beentransferred from VISA International Service Association and Master Card International Incorporated in 1993, and JCB International Service Associationin 1997. The Bank pays and receives certain amounts of fees and commissions in connection with the income and expense incurred pertaining to these
agreements.
The Bank has entered into an alliance agreement with KDB Capital for credit card business and allocated the fee income related to the credit card businessalliance at a fixed rate.

109

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(11) Contingencies related to Project Financing (PF)1) ABCP purchase agreements and unused credit limits relating to PF as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Type

2010

ABCP purchase agreement
Unused credit limit on PF loan￦￦

597,900
372,516
970,416

2009￦￦

825,000
440,6111,265,611

2) The top 10 ABCP purchase agreements relating to PF and unused credit limit on PF loans as of December 31, 2010 are as follows (Unit: In millions):
Location
Gyeonggi-do
Gyeongsangnam-do
Ulsan
Seoul
Gyeonggi-do
Seoul
Gyeonggi-do
Seoul
Gyeongsangnam-do
Gyeonggi-do

ABCP purchase agreement orunused credit limit￦
70,00060,00057,10051,40050,00050,00050,00047,40046,50040,000￦522,400

PeriodType

Feb. 5, 2010 ~ Feb. 5, 2011
Aug. 27, 2010 ~ Aug. 27, 2012
Apr. 1, 2009 ~ Aug. 1, 2012
Apr. 25, 2007 ~ Jan. 25, 2011
Nov. 9, 2007 ~ Nov. 9, 2011
Jan. 30, 2008 ~ May 30, 2011
Jun. 24, 2010 ~ Dec. 29, 2012
Oct. 26, 2007 ~ Apr. 26, 2011
Sep. 14, 2007 ~ Aug. 16, 2012
May 7, 2007 ~ Mar. 16, 2012

ABCP
ABCP
ABCP
ABCP
ABCP
ABCP
PF Loan
ABCP
ABCP
ABCP

110

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

1 8 . A S S E T S A N D L I A B I L I T I E S D E N O M I N AT E D I N F O R E I G N C U R R E N C I E S :Major monetary assets and liabilities denominated in foreign currencies as of December 31, 2010 and 2009 are as follows (Unit: In thousands of U.S. dollars,in millions of Won):
2010
Classification
Assets:Cash and due from bank:Foreign currencies

USD equivalent (*)$

Due from banks in foreign
currencies

362,435

2009
Translation into Won￦

412,777

USD equivalent (*)$

329,355

Translation into Won￦

384,555

2,040,864

2,324,340

1,430,021

1,669,692

43,303
343,646
90,53349,318391,378
103,108

39,955709,147
170,205

46,650828,000
198,731

838,100

954,512442,809517,023

1,975,828
2,832,073
2,923

2,250,271
3,225,448
3,329

1,374,137
2,240,651
3,623

1,604,443
2,616,184
4,230

3,383,891

3,853,913

3,422,652

3,996,289$

57,815
6,044,671
89,49257,000(52,254)
18,110,320￦

65,8466,884,276
101,922
64,917(59,512)
20,625,843$

54,7706,751,752
41,79687,000(69,507)
17,028,366￦

63,9507,883,346
48,800101,581(81,156)
19,882,318$

6,664,243￦

7,589,906$

4,339,343￦

5,066,617

Securities:
Trading securities
Available-for-sale securities
Held-to-maturity securities
Securities using the equity
methodLoans:
Call loans
Domestic import usance bill
Credit card receivables
Bills bought in foreign
currencies
Bills bought in Won
Loans in foreign currencies
Factoring receivables
Private placed bonds(Reserve for bad debts)

Liabilities:
Deposits:
Demand deposits in foreign
currencies
Savings deposits in foreign
currencies

4,031,587

4,591,575

7,271,574

8,490,290

Borrowings in foreign
currencies

5,093,876

5,801,415

4,695,444

5,482,401

Call money in foreign
currencies

1,024,312

1,166,589

1,189,282

1,388,605

Debentures in foreign
currencies

1,203,330

1,370,472

992,827

1,159,225

234,409

266,968

227,358

265,464

Pension benefit payable

5,624

6,405

3,923

4,580

Asset under management ofpension benefits(3,146)(3,583)(2,773)(3,238)Borrowings:

Other liabilities:
Accrued expenses in foreign
currencies$

18,254,235￦

20,789,747$

18,716,978￦21,853,944(*) Foreign currencies other than U.S. Dollars are converted into U.S. Dollars at the basic rates of exchange at the date of the statement of financial position.

111

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

1 9 . O P E R AT I N G R E V E N U E A N D E X P E N S E S :(1) Interest income and expenses
The average balance of the interest bearing assets and liabilities, and the related interest income and expenses as of and for the years ended
December 31, 2010 and 2009 are as follows (Unit: In millions):
As of and for the year ended Dec. 31, 2010
Classification
Interest income:Due from banks (*1)
Securities (*2)
Loans

Average balance￦￦
Interest expense:
Deposits
Borrowings￦￦

4,012,614
11,146,369
64,971,303
80,130,286

58,997,915
15,580,560
74,578,475

Interest income/expense

Interest rate (%)

92,704
418,8613,613,015
4,124,580

2.31
3.76
5.56
5.15

1,337,542
460,603
1,798,145

2.27
2.96
2.41

￦

￦

￦
￦

(*1) Excludes the average balance of reserve deposits with BOK(*2) Excludes the average balance of stocks and beneficiary certificates
As of and for the year ended Dec. 31, 2009Classification
Interest income:Due from banks (*1)
Securities (*2)
Loans

Average balance
4,070,307
11,882,350
64,263,057
80,215,714￦￦
Interest expense:
Deposits
Borrowings￦￦

53,620,633
21,462,963
75,083,596

Interest income/expense

Interest rate (%)

87,311
476,298
3,896,372
4,459,981

2.15
4.01
6.06
5.56

1,545,130
848,8222,393,952

2.88
3.95
3.19

￦

￦

￦
￦

(*1) Excludes the average balance of reserve deposits with BOK(*2) Excludes the average balance of stocks and beneficiary certificates(2) Gain and loss on trading and valuation of derivatives
Details of gain and loss on trading and valuation of derivatives for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Gain:
Gain on trading of derivatives
Gain on valuation of derivatives

2010
￦
￦

Loss:
Loss on trading of derivatives
Loss on valuation of derivatives

￦
￦

2009

4,433,253
765,015
5,198,268￦

4,467,086
657,312
5,124,398￦￦￦

6,038,691
1,182,962
7,221,653

6,893,369
975,9877,869,356

112

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(3) Commission income and expenses
Details of commission income and expenses for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Commission income:Commission received
Guarantee fees received
Other commission received

2010
￦

￦
Commission expenses:
Commission paid
Other commission paid

￦
￦

2009

435,856
49,72921
485,606￦

71,282
220,618
291,900￦￦￦

421,096
45,425914
467,435

81,421
197,181
278,602(4) Dividend income
Details of dividend income for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions)Classification
Dividend income from trading securities
Dividend income from available-for-sale securities

2010
￦
￦

480
20,221
20,701

2009
￦
￦

93
14,11014,203(5) Other operating revenue and expenses
Details of other operating revenue and expenses for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Other operating revenue:
Profit on operating trust accountReversal of unused credit limit
Operating income of merchant banking accounts

2010
￦

￦
Other operating expenses:
Fund contributions
Provision for reserve for guarantees
Provision for unused credit limit
Provision for other liabilities
Operating expenses of merchant banking accounts￦￦

29,622920
88,198
118,740

183,676
31,89077,00739,719332,292

2009
￦

￦

￦

￦

30,636
111,080
141,716

161,026
23,793
6,046
43,97545,694
280,534(6) General and administrative expenses
General and administrative expenses for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Salaries (see Note 16)
Expenses for fringe benefits
Retirement allowances (see Note 13)
Honorary retirement
Operating expense
Depreciation (see Note 8)
Amortization (see Note 9)
Taxes
RentalEntertainment
Advertising

2010
￦

￦

521,369
177,087
63,575
10,387204,376
69,152
24,00538,872
81,683
10,40935,803
1,236,718

2009
￦

￦

538,986
163,005
59,726
66,882
193,20982,91232,317
38,23177,015
8,888
22,2301,283,401

113

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2 0 . N O N - O P E R AT I N G I N C O M E A N D E X P E N S E S :Non-operating income and expenses for the years ended December 31, 2010 and 2009 consist of (In millions):
Classification
Non-operating income:Gain on disposal of tangible assets
Rental income
Gain on securities using the equity method
Gain on disposal of securities using the equity method
Others2010￦￦
Non-operating expenses:
Loss on disposal of tangible assets
Loss on securities using the equity method
Others

￦

￦

86
2,362
70,01716
45,024
117,505

465
467
57,54858,480

2009
￦

￦

￦

￦

2,662
2,336
55,72042,661
103,379

496
6,304
28,68335,4832 1 . I N C O M E TA X E X P E N S E :(1) The components of income tax expense for the years ended December 31, 2010 and 2009 are summarized as follows (Unit: In millions):
Classification
Income tax currently payable (receivable)
Change in deferred taxes due to temporary differences (*)
Income taxes directly applied to shareholders’ equity
Income tax expense in overseas branches Income tax expense (benefit)(*)The ending balance of deferred income tax liabilities due to temporary
differences
The beginning balance of deferred income tax liabilities due to temporary
differences
Change in deferred taxes due to temporary differences

2010

2009

￦

321,656(35,986)
34,29518,934
338,899￦￦(110,341)
112,861(136,302)
25,176(108,606)￦

166,397￦

202,383￦

202,383￦(35,986)

89,522￦

112,861(2) The income tax on income (loss) before income tax and reconciling items for the years ended December 31, 2010 and 2009 are as
follows (Units: In millions):
Classification
Income before income tax (①)
Burden of taxation (Current applicable rate: 24.2%)
Reconciliation items:
Non-taxable income (￦6,454 million in 2010 and ￦8,126 million in 2009)
Non-deductible expense (￦37,731 million in 2010 and ￦10,559 million in2009)
Tax deduction
Additional income tax and tax refund
Difference due to tax rate
Income tax expense in overseas branches
Sum of reconciliation items
Income tax expense (benefits) (②)
Effective tax rate (②÷①)

2010
￦

￦

1,360,266
329,158

2009￦

783,131
189,494(1,562)(1,966)

9,131

2,555

(13,637)(2,309)(816)
18,934
9,741
338,899
24.91%(17,827)(298,392)(7,646)25,176(298,100)(108,606)
-

￦

114

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(3) Changes in temporary differences for the year ended December 31, 2010, and deferred income tax assets (liabilities) as of December
31, 2010 are as follows (Unit: In millions):
Taxable (deductible) temporary differences
Jan. 1, 2010
(Deductible temporary
differences)
Accrued income￦(7,194)

Deferred income tax assets (liabilities) (*2)

Decrease

Increase

Dec. 31,2010 (*5)(7,194)￦ (57,413)￦ (57,413)￦

Jan. 1, 2010(*1)

￦

(1,741)

Decrease

Increase

Dec. 31,2010(1,741)￦ (13,894)￦ (13,894)￦

Gains or losses related toderivatives(125,396)(125,396)(126,978)(126,978)(29,941)(29,941)(29,781)(29,781)

Gains or losses on valuation of
trading securities(75,850)(75,461)(143,360)(143,749)(17,111)(18,261)(32,856)(31,706)

Gains or losses on valuation ofheld-to-maturity securities(810)(2,914)

(966)

1,138

(210)

(705)

(285)

210

Allowance for other liabilities(*3)

331,572

331,572

387,612387,61272,51772,51779,45579,455Reserve for guarantees

81,115

81,115

109,618

109,618

17,845

17,845

24,11624,116

Deferred loan organization
fees and costs

18,438--18,438

4,462

-

-

4,462

Compensation expense forstock option

11,026

11,026

9,091

9,091

2,426

2,426

2,000

2,000

15,601

15,601

17,623

17,623

3,432

3,432

3,877

3,877

25,23919-

25,220

5,553

5

-

5,548

488,476762,217

198,797
427,165

192,136
387,363481,815
722,415

112,713
169,945

48,10993,68643,80776,439108,411
152,698

Gain on valuation of availablefor-sale securities(1,021,568)(1,021,568)(865,077)(865,077)(224,690)(224,690)(190,354)(190,354)

Loss on valuation of held-tomaturity securities

21

21

-

-

5

5

-

-

Changes in equity on equity
method(5,891)(5,891)(6,446)(6,446)(1,296)(1,296)(1,418)(1,418)

Negative changes in equity
on equity method

12

12

401

401

3

3

89

89

Gain on revaluation of tangible ￦(553,984)
asset￦ (553,984)￦ (553,984)￦ (553,984)￦ (121,876)￦ (121,876)￦ (121,876)￦ (121,876)(1,581,410)(1,581,410)(1,425,106)(1,425,106)(347,854)(347,854)(313,559)(313,559)(25,163)￦ (844,356) ￦(1,154,245) ￦(1,037,743)(25,163)￦ (727,854)(5,536)￦ (183,445)￦ (254,168)￦ (237,120)(5,536)￦ (166,397)

Long term accrued expenses
Loss on revaluation of
tangible asset
Others(Accumulated othercomprehensive income) (*4)(Capital surplus due to using
equity method) (*4)
Other capital surplus(*1) The difference amounting to ￦67,110 million (￦18,938 million of the effect of deferred income tax) resulting from the final income tax return for
December 31, 2009 is adjusted.
(*2) The tax rate used for calculating deferred income tax assets and liabilities is the expected tax rate applicable to the period for which thetemporary differences are expected to reverse (24.2% in 2011 or prior and 22% in 2012 or thereafter).
(*3) T he allowance for other liabilities, recognized due to the merger with KEB Credit Service Co., Ltd. amounting to ￦25,000 million and collusion
with other financial institutions in connection with foreign exchange commission amounting to ￦1,496 million, is excluded from expense and will
not be deductible from future taxable income because it is reported as a permanent difference. The Bank did not recognize a related deferredincome tax asset as it failed to meet the requirement of the deferred tax asset recognition.
(*4) The deferred income tax assets and liabilities relating accumulated other comprehensive income or capital surplus are added or deducted
directly from accumulated other comprehensive income or capital surplus.
(*5) The estimated period on realization of the temporary differences is as follows (Unit: In millions):

115

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Dec. 31, 2010
(Deductible temporary differences)
Accrued income
Gains or losses related to derivatives
Gains or losses on valuation of trading securities
Gains or losses on valuation of held-to-maturity securities
Allowance for other liability
Reserve for guarantees
Deferred loan organization fees and costs
Compensation expense for stock option
Long term accrued expenses
Loss on revaluation of tangible assets
Others￦(Accumulated other comprehensive income)Gain on valuation of available-for-sale securities
Loss on valuation of held-to-maturity securities
Changes in equity on equity method
Negative changes in equity on equity method
Gain on revaluation of tangible assets(57,413)(126,978)(143,749)
1,138
387,612
109,618
18,438
9,091
17,62325,220481,815
722,4152011￦(865,077)(6,446)401(553,984)(1,425,106)(Capital surplus due to using equity method)
Other capital surplus￦(25,163)(727,854)

2012 or after(57,413)(83,888)(3,673)(1,853)
18,438109,584(18,805)￦(1,665)(1,665)￦(43,090)(140,076)
2,991
387,612
109,618
9,091
17,62325,220372,231741,220(863,412)(6,446)401(553,984)(1,423,441)(20,470)￦(25,163)(707,384)(4) There is no temporary difference due to deferred income tax liabilities as of December 31, 2010.
(5) Prepaid income tax and income tax payables as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification2010

Prepaid income tax before offset
Income tax payables before offset
Prepaid income tax after offset
Income tax payables after offset

￦

2009

18,870185,708
637
167,475￦

27,827
194,218
1,185
167,576

22. EARNINGS PER SHARE:(1) Basic net income per share
Basic income per share is calculated for common stock by dividing net income available to common shareholders by the weighted average numberof outstanding common stock. The basic net income per share for the years ended December 31, 2010 and 2009 is as follows (Unit: In Won, shares):Classification
Net income
Weighted average number of common shares
Basic net income per share

￦
￦

2010
1,021,367 millions
644,906,826
1,584

￦
￦

2009
891,737 millions
644,906,826
1,383

The weighted average number of outstanding common stock is 644,906,826 and there is no change on the number of outstanding common stock forthe year ended December 31, 2010.
(2) Diluted net income per share
Diluted net income per share represents diluted net income divided by the number of common shares and diluted securities. There is no diluted
security for recent two years. The diluted net income per share; therefore, is the same as basic net income per share.

116

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2 3 . S E G M E N T I N FO R M AT I O N :(1) Operating segments
1) General information of operating segments
The Bank’s operating segments are as follows:
Classification

Operation

Consumer
Corporate
Foreign
Credit card
OthersConsumer banking
Corporate banking
International financial business
Credit card operation
Treasury operation of investment in securities (including derivatives), management and others

2) As of and for the years ended December 31, 2010 and 2009, financial information on the Bank’s operating segments is as follows (Unit: In millions):
Income before
provision

Classification
Consumer
Corporate
Foreign
Credit card
Others￦￦661,247
1,191,383
186,510258,514(295,473)
2,002,181

Loans (*1)
￦￦

23,785,036
29,244,761
4,364,575
2,581,162
3,807,826
63,783,360

Income before
provision

Securities (*2)
￦￦939,868
1,091,715
1,817
11,992,731
14,026,131￦￦

682,777
1,022,394
104,495
280,688(531,098)
1,559,256

Loans (*1)
￦￦

22,617,581
30,345,667
5,276,500
2,423,245
3,565,471
64,228,464

Securities (*2)
￦￦

1,170,762
818,079
4,372
12,930,635
14,923,848(*1) Includes allowance for possible loan losses, deferred loan organization fees & costs which are not deducted, and loans of merchant banking
accounts.
(*2) Includes trading securities of merchant banking accounts
3) Adjustments to income before provision
Details of adjustment of income before liabilities reserve for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification

2010

Income before provision
Provision for allowance and reserve (*)
Accrued severance benefits
Income tax expense (benefit)
Net income

￦

￦

2009

2,002,181
578,340
63,575
338,899
1,021,367

1,559,256
716,399
59,726(108,606)
891,737￦￦(*) Reserves for (provision of) acceptances and guarantees, unused credit limit and allowance for other liabilities (including merchant banking
accounts) are included.
(2) Geographical segments
1) General information of geographical segments
The Bank operates domestic banks for local residents and overseas banks for Korean residing abroad and overseas companies.
2) As of and for the years ended December 31, 2010 and 2009, financial information on the Bank’s geographical segments is as follows (Unit: In
millions):
2010

Classification
Operating revenue
Operating income
Loans (*1)
Securities (*2)

￦

Domestic

Overseas

11,795,314 ￦
1,159,041
59,418,785
13,781,815

434,490
142,200
4,364,575
244,316

2009
Total
￦

12,229,804
1,301,241
63,783,360
14,026,131

Domestic￦

15,855,572
582,616
58,951,964
14,534,788

Overseas￦532,670
132,619
5,276,500
389,060

Total￦

16,388,242
715,235
64,228,464
14,923,848(*1) Includes allowance for possible loan losses, deferred loan organization fees & costs which are not deducted, and loans of merchant banking
accounts(*2) Includes trading securities of merchant banking accounts

117

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2 4 . R E L AT E D PA R T Y T R A N S A CT I O N S :(1) The parent company and subsidiaries of the Bank as of December 31, 2010 are as follows:
Company

Relation

LSF-KEB Holdings, SCA
KEBC
KEBF
KEBIS
KEBOC
KEBA
KEBDAGKEBIKEBBNYFinCoLAFinCoUSAIKEBAFKEB China

Parent company
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary(2) Significant balances made in the normal course of business with related parties as of December 31, 2010 and 2009 are summarized asfollows (Unit: In millions):
Classification

KEBC

KEBF

KEBOC

KEBA

KEBDAGKEBI KEB China

Trust

Other
subsidiaries

Dec. 31,
2010

Assets:Due from banks
in foreign
currencies￦- ￦ 2,673 ￦ 8,831 ￦

1,113 ￦ 13,748 ￦276 ￦ 45,876 ￦- ￦- ￦ 72,517

Loan in Won

30,300

-

-

-

-

-

-

-

-

30,300Loans in foreign
currencies (*1)

25,993--

180,448

91,679-76,428-459,724834,272

Allowance forpossible loan
losses

(478)

-

-

-

-

-

-

-

-

(478)

Other assets

Liabilities:
Deposits in Won

54
1
521
58
￦ 55,869 ￦ 2,674 ￦ 8,831 ￦ 182,082 ￦ 105,485 ￦

￦

76 ￦

114 ￦ 3,962 ￦

5 ￦

8 ￦

29,561276 ￦ 151,865 ￦

- ￦

- ￦

543
30,738- ￦ 460,267 ￦ 967,349

- ￦

- ￦

4,165

Deposits inforeigncurrencies

411

13,213

-

1

617

859

1,440

-

456

16,997

Borrowings
in foreign
currencies

-

-

-

11,538

176,551

39,23997,322-

4,100

328,750

Other liabilities
￦

4,630
30
419
134,247
5,117 ￦ 13,327 ￦ 3,962 ￦ 11,574 ￦ 177,595 ￦ 40,098 ￦ 98,762 ￦ 134,247 ￦(*1) Call loans in foreign currencies are included.

139,326
4,556 ￦ 489,238

118

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009Classification

KEBC

Assets:Due from banks
in Won

KEBF

- ￦

￦

KEBOC

326 ￦

KEBA

- ￦

KEBDAG

- ￦

KEBI

- ￦

- ￦

Dec. 31,
2009

Other
subsidiaries

Trust

- ￦

- ￦

326

Due from banks inforeign currencies

-

2,977

1,196

693

22,281308--

27,455

Trading securities (*1)
Loan in Won

40,00036,900

-

-

-

-

-

-

-

40,00036,900Loans in foreign
currencies (*2)

31,658--204,89085,883--472,180

794,611

Allowance forpossible loan
losses

(583)

-

-

-

-

-

-

-

(583)

61
￦ 108,036 ￦

13,304 ￦

124 ￦

22 ￦

Other assets

927
99
1,196 ￦ 206,510 ￦ 108,263 ￦

308 ￦

1,766
2,854
- ￦ 473,946 ￦ 901,563

Liabilities:
Deposits in Won
Deposits inforeign currencies

￦

￦

4 ￦

- ￦

- ￦

- ￦

- ￦

5,441

28,723

7,704-

29,26228,960

331

-

2,105

97,085---36,675

129,705

106,540--

272,920

3,350
32,197 ￦

7,726 ￦

5,291 ￦

Borrowings
inforeign
currencies
Other liabilities

5,291 ￦

1,560
312
222
133,332
67,501 ￦ 158,977 ￦ 107,093 ￦ 133,332 ￦

138,776
2,105 ￦ 514,222(*1) Trading securities of merchant banking accounts(*2) Includes call loans in foreign currencies(3) Significant transactions with related parties for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification

KEBC

KEBF

KEBOC

KEBA

KEBDAGKEBI KEB China

Trust

Other
subsidiaries

Dec. 31,
2010

Revenue:
Interest income
in Won3,634 ￦

- ￦

- ￦

1,357

-

-

2,577

974

19

165

-

2,578

7,670

Commission
income in Won

-

9

-

-

-

-

-

-

-

9

Commission
income in foreign
currencies

-

-

-

616

4,435

558

-

-

-

5,609

￦

Interest income inforeign currencies

Other revenue
Expenses:
Interest expenses
in WonInterest expenses
in foreign
currencies
Commission
expense in Won
Commission
expense in foreign
currencies

- ￦

- ￦

- ￦

- ￦

- ￦

￦

3,183
8,174 ￦

9 ￦- ￦3,193 ￦

54
5,463 ￦

577 ￦

165 ￦

9,399
9,399 ￦

￦

- ￦

16 ￦

- ￦

- ￦

- ￦

- ￦

- ￦

1,261 ￦

2

13

61

1,955

-

304

-

-

-

50

-

162

3,235

-

- ￦

3,634

12,636
2,578 ￦ 29,558
2 ￦

1,277

591

128

-

-

5,987

-

-

-

-

304

-

-

-

81

293

119

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009Classification
Provision forpossibleloan losses
Other expenses￦

Classification

KEBC

KEBF

KEBOC

KEBA

KEBDAG

(104)

-

-

-

-

-

383 ￦

61 ￦

128
2,245 ￦

3,235 ￦

591 ￦

KEBA

KEBDAG

3,079
2,977 ￦

KEBC

Revenue:
Interest income ￦in WonInterest income
in foreign
currencies

KEBF

5,766 ￦

KEBOC

￦

￦

Trust

Other
subsidiaries

Dec. 31,
2010

-

-

-

(104)

128 ￦

1,261 ￦KEBI KEB China

￦

KEBI

￦

Trust

￦

3,207
83 ￦ 10,964

Othersubsidiaries￦

Dec. 31,
2009
￦

5,766

1,956

-

2

5,404

1,735

121

-

10,91020,128Commission
income in
Won

-

181

-

-

-

-

-

-

181

Commission
incomein foreign
currencies

-

-

-

584

130

-

-

-

714

￦

4,106
11,828 ￦

340
521 ￦

2 ￦

2,508
8,496 ￦

41
1,906 ￦

121 ￦

9,176
9,176 ￦

10,910 ￦16,17142,960

￦

- ￦

41 ￦

- ￦

- ￦

￦

- ￦

973 ￦

- ￦

1,01 4

Interest
expensesin foreign
currencies

5

7

152

1,531

3,667

1,451

-

135

6,948

Commission
expense in
Won

-

345

-

-

-

-

-

-

345

Commission
expensein foreign
currencies

-

109

-

104

-

-

-

112

325

(1,197)

-

-

-

-

-

-

-

(1,197)

502 ￦

152 ￦

2,258
3,893 ￦

3,667 ￦

1,451 ￦

973 ￦

247 ￦

8,168
15,603

Other revenue

Expenses:
Interest
expensesin WonProvision forpossible loan
lossesOther expenses￦

5,910
4,718 ￦

120

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(4) The key management compensations for the year ended December 31, 2010 are as follows (Unit: In millions):
Classification

Compensations

Short-term employee benefits
Employee benefits after resignation
Stock option

7,039
2,604
(6,278)
3,365

￦

￦

The key management includes the directors, the executives and the officers who have authorities and responsibilities for decision-making of thebusiness plan, operations and control over the Bank.

2 5 . O P E R AT I O N P E R FO R M A N C E O F T R U S T A C C O U N T S :(1) The significant financial information relating to trust accounts for the years ended December 31, 2010 and 2009 is as follows (Unit: In
millions):
Classification
Revenue:
Trust fees and commissions received from trust accounts
Commission from pre-payment
Expense:Interest on borrowings from trust accounts

2010

2009
￦

￦

29,622
12
29,634￦30,636
5
30,641￦

21,343￦29,904￦(2) As of December 31, 2010, the Bank is not obligated to pay difference between book value and fair value of trust account, and the trust
accounts for which the Bank provided the guarantees for a fixed rate of return and/or the repayment of principal consist of following (Unit:
In millions):
Classification
Trust accounts guaranteeing the repayment of principal:
Installment trust
Household trust
Old age pension trust
Corporate trust
Personal pension trust
Retirement trust
New personal pension trust
New old age pension trust
Pension trustBook value
￦

114
761
3,152
36
205,515
571,995
58,9482,541
186,087
1,029,149

Fair value
￦

120
799
3,309
38
215,791
580,073
59,446
2,668
187,453
1,049,697

Trust accounts guaranteeing a fixed rate of return and the repaymentof principal:
Unspecified monetary trust
Development money trust
￦

59
5
64
1,029,213

￦

62
5
67
1,049,764

121

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2 6 . C O M P U TAT I O N O F VA L U E A D D E D :Accounts required for computation of value added for the years ended December 31, 2010 and 2009 consist of the following (Unit: In millions):
Accounts
Salaries
Expenses for fringe benefits
Retirement allowances
Rent
Depreciation
Amortization
Taxes and dues

2010
￦

￦

521,369
177,087
63,575
81,683
69,152
24,00538,872975,7432009￦￦

538,986
163,005
59,72677,01582,91232,317
38,231
992,192

2 7 . F I N A N C I A L I N FO R M AT I O N O F T H E FO U R T H Q U A R T E R ( U N A U D I T E D ) :The Bank is required to report interim financial statement but it does not report the financial statement of last quarter. The Bank’s summary offinancial information for the last quarter in December 31, 2010 and 2009 are as follows (Unit: In millions except per share amounts):
4thQ in 2010

Classification
Operating revenue
Operating income
Net income
Net income per share (In currency units)￦

2,860,146
258,783
202,318
314

4thQ in 2009￦

2,948,848
347,688306,360475

28. DIVIDENDS:(1) Details of dividends for the years ended December 31, 2010 and 2009 are as follows (Unit: shares, In millions except per shareamounts):
Classification
Stock dividends per share (rate) (In currency units):
Quarterly
Yearly2010￦￦

Number of shares issued and outstanding
Total dividends:
Quarterly
Yearly235 (4.7%)
850 (17.0%)
1,085 (21.7%)

2009
￦
￦

644,906,826￦￦

151,553
548,171699,724510 (10.2%)510 (10.2%)
644,906,826￦￦

328,902328,902(2) Dividend payout ratio for the years ended December 31, 2010 and 2009 is as follows (Unit: In millions):
Classification
Dividends (*)
Net income
Dividend payout ratio (%)

2010￦

699,724
1,021,367
68.51

2009
￦

328,902891,737
36.88(*) Quarterly dividend is included.
(3) Dividend yield ratio for the years ended December 31, 2010 and 2009 is as follows (Unit: In currency units):
Classification
Dividends per share (*)
Stock price at the end of the year
Dividend yield ratio (%)(*) Quarterly dividend is included.

2010
￦

1,085
11,800
9.19

￦

2009
510
14,5003.52

122

Korea Exchange Bank 2010 Annual Report

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

29. CASH FLOWS:(1) Cash in the statements of cash flows consists of cash and due from bank (excluding restricted due from bank). Cash flows fromoperating activities are presented by the indirect method.
(2) The cash and due from banks in the statements of cash flows for the years ended December 31, 2010 and 2009 are as follows (Unit: In
millions):
Classification
Cash and due from banks
Foreign currencies
Deposit in Won
Deposit in foreign currencies￦

Less: restricted due from bank (see Note 3)￦

2010
998,607412,777
3,719,710
2,324,340
7,455,434(5,442,586)
2,012,848

￦

￦

2009
809,276
384,555
3,039,185
1,669,692
5,902,708(2,437,717)
3,464,991(3) Significant non-cash transactions for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Decrease of loans from write-offs of loans
Increase in gain on valuation of available-for-sale securities
Change on unsettled spot transactions￦

2010
487,520
122,156
119,593￦2009
906,480
486,095
1,513,172

123

I ndependent A ccountants ’ R eview R eporton I nternal A ccounting C ontrol S ystem ( “ I A C S ” )English Translation of a Report Originally Issued in Korean

To the Representative Director of
Korea Exchange Bank:
We have reviewed the accompanying report on the management’s assessment of IACS (the “Management’s Report”) of Korea Exchange Bank (the“Bank”) as of December 31, 2010. The Management’s Report, and the design and operation of IACS are the responsibility of the Bank’s management.
Our responsibility is to review the Management’s Report and issue a review report based on our procedures. The Bank’s management stated in theaccompanying Management’s Report that “based on the assessment of the IACS as of December 31, 2010, the Bank’s IACS has been appropriately
designed and is operating effectively as of December 31, 2010, in all material respects, in accordance with the IACS framework established by the
Korean Listed Companies Association.”
We conducted our review in accordance with the IACS Review Standards established by the Korean Institute of Certified Public Accountants. Thosestandards require that we plan and perform a review, the objective of which is to obtain a lower level of assurance than an audit, of the Management’s
Report in all material respects. Areview includes obtaining an understanding of the Bank’s IACS and making inquiries regarding the Management’s
Report and, when deemed necessary, performing a limited inspection of underlying documents and other limited procedures.
The Bank’s IACS represents internal accounting policies and a system to manage and operate such policies to provide reasonable assurance
regarding the reliability of financial statements prepared, in accordance with accounting principles generally accepted in the Republic of Korea,
for the purpose of preparing and disclosing reliable accounting information. Because of its inherent limitations, IACS may not prevent or detect amaterial misstatement of the financial statements. Also, projections of any evaluation of effectiveness of IACS to future periods are subject to therisk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Based on our review, nothing has come to our attention that causes us to believe that the Management’s Report referred to above is not fairly stated,in all material respects, in accordance with of the IACS Framework established by the Korean Listed Companies Association.
Our review is based on the Bank’s IACS as of December 31, 2010, and we did not review its IACS subsequent to December 31, 2010. This report has
been prepared pursuant to the Acts on External Audit for Stock Companies in the Republic of Korea and may not be appropriate for other purposesor for other users.

March 31, 2011

Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate
and independent entity. Please see www.deloitte.com/kr/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu andits member firms.
Member of Deloitte Touche Tohmatsu

Korea Exchange Bank 2010 Annual Report

124

CONSOLIDATED financial statements

Independent Auditors’ Report
English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of
Korea Exchange Bank:
We have audited the accompanying consolidated statements of financial position of Korea Exchange Bank (the “Bank”) and its subsidiaries as ofDecember 31, 2010 and 2009, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the years thenended, all expressed in Korean Won. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an
opinion on these financial statements based on our audits. We have not audited the financial statements of KEB Australia Ltd., Korea Exchange Bankof Canada, PT. Bank KEB Indonesia, Korea Exchange Bank (Deutschland) A. G., Banco KEB do Brasil S.A., KEB NY Financial Corp., KEB LA Financial
Corp. and KEB Asia Finance Limited., KEB Bank (China) Co., Ltd., whose statements reflect total assets constituting 4.56 percent of consolidated
total assets as of December 31, 2010 and total revenues constituting 2.64 percent of consolidated total revenues for the year then ended. Thosestatements were audited by other auditors whose reports have been furnished to us, and our opinion, in so far as it relates to the amounts included
for those entities, is based solely on the reports of such other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we planand perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits and other auditors’ reports provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material
respects, the financial position of the Bank and its subsidiaries as of December 31, 2010 and 2009, and the results of their operations, the changes in
its shareholders’ equity and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the Republic ofKorea.
We have audited the consolidated financial statements as of and for the year ended December 31, 2010 and originally issued the auditors’ report asof March 21, 2011. However, we reissued the auditors’ report as the Bank amended its financial statements for the purpose of reflecting a dividend of￦548,171 million, approved at the shareholders’ meeting held on March 31, 2011, which is different from an originally approved dividend of ￦374,046
million by the board of directors on March 12, 2011. Therefore, the issued auditors’ report dated March 21, 2011 shall be replaced with this reissued
report and the originally issued report dated March 21, 2011 should not be referred to as an independent auditors’ report for the consolidated
financial statements for the year ended December 31, 2010.
Accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial statements are
not intended to present the financial position, results of operations, changes in shareholders’ equity and cash flows in accordance with accounting
principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the
Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report
and the accompanying financial statements are for use by those knowledgeable about Korean accounting procedures and auditing standards andtheir application in practice.

March 31, 2011

Notice to ReadersThis report is effective as of March 31, 2011, the auditors’ report date. Certain subsequent events or circumstances may have occurred between
the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying
financial statements and may result in modifications to the auditors’ report.

125

CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONKOREA EXCHANGE BANK AND ITS SUBSIDIARIES AS OF DECEMBER 31, 2010 AND 2009

(In millions of KRW)2010
ASSETSCash and due from banks (Notes 5, 18, 24, 25 and 28)
Securities (Notes 6, 17, 18 and 24)
Loans (Notes 7, 8, 9, 17, 18, 24 and 25)
Tangible assets (Notes 10 and 24)
Other assets (Notes 4, 11, 17, 22, 24 and 25)￦￦
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits (Notes 12, 18, 24 and 25)
Borrowings (Notes 13, 18, 24 and 25)
Other liabilities (Notes 4, 14, 16, 17, 18, 24 and 25)￦

SHAREHOLDERS’ EQUITY (Notes 4, 6, 10, 15, 17 and 24):
Common stock
Capital surplus
Accumulated other comprehensive income
Retained earnings
Minority interests￦
See accompanying notes to consolidated financial statements.

8,112,876
14,059,622
66,294,576
1,378,704
10,148,628
99,994,406

64,940,711
13,749,061
12,906,016
91,595,788

3,224,534
940
1,111,546
4,059,256
2,342
8,398,618
99,994,406

2009
￦

￦

￦

￦

6,346,257
15,243,895
66,236,846
1,393,110
10,801,209
100,021,317

60,865,856
18,090,474
13,088,380
92,044,710

3,224,534
940
1,233,556
3,515,456
2,121
7,976,607
100,021,317

126

Korea Exchange Bank 2010 Annual Report

CONSOLIDATED STATEMENTS OF INCOME
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(In millions of KRW, except per share amounts)
2010

2009

OPERATING REVENUES (Note 24):
Interest income (Note 25):
Interest on due from banks
Interest on trading securities
Interest on available-for-sale securities
Interest on held-to-maturity securities
Interest on loans
Other interest income (Note 20)
Gain on valuation and disposal of securities (Note 6):
Gain on valuation of trading securities
Gain on disposal of trading securities
Reversal of impairment loss on available-for-sale securities
Gain on disposal of available-for-sale securities
Gain on retirement of held-to-maturity securities
Gain on valuation and disposal of loans:
Gain on disposal of loans (Notes 7 and 17)
Foreign exchange trading income
Gain on trading and valuation of derivatives (Notes 17 and 19)
Commission income (Notes 19 and 25)
Dividends income (Note 19)
Other operating revenue (Notes 19 and 25)
Total operating revenues
OPERATING REVENUES (Note 24):
Interest expenses (Note 25):
Interest on deposits
Interest on borrowings
Other interest expenses (Note 20)
Loss on valuation and disposal of securities (Note 6):
Loss on valuation of trading securities
Loss on disposal of trading securities
Impairment loss on available-for-sale securities
Loss on disposal of available-for-sale securities
Loss on retirement of held-to-maturity securities
Loss on valuation and disposal of loans:
Provision for possible loan losses (Notes 9 and 25)
Loss on disposal of loans (Note 7)
Foreign exchange trading losses
Loss on trading and valuation of derivatives (Notes 13, 17 and 19)
Commission expenses (Notes 19 and 25)
General and administrative expenses (Notes 19 and 26)
Other operating expenses (Note 19)
Total operating expenses￦

111,866
71,153
179,423240,554
3,847,786
17,086
4,467,868￦

110,454
108,977
258,007
197,745
4,109,322
15,9204,800,425

7,020
47,071
2,390
394,344
450,825

17,59860,21818,727
254,815108351,466

67,476
1,857,623
5,199,862
528,476
23,27023,428
12,618,828

38,971
3,793,782
7,222,898
528,219
15,41022,342
16,773,513

1,446,034
523,008
25,125
1,994,167

1,670,825
901,039
31,956
2,603,820

1,454
23,873308
211
25,846

2,258
22,68022,0844,057
751,086482,634
79,346561,980
1,599,617
5,126,866
301,000
1,317,483
299,573
11,226,532

677,349
33,500710,849
2,877,640
7,872,221
285,227
1,348,453
235,718
15,985,014

127

CONSOLIDATED STATEMENTS OF INCOME
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(In millions of KRW, except per share amounts)
OPERATING INCOME (Note 24)
NON-OPERATING INCOME (Notes 6, 21 and 24)
NON-OPERATING EXPENSES (Notes 6, 21 and 24)
INCOME BEFORE INCOME TAX (Note 24)
INCOME TAX EXPENSE (BENEFITS) (Notes 22 and 24)
NET INCOME (Notes 23 and 24)
Controlling company interest, gain
Minority interests, gain
BASIC NET INCOME PER SHARE (In currency units) (Note 23)
DILUTED NET INCOME PER SHARE (In currency units) (Note 23)
See accompanying notes to consolidated financial statements.

￦
￦
￦
￦

2010

2009

1,392,296
50,79659,435
1,383,657
362,094(89,322)
51,15637,026
802,629
891,951

1,021,367
196
1,021,563
1,584
1,584

￦
￦
￦
￦

891,737214
891,951
1,383
1,383

128

Korea Exchange Bank 2010 Annual Report

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(In millions of KRW)
Capitalstock
January 1, 2009
Dividend

Capitalsurplus￦ 3,224,534 ￦-Accumulated
othercomprehensive
incomeCapitaladjustments
940
-

￦

(4,425)-￦749,200

Retainedearnings

Minority
interests-￦ 2,711,764(80,613)

￦

Total

1,817
-

￦ 6,683,830(80,613)

Negative capitaladjustments

-

-

4,425

-

(4,425)--

Balance after
appropriations

3,224,534

940-

749,200)

2,626,726)

1,817

6,603,217

-

-

-

-

891,737214

891,951

-

-

-

-

(4,170)84(4,086)

Valuation of availablefor-sale securities

-

-

-

487,292-6

487,298

Valuation of heldto-maturity securities

-

-

-

303

-

-

303

Negative changes inequity on equity
method

-

-

-

(10)

-

-

(10)

Valuation of tangible
assets---(3,229)--(3,229)-￦ 1,233,556)-￦

Net income
Effect of exchange rate
fluctuations foroverseas branches

Trust reserved
December 31, 2009

￦ 3,224,534 ￦940

January 1, 2010
Dividend (Note 27)￦ 3,224,534 ￦
-

940
-

Balance after
appropriations

3,224,534

940-

1,233,556

3,186,554

2,121

7,647,705

Quarterly dividend(Note 27)

-

-

-

-

(151,553)-(151,553)

-

-

-

-

1,021,367

196

1,021,563

-

-

-

-

1,996

30

2,026

Valuation of availableforsale securities

-

-

-

(122,025)-(5)(122,030)

Valuation of heldto-maturity securities

-

-

-

16

-

-

16

Valuation of tangible
assets

-

-

-

(1)

-

-

(1)

Net income
Effect of exchange rate
fluctuations foroverseas branches

Trust reserved
December 31, 2010

￦ 3,224,534 ￦940

See accompanying notes to consolidated financial statements.

￦
￦

￦

-

￦

1,233,556-

1,111,546￦￦￦

1,163)
3,515,456
3,515,456(328,902)

892
4,059,256

￦
￦

￦

2,121
2,121
-

2,342

￦
￦

￦

1,163
7,976,607
7,976,607(328,902)

892
8,398,618

129

CONSOLIDATED STATEMENTS OF CASH FLOWSKOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(In millions of KRW)2010
CASH FLOWS FROM OPERATING ACTIVITIES:Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on valuation of trading securities, net(Reversal of) impairment loss on available-for-sale securities, net
Loss (gain) on valuation of securities using the equity method, net
Provision for possible loan losses
Loss (gain) on disposal of tangible assets, net
Depreciation and amortization
Provision for severance benefits
Expenses for fringe benefits
Gain on valuation of financial derivatives, net
Long-term compensation expense for performance bonus
Provision for allowance for other liabilities(Reversal of) stock option compensation costs, net
Gain on foreign exchange trading, net
Others, net
Changes in assets and liabilities resulting from operations:
Net decrease in trading securities
Net decrease in available-for-sale securities
Net increase in held-to-maturity securities
Net increase in call loans
Net decrease (increase) in domestic import usance bill
Net decrease (increase) credit card receivables
Net decrease in bills bought in foreign currencies
Net decrease in bills bought
Net decrease in bonds purchased under repurchase agreements
Net increase in loans in Won
Net decrease in loans in foreign currencies
Net increase in factoring receivables
Net decrease in advances for customers
Net decrease in privately placed bonds
Net increase (decrease) in deferred loan origination fees and costs
Net decrease in accrued income
Net decrease (increase) in prepaid expenses
Net decrease (increase) in deferred income tax assets
Net decrease in financial derivatives assets
Net increase (decrease) in accrued expenses
Net decrease in unearned revenues
Payment of severance benefits
Decrease in transfer to National Pension Fund
Increase in deposit of insurance for severance benefits
Increase in assets under management of pension benefits
Net decrease in financial derivatives liabilities
Net decrease in allowance for other liabilities
Net decrease in deferred income tax liabilities
Net cash provided by operating activities￦

1,021,563

2009￦

891,951(5,566)(2,082)(143)
482,634
303
99,76364,592
14,400(107,703)
13,234
77,346(433)(12,306)
23,175647,214(15,340)3,357
324
677,349(1,121)
121,952
61,345(208,013)
9,748
41,022
12,798(109,535)
22,146
616,032

866,490
1,512,361(1,362,548)(1,674,672)(609,263)(185,093)
118,606
823,699
1,086,000(77,656)
221,924(431,154)
2,662
215,901(21,078)
21,366
4,506(4,383)
630,694
18,231(5,953)(21,875)34(6,313)(37,344)(555,598)(37,557)(1,152)490,835
2,159,612

436,997
17,067(1,116,842)(196,732)
130,744
56,311
424,888956,697556,717(1,352,092)
1,221,058(35,836)
22,12971,983
4,858
150,112(18,870)
7,658
3,277,100(353,300)(34,091)(36,405)
87(22,105)(930)(3,055,056)(31,712)(23,393)
1,057,042
2,565,025

130

Korea Exchange Bank 2010 Annual Report

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(In millions of KRW)
2010

2009

CASH FLOWS FROM INVESTING ACTIVITIES:Dividends of securities using the equity method
Disposal of tangible assets
Disposal of intangible assets

10,192123

1,550
12,675-

Disopsal of securities using the equity method

4,321

(725)

(70,353)(53,185)

Purchase of tangible assets
Net decrease (increase) in foreclosed and other properties

1,259(1,259)Net increase in guarantee deposits paid

(10,150)(4,811)

Purchase of intangible assets(36,971)(27,708)

Net increase in accounts receivable(108,662)(153,078)

Net decrease in other assets

118,662

43,783Net decrease (increase) in restricted due from banks(3,080,263)

4,372,121

Net cash provided by (used in) investing activities(3,171,842)

4,189,363

Net increase (decrease) in deposits

4,103,690(1,684,548)

Net decrease in borrowings(1,065,297)(2,757,665)(2,606,508)

CASH FLOWS FROM INVESTING ACTIVITIES:Net decrease in debentures(3,274,335)

Net increase in other liabilities

414,983

329,069

Dividend(480,455)(80,613)

Net cash used in financing activities(301,414)(6,800,265)

NET DECREASE IN CASH AND DUE FROM BANKS(1,313,644)(45,877)

CASH AND DUE FROM BANKS, BEGINNING OF YEAR

3,904,180

3,950,057

CASH AND DUE FROM BANKS, END OF YEAR (Note 28)
See accompanying notes to consolidated financial statements.

￦

2,590,536￦

3,904,180

131

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

1 . G ENER A L :Korea Exchange Bank (the “Bank”) was established on January 30, 1967 as a government-invested bank to engage in foreign exchange and thetrade finance business under the Korea Exchange Bank Act. On December 30, 1989, the Korea Exchange Bank Act was repealed and the Bank
was converted into a corporation under the Commercial Code of the Republic of Korea. On April 4, 1994, the Bank was listed on the Korean Stock
Exchange. The merger between the Bank and Korea Exchange Bank Credit Service Co., Ltd. (“KEBCS”) was finalized on February 28, 2004.
The Bank primarily provides commercial banking services, trust banking services, foreign exchange, merchant banking business through the merger
with Korea International Merchant Bank, a domestic subsidiary of the Bank, and other related operations as permitted under the Bank Act and otherrelevant laws and regulations in the Republic of Korea. The Bank operates through 354 branches (including 28 depositary offices) and 3 subsidiaries
in Korea and 19 branches (including 2 depositary offices and 5 offices) and 10 subsidiaries in overseas as of December 31, 2010.
The Bank’s shareholders as of December 31, 2010 are as follows:
Shareholders
LSF-KEB Holdings, SCA
Export-Import Bank of Korea
Bank of Korea
OthersNumber ofshares owned (*1)
329,042,672
40,314,387
39,500,000
236,049,767
644,906,826

Ownership (%)
51.02
6.25
6.12
36.61
100.00(*1) The shareholders’ list as of December 31, 2010

The Bank entered into a Memorandum of Understanding regarding the Share Subscription Agreement with Lone Star Fund IV on August 27, 2003.
On October 30, 2003, the Bank issued 268,750,000 shares of common stock to LSF-KEB Holdings, SCA at ￦4,000 per share (at less than its parvalue) in accordance with a resolution during an extraordinary shareholders’ meeting on September 16, 2003. The balance below the par value wasrecognized as a discount on stock issued.
As of December 31, 2010, the total number of authorized shares of the Bank is 1,000 million (par value ￦5,000) while the paid-in capital amounts to￦3,224,534 million (with 644,906,826 shares of common stock outstanding with par value of ￦5,000).

132

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2 . S C OPE O F C ONSO L I D A T I ON A ND E Q U I T Y M ET H OD A C C OUNT I N G :The consolidated financial statements are based on the financial statements of the Bank (including merchant banking accounts), its trust accounts
and subsidiaries.
Subsidiaries included in the consolidation and accounted for using the equity method as of December 31, 2010 and 2009 are as follows:2010
Subsidiaries
Consolidated (Domestic):
KEB Capital Inc. (“KEBC”)KEB Futures Co., Ltd. (“KEBF”)

Closing dateNo. of shares(Unit: thousands)

Percentage ofownership (%)

Business

December 31

14,97699.31 Leasing and installment financing

March 313,000

100.00Brokerage services for futurestransactions

Consolidated (Oversea):
Korea Exchange Bank of Canada(“KEBOC”)

December 31

334

KEB Australia Ltd. (“KEBA”)

December 31

55,000

Korea Exchange Bank
(Deutschland) A.G. (“KEBDAG”)

December 31

20

100.00 Banking service

PT. Bank KEB Indonesia (“KEBI”)
Banco KEB do Brasil S. A. (“KEBB”)

December 31
December 31

1
33,72699.00 Banking service
100.00 Banking service

KEB NY Financial Corp.
(“KEBNYFINCO”)

December 31

0.1

100.00Commercial banking business andforeign exchange operation

KEB LA Financial Corp.
(“KEBLAFINCO”)

December 31

0.2

100.00Commercial banking business andforeign exchange operation

KEB Asia Finance Limited (“KAF”)

December 31

50,000KEB Bank (China) Co., Ltd. (“KEB
China”) (*4)

December 31-

MIDAN City Development Co., Ltd. (*2)

December 31

388

Flossom Co., Ltd. (*3)
KEB Fund Services Co., Ltd. (*1)
KEB USA Int'l Corp. (*1)

December 31
December 31
December 31

165
510
0.1

100.00 Banking service
100.00Commercial banking business andforeign exchange operation

100.00 Investment financing
100.00 Banking service

Accounted for using the equity method:
2.70

Developing Woonbook LeisureComplex5.00 Real-estate rental service
100.00 General office service
100.00 Remitting US dollars of the bank(*1) The investment securities were excluded from the application of equity method because the assets are less than ￦10,000 million as of the endof prior year and the change in investment arising from this company was considered insignificant.
(*2) Lippo Incheon Development Co., Ltd. has been renamed MIDAN City Development Co., Ltd.
(*3) Soul Flora Co., Ltd. has been renamed Flossom Co., Ltd.
(*4) Bank branches in Tianjin, Dalian, Beijing and Shanghai were collectively converted into a corporation, KEB Bank (China) Co., Ltd., which became
a consolidated subsidiary of the Bank.

133

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2009
Subsidiaries

Closing date

Consolidated (Domestic):
KEB Capital Inc. (“KEBC”)KEB Futures Co., Ltd. (“KEBF”)

No. of shares(Unit: thousands)

Percentage ofownership (%)

Business

March 31

14,97699.31 Leasing and installment financing

March 313,000

100.00Brokerage services for futurestransactions

Consolidated (Oversea):
Korea Exchange Bank of Canada(“KEBOC”)

December 31

334

KEB Australia Ltd. (“KEBA”)

December 31

55,000

Korea Exchange Bank
(Deutschland) A.G. (“KEBDAG”)

December 31

20

100.00 Banking service

PT. Bank KEB Indonesia (“KEBI”)
Banco KEB do Brasil S. A. (“KEBB”)

December 31
December 31

1
33,72699.00 Banking service
100.00 Banking service

KEB NY Financial Corp.
(“KEBNYFINCO”)

December 31

0.1

100.00Commercial banking business andforeign exchange operation

KEB LA Financial Corp.
(“KEBLAFINCO”)

December 31

0.2

100.00Commercial banking business andforeign exchange operation

KEB Asia Finance Limited (“KAF”)

December 31

50,000Lippo Incheon Development Co., Ltd.

December 31

388

2.70

Developing Woonbook LeisureComplexRealty Advisors Korea, Ltd.

June 30

200

14.29

Maintenance service on non-residence
real-estate investments

Ilsan Project Co., Ltd.
Soul Flora Co., Ltd.
KEB Fund Services Co., Ltd. (*1)
KEB USA Int'l Corp. (*1)
HTIC2 Corporate Restructuring
Association

December 31
December 31
December 31
December 31

288
165
510
0.1

4.80 Real-estate brokerage service
5.00 Real-estate rental service
100.00 General office service
100.00 Remitting US dollars of the bankDecember 31

0.04

20.00 Corporate restructuring100.00 Banking service
100.00Commercial banking business andforeign exchange operation

100.00 Investment financing

Accounted for using the equity method:(*1) The investment securities were excluded from the application of equity method because the assets are less than ￦10,000 million as of the endof prior year and the change in investment arising from this company was considered insignificant.

SU B S I D I A R I ES
TRUST A C C OUNTS
Certain trust accounts whose principal or fixed rate of return is guaranteed by the Bank are included in the consolidated financial statements inaccordance with the accounting guidelines of the Financial Supervisory Commission in the Republic of Korea. The trust accounts as of December 31,
2010 and 2009 were as follows (Unit: In millions):
2010
Consolidated
Not consolidated

2009
Operatingrevenue

Total assets￦￦

1,089,521
18,716,226
19,805,747￦￦

72,038
192,348
264,386

Operatingrevenue

Total assets￦￦

1,273,565
10,782,053
12,055,618￦￦

73,983
213,278
287,261

Korea Exchange Bank 2010 Annual Report

134

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009•
KEB Capital Inc. (“KEBC”)
KEBC was incorporated on September 11, 1989 to engage in leasing industrial equipment and registered in Korea Securities Dealers AutomatedQuotation (“KOSDAQ”) on January 15, 1995. As KEBC continued to experience negative capital until March 31, 2001, its registration with KOSDAQ wascanceled by KOSDAQ Committee on July 11, 2001 and withdrawn from KOSDAQ market on August 24, 2001. As of December 31, 2010, 99.31 percentof the total shares of KEBC are owned by the Bank.
KEBC implemented a 14-to-1 capital reduction on the shares owned by the Bank and reduced its capital by means of a 7-to-1 capital reduction,
or execution of stock selling option at ￦800 per share on the shares owned by other individual shareholders and the employee stock ownershipassociation as of November 9, 2001, for the purpose of debt restructuring due to the work-out process, based on the resolution at the shareholders’ meetingon October 13, 2001. This capital reduction resulted in a gain on capital reduction of ￦34,725 million which was used to recover negative capital.
In addition, on November 9, 2001, KEBC issued 14,805 thousand shares of common stock for cash at par value to the Bank, in accordance withthe resolution of the board of directors on October 26, 2001. The proceeds of the new stock issuance were used for the repayment of borrowings
amounting to ￦74,024 million from the Bank. As of December 31, 2010, the total paid-in-capital amounts to ￦75,400 million.
•
KEB Futures Co., Ltd. (“KEBF”)
KEBF was incorporated on September 24, 1997 as an integrated futures broker of the Bank. In 1998, KEBF was granted a futures trading license
for overseas markets and domestic operations from the Ministry of Economy and Finance. The Bank retains 100 percent equity ownership as ofDecember 31, 2010, and the total paid-incapital amounts to ￦15,000 million.
•
Korea Exchange Bank of Canada (“KEBOC”)
KEBOC was established in Toronto, Canada on October 6, 1981 to provide financial services to Korean companies and residents in Toronto and thesurrounding area. The Bank retains 100 percent equity ownership as of December 31, 2010 and the total paid-in-capital of KEBOC amounts to CAD
33,400 thousand.
•
KEB Australia Ltd. (“KEBA”)
KEBA was established in Sydney, Australia on July 6, 1986 to provide financial services to Korean companies and residents in Sydney and thesurrounding area. The Bank retains 100 percent equity ownership as of December 31, 2010, and the total paid-in-capital of KEBA amounts to AUD
55,000 thousand.
•
PT. Bank KEB Indonesia (“KEBI”)
KEBI was established in Jakarta, Indonesia on November 5, 1990 to provide financial services to Korean companies and residents in Jakarta and thesurrounding area. KEBI changed its name from PT. Korea Exchange Bank Danamon to PT. Bank KEB Indonesia in 2007. The Bank retains 99 percent
equity ownership as of December 31, 2010, and the total paid-in-capital of KEBI amounts to IDR 150,000,000 thousand.
•
Korea Exchange Bank of Deutschland AG (“KEBDAG”)
KEBDAG was established in Frankfurt, Germany on December 29, 1992 to provide financial services to Korean companies and residents in Frankfurt
and the surrounding area. The Bank retains 100 percent equity ownership as of December 31, 2010 and the total paid-in-capital of KEBDAG amounts
to EUR 15,339 thousand.
•
KEB NY Financial Corp. (“KEBNYFINCO”)
KEBNYF was established in New York, USA on April 8, 2004 to provide financial services to Korean companies and residents in New York and thesurrounding area. The Bank retains 100 percent equity ownership as of December 31, 2010, and the total paid-in-capital of KEBNYFINCO amounts to
USD 1.00.
•
KEB LA Financial Corp. (“KEBLAFINCO”)
KEBLAF was established in Los Angeles, USA on April 8, 2004 to provide financial services to Korean companies and residents in Los Angeles andthe surrounding area. The Bank retains 100 percent equity ownership as of December 31, 2010, and the total-in-capital of KEBLAFINCO amounts to
USD 2.00.
•
KEB Asia Finance Limited (“KAF”)
KEB Asia Finance Limited (“KAF”) was established on July 2, 2009 to provide advisory services, financial organization and securities businessservices for foreign investment of domestic companies and investment for foreign corporations. The Bank retains 100 percent equity ownership as ofDecember 31, 2010, and the total-incapital of KEBLAFINCO amounts to USD 50,000 thousand.

135

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009•
KEB Bank (China) Co., Ltd (“KEBCHINA”)
KEB Bank(China) Co., Ltd. (“KEB China”) was established on May 17, 2010 to enter to China, a major market in Asia, and to provide financial services
to Korean·Chinese companies and individuals. The Bank retains 100 percent equity ownership as of December 31, 2010, and the total-in-capital of
KEB China amounts to CNY 2,200,000 thousand.
A summary of significant financial data of the Bank’s subsidiaries, included in the consolidated statements of financial position as of December 31,
2010 and 2009, and consolidated statements of income for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
2010
Subsidiaries
Trust accounts
KEB Capital Inc.
KEB Futures Co., Ltd.
Korea Exchange Bank of Canada
KEB Australia Ltd.
Korea Exchange Bank
(Deutschland) A.G.
PT. Bank KEB Indonesia
Banco KEB do Brasil S. A.
KEB NY Financial Corp.
KEB LA Financial Corp.
KEB Asia Finance Limited
KEB Bank (China) Co., Ltd.

75,40015,00038,032
63,686

Shareholders’equity￦20,552
122,147
58,511
123,533
67,740427,654

23,21771,08424,255

5,078

453,227
79,169344,546
263,520
70,9581,292,077
6,671,550

18,99023,14556,945379,500
693,915

149,591
25,67435,326
34,83355,912385,539
1,150,442

48,325
21,25628,97018,993
7,664
102,847
515,188

14,896
2,003
45
3,584
3,032
6,019
70,102

Total assets￦￦

1,089,521
890,483
135,662
1,202,270
422,463

Capital stock￦￦￦

Operatingrevenue￦￦

72,03890,39819,94249,30831,192

Net income(loss)
￦

￦

7,782
4,684
9,300
13,6792009
Subsidiaries
Trust accounts
KEB Capital Inc.
KEB Futures Co., Ltd.
Korea Exchange Bank of Canada
KEB Australia Ltd.

75,40015,00036,97357,478

Shareholders’equity￦19,659115,223
52,808111,055
48,792529,740

25,68173,69826,924

5,738

455,10997,606382,372
265,923
66,0275,802,921

18,57022,63358,380310,115

131,716
23,14736,16932,03754,212
698,516

32,62522,942
20,27915,212
2,393
461,735

15,310
1,465
2,352
3,043
(4,168)49,898

Total assets￦

Korea Exchange Bank
(Deutschland) A.G.
PT. Bank KEB Indonesia
Banco KEB do Brasil S. A.
KEB NY Financial Corp.
KEB LA Financial Corp.
KEB Asia Finance Limited￦

1,273,565
1,070,997
137,320
1,089,236
435,026

Capital stock￦￦￦

Operatingrevenue￦￦

73,983
139,404
36,232
48,69143,050Net income(loss)￦￦

7,435
11,345(1,376)
8,754

Korea Exchange Bank 2010 Annual Report

136

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

3 . SU M M A R Y O F S I G N I F I C A NT A C C OUNT I N G PO L I C I ES :•Basis of Consolidated Financial Statement Presentation
The Bank and its subsidiaries maintain their official accounting records in Korean Won (only domestic subsidiaries) and prepare statutory
consolidated financial statements in the Korean language (Hangul) in conformity with the accounting principles and banking accounting standards
generally accepted in the Republic of Korea. Certain accounting principles and banking accounting standards applied by the Bank and its
subsidiaries that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally
accepted accounting principles and banking accounting practices in other countries. Accordingly, these consolidated financial statements areintended for use by those who are informed about Korean accounting principles and practices. The accompanying consolidated financial statements
have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language consolidated
financial statements. Certain information included in the Korean language consolidated financial statements, but not required for a fair presentationof the Bank and its subsidiaries' financial position, results of operations, changes in shareholders’ equity or cash flows, is not presented in theaccompanying consolidated financial statements.
The significant accounting policies followed by the Bank and its subsidiaries in preparing the accompanying consolidated financial statements are
summarized below.

•

Basis of Consolidated Financial Statements Preparation(1) Offset of Investments and Equity Accounts of Subsidiaries
Investments in subsidiaries and equity accounts of subsidiaries were eliminated at the date when the Bank obtained control over the subsidiaries.
The differences between the amounts of investment and the equity accounts are recorded as goodwill or negative goodwill, which is amortizedor reversed using the straightline method over five years. If additional shares are purchased after acquiring control, the difference between the
additional acquisition cost and the portion of net assets acquired is credited or charged to capital surplus. If the acquisition date does not agreewith the year-end reporting date of the subsidiary, the closest closing date to the acquisition date is regarded as acquisition date.
(2) Inter-company Transactions and Balances
All inter-company transactions are eliminated in the consolidated financial statements.
(3) Additional acquisition of subsidiary company’s equity securities
If additional shares are purchased after acquiring control, the difference between the additional acquisition cost and the portion of net assets
acquired is credited or charged to capital surplus.
(4) Disposition of Subsidiaries’ Shares
If a subsidiary of the Bank is still subject to the scope of consolidation even after certain portions of shares are disposed to minority interests,
gain/loss on disposal of investment securities is recognized as capital surplus. If a subsidiary of the Bank is subject to the equity method dueto the disposition of securities, the investment account is recorded at net assets of subsidiaries at the time of disposition, net of unamortized
goodwill or negative goodwill in the consolidated financial statements. Any gain or loss is recognized in profit or loss.
(5) Equity Method
For investments in affiliates accounted for using the equity method, the difference between acquisition cost and net assets acquired at theacquisition date is added to or deducted from the carrying amount of investments and is amortized in equal annual amounts for five years fromthe year incurred. Changes in the Bank’s portion of net assets of affiliates accounted for using the equity method are added to or deducted fromthe carrying amount of investments.
(6) The End of the Reporting Period for the Consolidated Financial Statements
The end of the reporting period for the consolidated financial statements is the closing date of the Bank, the parent company. The accounts ofconsolidated subsidiaries whose fiscal years are different from that of the Bank have been adjusted to reflect balances as of the closing date of
the Bank.
(7) Special Reserve in Trust Accounts
A special reserve provided for possible future losses on certain trust accounts under the arrangement of guaranteed fixed rate of return and/or
repayment of the principal each year is included in retained earnings in the consolidated financial statements.
(8) Minority Interests
Non-controlling interests in a subsidiary’s shareholders’ equity are presented as minority interests. Gain (loss) attributable to non-controllinginterests is disclosed on the face of the statement of income.

137

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

4 . A C C OUNT I N G PO L I C I ES O F T H E C ONSO L I D A TED ENT I T I ES :The relevant laws and regulations applied to the consolidated entities are as follows:
EntityRelevant laws and regulations

The Bank
Trust accounts
KEB Capital Inc.
KEB Futures Co., Ltd.
Korea Exchange Bank of Canada
KEB Australia Ltd.
Korea Exchange Bank (Deutschland) A.G.
PT. Bank KEB Indonesia
Banco KEB do Brasil S. A.
KEB NY Financial Corp.
KEB LA Financial Corp.
KEB Asia Finance Limited
KEB Bank (China) Co., Ltd.

Accounting standards of the banking industry & the General Banking Act
Required under the Financial Investment Services and Capital Markets Act (FSCMA)
Regulation on Supervision of Specialized Credit Financial Business Law
Supervisory guidelines on futures trading
Financial accounting standards in Canada
Financial accounting standards in Australia
Financial accounting standards in Deutschland
Financial accounting standards in Indonesia
Financial accounting standards in Brazil
Financial accounting standards in U.S.A.
Financial accounting standards in U.S.A.
Financial accounting standards in Hong Kong
Financial accounting standards in China•
Interest Income Recognition
The Bank and its subsidiaries apply the accrual basis in recognizing interest income related to due from banks, loans and securities. Whereas,interest on loans, whose principal or interest is past due at the end of the reporting period or defaulted loans, not secured by guarantees fromfinancial institutions or collateral deposits, is recognized on a cash basis. As of December 31, 2010 and 2009, accrued interest income not recognized
due to such criteria amounted to ￦95,074 million and ￦128,439 million, respectively.
•
Classification of Securities
At acquisition, the Bank and its subsidiaries classify securities into one of the following categories: trading, available-for-sale and held-to-maturity,
depending on marketability, purpose of acquisition and ability to hold. Debt and equity securities that are bought and held for the purpose of sellingthem in the near term and actively traded are classified as trading securities. Debt securities with fixed and determinable payments and fixedmaturity that the Bank and its subsidiaries have the positive intent and ability to hold to maturity are classified as held-to-maturity securities. Debt
and equity securities not classified as the above are categorized as available-for-sale securities.
If the objective and ability to hold securities of the Bank and its subsidiaries change, available-for-sale securities can be reclassified to held-tomaturity securities and held-to-maturity securities can be reclassified to available-for-sale securities. Whereas, if the Bank and its subsidiaries
sell held-to-maturity securities or exercise early redemption right of securities to issuer in the current year or the proceeding two years, and if it
reclassifies heldto-maturity securities to available-for-sale securities, all debt securities that are owned or purchased cannot be classified as heldto-maturity securities. On the other hand, trading securities cannot be recategorized to available-for-sale securities or held-to-maturity securities
and vice versa. In rare cases, trading securities can be reclassified to available-for-sale securities only when the trading securities lose theirmarketability or when the Bank holds them not to earn gains on trading in short period.
In addition, investments in equity securities of companies, over which the Bank and its subsidiaries exercises significant influence, are accounted forusing the equity method and classified as securities accounted for using the equity method.
•

Valuation of Securities(1) Valuation of Trading Securities
Trading securities are initially recognized at acquisition cost plus incidental expenses determined by the individual moving average method
for equity securities and the specified identification method for debt securities. When the face value of trading debt securities differs fromtheir acquisition cost, the effective interest method is applied to amortize the difference over the remaining term of the securities. After initialrecognition, if the fair value of trading securities differs from the book value, trading securities are stated at fair value and the resulting valuation
gain or loss is included in current operations.

Korea Exchange Bank 2010 Annual Report

138

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(2) Valuation of Available-for-sale Securities
Available-for-sale securities are initially recognized at acquisition cost plus incidental expenses, determined by the individual moving averagemethod for equity securities and the specified identification method for debt securities. The effective interest method is applied to amortize thedifference between the face value and the acquisition cost over the remaining term of the debt security. After initial recognition, available-forsale securities are stated at fair value, with the net unrealized gain or loss presented as gain or loss on valuation of available-for-sale securities
in accumulated other comprehensive income (loss), which is charged to current operations in a lump sum at the time of disposal or impairment
recognition. Non-marketable equity securities are stated at acquisition cost on the financial statements if the fair value of the securities is notreliably determinable.
If the fair value of equity securities (net asset fair value in case of non-marketable equity securities stated at acquisition cost) is below theacquisition cost and the pervasive evidence of impairment exists, the carrying value is adjusted to fair value and the resulting valuation loss ischarged to current operations. If the collectible value of debt securities is below the amortized cost and the pervasive evidence of impairment
exists, the carrying value is adjusted to collectible value and the resulting valuation loss is charged to current operations. With respect to impaired
securities, any unrealized valuation gain or loss of securities previously included in accumulated other comprehensive income (loss) is reversed.
(3) Valuation of Held-to-maturity Securities
Held-to-maturity securities are stated at acquisition cost plus incidental expenses, determined by the specific identification method. Whenthe face value of held-to-maturity securities differs from its acquisition cost, the effective interest method is applied to amortize the difference
over the remaining term of the securities. If collectible value is below the amortized cost and the pervasive evidence of impairment exists, thecarryingvalue is adjusted to collectible value and the resulting valuation loss is charged to current operations.
(4) Valuation of Securities using the Equity Method
Equity securities held for investment in companies in which the Bank and its subsidiaries are able to exercise significant influence over the investees(in accordance with the Banking Act, if the Bank holds more than 15 percent of the total issued shares, the Bank is considered being able toexercise significant influence) are accounted for using the equity method. The Bank’s share in net income or net loss of investees is included incurrent operations. Changes in the retained earnings of investee are reflected in the retained earnings. Changes in the capital surplus, capitaladjustments or accumulated other comprehensive income (loss) of investee are reflected as gain or loss on valuation of securities using theequity method in accumulated other comprehensive income (loss).
When the book value of equity securities using the equity method is less than zero due to the cumulative losses of the investees, the Bank and its
subsidiaries discontinue applying the equity method and does not provide for additional losses. If the investee subsequently reports net income,the Bank and its subsidiaries resume applying the equity method only after their share of that net income equals the share of net losses notrecognized during the period that the equity method was suspended.
In addition, any gain or loss from the disposal of equity securities of certain consolidated subsidiaries is accounted for as accumulated othercomprehensive income (loss) resulting from applying the equity method in the statements of financial position if the subsidiaries are stillconsolidated even after the Bank disposes of a portion of equity securities.
(5) Reversal of Impairment Loss on Available-for-sale Securities and Held-to-maturity Securities
If the reasons for impairment loss on available-for-sale securities no longer exist, the recovery is recorded in current operations under nonoperating income up to amount of the previously recognized impairment loss as reversal of impairment loss on available-for-sale securities andany excess is included in accumulated other comprehensive income as gain on valuation of available-for-sale securities. However, if the increases
in the fair value of the impaired securities are not regarded as the recovery of the impairment, the increases in the fair value are recorded as gain
on valuation of available-for-sale securities in accumulated other comprehensive income. For non-marketable equity securities, which wereimpaired based on the net asset fair value, the recovery is recorded up to their acquisition cost.
For held-to-maturity securities, the recovery is recorded in current operations under non-operating income within the amount of amortized costthat would have been recorded according to the original schedule if the impairment losses had not been recognized as reversal of impairment
loss on held-to-maturity securities.
(6) Reclassification of Securities
When held-to-maturity securities are reclassified to available-for-sale securities, those securities are accounted for at fair value on thereclassification date and the difference between the fair value and book value is reported in accumulated other comprehensive income (loss)
as gain or loss on valuation of availablefor-sale securities. When available-for-sale securities are reclassified to held-to-maturity securities,
gain or loss on valuation of available-for-sale securities, which had been recorded until the reclassification date, continue to be included inaccumulated other comprehensive income (loss) and amortized using the effective interest rate method and the amortized amount is charged
to interest income until maturity. The difference between the fair value at the reclassification date and face value of the reclassified securities toheld-tomaturity securities is amortized using effective interest rate method and the amortized amount is charged to interest income. In addition,

139

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

when certain trading securities lose their marketability, such securities are reclassified as available-for-sale securities at fair market value as ofreclassification date.
•
Transfer of Securities
When the realization, expiration or sale of the right to obtain the economic benefits arises and the control of securities is lost from the sale of the
securities, the unrealized valuation gain or loss of securities included in accumulated other comprehensive income (loss) is added to or deductedfrom the gain or loss on disposal of securities. The gain or loss is the difference between the net proceeds receivable or received and its carrying
value. When securities are transferred without losing control of the securities, the transaction is recorded as a secured borrowing transaction.
•
Allowance for Possible Losses on Credits
According to the Korea Financial Accounting Standard Article 57 (Valuation of Receivables), allowance for bad debts shall be provided for estimateduncollectible accounts on a reasonable and objective basis. Presently, the historical loss rate (based on mitigation or roll-rate analysis) is one of thepermitted reasonable and objective methods to estimate allowance for financial institutions. However, the Bank and its subsidiaries provide loan loss
provision pursuant to the Supervisory Regulation of the Banking Business, which requires providing more than minimum rate of loss provision foreach asset classification category.
The Bank and its subsidiaries apply the Forward Looking Criteria (“FLC”) for their loan classification for large corporate based on the credit rating todetermine allowance for loan losses. Under this method, the borrowers’ future debt repayment capacity as well as their overall financial health andmanagement soundness are considered in developing the credit rating and the reserve for possible loan losses related to large corporate customers.
However, loan classification for the smaller corporate, household loans and credit card receivables is classified based on the delinquency period,
value of collateral and bankruptcy status only. Using such loan classification, the Bank and its subsidiaries classify all credits into five categories asnormal, precautionary, substandard, doubtful, or estimated loss and provides the minimum rate of loss provision for each category balance using
the prescribed minimum percentages of 0.85 percent (0.9 percent for construction, real estate, wholesale & retail, hotel and restaurant industries)
or more, 7 percent or more, 20 percent or more, 50 percent or more and 100 percent, respectively. Households’ loans categorized as normal,
precautionary, substandard and doubtful are 1 percent or more, 10 percent or more, 20 percent or more and 55 percent or more, respectively. Card
receivables under those categories are 1.5 percent or more, 15 percent or more, 20 percent or more and 60 percent or more, respectively.
The Bank and its subsidiaries provide allowance for possible losses on confirmed acceptances and guarantees, unconfirmed acceptances andguarantees, and endorsed notes based on the credit classification, minimum rate of loss provision prescribed by the Financial Supervisory Service
and the credit conversion factor based on the new standard of Bank for International Settlements Accord.
In addition, the Bank and its subsidiaries provide other allowances for the unused limit of credit card (including unused limit of credit card thathave not been used at least once in recent one year) and unused loan commitments for corporate and retail loan customers considering the credit
conversion factor based on the new standard of Bank for International Settlements Accord and minimum rate of loss provision prescribed by the
Financial Supervisory Service.
•
Restructuring of Loans
The equity interest in the debtors, net of real estates and/or other assets received as full or partial satisfaction of the Bank’s and subsidiaries’ loans,collected through reorganization proceedings, court mediation or debt restructuring agreements of parties concerned, is recorded at fair value at thetime of the restructuring. In cases here the fair value of the assets received is less than the book value of the loan (book value before allowances),the Bank and its subsidiaries offset first the book value against allowances for loan losses and then recognizes provisions for loan losses.
Impairment losses for loans that were restructured in a troubled debt restructuring involving a modification of terms are computed by the difference
between the present value of future cash flows under debt restructuring agreements discounted at effective interest rates at the time when loans are
originated and the book value before allowances for loan losses. If the amount of allowances already established is less than the impairment losses,
the Bank and its subsidiaries establish additional allowances for the difference. Otherwise, the Bank and its subsidiaries reverse the allowances forloan losses.
•
Deferred Loan Origination Fees and Costs
The Bank and its subsidiaries defer loan origination fees associated with originating loans and loan origination costs that have future economic
benefits. Loan balances are reported net of these loan origination fees and costs. The deferred loan origination fees and costs are amortized using
the effective interest method with the amortization recognized as adjustments to other interest income.
•
Valuation of Receivables and Payables at Present Value
Receivables and payables incurred through long-term installment transactions, long-term borrowing and lending transactions, and other similartransactions are stated at the present value of expected future cash flows, and the gain or loss on valuation of related receivables and payables isreflected in current operations, unless the difference between nominal value and present value is immaterial. Present value discount or premium isamortized using the effective interest rate method and credited or charged to interest income or interest expense.

140

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009•
Tangible Assets and Related Depreciation
Tangible assets are recorded at cost or production cost including incidental expenses. Routine maintenance and repairs are expensed as incurred.
Expenditures that result in the enhancement of the value or the extension of the useful lives of the facilities involved are capitalized as additions totangible assets. The Bank adopted the amendment to the Statements of Korea Accounting Standards (“SKAS”) No. 5 “ Property, Plant and Equipment ”,
which permits certain items of its land to be revalued after acquisition date, applying the revaluation models permitted under SKAS No. 5. As aresult of this adoption, gain and loss on revaluation of tangible assets is accounted as accumulated other comprehensive income and non-operating
expenses, respectively.
Depreciation is computed by the straight-line method for building and leasehold improvements and by the declining-balance method for others
based on the estimated useful lives of the assets as follows:
Tangible assets
Construction
Leasehold improvements
Equipment

Estimated useful life

Depreciation method

40 years
3~10 years
3~20 years

Straight-line
Straight-line
Declining balance•
Intangible Assets and Related Amortization
Intangible assets included in other assets are recorded at the production costs or purchase costs plus incidental expenses less discount if any.
Expenditures incurred in conjunction with the development of new products or technology and others, in which the elements of costs can be
individually identifiable and future benefits expected, are capitalized as development costs. Intangible assets are amortized using the straight-line
method over 5~10 years and presented after deducting amortized amount.
•
Valuation Allowance for Non-Business Use of Property
Non-business use of property included in fixed assets is recorded when the Bank and its subsidiaries acquire collateral by foreclosure on themortgage for loans. Such assets are not depreciated. After foreclosure, the asset is carried at the lower of its carrying amount or fair value
determined by the its estimated public auction price. As of December 31, 2010, the Bank and its subsidiaries do not have non-business use ofproperty.
•
Recognition of Impairment of Assets
When the book value of assets (other than securities and assets valued at present value) exceeds the collective value of the assets due toobsolescence, physical damage or a sharp decrease in market value and the difference is material, the book value are adjusted to collective value inthe statements of financial position and the resulting impairment loss is charged to current operations. If the collective value of the assets increases
in subsequent years, the increase in value is credited to operations as gain until the collective value equals the book value of assets that would havebeen determined had no impairment loss been recognized. The Bank and its subsidiaries assess the collective value based on expected selling priceor appraisal value.
•
Amortization of Discounts (Premiums) on Debentures
Discounts or premiums on debentures issued are amortized over the period from issuance to maturity using the effective interest rate method.
Amortization of discounts or premiums is recognized as interest expense on the debentures.
•
Securities under Resale or Repurchase Agreements
Securities purchased under resale agreements are recorded as loans, and securities sold under repurchase agreements are recorded as borrowings
when the Bank and its subsidiaries purchase or sell securities under such agreements.
•
Other Reserves
A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the Bank and its subsidiaries are recognized as a contingent liability when it is probable thatan outflow of resources embodyingthe effect of the time value of money is material, the amount of the liabilities is the present value of theexpenditures expected to be required to settle the obligation.
•
Accrued Severance Benefits
The accrued severance benefits that would be payable to assuming all eligible employees and directors were to resign are included in other liabilities.
The Bank and its domestic subsidiaries has purchased severance benefits insurance, which meets the funding requirement for tax purposes, andmade deposits with Samsung Life Insurance Co., Ltd. and others. The deposit for severance benefit is presented as a deduction from accrued
severance benefits. The Bank manages the defined benefit retirement pension plan (DB plan) for the year ended December 31, 2010, and the assets invested in the
DB plan is accounted for as assets under management of pension benefits and presented as a deduction from accrued severance benefits.

141

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

The estimated accrued severance benefits, which would be payable assuming all eligible employees and executives were to terminate theiremployment, amounted to ￦359,398 million and ￦318,697 million as of December 31, 2010 and 2009, respectively.
The Bank runs the defined benefit retirement pension plan (DB plan), whose investment manager is Merrill Lynch Trust Company, for retirees ofclosed branches in the U.S. The Bank accounted the present value of estimated pension benefits as of December 31, 2010 as pension benefits
payable. The assets invested in the DB plan is accounted as assets under management of pension benefits and presented as a deduction frompension benefits payable in accordance Korea Accounting Institute (KAI) Opinion 05-2.
•
Accounting for Derivative Instruments
The Bank and its subsidiaries account for derivative instruments pursuant to the Interpretations on Financial Accounting Standards 53-70 on
accounting for derivative instruments. Derivative instruments are classified as used for trading activities or for hedging activities according to theirtransaction purpose. All derivative instruments are accounted for at fair value with the valuation gain or loss recorded as an asset or liability. If thederivative instrument is not part of a transaction qualifying as a hedge, the adjustment to fair value is reflected in current operations.
The accounting for derivative transactions that are part of a qualified hedge based both on the purpose of the transaction and on meeting thespecified criteria for hedge accounting differs depending on whether the transaction is a fair value hedge or a cash flow hedge. Fair value hedge
accounting is applied to a derivative instrument designated as hedging the exposure to changes in the fair value of an asset or a liability or a firm
commitment (hedged item) that is attributable to a particular risk. The gain or loss both on the hedging derivative instruments and on the hedged
item attributable to the hedged risk is reflected in current operations. Cash flow hedge accounting is applied to a derivative instrument designated as
hedging the exposure to variability in expected future cash flows of an asset or a liability or a forecasted transaction that is attributable to a particularrisk. The effective portion of gain or loss on a derivative instrument designated as a cash flow hedge is recorded as accumulated other comprehensive
income (loss) and the ineffective portion is recorded in current operations. The effective portion of gain or loss recorded as accumulated othercomprehensive income (loss) is reclassified to current earnings in the same period during which the hedged forecasted transaction affects earnings.
If the hedged transaction results in the acquisition of an asset or the incurrence of a liability, the gain or loss in accumulated other comprehensive
income (loss) is added to or deducted from the asset or the liability.
•
Accounting for Share-based Payment
In accordance with the Statement of Korea Accounting Standards No.22 - Share-based Payment. and the Interpretations on Financial AccountingStandards 39-35 - Accounting for Stock Options., in case of equitysettled share-based payment transactions, compensation expense for stock option
and stock option (capital adjustment) are recorded at fair value at the grant date through an agreement service period, whereas in case of cashsettled share-based payment transactions, compensation expense for stock option and accrued expenses are recorded at fair value at the grant datethrough an agreement service period. The other liabilities (accrued expenses) by cash-settled share-based payment transactions are assessed atfair value at the closing day or the final settlement day (assessed at intrinsic value for the portion occurred before December 31, 2009). The changes
in the fair value of accrued expenses after the grant date are reflected as compensation expense for stock option. In addition, for share-based
payment transactions in which the terms of the arrangement provide a choice for the Bank whether the Bank settles the transaction in cash or byissuing equity instruments, the Bank is required to account for that transaction as a cash-settled share-based payment transaction if the Bank has
a present obligation to settle in cash, or as an equity-settled share-based payment transaction if no such obligation exists. In case of a cash-settled
share-based payment, compensation cost is recorded as capital adjustment (stock option), and in case of an equity-settled share-based payment,compensation cost is recorded as other liabilities (accrued expenses).
•
Accounting for Trust Accounts
The Bank separately maintains the books of accounts and financial statements in connection with the trust operations (the trust accounts) fromthose of the bank accounts in accordance with the Financial Investment Services and Capital Markets Act (FSCMA). When surplus funds are
generated through the management of trust assets, such funds are deposited with the Bank and are recorded as due to trust accounts of the bankaccounts. Also, the borrowings from the bank account are recorded as due from trust accounts of the bank accounts. The Bank receives fees for
operation and management of the trust business and accounts for them as fees and commissions from trust accounts.
With respect to certain trust account products, the Bank guarantees the repayment of the principal of the trust accounts and, in certain cases, afixed rate of return. If income from such trust accounts is insufficient to pay the guaranteed amount, such a deficiency is satisfied by using special
reserves maintained in the trust accounts, offsetting trust fee payable to the bank accounts and receiving compensation contributions from the bankaccounts of the Bank. If the Bank pays compensating contributions to the guaranteed return trusts to cover such deficiencies, these contributions
are reflected as operating expense of the bank accounts and as other income of the trust accounts. There are no compensating contributions of the
Bank for the year ended December 31, 2010.

Korea Exchange Bank 2010 Annual Report142

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

•	Merchant Banking Accounts
As permitted by the Restructuring of Financial Institutions Act, the Bank may continue its merchant banking operations, including leasing business,
until the existing contracts acquired from Korea International Merchant Bank upon merger are terminated. Significant accounting policies applied to
the Bank’s merchant banking operations are summarized as follows:(1) Revenue Recognition on Discounted Notes
Interest income on discounted notes is accrued over the term of the notes. Income from the sale of discounted notes is recognized at the date ofsale based on the difference between the purchase and sales prices of the notes, adjusted for interest earned during the holding period.
(2) Cash Management Accounts (“CMA”)
The Bank recognizes interest income from CMA investments and interest expense from CMA deposits as other income and other expenses,
respectively.
(3) Lease Transactions
The Bank accounts for lease transactions as operating or financing leases, depending on the terms of the lease contracts. In general, noncancelable leases are recognized as financing leases when ownership transfers at expiration of the lease term, when a bargain purchase option
exists, or when the lease term exceeds the estimated economic life of the related asset. Under the financing lease method, aggregate leaserentals are recorded as financing leases receivable, net of unearned interest, based on the excess of rental revenue over the cost of the related
assets. Unearned interest is recognized as interest income on financing leases using the effective interest method over the lease term.
•
Income Tax Expense
Income tax expense is the amount currently payable for the period, additional income taxes or tax refunds for prior years (except for retroactive
adjustments of tax effect directly added to or deducted from shareholders’ equity) added to or deducted from the changes in deferred income
taxes. However, deferred income tax assets are recognized only if the future tax benefits from accumulated temporary differences and any tax
loss carryforwards are realizable. The difference between the amount currently payable for the period and income tax expense is accounted for asdeferred income tax assets or liabilities, which will be charged or credited to income tax expense in the period the related temporary difference
reverses in the future. Deferred income tax assets or liabilities are calculated based on the expected tax rate to be applied at the reversal period of
the related assets or liabilities. Tax payable and deferred income tax assets or liabilities relating to certain items are charged or credited directly torelated components of shareholders' equity.
•
Accounting for Foreign Currency Transactions and Translation
The Bank and its domestic subsidiaries maintain its accounts in Korean Won. Transactions in foreign currencies are recorded in Korean Won at
the exchange rate prevailing on the transaction date. The Korean Won equivalent of assets and liabilities denominated in foreign currencies aretranslated in these financial statements based on the basic rate (￦1,138.90 and ￦1,167.60 to US$ 1.00 at December 31, 2010 and 2009, respectively)
announced by Seoul Money Brokerage Service, Ltd. or cross rates for other currencies other than U.S. Dollars at the end of the reporting period.
Translation gains and losses are credited or charged to operations. Financial statements of overseas branches are translated based on the basic rate
at the end of the reporting period.
•
Application of the Statements of Korea Accounting Standards (“SKAS”)
The Korea Accounting Standard Board (KASB) under the Korea Accounting Institute (KAI) issued the SKAS for achieving a set of Korean accounting
standards that could be internationally acceptable and comparable based on SKAS Act 92. The Bank has adopted SKAS No.1 (Accounting Changes
and Error Corrections) through SKAS No. 25 (Consolidated Financial Statements) (excluding No. 14) as of or before December 31, 2009 and applied
those adopted standards as of and for the year ended December 31, 2010.
In addition, in this fiscal year, the balance sheet is renamed to statement of financial position in accordance with the revised Acts on External Audit
for Stock Companies in the Republic of Korea.

•

Disclosure in Relation with Adoption of Korean International Financial Reporting Standards (K-IFRS)(1) Preparation and progress of adopting K-IFRS
Beginning January 1, 2011, application of K-IFRS becomes mandatory for all listed companies including banks in Korea. Based on this regulation,
the Bank has set up a task force team for the adoption & implementation of K-IFRS and been performing a preliminary analysis of the impact on
adoption of K-IFRS, establishing a master plan for implementation, determining appropriate accounting treatments under K-IFRS, to design anddevelopment its accounting system, implementing new accounting system and its on-going maintenance. Overall, this transition is currently inprocess.
However as of December 30, 2010, the Bank has completed analyzing the impact on adoption of K-IFRS in April 2008, and has completed

143

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009its design and development of updated accounting system in 2009. In addition, the Bank has implemented new accounting system and been
maintaining beginning 2010. In addition, in order for the effective and efficient transition to K-IFRS, the Bank is providing on-the-job-training for
applicable employees and team managers.
(2) Expected significant differences between K-IFRS and current accounting standards (K-GAAP)Classification

K-IFRS

Allowance for possible loan
lossesCompute by using either a historical loss experience rate Compute by considering the minimum accumulationor an expected future cash flow model, in accordance
rate in accordance with Forward Looking Criteria
under Regulation on Supervision of Banking Businesswith the incurred loss model.

Guarantees/Provisions forunused credit commitment

Compute by applying a historical credit conversion
factor(CCF) and a historical loss experience rate inaccordance with the expected loss model

Compute by applying a credit conversion factor(CCF) and the minimum accumulation rate under
Regulation on Supervision of Banking Business

Loan Origination Cost/Fee(LOC/LOF)

Amortize in accordance with an expected maturity

Amortize in accordance with a contracted maturity

Customer loyalty
programmes

Defer revenues related to points and recognize revenues
Expense paid points and reserve provisions
when used

Reversal of impairment loss
on securities

Recognize comprehensive income when a fair valueof available-forsale security, which was previously
impaired, is recovered

Reverse an impairment loss as net income within thelimit of prerecognized impairment loss whena fair value of available-for-sale security is recovered

Accumulating compensatedabsences

Recognize expenses when services, generating
accumulated compensated absences, are provided

Since no explicit regulations exist, recognize
expenses when paid.

Foreign currency translation

Apply closing rates for monetary items and historicalrates for non-monetary items

Apply closing rates for all items

Financial guarantee contracts

In case that the definition of financial guarantee
contracts is satisfied in regard to liability on payment
guarantee, an estimated fair value is recognized as aliability

No explicit regulations regarding to financial
guarantee contacts exist.

Actuarial valuation on
defined benefit plans

In accordance with Projected Unit Credit (PUC) model,
the present value of expected severance benfits,
computed using actuarial method and discount rate, isaccounted as a defined benefit obligation

Hybrid bonds
First-time adoption of
K-IFRS (deemed cost)

K-GAAPIn accordance with a severance benefit rule,estimated severance benefits are accounted as
accrued severance benefits, which will be paid incase that the entire employees, who have served
over a year as of the end of reporting period, areretired at the same time.
Classify as a liability and treat related costs as interest
Classify as an equity and treat related costs as dividends
expenses

Valuation gains on fixed assets are recognized asretained earnings at transition date when electing touse deemed cost

Valuation gains on fixed assets are recognized asother comprehensive income under the revaluation
method.

144

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(3) Changes of subsidiaries included in the consolidation
As of December 31, 2010, changes in the scope of consolidation as a result of the Bank’s transition to KIFRS are as follows.
K-GAAPK-IFRS

Korea Exchange BankKEB Capital Inc.
KEB Futures Co., Ltd.

Korea Exchange BankKEB Capital Inc.
KEB Futures Co., Ltd-

KEB Fund Services Co., Ltd.

Korea Exchange Bank of Canada
KEB Australia Ltd.
PT. Bank KEB Indonesia
Korea Exchange Bank (Deutschland) A.G.
Banco KEB do Brasil S. A.
KEB NY Financial Corp.
KEB LA Financial Corp.

Korea Exchange Bank of Canada
KEB Australia Ltd.
PT. Bank KEB Indonesia
Korea Exchange Bank (Deutschland) A.G.
Banco KEB do Brasil S. A.
KEB NY Financial Corp.
KEB LA Financial Corp.

-

KEB USA Int'l Corp.

KEB Asia Finance Limited
KEB Bank (China) Co.,Ltd.

KEB Asia Finance Limited
KEB Bank (China) Co.,Ltd.

Trust agreement to preserve
principal-

Trust agreement to preserve
IncomeTrust agreement to preserve Income-

KEB 17th Securitization
Specialty Co., Ltd.

Differences
Excluded according to the Act on External
Audit for Stock Companies in the Republic ofKorea under K-GAAP while included in the
consolidation scope under K-IFRS
Excluded according to the Act on External
Audit for Stock Companies in the Republic ofKorea under K-GAAP while included in the
consolidation scope underK-IFRS
Excluded from the consolidation scope under
K-IFRS
Included in the consolidation scope under
K-IFRS(4) Information about the effect on financial position and results of operations in accordance with adoption of K-IFRS
The following reconciliation tables explain the principal effects of the Bank’s transition from K-GAAP to KIFRS for its financial position and resultsof operation, on a basis of non-consolidated financial statements. These are subject to changes following further assessment by the Bank of its
transition to K-IFRS and subsequent adoption of amendments to the standards.

145

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

1) Details of adjustment for financial position as of January 1, 2010 (transition date) (Unit: In millions):
Classification

AssetsK-GAAP
The settled amount :Changes in the Consolidated Entity
Allowance for possible loan losses
Valuation of derivatives

Liabilities

Shareholders’ Equity

100,021,317 ￦

92,044,710 ￦(1,226,354)
442,468-(1,234,168)(164,610)(4,047)

7,814
607,078
4,047

Actuarial valuation on defined
benefit plans-

43,579(43,579)

Reversal of impairment loss on
securities(29,877)-(29,877)

Loan Origination Cost/Fee (LOC/LOF)
Customer loyalty programmes

31,234-(328)
17,11431,562(17,114)-67,606(67,606)

30,314454
1,242(31,522)(782,041)
99,239,276(249,802)
32,516281
73,230141,487(1,277,142)
90,767,568

249,802(2,202)
173(71,988)(173,009)
495,101
8,471,708￦

Accumulating compensatedabsences
Hybrid bonds
Financial guarantee contracts
Foreign currency translation
Tax effect of the settled amount
OthersSum of adjustments
K-IFRS

￦￦7,976,607￦

2) Details of adjustment for financial position as of December 31, 2010 and results of operations for the year ended December 31, 2010
(Unit: In millions):
Classification
K-GAAP
The settled amount :Assets￦99,994,406

Shareholders’EquityLiabilities￦

91,595,788￦

8,398,618

Comprehensive
IncomeNet Income￦

1,021,563￦

902,466

Changes in theConsolidated Entity(814,471)(860,564)

46,093

(751)

5,527

Allowance for possible loan
losses288,858(195,029)

483,887

65,35765,358Valuation of derivatives-

17,750(17,750)(21,796)(21,796)

Actuarial valuation on
defined benefit plans

191

2,316

(2,125)

46,214

46,205

Reversal of impairment loss
on securities(18,888)-(18,888)

33,272

10,989Loan Origination Cost/Fee(LOC/LOF)

15,321(50)

15,371(16,495)(16,495)

Customer loyalty
programmes-

14,707(14,707)

2,408

2,408

Accumulatingcompensated absences-

70,451(70,451)(2,845)(2,845)Hybrid bonds-(249,843)

249,843

18,291

18,291

Financial guarantee
contracts

47,25649,182(1,926)276

276

Foreign currencytranslation

3,415

2,580

835

(10,432)(18,950)

Tax effect of the settled
amount(5,032)

71,843(76,875)(2,819)1,368(103,613)(586,963)
99,407,443(82,094)(1,158,751)
90,437,037(21,519)571,7888,970,406(9,738)100,942
1,122,505(40,969)
87,267989,733

OthersSum of adjustments
K-IFRS

￦

￦

￦

￦

￦

146

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

5 . C A S H A ND DUE F RO M B A N K S :(1) Cash and due from banks as of December 31, 2010 and 2009 consist of (Unit: In millions):
Account

2010

Cash
Foreign currencies on handDue from banks in Won
Due from banks in foreign currencies

2009

998,607423,473
3,921,735
2,769,061
8,112,876￦￦

809,276
389,873
3,283,060
1,864,048
6,346,257￦￦(2) Due from banks in Won as of December 31, 2010 and 2009 consist of (Unit: In millions):
Account

Financial institution

Reserve deposit
Monetary Stabilization deposits
Due from banks on time deposits
Other due from banks
Other due from banks

The Bank of Korea
The Bank of Korea
Other banks
Other banks
Other financial institutions

2010
￦

￦

3,490,109
200,000
119,706
4,506
107,4143,921,735

2009
￦

￦

1,420,823
757,228
18,016
1,086,993
3,283,060(3) Due from banks in foreign currencies as of December 31, 2010 and 2009 consist of (Unit: In millions):
Account

Financial institution

Reserve deposit
Due from banks on time deposits
Due from banks on time deposits
Other due from banks
Other due from banks

The Bank of Korea
Domestic financial institutions
Overseas financial institutions
Domestic financial institutions
Overseas financial institutions

2010

Due from banks in otherbank–foreign currencies

Overseas financial institutions￦

1,676,055
1,514
703,309
2,658
128,5942009￦

256,931￦2,769,061

752,316
90,411
237,383
2,748
603,417
177,773￦

1,864,048(4) Restricted due from banks in Won and foreign currencies as of December 31, 2010 and 2009 consisted of (Unit: In millions):
Classification
Due from banks in Won:
The Bank of Korea

2010￦

The Bank of Korea

3,490,109

2009￦

200,000

Woori Bank and others
Shinhan Investment Corp. and others603

Daewoo Securities Co., Ltd.

965

KEB Trust Pension-￦

58,526
5,409
74,242103
1,814,335
5,522,340

Stock subscription for Doosan
Engine Co., Ltd.

14,626 Required under FSCMA
1,448,395
752,316 Required under the BOK Act and other-

BOA and others
The Bank of Indonesia
The Bank of China
The Bank of Brazil and others

Deposits in the BOK for the purpose of
liquidity management of the BOK

490 Escrow account12,456 Subscription related to derivatives

1,676,055

The Bank of China

1,420,823 Required under the BOK Act-

16,3283,708,005

Due from banks in foreign currencies:
The Bank of Korea

Reason for restriction

190,165￦

Capital stock paid-up for establishing branch
in china

46,841 Subscription related to derivatives
4,161 Reserve deposits- Reserve deposits
199 Deposits related Microcredito Act
993,682
2,442,077

147

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(5) Term structure of due from banks in Won and foreign currencies as of December 31, 2010 is as follows (Unit: In millions):
Classification
Due in less than one year
Due from one to two years
Due from two to three years
Due from three to five years
Due in five years or more

Due from banks in foreign
currencies

Due from banks in Won
3,921,735 ￦￦
3,921,735

￦

￦

Total

2,767,427 ￦
1,634￦
2,769,061

6,689,162
1,634
6,690,796

6 . SE C UR I T I ES :(1) Securities as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification

2010

Trading securities
Available-for-sale securities
Held-to-maturity securities
Securities using the equity method

1,933,047
6,091,001
6,023,957
11,617
14,059,622

￦

￦

2009
2,794,096
7,768,016
4,662,798
18,985
15,243,895￦￦(2) Securities excluding securities using the equity method as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Trading securities:
Equity securities
Beneficiary certificates
Government and public bonds
Financial institution bonds
Corporate bonds
Commercial papers

2010
Acquisition
cost (*1)

Face value￦

Available-for-sale securities:
Equity securities
Equity investments
Beneficiary certificates
Government and public bonds
Financial institution bonds
Corporate bonds
Asset-backed securities
Other debt securities
Held-to-maturity securities:
Government and public bonds
Financial institution bonds
Foreign government bonds
Corporate bonds
Other debt securities￦

10,00070,000626,947
84,506
1,058,125
1,849,578￦

79,347
10,482
70,637
629,648
84,101
1,054,310
1,928,525

Adjusted by effective
interest rate method￦

70,614
628,175
84,153
1,054,710
1,837,652

Book value￦

81,645
11,94670,521
629,699
84,415
1,054,821
1,933,047

208,730
179,887
3,498,066
673,682
106,80388,1404,755,308

573,260
95,578208,730
184,538
3,490,269
682,272
106,80388,1405,429,590

182,7313,492,129
671,970
48,05730,303
4,425,190

1,273,090
96,121
228,957
183,132
3,515,048
677,106
50,202
67,345
6,091,001

1,291,643
4,378,450
61,157
283,430525
6,015,205
12,620,091

1,296,354
4,376,471
60,686287,997523
6,022,031
13,380,146

1,294,317
4,380,584
60,857
287,676523
6,023,957
12,286,799

1,294,317
4,380,584
60,857
287,676523
6,023,957
14,048,005￦(*1) Acquisition costs of trading securities are the book value before valuation.

￦

￦

148

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009Classification
Trading securities:
Equity securities
Beneficiary certificates
Government and public bonds
Financial institution bonds
Corporate bonds
Commercial papers

2009
Acquisition
cost (*1)

Face value￦￦
Available-for-sale securities:
Equity securities
Equity investments
Beneficiary certificates
Government and public bonds
Financial institution bonds
Corporate bonds
Asset-backed securities
Other debt securities
Held-to-maturity securities:
Government and public bonds
Financial institution bonds
Foreign government bonds
Corporate bonds
Other debt securities￦

15,000125,504
1,462,677
78,531
1,057,600
2,739,312￦￦

39,00615,000127,308
1,469,087
78,795
1,051,878
2,781,074

Adjusted by effective
interest rate method￦￦

126,749
1,466,022
77,406
1,054,573
2,724,750

Book value￦￦

42,12615,014
126,340
1,477,135
78,8081,054,673
2,794,096

202,718
329,925
4,476,805
752,243
191,542
87,6446,040,877

734,499
101,849
203,117339,188
4,465,485
755,480
275,723
87,644
6,962,985

339,188
4,431,752
735,269
217,567
51,8655,775,641

1,661,970
103,865
209,852
335,156
4,474,566
744,283
208,51729,807
7,768,016

1,160,207
3,292,678
29,345
179,662591
4,662,483
13,442,672

1,164,936
3,291,793
28,974
179,555588
4,665,846
14,409,905

1,164,717
2,390,691
29,325
179,624588
3,764,945
12,265,336

1,164,717
3,288,544
29,325
179,624588
4,662,798
15,224,910

￦

￦

￦

(*1) Acquisition costs of trading securities are the book value before valuation.
The difference of trading securities between the fair value and the adjusted cost using the effective interest rate method (acquisition cost for stocks)
was recorded as gain on valuation of trading securities amounting to ￦7,020 million and ￦17,598 million, and loss on valuation of trading securities
amounting to ￦1,454 million and ￦2,258 million for the years ended December 31, 2010 and 2009, respectively.
The fair value of trading and available-for-sale debt securities is assessed by applying the average of base prices as of December 31, 2010, provided
by Korea Bond Pricing & KR Co. (KBP), KIS Pricing Inc. and National Information & Credit Evaluation Inc. (NICE).
The fair value of available-for-sale non-marketable equity securities such as Vogo Fund and 31 others, and the restricted available-for-salemarketable equity securities such as Hynix Semiconductor Inc. and 7 others is reliably measured by an independent appraisal institute using
reasonable judgment. The fair value is determined based on more than one valuation model such as Discounted Cash Flow (DCF) Model, Imputed
Market Value (IMV) Model, Discounted Free Cash Flow to Equity (FCFE) Model, Dividend Discount (DD) Model and Risk Adjusted Discounted Cash
Flow (RADCF) Model depending on the equity securities. In order to assess the fair value of stocks, a 5-year projection is forecasted based on past
operating results. Also, assuming the same operation is continued during the estimated period, the model is applied using the estimated financial
statements from 2010 to 2014. Operating income and expenses are reasonably estimated based on the past result, the future plan and the expectedmarket condition, and for non-operating income and expenses, gain or loss from irregular transactions such as gain or loss on disposal of tangible
assets are excluded. For the equity investment of association, net assets are calculated by deducting total liabilities from total assets of each equity
investment.

149

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(3) Discretionary investing contract assets included in beneficiary certificate of trading securities as of December 31, 2010 and 2009
consist of (Unit: In millions):
Classification
Short-term financial instruments
StocksOthersTotal assets
Total liabilities
Net assets value

2010
￦

￦

503
11,438134
12,075129
11,946

2009
￦

￦

1,147
13,325
2,301
16,773
1,759
15,014(4) The book value of non-marketable stocks and equity investments among available-for-sale securities, which were not measured atfair value as of December 31, 2010 and 2009, is as follows (Unit: In millions):
Company
Stocks:Credit Recovery Fund
Alpha Dome City
KAMCO
PDHD
M Cieta Development
Hallyu-Wood
BLADEXOthers2010￦

Equity investments:
Consolidated Fund for Impaired Loans
SHCF Private Equity Fund
Westend Corporate Restructuring Corporate
QCP PEF (Private Equity Fund) No.1
Petra PEF
Golden Bridge Green PEF No.1
Value Up PEF
QCP PEF No.3
SHC-Aju
Others￦62,466
14,751
6,330
2,000
1,275
1,200
1,117
4,567
93,706
18,888
5,000
4,655
4,000
3,905
4,000
2,700
2,000
2,000
10,27957,427
151,133

150

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Company

2009

Stocks:Credit Recovery Fund
Samsung Life
Alpha Dome City
KAMCO
PDHD
M Cieta Development
Hallyu-Wood
BLADEXOthers￦62,46632,939
8,850
6,330
2,000
1,275
1,200
1,146
1,594
117,800￦

29,877
5,000
5,000
4,000
4,000
4,000
3,000
2,000
2,000
890
59,767
177,567￦

Equity investments:
Consolidated Fund for Impaired Loans
SHCF Private Equity Fund
Westend Corporate Restructuring Corporate
QCP PEF (Private Equity Fund) No.1
Petra PEF
Golden Bridge Green PEF No.1
Value Up PEF
QCP PEF No.3
SHC-Aju
Others(5) The impairment loss and the reversal of impairment loss on available-for-sale securities for the years ended December 31, 2010 and2009 are as follows (Unit: In millions):
2010
Classification
Equity securities
Corporate bonds
Asset-backed securities
Beneficiary certificates

2009

Impairment
308
308

￦

￦

Reversal
3
2,387
2,390

￦

￦

Impairment
￦

￦

1,547
878
9,085
10,57422,084

Reversal
￦

￦

7,920
205
10,602
18,727(6) Securities provided as collateral as of December 31, 2010 are as follows (Unit: In millions):
CollateralamountProvided to
Customers
BOK
BOK
BOK
Other financial institutes
KRX
Brazilian money brokerage service
Deutsche Bundes Bank

￦

￦

3,000
1,010,000
110,000
590,000
1,218,200
31,944
3,087
810
2,967,041

Book value Provided for￦￦

3,008 Sale of RP to customer
1,012,265 Settlement of difference
110,805 RP sold
590,138 Borrowings from BOK
1,222,269 Derivatives settlement and others
31,944 Settlement
3,087 Collateral809 Borrowings from Deutsche Bundes Bank
2,974,325

In addition, securities that are possible to be discounted by BOK amounted to ￦4,817,753 million as of December 31, 2010.

151

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(7) Securities using the equity method
1) Securities using the equity method as of December 31, 2010 and 2009 are summarized as follows (Unit: shares in thousand, in millions):
Company

2010
Acquisition
cost

No. ofsharesOwnership(%)

510

100.00

388

2.70

1,939

1,518

1,518

165
0.1

5.00
100.00

825
2,847
8,161

628
6,921
18,847628
6,921
11,617KEB Fund Services Co., Ltd. (KEBFS) (*1)
MIDAN City Development Co., Ltd.
(*2 and *3)
Flossom Co., Ltd. (*2 and *4)
KEB USA International Corp. (USAI)

￦

￦

2,550

Net asset
value
9,780

￦

￦

Book value
2,550

￦

￦

(*1) Securities of KEB Fund Services Co., Ltd. are subject to the Act on External Audit for Stock Companies in the Republic of Korea, and as thevaluation change in these equity securities is not material; investment is not accounted for using the equity method.
(*2) Although the Bank has less than 15 percent ownership, it has significant influence over the company through designation of a director and other.
(*3) Lippo Incheon Development Co., Ltd. has been renamed MIDAN City Development Co., Ltd.
(*4) Soul Flora Co., Ltd. has been renamed Flossom Co., Ltd.

Company
KEB Fund Services Co., Ltd. (KEBFS) (*1)
Lippo Incheon Development Co., Ltd. (*2)
Realty Advisors Korea, Ltd. (*2)
Ilsan Project Co., Ltd. (*2)
Soul Flora Co., Ltd. (*2)
KEB USA International Corp. (USAI)HTIC2 Corporate Restructuring Association

No. ofsharesOwnership
(%)

510
388
200
288
165
0.1
0.04

100.00
2.70
14.29
4.80
5.00
100.0020.00

2009
Acquisition
cost
￦

￦

2,550
1,939
1,000
2,880
825
2,919
4,00
16,113

Net asset
value
8,006
1,697
1,038
2,602
748
6,459
3,891
24,441￦￦

Book value
￦

￦

2,550
1,697
1,038
2,602
748
6,459
3,891
18,985(*1) Securities of KEB Fund Services Co., Ltd. are subject to the Act on External Audit for Stock Companies in the Republic of Korea, and as thevaluation change in these equity securities is not material; investment is not accounted for using the equity method.
(*2) Although the Bank has less than 15 percent ownership, it has significant influence over the company through designation of a director and other.
2) The valuation of securities using the equity method for the years ended December 31, 2010 and 2009 is as follows (Unit: In millions):

Company

KEBFS (*1)
Realty Advisors
Korea, Ltd. (*3)

Acquisition
cost

Jan. 1,
2010

Increase(Decrease)(Dividend)

- ￦

-

2,550

1,000

1,038

(424)

(539)

-

(75)

-

-

MIDAN City
Development Co.,
Ltd. (*2 and *4)

1,939

1,697

-

-

-

(179)

-

1,518

Ilsan Project Co.,Ltd.
(*3)

2,880

2,602

-

(2,509)

-

(93)

-

-

825

748

-

-

-

(120)

-

628

USAI

2,847

6,459

-

-

(158)

620

-

6,921

HTIC2 Corporate
restructuringassociation

4,000

3,891

(3,881)

-

-

(10)

-

-

16,041 ￦18,985 ￦(4,305) ￦(3,048) ￦(158) ￦

143 ￦

- ￦

￦

- ￦

Dec. 31,2010

2,550 ￦

Flossom Co., Ltd.
(*2 and *5)- ￦Accumulated
Equity inotherearnings
comprehensive(losses)income2,550 ￦￦

- ￦Transfer

Foreignexchange
trading
income(loss)

11,617(*1) Securities of KEB Fund Services Co., Ltd. are subject to the Act on External Audit for Stock Companies in the Republic of Korea, and as thevaluation change in these equity securities is not material; investment is not accounted for using the equity method.

152

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(*2) Although the Bank has less than 15 percent ownership, it has significant influence over the company through designation of a director and other.
(*3) The Bank do not exercise significant influence over the company due to resignation of a director and others who were appointed by the Bank.
Accordingly, securities can no longer be accounted for using the equity method and are reclassified as available-for-sale securities.
(*4) Lippo Incheon Development Co., Ltd. has been renamed MIDAN City Development Co., Ltd.
(*5) Soul Flora Co., Ltd. has been renamed Flossom Co., Ltd.

Acquisition
cost

Company

KEBFS (*1)
Realty Advisors Korea, Ltd. (*2)

Increase(Decrease)(Dividend)

Jan. 1,2009

2,550 ￦
1,000

2,550 ￦
2,955

Lippo Incheon
Development Co.,Ltd. (*2)

1,939

1,863

Ilsan Project Co., Ltd.(*2)
Soul Flora Co., Ltd.(*2)
USAI

2,880
825
2,919

HTIC2 Corporate restructuringassociation

￦

￦

- ￦
(1,550)Foreignexchange
trading
income(loss)

Equity inearnings(losses)Accumulated
othercomprehensive
incomeDec. 31,
2009

- ￦
-

- ￦
(367)

-

2,550
1,038

-

-

(166)

-

1,697

2,775
88
6,399

725
-

(458)

(173)
(53)
518

(12)
-

2,602
748
6,459

4,000

3,974

-

-

(83)

-

3,891

16,113 ￦20,604 ￦(825) ￦

(458) ￦

(324) ￦

(12)

18,985(*1) Securities of KEB Fund Services Co., Ltd. are subject to the Act on External Audit for Stock Companies in the Republic of Korea, and as thevaluation change in these equity securities is not material; investment is not accounted for using the equity method.
(*2) Although the Bank has less than 15 percent ownership, it has significant influence over the company through designation of a director and other.
3) Summary of Financial Information of Affiliates
The summary of financial information in affiliates using the equity method as of and for the year ended December 31, 2010 is as follows (Unit: In
millions):
MIDAN City
Development
Co., Ltd.

Classification
Total assets
Total liabilities
Operation revenue
Net income (loss)￦

783,536 ￦727,260(6,579)FlossomCo., Ltd.
96,424 ￦83,867233(2,400)USAI
6,987 ￦
66
2,880
620

KEB FundServices Co.,Ltd.
11,040 ￦1,260
12,816
2,243

Total
897,987
812,453
15,929(6,116)

Unaudited financial statements as of December 31, 2010 are used for the application of the equity method. The significant events from the closing
dates of the investees to that of the Bank are properly reflected in applying the equity method. The material transactions or events from incorporationof each subsidiary to December 31, 2010 are considered in the valuation using the equity method. The Bank has performed procedures to verify
reliability of unaudited financial statements such as obtaining signature of their representatives and internal auditors.

153

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(8) The portfolio of securities excluding securities using the equity method, by industry, as of December 31, 2010 and 2009 is as follows(Unit: In millions):2010
By industry type2009

AmountPercentage (%)

AmountPercentage (%)

Trading securities:
Government andgovernmentinvested
public companies

643,767

23.04

62.15

1,871,582

66.98

￦

46,922
238,844
1,933,047

2.43
12.35
100.00￦52,423
226,324
2,794,096

1.88
8.10
100.00￦2,562,758

42.07

￦

3,047,668

39.23

1,848,534

30.35

2,453,098

31.58

￦

773,978905,731
6,091,001

12.71
14.87
100.00￦1,267,385
999,865
7,768,016

16.32
12.87
100.00￦5,236,458

86.93

￦

3,832,836

82.20

689,128

11.44

746,51316.01

22,65075,721
6,023,957

0.38
1.25
100.0058,25925,1904,662,798

1.25
0.54
100.00￦Financial and insuranc
institutions
Manufacturing
Others445,86423.07

1,201,417￦

Available-for-salesecurities:
Government andgovernmentinvested
public companies
Financial and insurance
institutions
Manufacturing
Others

Held-to-maturity
securities:
Government andgovernmentinvested
public companies
Financial and insurance
institutions
Manufacturing
Others￦￦(9) The portfolio of securities excluding securities using the equity method, by security type, as of December 31, 2010 and 2009 is asfollows (Unit: In millions):
2010

By security typeTrading securities:
StocksFixed rate bonds
Floating rate bonds
Subordinated bonds
Beneficiary certificates
Commercial paper

Amount￦￦Available-for-sale securities:
StocksFixed rate bonds
Floating rate bonds
Subordinated bonds
Convertible bonds￦

2009
Percentage (%)

Amount81,645
741,601
43,034
11,946
1,054,821
1,933,047

4.22
38.36
2.23
0.62
54.57
100.00￦1,273,090
3,183,651
765,476
476,362
-

20.90
52.27
12.57
7.82
-

￦

￦

Percentage (%)

42,126
1,514,345
46,140121,798
15,014
1,054,673
2,794,096

1.51
54.20
1.65
4.36
0.54
37.74
100.001,661,970
3,820,426
1,263,947
668,181
9,721

21.40
49.18
16.27
8.60
0.13

154

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 20092010

By security type

AmountBond with stock warrants
Beneficiary certificates
Others￦
Held-to-maturity securities:
Fixed rate bonds
Floating rate bonds
Subordinated bonds
Others￦￦2009
Percentage (%)

228,957
163,465
6,091,001

3.76
2.68
100.005,847,941
27,000148,493523
6,023,957

97.07
0.45
2.47
0.01
100.00

Amount￦￦￦Percentage (%)

247
209,852
133,672
7,768,016

0.01
2.70
1.71
100.004,275,151
68,455
318,604588
4,662,798

91.69
1.47
6.83
0.01
100.00(10) The portfolio of securities excluding securities using the equity method, by country, as of December 31, 2010 and 2009 is as follows(Unit: In millions):2010

By country typeTrading securities:
Korea
OthersAmount￦￦Available-for-sale securities:
Korea
Cayman Islands
USA
Hong Kong (China)
UK
Others￦￦
Held-to-maturity securities:
Korea
Indonesia
Singapore
BrazilPhilippines
Others￦￦2009
Percentage (%)

1,926,762
6,285
1,933,047

99.67
0.33
100.006,052,820
20,730
3,349
4,955
9,147
6,091,001

99.37
0.34
0.06
0.08
0.15
100.005,911,791
47,06549,524
9,638
5,130
809
6,023,957

98.14
0.78
0.82
0.16
0.09
0.01
100.00

Amount
￦
￦

￦

￦

￦

￦

Percentage (%)

2,793,585
511
2,794,096

99.98
0.02
100.007,704,267
41,167
6,214
4,840
3,140
8,388
7,768,016

99.18
0.53
0.08
0.06
0.04
0.11
100.004,533,112
96,954
19,128
6,718
6,062
824
4,662,798

97.22
2.08
0.41
0.14
0.13
0.02
100.00

155

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(11) T erm structure of securities except for stocks and equity investments in available-for-sale and held-tomaturity securities as ofDecember 31, 2010 is as follows (Unit: In millions):
Due in 1 year
or less

Classification
Government and publicbonds
Financial institution bonds
Foreign government bonds
Corporate bonds
Beneficiary certificates
Asset-backed securities
Commercial paper
OthersDue after 1
year through5 years

Due after 5
years through10 yearsMore than
10 years

Total￦

991,513 ￦556,457 ￦

- ￦

- ￦

1,547,970￦

5,639,013
50,346
265,460
230,033
17,542
1,054,821
523
8,249,251 ￦

2,773,962
7,639
783,737
10,87032,660504
4,165,829 ￦

112,356
2,872
66,841
182,069 ￦- ￦8,525,331
60,857
1,049,197
240,90350,202
1,054,821
67,86812,597,149(12) Structured securities relating to stock and interest rate and credit risk as of December 31, 2010 and 2009 are as follows (Unit: In
millions):
2010
Classification
Structured notes relating to stock:
Convertible bonds (available-for-sale securities)
Convertible bonds (loans)
Bonds with stock warrants (loans)
Equity Linked Warrants

Foreigncurrencies

Won￦

41,92693,000504
135,430

-

￦

Total
￦

41,92693,000504
135,430

Structured notes relating to interest rate:Long-term floating rate government bonds (CMT)(available-for-sale securities)

20,203￦

155,633-￦

20,203￦

155,633

2009
Classification
Structured notes relating to stock:
Convertible bonds (available-for-sale securities)
Convertible bonds (loans)
Bonds with stock warrants (available-for-salesecurities)
Bonds with stock warrants (loans)
Equity Linked Warrants

Foreigncurrencies

Won￦

Structured notes relating to interest rate:Long-term floating rate government bonds (CMT)(available-for-sale securities)
Structured notes relating to credit risk:
Synthetic CDO￦

247
49,490

￦

-

Total
￦

247
49,490

9,721

-

9,721

19,0008
78,466-19,0008
78,466

20,259-20,25998,725￦

16,788
16,788￦

16,788
115,513

156

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(13) Changes in accumulated other comprehensive income (loss) of available-for-sale securities for the year ended December 31, 2010
are as follows (Unit: In millions):
Classification
Equity securities
Debt securities

Beginning￦￦

810,113 ￦(8,639)801,474 ￦Increase(decrease)

Deferredincome tax

Disposal

31,794 ￦82,945
114,739 ￦(272,416) ￦1,313(271,103) ￦Ending52,968 ￦(18,629)
34,339 ￦622,459
56,990679,449(14) Changes in accumulated other comprehensive loss of held-to-maturity securities for the year ended December 31, 2010 are as
follows (Unit: In millions):
Classification
Debt securities

Beginning(16) ￦￦

Increase(decrease)

Deferredincome tax

Disposal

- ￦

21 ￦

Ending(5) ￦-(15) Changes in accumulated other comprehensive loss of negative changes of securities using the equity method for the year ended
December 31, 2010 are as follows (Unit: In millions):
Beginningbalance

Classification
Negative changes inequity on equity method￦(10) ￦

Increase(decrease)

Deferredincome tax

Disposal- ￦- ￦Endingbalance- ￦(10)

7 . L O A NS :(1) Loans as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Call loans
Domestic import usance bill
Credit card receivables
Bills bought in foreign currencies
Bills bought in Won
Bonds purchased under repurchase agreements
Loans in Won
Loans in foreign currencies
Factoring receivables
Advances for customers
Debt-for-equity swap
Privately placed bonds

2010￦

Less: Allowance for possible loan losses (see Note 19)
Deferred loan origination fees and costs￦

2009
2,712,481
3,225,448
2,580,981
3,936,483
482,874
700,000
42,783,937
10,021,893
597,679
6,336
7,732
450,319
67,506,163(1,174,628)(36,959)
66,294,576￦￦

1,037,809
2,616,185
2,422,943
4,055,089
961,958
1,786,000
43,361,419
10,250,284
166,525
8,998
666,220
67,333,430(1,038,547)(58,037)
66,236,846

157

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(2) Loans in Won and loans in foreign currencies as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Loans in Won:
Commercial

2010
Financial loans:
Working capital loans
Facilities loans
Loans with government funds:
Working capital loans
Facilities loans

Households

General purpose loans
Housing loans

Public sector and others

Working capital loans
Facilities loans
General purpose loans￦

Total loans in Won
Loans in foreign currencies:

Working capital loans
Facilities loans
OthersInter-bank loans

Total loans in foreign currencies￦

18,763,767
4,034,844

2009

21,554,134
3,621,818￦

25,245444,108
23,267,964
13,416,882
5,918,021
19,334,903
60,525
104,928
15,617
181,070
42,783,937

48,734447,939
25,672,625
13,411,891
4,157,226
17,569,117
82,89825,25912,520
119,677
63,361,419

2,343,623
2,094,027
5,419,102
165,141
10,021,893
52,805,830

1,539,051
3,132,988
5,501,380
76,865
10,250,284
53,611,703￦(3) Loans in Won, loans in foreign currencies and domestic import usance bill, classified by borrower type, as of December 31, 2010 and2009 are as follows (Unit: In millions):
By borrower type
Large corporations
Small and medium corporations (*)
Households
Public sector and others

Loans in Won￦￦

6,407,177
16,860,787
19,334,90
181,070
42,783,937

Loans in foreign
currencies￦
5,278,548
3,911,225
553,096
279,024￦
10,021,893

2010
Domestic importusance bill￦
2,536,755
688,693￦
3,225,448

Percentage
(%)

Total
￦

￦

14,222,480
21,460,705
19,887,999
460,094
56,031,278

￦

￦

25.38
38.30
35.50
0.82
100.00(*) Small and medium corporations are prescribed in Article 2 of the Small and Medium-sized Enterprise Basic Act.

By borrower type
Large corporations
Small and medium corporations (*)
Households
Public sector and others

Loans in Won￦￦

6,145,743
19,526,882
17,569,117
119,677
43,361,419

Loans in foreign
currencies￦
6,220,600
3,283,187
536,535
209,962￦
10,250,284

2009
Domestic importusance bill￦
2,089,531
526,654￦2,616,185

Percentage
(%)

Total
￦

￦

(*) Small and medium corporations are prescribed in Article 2 of the Small and Medium-sized Enterprise Basic Act.

14,455,874
23,336,723
18,105,652
329,639
56,227,888

￦

￦

25.71
41.50
32.20
0.59
100.00158

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(4) Loans in foreign currencies and domestic import usance bill, classified by borrower’s country, as of December 31, 2010 and 2009 are
as follows (Unit: In thousands of U.S. Dollars, in millions of Won):
2010
Classification
Korea
China
CanadaUSA
FranceJapan
Others$$Loans in foreign currencies

Domestic import usance bill

Loans in U.S.
Dollars (*)

Loans in U.S.
Dollars (*)

5,084,175
752,861
732,622504,239362,354
315,246
1,048,128
8,799,625

Translation
into Won￦￦

5,790,367
857,433
834,383
574,278
412,686
359,034
1,193,713
10,021,893$$

2,832,073
2,832,073

Translation
into Won￦￦

3,225,448
3,225,448

￦

￦

Total

Percentage (%)

9,015,815
857,433
834,383
574,278
412,686
359,034
1,193,713
13,247,341

68.06
6.47
6.30
4.34
3.12
2.71
9.00
100.00(*) Foreign currencies other than U.S. Dollars are converted into U.S. Dollars at the basic rate at the date of the statement of financial position.

2009
Classification
Korea
Canada
USA
Japan
China
Others$$Loans in foreign currencies

Domestic import usance bill

Loans in U.S.
Dollars (*)

Loans in U.S.
Dollars (*)

5,062,121
1,451,952
899,134
323,522
135,848906,357
8,778,934

Translation
into Won￦￦

5,910,533
1,695,300
1,049,829
377,744
158,616
1,058,262
10,250,284$$

2,240,651
2,240,651

Translation
into Won￦￦

2,616,185
2,616,185

￦

￦

Total

Percentage (%)

8,526,718
1,695,300
1,049,829
377,744
158,616
1,058,262
12,866,469

66.27
13.18
8.16
2.94
1.23
8.22
100.00(*) Foreign currencies other than U.S. Dollars are converted into U.S. Dollars at the basic rate at the date of the statement of financial position.
(5) Loans on Won, loans in foreign currencies and domestic import usance bill, classified by industry, as of December 31, 2010 and 2009
are as follows (Unit: In millions):
By borrower type
Corporations:
Manufacturing
Wholesale and retail
Real estate and renting and leasing
Construction
Transportation business
OthersHouseholds
Public sector and others

Loans in Won￦

Loans to overseas branches￦

23,267,964
9,517,900
2,517,227
3,493,086
2,510,553
915,561
4,313,637
19,334,903
181,070
42,783,937
42,783,937

Loans in foreign
currencies￦
5,770,997
2,686,847
1,211,343
116,068
137,100
523,567
1,096,072
553,096
279,024
6,603,117
3,418,776￦
10,021,893

2010
Domestic importusance bill￦
3,225,448
2,852,276
340,142
11,747983
20,3003,225,448￦
3,225,448

Total
￦

￦

32,264,409
15,057,023
4,068,712
3,609,154
2,659,400
1,440,111
5,430,009
19,887,999
460,094
52,612,502
3,418,776
56,031,278

Percentage
(%)
61.32
28.62
7.73
6.86
5.05
2.74
10.32
37.80
0.88
100.00159

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

By borrower type

Loans in Won

Corporations:
Manufacturing
Wholesale and retail
Real estate and renting and leasing
Construction
Transportation business
OthersHouseholds
Public sector and others￦

Loans to overseas branches￦

25,672,625
11,035,481
2,914,860
3,542,745
2,726,346
1,227,702
4,225,491
17,569,117
119,677
43,361,419
43,361,419

Loans in foreign
currencies￦
4,768,630
2,234,736
1,126,411
131,41458,233547,212670,624
536,535
209,962
5,515,127
4,735,157￦
10,250,284

2009
Domestic importusance bill￦
2,616,185
2,283,777
302,645
12,414201
17,1482,616,185￦
2,616,185

￦

￦

Total

Percentage (%)

33,057,440
15,553,994
4,343,916
3,674,159
2,796,993
1,775,115
4,913,263
18,105,652
329,639
51,492,731
4,735,157
56,227,888

64.20
30.21
8.44
7.14
5.43
3.45
9.54
35.16
0.64
100.00

Total

Percentage (%)

1,985,945
929,691
1,297,702
4,213,338

47.13
22.07
30.80
100.00

Total

Percentage (%)

699,321843,247
450,461
1,993,029

35.09
42.31
22.60
100.00(6) Loans to financial institutions as of December 31, 2010 and 2009 are as follows (Unit: In millions):
2010
Classification

Loans in Won

Bank
Other financial institutions
Overseas financial institutions￦￦

191,169
885,689
1,076,858

Loans in foreign
currencies￦
31,98444,002
348,013￦423,999

Call loans
1,762,792
949,689
2,712,481

￦

￦

￦

￦

2009
Classification

Loans in Won

Bank
Other financial institutions
Overseas financial institutions￦￦

50,152821,882872,034

Loans in foreign
currencies￦
40,216
21,365
21,605￦
83,186

Call loans
608,953
428,856
1,037,809

￦

￦

￦

￦

(7) The term structure of loans as of December 31, 2010 is as follows (Unit: In millions):
Classification
Due in less than one year
Due from one to two years
Due from two to three years
Due from three to five years
Due in five years or more

Loans in Won￦￦

Loans in foreign
currencies

31,168,353 ￦
2,491,095
2,880,962
1,434,375
4,809,152
42,783,937 ￦Domestic importusance bill

6,881,613 ￦
792,185
727,361
633,463987,271
10,021,893 ￦

3,223,637 ￦
1,811
3,225,448 ￦Total
41,273,603
3,285,091
3,608,323
2,067,838
5,796,423
56,031,278(8) The changes in deferred loan origination fees and costs for the year ended December 31, 2010 are as follows (Unit: In millions):
Beginning balance
Deferred loan origination fees and costs￦

58,037 ￦Addition
27,388 ￦Deduction(48,466) ￦Ending balance
36,959

160

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(9) The disposed loans for the year ended December 31, 2010 are as follows (Unit: In millions):
Purchaser

Nominal amount

Woori F&I and others (*)
Woori F&I and others

38,655 ￦224,273￦

Allowance of possible
loan losses at disposal- ￦22,752Gain (Loss) on
disposal of loans
5,617
26,071

Woori F&I & Eugene asset management
consortium and others

323,016

16,762(68,566)

Veritas asset Co., Ltd.

15,822

1,481(8,001)(*) Gains on disposal of bad debts

8 . RESTRU C TURED L O A NS :(1) Changes in the present value discounts relating to the outstanding restructured loans for the year ended December 31, 2010 are as
follows (Unit: In millions):
Classification
Loans:
Court receivership
OthersPresent value discounts
Beginning
IncreasebalanceAmount (*)
￦Accounts receivable:
Court receivership
Others￦2,122276,270
278,392
15,416
15,416
293,808￦￦181
30,84631,027
4,306
4,306
35,333(*1) These only include restructured loans discounted at present value.
(*2) The present value discount is presented as allowance for possible loan losses.

￦￦

19,267
19,267290
290
19,557

Decrease￦￦(64)(13,974)(14,038)
(956)
(956)
(14,994)

Ending balance
(*2)
￦

117
36,13936,2563,640
3,640
39,896

161

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

9 . A L L O W A N C E F OR POSS I B L E L O A N L OSSES :(1) The allowance for possible loan losses as of December 31, 2010 and 2009 is summarized as follows (Unit: In millions):
Classification
Loans:
Call loans
Allowance
Allowance percentage
Credit card loans
Allowance
Allowance percentage
Bills bought in foreign currencies (*1)
Allowance
Allowance percentage
Bonds bought under repurchase agreements
Allowance
Allowance percentage
Loans in Won (*2)
Allowance
Allowance percentage
Loans in foreign currencies (*3)
Allowance
Allowance percentage
Inter-bank loans
Allowance
Allowance percentage
Factoring receivables
Allowance
Allowance percentage
Advances for customers
Allowance
Allowance percentage
Debt-for-equity swap
Allowance
Allowance percentage
Privately placed bonds (*4)
Allowance
Allowance percentage
Other accounts (*5)
Allowance
Allowance percentage
Sum:
Loans and other accounts
Allowance
Allowance percentage
Present value discounts
Allowance for possible loan losses on thestatement of financial position

Normal￦￦Precautionary

Substandard

Doubtful

Estimated
loss

Dec. 31,  2010

2,712,481 ￦
505
0.02%
2,523,587
37,8531.50%
4,000,350
33,7320.84%
700,000
41,279,178
398,8130.97%
12,655,170
113,849
0.90%
165,141
597,679
5,080
0.85%
459
4
0.85%
397,455
3,462
0.85%
5,691
30
0.53%

- ￦
27,2704,186
15.35%
33,6986,348
18.84%
1,127,246
115,319
10.23%
264,073
31,63911.98%
336
24
7.00%
7,732
3,270
42.29%
50,552
4,794
9.48%
3,522
48
1.36%

- ￦
398
164
41.21%
351,154
71,70920.42%
102,063
20,75720.34%
2,722
545
20.00%
920
184
20.00%
3,883
776
19.98%- ￦24,256
16,46067.86 %
346,586
177,490
51.21%
50,94528,43955.82%
534
267
50.00%
927
464
50.00%
20,425
10,27850.32%- ￦ 2,712,481
505
0.02%
5,470
2,580,981
5,470
64,133100.00%2.48%
4,034,048
40,0800.99%
700,000
30,02043,134,184
30,020793,351
100.00%1.84%
9,220
13,081,471
9,220
203,904
100.00%1.56%
165,141
597,679
5,080
0.85%
2,285
6,336
2,285
3,125
100.00%49.32%
7,732
3,270
42.29%
449,854
8,904
1.98%
1,248
34,7691,248
12,380100.00%35.61%

65,037,191
593,328
0.91%
23,594

1,514,429
165,628
10.94%
2,872

461,140
94,13520.41%
4,132

443,673
233,39852.61%
9,298

48,24348,243100.00%-98,267 ￦242,696 ￦616,922 ￦

168,500 ￦48,243 ￦67,504,676
1,134,732
1.68%
39,896
1,174,628(*1) Local L/C bills bought in Won amounting to ￦25,558 million, usance bills of exchange in Won amounting to ￦2,252 million, local L/C bills
bought in foreign currencies amounting to ￦65,846 million and bills of exchange at sight in Won amounting to ￦3,909 million among bills
bought in Won are included in bills bought in foreign currencies.
(*2) Bills purchased in merchant banking accounts amounting to ￦382,500 million and bills purchased in trust accounts amounting to ￦2,809
million among bills bought in Won are included in bills bought in foreign currencies, and present value discount amounting to ￦35,062 million is
deducted from loans in Won.

162

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(*3) Domestic import usance bill is included in loans in foreign currencies. Interbank loans in foreign currencies of ￦165,141 million and present
value discount amounting to ￦729 million is deducted.
(*4) Present value discount amounting to ￦465 million is deducted from privately placed bonds.
(*5) Other accounts consisted of accounts receivable (transfer-in bills bought in foreign currencies) amounting to ￦4,338 million, suspense
payments in relation with loans amounting to ￦29,908 million and securities (commercial paper) amounting to ￦523 million.

Classification
Loans:
Call loans
Allowance
Allowance percentage
Credit card loans
Allowance
Allowance percentage
Bills bought in foreign currencies (*1)
Allowance
Allowance percentage
Bonds bought under repurchase agreements
Allowance
Allowance percentage
Loans in Won (*2)
Allowance
Allowance percentage
Loans in foreign currencies (*3)
Allowance
Allowance percentage
Inter-bank loans
Allowance
Allowance percentage
Factoring receivables
Allowance
Allowance percentage
Advances for customers
Allowance
Allowance percentage
Privately placed bonds (*4)
Allowance
Allowance percentage
Other accounts (*5)
Allowance
Allowance percentage
Sum:
Loans and other accounts
Allowance
Allowance percentage
Present value discounts
Allowance for possible loan losses on thestatement of financial position

Normal￦Precautionary

1,037,809 ￦
62
0.01%
2,359,510
35,393
1.50%
4,112,765
34,8240.85%
1,786,000
42,978,298
413,557
0.96%
12,401,085
114,896
0.93%
76,865
166,5251,416
0.85%
658,184
5,595
0.85%
9,685
58
0.60%
65,586,726
605,801
0.92%
29,350￦635,151 ￦Substandard- ￦28,8894,676
16.19%
5,196
984
18.94%
804,658
77,6419.65%
200,777
20,431
10.18%
276
19
7.00%
2,000
140
7.00%
3,544
232
6.55%
1,045,340
104,123
9.96%
1,868
105,991 ￦Doubtful

Estimated
loss

Dec. 31, 2009

- ￦
468
215
45.94%
25,856
5,171
20.00%
297,296
70,31123.65%
148,990
58,81439.48%
6,134
1,227
20.00%
2,024
405
20.00%
4,558
912
20.00%- ￦27,35918,67968.27%
2,070
1,035
50.00%
78,71345,17657.39%
32,28818,43457.09%
134
67
50.00%
3,532
1,766
50.00%
22,222
11,14650.16%- ￦ 1,037,809
62
0.01%
6,717
2,422,943
6,717
65,680100.00%2.71%
4,145,887
42,0141.01%
1,786,000
43,06644,202,031
43,066
649,751
100.00%1.47%
6,342
12,789,482
6,342
218,917100.00%1.71%
76,865
166,525
1,416
0.85%
2,454
8,998
2,454
3,767
100.00%41.86%
123
665,863123
8,029
100.00%1.21%
1,230
41,2391,230
13,578100.00%32.93%

485,326
137,055
28.24%
2,955

166,318
96,30357.90%
1,160

59,93259,932100.00%-140,010 ￦97,463 ￦59,932 ￦67,343,642
1,003,214
1.49%
35,333
1,038,547(*1) Local L/C bills bought n Won amounting to ￦22,035 million, local L/C bills bought in foreign currencies amounting to ￦63,950 million and billsof exchange at sight in Won amounting to ￦4,813 million among bills bought in Won are included in bills bought in foreign currencies.
(*2) Bills purchased in merchant banking accounts amounting to ￦768,000 million and bills purchased in trust accounts amounting to ￦103,160
million among bills bought in Won are included in bills bought in foreign currencies, and present value discount amounting to ￦30,548 million is
deducted from loans in Won.
(*3) Domestic import usance bill is included in loans in foreign currencies. Interbank loans in foreign currencies of ￦76,865 million and present
value discount amounting to ￦122 million is deducted.

163

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(*4) Present value discount amounting to ￦357 million is deducted from privately placed bonds.
(*5) Other accounts consisted of accounts receivable (transfer-in bills bought in foreign currencies) amounting to ￦2,037 million, suspense
payments in relation with loans amounting to ￦38,614 million and securities (commercial paper) amounting to ￦588 million.
(2) The changes in allowance for possible loan losses for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification

2010

Beginning balance
Provision for possible loan losses
Loans written-off
Repurchase of loan and others
Translation adjustments of overseas
Changes in present value discounts
Ending balance

1,038,547
482,634(499,867)
163,554(838)(9,402)
1,174,628

￦

￦

2009
1,131,852
677,349(926,361)
168,125(5,272)(7,146)
1,038,547￦￦(3) The allowance for possible loan losses compared to total loans, net of present value discount, is summarized as follows (Unit: In millions):
Classification
Loans (*1)
Allowance for possible loan losses (*2)
Percentage (%)

￦

2010

2009

64,081,502 ￦
1,134,732
1.77

64,506,822 ￦
1,003,214
1.55

2008
66,768,095
1,093,811
1.64(*1) Call loans, bonds purchased under repurchase agreements and interbank loans that are credits not qualified for bad debt allowances are
excluded.
(*2) Present value discounts are excluded.

1 0 . T A N G I B L E A SSETS :(1) Tangible assets as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification

2010

Tangible assets
Less: accumulated depreciation

￦
￦

2009
2,230,630(851,926)
1,378,704￦￦

2,221,531(828,421)
1,393,110)(2) Tangible assets as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Land (*1)
Buildings
Leasehold improvements
Equipment and vehicles
Construction in progress

Acquisition cost￦￦

933,787 ￦552,059
134,526
609,208
1,050
2,230,630 ￦(*1) Gain on revaluation of tangible asset is included in acquisition cost of land.

Accumulated
depreciation- ￦(205,163)(107,711)(533,826)(846,700) ￦Accumulated
impairment
loss(2,357) ￦(2,869)(5,226) ￦Dec. 31, 2010
931,430
344,027
26,81575,382
1,050
1,378,704

164

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009Classification

Accumulated
depreciation

Acquisition cost

Land (*1)
Buildings
Leasehold improvements
Equipment and vehicles
Construction in progress

933,891 ￦542,691
128,076
616,729
144
2,221,531 ￦￦￦Accumulated
impairment loss

- ￦(192,790)(95,179)(534,511)(822,480) ￦Dec. 31, 2009

(2,376) ￦(3,565)(5,941) ￦931,515
346,336
32,897
82,218144
1,393,110(*1) Gain on revaluation of tangible asset is included in acquisition cost of land.
(3) The changes in book value of tangible assets for the year ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Jan. 1,
2010

Classification
Land
Buildings
Leasehold improvements
Equipment and vehicles
Construction in progress

￦

￦

Land
Buildings
Leasehold improvements
Equipment and vehicles
Construction in progress

931,515 ￦
346,336
32,897
82,218144
1,393,110 ￦Jan. 1,
2009

Classification￦￦

Acquisition- ￦15,707
7,898
45,842906
70,353 ￦Acquisition

938,810 ￦358,489
39,343113,91622
1,450,580 ￦Disposal

- ￦
7,630
6,812
38,599144
53,185 ￦Disposal

Depreciation(263) ￦
(5,034)(1,547)(3,651)(10,495) ￦- ￦(13,089)(12,656)(49,134)(74,879) ￦Depreciation

Impairment
loss (*2)(4,330) ￦(2,166)(10)(6,588)(24)(13,118) ￦- ￦(12,960)(13,110)(63,308)(89,378) ￦Change inforeigncurrencies
- ￦
178 ￦
107
223
107
- ￦
615 ￦

Impairment
loss

Change inforeigncurrencies(2,576) ￦
(174)
(873)
(138)
(401)
2
(2,576) ￦(1,584)

Revaluation
loss (*1)(215) ￦
(3,784)(3,999) ￦Dec. 31,2010
931,430
344,027
26,81575,382
1,050
1,378,704

Dec. 31,2009
931,515
346,336
32,897
82,218144￦ 1,393,110￦(*1) Gain on revaluation of tangible asset recognized in the 2008 fiscal year in relation to land is reversed up to the amount of impairment loss
incurred for the year ended December 31, 2009.
(*2) The impairment loss amounting to ￦3,853 million is recognized as loss on prior period error correction due to the impairment occurred in the2008 fiscal year.

(4) The published value of the domestic land is ￦890,366 million and ￦877,787 million as of December 31, 2010 and 2009, respectively,
based on the Laws on Disclosure of Land Price and Valuation of Land.
(5) Tangible assets, which have been insured as of December 31, 2010 are as follows (Unit: In millions):
Type of insurance

Asset insured

Property composite

Buildings

Insured balance Insurance company￦

Leasehold improvements
Equipment and vehicles

339,045 Hyundai Marine & Fire Insurance Co., Ltd.
Hyundai Marine & Fire Insurance Co., Ltd.,32,656
ING and others
80,503￦452,204

Hyundai Marine & Fire Insurance Co., Ltd.,ING and others

165

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(6) The changes in the gain on revaluation of tangible assets for the year ended December 31, 2010 and 2009 are as follows (Unit: In
millions):
Classification
Land

Jan. 1, 2010

Revaluation

432,108 ￦￦Disposal orreclassification
(*1)

- ￦

Tax adjustment

(1) ￦

- ￦

Dec. 31, 2010
432,107(*1) Gain on revaluation of land of ￦1 million in decreased due to the disposal.

Classification
Land

Jan. 1, 2009￦

Revaluation

435,337 ￦- ￦Disposal orreclassification(*1)(4,140) ￦Tax adjustment
911 ￦Dec. 31, 2009
432,108(*1) Gain on revaluation of land of ￦1,564 million recognized in fiscal year 2008 is reversed up to the amount of impairment loss incurred for the year
ended December 31, 2009.

1 1 . OT H ER A SSETS :(1) Other assets as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification2010

Non-business use properties
Guarantee deposits paid
Accounts receivable
Accrued income
Prepaid expenses
Deferred income tax assets
Derivatives instruments assets (see Note 17)
Intangible assets
Sundry assets￦￦

674,844
6,872,703
241,356
36,136
26,065
1,078,698
73,626
1,145,200
10,148,628

2009
￦

￦

1,259
664,694
6,883,634
262,722
40,642
21,682
1,599,842
61,6061,265,128
10,801,209(2) Intangible assets as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Development expenditures
Others (*)

Acquisition cost￦￦

253,368 ￦
10,808264,176 ￦Accumulated
amortization(187,559) ￦(2,991)(190,550) ￦Dec. 31, 2010
65,8097,817
73,626(*) The effect of exchange rate fluctuation is included.
Classification
Development expenditures
Others (*)

Acquisition cost￦￦(*) The effect of exchange rate fluctuation is included.

224,447 ￦
2,755
227,202 ￦Accumulated
amortization(163,348) ￦(2,248)(165,596) ￦Dec. 31, 2009
61,099507
61,606

166

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(3) The changes in intangible assets for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Jan. 1,
2010

Classification
Development expenditures
Others61,099 ￦507
61,606 ￦￦￦Classification
Development expenditures
OthersJan. 1, 2009￦￦

65,705 ￦817
66,522 ￦Acquisition

Disposal

28,921 ￦
8,050
36,971 ￦Acquisition

- ￦
(123)
(123) ￦

Disposal

27,560 ￦148
27,708 ￦- ￦- ￦Amortization(24,212) ￦(672)(24,884) ￦Amortization(32,166) ￦(408)(32,574) ￦Change inforeigncurrencies
- ￦
56
56 ￦
Change inforeigncurrencies- ￦(50)(50) ￦

Dec. 31,2010
65,808
7,818
73,626

Dec. 31,2009
61,099507
61,606(4) Sundry assets as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Domestic exchange settlement debits
Suspense payments in Won
Suspense payments in foreign currencies
Bills unsettled
Supplies
Deposited money
Money transfer receivable
Others2010￦￦

1,042,180
57,665
6,828
7,627
6,934
14,7469,220
1,145,200

2009
￦

￦

1,134,803
79,597
9,607
9,999
6,477
13,484150
11,011
1,265,128

1 2 . DEPOS I TS :(1) Deposits as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Demand deposits
Time deposits
Negotiable certificates of deposits

2010
￦

￦

26,851,136
36,835,231
1,254,344
64,940,711

2009
￦

￦

22,576,340
29,240,591
9,048,925
60,865,856(2) Details of deposits as of December 31, 2010 and 2009 consisted of (Unit: In millions):
Classification
Demand deposits in Won:
Checking deposits
Passbook deposits
Temporary deposits
Public fund deposits
General savings deposits
Demand deposits in foreign currencies:
Checking deposits
Passbook deposits
Temporary deposits
Time deposits in Won:
Time deposits
Installment savings deposits
Long-term savings for households and others

2010￦266,156
3,441,455
740,345
32,291
14,071,952
18,552,199

2009￦

275,092
3,954,055
785,326
25,561
12,102,452
17,142,486

1,641,051
6,631,148
26,738
8,298,937

1,212,564
4,184,862
36,4285,433,854

29,374,735
935,466
387,259

18,186,940
973,592
547,570

167

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009Classification
Time deposits in foreign currencies:
Time deposits
Notice deposits
OthersMutual installment savings
Negotiable certificates of deposits
￦

2010

2009

30,697,460

19,708,102

5,911,215
188,2214,334
6,103,770
34,001
1,254,344
64,940,711

9,315,339
166,5144,429
9,486,282
46,207
9,048,925
60,865,856￦(3) Deposits with financial institutions as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Demand deposits:
Demand deposits in Won

Bank￦

Demand deposits in foreign
currencies
Time deposits:
Savings deposits in Won
Savings deposits in foreign
currencies
Negotiable certificates of deposits￦

Classification
Demand deposits:
Demand deposits in Won￦

Time deposits:
Savings deposits in Won
Savings deposits inforeign currencies
Negotiable certificates of deposits￦

Foreign financial
institution

Dec. 31, 2010

12,092 ￦122,924 ￦

26,617 ￦161,633

197,543

32,320222,752

452,615

1,667,206

4,234,053

221,277

6,122,536-

109,173

3,489

112,662

1,143,262
5,641,732 ￦

474,135 ￦

1,143,262
7,992,708

1,876,841 ￦Bank

Demand deposits inforeign currencies

Other financial
institution

7,981 ￦

Other financial
institution

Foreign financial
institution

Dec. 31, 2009

202,004 ￦27,482 ￦237,467

122,582

14,861

168,831306,274

1,144,463

1,746,073

107,717

2,998,253-

786,495

1,224

787,719

651,805
3,401,238 ￦

305,254 ￦

659,805
4,989,518

8,000
1,283,026 ￦(4) Term structure of deposits as of December 31, 2010 is as follows (Unit: In millions):
Classification
Due in less than one year
Due from one to two years
Due from two to three years
Due from three to five years
Due after five years

Deposits in Won￦￦

46,656,868 ￦
1,009,956
394,927
229,777
992,132
49,283,660 ￦Deposits inforeigncurrencies
14,161,509 ￦
96,675
95,14832,125
17,25014,402,707 ￦Negotiablecertificates ofdeposits
1,248,148 ￦
6,196
1,254,344 ￦Total
62,066,525
1,112,827
490,075
261,9021,009,382
64,940,711

168

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

1 3 . B ORRO W I N G S :(1) Borrowings as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification2010

Call money
Bills soldBonds sold under repurchase agreements
Borrowings
Debentures
Less: Discount on debentures2009

1,145,754
47,712
99,0527,265,211
5,206,336(15,004)
13,749,061

￦

￦

￦

￦

1,387,330
30,943
140,415
8,064,338
8,493,078(25,630)
18,090,474(2) Call money as of December 31, 2010 and 2009 consist of (Unit: In millions):
Account

LenderCall money in foreign
currencies

Local and foreign financial
institution and others

Annual interest
rates (%)
Dec. 31, 2010
0.29 ~ 3.30

2010￦

1,145,754 ￦2009
1,387,330(3) Bills sold, bonds sold under repurchase agreements and due to BOK in foreign currencies as of December 31, 2010 and 2009 consistedof the following (Unit: In millions):
Account

LenderBills soldGeneral customer
Bonds sold under
General customer and others
repurchase agreements

Annual interest
rates (%)
Dec. 31, 2010
1.40 ~ 3.29

2010

2009

47,71230,9433.70 ~ 7.10

99,052

140,415

146,764 ￦

171,358

2010

2009

533,097 ￦704,953￦(4) Borrowings as of December 31, 2010 and 2009 consist of (Unit: In millions):
Account

LenderBorrowings in Won:
Borrowings from the BOK BOK

Annual interest
rates (%)
Dec. 31, 20101.25 ￦

Borrowings from the
Korean government

Ministry of Finance andEconomy and others

0.00 ~ 4.00

332,650

308,988

Borrowings from banking
institutions

Industrial Bank of Korea
and others

1.06 ~ 5.45

182,486

101,875

Other borrowings

Small BusinessCorporation and others

1.50 ~ 5.76

334,538

1,182,456

1,382,771 ￦2,298,272￦
Borrowings in foreign
currencies:
Refinance

Korea Exim Bank and others

0.69 ~ 1.30

353,059

256,872

Short term borrowing inforeign currencies

Foreign financial institution

0.38 ~ 5.86

1,944,611

2,290,811

SMBC and others

0.99 ~ 5.79

1,356,348

1,096,321

Foreign financial institution

0.24 ~ 5.82

2,228,422
5,882,440
7,265,211 ￦

2,122,062
5,766,066
8,064,338

Middle and long term
borrowing in foreign
currencies
Other borrowings

￦

169

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(5) In the normal course of funding activities, the Bank provided securities as collateral for borrowings from the Bank of Korea and otherfinancial institutions as of December 31, 2010 [see Note 6 (6)].
(6) Debentures
1) Debentures as of December 31, 2010 and 2009 consist of (Unit: In millions):
Annual interest rate (%)
Dec. 31, 2010

Account
Debentures in Won:
Finance debentures
Subordinated financing debentures
Hybrid debentures

2010

3.04 ~ 7.90 ￦6.11 ~ 7.80
7.30

2,320,000 ￦
1,100,487
250,000
3,670,487(7,231)
3,663,256

5,840,000
1,101,146
250,000
7,191,146(21,278)
7,169,868

0.48 ~ 5.78-

1,535,849
1,535,849(7,773)
1,528,076
5,191,332 ￦

946,197355,735
1,301,932(4,352)
1,297,580
8,467,448

Discounts on debentures
Debentures in foreign currencies:
Finance debentures
Subordinated financing debentures

2009

Discounts on debentures￦

2) As of December 31, 2010 and 2009, all finance debentures issued in Won were general debentures and consist of (Unit: In millions):
Issued date

Expiration dateJan. 10, 2007
Jan. 11, 2007
Jan. 18, 2007
Jan. 25, 2007
Jan. 26, 2007
Feb. 5, 2007
Feb. 9, 2007
Feb. 28, 2007
Mar. 27, 2007
May 14, 2007
May 16, 2007
May 17, 2007
May 21, 2007
May 23, 2007
May 25, 2007
May 30, 2007
Jun. 1, 2007
Jun. 13, 2007
Jun. 28, 2007
Jul. 24, 2007
Jul. 25, 2007
Jul. 30, 2007
Jul. 31, 2007
Aug. 3, 2007
Aug. 14, 2007
Aug. 23, 2007
Aug. 24, 2007
Sep. 10, 2007
Sep. 17, 2007
Oct. 10, 2007

Jan. 10, 2010
Jan. 11, 2010
Jan. 18, 2010
Jan. 25, 2010
Jan. 26, 2010
Feb. 5, 2010
Feb. 9, 2010
Feb. 28, 2010
Mar. 27, 2010
May 14, 2010
May 16, 2010
May 17, 2010
May 21, 2010
May 23, 2010
May 25, 2010
May 30, 2010
Jun. 1, 2010
Jun. 13, 2010
Jun. 28, 2010
Jul. 24, 2010
Jul. 25, 2010
Jul. 30, 2010
Jul. 31, 2010
Aug. 3, 2010
Aug. 14, 2010
Aug. 23, 2010
Aug. 24, 2010
Sep. 10, 2010
Sep. 17, 2010
Oct. 10, 2010

Annual interest rate (%)
Dec. 31, 2010
- ￦
-

2010
- ￦
-

2009
50,00050,00030,00030,00030,00050,00050,00030,00010,00040,00050,00050,00030,000100,000
40,00050,00050,00050,00050,00020,00050,00030,00030,00010,00010,00030,00050,000200,000
20,000200,000

170

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Issued date

Expiration date

Oct. 18, 2007
Oct. 23, 2007
Nov. 8, 2007
Nov. 14, 2007
Nov. 23, 2007
Nov. 26, 2007
Nov. 30, 2007
Dec. 5, 2007
Jan. 15, 2008
Feb. 15, 2008
Mar. 4, 2008
Apr. 10, 2008
Apr. 15, 2008
Apr. 16, 2008
Apr. 17, 2008
Apr. 18, 2008
Apr. 24, 2008
Apr. 29, 2008
Apr. 30, 2008
May 8, 2008
May 15, 2008
May 16, 2008
May 22, 2008
May 23, 2008
May 26, 2008
May 26, 2008
May 27, 2008
May 28, 2008
May 29, 2008
Jun. 3, 2008
Jun. 5, 2008
Jun. 12, 2008
Jun. 16, 2008
Jun. 19, 2008
Jun. 24, 2008
Jun. 24, 2008
Jun. 26, 2008
Jul. 4, 2008
Jul. 16, 2008
Jul. 17, 2008
Jul. 18, 2008
Aug. 21, 2008
Sep. 1, 2008
Sep. 4, 2008
Oct. 29, 2008
Feb. 10, 2009
Jul. 9, 2009
Jul. 13, 2009
Jul. 15, 2009
Jul. 24, 2009
Jul. 28, 2009
Aug. 21, 2009
Aug. 21, 2009
Sep. 29, 2009

Oct. 18, 2010
Oct. 23, 2010
Nov. 8, 2010
Nov. 14, 2010
Nov. 23, 2010
Nov. 26, 2010
Nov. 30, 2010
Dec. 5, 2010
Jan. 15, 2010
Feb. 15, 2010
Mar. 4, 2011
Apr. 10, 2010
Apr. 15, 2010
Apr. 16, 2010
Apr. 17, 2010
Apr. 18, 2010
Apr. 24, 2010
Apr. 29, 2010
Apr. 30, 2010
May 8, 2010
May 15, 2010
May 16, 2011
May 22, 2011
May 23, 2011
May 26, 2010
Nov. 26, 2010
May 27, 2010
May 28, 2010
May 29, 2010
Jun. 3, 2010
Jun. 5, 2010
Jun. 12, 2010
Jun. 16, 2010
Jun. 19, 2010
Jun. 24, 2010
Jun. 24, 2010
Jun. 26, 2010
Jul. 4, 2010
Jan. 16, 2010
Jul. 17, 2010
Jan. 18, 2010
Aug. 21, 2010
Sep. 1, 2010
Sep. 4, 2010
Oct. 29, 2011
Feb. 10, 2011
Jul. 9, 2010
Jul. 13, 2010
Jul. 15, 2010
Jul. 24, 2010
Jul. 28, 2010
Feb. 21, 2011
Aug. 21, 2011
Jun. 29, 2011

Annual interest rate (%)
Dec. 31, 2010

2010

2009

6.32
5.87
5.93
5.92
7.73
7.90
5.90
6.30
5.95

20,000100,000
100,000
30,000200,000
40,00030,00080,00020,00070,00010,000200,000
50,00070,000260,000
170,000
140,000
50,00030,00020,000200,000
50,00050,00050,00050,00040,00010,00050,00010,00020,000100,000
100,000
30,00010,00010,00020,00010,00050,00020,00060,00070,00040,00010,00030,00010,00030,00010,00040,00010,000200,000
180,000
130,000
120,000
200,000
40,000100,000
100,000
100,000
100,000
50,00030,00080,00020,000171

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Issued date

Expiration date

Sep. 29, 2009
Nov. 24, 2009
Dec. 2, 2009
Dec. 4, 2009
Dec. 4, 2009
Dec. 10, 2009
Dec. 16, 2009
Dec. 18, 2009
Feb. 16, 2010
Mar. 16, 2010
Mar. 16, 2010
Apr. 9, 2010
Apr. 27, 2010
Apr. 28, 2010
Apr. 29, 2010
May 7, 2010
May 10, 2010
May 12, 2010
May 17, 2010
May 28, 2010
May 28, 2010
Jun. 7, 2010
Jul. 16, 2010
Jul. 22, 2010
Jul. 28, 2010
Oct. 8, 2010
Nov. 29, 2010
Nov. 29, 2010

Mar. 29, 2012
Nov. 24, 2010
Dec. 2, 2010
Dec. 4, 2011
Dec. 4, 2012
Dec. 10, 2010
Dec. 16, 2010
Dec. 18, 2010
Feb. 16, 2011
Mar. 16, 2012
Mar. 16, 2013
Apr. 9, 2013
Apr. 27, 2013
Apr. 28, 2012
Apr. 29, 2013
May 7, 2011
Nov. 10, 2011
May 12, 2011
May 17, 2011
May 28, 2011
Nov. 28, 2011
Jun. 7, 2011
Jul. 16, 2012
Jan. 22, 2012
Jul. 28, 2012
Apr. 8, 2012
Nov. 29, 2011
May 29, 2012

Annual interest rate (%)
Dec. 31, 2010

2010

6.50
5.85
6.20
3.61
5.50
5.90
4.08
4.17
3.73
4.06
3.10
3.70
3.14
3.21
3.25
3.75
3.25
4.16
3.88
4.03
3.31
3.13
3.38
￦

50,00020,00070,00050,00020,00050,00050,00050,00050,00050,00040,000100,000
110,000
100,000
50,000100,000
100,000
90,000110,000
50,000200,000
30,000160,000
2,320,000 ￦2009
50,000100,000
100,000
20,00070,000100,000
100,000
100,000
5,840,000

172

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 20093) Finance debentures issued in foreign currencies as of December 31, 2010 and 2009 consist of (Unit: In thousands of U.S. Dollars, in millions of
Won):
First underwriter

Issued date

Expiration date

The terms of interest

Annual interest
rate (%)
Dec. 31,  2010

NH Investment &Securities

Jul. 13, 2007

Jul. 13, 2010--

Jul. 20, 2007

Jul. 20, 2012

3M LIBOR+36.4BP

0.62

341,670(US$300,000)

350,280(US$300,000)

Sep. 12, 2008

Sep. 7, 2011

6M TIBOR+160BP

0.48

139,708(US$122,670)

126,282(US$108,155)

May 26, 2009

May 29, 2012

6M LIBOR+530BP

5.65

56,945(US$50,000)

58,380(US$50,000)

Jun. 1, 2009

Jun. 1, 2012

3M LIBOR+550BP

5.78

56,945(US$50,000)

58,380(US$50,000)

Jun. 1, 2009

Jun. 1, 2012

6M LIBOR+535BP

5.66

56,945(US$50,000)

58,380(US$50,000)

Jun. 5, 2009

Jun. 7, 2011

6M LIBOR+520BP

5.47

56,945(US$50,000)

58,380(US$50,000)

Jul. 23, 2009

Jul. 15, 2011

3M LIBOR+340BP

3.69

56,945(US$50,000)

58,380(US$50,000)

Aug. 27, 2009

Aug. 24, 2012

3M LIBOR+350BP

3.68

34,167(US$30,000)

35,028(US$30,000)

Mar. 9, 2010

Mar. 9, 2013

-

3.99

29,611(US$26,000)-

Mar. 9, 2010

Mar. 9, 2013

-

2.99

15,945(US$14,000)-

Jul. 14, 2010

Jan. 14, 2016

6M LIBOR+274.1BP

4.88

570,202(US$500,660)-

Aug. 13, 2010

Aug. 13, 2012

-

2.50

45,556(US$40,000)

-

-

-

-

-

74,265(US$65,208)

96,003(US$82,223)

Calyon and others
SMBC, Tokyo (*1)
Morgan Stanley
UBS
Morgan Stanley
BNP PARIBAS
Woori Investment& Securities
HSBC
KAF
KAF
Citigroup andothers (*2)

2010
￦

￦

- ￦

2009
46,704(US$40,000)

946,197
1,535,849 ￦(US$1,348,538)(US$810,378)(*1) Issued in Yen (JPY) amounting to JPY 10,000 million.
(*2) Certain subordinated debentures are under swap contracts in order to hedge risks from changes in interest rates. In connection with suchcontracts, loss on foreign currency transactions amounting to ￦752 million is accounted for in connection to such contracts for the year ended
December 31, 2010. See Note 17 (1).

173

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 20094) Subordinated debentures as of December 31, 2010 and 2009 are as follows (Unit: In thousands of U.S. dollars, in millions of Won):

Classification

Issued date

Debentures in Won
General sale (*1)
General sale (*1)
General sale (*1)
Underwriting sale (*2)
General sale (*2)
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale
General sale

May 28, 2001
Oct. 28, 2002
Mar. 28, 2003
Mar. 13, 2008
Mar. 28, 2008
Nov. 21, 2008
Nov. 24, 2008
Nov. 25, 2008
Nov. 26, 2008
Nov. 27, 2008
Nov. 28, 2008
Dec. 1, 2008
Dec. 19, 2008
Dec. 22, 2008
Dec. 23, 2008
Dec. 24, 2008
Dec. 26, 2008
Dec. 29, 2008
Dec. 30, 2008

Expiration date

Annual interest
rate (%)
Dec. 31, 2010

Feb. 28, 2007
Jan. 28, 2008
Dec. 28, 2008
Mar. 13, 2018
Mar. 28, 2018
May 21, 2014
May 24, 2014
May 25, 2014
May 26, 2014
May 27, 2014
May 28, 2014
Jun. 1, 2014
Jun. 19, 2014
Jun. 22, 2014
Jun. 23, 2014
Jun. 24, 2014
Jun. 26, 2014
Jun. 29, 2014
Jun. 30, 2014

6.11
6.20
7.70
7.70
7.70
7.70
7.70
7.70
7.70
7.80
7.30
7.30
7.30
7.30
7.30
7.80

2010

170 ￦
160
157
250,000
50,00060,86032,06027,57040,88037,651
78,92622,053250,000
34,06018,69023,94832,97993,487
46,836
1,100,487 ￦

￦

￦

2009

223
160
763
250,000
50,00060,86032,06027,57040,88037,651
78,92622,053250,000
34,06018,69023,94832,97993,487
46,836
1,101,146

Debentures in foreign currencies:
CITI group & HSBC (*2 and *3)

Jun. 10, 2005

Jun. 10, 2015

-

￦

- ￦
355,735(US$304,672)
1,100,487 ￦
1,456,881￦(*1) The outstanding amount was not redeemed at the maturity date, and after the maturity date, interest is not paid.
(*2) After 5 years from issuance date, the early redemption option can be exercised by the Bank.
(*3) Represent the first underwriters.
5) As of December 31, 2010 and 2009, Hybrid Tier 1 bond is as follows (Unit: In millions):
Classification (*1)
Hybrid debentures 2nd

Issued period (*2)
Mar. 31, 2009 ~ Mar. 31, 2039

Annual interest
rate (%) (*3)
7.30

￦

2010

2009

250,000 ￦250,000(*1) After 5 years from issuance date, call option can be exercised under the authorization of the Governor of the Financial Supervisory Service.
(*2) After expiration, the bond can be extended under the same terms.
(*3) After 10 years from issuance date, the interest rate increases to 8.30 percent.
(7) Term structure of borrowings as of December 31, 2010 is as follows (Unit: In millions):

Due in less than one year
Due from one to two years
Due from two to three years
Due from three to five years
Due in five years or more

Borrowing in
Debentures in
Debentures inforeign
foreignWon
currencies
currencies
693,661 ￦5,344,222 ￦
1,320,487 ￦
327,863 ￦
127,80274,267800,000
592,228
217,028200,000
45,556
166,658
463,951
800,000
177,622550,000
570,202
1,382,771 ￦
5,882,440 ￦3,670,487 ￦
1,535,849 ￦Borrowing in
Won

Classification
￦

￦

Total
7,686,233
1,594,297
462,584
1,430,609
1,297,824
12,471,547

174

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

1 4 . OT H ER L I A B I L I T I ES :(1) Other liabilities as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Accounts payable
Accrued expenses
Unearned revenues
Guarantee money received
Accrued payable from foreign exchange
Deferred income tax liabilities
Derivatives instruments liabilities (see Note 17)
Due to trust accounts
Accrued severance benefits (see Note 3)
Pension benefit
Less: Asset under management of pension benefits
Less: Transfers to the National Pension Fund
Less: Due to retirement insurance
Reserve for acceptances and guarantees
Reserve for unused credit limit
Allowance for other liabilities
Sundry liabilities

2010
￦

￦

7,113,976
711,041
71,886
164,765
269,703
168,490951,026
868,363359,398
6,405(40,924)(565)(257,077)
114,426
192,047
200,597
2,012,459
12,906,016

2009
￦

￦

7,147,521
680,029
77,839208,254
267,033
203,976
1,506,624
769,620
318,697
4,580(3,660)(599)(250,764)
82,236
189,481
146,370
1,741,143
13,088,380(2) Accrued severance benefits
1) The changes in accrued severance benefits for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Beginning
Provision (*1)
Payment (*2)
Foreign currencies translation

2010￦

Pension benefits payables
Assets under management of pension benefits
Transfers to the National Pension Fund
Due to Retirement Insurance￦

318,697
62,655(22,160)
206
359,398
6,405(40,924)(565)(257,077)
67,237

2009￦￦

294,797
60,966(36,678)(388)
318,697
4,580(3,660)(599)(250,764)
68,254(*1) The difference from the provision for severance benefits in the statements of income amounting to ￦1,937 million and ￦379 million for theyears ended December 31, 2010 and 2009, respectively, is recorded in accounts payable in other liabilities in the Bank’s statements of financial
position.
(*2) The payment of severance benefits amounting to ￦285 million and ￦273 million as of December 31, 2010 and 2009, respectively, is accounted
as accounts payable.
As of December 31, 2010, parts of severance benefits are contributed to pension funds of Samsung Life Insurance Co., Ltd. The Bank manages thedefined benefit retirement pension plan (DB plan) for the year ended December 31, 2010 and the assets invested in the DB plan is accounted for as
assets under management of pension benefits and presented as a deduction from accrued severance benefits.
As of December 31, 2010, the assets under management of pension benefits are as follows (Unit: In millions):
Classification
Cash and due from banks
Securities

Percentage (%)
93.48
6.52
100.00175

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(3) Reserve for acceptances and guarantees
1) Acceptances and guarantees as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification

2010

Confirmed acceptances and guarantees in Won:
Payment guarantee for issuance of debentures
Acceptances on letters of guarantee for importers
Payment guarantee for loans
Others

4,894
340
72,238921,693
999,165￦

Confirmed acceptances and guarantees in foreign currencies:
Acceptances on letters of credit
Acceptances on letters of guarantee for importers
OthersUnconfirmed acceptances and guarantees:
Letters of credit
OthersBills endorsed
￦

2009
￦

6,630
63,425
1,715,378
1,785,433

608,21281,4297,780,822
8,470,463

703,464
102,366
7,074,385
7,880,215

3,904,905
543,915
4,448,820
69,77013,988,218

3,877,111
318,521
4,195,632
55,992
13,917,272￦

2) The classification of asset quality for acceptances and guarantees and reserve for acceptances and guarantees as of December 31, 2010 and 2009is as follows (Unit: In millions):

Classification
Confirmed acceptances
Unconfirmed acceptances
Bills endorsed

Normal

9,341,597 ￦
4,420,465
69,770￦ 13,831,832 ￦￦Classification
Confirmed acceptances
Unconfirmed acceptances
Bills endorsed

Precautionary

Normal

68,605 ￦23,11991,724 ￦Precautionary

9,627,345 ￦
4,178,224
55,992￦ 13,861,561 ￦￦Substandard
23,340 ￦21
23,361 ￦Substandard

16,154 ￦12,172
28,326 ￦14,682 ￦
2,906
17,588 ￦Doubtful
8,432 ￦
5,215
13,647 ￦Doubtful
6,420 ￦
2,208
8,628 ￦

Estimated
Loss

Dec. 31, 2010

27,654 ￦ 9,469,628
4,448,820
69,77027,654 ￦ 13,988,218

Estimated
Loss

Dec. 31, 2009

1,047 ￦ 9,665,648
122
4,195,632
55,992
1,169 ￦ 13,917,272

Reserve for
acceptancesand guarantees￦
103,737
10,096593￦
114,426
Reserve for
acceptancesandguarantees￦
72,752
9,008
476￦
82,236

176

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 20093) Acceptances and guarantees, by industry, except for the portion of overseas branches as of December 31, 2010 and 2009 are as follows (Unit: In
millions):
By industry
Manufacturing
Construction
Wholesale and retail
Finance and insuranceElectricity, gas and water supply
Others￦Confirmed acceptance and guarantees in overseas branches￦
By industry
Manufacturing
Construction
Wholesale and retail
Science and technology service
Electricity, gas and water supply
Others￦Confirmed acceptance and guarantees in overseas branches￦

2010

Percentage (%)

4,679,454
2,534,815
693,215
398,495
220,065
474,441
9,000,485
469,143
9,469,628

51.99
28.16
7.70
4.43
2.45
5.27
100.002009

Percentage (%)

5,477,653
1,579,737
695,031347,609244,686
758,735
9,103,451
562,197
9,665,648

60.18
17.35
7.63
3.82
2.69
8.33
100.004) Confirmed acceptances and guarantees in foreign currencies, by country, as of December 31, 2010 and 2009 are as follows (Unit: In thousands of U.S.
Dollars, in millions of Won):
2010
Confirmed acceptances and guarantees
in foreign currencies (*)

By country
Korea
USA
China
Indonesia
Australia
Others$$7,130,597
91,68664,54029,77820,690100,116
7,437,407

Translation into
Won
￦

￦

8,121,037
104,42173,50533,91423,564
114,0228,470,463

Percentage
(%)
95.87
1.23
0.87
0.40
0.28
1.35
100,00￦￦(*) Foreign currencies other than U.S. Dollars are converted into U.S. Dollars at the basic rates of exchange at the end of the reporting period.
2009
Confirmed acceptances and guarantees
in foreign currencies (*)

By country
Korea
USA
FranceUK
Germany
Others$$6,268,869
104,436
79,37145,27945,274
205,842
6,749,071

Translation into
Won
￦

￦

7,319,531
121,939
92,67452,86852,862
240,341
7,880,215

Percentage
(%)
￦

￦

(*) Foreign currencies other than U.S. Dollars are converted into U.S. Dollars at the basic rates of exchange at the end of the reporting period.

92.88
1.55
1.18
0.67
0.67
3.05
100.00177

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 20095) The percentage of reserve for acceptances and guarantees as of December 31, 2010, 2009 and 2008 is as follows (Unit: In millions):
Classification
Acceptances and guarantees
Reserve
Percentage (%)

2010
13,988,218
114,426
0.82

￦

2009

2008

13,917,272
82,2360.59￦

11,702,703
59,2830.51￦(4) Reserve for unused credit limit
The calculation of reserve for unused credit limit as of December 31, 2010 and 2009 is as follows (Unit: In millions):
2010
Classification
Card loans
Loans to enterprise
Loans to household
Loans to public and others

Limit (a)￦￦14,757,880
72,938,420
3,548,468
28,85091,273,618

Allowance (c) =(a-b) x credit
conversion factor

Balance (b)￦￦1,995,878
37,323,554
1,370,410
9,742
40,699,584￦￦

6,380,842
9,543,486
441,540
3,822
16,369,690

Subsidiaries
Reserve for unused credit limit

Reserve forunused credit
limit (d)￦￦97,226
88,5654,415
32
190,238
1,809
192,047

2009
Classification
Card loans
Loans to enterprise
Loans to household
Loans to public and others

Limit (a)￦￦Subsidiaries
Reserve for unused credit limit

13,678,773
77,680,701
3,482,773
10,63894,852,885

Allowance (c) =(a-b) x credit
conversion factor

Balance (b)￦￦1,961,693
43,461,439
1,421,990
2,374
46,847,496￦￦

5,858,405
8,980,356
415,635
1,653
15,256,049

Reserve forunused credit
limit (d)￦￦89,194
94,5784,156
14
187,942
1,539
189,481

178

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(5) Allowance for other liabilities
Allowance for other liabilities as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Reserve for money-back point & yes-point
Reserve for litigation [see Note 17 (6)]Reserve for employees’ accident (*1)
Provision for severance and early retirement benefits (*2)
Reserve for derivatives assets and others (*3)
Others2010￦￦

28,41329,88944,995
14,51451,73031,056200,5972009￦￦

27,704
14,324
4,149
12,894
82,865
4,434
146,370(*1) Provision was made for 5 suspense payments, which occurred in connection with employees’ illegal act such as embezzlement.
(*2) The Bank reserved the provision for severance and early retirement benefits that is expected to be paid for voluntary retirees who have worked
for more than 15 years and are more than 40 years old.
(*3) The Bank reserved the allowance for possible derivatives losses for currency options and others.
(6) Sundry liabilities
Sundry liabilities as of December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Suspense receipt
Withholding taxes
Agency business accounts
AgencyCredit control deposits
Guarantee deposits for securities subscription
Domestic exchange settlements credits
Domestic remittance payable
Others2010￦￦

28,772
32,07486,2891,236,016
13,455
598,674
4,032
13,1472,012,459

2009
￦

￦

24,62229,36892,940856,635
942
16,921
713,256
1,817
4,642
1,741,143

1 5 . S H A RE H O L DERS ’ E Q U I T Y :(1) Capital stock
Capital stock as of December 31, 2010 and 2009 is as follows (Unit: In Won, share):Classification
Shares authorized
Par value (In currency units)
Shares issued
Common stock

2010
￦
￦

1,000,000,000
5,000
644,906,826
3,224,534 million

2009
￦
￦

1,000,000,000
5,000
644,906,826
3,224,534 million(2) Capital surplus
The amount of capital surplus as of December 31, 2010 and 2009 is transferred from stock option (accounted for as capital adjustment) since it
lapsed as it was not exercised.

179

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(3) Accumulated other comprehensive income
The changes in accumulated other comprehensive income for the year ended December 31, 2010 are as follows (Unit: In millions):
Classification

Beginningbalance

Changes

Disposal

Gain (loss) on valuation of available-for-sale securities ￦Gain (loss) on valuation of held-to-maturity securities
Negative changes in equity on equity method
Gain on revaluation of tangible assets￦

801,474 ￦(16)(10)
432,108
1,233,556 ￦

114,739 ￦
114,739 ￦(271,103) ￦21(1)(271,083) ￦Deferredincome tax

Ending balance

34,339 ￦(5)34,334 ￦679,449(10)
432,107
1,111,546(4) Statements of comprehensive income
Comprehensive income consisted of all changes in equity during a period from transactions and other events except those resulting frominvestments by owners and distributions to owners. Comprehensive income for the years ended December 31, 2010 and 2009 is as follows (Unit: In
millions):
Classification
Net income
Effect of exchange rate fluctuation and others
Retained earnings on trust accounts
Other comprehensive income:Gain (loss) on valuation of available-for-sale securities
Gain on valuation of held-to-maturity securities
Negative changes in equity on equity method
Gain on revaluation of tangible assets
Less: Effect of income tax
Comprehensive income:Controlling company’s comprehensive income
Non-controlling interests’ comprehensive income

2010
￦

￦
￦
￦

1,021,563
2,026
892(156,369)
21(1)
34,334902,466
902,245
221

2009
￦

￦
￦
￦

891,951(4,086)
1,163
624,071388(12)(4,140)(135,945)
1,373,390
1,373,086
304(5) Appropriated retained earnings
Appropriated retained earnings as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Legal reserve (*1)
Other reserves (*2)

2010
￦
￦

460,100
90,433
550,533

2009￦￦

370,900
91,289462,189(*1) The Korean Banking Law requires a bank to appropriate at least 10 percent of net income after income tax to legal reserve, until such reserve
equals 100 percent of its paid-in capital. This reserve is not available for payment of cash dividends; however, it can be used to reduce deficit or
be transferred to capital.
(*2) Relevant Japanese regulations require the Bank’s overseas branches located in Japan to appropriate a minimum of 10 percent of annual income
after income tax as a legal reserve, until such reserve equals ¥2,000 million. This reserve is not available for the payment of cash dividends andmay be utilized upon liquidation of the Japanese branches. Singapore, Hanoi branches’ and KEBDAG’s statutory reserves are included in otherreserves.

180

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

1 6 . S H A RE - B A SED P A Y M ENT :(1) Stock options
The details of the stock options as of December 31, 2010 are as follows (Unit: in Won, shares):
Grant dateMar. 7, 2005
Jun. 29, 2005
Mar. 7, 2006
Aug. 1, 2006
Mar. 8, 2007
Mar. 29, 2007
Aug. 10, 2007
Mar. 11, 2008
Aug. 1, 2008
Mar. 12, 2009
Mar. 31, 2009 (*2)
Mar. 31, 2009
Aug. 4, 2009
Mar. 10, 2010
Mar. 30, 2010
Aug. 4, 2010
Sep. 29, 2010

Stock option
granted
1,355,000
200,000
400,000
200,000
1,090,000
630,000
380,000
510,000
180,000
490,000
900,000
85,000470,000
350,000
360,000
420,000
90,0008,110,000

Stock option
expired to date(*1)(344,895)(63,230)(112,690)(42,000)(543,900)(340,390)(175,990)(300,130)(105,490)(45,350)(60,000)(8,500)(42,840)(2,185,405)

Stock option
exercised

Stock option
outstanding(1,010,105)(136,770)(47,400)(1,194,275)-￦
287,310
110,600
546,100
289,610204,010
209,870
74,510444,650
840,000
76,500427,160
350,000
360,000
420,000
90,0004,730,320

Exercise
price

Exercise period

8,800
9,000
13,30011,90013,90014,50013,90013,00013,500
5,800
7,300
6,300
10,90013,20013,50012,40013,500Mar. 8, 2007 ~ Mar. 7, 2010
Jun. 30, 2007 ~ Jun. 29, 2010
Mar. 8, 2008 ~ Mar. 7, 2011
Aug. 2, 2008 ~ Aug. 1, 2011
Mar. 9, 2009 ~ Mar. 8, 2012
Mar. 30, 2009 ~ Mar. 29, 2012
Aug. 11, 2009 ~ Aug. 10, 2012
Mar. 12, 2010 ~ Mar. 11, 2013
Aug. 2, 2010 ~ Aug. 1, 2013
Mar. 13, 2011 ~ Mar. 12, 2016
Apr. 1, 2011 ~ Mar. 31, 2016
Apr. 1, 2011 ~ Mar. 31, 2016
Aug. 5, 2011 ~ Aug. 4, 2016
Mar. 11, 2013 ~ Mar. 10, 2017
Mar. 31, 2013 ~ Mar. 30, 2017
Aug. 5, 2013 ~ Aug. 4, 2017
Sep. 30, 2013 ~ Sep. 29, 2017(*1) Actual number of stock options that expired as a result of retirement or business performance. The expected number of stock options that will
expire as a result of business performance and others is considered together with the actual number of expired stock options when calculating
the stock compensation cost.
(*2) The exercise price is adjusted from ￦6,300 to ￦7,300, in accordance with the resolution of the board of directors.
When the stock options are exercised, the Bank has the option to settle either through issuance of new shares or treasury stock, or through paymentof cash equivalent to the difference between the market price and the exercise price. The number of exercisable stock option is determined inaccordance with the management performance and the calculation criteria for the number of exercisable shares.
The intrinsic value of compensation cost granted before December 31, 2006 is the difference between the market price and the exercise pricepursuant to Interpretations on SKAS 39-35 - Accounting for Stock Options, and the fair value of compensation cost granted after January 1, 2007, isestimated by option pricing models pursuant to SKAS No.22 - Share-Based Payment. As a result, the pricing models of stock option of the Bank are
categorized as the intrinsic value pricing model and the fair value pricing model. The details of these models as of December 31, 2010 are as follows(Unit: In Won):
Pricing based on the intrinsic value pricing model
Grant dateMar. 7, 2005
Jun. 29, 2005
Mar. 7, 2006
Aug. 1, 2006

Market price (*)
￦11,975 ￦11,975
11,975
11,975

Exercise price8,800 ￦
9,000
13,30011,900Intrinsic value
3,175
2,975
75

(*) Market price represents an average of the weighted average prices for two months, one month and one week in accordance with the Bank’s
pricing method.

181

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Pricing based on the fair value pricing model – Black-Scholes Model
Expected
exerciseperiod(year) (*1)
4.16
4.16
4.16
4.16
4.16
6.16
6.16
6.16
6.16
6.16
6.16
6.16
6.16

Risk freerate (%)

Grant dateMar. 8, 2007
Mar. 29, 2007
Aug. 10, 2007
Mar. 11, 2008
Aug. 1, 2008
Mar. 12, 2009
Mar. 31, 2009
Mar. 31, 2009
Aug. 4, 2009
Mar. 10, 2010
Mar. 30, 2010
Aug. 4, 2010
Sep. 29, 2010

0.98
1.15
2.21
2.98
3.07
3.85
3.87
3.87
3.99
4.11
4.12
4.15
4.15

Volatility of
the underlying
stock price(%) (*2)
25.18
23.94
23.89
30.19
38.60
43.11
42.93
42.93
42.26
41.79
41.64
40.92
40.59

Expected
dividend
rate (%) (*3)

Exercisedprice3.44 ￦
3.44
3.44
3.44
3.44
3.44
3.44
3.44
3.44
3.44
3.44
3.44
3.44

Fair value

13,900 ￦14,50013,90013,00013,500
5,800
7,300
6,300
10,90013,20013,50012,40013,500

110
68
298
1,112
1,652
5,961
5,212
5,695
3,901
3,409
3,342
3,616
3,368

(*1) The expected exercise period is measured based on the probability of the options being exercised which is estimated based on historicalexperience.
(*2) The volatility of the underlying stock price is measured based on the historical data.
(*3) The expected dividend rate is measured based on the average of 2007, 2008 and 2009.
The changes in long-term accrued expenses recognized for stock option for the year ended December 31, 2010 are as follows (Unit: In millions):
Beginning balanceLong-term accrued expenses￦

Increase

11,026 ￦Decrease- ￦Ending balance(1,935) ￦9,091(2) The equity linked special incentive (Rose Bonus, Rose Share)
The Bank granted the equity linked special incentive to employees for the purpose of motivation to improve long-term performance. The equity linked
special incentive as of December 31, 2010 is as follows (Unit: in Won, shares):
Grant date

Rose
Bonus

Rose
Share

Jul. 15, 2005
Dec. 21, 2006
Dec. 12, 2007
Dec. 11, 2009
Aug. 4, 2010
Feb. 19, 2010
Feb. 19, 2010
Mar. 19, 2010
Mar. 19, 2010
Aug. 11, 2010
Aug. 11, 2010

Stock option
granted3,024,400
1,496,510
614,800
1,353,240
794,660
35,06535,065
18,265
18,265
12,695
12,695
7,415,660

Stock option
expired to date(*1)
(55,206)(55,206)(22,254)(21,662)(4,902)(136,452)

Stock option
exercised(2,969,194)(1,344,222)(1,344,222)(6,968)(838)(4,793,868)

Stock option
outstanding

Exercise
price-￦
119,860
119,900
1,324,610
788,92035,065 ￦35,065
18,265
18,265
12,695
12,695
2,485,340-

Exercise period
Jul. 15, 2007 ~ Jul. 14, 2010
Dec. 21, 2008 ~ Dec. 20, 2011
Dec. 12, 2009 ~ Dec. 11, 2012
Dec. 11, 2011 ~ Dec. 10, 2014
Aug. 4, 2012 ~ Aug. 3, 2015
Feb. 19, 2011 ~ Feb. 18, 2015
Feb. 19, 2012 ~ Feb. 18, 2015
Mar. 19, 2011 ~ Mar. 18, 2015
Mar. 19, 2012 ~ Mar. 18, 2015
Aug. 11, 2011 ~ Aug. 10, 2015
Aug. 11, 2011 ~ Aug. 10, 2015(*1) Exercisable if an employee resigns within two years from the grant date except for the cases of death, retirement (because of age), positionchange or upon the occurrence of certain events imputable to the employee.

182

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

The equity linked special incentive is settled in cash. It can be exercised from two years after the grant date for the following three years. However,
the equity linked special incentive, granted in 2010 can be exercised within 5 years from the grant date with the certain deferral payment period of
one to two years.
The intrinsic value of “Equity linked special incentive” granted before December 31, 2006 is the difference between the market price and the exercise
price pursuant to Interpretations on SKAS 39-35 - Accounting for Stock Options, and the fair value of “Equity linked special incentive” granted afterJanuary 1, 2007, is estimated by option pricing models pursuant to SKAS No.22 - Share-Based Payment. As a result, the pricing models of stock
option of the Bank are categorized as the intrinsic value pricing model and the fair value pricing model. The details of these models as of December
31, 2010 are as follows (Unit: In Won):
Pricing based on the intrinsic value pricing model
Grant date
Dec. 21, 2006

Rose price (*1)

Exercise price

14,500 ￦￦Intrinsic value- ￦14,500(*1) The Rose Price is measured as weighted average price (7: 5) of the average stock price for previous five days and net asset value of most recent
quarterly settlement as of the last day of the previous month of December 31, 2010.
Pricing based on the fair value pricing model – Binomial Model
Grant date

Risk freerate (%)

Dec. 11, 2009
Aug. 4, 2010

2.73
3.04

Expected
Volatility of the
Expected
exercise underlying stock dividend rate (%)
period (year)
price (%) (*1)
(*2)
1.00
35.16
-￦
1.60
42.44
-

Exercise
price-

Fair value (*3)
￦

15,30014,800(*1) The volatility of the underlying stock price is measured based on the volatility in the past.
(*2) The expected dividend rate is zero, since a grantee of “Rose bonus” has the right to be provided with dividends from grant date to excise date.
(*3) Generally, the fair value and the intrinsic value is the same. But the fair value and the intrinsic value of the equity linked special incentive grantedon December 11, 2009 and August 4, 2010 are not the same, since Rose Price is calculated using the upper and lowest limit. Also, the option
exercised price is “zero”.
The fair value and the intrinsic value of the equity linked special incentive granted in current year and on December 12, 2007 is the same as ￦14,500,
since the option exercised price is “zero” without any other qualification.
The changes in long -term accrued expenses recognized for “Equity linked special incentive” for the year ended December 31, 2010 are as follows (Unit:
In millions):
Beginning balanceLong-term accrued expenses￦

15,601 ￦Increase
13,234 ￦Decrease(11,212) ￦Ending balance
17,623

183

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

1 7 . C ONT I N G EN C I ES A ND C O M M I T M ENTS :(1) Derivatives
The notional amounts outstanding for derivative contracts as of December 31, 2010 and 2009 are as follows (Unit: In millions):
2010
Type (*)

Trading

Currency:
Currency forwards
Currency futures
Currency swaps￦

Currency options
purchased
Currency options soldInterest rate:
Interest rate futures
Interest rate swaps
Index:
Stock index futures
Stock index purchased
Stock index sold￦2009

Hedging

Total

Trading

37,003,930 ￦
1,989,638
6,912,220- ￦-37,003,930 ￦
1,989,638
6,912,220

38,487,419
1,612,152
8,323,470

1,362,410-

1,362,410

1,425,458
48,693,656-

827,329
42,379,678
43,207,007
9,010
24,10633,116
91,933,779 ￦Hedging

Total

- ￦
-

38,487,419
1,612,152
8,323,470

2,372,032-

2,372,032

1,425,458
48,693,656

2,054,885
52,849,958-

2,054,885
52,849,958

624,117624,117827,329
43,003,795
43,831,124

1,437,266
50,652,501
52,089,767

433,180
433,180

1,437,266
51,085,681
52,522,947

624,117 ￦

9,010
24,10633,11692,557,896 ￦

6,898
2,450
33,741
43,089104,982,814 ￦

433,180 ￦

6,898
2,450
33,741
43,089105,415,994￦(*) For transactions between Won and foreign currencies, unsettled amount of transaction is presented using the basic foreign exchange rate basedon the contract amount in foreign currencies. For transactions between foreign currencies and foreign currencies, unsettled amount is presented
using the basic foreign exchange rate based on foreign currencies purchased at the end of the reporting period.
The details of derivatives as of December 31, 2010, and the valuation of derivatives for the year ended December 31, 2010 are as follows (Unit: In
millions):
Statement of financial
position

Statement of income
TradingType (*)

Currency:
Currency
forwards

Gain onvaluation￦

Currency swaps
Currency
optionspurchased
Currency
options soldHedging
Loss onvaluation

352,388 ￦358,481

200,744

Gain onvaluation

Total
Loss onvaluation

Gain onvaluation

Loss onvaluation

AssetsLiabilities

- ￦

- ￦

352,388 ￦358,481 ￦454,041 ￦

346,50277,421--200,744

77,421

326,637

236,184

2,737

17,683

-

-

2,737

17,68332,626-

18,335

5,828

-

-

18,335

5,828-

37,484574,204

459,413--574,204

459,413

813,304

620,170

188,513

194,855

2,172

116

190,685

194,971

265,394

328,681

14

969

-

-

14

969

-

2,175

2,172 ￦

116 ￦

764,903 ￦￦Interest:
Interest rate
swaps
Index:
Stock index
option sold￦762,731 ￦655,237￦

655,353 ￦ 1,078,698 ￦

951,026

184

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

The Bank uses various derivative instruments for its trading activities, including interest rate and foreign exchange swaps, futures, forwards andoptions, to manage the interest rate characteristics of certain assets or liabilities and to economically hedge against the effects of fluctuations ininterest rates or foreign exchange rates.
The Bank holds derivative instruments which it accounts for as fair value hedges in connection to its securities and debentures. The Bank recognized￦1,207 million and ￦752 million of losses on valuation of derivatives of securities and debentures, respectively, and ￦112 million of gains on
valuation of derivatives of securities for the year ended December 31, 2010. See Note 13 (6). The difference between gain (loss) on valuation ofderivatives and gain (loss) on valuation of hedged items is due to certain hedge ineffectiveness. In addition, the Bank has interest rate swaps which
hedge against exposure from interest rate fluctuations.
The details of derivatives as of December 31, 2009, and the valuation of derivatives for the year ended December 31, 2009 are as follows (Unit: In
millions):
Statement of financial
position

Statement of income
TradingType (*)

Currency:
Currency
forwards
Currency swaps
Currency
optionspurchased
Currency
options soldGain onvaluation￦

415,767

Hedging
Loss onvaluation￦

445,320

Gain onvaluation
￦

-

Total

Loss onvaluation￦-

Gain onvaluation￦

415,767

AssetsLoss onvaluation￦

445,320￦

Liabilities

868,065￦

362,642

350,708

162,319--

350,708

162,319

327,192

638,964

11,75344,624--

11,75344,624

98,345-27,051

4,757

-

-

27,051

4,757-

56,226805,279

657,020--805,279

657,020

1,293,602

1,057,832

369,147

305,586

2,299

7,246

371,446

312,832

305,452

433,280

660

-

-

-

660

-

788

-

176

4,230

-

-

176

4,230

-

15,512

7,246

836￦ 1,177,561

4,230
974,082788￦ 1,599,842

15,512￦ 1,506,624

Interest:
Interest rate
swaps
Index:
Stock index
purchased
Stock index
sold

836
￦ 1,175,262

￦

4,230
966,836

￦

2,299

￦

￦

The Bank uses various derivative instruments for its trading activities, including interest rate and foreign exchange swaps, futures, forwards andoptions, to manage the interest rate characteristics of certain assets or liabilities and to economically hedge against the effects of fluctuations ininterest rates or foreign exchange rates.
The Bank holds derivative instruments which it accounts for as fair value hedges in connection to its securities and debentures. The Bank recognized￦6,438 million of gains on valuation of derivatives of securities and debentures, and ￦1,904 million of losses on valuation of derivatives of securities
for the year ended December 31, 2009. See Note 13 (6). In addition, the Bank has interest rate swaps which hedge against exposure from interest
rate fluctuations.

(2) The Bank holds written-off loans, on which the relevant statute of limitations has not expired or the Bank has not lost its claim
rights to borrowers and guarantors, amounting to ￦1,073,514 million and ￦1,683,663 million as of December 31, 2010 and 2009,
respectively.
(3) Endorsed notes with collateral amounted to ￦69,770 million and ￦55,992 million as of December 31, 2010 and 2009, respectively.
See Note 14 (3). Endorsed notes without collateral held at the merchant banking accounted amounting to ￦7,123,950 million and￦7,467,939 million as of December 31, 2010 and 2009, respectively.

185

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(4) The Bank is obliged to repurchase some conditions of the loans previously sold to the Korea Asset Management Corporation (“KAMCO”)
under certain conditions including the following:- When it is considered impossible to collect the loans and interest due to delay in repayment of loans and interest over six months.
- When it is considered impossible to collect the loans and interest due to the abrogation of courtreceivership process and the cancellation ofmediation.
As of December 31, 2010, KAMCO and other loan purchasers may exercise the resale option for loans amounting to ￦1,157 million. An additionalloss or profit may occur, depending on the loan classification on valuation of loans or final arrangement on loans when KAMCO and other loanpurchasers exercise their repurchase agreement.
(5) Loans sold to asset backed securitization (ABS) (Unit: In millions)Classification

Date

Value of loans

KEB 17th Securitization Specialty Co., Ltd.

Dec. 28, 2009￦

110,402 ￦Sale price
79,000 ￦Subordinateddebentures (*1)
11,930(*1) The subordinated debentures are included in sale price.
(6) T he Bank has pending litigation as a plaintiff or a defendant in various legal actions arising from the normal course of operation. The
aggregate amounts of these claims brought by and against the Bank are approximately ￦324,570 million (675 cases) and ￦661,037
million (133 cases), respectively, as of December 31, 2010. The Bank recognized ￦29,889 million of provisions related to theselawsuits. See Note 14 (5). Major on-going litigations related to the Bank’s contingencies are as follows:
Defendant

Plaintiff

KEB

Lim Asia MultiStrategy Fund Inc.

KEB

Criminal Procedure(*1)

Amount Content￦

7,996 Money Collected claim
Violation of the Securities
Exchange Act related to themerger with KEB Credit
Service Co., Ltd.

Progress
Lost the case in the first trial,
partially won in the second trial,
pending in the third trial
Ruled against the Bank in thefirst trial, dismissed the firsttrial ruling in the second trial,
and remanded the case to
the High Court in the third trial(*1) In February 2008, the local court fined the Bank ￦25 billion for a violation of the Securities Exchange Act related to the merger with KEB Credit
Service Co., Ltd. In June 2008, the High Court ruled in favor of the Bank. On March 11, 2011, the Supreme Court remanded the case to the Highcourt for retrial. The bank accounted for￦25 billion as allowance for other liabilities.

In addition, Olympus Capital KEB Cards Ltd. and others (“the applicants”) asked for arbitration compensation of maximum ￦645.5 billion(included￦220.2 billion of the overdue interest) against the Bank and 5 companies related to Lone Star (“the Banks”) through the Court of International
Arbitration. The applicants argue that the Banks violated the obligation of shareholders’ contract (on December 1,1999) so the contract of sharetransfer (on November 20, 2003) is invalid. The result of the arbitration is presently unpredictable.
The Bank believes that the outcome of these matters will not have a material impact on the Bank’s financial position or operations.

(7) Loans to companies under workout program
The loans to companies under court receivership or workout program amounted to ￦2,664,724 million as of December 31, 2010. Actual loss onthese loans can be different from the Bank’s estimation.

186

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(8) Debt to equity swap of Hynix Semiconductor Inc.
The Bank’s outstanding loans (including acceptances and guarantees) and available-for-sale securities convertible to equity securities with respect
to Hynix Semiconductor Inc. (“Hynix”) as of December 31, 2010 amount to ￦314,755 million and ￦458,967 million, respectively. As of December
31, 2010, the Bank’s loans for Hynix are classified as normal. Joint control procedure for Hynix is completed on July 12, 2005. Also, the Bank’s 20,185
thousand shares of Hynix are restricted for sale until completion of M&A and the gain on valuation of available-for-sale securities amounting to￦255,470 million is accounted as other comprehensive income as of December 31, 2010.
(9) Debt to equity swap of Hyundai Engineering & Construction Co., Ltd.
As of December 31, 2010, the Bank has loans (including acceptances and guarantees) of ￦941,375 million and available-for-sale securities of￦622,003 million with respect to Hyundai Engineering & Construction Co., Ltd. and the Bank’s loans for Hyundai Engineering & Construction Co.,
Ltd. are classified as normal. The Bank has 9,715 thousand shares of Hyundai Engineering & Construction Co., Ltd., which are restricted for sale
until completion of M&A of Hyundai Engineering & Construction Co., Ltd. With regards to these securities, the gain on valuation of available-for-salesecurities amounting to ￦346,493 million is accounted as other comprehensive income as of December 31, 2010.
(10) Commitments related to credit card business
The Bank has entered into trademark license (membership) agreements with VISA Worldwide Pte. Limited in 2008, under which the rights havebeen transferred from VISA International Service Association and Master Card International Incorporated in 1993, and JCB International Service
Association in 1997. The Bank pays and receives certain amounts of fees and commissions in connection with the income and expense incurred
pertaining to these agreements.
The Bank has entered into an alliance agreement with KDB Capital for credit card business and allocated the fee income related to the credit cardbusiness alliance at a fixed rate.
(11) Contingencies related to Project Financing (PF)1) ABCP purchase agreements and unused credit limits relating to PF as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Type

2010

ABCP purchase agreement
Unused credit limit on PF loan￦￦

597,900
372,516
970,416

2009￦￦

825,000
440,6111,265,611

2) The top 10 ABCP purchase agreements relating to PF and unused credit limit on PF loans as of December 31, 2010 are as follows (Unit: In
millions):
Location
Gyeonggi-do
Gyeongsangnam-do
Ulsan
Seoul
Gyeonggi-do
Seoul
Gyeonggi-do
Seoul
Gyeongsangnam-do
Gyeonggi-do￦￦

ABCP purchaseagreement or unused Period
credit limit
70,000 Feb. 5, 2010 ~ Feb. 5, 2011
60,000 Aug. 27, 2010 ~ Aug. 27, 2012
57,100 Apr. 1, 2009 ~ Aug. 1, 2012
51,400 Apr. 25, 2007 ~ Jan. 25, 2011
50,000 Nov. 9, 2007 ~ Nov. 9, 2011
50,000 Jan. 30, 2008 ~ May 30, 2011
50,000 Jun. 24, 2010 ~ Dec. 29, 2012
47,400 Oct. 26, 2007 ~ Apr. 26, 2011
46,500 Sep. 14, 2007 ~ Aug. 16, 2012
40,000 May 7, 2007 ~ Mar. 16, 2012
522,400

Type
ABCP
ABCP
ABCP
ABCP
ABCP
ABCP
PF Loan
ABCP
ABCP
ABCP

187

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

1 8 . A SSETS A ND L I A B I L I T I ES DENO M I N A TED I N F ORE I G N C URREN C I ES :Significant assets and liabilities denominated in foreign currencies as of December 31, 2010 and 2009 are as follows (Unit: In thousands of U.S.
Dollars, in millions of Won):
2010
Classification

USD equivalent (*)

Assets:Cash and due from bank:Foreign currencies$

Due from banks in foreign
currencies

371,826

2009
Translation into Won￦

423,473

USD equivalent (*)$

333,910

Translation into Won￦

389,873

2,431,347

2,769,061

1,596,478

1,864,048

43,303
343,646
184,631

49,318391,378
210,276

39,955709,147
308,299

46,651
828,000
359,970

6,077

6,921

5,532

6,459

1,679,235
2,832,073
2,923

1,912,481
3,225,448
3,329

888,8392,240,652
3,623

1,037,809
2,616,185
4,230

3,456,391

3,936,483

3,473,012

4,055,089

57,815
8,799,625
89,49268,800(104,114)

65,846
10,021,893
101,922
78,356(118,575)

54,7708,778,935
41,795
197,006(102,601)

63,950
10,250,284
48,800230,024(119,797)

Demand deposits in foreign
currencies

7,286,800

8,298,937

4,653,866

5,433,854

Savings deposits in foreign
currencies

5,359,356

6,103,770

8,124,599

9,486,282

Borrowings in foreign
currencies

5,165,019

5,882,440

4,938,392

5,766,066

Call money in foreign
currencies

1,006,018

1,145,754

1,188,189

1,387,330

1,348,537

1,535,849

1,115,050

1,301,932

236,810

269,703

228,702

267,033

5,624

6,405

3,923

4,580

(3,146)(3,583)(3,135)(3,660)

Securities:
Trading securities
Available-for-sale securities
Held-to-maturity securities
Securities using the equity
methodLoans:
Call loans
Domestic import usance bill
Credit card receivables
Bills bought in foreign
currencies
Bills bought in Won
Loans in foreign currencies
Factoring receivables
Private placed bonds(Reserve for bad debts)
Liabilities:
Deposits:

Borrowings:

Bonds in foreign currencies
Other liabilities:
Accrued expenses in foreign
currencies
Pension benefit
Asset under management ofpension benefits(*) Foreign currencies other than U.S. Dollars were converted into U.S. Dollars at the basic rates of exchange at the end of the reporting period.

188

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

1 9 . OPER A T I N G RE V ENUE A ND E X PENSES :(1) Gain and loss on trading and valuation of derivatives
Details of gain and loss on trading and valuation of derivatives for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Gain:
Gain on trading of derivatives
Gain on valuation of derivatives

2010
￦
￦

Loss:
Loss on trading of derivatives
Loss on valuation of derivatives￦￦

4,434,847
765,015
5,199,862

4,469,554
657,312
5,126,866

2009
￦
￦

￦
￦

6,038,899
1,183,999
7,222,898

6,896,235
975,986
7,872,221(2) Commission income and expenses
Details of commission income and expenses for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Commission income:Commission received
Guarantee fees received
Other commission received

2010
￦

￦
Commission expenses:
Commission paid
Other commission paid￦￦

477,889
50,56720
528,476

299,872
1,128
301,000

2009
￦

￦

￦
￦

480,945
46,362
912
528,219284,2271,000
285,227(3) Dividend income
Details of dividend income for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions)Classification
Dividend income from trading securities
Dividend income from available-for-sale securities

2010
￦
￦

677
22,59323,270

2009
￦
￦

612
14,79815,410(4) Other operating revenue and expenses
Details of other operating revenue and expenses for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Other operating revenue:
Profit on operating trust account
Others2010￦￦

Other operating expenses:
Fund contributions
Provision for allowance for acceptances and guarantees
Provision for unused credit limit
Provision for other liabilities
Others￦￦

20,223
3,205
23,428186,219
32,206
2,521
77,346
1,281
299,573

2009
￦
￦

￦

￦

21,461881
22,342

163,545
23,401
6,561
41,022
1,189
235,718

189

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(5) General and administrative expenses
General and administrative expenses for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Salaries
Expenses for fringe benefits
Retirement allowances (see Note 14)
Honorary retirement
Operating expense
Depreciation (see Note 10)
Amortization (see Note 11)
Taxes
RentalEntertainment
Advertising

2010
￦

￦

551,056
184,877
64,592
10,387224,280
74,87924,88441,091
93,10412,00736,326
1,317,483

2009
￦

￦

566,239
168,146
61,34566,882206,082
89,37832,57440,24584,7489,826
22,988
1,348,453

2 0 . OT H ER I NTEREST I N C O M E A ND E X PENSES :Other interest income and expenses for the years ended December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Other interest income:Interest on domestic transaction
Miscellaneous interest revenues
Interest on cashier's check reimbursement
Others2010￦￦
Other interest expenses:
Interest paid on domestic transaction
Interest on borrowings from trust account
Others

￦

￦

6,727
8,215
1,538
606
17,086

4,932
20,082
111
25,125

2009
￦

￦

￦

￦

7,709
5,991
1,538
682
15,9202,945
28,93180
31,956

190

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2 1 . NON - OPER A T I N G I N C O M E A ND E X PENSES :Non-operating income and expenses for the years ended December 31, 2010 and 2009 consist of (Unit: In millions):
Classification
Non-operating income:Gain on disposal of tangible assets
Rental income
Gain on securities using the equity method
Gain on disposal of securities using the equity method
Others2010￦￦
Non-operating expenses:
Loss on disposal of tangible assets
Loss on securities using the equity method
Others

￦

￦

2009

227
2,661
620
16
47,27250,796￦530
477
58,42859,435

￦

￦

￦

2,805
2,618
518
45,215
51,156
1,684
842
34,50037,026

2 2 . I N C O M E T A X E X PENSE :(1) Components of income tax expense
The components of income tax expense for the years ended December 31, 2010 and 2009 are summarized as follows (Unit: In millions):
Classification
Bank:
Income tax currently payable (receivable)
Change in deferred taxes due to temporary differences
Income tax directly applied to shareholders’ equity
Income tax expense of overseas branches
Income tax expense (benefit)
Subsidiaries:
Income tax currently payable
Change in deferred taxes due to temporary differences
Income tax directly applied to shareholders’ equity
Income tax expense

2010
￦

￦

321,656(35,986)
34,29518,934
338,899
27,122(3,882)(45)
23,195362,0942009￦￦(110,341)
112,861(136,302)
25,176(108,606)
12,3707,348(434)
19,284(89,322)(2) Deferred income tax assets in the consolidated financial statements as of December 31, 2010 and 2009 are as follows (Unit: In
millions):
Classification
KEBC
KEBOC
KEBA
KEBI
KEB NY FINCO
KEB LA FINCO

2010
￦

￦

2,154
1,751
5,117
168
7,305
9,570
26,065

2009
￦

￦

1,892
2,388
4,344
400
3,748
8,910
21,682(3) Deferred income tax liabilities in the consolidated financial statements as of December 31, 2010 and 2009 are as follows (Unit: In
millions):
Classification
KEB
KEBF

2010
￦
￦

166,397
2,093
168,4902009￦￦

202,383
1,593
203,976

191

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(4) The statutory income tax rate applicable to the Bank, including resident tax surcharges, is 24.2 percent for the years ended December
31, 2010 and 2009. However, due to tax adjustments, the effective tax rates for the year ended December 31, 2010 is 26.17 percent.
Effective tax rate for the year ended December 31, 2009 is not calculated since the Bank incurred income tax benefit.

2 3 . E A RN I N G S PER S H A RE :(1) Basic net income per share
Basic income per share is calculated for common stock by dividing controlling company’s net income available to common shareholders by theweighted average number of outstanding common stock. The basic net income per share for the years ended December 31, 2010 and 2009 is asfollows (Unit: In Won):
Classification

2010

Controlling company’s net income
Weighted average number of common shares
Basic net income per share￦￦

1,021,366,892,170
644,906,826
1,584

2009
￦
￦

891,737,774,814
644,906,826
1,383

Both the weighted average number of outstanding common stock and the number of outstanding common stock are the same because there is nochange on the number of outstanding common stock for years ended December 31, 2010 and 2009.
(2) Diluted net income per share
Diluted net income per share represent diluted net income divided by the number of common shares and diluted securities. There is no diluted
security for resent two years. The diluted net income per share; therefore, is the same as basic net income per share.

2 4 . SE G M ENT I N F OR M A T I ON :(1) Statements of financial position per business segment as of December 31, 2010 and 2009 are as follows (Unit: In millions):
Consolidation
adjustment

Financial business
Assets:Cash and due from banks
Securities
Loans
Tangible assets
Other assets￦￦
Liabilities:
Deposits
Borrowings
Other liabilities
Shareholders’ equity:
Common stock
Capital surplus
Capital adjustment
Accumulated other comprehensive income
Retained earnings
Non-controlling interest

8,365,423
15,188,617
67,461,821
1,379,688
10,179,503
102,575,052￦￦(252,547)(1,128,995)(1,167,245)(984)(30,875)(2,580,646)

Dec. 31, 2010￦￦

8,112,876
14,059,622
66,294,576
1,378,704
10,148,628
99,994,406￦

64,988,658
14,987,407
13,072,820
93,048,885￦(47,947)(1,238,346)(166,804)(1,453,097)￦

64,940,711
13,749,061
12,906,016
91,595,788￦

3,918,448
73,14320
1,117,601
4,416,955
9,526,167
102,575,052￦(693,914)(72,203)(20)(6,055)(357,699)
2,342(1,127,549)(2,580,646)￦

3,224,534
940
1,111,546
4,059,256
2,342
8,398,618
99,994,406

￦

￦

￦

192

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

Consolidation
adjustment

Financial business
Assets:Cash and due from banks
Securities
Loans
Tangible assets
Other assets￦￦
Liabilities:
Deposits
Borrowings
Other liabilities￦

Shareholders’ equity:
Common stock
Capital surplus
Capital adjustment
Accumulated other comprehensive income
Retained earnings
Non-controlling interest￦

6,525,904
15,962,562
67,423,552
1,394,716
10,804,292
102,111,026￦

60,996,701
19,234,905
13,226,075
93,457,681￦

3,534,651
75,277
1,239,450
3,803,967
8,653,345
102,111,026￦￦

Dec. 31, 2009

(179,647)(718,667)(1,186,706)(1,606)(3,083)(2,089,709)￦(130,845)(1,144,431)(137,695)(1,412,971)￦(310,117)(74,337)(5,894)(288,511)
2,121(676,738)(2,089,709)￦￦

6,346,257
15,243,895
66,236,846
1,393,110
10,801,209
100,021,317

60,865,856
18,090,474
13,088,380
92,044,710
3,224,534
940
1,233,556
3,515,456
2,121
7,976,607
100,021,317(2) Statements of income per business segment for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Consolidation
adjustment

Financial business
Operating revenue
Operating expenses
Operating income
Non-operating income
Non-operating expenses
Income before income tax
Income tax expense
Net income
Controlling company interests
Non-controlling interests

Operating revenue
Operating expenses
Operating income
Non-operating income
Non-operating expenses
Income before income tax
Income tax benefit
Net income
Controlling company interests
Non-controlling interests

￦

￦
￦

￦

￦
￦

12,659,014
11,261,774
1,397,240
120,194
63,8701,453,564(362,094)
1,091,470

2010(40,186)(35,242)(4,944)(69,398)(4,435)(69,907)(69,907)￦

1,091,470-(70,103)
196￦

Financial business

Consolidation
adjustment

16,832,353
16,043,829
788,524
106,359
42,570852,31389,322
941,635
941,635
-

￦

￦

￦

￦

￦

12,618,828
11,226,532
1,392,296
50,79659,435
1,383,657(362,094)
1,021,563
1,021,367
196

2009

(58,840)(58,815)(25)(55,203)(5,544)(49,684)(49,684)￦(49,898)
214￦￦

16,773,513
15,985,014
788,499
51,15637,026
802,629
89,322891,951
891,737
214

193

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(3) Financial information per business segment as of and for years ended December 31, 2010 and 2009 is as follows (Unit: In millions):
Banking
Operating revenue
Less: inter-company transaction
Net operating revenue
Operating income￦

Cash and due from banks
Securities
Loans
Tangible assets
Other assets

￦

￦

￦

￦

Cash and due from banks
Securities
Loans
Tangible assets
Other assets

￦

￦

￦

OthersConsolidation
adjustment￦(40,186) ￦40,186￦(4,944) ￦12,337,530 ￦(33,577)
12,303,953
1,309,891 ￦

71,269 ￦(1,261)70,008- ￦250,215(5,348)244,867
87,3498,112,237 ￦
14,296,614
65,469,056
1,374,170
10,105,824
99,357,901 ￦

119,706 ￦764,994
193,210
11,6101,089,520 ￦

133,480 ￦127,0091,799,555
5,518
62,0692,127,631 ￦Banking
Operating revenue
Less: inter-company transaction
Net operating revenue
Operating income

Trust accountTrust account

16,511,875 ￦(47,247)
16,464,628
750,861 ￦

72,474 ￦(974)
71,500- ￦6,163,327 ￦
15,051,614
65,143,432
1,384,295
10,737,128
98,479,796 ￦

180,759 ￦
780,371
301,993
10,442
1,273,565 ￦(252,547) ￦(1,128,995)(1,167,245)(984)(30,875)(2,580,646) ￦2010
12,618,828
12,618,828
1,392,296
8,112,876
14,059,622
66,294,576
1,378,704
10,148,628
99,994,406

Consolidation
adjustment
248,004 ￦(58,840) ￦(10,619)
58,840237,385
37,663 ￦(25) ￦

16,773,513
16,773,513
788,499

181,818 ￦
130,577
1,978,127
10,421
56,722
2,357,665 ￦

6,346,257
15,243,895
66,236,846
1,393,110
10,801,209
100,021,317

Others(179,647) ￦(718,667)(1,186,706)(1,606)(3,083)(2,089,709) ￦

2009

194

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(4) Financial information per geographical area as of and for the years ended December 31, 2010 and 2009 is as follows (Unit: In millions):

12,402,711 ￦(34,618)
12,368,093
1,317,676 ￦

256,303 ￦(5,568)250,735
79,564 ￦Consolidation
adjustment(40,186) ￦40,186(4,944) ￦7,688,881 ￦
15,081,449
63,774,453
1,362,148
10,112,239
98,019,170 ￦

676,542 ￦
107,1683,687,368
17,54067,2644,555,882 ￦(252,547) ￦(1,128,995)(1,167,245)(984)(30,875)(2,580,646) ￦Domestic

Overseas

Domestic
Operating revenue
Less: inter-company transaction
Net operating revenue
Operating income￦

Cash and due from banks
Securities
Loans
Tangible assets
Other assets

￦

￦

￦

Operating revenue
Less: inter-company transaction
Net operating revenue
Operating income￦

Cash and due from banks
Securities
Loans
Tangible assets
Other assets

￦

￦

￦

Overseas

16,630,152 ￦(49,201)
16,580,951
740,846 ￦202,201 ￦(9,639)192,562
47,678 ￦Consolidation
adjustment(58,840) ￦58,840(25) ￦

6,201,600 ￦
15,801,323
64,643,549
1,388,844
10,754,671
98,789,987 ￦

324,304 ￦161,2392,780,003
5,872
49,621
3,321,039 ￦(179,647) ￦(718,667)(1,186,706)(1,606)(3,083)(2,089,709) ￦2010
12,618,828
12,618,828
1,392,296
8,112,876
14,059,622
66,294,576
1,378,704
10,148,628
99,994,406

2009
16,773,513
16,773,513
788,499
6,346,257
15,243,895
66,236,846
1,393,110
10,801,209
100,021,317

195

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2 5 . S I G N I F I C A NT TR A NS A C T I ONS B ET W EEN T H E B A N K A ND SU B S I D I A R I ES :(1) Significant balances made in the normal course of business with subsidiaries as of December 31, 2010 and 2009 are summarized asfollows (Unit: In millions):
2010
Classification

KEBC

KEBF

Assets:Due frombanks in￦- ￦foreigncurrencies
Loan in Won
30,300Loans inforeign
currencies
25,993(*1)
Allowancefor possible(478)
loan losses
Other assets

54￦ 55,869 ￦Liabilities:
Deposits in Won ￦

76 ￦

KEBOC

KEBA

KEBDAGKEBI

2,673 ￦

8,831 ￦

-

-

-

-

-

-

-

180,448

91,679

-

-

-

-

1
2,674 ￦

114 ￦

1,113 ￦ 13,748 ￦

521
58
8,831 ￦ 182,082 ￦ 105,485 ￦

3,962 ￦

5 ￦

8 ￦

KEB
China

276 ￦ 45,876 ￦

Trust

Other
subsidiaries

Total

- ￦

- ￦ 72,517

-

-

-

30,300-76,428-459,724834,272

-

-

-

-

(478)

29,561276 ￦ 151,865 ￦

- ￦

- ￦

543
30,738- ￦ 460,267 ￦ 967,349

- ￦

- ￦

4,165

Deposits inforeigncurrencies

411

13,213

-

1

617

859

1,440

-

456

16,997

Borrowings inforeigncurrencies

-

-

-

11,538

176,551

39,23997,322-

4,100

328,750

Other liabilities￦

4,630
5,117 ￦ 13,327 ￦

30
419
134,247
3,962 ￦ 11,574 ￦ 177,595 ￦ 40,098 ￦ 98,762 ￦ 134,247 ￦

139,326
4,556 ￦ 489,238(*) Call loans in foreign currencies are included.
2009
Classification
Assets:Due from banks in Won

KEBC￦

Due from banks inforeign currencies

- ￦

KEBF
326 ￦

KEBOC
- ￦

KEBA

KEBDAG

- ￦

- ￦

KEBI
- ￦

Trust

Other
subsidiaries

- ￦

- ￦

Total
326

-

2,977

1,196

693

22,281308--

27,455

Trading securities
Loans in Won

40,00036,900

-

-

-

-

-

-

-

40,00036,900Loans in foreign
currencies (*)

31,658--204,89085,883--472,180

794,611

Allowance forpossible loan losses

(583)

-

-

-

-

-

-

-

(583)

61
￦ 108,036 ￦

13,304 ￦

124 ￦

22 ￦

Other assets

Liabilities:
Deposits in Won

￦

927
99
1,196 ￦ 206,510 ￦ 108,263 ￦

5,291 ￦

4 ￦

- ￦

308 ￦

- ￦

1,766
2,854
- ￦ 473,946 ￦ 901,563

- ￦

- ￦

5,441

Deposits in Foreign
currencies

28,723

7,704-

29,26228,960

331

-

2,105

97,085

Borrowings inforeign currencies

-

-

-

36,675

129,705

106,540--

272,920

Other liabilities

3,350￦ 32,197 ￦(*) Call loans in foreign currencies are included.

7,726 ￦

1,560
312
222
133,332
5,291 ￦ 67,501 ￦ 158,977 ￦ 107,093 ￦ 133,332 ￦

138,776
2,105 ￦ 514,222

196

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(2) Significant transactions with subsidiaries for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
2010
Classification

KEBC

Revenue:
Interest income ￦in WonInterest income
in foreign
currencies

KEBOC

KEBA

KEBDAG

- ￦

KEBI

- ￦

- ￦

KEB
China
- ￦

Trust

Other
subsidiaries

- ￦

- ￦

- ￦

1,357

-

-

2,577

974

19

165

-

2,578

7,670

-

9

-

-

-

-

-

-

-

9

-

-

-

616

4,435

558

-

-

-

5,609

￦

3,183
8,174 ￦

9 ￦- ￦3,193 ￦

54
5,463 ￦

577 ￦

165 ￦

9,399
9,399 ￦

￦

- ￦

16 ￦

- ￦

- ￦

- ￦

- ￦

- ￦

1,261 ￦

Interest
expenses inforeigncurrencies

2

13

61

1,955

3,235

591

128

Commission
expense in
Won

-

304

-

-

-

-

Commission
expense inforeigncurrencies

-

50

162

-

Provision forpossibleloan losses

(104)

-

-

-

383 ￦

61 ￦

128
2,245 ￦

Expenses:
Interest
expenses in
Won

Other expenses￦

3,079
2,977 ￦

- ￦

Total

3,634 ￦

Commission
income in
Won
Commission
incomein foreign
currencies
Other revenue

KEBF

3,634

12,636
2,578 ￦ 29,558

- ￦

1,277

-

2

5,987

-

-

-

304

-

-

-

81

293

-

-

-

-

-

(104)

3,235 ￦

591 ￦

128 ￦

1,261 ￦

KEBI

Trust

3,207
83 ￦ 10,964

2009
Classification
Revenue:
Interest income in Won

KEBC

KEBF

KEBOC

KEBA

KEBDAG

- ￦

- ￦

1,956

-

2

5,404

1,735

121

-

10,91020,128Commission income in Won

-

181

-

-

-

-

-

-

181

Commission income inforeign Currencies

-

-

-

584

130

-

-

-

714

Interest income inforeign currencies

Other revenue

Expenses:
Interest expenses in Won

- ￦

- ￦

4,106
￦ 11,828 ￦

340
521 ￦

2 ￦

2,508
8,496 ￦

41
1,906 ￦

121 ￦

- ￦

- ￦

- ￦

- ￦

- ￦

- ￦

Total

5,766 ￦

￦

- ￦

Other
subsidiaries

5,766

9,176
16,171
9,176 ￦ 10,910 ￦ 42,960

- ￦

41 ￦

Interest expenses inforeign currencies

5

7

152

1,531

3,667

1,451

-

135

6,948

Commission expense in Won

-

345

-

-

-

-

-

-

345

￦

973 ￦

- ￦

1,014

197

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 20092009Classification

KEBC

KEBF

KEBOC

KEBA

KEBDAG

KEBI

Trust

Other
subsidiaries

Total

-

109

-

104

-

-

-

112

325

152 ￦

2,258
3,893 ￦

3,667 ￦

1,451 ￦

973 ￦Commission expense
in foreign currencies
Written-off of bad debts
Other expenses(1,197)5,910￦ 4,718 ￦502 ￦(1,197)8,168
247 ￦ 15,603(3) Details of significant receivables and payables among subsidiaries as of December 31, 2010 are as follows (Unit: In millions):
Subsidiaries

Classification

KEBA

Due from banks inforeign currencies

KEB China

AmountCounterparty

Classification

10

KEBDAG

Demand deposits inforeign currencies

Amount10

Due from banks inforeign currencies

110

KEBDAG

Demand deposits inforeign currencies

110

KEBDAGDue from banks inforeign currencies

306

KEBOC

Demand deposits inforeign currencies

306

KEBI

Due from banks inforeign currencies

119

KEBDAG

Demand deposits inforeign currencies

119

KEBF

Due from Retirement
Insurance

531

Trust

Demand deposits in
Won

531

KEBF

Due from Retirement
Insurance

14

Trust

Accrued expenses

14(4) Details of significant transactions among subsidiaries for the year ended December 31, 2010 are as follows (Unit: In millions):
Subsidiaries
Trust
KEB
NYFINCOClassification
Interest on deposits in
Won
Interest on borrowing
in foreign currencies

Amount Counterparty
27

KEBF

131

KEBOC

Classification

AmountInterest on due frombanks in Won
Interest on call loan inforeign currencies

27131(5) Guarantees and acceptances with subsidiaries as of December 31, 2010 are as follows (Unit: In millions):
Subsidiaries

Classification

BANK
KEBA
KEBI

Guarantees and acceptances in foreign currencies
Guarantees and acceptances in foreign currencies
Guarantees and acceptances in foreign currencies

Amount Counterparty
53,756
15,474
10,266

￦

KEBC
BANK
BANK

(6) The key management compensations for the year ended December 31, 2010 are as follows (Unit: In millions):
Subsidiaries
Short-term employee benefits
Employee benefits after resignation
Stock option

Compensations
￦

7,039
2,604
(6,278)3,365

The key management includes the directors, the executives and the officers who have authorities and responsibilities for decision-making of thebusiness plan, operations and control over the Bank.

198

Korea Exchange Bank 2010 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2 6 . C O M PUT A T I ON O F V A L UE A DDED :Accounts required for computation of value added for the years ended December 31, 2010 and 2009 consisted of the following (Unit: In millions):
Classification
Salaries
Expenses for fringe benefit
Retirement allowances
Rent
Depreciation
Amortization
Taxes and dues

2010
￦

￦

551,056
184,877
64,592
93,10474,87924,88441,091
1,034,483

2009
￦

￦

566,239
168,146
61,34584,74889,37832,57440,245
1,042,675

2 7 . D I V I DENDS :(1) Details of dividends for the years ended December 31, 2010 and 2009 are as follows (Unit: shares, In millions except per shareamounts):
Classification
Stock dividends per share (rate) (In currency units):
Quarterly
Yearly2010￦￦

Number of shares issued and outstanding
Total dividends:
Quarterly
Yearly235 (4.7%)
850 (17.0%)
1,085 (21.7%)

2009
￦
￦

644,906,826￦￦

151,553
548,171699,724510 (10.2%)510 (10.2%)
644,906,826￦￦

328,902328,902(2) Dividend payout ratio for the years ended December 31, 2010 and 2009 is as follows (Unit: In millions):
Classification
Dividends (*)
Controlling company’s net income
Dividend payout ratio (%)

2010￦

699,724
1,021,367
68.51

2009
￦

328,902891,737
36.88(*) Quarterly dividend is included.
(3) Dividend yield ratio for the years ended December 31, 2010 and 2009 is as follows (Unit: In currency units):
Classification
Dividends per share (*)
Stock price at the end of the year
Dividend yield ratio (%)(*) Quarterly dividend is included.

2010
￦

1,085
11,800
9.19

2009
￦

510
14,500
3.52

199

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOREA EXCHANGE BANK AND ITS SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

28. CASH FLOWS:(1) Cash in statements of cash flows consists of cash, due from bank (excluding restricted due from bank). Cash flows from operating
activities are presented by the indirect method.
(2) The cash and due from banks in the statements of cash flows for the years ended December 31, 2010 and 2009 are as follows (Unit: In
millions)
Classification
Cash and due from banks
Foreign currencies
Deposit in Won
Deposit in foreign currencies

2010
￦

￦

Less: restricted due from bank￦998,607423,473
3,921,735
2,769,061
8,112,876(5,522,340)
2,590,536

2009
￦

￦

￦

809,276
389,873
3,283,060
1,864,048
6,346,257(2,442,077)
3,904,180(3) Significant non-cash transactions for the years ended December 31, 2010 and 2009 are as follows (Unit: In millions):
Classification
Decrease of loans from write-offs of loans
Increase (decrease) in gain on valuation of available-for-sale securities
Change on unsettled spot transactions

2010￦499,867(122,025)
119,5932009￦

926,361
487,292
1,513,172

200

Korea Exchange Bank 2010 Annual Report

Organization Chart
AS OF MARCH 31, 2011

General Meeting of Shareholders
Board of Directors

Channel Development Committee

President & CEO

Compensation Committee

4 Banks
9 	Groups
25 Departments
44 Divisions
122 	Teams

Risk Management Committee
Audit Committee

Audit & Examination Division

Outside Director Candidate
Recommendation Committee
Compliance Dept.

World Corporate Group
Global Corporate Bank

Large Corporate Support Dept.

International Group
Global Products Dept.
Foreign Customer
Marketing Support Dept.

Corporate & Capital Markets Bank

Corporate Group
Capital Markets Dept.
Retail BankPB Marketing Support Dept.

Card Bank
Credit Management

Special Credit Management Dept.

Finance
Human Resources
Service Delivery
Information & Technology
Risk Management
Brand Management &Communication Dept.

201

Board of Directors & Managing Directors
AS OF MARCH 31, 2011

Board of Directors

Standing Directors

Larry A. Klane

chairman & CEO

Outside Directors

Ellis Short

Ex-Vice President, Lone Star

Michael D. Thomson

General Counsel-Asia, Lone StarPaul Yoo

Ex-President, Lone Star Advisors Korea

Larry S. Owen

Ex-Managing Director, Stanford Management Company

Park, Chin-Keun

Ex-Dean of Department of Business and Economics, Yonsei University

Kim, Chung-Soo

Ex-Director of Economic Research at JoongAng Daily

Kim, Jin-Ho

Ex-Deputy President, Korea Eximbank

Yong-E Ha

Ex-Chief Representative, Bank of Korea Hong Kong Representative Office

Managing Directors

Lee, Jong-Kyu

AuditorYoon, Jong-Ho

Senior Managing Director, Global Corp Bank / World Corp Group

Lee, Sang-Don

Senior Managing Director, Corp & Capital Market Bank / Corp Group

Alexander S. Kim

Managing Director, Service Delivery Dept.

Kim, Jee-Won

Managing Director, CFO

Chung, Soo-CheonManaging Director, Card Bank

Park, Yong-DuckManaging Director, Retail Bank

Byeon, Dong-Hee

Managing Director, International Bank

Sang-Cheol Lee

Managing Director, Risk Management

202

Korea Exchange Bank 2010 Annual Report

global directory
As of March 31, 2011

Financial Institutions Division

Medium & Long-Term Financing

Project Finance

Global Head of Financial Institutions

Head of Foreign Currency Treasury Team:
Park, Jun-sik
Tel: 82-2-729-0365

Chief Manager of Project Finance Team:
Jeon, Ho Jin
Tel: 82-2-729-0542

Senior Manager: Kim, Beom Rae
Tel: 82-2-729-0520

Structured Finance

In-Gyun, Cho
Tel: 82-2-729-0432
Fax: 82-2-775-2565
		
CLS		
Senior Manager: Suk-Kyung, Lee
Tel: 82-2-729-0457
Fax: 82-2-775-2565
		

Clearing Service
Senior Manager: So-Jin, Kim
Tel: 82-2-729-0511
Fax: 82-2-775-2565
		
Asia, Oceania		
Senior Area Manager: Sung-Mun, Yi
Tel: 82-2-729-8916
Fax: 82-2-775-2565
		
Korean, Community Banks		
Senior Area Manager: Kwang-Hoon, Kim
Tel: 82-2-729-8470
Fax: 82-2-775-2565

Foreign Customer Division

Chief Manager of Structured Finance Team:
Lee, Hoa Sun
Tel: 82-2-729-0547

Foreign Customer Marketing Team

C/F, SOC, R/E

Team Head: Cho, Jin-Je
Tel: 82-2-729-0533

Head of Corporate Finance/SOC/Real Estate:
Choi, Yun Hyun
Tel: 82-2-729-0546

USA, Asia
RM: Lee, Sun-Ki
Tel: 82-2-729-0288

China, JapanRM: Heo, Hyun-Hoe
Tel: 82-2-3671-1882
EuropeRM: Lee, Min-Ho
Tel: 82-2-729-0304

Senior Area Manager: Hyun-Sik, Kim
Tel: 82-2-729-0464
Fax: 82-2-775-2565

West Europe, Africa
Senior Area Manager: Sui, Choi
Tel: 82-2-729-0448
Fax: 82-2-775-2565
		Middle East, Turkey, Russia, CIS,
Central and Eastern Europe		
Senior Area Manager: Young-Suk, Lee
Tel: 82-2-729-0465
Fax: 82-2-775-2565

Middle East, Turkey, Russia,
CIS, Central and Eastern Europe
FI London Desk
Senior Area Manager: Sung-Ho, Choi
Email: csh3193@keb.co.kr

Chief Manager of Corporate Finance Team:
Kim, Jae Ho
Tel: 82-2-729-8882

SOC
Chief Manager of SOC Team:
Park, Seong Soo
Tel: 82-2-729-8436

Real Estate
Other Area & VIP Expat.

Americas		Corporate Finance

RM: Kim, Hyong-Seock
Tel: 82-2-3671-1153

Chief Manager of Real Estate Team:
Lee, Si Choon
Tel: 82-2-729-8739

FDI Consulting Desk

Asset Management

FDI Marketer: Yoon, Sang-Won
Tel: 82-2-729-0919

Head of Asset Management Team:
Park, Hyung Kook
Tel: 82-2-729-0556

FDI Marketer: Nam, Seoung-Il
Tel: 82-2-3671-1364

FX trading

FDI Consultan: Kim, Ji-Sun
Tel: 82-2-729-0281
FDI Consultant: Yoo, Sin-Young
Tel.: 82-2-729-0285
FDI Consultant: Park, So-Young
Tel: 82-2-729-0280

Investment Banking Division
Treasury Division

Head of Investment Banking Division		General Manager

Lee, Jae Hak
Tel: 82-2-729-0292

Lee, Hyung-soo
Tel: 82-2-729-0531

P/F, S/F
Head of Project/Structured Finance Team:
Jeong, Jong Min
Tel: 82-2-729-0943

Head of FX Dealing TeamHa, Jong Soo
Tel: 82-2-729-0472
Chief Dealer: Lee, Hang Joon
Tel: 82-2-729-0519
Chief Dealer: Kim, Doo Hyeon
Tel: 82-2-729-0498
Chief Dealer: Kim, Gi Back
Tel: 82-2-729-0935

203

Overseas Network
As of March 31, 2011

Branches & Representative
Offices
AMERICA• (KEBOC) Thornhill Branch
7670 Yonge Street, Suite 5
Thornhill, Ontario, L4J 1W1, CANADA
Tel: 1-905-707-7001
Fax: 1-905-707-0171• KEB NY Financial Corp.
460 Park Ave. 14th Floor
New York, N.Y 10022, U.S.A.
Tel: 1-212-838-4949
Fax: 1-212-371-5290
kebny@kebus.com• (KEBOC) Vancouver-Burnaby Branch
4900 Kingsway Suite 100
Burnaby, B.C., V5H 2E3, Canada
Tel: 1-604-432-1984
Fax: 1-604-432-1964• KEB USA International Corp.
460 Park Ave. 15th Floor
New York, N.Y 10022, U.S.A.
Tel: 1-212-838-4949
Fax: 1-212-752-8551• (KEBOC) Vancouver-Coquitlam Branch4501 North Road, Suite 202A
Burnaby, B.C., V3N 4R7, Canada
Tel: 1-604-420-0019
Fax: 1-604-420-0066• KEB LA Financial Corp.
777 South Figueroa Street, Suite 3000
Los Angeles, CA 90017, U.S.A.
Tel: 1-213-683-0830
Fax: 1-213-622-5378
kebla@kebus.com• (KEBOC) Mississauga Branch
90 Burnhamthorpe Rd., West Suite 120
Mississauga Ontario L5B 3C3, Canada
Tel : 1-905-272-3130
Fax: 1-905-272-3430• (NY FinCo.) Atlanta LPO
3473 Satellite Bulevard Suite No. 101N
Duluth, GA 30096, U.S.A.
Tel: 1-678-584-9922
Fax: 1-678-584-9927• (LA FinCo.) Seattle LPO
31721 Pacific Hwy S Suite B
Federal Way, WA 98003, U.S.A.
Tel: 1-253-839-6900
Fax: 1-253-946-0393• Korea Exchange Bank of Canada Head Office(KEBOC)
4950 Yonge Street, Suite 1101
Toronto, Ontario M2N 6K1, Canada
Tel: 1-416-222-5200
Fax: 1-416-222-5822
keboc@keb.co.kr
		• (KEBOC) Main Branch4950 Yonge Street, Suite 103
Toronto, Ontario M2N 6K1, Canada
Tel: 1-416-222-6500
Fax: 1-416-222-5855• (KEBOC) Bloor Branch
627 Bloor Street, West
Toronto Ontario
M6G 1K8, Canada
Tel: 1-416-533-8593
Fax: 1-416-531-1047• (KEBOC) Vancouver- Downtown Branch
590 Robson St.
Vancouver, B.C. V6B 2B7, Canada
Tel: 1-604-609-2700
Fax: 1-604-609-2777• (KEBOC) Calgary Branch1935 37th Street SW, Unit 110
Calgary, Alberta, T3E 3A4, Canada
Tel: 1-403-398-7070
Fax: 1-403-398-1045• Panama Branch
Calle 50, Urbanizacion Obarrio Edificio Torre
Global Bank No.19, Oficina No.1902 Panama
Republica de Pamama (Apartado Postal 082305773)
Tel: 507-340-3360
Fax: 507-340-3359
koexpa@cwp.net.pa• Santiago Representative Office
Av.Nueva Tajamar 481, Office 304, Torre Norte
WTC, Las Condes, Santiago, Chile
Tel: 56-2-246-9105
Fax: 56-2-946-0171• Banco KEB do Brasil S.A.
Av. Doutor Chucri Zaidan 940, Market Place
Torre || 18 Andar, Cj.181 Vila Cordeiro CEP:
04583-110, Sao Paulo, SP., Brasil
Tel: 55-11-5188-1122
Fax: 55-11-5188-1120
kebsp@sagesse.com.br

EUROPE• London Branch
30 Old Jewry, London EC2R 8EB,U.K
Tel: 44-20-7606-0191
Fax: 44-20-7606-9968
kebldn@keb.co.kr• Paris Branch
17-19 Avenue Montaigne, 75008 Paris, France
Tel: 33-1-5367-1200
Fax: 33-1-5367-1234
keb5632@keb.co.kr• Amsterdam Branch
Dr. Willem Dreesweg 2, 1185VB
Amstelveen, The Netherlands
Tel: 31-20-546-9377
Fax: 31-20-546-9399
keb5634@keb.co.kr• Moscow Representative OfficeWorld Trade Center, Ent.3, Office Building#1308A Krasnopresnenslaya nab.12
Moscow 123610, Russia
Tel: 7-495-258-2405
Fax: 7-495-258-2407• Korea Exchange Bank (Deutschland) A.G.
Bockenheimer Landstrasse 51-53, 60325
Frankfurt/Main Germany
Tel: 49-69-7129-0
Fax: 49-69-7129-122• Ostrava Representative Office
3F, AXIS OFFICE PARK Building C Na Rovince
879, 720 00 Ostrava, Czech Republic
Tel: 420-595-700-900~1
Fax: 420-595-700-903

ASIA• Bahrain Branch
5th Floor, Yateem Center Bldg., P.O. Box 5767
Manama, Bahrain
Tel: 973-17-229-333
Fax: 973-17-225-327
bahrain@keb.co.kr• Dubai Representative Office
P.O.Box 14535, Office NO.202 (Block A) 2nd
Floor Concorde Complex Bldg., Dubai, U.A.E
Tel: 971-4-2281133
Fax: 971-4-2281132
kebdubai@eim.ae

204

Korea Exchange Bank 2010 Annual Report

Overseas Network
As of March 31, 2011

• New Delhi Representative OfficeFlat No. 511, Ansal Bhawan 16, K. G. Marg.
New Delhi 110001, India
Tel: 91-11-4354-8960
Fax: 91-11-3040-9906• Singapore Branch
30 Cecil St., #24-03/08 Prudential Tower
Singapore 049712
Tel: 65-6536-1633
Fax: 65-6538-2522
kebspore@keb.co.kr• PT.Bank KEB Indonesia
Wisma GKBI 20th Fl., Suite 2002 Jalan
Jenderal Sudirman No.28, P.O. Box 2317
Jakarta 10210, Indonesia
Tel: 62-21-574-1030
Fax: 62-21-574-1031
kebi@cbn.net.id• PT.Bank KEB Indonesia(Cikarang Sub-Branch)
Menara Pacific 1st Floor J1. M.H. Thamrin
No 107, Lippo Cikarang Bekasi
Tel: 62-21-897-3340
Fax: 62-21-897-3341• PT.Bank KEB Indonesia(Kelapa Gading Sub-Branch)
Graha Rekso Building, Ground Floor,
Suite GR-W03 JL.Bulevar Artha Gaging Kav.
A1, Sentra Bisnis Artha Gading Kelapa Gading
Jakarta 14240, Indonesia
Tel: 62-21-4585-6388
Fax: 62-21-4585-6389• KEB Australia Ltd.
Suite 902, Level 9, The Chifley Tower, 2 Chifley
Square, Sydney NSW2000, Australia
P.O.Box N595 Grosvenor Place NSW 1220
Tel: 61-2-9231-6333
Fax: 61-2-9233-3566
admin@keba.com.au• Manila Branch
33rd Floor, Citi Bank Tower 8741 Paseo deRoxas St. Makati City Metro Manila, Philippines
Tel: 63-2-848-1988
Fax: 63-2-848-1776
kebmanila@keb.co.kr• Hanoi Branch
14th Floor, Daeha Business Center 360
Kim Ma St., Ba Dinh Dist., Hanoi, Vietnam
Tel: 84-4-3771-6800
Fax: 84-4-3771-6784
keb5648@keb.co.kr• Ho Chi Minh City Representative Office
Unit 502, 5floor Diamond Plaza, 34 Le Duan
Blvd. Dist.1, Ho Chi Minh City, Vietnam
Tel: 84-8-3827-4273
Fax: 84-8-3827-4281

CHINA• Hong Kong Branch
32Fl., Far East Finance Centre, 16 Harcourt
Road, Hong Kong, China
Tel: 852-2520-1221
Fax: 852-2861-2379
kebhk@pacific.net.hk• Kowloon (Hong Kong Sub-Branch)
Room 1205, Energy Plaza, 92 Granville Road
Tsim Sha Tsui East, Kowloon, Hong Kong
Tel: 852-2369-2131
Fax: 852-2311-0390• KEB Bank (China) Co., Ltd.
Floor5, Huaqiao Bldg No.92-1 Nanjing Road
Heping District, Tianjin city 300042, China
Tel: 86-22-2330-7800
Fax: 86-22-2330-7103• Beijing Branch#510, Henderson Center, Office Tower 2,
18 Jianguomennei Avenue, Beijing 100005, China
Tel: 86-10-6518-3101
Fax: 86-10-6518-3106
koexcnbj@mx.cei.gov.cn• Wangjing (Beijing Sub-Branch)
Room A212-213 Wangjing International
Business Center, No.9 Wangjing ST.
Chaoyang District, Beijing 100102, China
Tel: 86-10-5920-3780
Fax: 86-10-5920-3787• Wudaokou (Beijing Sub-Branch)
Beijing U-center #101, 28 Chengfulu Road
Haidian District, Beijing 100083, China
Tel: 86-10-6266-6710
Fax: 86-10-6266-6715• Tianjin Branch
1st Floor, Huaqiao Bldg. No. 92-1 NanjingRoad, Heping District Tianjin 300042 China
Tel: 86-22-2319-2595
Fax: 86-22-2319-2594
kebcntj@public.tpt.tj.cn• Binhai (Tianjin-Sub Branch)
No. E-7B-108, Binhai Financial Service Zone
No.20, Guangchangdong Road, TEDA,
Tianjin, China 300457
Tel: 86-22-5981-1155
Fax: 86-22-5981-1154• Dalian Branch
25th Fl., World Trade Center, No.25 Tongxing
Road, Zhongshan District, Dalian, China
Tel: 86-411-8253-1988
Fax: 86-411-8281-6150
kebdlcn@mail.dlptt.in.cn• Shanghai Branch
17F. Pufa Tower, No 588 Pudong South Road,
Pudong New District, Shanghai 200120, China
Tel: 86-21-5882-5998
Fax: 86-21-5882-8743
kebcnsh@mail.online.sh.cn• KEB Asia Finance Limited (KAF)
Suites 1001-04 Level 10, One Pacific Place, 88
Queensway, Hong Kong
Tel: 852-3589-7500
Fax: 852-2865-4746

JAPAN• Tokyo Branch
The Shinkokusai Bldg., 4-1,Marunouchi,
3-Chome, Chiyoda-ku, Tokyo, Japan
Tel: 81-3-3216-3561
Fax: 81-3-3214-4491
kebtkcom@cb.mbn.or.jp• Shinjukyu (Tokyo Sub-Branch)
Senzaki Bldg. 1F., 1-1-2, Hyakuninchou,
Shinjuku-Ku, Tokyo, Japan
Tel: 81-3-3208-5211
Fax: 81-3-3208-5260• Osaka Branch
Yodoyabashi Mitsui Bldg 4F, 1-1, Imabashi
4-Chome, Chuo-ku, Osaka, Japan
Tel: 81-6-6630-2600
Fax: 81-6-6630-2806
kebosaka@helen.ocn.ne.jp

205

Domestic Network
As of March 31, 2011

H e a d Offic e• 181, Euljiro 2-ga, Jung-gu, C.P.O.Box 2924, Seoul 100-793, Korea
Tel: 82-1544-3000
Tlx: K23141

B r a n ch e s• 353

S u b s i d ia r i e s• KEB Capital Inc.
10F Hanwi Building, 70 Da-dong, Jung-gu, Seoul 100-180, Korea
Tel: 82-2-3708-2114
Fax: 82-2-756-5269• KEB Futures Co., Ltd.
11F Yuhwa Building, 23-7 Yeouido-dong, Yeongdeungpo-gu, Seoul 150-738, Korea
Tel: 82-2-3770-4100
Fax: 82-2-3770-4147• KEB Investors Services Company
9F Hanwi Building, 70 Da-dong, Jung-gu, Seoul 100-180, Korea
Tel: 82-2-6714-4615
Fax: 82-2-6714-4800

181, Euljiro 2-ga, Jung-gu, C.P.O. Box 2924, Seoul 100-793, Korea
Tel. 82-1544-3000 SWIFT. KOEXKRSE Telex. K23141

www.keb.co.kr