KOREA EXCHANGE BANK 2011 Annual Report

The Next Stage of Growth

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 toprovide our customers with the highest level of service.

Contents

001	Profile008

a Letter to Shareholders from the president & CEO

012	Financial Highlights
014	Review of Operations
044	Management Discussion & Analysis
050	Financial Statements
166	Organization Chart
167

Board of Directors & Managing Directors

168	Global Directory
169	Overseas Network
171	Domestic Network

The Next Stage of Growth
Korea’s most customer-centered bank
Korea Exchange Bank marks the 45th anniversary of its founding amid recognition as the Koreanbank with the largest global network and for fast becoming the most customer-centered bank in
the nation by providing high-quality services built around expertise in foreign exchange. The Bank’s
strategic marketing practices, effective use of capital and manpower, ethical management, strong
sense of staff unity, and advanced human resources system have enabled KEB to become an industry
leader that sets the pace for other banks to follow.
Backed by our state-of-the-art Smart Banking system, KEB will maintain its status as Korea’s mostglobal bank and continue to provide the industry’s highest level of asset quality as a leader in thedomestic financial sector.
A dominant player in trade finance and international trade
KEB was founded in 1967 as a state-sponsored bank specializing in foreign exchange. We went
on to become Korea’s leading bank in trade finance and international finance, contributing to thecountry’s trade-driven economic growth in the 1970s and 1980s.
In the midst of the 1998 Asian financial crisis, our people marshaled their resources and embraced
change, which ultimately improved our revenue structure. Then and now, we remain committed
to our foreign exchange business — a unique strength of KEB — as a means of sharpening ourcompetitive edge.
KEB has earned recognition from some of the world’s most prominent finance journals for our
expertise in foreign exchange and trade finance. Such accolades have solidified our position as aleading global bank with representation in 49 offices in 21 countries.

Performingat the Highest Level
KEB continues to maintain its robust market leadershipin its core businesses of foreign exchange and trade finance.

K

EB achieved leading market shares of 47% in foreign exchange,
33% in export finance and 30% in import finance in 2011.

KEB

47%

FX Market Share

KEB

33%

Export Market Share

KEB

30%

Import Market SharePulling Together
to Move Forward
KEB believes that a unified effort leads to the best outcome;our strength comes from working together as one.

K

EB posted the second-highest net income in its history in 2011:
KRW 1,654.7 billion, a 47.5% increase from the previous year.

Net Income (Unit: KRW Billion)

960.9

2007
2008

782.6

2009
2010
2011
✽2007~2010: K-GAAP, 2011: K-IFRS

891.7
1,021.4

1,654.7

KEB is committed to growing KEB’s franchise at home and abroad.
We will pursue smart and profitable growth.

To achieve growth, we will sharpen our competitive edge in ourcore businesses and expand our overseas operations.

Sustainable &Profitable Growth

Efficient
Execution

Competitive
Franchisestrategic
priorities

Risk
Management

A Letter to Shareholders
from the President & CEO

Yong-Ro Yun
President & CEO

It was a great honor to be named KEB’s President and Chief Executive Officer this February.
Going forward, I will focus on strengthening KEB’s core competencies in corporate banking,overseas operations, foreign exchange and trade finance to ensure that KEB continues to growinto Asia’s top-ranking global bank.

Korea Exchange Bank
2011 Annual Report89
To our valued customers and shareholders:First of all, I would like to thank you for your continued support and encouragement. 2012 is the Year of the Dragon, amythical creature that symbolizes hope and prosperity. We started the year at Korea Exchange Bank with a truly milestone
event, becoming a Hana Financial Group subsidiary in February. We have high hopes this year as we redouble our efforts tobecome a leading global bank by strengthening our franchise and expanding our global operations. It was a great honor
for me to join KEB as the President and Chief Executive Officer at this critical juncture.

Last year was a challenging time for all Korean banks. The European sovereign debt
crisis heightened financial uncertainties and led to a global economic slowdown, whichdampened export and import growth as well as private consumption. I am proud to1,654.7
KRW billion

report that during this difficult period, KEB delivered outstanding financial results while
also safeguarding its capital and its portfolio.
KEB posted the second-highest
net income in its history

We achieved the second-highest earnings in our history in 2011, with net income of
KRW 1,654.7 billion, up 47.5% from 2010. Extraordinary gains of KRW 875.6 billion from the sale of Hyundai Engineering &Construction shares contributed substantially to the increase in net income. Our return on equity rose to 17.8% in 2011, up
from 12.6% in 2010, while our return on assets jumped to 1.45% from 1.03%. KEB’s capital position remained robust, with a
BIS capital ratio of 14.48% and a Tier 1 capital ratio of 11.95% at the end of the year. We ended the year with an improved
non-performing loan (NPL) ratio of 1.18%, down from 1.34% a year earlier. Our NPL coverage ratio also rose to 145.1% from
124.8% at the end of 2010.

We continued to maintain our strong competitive position in FX and trade finance in 2011
with market shares of 47% in FX, 33% in export finance, and 30% in import finance, andreceived many awards for our outstanding performance. Global Finance named KEB the Best

17.8%
Return on equity

Trade Finance Provider in Korea for the 11th consecutive year and Best Foreign Exchange
Provider in Korea for the 10th consecutive year. Asiamoney recognized KEB with its 2011 Best
Domestic Provider of Foreign Exchange Services in Korea award, while FinanceAsia named us

Profitability indicator
ROE increased significantly

the Best Foreign Exchange Bank in Korea and the Best Trade Finance Bank in Korea for the 4th consecutive year.

In February, Standard & Poor’s Ratings Services upgraded our long-term credit rating to A– from BBB+, reflecting its view that
KEB is a highly strategic subsidiary of the enlarged Hana Financial Group.

1.18%NPL ratio

Looking forward, we anticipate the business environment to remain challenging in 2012
due to stressed economic circumstances. The global economic slowdown has continued
into 2012, contributing to a weakening of the domestic economy. In addition, KEB
faces intensifying competition and is operating within a regulatory environment that is

NPL ratio improved
compared to a year ago

implementing and enforcing tougher rules in the areas of capital and liquidity. Althoughmany challenges lie ahead of us this year, I am confident that KEB will successfully
navigate through these challenges and continue making strides toward becoming a

globally competitive bank.

For 2012 and beyond, there are five strategic priorities for the KEB management:

First, we will focus on strengthening our core competencies.
We will expand and strengthen our overseas operations and sharpen our competitive edge in our foreign exchange andcorporate banking businesses. We are planning to open new branches in Abu Dhabi, UAE, and Chennai, India, this year andare also exploring opportunities to re-establish operations in the U.S.

14.48%BIS ratio

Second, we will expand our customer base by becoming more customer-focused.
In order to become our customers’ most-trusted financial partner, we will improve
our customer segmentation processes, which will allow us to better understand ourcustomers’ diverse needs. This will include developing even more individualized and

KEB continued to maintaina robust capital positiondifferentiated products and services.

Third, we will strive to optimize efficiencies through tighter cost containment.
The recent global financial crisis has forced banks everywhere to implement cost-cutting measures to combat theirdeclining net interest margins and profitability. KEB will carry out an exhaustive, in-depth cost-benefit analysis to find ways
to reduce unnecessary expenditures and enhance efficiency.

Fourth, we will strengthen our organizational capabilities.
We will enhance the competitiveness of KEB by strengthening our expertise in our areas of specialty—foreign exchange
and corporate banking—and adopting a flexible organizational structure in order to optimally allocate human capital andother resources.

Korea Exchange Bank
2011 Annual Report

1011
Q. As the new CEO, what is your vision for KEB?
A. KEB has great strengths in foreign exchange, trade finance,overseas operations, and corporate banking. My focus will be tobolster these areas further. My other priorities include boosting
employee morale by transforming KEB into an even better
workplace and raising customer satisfaction by making us morecustomer-centered. Through these efforts, I hope to strengthen
KEB’s global competitiveness in order to become a top-tierglobal bank in Asia.

I n ter v iew
with the CEO

Q. What challenges is KEB facing this year?
A. A key risk factor for KEB as it pursues its growth strategy
is a potential decline in asset quality. To counter this, wewill reinforce our credit underwriting and risk management
processes. We will also focus on tightening our internal controls
to ensure that no untoward or unexpected accidents occur
during this critical transition period.

Fifth, we will practice pre-emptive risk management and enhance our compliance and control functions.
In addition to continually upgrading our credit underwriting and management models, we will strengthen our monitoringand management of liquidity and market risk to ensure that we maintain healthy levels of capital. In addition, we will enhance
the KEB’s transparency and augment customer trust by improving our internal control and legal compliance functions.

This year we began a new chapter in KEB’s history. The dedicated staff of KEB, in close partnership with Hana Financial
Group, will work together to grow and develop KEB into a globally competitive bank. With the support and encouragementof our customers and shareholders, we will continue to be our clients’ most-trusted financial partner.

In closing, I would like to wish you and your families a happy and healthy 2012.

Yong-Ro Yun
President & CEOfinancial highlights(In billions of KRW)

2009

2010

2011

2,540.8

2,799.0

3,003.7

Net Interest Income

1,917.9

2,152.8

2,417.7

Fees & Commissions

463.2

459.3

494.1

Non Interest Income

159.7

186.9

91.9

Total Expenses (G&A)

1,223.7

1,173.1

1,443.9

Operating Income

1,317.2

1,625.8

1,559.8

Net Income

891.7

1,021.4

1,654.7

Net Interest Margin (NIM)

2.39%

2.69%

2.62%

Return on Assets

0.88%

1.03%

1.45%

Return on Equity

12.27%

12.57%

17.78%

Total Assets

107,728.9

115,116.0

100,497.0

Total Loans

70,550.5

69,181.6

67,944.3

Total Deposits

67,371.3

74,873.8

64,429.6

0.94%

1.34%

1.18%

NPL Coverage Ratio

152.5%

124.8%

145.1%

Precautionary & Below Ratio

2.27%

3.21%

2.67%

63.3%

52.0%

64.4%

0.50%

0.47%

0.59%

14.93%

15.24%

14.48%

Tier I Ratio

11.04%

12.15%

11.95%

Tier II Ratio

3.89%

3.09%

2.53%

income statement
Total Income

Profitability Indices

Balance Sheet (including trust account)

Asset Quality
NPL Ratio

Precautionary & Below Coverage Ratio
Delinquency Ratio
Capital Adequacy
BIS RatioNote) 2009~2010: K-GAAP, 2011: K-IFRS (NIM and asset quality: non-consolidated, other figures: consolidated)

Korea Exchange Bank
2011 Annual Report

1213

Total Income(in billions of KRW)Net Income(in billions of KRW)

3,003.7

1,654.7
1,021.4

2,799.0
891.7

2,540.8

2009

2010

Total Assets

2011(in billions of KRW)

2009

Total loans
70,550.5

115,116.0

2010

2011

(in billions of KRW)

69,181.6

107,728.9

67,944.3

100,497.0

2009

2010

2011

NPL Ratio

2009

2010

BIS Ratio

1.34%

15.24%

1.18%

14.93%

14.48%

0.94%

2009

2011

2010

2011

2009

2010

2011

Korea’s
Most PopularPartner for
Global Banking
As Korea’s leading global bank, we are the market leader in foreignexchange and trade finance and boast on overseas network spanning
twenty-one countries around the world.
Going forward, KEB will continue to expand overseas by utilizing its
strategic marketing, capital, and human resources to position the Bank as
the financial partner that customers and investors trust most.

Korea Exchange Bank
2011 Annual Report

14
15

Global & Corporate Banking

Our global and corporate banking groups work together to serve ourcustomers in Korea and around the globe. We offer an unparalleledlevel of service in our areas of specialty, foreign exchange and tradefinance, and provide a wide range of support services for foreign
customers.

Best Trade Finance
Provider in Korea
by Global FinanceBest Foreign ExchangeBank in Korea
by Asiamoney

Best Trade Finance Bank in Korea
by FinanceAsia

L a r g e Co r p o r at e B a n k i n g
The Bank’s Large Corporate Group (LCG) manages KEB’s relationships with Koreabased conglomerates operating globally. Our Senior Relationship Managers, or
SRMs, are experts in traditional banking services with further expertise in such areas
as project finance, shipping finance, and M&As.
The LCG recorded operating income of KRW 313.5 billion in 2011, the third straightyear in which it exceeded the KRW 300 billion mark. This was accomplished despite
increasingly fierce competition among financial institutions to attract high-quality,
large-scale corporate customers.
In 2011, the LCG enjoyed a stable increase in corporate borrowings, with loans tolarge business customers increasing by KRW 0.59 billion or 3.4% to more than KRW
18.13 trillion. The LCG also contributed to KEB’s market leadership in trade finance.
It carried out USD 145.3 billion worth of export transactions with large corporations(26% of the total in Korea), buying export bills amounting to USD 26.5 billion on
behalf of large corporations, and USD 108.8 billion worth of import transactions (21%of the total in Korea), issuing USD 10.8 billion in letters of credit.
The LCG carries out collaborative marketing activities with other KEB business units tooffer a wide variety of financial services requested by corporate customers. In addition,
many overseas subsidiaries, employees, and venders of large companies havebecome KEB customers, helping other business units broaden their customer base.

The LCG is also expanding the scope of KEBiNet, our global network that assists
corporate customers with their globalization strategies. At the same time, our newmarket-leading trade finance products, such as e-Nego service and SWIFT TSUrelated transactions, help us maintain positive relationships with our large corporateclients.
Going forward, we will strengthen our fee-based operations and add to ourcustomer base to diversify our income sources. We will also continue our efforts toincrease the volume of high-quality assets, to ensure continued and sustainablegrowth.

S ME B a n k i n g
KEB’s Corporate Banking Group (CBG) serves the needs of small- and medium-sizedenterprises, or SMEs. In 2011, the CBG experienced strong growth in total deposits
and foreign exchange, but loan growth was weak due to the European financial
crisis.
Despite muted loan growth, the CBG improved its asset quality, with the percentage
of prime borrowers increasing by 5.9%p during the year to 59.8% of its total loans.
The Group also maintained a leading domestic market share in trade finance of 27.5%.
In addition, its ratio of non-performing loans improved significantly, decreasing to
0.91% from 1.39% a year ago.
Total deposits rose by KRW 1 trillion or 7.6% to KRW 14.2 trillion. Foreign exchangetransactions also grew by KRW 16.5 billion or 17.4% to KRW 111.5 billion, adding to
the Bank’s position as Korea’s leading foreign exchange bank.
In 2012, KEB will enhance its brand power in the field of corporate banking byretaining its industry-leading market share in the area of foreign exchange andoutpacing its competitors in trade finance. In addition, we will expand our customer
base by making better use of our state-of-the-art customer management system,
and continue achieving synergies with the Bank’s other business units. Our goal is toachieve profitable, sustainable growth in all our business activities.

Korea Exchange Bank
2011 Annual Report16
17

Investment Banking
The Bank’s investment banking (IB) business has been diversified to include overseas
project finance, energy financing, and other promising areas that will serve as new
growth engines for the Bank. In 2009, KEB Asia Finance (KAF) was established in
Hong Kong to provide a strategic channel for bolstering the Bank’s overseas IB
business. These moves earned KEB KRW 38.1 billion, either as a deal arranger or aparticipant.
Going forward, the IB Division will enhance KEB’s reputation in the market bybuilding its investment banking business. We will pursue the following strategies tobuild a global IB growth platform and develop IB into a major growth driver for the
Bank.
First, we will broaden our operations so that the Bank’s IB asset portfolio can beenlarged and diversified. This means that KEB will be involved in more deals tofinance acquisitions, either as the arranger or the participant. In addition, we willbackstop promising energy projects and increase our opportunities for being thelead arranger for financing overseas projects. We will also increase our involvement
in structured financing, corporate financing in other currencies, and the financing
of privately funded, build-transfer-operate or build-transfer-lease infrastructure
projects.
Another of our goals is to add to our fee-based business opportunities by increasing
our involvement in arranging new projects. We will also attract new IB customers bycreating more marketing synergies with other KEB divisions and strengthening ourutilization of KAF’s overseas IB network.

F o r e i g n E xc h a n g e a n d T r a d e F i n a n c e

KEB boasts thebroadest global branch
network and mostextensive foreignexchange and tradefinance operations of
any Korean bank.

46.9%
Market share

KEB is Korea’s leading foreign exchange specialist, boasting the largest global branch
network and most extensive foreign exchange and trade finance operations of any
bank in Korea.
In 2011, we maintained our leading position in the domestic foreign exchange
market, boasting a 46.9% share of transactions handled by the nation’s top sevencommercial financial institutions. We repeated this success in the trade financesector, recording industry-leading market shares of 33.3% for export finance and30.0% for import finance.
As a result of our solid performances in these core business areas, KEB won plaudits
from a number of respected finance publications. We were named the Best Trade

Foreign exchangetransactions

Finance Provider in Korea for the 11th consecutive year and Best Foreign Exchange
Provider in Korea for the 10th consecutive year by Global Finance, while AsiaMoney
selected us for its 2011 Best Domestic Provider of Foreign Exchange Services inKorea award. FinanceAsia recognized KEB as the Best Trade Finance Bank in Korea
and Best Foreign Exchange Bank in Korea for the 4th consecutive year. In September
2011, KEB became accredited with a Bank Readiness Certification from SWIFT andjoined SWIFT’s online database, giving corporate customers information on the
SWIFT capabilities of their banking partners.
We continued to develop new products and services to buttress our leading
positions in 2011. In January, we started offering foreign currency deposit passbookswith all transaction details printed in English. In March, we implemented a service
called “SWIFTNet TSU (Trade Services Utility) Payment Guarantee Issuance,” which
prepares, exchanges, and verifies electronic import and export documents throughthe SWIFT network. A new service enabling customers to withdraw cash in Korean
won from their foreign currency deposits without a passbook or a bank card was
implemented in June. In July, we formed a partnership with telecommunications
service provider KT Corporation, LIG Insurance and the Korea Association of
Study Abroad Industries (KASAI) to provide tuition payment services from home,telecommunication services and insurance policies to students studying abroad
through KASAI.

85%
Market share

Throughout the year, we provided forty-three companies with training in foreignexchange and import- and export-related laws and regulations, and advised themon how to manage foreign exchange-related disputes and how to improve theirforeign exchange and import/export operating processes.

Multi-currencyinterbank transfers

We process money transfers in twenty-six currencies, and offer money exchange
service in forty-one—the most in Korea. In addition, we handle transactions in morethan one hundred currencies, including seventy collection currencies, making us thecountry’s undisputed FX leader.

C L S S e t t l e m e n t & Cl e a r i n g
Continuous Linked Settlement (CLS) refers to the risk-free, cross-border settlementof foreign exchange transactions among global financial institutions. One of its key
features is simultaneous settlements based on real-time payments, as opposed
to payments with multilateral netting. KEB worked closely with the Korean
government and the Bank of Korea to introduce CLS to Korea and have the Korean
won designated one of seventeen CLS-eligible currencies. Since then, KEB has been
serving as the Settlement Member of and Korean won liquidity provider for CLS
Bank International.
KEB has been providing CLS for non-deliverable forward contracts since July 2008.
The Bank is now preparing to expand into new product areas, such as FX option
premiums. Korea’s regulator is also planning to allow securities, insurance, andinvestment companies to participate in CLS settlements, which will increase theirvolume even more.

Korea Exchange Bank
2011 Annual Report

18
19

KEB currently settles FX deals through CLS for nine of the thirteen domestic banks
and Seoul branches of a foreign bank, which together account for 72% of thecountry’s CLS TP Service market. It also provides a CLS KRW Nostro Service, serving
as an agent bank for foreign settlement members settling KRW in CLS. The Bank
currently serves nine of the fourteen banks, attracting 64% of CLS KRW Nostro
Service users.
Since its establishment in 1967, KEB has been providing multi-currency inter-bankclearing for both local and overseas banks. In 2011, the Bank processed 3.5 million
inter-bank transfers, accounting for 85% of the total in Korea. It served sixty-one local
banks (including the Seoul branches of foreign banks) and 122 overseas banks.
We have been working to upgrade our IT platform and develop new products tomeet the growing volume of SWIFT traffic in payments, trade finance, treasury, andsecurities each year. In 2011, our inter-bank clearing service posted a record straightthrough process ratio of 95%. Since 2005, KEB has also been providing i-Vostro
services, an Internet-based foreign currency transfer and inquiry system offeringreal-time, online inter-bank clearing services to local and foreign banks.
We also offer Korean won and regulatory advisory services to foreign banks, both tomeet rising market demand for Korean won settlement in the market and to support
the regulator’s won liberalization policies. Our expertise, reliability, and reputationin terms of CLS and inter-bank clearing will pave the way for KEB to emerge as Asia’s
main clearing hub for domestic and overseas banks.

C u s to dy & F u n d A d m i n i s t r at i o n
KEB is Korea’s leading custodian bank. Its custody and fund administration services
boast a large customer base both within and outside of Korea, including institutional
investors, government entities, and foreign investors. In 2011, the value of its assets
under custody totaled KRW 81 trillion. Our high quality, fee-based capital market
services include acting as a securities lending, paying, and escrow agency, an SPC
trustee, and a custodian. KEB was named the Best Sub-Custodian Bank in Korea by
Global Finance for the third time in 2011.
In addition, the complementary capabilities of our custody business and the fundaccounting services of our subsidiary, KEB Investor Services, allow KEB to offer its
institutional customers unparalleled services to meet their needs and their growing
fiduciary duties.

International GroupO v e r s e a s Op e r at i o n s
Our International Group supports the needs of our customers outside of Korea
through the most extensive overseas network among all Korean banks. As of theend of 2011, we operated 49 offices in 21 countries around the world, including
12 branches, 10 local subsidiaries, 5 representative offices, and 22 sub-branches.
In 2011, operating income from our overseas operations rose by 20.7% to USD 170.4
million. Total assets rose by 9.1% over the previous year to USD 10.4 billion while
total deposits increased 6.4% to USD 4.5 billion.
Going forward, we would like to bolster our presence in Asia, a region with highgrowth potential, and re-start banking operations in the U.S. In 2012, we areplanning to establish new branches in Abu Dhabi, UAE and Chennai, India, andexpand our network in China.

Foreign Customer Marketing
Support Department
F o r e i g n C u s to m e r s’ M o s t P r e f e r r e d B a n k
Foreign (non-Korean) residents and businesses in Korea are a very promising market
for KEB. As of 2011, there were about 1.4 million foreigners registered as living in
Korea, and about 14,000 foreign-invested enterprises were in operation.
The Foreign Customer Division was established in January 1995 to tap into thismarket. It manages the Bank’s foreign customers and supports marketing activities
targeting this demographic.

Korea Exchange Bank
2011 Annual Report

20
21

R e ta i l B a n k i n g
The Foreign Customer Division develops banking services that meet the needsof non-Koreans. It operates three Foreign VIP Centers and nineteen Global Desks
to serve them. They are staffed with specially trained bilingual bankers who canoffer advice on anything from opening an account to applying for a credit cardand sending money home. In addition, KEB regularly sponsors cultural events forforeigners.

Co r p o r at e B a n k i n g
We have leveraged our expertise as Korea’s foremost foreign exchange and tradefinance handler and provider of advanced e-banking platforms to become theprimary bank for a majority of the foreign-invested enterprises (FIEs) operating in
Korea. Many of these companies are classif ied as SMEs in Korea owing to the limited
size of their operations. KEB differs from its competitors in taking the size, status, andcredit ratings of their parent company into account when evaluating their credit
standing. This means that we can provide even start-up FIEs with flexible credit
arrangements.
The Foreign Customer Division operates fifteen branches across the nation to
manage the Bank’s FIE clients. In addition, it uses KEB’s extensive overseas network
to offer the parent companies of FIE customers in Korea a full range of banking
services, facilitating their organization-wide growth strategies.

Foreign Direct Investment
KEB’s highly specialized team of Foreign Direct Investment (FDI) consultants assistsforeign-invested companies in Korea. They provide support for FIEs in preparing FDI
reports, establishing new business entities, and setting up financial management
systems. For newly established FIEs, the consultants provide many forms ofassistance using their established relationships with law firms, accounting firms,
foreign chambers of commerce in Korea, foreign embassies, international trade andinvestment bodies, and the Korea Trade-Investment Promotion Agency (KOTRA).
In 2011, KEB retained a dominant share of 34.2% of the country’s FDI notification
market, having offered specialized consulting services to more than 900 FIEs thatwere established during the year.

Answering
the Individual
Needs of
Our Customers
To grow our customer base and meet their increasingly diverse financial
needs, KEB will continue to develop customized products and services anddeliver greater value for existing ones.
We will embrace the latest technology in mobile communications andsmart banking to provide our customers with cutting-edge banking
coveniences.

Korea Exchange Bank
2011 Annual Report22
23

Retail Banking

Customers today expect not only competitive deposit and lending rates,
but also fast and 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 Crossmile Card won theAmex Product Innovation AwardKEB Signature Card won the2011 THE PROUD
Most Valuable Product AwardC u s to m e r s
KEB’s marketing activities are differentiated by customer segment and branchcluster. This helps us retain our customer base, strengthens our up-selling and crossselling activities, and increases our attractiveness to new customers.
As part of efforts to expand our customer base, we launched two new package
products in 2011. “Edu Q” targeted housewives while “Happinior” was a productdeveloped for our senior customers. These were added to our four previously
introduced package products, namely Wingo, N°N, Biz Partner, and Rainbow. We
also reinforced our joint retail-card marketing efforts by combining these package
products with integrated rewards. The number of customers who signed up forour package products totaled 862,000 while the total number of joint retail-card
customers totaled 2,943,000 at the end of the year.
In 2012, we aim to increase the number of active customers by attracting customers
to our package products as well as our demand and installment deposits. We
will also improve our customer management programs and revamp our nextgeneration customer relationship management system. In addition, we will expand
our sales network by introducing high-tech “Smart Branches” and a “Portable Branch”
sales support channel.

29.0
KRW trillion

Deposits
In 2011, KEB continued to focus on increasing demand and time deposits toenhance the stability and profitability of funding. The Bank’s loan-to-deposit ratio
improved to 93.0%, from 96.8% in 2010, while total deposits increased by KRW
1 trillion or 3.6% to KRW 29 trillion. Time deposits and core deposits grew by KRWRetail deposits

19.6
KRW trillion

1.7 trillion or 14.4% and KRW 0.2 trillion or 3.2%, respectively, to KRW 13.7 trillion and
KRW 7.6 trillion.
In 2012, we will focus on increasing longer-term retail deposits to strengthen thestability of our funding structure while stepping up marketing for installment andlow-cost demand deposits to improve our profitability.

Household loans

KEB continued tofocus on increasing
demand and time
deposits to enhance
the stability andprofitability of funding.

H o u s e h o l d Lo a n s
We increased our household lending in 2011 with total household loans increasing
by KRW 0.4 trillion or 2.3% to KRW 19.6 trillion. The increase was driven by thegrowth of mortgage loans, which rose by KRW 0.3 trillion or 2.3% to KRW 12.8
trillion. The asset quality of household loans improved with an NPL ratio of 0.33%
and a delinquency ratio of 0.42% at the end of 2011, down from 0.36% and 0.44%,
respectively, one year ago.
In support of the government’s policies on small loans, we extended KRW 34.6
billion in loans to low-income, weak credit borrowers. In addition, we offered KRW
500 billion in fixed-rate loans to protect borrowers from future interest rate hikes.
In 2012, we will maintain our asset soundness by increasing mortgage loans andlow-risk loans, with an emphasis on high-quality unsecured loans. We will also
continue to support low-income, weak credit customers.

P r i vat e B a n k i n g
KEB offers its VIP customers a variety of sophisticated services to help them manage
their assets profitably and efficiently. Our Private Banking (PB) products and services
enable customers to broaden their asset portfolios with innovative stock, insurance,
and foreign exchange-related investment instruments. We also offer real-estate
management and disposal services, advice on taxes, wills, inheritances, and businesssuccession, specialized financial planning, and overseas education and emigration
assistance.
Our objective is to make KEB the first choice in Korea’s very competitive PB market
by constantly expanding the scope of and increasing the quality of our services. We
operated eleven Wealth Management Centers and seventy-one specially designated
PB Branches at the end of 2011.

Korea Exchange Bank
2011 Annual Report

24
25

KEB provides an unparalleled level of tailor-made services and benefits to maintainthe exclusivity of its high-end “VVIP” customers. Customer loyalty is cultivatedthrough special advisory services and invitation-only events, such as comprehensive
asset management seminars. We also leverage our overseas branch network and
KEB’s strengths in the FX field to market our asset management services to Koreansliving abroad.

B a n c a ss u r a n c e
KEB started selling bancassurance in September 2003, after the domestic market
was opened to international competition. The business has grown steadily sincethen, thanks to our strategic partnership agreements with Korea’s leading insurancecompanies and our ongoing training of bancassurance specialists. Our retailcustomers can choose from a wide variety of low-premium annuity and endowment
insurance plans.
The bancassurance market in Korea grew strongly in 2011 with premium income
from insurance policies sold through bancassurance increasing by 15.3% to KRW
18.2 trillion and accounting for 12.6% of total insurance premium income. As a resultof this growth, commissions paid to banks and other financial institutions also roseby 14.6% over the year to KRW 816.0 billion.
In 2011, fee income from the sale of bancassurance products at KEB declined to KRW
19 billion due to special circumstances in the first half of 2011. Our bancassurance
fee income has been steadily increasing since the second half of the year and we
expect to see continued growth in 2012.

Investment Products
The global market started the year 2011 expecting to see a high supply of liquidity
and a global economic recovery as the result of a new program of quantitativeeasing by the U.S. Federal Reserve Board. Unfortunately, negative factors (including
a sudden rise in international oil prices, damage to the global production axis
beginning in Japan, a credit crunch in Europe, and the lowering of the United States’
credit rating) continued to predominate. As a result, stock markets — particularly
those in new and emerging markets — experienced large losses in the wake offoreign-based selling sprees. The value of gold, the U.S. dollar, and bonds rose inlockstep due to the market’s desire to find safe havens for its investments.
Here at home, the Korea Composite Stock Price Index, or KOSPI, equaled its historichigh of 2,231 at one point in 2011, mainly due to increased liquidity and improved
corporate results. However, it turned sharply bearish in August as a result of foreign
selling emanating from worries about a “double dip” in the U.S. and a credit crunchin the euro zone. It began to rebound as investors took advantage of lower stock
valuations and an easing of the cost of credit, but closed the year below 2,000.

In the investment products market, fund redemptions increased sharply, as
customers who had been suffering huge losses since the global financial crisis of2008 tried to recoup their losses. As a result, fund values slipped by about 14% over
the year to reach KRW 4,597 billion, down from KRW 5,356 billion at the end of 2010.
KEB’s full-selling of investment products received a sizable boost when it was given
the highest ratings in evaluations by mystery shoppers targeting fund-sellingcompanies, for the second consecutive year. The evaluation was carried out by the
Financial Supervisory Service and the Korea Investors Protection Foundation.
We provide a wealth of high-level information, including investment strategies
and market data, through our Wealth Management System (WMS), an advisory
support system for our investment customers. In addition, we sell a broad range ofinvestment products, including 265 domestic funds and 120 offshore ones, enabling
our customers to develop portfolios that fit their investment needs and propensities.
In 2012, we will continue offering our customers a wide range of high-quality
investment advisory services.

T r u s t & P e n s i o n B u s i n e ss
Trust is a fee-based business where KEB is entrusted with customers’ monetaryor real property and manages it according to the terms of the trust document
or instructions of the customer. As a trustee, KEB returns the trust property plus
any gains or losses to the customer without assuming the risk of losses (principalprotected trusts excepted). KEB engages in money trusts, retirement pension trusts,
and property trusts.
The retirement pension business, which the Bank launched in 2005, has been
growing steadily. Based on over two decades of experience in pension products,
we differentiate our services from those of our competitors by adopting a brandconcept and providing follow-up services after the initial sale of pension products.
KEB will continue playing a leading role in the trust and pension markets bydeveloping new and innovative products, such as equity, bond, and structured
products, in line with the ever-changing needs of our customers.

Korea Exchange Bank
2011 Annual Report

26
27

Card Banking
Credit Cards
KEB’s Card Department was a pioneer of the credit card business in Korea, having
introduced the country’s first Visa card in 1978. Despite fierce competition fromother credit card issuers since then, we have enjoyed stable results by offering ourcustomers a wide range of innovative products and services and operating a stateof-the-art customer relationship management (CRM) system. We have implemented
a variety of strategies to enhance our management efficiency and ensure stable andsustainable growth. Our card business income in 2011 totaled KRW 187.6 billion.
We are continuously developing high-end products to strengthen our customer
base and meet the needs of our many cardholders. In addition, we operate a wide

1978

range of systems and organizations that analyze and verify the competitiveness andprofitability of our products. We will soon be introducing a system that will ensure
optimal efficiency of our credit card product portfolio.

Year

In 2011, we launched KEB Crossmile American Express® Card, an innovative credit
card whose reward points can be converted into mileage at Korean Air and Asiana
Introduced firstcredit card in Korea

Airlines as well as other major airlines worldwide. We received the “2011 Amex
Product Innovation Award” from American Express for outstanding product value
and rewards programs. KEB Signature Card also won the “2011 THE PROUD Most
Valuable Product” award from Korea Management Association for providing the best
customer service through differentiated service innovation.
The Card Bank strengthens the loyalty of KEB’s customer base by developing
innovative new programs that deliver high customer value and meet their diverse
wants and needs. We also undertake CRM activities that offer our cardholders anarray of cultural programs and events and strengthen our communications withthem.

Customers
To manage our relationships with card customers, we segment our customers inorder to provide customized services and programs for each customer segment.
We carry out a host of CRM marketing activities, which include expanding our useof “trigger” promotions to increase the efficiency of our customer management
programs, and monitoring their purchasing activities through a Customer Analysis
Reporting system.

187.6
KRW billion

To attract and retain VIP customers, we are continually upgrading our VIP services
and communicate frequently with our VIP customers using the latest technology
such as mobile phone applications. We also carry out a wide range of activities
targeting our top-ranking VIP cardholders such as concerts and cinema festivals
while providing various VIP-only services such as special gifts and a VIP-only website.

Card businessincomeOur promotional activities are based on demand models for each product, ensuring
a stable revenue flow through the sale of our card products and services such as
cash advances, card loans and revolving loans. Differentiated interest rates areoffered to customers based on their credit rating and spending level.
We have also put systems in place to ensure that the rights and interests of ourcustomers are fully respected. This includes a notification process for customers whoare carrying an unpaid balance, and a cellphone authentication service to reduce
phishing attacks. Other services are being developed on a continual basis.
In line with our strategy of branding our promotional events, we are planningto expand our popular “10,000 Won Surprise” credit card brand marketing event.
We are also using social networking channels such as Facebook and LinkedIn to
conduct viral marketing activities. In addition, to build our presence in the travel andentertainment market, we plan to identify relevant customers and develop products
and services to meet their needs.

Merchants
We conduct a wide variety of promotions with our online and offline merchants toincrease our card sales volume. Links to bank branches are maintained to engage inongoing affinity promotions with preferred merchants in each region of the country.
We currently have the highest market share in credit card purchases made in Korea
with overseas credit cards. To further expand our industry leading position, we aremaking efforts to form partnerships with overseas credit card companies in order toopen up new markets. We are currently working with UnionPay of China to handle
credit card purchases made by Chinese visitors to Korea.
We put a Merchant Relationship Management system in place in 2011 to ensure theefficient management of our merchant base. This will increase our sales and revenue
levels by strengthening our marketing and management activities targetingstrategically important large merchants and regionally based small- and mediumsized merchants. In addition, we have formed an alliance with Hana SK Card to allow
Hana SK to use our merchant network and payment system.

Korea Exchange Bank
2011 Annual Report28
29

Synergies
The Card Department generates synergy through cross-selling and joint marketingwith other KEB units to promote major card products and encourage credit cardsales. We also regularly train our employees in more effective sales techniques.
Our efforts to add to our number of high-quality customers include enhancing
synergies among the Bank’s units and developing a wide variety of new products,
such as the very popular Crossmile Card. We also laid the groundwork for increasing
our volume of corporate credit card sales by encouraging more cooperation among
our business groups.
In 2011, we focused on building a foundation to grow our credit card sales. We wereable to boost card sales by more than KRW 200 billion by promoting the use of ourcorporate credit cards to pay corporate, resident, and acquisition and registration
taxes. We also signed an agreement with KT&G, laying the foundation for a sales
increase of KRW 700 billion going forward. To enhance our competitiveness, we also
developed the industry’s highest standard corporate management system. Taken
cumulatively, these steps are expected to produce our largest-ever volume of credit
card sales from the second half of this year.

Dedicated to
Quality Service andthe Industry’s Highest Levelof Risk Management
We are steadily raising our business efficiency by employing innovative
practices and developing safer, faster IT systems.
By strengthening the value of our brand, KEB is maturing into a "smart
bank" that enjoys industry-high levels of customer satisfaction and trust.

Korea Exchange Bank
2011 Annual Report30
31

Quality Service Provider

KEB has made efficient operational systems and processes a priority, andwas the first among Korean banks to implement a process management
system and Six Sigma approaches in our customer service operations.

KS (Korean Industrial Standard) Awardat 2011 World Standard Day from
the Minister of Knowledge Economy

Best Call Center across all industries
and sectors from Korea Management
Association Consulting

K E B I n n o vat i o n a n d S i x S i g m a
KEB adopted the Six Sigma program in 2005. One reason for doing this was to boost
its competitiveness as a global bank by improving its product and service quality;
another was to maximize its business operational efficiency. All of the Bank’s internalinnovation activities have been integrated within the Six Sigma framework.
The KEB Six Sigma program is leading changes in the Bank’s culture and processes. It
is a very useful tool for promoting the Bank’s strategies for realizing its vision throughthe development of an innovative corporate culture.
The greatest result of adopting Six Sigma has been a marked improvement in thequality of our customer services. Our branch operations have been reorganized
by relocating back-office functions to centralized banking centers so that branch
employees can focus on serving customers. In addition, dramatic innovations
within our banking centers have resulted in the implementation of a “service quality
guarantee” program. This is a promise to our customers that we will offer themservices that cannot be equaled anywhere else. Dissatisfied customers will receive
some form of compensation, such as lower interest rates on their loans. This reflects
our confidence in our ongoing innovation and quality levels.
KEB’s Process Management System has improved the speed and efficiency of job
processes by categorizing the core processes of each work stream and automating
the production of various status reports and indices. This allows our management tocontrol and operate core processes efficiently and make decisions quickly.

22.0
KRW billion

Another result is that we have been able to replace outside Six Sigma consultants
with a team of in-house experts. Over 120 employees have earned Six Sigma belts
while more than 2,500 employees have completed Six Sigma training courses.
We have carried out more than 130 Six Sigma projects, which have resulted in
improvements valued at over KRW 22 billion. Projects included shortening the Bank’s
BIS capital adequacy ratio settlement period and enhancing its accuracy, improving

Savings fromSix Sigma projects

its merchant screening processes and upgrading its bill-clearing payment processes.
In 2011, the Bank finished making improvements to the KEB International Banking
System, a key strategic project that was carried out by each business department torealize our vision of “Smart & Profitable Growth.” It included building an Integrated
Mail Center, upgrading our integrated Help Desk, and carrying out a series of largescale projects to bolster our competitiveness such as establishing a Smart Branchtask force to expand our number of cost-efficient operating channels.
In 2012, we will strengthen our innovation efforts from the perspective of ourcustomers to build our profile as a user-friendly bank. This will be done by improving
our customer-centered processes and carrying out customer satisfaction activities
that raise our service quality by reducing the number of problems leading tocomplaints.

e - B u s i n e ss
In 2011, the rapid growth of the mobile Internet in Korea brought many changes
to the financial industry. In response, KEB enhanced many of its electronic financial
services.
In retail banking, we dramatically improved customer access by launching banking
services for tablet devices such as the Galaxy Tab and expanding our smartphonebanking service, which we launched in 2010, to enable customers to use theirmobile devices for more types of financial transactions such as deposits and loans.
We also started offering English-language smartphone banking service for ourforeign customers.
We also launched a telephone-based ATM service, using Internet phones, Internet
TV settlement service, and financial IC cards. This means that our customers are
now able to access a wide spectrum of our financial services from their Internetconnected devices. In addition, we developed specialized mobile applications for
our foreign exchange and credit card services. Our number of smartphone banking
service users almost doubled over the year, a trend that is expected to continue.
Two of the Bank’s most important goals are increasing its global presence andimproving its operational efficiencies. To achieve these goals, we continued to
upgrade our corporate banking and electronic banking processes.

Korea Exchange Bank
2011 Annual Report

32
33

For example, we upgraded our in-house banking operations to In-House
BankingPLUS, enabling us to quickly and easily make changes to our corporate
business and IT operations. This service, together with KEBiNet, our customized global
banking solution, had been used by more than 450 companies as of the end of 2011.
We became the first financial industry player in Korea to develop a real-time foreigncurrency fund management service. In addition, we provided a real-time domestic
and foreign-currency transfer service to large companies like Kefico, SK planet, andHyundai Powertech.
Some of our other new services include offering customers real-time return of
margin payments for foreign-currency futures ordered on the Korea Exchange andthe payment of foreign currency derivatives sold by securities firms.
The mobile revolution is rapidly changing how things are done in the financial
industry. KEB will take whatever steps are necessary to meet this challenge, adding
to its portfolio of custom-tailored banking services to meet the increasingly diverse
needs of its customers and become Korea’s leading electronic banking provider.
We will also continue guarding against electronic banking security threats such as
hacking and phishing.

Information & Technology
We strive to minimize
the administrative
burden on our frontline staff so that they
can devote theirattention to customer
needs.

IT I n f r a s t r u c t u r e
Supporting Strategic Businesses
Many IT projects were undertaken in 2011 to support the operations of KEB’s
strategic businesses. We formed a strategic alliance with SK Telecom to establish a“smart branch,” a new type of branch that will use advanced technology to service
Bank customers via video conferencing at SK Telecom branches. Customers will
be able to receive a variety of services from consultation on financial products to
opening up accounts. The pilot branch will be completed by June 2012.
We recently completed building an electronic offshore credit review system toincrease efficiency and productivity. Previously, only Korea-based credit reviews were
processed electronically. We also revamped our comprehensive audit information

system. The goal was to create a risk-based audit structure that can deal with risks tobranches and conduct our audits more efficiently by enhancing our ordinary audit
operations and improving our audit administration processes.
A next-generation CRM system is being built to adapt to changes in our external
environment, to be completed by the end of the year. This includes expanding
the Bank’s retail customer base and enhancing customer value; optimizing our
IT infrastructure systems to reflect the results of studies on the best ways topromote channel sales; and strengthening our social media, customer experiencemanagement, and customer information protection activities.
We currently have ninety-three development projects being carried out byoutside firms. They include building operational and analytical CRM systems
and new technologies-based operations, such as mobile CRM, SNS, and GIS, andconverting the user interface under the integrated terminal environment into a Web
environment.

Strengthening Internal Control
We are intensifying our internal control activities and reinforcing our regulations andguidelines to lessen the possibility of accidents and to protect confidential customer
information. This includes making improvements to our internal control processes,
enhancing our complaint management functions, and introducing new and better
information protection tools.

Risk Management

KEB’s advanced risk management programs and processes played a significant rolein insulating the Bank from the numerous risks that arose as a result of the 2008
financial crisis.

C a p i ta l A d e q uac y F r a m e w o r k
In 2008, Korea’s Financial Supervisory Service granted us permission to apply theadvanced Basel II approaches to our risk measurement programs. This includes

Korea Exchange Bank
2011 Annual Report

34
35

the foundation internal ratings-based (F-IRB) approach for measuring credit risk,
an internal model for measuring market risk, and an advanced measurement
approach (AMA) for measuring operational risk. We are currently preparing for the
implementation of the new Basel III capital regulations.
Since January 2007, KEB has been using the advanced approaches of the BaselII Capital Accord to calculate economic capital (also called internal capital) andestablish a new capital adequacy framework. Its key feature is that banks must now
separate quantifiable risks from non-quantifiable ones, and select and manage
material risk. Credit, market, operational, interest rate, credit concentration, andstrategic risks are all quantifiable, while liquidity risk is non-quantifiable but classified
as a material risk. At the beginning of the year, the Risk Management Committee,
a subcommittee of the Bank’s Board of Directors, sets limits for quantifiable risks.
The Risk Steering Committee reviews the Bank’s capital adequacy every month andsubmits quarterly reports to the Risk Management Committee.
The Basel II advanced approach calls for an advanced international ratings based(A-IRB) approach to determining credit risk, an internal model to measure market
risk, and the AMA approach for calculating operational risk. The confidence levelmust be at least 99.9%. A capital buffer of at least 8% of risk volume has also beenset, along with a correlation matrix for integrating various risk volumes.

C r e d i t R i sk
KEB has been measuring credit risk according to the A-IRB approach since 2007.
Measured credit risk volume is used to set and manage risk limits. Credit risk
assessments cover rating systems, probabilities of default and losses given default
estimates, and the retail credit scoring system. We also operate a risk-based pricing
system that uses risk data to reflect expected and unexpected losses in our loan
pricing calculations.
As of the first half of 2007, the Bank has been utilizing risk-adjusted performancemeasurement (RAPM) in each business unit by adopting risk-adjusted return on
capital (RAROC) as an index. We began reflecting RAPM in setting business unit
targets and evaluating their performances in the first half of 2008, and beganreflecting RAPM in setting branch targets and evaluating their performances in 2009.
The Bank began calculating its regulatory BIS capital ratio to measure credit risk
using the F-IRB approach in September 2008. Beginning in 2009, we have been
setting bank-wide and business unit targets for risk-weighted assets (RWA) andexamining them on a monthly basis. Our RWA management processes enabled
us to maintain high levels of asset quality and capital adequacy during the 2008
financial meltdown.

M a r k e t R i sk
In 2008, we acquired approval from the Financial Supervisory Service (FSS) to use
our internal model, the 750-day historical simulation method. The Bank received
the FSS’s re-approval to change the internal model from the 750-day method to the250-day method and measure stressed value-at-risk (VaR) reflecting the effects ofthe global financial crisis.
KEB uses the model to calculate and manage its BIS capital ratio. We manage market
risk by monitoring our ten-day VaR limit, including stressed VaR, by business unit
using the internal model. We perform stress testing daily, measuring possible losses
under various scenarios. This enables us to be better prepared for possible crises
which have not been reflected in recent market trends.
The Bank assesses the validity of its model every day by back-testing the P/L and1-day VaR of the previous day. The amount of risk volume measured by the modelis reflected when the Bank sets its risk limits. It has also been reflected in our RAROC
target and business unit performance assessments since 2007.

Op e r at i o n a l R i sk
KEB has been implementing operational risk limits based on AMA methodologies
since 2007. In 2008, we put the Basel II, AMA-based control self-assessment programfor internal controls and the risk-volume measurement of operational risk in placeat our headquarters and all our domestic and overseas branches and subsidiaries.
We calculate operational risk after AMA-based loss data has been collected andscenarios have been assessed.
We have been calculating AMA-based operational risk volume for each of ourbusiness units since 2008. Two percent of their operational risk volume is reflectedin each business unit’s RAROC. The FSS approved the Bank’s AMA program in
November 2008, and the Bank began adjusting it to calculate the BIS capital ratio at
the end of March 2009.
We also established an Internal Control Council under the Compliance Department
to strengthen our internal control. Its members include the heads of the Operational
Risk, Compliance, Audit & Examination, and Finance Departments. We also use the
FSS’s 30 Common Key Operational Risk Indicators to monitor the degree of risk
facing the Bank.
In 2012, KEB increased its capital limit governing operational risk so that it can fully
absorb any unexpected losses that may arise in the future. This means that it cancontinue to operate under any circumstances.

Korea Exchange Bank
2011 Annual Report

36
37

I n t e r e s t R i sk
KEB instituted a new asset liability management system in 2007, and since thenit has been calculating interest rate risk using an advanced deterministic scenario
method in terms of both economic value and earnings. It measures VaR, which
represents the maximum expected loss of its net present value due to changes
in interest rates, to calculate economic value. It uses earnings at risk (EaR), which
represents the maximum expected loss of net interest income due to changes ininterest rates, to measure earnings. In addition to these two metrics, the Bank monitors
its re-pricing and duration gaps to review its interest rate risk profile, and conducts
stress tests based on large and/or unexpected changes in market interest rates.

B u s i n e ss Co n t i n u i t y P l a n
KEB has had a business continuity plan (BCP) in place since 2007. It enables the Bank
to continue its operations even in the event of fire, typhoon, earthquake, terrorist
activity, or civil disorder by ensuring that its computer operations continue to work.
Our Business Continuity Management Committee deals with interruptions to ouroperations caused by accidents or disasters. Its membership consists of the CEO
and the managers in charge of personnel, finance, computerized systems, and BCP.
We have also set up an alternate operating location which we can use if any of ourother worksites become unavailable. It is located in southern Gyeonggi Province,
thirty kilometers from our Head Office. We have also established an alternate, yearround Disaster Recovery Center. It can be used if problems arise within our IT and/or
computer systems.

Through business
continuity
management,
we aim to provide
our customers withaccess to our services
anytime, even in the
midst of an emergency
or a disaster.

BS 25999
Certification

All of our branches have established procedures for responding to natural disasters
like floods and earthquakes, as well as man-made problems like fires and power
failures. They include designating two alternate locations. One is the nearest branch;
the second is a branch located at least ten kilometers away.
We carry out simulation exercises at least once a year to enhance our employees’ ability
to cope with emergencies and ensure that we can resume operations as quickly andsmoothly as possible. They are carried out without advance warning, in conjunction
with our alternate worksites and the Sangam IT Center. The most recent simulation,
which was held in October, simulated an earthquake affecting our headquarters.
In addition, we raised our BCP level by carrying out a branch-wide project lastingfrom the second half of 2010 until early 2011 that reflected changes in our operating
environment. In February, 2011, we became the first bank in Korea to obtain a BS
25999 certification from The British Standards Institute. It was awarded in recognition

Implemented bestpractices in business
continuity managementof our superior abilities in the area of business continuity management. Goingforward, KEB will continue with efforts to ensure that our customers can access ourservices anytime, even in the midst of an emergency or a disaster.

Promoting an OpenCorporate Culture anda Foundation for Sharing
KEB is committed to an open and transparent corporate culture. This includes
practicing ethical management and complying with all of the rules and regulations
governing Korea’s financial industry.
We established the KEB Foundation to assist us in fulfilling our corporate social
responsibility. We return a portion of our profits to society, participate in community
service activities and provide various forms of assistance to the less fortunate bothin Korea and abroad.

Korea Exchange Bank
2011 Annual Report

The KEB Foundation

38
39

Corporate Social
Responsibility

children at home and abroad, which is carried out incollaboration with World Vision, Korea Food for the Hungry
International, and the Leftovers Love Sharing Community.

The KEB Foundation, which was established in December

Presently, 786 children are collectively receiving about

2005, was the first non-profit philanthropic organization

KRW 252 million a year in financial assistance. We are also

set up by a Korean bank. It is responsible for directing our

involved in a one-on-one mentoring program involving

corporate social responsibility programs.

our employees and needy children and teenagers.

Two of the Foundation’s main goals are helping children
pursue their dreams and contributing to the building ofa social safety network. The Foundation also engages in

Support for Low-Income Families
and the Underprivileged

activities that reflect the Bank’s role as Korea’s premierinternational financial institution. This includes supporting

KEBF has been helping multicultural families since 2009 in

multicultural families, migrant workers, and North Koreanvarious ways, including offering them financial assistance.

defectors, as well as undertaking overseas activities. OverIn 2011, cash prizes of up to KRW 10 million were given

the past seven years, the KEBF has spent approximately

to eighteen high-performing individuals and groups that

KRW 18.2 billion carrying out a broad range of social

assist multicultural families. In addition, the wives of suchcontribution activities.

families were provided with an opportunity to visit their
homelands or bring their parents to Korea.

Children Support
Programs

Other activities undertaken in 2011 to lend support tomulticultural families included language learning classes
for children in low-income families in conjunction withThe Foundation carries out a variety of activities to help

the Korea Institute for Healthy Families, educating thechildren. They include support and educational programs

parents of preschool children, hosting a badminton

for teenage heads of household, single-parent families,

tournament, and sponsoring the training and evaluationand children who live with their grandparents. It alsoof employees of multicultural family assistance centers.

sponsors outings for physically handicapped children
in collaboration with Holt Children’s Services and other

Since 2008, we have been co-hosting an annual essay-

helping facilities. In addition, it provides classes inwriting contest with the Sookmyung Women’s University

economics to children of low-income families, with the

Research Institute of Asian Women that encourages non-Bank’s employees serving as instructors. Another closely

Korean wives to write about their experiences in Korea

related activity is providing economics training to teachers

in their mother language. Thirty-three women won

at schools in isolated farming, fishing, and mountainprizes in 2011. In addition, fourteen Thai housewives andvillages in Korea.

their children visited their native homes through theMotherland Tour program, organized in cooperation with

One of the Foundation’s most important child welfare

the Pearl S. Buck Foundation Korea to help the children of

activities is its One-to-One Sponsorship Program for needy

multicultural families find and retain their cultural identities.

The KEB Foundation

Community
Services

Academic
Scholarships

The “KEB Love Sharers” is a volunteer group with a

The KEB Scholarship program, launched in 1989, is now

registered membership of over 1,100 KEB employees

run by the Foundation. It provided KRW 1,223 million inand their families. Members volunteer their time at ascholarships to 1,141 middle, high school, and university

wide range of social assistance facilities throughout thestudents from low-income families from 2006 to the end

country. We also hold an annual blood donation drive, asof 2011. Since 2007, the Foundation has also paid thewell as a bank-wide charity campaign during the Lunar

expenses for fifteen KEB Scholarship recipients to attend

New Year and Chuseok (Korean Thanksgiving). From 2006,

English language study programs in the U.S.

we have also been providing foreign workers with free
medical treatment.

In 2009, KEB signed an agreement to donate KRW 500
million to the Korea Student Aid Foundation (KSAF), which

KEB employees also participate in overseas community

was established to offer financial assistance to students

service activities. For the past four years, KEB employees

from low-income families in Korea. The Foundation’s

have been going abroad to countries such as Mongolia,

contribution has dramatically increased the number ofIndonesia and Vietnam to build homes for low-income

KSAF scholarships. In addition, KEB’s Overseas Scholarship

families in cooperation with Korea Habitat for Humanity.

Program has provided about KRW 460 million to 1,386

In 2011, thirty of our employees visited Mongolia forcollege students from low-income families in Vietnam,

seven days to participate in building homes.

Indonesia, and the Philippines over the past six years.
The KEB Global Scholarship program was started in 2009
to assist students from developing countries who are
studying at Korean universities. To date, KRW 123 million
has been given to forty-one students, with twenty
students receiving assistance in 2011. We are the first
Korean bank to run a scholarship system for both Korean
and non-Korean students.

Korea Exchange Bank
2011 Annual Report

The KEB Foundation

40
41

International
Relief Programs

Special Projects

KEB’s assistance with international relief projects reflects

KEB executives donated part of their salaries to theits role as Korea’s leading international bank. We haveFoundation at the end of 2009, creating a fund that washelped with repairs to damage from earthquakes inearmarked for special projects. Twenty projects were

Pakistan, Haiti, and Chile, a tsunami in Indonesia, floods

selected and have been carried out from 2010.

in Vietnam and Myanmar, earthquakes and volcanic
eruptions in Indonesia, and typhoons in Taiwan and the

In 2011, we assisted with educational programs for

Philippines. In 2011, we helped with recovery efforts fromchildren with behavioral problems, drama activities forearthquakes and the massive tsunami in eastern Japan, as

children from multicultural families, and a home-building

well as drought and famine in East Africa.

project and program to foster counselors for multicultural
families. Our overseas projects included building a KEB

The Foundation has been continuously adding to the number

School in Liberia in West Africa, assisting impoverishedof its overseas “Happy Home School” centers for children fromvillages in India, and building community centers,

low-income families, with the latest center built in Colombia

providing vehicles for mobile clinics, and treating children

in 2011. The first center was opened in Indonesia in 2006,

with facial disfigurement in Vietnam.

followed by centers in Vietnam, Philippines and Uganda. The
program includes scholarships for higher education, wells andIn addition to the KRW 2.3 billion in funding that KEB

water purification facilities as well as schoolbags, sneakers,

provides for these social contribution activities, we rely on

and winter jackets.

individual donations from our employees. They participate
in a campaign to donate money to the Foundation, as

We carry out free eyesight recovery operation clinics inwell as a one-to-one sponsorship program targetingcollaboration with Vision Care Service. In 2011, more thanneedy children in Korea. As of the end of 2011, 3,514 KEB

2,300 visually impaired people were treated in Ethiopia,

employees were taking part in fund-raising activities every

Myanmar, and Bangladesh. We also operate a treatment

month, donating KRW 840 million annually.

program for facial disfigurement in conjunction with Global
Care. We treated forty-three facially disfigured children in

In 2011, the Foundation received the grand prize (inVietnam in 2011.

the social contribution category) at the Korea Social
Contributions Awards from the Korean Journalists’ Forum.
It also won the grand prize (in the corporate category)at the first SBS Hope Sharing for Tomorrow Competition,
co-sponsored by SBS, the Ministry of Health and Welfare,and the Community Chest of Korea. It was also given an
appreciation plaque by the Minister of Health and Welfare
in recognition of its distinguished services in the area ofvolunteering.

Corporate Ethics

KEB’s reputation rests on the integrity of its operations,and its employees are committed to the highest standardsof ethical behavior. The Bank pursues transparent business
management practices through a comprehensive internal
oversight system that protects the Bank and its customers,
employees, and shareholders.
In addition to strengthening its internal control processes,
KEB conducts organization-wide activities to prevent
financial malfeasance. We also provide our employeeswith training in regulatory compliance and businessethics.
In 2009, we introduced a Compliance Manager programat our different regional headquarters to strengthen
our internal oversight and regulatory compliancemonitoring programs. Our overseas offices implemented
an Overseas Compliance Officer system to emphasize theneed for transparency, ethical management, and legal
compliance. To enhance internal oversight at our overseas
branches, we have been taking measures to reinforce theindependence of our Overseas Compliance Officers andimprove the compliance reporting system.
In 2007, KEB became the first Korean financial institution
to implement an independent ombudsman system,
which we applied globally two years later. The KEB
Ombudsman is completely independent, thereby
ensuring the confidentiality of whistleblowers.

Compliance
Establishing a bank-wide compliance support system
The building of a bank-wide compliance support
system was completed in 2011. Its computerizedmanagement processes allow the Bank to carry out its
compliance operations while reducing the duties of its
Compliance Officers. For example, compliance activity
reports, which used to be done manually, are now
prepared by the system.

Anti-Money Laundering
In 2011, KEB received an “excellent” rating in an
assessment of the implementation of anti-money
laundering standards by the Korea Financial
Intelligence Unit. The study covered seventeen banks.