w w w. k e b . c o . k r

SMART &PROFITABLE GROWTH
FOCUSING ON SOUNDNESS & COMPETITIVE STRENGTHS

Korea Exchange Bank
2008
Annual ReportAs a global bank expanding throughout Asia and the world,
KEB's CI encapsulates this idea and also symbolizes its
unfaltering desire to provide customers with the highest
level of customer service.

Contents
01

Profile02

Features08

Letter to Shareholders fromthe Chairman and CEO

12

Financial Highlights

14

Review of Operations

38

Financial Statements

184

Organization Chart

185

Board of Directors &Managing Directors

186

Global Directory

187

Overseas Network

189

Domestic Network

Profile

Established in 1967 as a government-owned banking institution specializing in foreign exchange
and international trade financing, Korea Exchange Bank (KEB) has maintained a pre-eminent
position in these fields. KEB was privatized in 1989, and has continuously strengthened ourcapabilities and grown as one of the country’s premiere commercial banks. Today, we are Korea’s
leading international bank, with strong retail banking and credit card operations complementing ourlongstanding commercial banking and corporate finance expertise.
Like other domestic banks, KEB was confronted with the dual threats posed by the collapse of large
corporations following the 1997 Asian financial crisis as well as the bursting of the consumer credit
card bubble in 2003.
Unlike many other domestic banks, KEB survived without government rescue or public bailout
money. With the new capital from our major shareholder, Lone Star Funds, and a new spirit, themen and women of KEB have managed a remarkable turnaround. The platform for good quality
profit growth was built in 2004.
Since 2005, KEB has proved itself as a healthy and strong institution, with profitability, capital
adequacy and portfolio quality at the best levels in our history. By emphasizing our unique franchise
strengths and our focus on the quality of our business, KEB continues “Smart & Profitable” growth.
In the midst of the unprecedented global economic difficulties of 2008, KEB avoided the toxic assets
and capital adequacy problems that damaged so many other financial institutions. We were able tofocus on continued disciplined development of the bank’s capabilities. While the depth and durationof global economy downturn are difficult to estimate, KEB will work tirelessly to remain sound andwith its key competitive strengths firmly in place.

With our experience inovercoming past crises, we havepursued disciplined business
management to ensure that KEB
is fully prepared to face futurechallenges and opportunities.
We are continuously working
to navigate through the current
environment to grow as a leading
Korean bank.

We have made substantial
investments to strengthen ourcompetitiveness. Througheffective resource allocationand process innovation, we are
improving our service quality
starting from the customers’ viewand enhancing work productivity.

For the past 41 years, ourtraditional strengths in foreignexchange, international tradefinance and international network
have made us the unrivalled leader
among Korean banks. We willcontinue to develop our expertiseand expand our presence in global
markets to maintain our status as
Korea’s leading global bank.

Letter to Shareholders from the Chairman and CEO-

Chairman Richard F. Wacker

08

To our Shareholders
So much has been written recently – and so much more undoubtedly will be written – about the economiccrisis that has ravaged the global economy and weakened so many financial institutions around the world.
Rather than recount the events and the causes, let me articulate for you the state of your bank and how we aremanaging through the difficult environment to secure a safe and profitable future.
As banks around the world have been devastated by the risks they took during the last several years, KEB
reported a profit of KRW 783 billion in 2008, down 19% from our 2007 results. We ended the year with ahealthy total capital adequacy level of 12.65% (Basel II basis). More importantly, our Tier 1 capital climbed to
8.82%, and our level of 6.3% Tangible Common Equity – a metric investors frequently use to gauge the qualityof a bank’s capital – is one of the highest in Korea and substantially above the level of most banks in major
markets.

09

KEB avoided the so-called “toxic assets” that have crippled so many banks around the world. We incurred only
minor losses (less than $30 million) from the US mortgage market meltdown and have no direct holdings of
US or UK mortgage assets or mortgage-backed securities. We have minor indirect exposure through our $45
million CDO holdings, which are triple-A rated. We have no exposure through credit default swaps.
There were dramatic financial institution failures in 2008, and though KEB has the largest correspondentbanking network of any Korean bank and a large financial institutions business, we suffered only one notable
loss in connection with the collapse of Lehman Brothers (JPY 3bn, ~$30 million).
Our comparatively strong results are a credit to the efforts of the men and women of KEB and our focus on
the competitiveness of our core banking franchise. KEB is the most global Korean bank. We provide the best
capabilities for Korean companies doing business around the world, as well as the best capabilities for foreign
customers living and doing business in Korea. As such, we strive to meet global standards in all areas of ourbank, from risk management to compliance to customer service and the effectiveness of our business processes.
Despite the difficult environment, KEB continues to be recognized as the best trade finance and foreignexchange bank in Korea. We maintained our strong #1 position these markets and demonstrated our importantrole to support the export engine of the Korean economy. Gains from foreign exchange transactions and foreign
currency related fees grew 21.2% and 18.9%, respectively, despite economic slowdown late in the year.
Our pricing efforts have given KEB the second highest net interest margin among Korean banks (2.90% for2008). Our cost management efforts have resulted in the second best productivity levels (profit per staff andcost ratio) among our peers.
We were recognized by the Korean government for our leadership in establishing a world-class anti-money
laundering program and system infrastructure. Our customer service center earned the KS Mark Certificationfrom the Korean Standards Association, the first ever for a domestic financial institution. Our KEB Foundation
received plaudits for its continued leadership since its formation as the first charitable foundation in the Korean
financial industry. These efforts are especially important during times like the present.
Because KEB avoided the problems during the early phase of this economic crisis, we were able to stay true
to our core strategy and focus on disciplined development of the bank’s capabilities. But the global downturn
spread rapidly during the fourth quarter of 2008. As end-markets for Korean exports in many industries cameunder stress, many of our customers have had to adjust their expectations and operations for a contraction in
output in 2009. We saw the signs of economic distress in the growth of non-performing loans during the fourth
quarter, ending the year at 1.09% of total loans, and contributing to higher loan loss provisions. We expect
continued upward pressure in 2009, particularly in the SME sector.
With a sober view of the continued economic difficulties, we have further strengthened our efforts to ensure
KEB’s continued soundness. In a step consistent with the environment, our Board of Directors agreed to
substantially reduce our dividend, down more than 80% from last year’s level, to KRW 125 per share. This
preserves a meaningful amount of core capital for KEB, but also maintains our management commitment to asustainable dividend to demonstrate that we recognize the importance and value of shareholder capital.
KEB also issued supplemental capital (Tier 2) during the fourth quarter and realized the benefit of a revaluationof our fixed assets in connection with the upcoming conversion to International Financial Reporting Standards

10

Letter to Shareholders from the Chairman and CEO-(IFRS). We have approved plans that we will execute in early 2009 to supplement our Tier 1 capital throughissuance of a modest amount of hybrid capital instruments. While these measures don’t change the bank’s
core risk capital, they do provide some comfort for the bank’s creditors and bondholders, as well as providing
a regulatory capital “buffer” against some effects, such as the translation of our foreign currency assets into a
potentially further weakened Korean won.
Most important, however, is the continued disciplined management of the bank’s risk exposures. Over the
past several years the bank has made significant investments in improved systems and tools for customer
segmentation and management, credit underwriting, and risk management. We are applying all of thesecapabilities into the strategic allocation of the bank’s capital to our most important customers and to thosewhere the bank realizes the proper returns. We will maintain and build on our relationships with thosecustomers that depend on and contribute to our franchise strengths in F/X, trade finance, and internationalbanking. At the same time, we continue to free capital from riskier and poor return exposures, and we are
optimizing the risk-weighted asset position of exposures that we maintain.
KEB is actively participating in several initiatives sponsored by the Korean government – such as the Fast Trackprogram – because we believe they are helpful to a controlled management of exposures involving multiple
financial institutions. In particular, the expanded credit guarantee programs will be useful in mitigating thebanks’ risk while facilitating incremental liquidity to some viable companies.
While the depth and duration of this cycle are difficult to estimate, we are managing KEB to remain soundand with our key competitive strengths firmly in place. The management and staff of your bank are working
tirelessly to protect the soundness, liquidity, and ongoing competitiveness of KEB.
It has been a great honor for me to serve as President & CEO of KEB for the past four years. I am proudof the accomplishments that the men and women of KEB have made during my term, and I cannot thankthem enough for their hard work, commitment to excellence, and willingness to reach for global standards todifferentiate our bank from our peers. But as much as we have improved, we have even more opportunity to
get better. I am pleased that Mr. Larry Klane has joined to become the next President & CEO of our bank.
He is a great talent, and I know that he will build on our successes and help us find new ways to address ourweaknesses. Please welcome him to our bank and give him as much support as you have given me these past
four years. With the continued support and encouragement of our shareholders, we will continue to build KEB
into a stronger and more competitive institution that will thrive in the years to come. I thank you and wish you
and your families a peaceful and healthy 2009.

		

Richard F. Wacker
ChairmanPresident & CEO Larry A. Klane

11“

I am excited, and I am honored to have this opportunity to
become the President and CEO of KEB.
I will dedicate my efforts to maintaining a strong trackrecord for KEB, to continue building a great bank and tohelp KEB become even more competitive in the future.

”

Financial Highlights-

Summary of Balance Sheet & Income Statements(In billions of KRW)			2008 		 2007 		

YoY

Balance Sheet			
Total Assets
Total Credits

114,351.9

97,924.7+16.8%

70,945.9

58,722.0+20.8%

		

Corporate

52,505.9

41,394.0+26.8%

		Household

15,883.8

14,885.7

+6.7%

		

Credit Card

2,556.1

2,442.3+4.7%

NPL (Substandard & Below) Ratio

1.09%

0.61%

+0.48%p

Delinquency Ratio

0.92%

0.56%

+0.36%p

Total Deposits

67,933.1

59,755.4+13.7%

Total Shareholders' Equity

6,663.5

6,650.8+0.2%

		Paid-in Capital

BIS Ratio (2007: BaselⅠ, 2008: BaselⅡbasis)		

TierⅠ Ratio

3,224.5

3,224.5-

12.65%

11.44%+1.21%p

8.82%

8.65%

+0.17%p			Income Statement			
Net Interest Margin

2.90%

3.23%

-0.33%p

Income Before Provision

1,963.8

1,836.0+7.0%

Net Income

782.6

960.9

-18.6%

70,945.9-3.15%p

58,722.0-0.46%p

15.05%

48,637.3

1.29%

11.90%

114,351.9

0.83%

Return On Equity (ROE)

97,924.7

Return On Assets (ROA)

81,019.8

12

06

07

08

06

07

08

Total Assets (In billions of KRW)

Total Credits (In billions of KRW)

6,379.2

6,650.8

6,663.5

1,006.2

960.9

782.6

13

06

07

08

06

07

08

Total Shareholders‘ Equity (In billions of KRW)

1.09%
0.62%

0.61%

06

07

08

NPL (Substandard & Below) Ratio

Net Income (In billions of KRW)

12.45%

06

12.65%
11.44%

07

08

BIS Ratio (2006 and 2007: BaselⅠ,
2008: Basel Ⅱbasis)

KEB’s“Smart & Profitable”
GrowthReview of Operations
The Preferred Global Banking Partner●

Global Corporate Bank

17

International Group

21

Foreign Customer Marketing Department

22

Responding Efficiently to Diversified Individual Needs●

Retail Bank

24

Card Bank

27

Quality Service through Efficient Systems & Process●

Quality Service Provider

29

Information & Technology

30

Highest Standards & Advanced Risk Management●

Risk Management

32

Transparent Corporate Culture & Foundation for Sharing●

Corporate Ethics

35

KEB Foundation

36

The Preferred
Global Banking Partner

Best Foreign Exchange Bank in
Korea for the 7th consecutive year

Best Trade Finance Bank in Korea
for the 8th consecutive year

KEB's Global Corporate Bank (GCB), International
Group (IG) and Foreign Customer Marketing
Department work seamlessly to serve our corporatebanking customers in Korea and around the globe.
• GCB comprises our World Corporate Group,
Corporate Group, Capital Markets Department,
and Global Products Department. • KEB's
World Corporate Group manages our relationshipwith our Korea-based large corporate customers,
while Corporate Group is dedicated to serving
the needs of small & medium-sized enterprises(SMEs). • The Foreign Customer Marketing
Department focuses our bank on the special needsof foreign companies and individuals as they cometo do business in Korea. • Our International
Group supports the needs of these customers
through the resources and activities of KEB's
extensive overseas network in 21 countries aroundthe globe.

Global Corporate Bank-

17

SME Business Small and medium-sized enterprises (SMEs) continued to rank as the largest
customer group for the bank‘s lending activities. Through focused customer-segmentation
strategies and marketing aimed at high-quality companies, KEB saw consistent, steady growth inloan volume to SMEs in 2008 with total credits to SMEs reaching KRW 27.9 trillion at the end of
2008. The 18.7% growth rate over the prior year included 6.9% pts from the effect of translating
foreign currency credits into a significantly weakened Korean won. Among total credits, Korean
Won denominated loans to SMEs stood at KRW 20.7 trillion, an increase of 8.1% over KRW 19.2
trillion recorded a year earlier. This figure accounted for 46.5% of total Korean Won denominatedloans made at the end of 2008.
−
We rely on our expertise and proven advantages in the export & import finance businesses todevelop clear customer segmentation strategies for our SME lending operations. In 2008, our“KEB BizWin Loan” programs targeting high-quality trade-oriented SMEs reinforced our “safeand profitable growth” approach toward this key customer category. KEB‘s SME customer
group consists principally of high quality and internationally competitive export manufacturers
who have proven their resilience through unfavorable domestic economic conditions. KEB has
the lowest relative exposure to economically sensitive SOHO (Small Offices and Home Offices)
domestic-only businesses among Korean banks.
Large Corporate Business The World Corporate Group serves the needs of large Korean
corporations as they do business around the world. Our Senior Relationship Managers (SRM)
coordinates the delivery of KEB’s products and services to large corporate customers through ourdomestic operations and KEB’s wide international network. The World Corporate Group performs
a pivotal role in increasing KEB’s deposit-taking in both Korean won and foreign currency, as wellas growing good quality assets in areas from traditional corporate lending to project finance andinvestment banking.
−Despite ever-intensifying competition with domestic and foreign financial institutions, KEB
showed continued strong performance in growing our business with large corporate customers
in 2008. The bank's total credits to large corporations were KRW 24.6 trillion at the end of 2008,
expanding 37.5% over the KRW 17.9 trillion posted at year-end 2007. Among total credits,
KRW denominated loans to large corporations stood at KRW 5.4 trillion, an increase of 41.7%
compared to the previous year.
−
By making outstanding achievements in the foreign exchange sector, including export and importfinancing performance, the large corporate business performed a central role in KEB retaining its#1 position in those key markets. KEB financed large corporations’ exports of USD 95.5 billion(22.6% of the nation’s overall performance of USD 422.4 billion) and imports of USD 82.9 billion(19% of the nation’s overall performance of USD 435.4 billion), accounting for 73% and 67% of
the bank’s total performance, respectively.
−
KEB’s relationship managers focus on integrated solutions to customers’ transaction processing
and financing needs. By interfacing our electronic banking systems, such as the Global CRMS,
In-House Banking System, and Firm Banking to the ERP systems of core customers, we built
broader and deeper partnerships between KEB and its customers. And with deeper knowledge

18of our customers comes stronger risk management of the bank’s exposures; not one of KEB’s
large corporate customers became insolvent in 2008.
F/X & Trade Finance Boasting the broadest global branch network and most extensive
money exchange and trade finance operations of any Korean bank, KEB continued its reign
as Korea’s unchallenged foreign exchange specialist bank. In 2008, we held onto our leading
position in the domestic F/X market for the 13th consecutive year with a share of 43% of totaltransactions handled by the nation’s seven top commercial banks.
−This success was repeated in the trade finance sector, where we recorded industry-leading
market shares of 31% each for both export financing and import financing.
−
In recognition of our continued strong performance in these core business areas in 2008, KEB
garnered kudos from respected international financial publications. We were named “Best
Trade Finance Bank in Korea” (8th consecutive year) and “Best Foreign Exchange Bank in Korea”(7th consecutive year) by Global Finance. Asiamoney also selected KEB as “2008 Best Foreign
Currency Exchange Bank in Korea” (3rd consecutive year).

“In our role as one of Korea’s most important financial institutions, we are committed
to providing our many finest in corporate products and services.
”

KEB constantly is developing new services to strengthen our leading market position and stayahead of the competition. In 2008, KEB offered “Yuan remittance and Chinese account opening
services” based on a business alliance with the Bank of China and the Industrial and Commercial
Bank of China. We also developed a wide array of products and services to help customers
actively address the volatility in the value of the won triggered by the global financial crisis.
For consumers, by offering the ‘foreign currency-based time deposit that pays interest’ and the‘foreign currency-based time deposit with an unfixed maturity date’, we provided customized
products to customers who regularly send money overseas and who were seeking to reinvest
into foreign currency funds. In tandem with the trend of steady internationalization of the Koreanwon, we offered ‘Global Korean won remittance services,’ enabling our customers to carry out
domestic or overseas remittance with Korean won as the remittance currency. By doing so, KEB
reaffirmed, yet again, its leadership position in the foreign exchange business. For corporate
customers, we also adopted the ‘Clean L/C system,’ which involves opening or purchasing L/Cs
for service transactions, thereby satisfying the needs of overseas construction and outsourcing
companies, shipping companies, and technological service companies.
−
The global financial crisis of 2008 further emphasized the importance of the foreign exchange
business, and KEB was able to reinforce its leadership based on a customer-oriented mindset
that considers the specific needs of individuals and corporations. We currently offer foreign
currency transaction for 19 currencies and money exchange service for 37 currencies, the mostdiversified in our industry. In addition, we engage in transactions in more than 100 foreign
currencies, including 70 collection currencies, making us Korea’s undisputed F/X leader.

19

Investment Banking Despite significant turbulence across global markets in 2008, KEB’s IB
business produced a good performance with selective and prudent approach and a high quality
asset portfolio.
−
KEB, as mandated lead arranger, arranged KRW 200.0 billion of debt financing for a private
equity fund Cornerstone Equity Partners’ acquisition of Daesun Distilling Co.,Ltd., a renowned
Soju Distiller in Busan area. KEB is currently structuring the financing scheme for a Private-Public
Collaboration Development Project to build 10,000㎡ of artificial floating island in Han River,an unprecedented development project in Korea and one of the biggest artificial island building
projects in the world. This project is part of the “Han River Renaissance Project” driven by Seoul
Metropolitan Government to create a special space for cultural performances, festivals andvarious leisure activities.
−
KEB is in the process of establishing KEB Asia Finance (KAF), an investment banking subsidiary
to be incorporated in Hong Kong, to allow the bank to provide our international customers andoverseas units of our domestic customers the same investment banking services that we provide
domestically. Once it is launched in 2009, the bank will further extend its lead over our Korean
peers in providing world-class services through our international banking network, a key asset of
KEB.
Custody & Fund Administration As Korea’s leading custodian bank, KEB’s custody andfund administration services enjoy a broad customer base in and outside of Korea, including
institutional investors, government entities and foreign investors.
−
In 2008, assets under custody totaled KRW 35 trillion. Our high quality fee-based capital market
services encompass custody service, ABS trustee, paying agency and escrow agency service.
KEB was recognized as the “Best Sub-custodian Bank in Korea“ by Global Finance in 2008.
We are taking aggressive steps to respond to changes in our operating environment broughton by the enactment of Korea’s Capital Market Consolidation Act. Through the complementary
capabilities of our custody business and the fund accounting services of our subsidiary KEB
Investor Services, KEB can offer institutional customers unequalled services that better meettheir needs and growing fiduciary duties.
Continuous Linked Settlement Continuous Linked Settlement (CLS) is the risk-freecross border settlement of foreign exchange transactions among global financial institutions. A
key feature of CLS includes simultaneous real-time settlement rather than traditional payment
with multilateral netting. In close collaboration with the Korean government and the Bank of
Korea, KEB made a major contribution for the introduction of CLS to Korea and the designation of
Korean Won (KRW) as one of 15 CLS-eligible currencies in December 2004. KEB has been acting
as Settlement Member of and Korean Won Liquidity Provider for CLS Bank International since
December 2004.
−
Consistent with our position as the unrivalled foreign exchange bank in Korea, KEB settles F/Xtransactions via CLS for 9 out of 13 local banks, accounting for 70% of the country’s total CLS
volume. As a CLS Korean won nostro agent, KEB provides this service to 3 foreign banks out of 5

20that are participating in the KRW/USD F/X market through their Seoul branches.
−
To keep pace with global settlement trend, KEB extended CLS settlement to the non-deliverable
forward (NDF) market in July 2008 and will extend it to new products such as F/X Option
Premiums shortly. Korean regulators are planning to allow securities, insurance and investmentcompanies to participate in CLS settlement, which presents the opportunity for further increases
in CLS settlement volumes.
Multi-Currency Interbank Clearing Multi-currency interbank clearing is anothercompetitive service that KEB has been providing for local and overseas banks since its
establishment in 1967. In 2008, KEB processed 3.4 million inter-bank transfers, accounting forabout 95% of total inter-bank foreign currency transfers in Korea, serving 56 local (including
foreign banks’ Seoul branches) and 109 overseas banks.
−
With our growing volume of SWIFT traffic in payments, trade finance, treasury and securities,
KEB has been upgrading its IT and operational capabilities to provide the highest quality
services, reaching a record-high 95% Straight-Through-Processing (STP) ratio in 2008.
−
KEB also offers the i-vostro Service, an internet-based foreign currency transfer and inquirysystem (www.eFIall.com) since 2005, which provides real-time online interbank clearing services
to local and foreign banks.
−
To meet the rising demand for the Korean Won settlement in the market and for Won
liberalization driven by financial authorities, KEB is offering KRW related services and regulatory
advisory services to foreign banks. Based on our proven expertise, reliability and reputation inboth the CLS and interbank clearing arenas, KEB aims to become one of Asia’s clearing hubs fordomestic and overseas banks.

International Group-

21

Overseas Operations In 2008, KEB, which has the most extensive overseas financial
networks among Korean banks, further broadened our capabilities to support our customers as
we established additional offices in emerging markets: sub-branches in Beijing and Tianjin city
in China; and Rep-Offices in Moscow, New Delhi and Santiago. As of the end of 2008, our bankoperated in 21 countries.
−
KEB’s international operations earned pre-provisioning operating income of USD 203 million in
2008, up 25% from a year before, making up 13.0% of the bank’s income. Overseas loans (USD
5,733 million) and deposits (USD 3,545 million) increased 11.8% and 4.1%, respectively.
−
In recognition of its growing significance and future growth opportunity, we have reinforced
the operational and control functions supporting the International Group. We increased
resources in Human Resources to more effectively develop and take advantage of the hundredsof local staff working in KEB’s global operations. At the same time, we have further invested
in risk management and compliance resources and processes, consistent with the ever morechallenging global economy.
−
In particular, our Product Marketing unit is coordinating our efforts to selectively expand existing
offerings to new markets and to selectively extend our offerings to understandable segments oflocal customers in some markets.
−
Though the global economic slowdown has impacted Korea’s export-oriented economy, KEB’s
International Group is prioritizing asset quality. For 2009, we plan to limit the extension of our
network to new geographies, concentrating on new branches in Ho Chi Minh city in Vietnam andDubai, and incorporating our China banking branches into a local banking subsidiary.

22

Foreign Customer Marketing Department-

Priority Bank for Foreign Customers Foreigners and foreign businesses in Korea
present a Blue Ocean market opportunity for KEB. There are about 1.1 million registeredforeigners living in Korea, and a growing number of foreign executives working at the 16,000
foreign invested enterprises (FIEs). To tap into this market and to develop a clearly differentiatedapproach to this segment of customers, the Foreign Customer Marketing Department (FCMD)
was established in July 2008.
Retail Banking FCMD is dedicated to providing the most selective services for foreigncountry individuals living in Korea. KEB has become the leading bank for these customers
through our unique Expat Banking Services, offered through 3 dedicated Foreign VIP Centers and
15 Global Desks in our retail banking branches that are staffed with English speaking staffs fullytrained in the special needs of foreign-country customers.
−
Moreover, KEB operates special consulting desks at the most important government-supported
facilities dedicated to helping foreign nationals in Korea, including the Seoul Global Center,
Korea Trade-Investment Promotion Agency (KOTRA) and the Seoul Immigration Office. More
broadly, KEB participates and sponsors cultural events to improve the quality of life of foreign
nationals in Korea.
Corporate Banking KEB has distinguished itself as the first choice bank for many FIEs
operating in Korea, leveraging KEB’s expertise as Korea’s foremost FX and trade finance handler,
as well as advanced e-banking platform that includes our competitive ‘Business Online Services’.
Because the size of their operations in Korea are not as large as our domestic large corporate
customers, many multi-national corporations (MNCs) are perceived as SMEs by other financial
institutions. KEB, however, recognizes that these businesses are part of large and complex global
companies and that they require more advanced services. Even for start-up FIEs, we provide
credit flexibly by considering the credit rating of their parent companies, offer world class cash
management solutions, etc.
−
KEB currently operates 14 strategic branches supporting FIEs in various regions across Korea.
Foreign Direct Investment KEB has been successfully managing the best Foreign Direct
Investment (FDI) team in Korea. Our trained group of FDI consultants assist foreign companies
investing in Korea for FDI reporting and business establishment, as well as establishing financial
management systems for FIEs. KEB supported the highest proportion (34.1%) of FDI notifications
processing provided consulting to 5,332 among 16,089 FIEs nationwide at year-end 2008.
−
Furthermore, we help newly established companies access a broad range of critical services
through cooperative ties with many FDI-related institutions including law firms, accountancies,
foreign chambers of commerce in Korea, foreign embassies, international trade and investment
bodies and KOTRA.

Responding Efficiently to
Diversified Individual Needs

1st Prize of the “2008 Asia
Private Banking Grand Prix“by the Asiaeconomy

From our traditional deposit and loan products
to our advanced private banking, bancassurance,
investment product and wealth management
services, KEB’s Retail Bank demonstrates thewisdom of a quality-over-quantity approachto banking. • To “get closer” to our retailcustomers and better grasp and serve their needs,
KEB has refined relationship management andsegment marketing strategies to produce highquality growth.

24

Retail Bank-

Overview KEB’s Retail Bank has continued to grow its deposits, loans and FX business,
thanks to a continuous focus on customer management strategies to better serve our target
customer groups. Our branch staff have new tools to support their customer management
efforts, from our Segment Report System (SRS) to our Campaign Management System (CMS),
that allow them to better concentrate on each customer group’s needs based on life-stage,
career, and other factors.
Segmentation Marketing KEB avoids aggressive asset-accumulation competition in
our retail banking operations. Rather, we focus our energies on fostering close and enduring
relationships with our best customers. This quality-over-quantity approach allows us todifferentiate the KEB brand from our peers and provide unique, innovative deposit products andasset management services tailored to the needs of our targeted segments of clients.
−
KEB has invested in new customer analysis and CRM tools so that our branch and marketing
staff can focus our marketing activities on developing and retaining our core customer segments.
We have demonstrated the effectiveness of our approach by successfully expanding our foreign
VIPs, medical professionals, and other gruops. As a result of these efforts, the bank’s customer
base swelled by approximately 438,000 new customers for a total of nearly 6.2 million, a 7.6%
increase.
−
These approaches are helping our branch staff identify the best products and services to retain
and migrate the highest potential customers from lower-profit groups to high-profit (HP) customer
groups. As we gather and disseminate successful marketing cases and best practices across theorganization, we are seeing more consistent delivery of products and services better tailored tocustomer needs.
Deposits The bank's time deposits in Korean Won increased significantly by 47.3% to KRW
22.0 trillion at the end of 2008, while demand deposits decreased by 2.9% to KRW 14.2 trillion.
As a result, total KRW deposits grew 22.4% to KRW 36.2 trillion at the end of 2008. KEB secured
good liquidity through aggressive deposit attraction programs, including the “KEB Foundation
Deposit” and “My Partner Deposit”.

“
KEB avoids aggressive asset-accumulation competition in our retailbanking operations. Rather, we focus our energies on fostering close andenduring relationships with our best customers.
”

25Household Lending KEB’s household lending portfolio recorded a moderate increase of
7.1% to KRW 15.8 trillion at the end of 2008.
−
Housing loans, which had been decreasing through the first half of 2008, recovered to KRW 8.2
trillion as the government eased real estate regulations, reaching nearly the same level as of theend of 2007.
−
Personal loans expanded 16.7% to KRW 7.6 trillion in 2008 as KEB attracted promising newloan customers and expanded the cross-selling of these loans to high quality customers. KEB’s
wide array of loan products, such as “Leaders Loan” and “Yes Pro Loan” targeted at businessexecutives, doctors and other specialized professionals, helped boost overall lending levels in
2008.
P r i v a t e B a n k i n g KEB is developing a variety of sophisticated services to help VIP
customers invest and manage their assets more profitably and efficiently. In the area of Private
Banking (PB) products & services, we broaden the allocation of our customers’ asset portfolios
to equity, insurance and F/X-related investment instruments. In line with Korea’s Capital Markets
Act, we offer tax consultation, real-estate management & disposal services, estate & inheritanceconsultation, medical-related services, overseas education & emigration services, and others.

“
KEB’s wide array of loan products, such as ‘Leaders Loan’ and‘Yes Pro Loan’ targeted at business executives, doctors and otherspecialized professionals, helped boost personal loans in 2008.
”
Our objective is to make KEB the first choice partner in Korea’s competitive PB market byconstantly expanding the scope and elevating the quality of our comprehensive and professional
PB services. We expanded the scope of our PB network in 2008, adding one new WealthManagement Center (to a total of nine) in addition to the 72 specially designated PB branches.
−
To promote an exclusive brand image for our “VVIP” customer segment, KEB extends to theseselect individuals an unparalleled level of attentive service and popular benefits. We cultivate
lasting brand loyalty through fine arts performances, overseas investment conferences, and byeven arranging invitational events such as mixers for the sons and daughters of VIP customers.
Moreover, we are making maximum use of KEB’s strengths in the F/X field and our overseas
branch network to market our asset management services to Koreans residing abroad.
−In recognition of our strong performance in this field, we won the first prize of the “2008 Asia
Private Banking Grand Prix“ by Asiaeconomy in August 2008.

26

Bancassurance The global financial market recession started with the sub-prime mortgage
crisis in early 2008. As Lehman Brothers filed for bankruptcy and AIG applied for a rescue plan
during the 2nd half of 2008, the financial market plunged. Affected by bailout plan for worldwide
insurance companies (AIG, ING), a massive number of insurance holders terminated theircontracts and avoid purchasing new insurance policies.
−
Consumer confidence in the general bancassurance market weakened drastically after thefinancial crisis peaked in late 2008 and government rescues of global insurers AIG and ING. KEB
was not immune to these effects as unnerved policy holders terminated existing policies andrefrained from purchasing new policies. Our market share (8.3%) outperformed the size of ourrelatively smaller branch network as KEB launched new products, and profits from bancassurance
fell just 11% to KRW 36.1 billion in 2008.
Sales of Investment Products Similarly, the unprecedented declines and volatility inglobal equity and corporate fixed-income markets discouraged new investment in investment
products. Income from sales of investment products declined significantly from KRW 150.0 billion
in 2007 to KRW 78.3 billion in 2008. Despite these pressures, KEB retained customer loyalty
as AUM rose slightly (1.3%) from KRW 7,231.5 billion at the end of 2007 to reach KRW 7,326.7
billion at the end of 2008.
−
KEB‘s investment product sales philosophy embraces an “Open Architecture” strategy to offer
our customers the best performing products available from the best performing asset managers
in the market. As of the end of 2008, KEB offered a total of around 200 onshore and 150 offshore
investment funds.
−
The challenges of the current financial environment have reinforced the importance of therigorous attention to investing fundamentals, including proper asset allocation appropriate to
the risk appetite of our customers, thorough understanding of product risk, and portfolio loss
mitigation strategies.
−
In 2008, we made both quantitative and qualitative improvements to customer services, including
enhanced communication of ongoing investment product evaluation details and an SMS alert
system on earning rates. KEB substantially upgraded investment product-related systems tointroduce a “one passbook, multiple funds” system. We enhanced our Fund Management
System, a customer advisory support system, to offer market and high-quality fund information
to help our customers make investment decisions.

Card Bank-

27

Credit Card The credit card business posted an operating income of KRW 214 billion andnet income of KRW 183 billion in 2008 as we focused on customer retention and maintained ourconservative approach to risk management, aiming to achieve stable and sustainable growth.
−With extensive systems and processes to analyze, validate, monitor, and improve thecompetitiveness and profitability of our products, we strive to maintain an optimal level of
efficiency of the credit card portfolio. In 2008, our ‘Platinum No. N’ product strengthened ourmarket-leading platinum card portfolio and provided a foundation for differentiated productsthat best suit the needs of our target customer segments. KEB’s ‘Woongjin payFree’ product set
the standard for successful alliance-based business models, including an innovative issuanceprocess and diverse sales channels. To strengthen retention of our best customers we introduced
innovative new features to our rewards programs.
−
In recognition of the fact that we have the best loyalty and profitability from individuals whoare both good card and retail banking customers, we emphasized many programs to enhance
our cross-marketing efforts.We created the Card Sales Synergy Team to more effectively
promote bank products through the card sales network and card products through the retailbranch network. KEB launched specialized new products for foreign nationals living in Korea incollaboration between the Card Bank and our Foreign Customer Marketing Department.
−
KEB is ensuring the proper return on the capital dedicated to each business, and the Card Bankis implementing enhanced risk-based pricing schemes. In the face of uncertain consumer credit
performance, we will maintain our focus on retention of our best customers – those who weknow the best – and continue to avoid simple growth-oriented policies.

Quality Service throughEfficient Systems & Process

1st Prize for 2008 Korean Service
Quality Index from KMAC for the
2nd consecutive year

KEB Customer Service Center
won KS mark approval from the
Korean Standards Association

Customers today expect not only competitive
deposit and lending rates, but they demand fastand reliable answers to their questions, simple andclear transactions, and attentive responsivenessto their problems. • We strive to minimize
the administrative burden on our front-line
staff so that they can devote their attention tounderstanding customer needs and deepening
our business relationships with them. • KEB
has made efficient operational systems andprocesses a priority for several years, and was thefirst among Korean banks to implement a Process
Management System (PMS) and Six Sigma
approaches in the key areas of our customer service
operations to fulfill these objectives.

Quality Service Provider-

29

Enhanced Service Quality through Business Innovation To improve service
quality from the customers’ viewpoint and enhance work productivity, KEB was the first Koreanbank to adopt a six sigma program. We implemented disciplined process management initiatives
throughout our centralized servicing operations that produce detailed, real-time measurements ofthe effectiveness of our processes.
−
In early 2008, we launched our unique “KEB Service Quality Guarantee” system, a reflection of
the complete confidence we have in our unrivalled level of customer service quality. Under thisnew program, we offer loan customers an approval timing guarantee and a loan execution timing
guarantee. Loan customers are notified of the loan approval decision within four hours of theapplication, and loan funding is guaranteed to take place at the date and time specified by thecustomer.
−Through our process innovation approach, we have generated a dramatic reduction in the workloadof branch staff as basic administrative processes are automated and concentrated to central
processing centers, freeing staff to focus on customer management activities.
−
The system has also contributed to improving the consistency and excellence of our service quality
and has been a major factor in KEB becoming the grand prize winner of “The Best Korea E-Financial
Business Award“ from Korea Economic Daily in July 2008. In addition, KEB’s Customer Service
Center was deemed the “Best Call Center in Korea” in a survey of the Korean Service Quality Index(KSQI) conducted by Korea Management Association Consulting (KMAC) for the 2nd consecutive
year in March 2008. In September 2008, KEB's Customer Service Center won “KS mark“ approval
from the Korean Standards Association in recognition of meeting national standards, the first such
recognition in the Korean banking industry.
e-Business Continuing the multi-year trend, an increasingly large proportion of banking
transactions are conducted outside the branch through our diverse electronic banking services, frominternet banking to telebanking and mobile banking. To meet customers’ changing needs, we arecontinuing to develop new products and services as well as working to improve the accessibility of
our existing services.
−
The In-House Banking service we launched in 2007 has attracted more than 150 demanding large
corporations such as Korean Air, KT&G and SKC. The service, which is installed on the customers’
own network and links to the customers’ ERP system, allows customers to conduct all of theirbanking transactions and offers customizable internal control and account management features.
−
For mid-size corporate customers with diverse financial transaction needs, we provide a specialized“Business Online” portal as well as firm banking services that allows customers to directly connect
to the bank’s server to conduct large numbers of transactions securely and quickly. Through our
upgraded internet banking services, along with mobile banking services, telebanking services and
FXKEB, our foreign exchange portal, KEB is providing convenient electronic banking services thatmeet the needs of our customers.

30

Information & Technology-

IT Infrastructure Information Technology is at the heart of the bank’s operating processes
and decision systems, and KEB invests heavily to ensure that our bank has the most reliable andmost effective systems environment to manage our business and support our customers.
−
Most importantly, in February 2008, we successfully completed the consolidation and relocationof our two separately operated bank data center and card data center to a new state-of-the-art
data center. Through this major investment, we have created the best, most reliable and securedata center in the Korean banking industry – with a fully redundant back-up capability – and at
the same time, established a more efficient IT operating and data management environment.
Information Technology KEB made continuous efforts in 2008 to improve the overall
quality of IT services. Key projects enhanced the capabilities of our foreign exchange ande-business areas to maintain our competitive differentiation, including providing customers with
automatic transfer and remittance services triggered by pre-established target exchange rates.
−
We developed multi-language screens (7 languages) for CD/ATMs and seven-language services
for the Korean Dream Phone as part of efforts to provide differentiate KEB’s capabilities forforeign customers.
−
IT improvement projects also focused on real-time monitoring and control enhancments
to strengthen internal control to reduce operational risk in the rapidly changing financial
environment.
−
Our IT priorities are aligned with our new business priorities, including new systems to support
the expansion of our investment banking efforts under Korea’s newly enacted Capital Market
Consolidation Act and implementing our expanded banking and credit rating systems for our
pending Chinese banking subsidiary.
−
Finally, the bank has well progressed our systems program to prepare for the implementation ofInternational Financial Reporting Standards (IFRS) in 2010/11.

Highest Standards &Advanced Risk Management

With the growth and increased complexity of
global financial markets, the Basel Committeeof Bank for International Settlements issued the
New Basel Capital Accord, or “Basel II,” with new
requirements aimed at improving the consistencyof capital regulations internationally. • In
accordance with Basel II requirements, KEB
successfully received regulatory approval to operate
under Basel II's advanced approaches for risk
measurement in 2008.

32

Risk Management-

Overview With the quantitative and qualitative expansion of global financial markets, theBasel Committee of Bank for International Settlements issued the New Basel Capital Accord, orBaselⅡ, with new requirements aimed at standardizing and strengthening the capital regulation
standards internationally.
−
KEB executed a multi-year effort to meet the objectives of BaselⅡand has performed risk
management on a global level utilizing our new risk management systems since January 2007. In
2008, the Financial Supervisory Service (FSS) approved KEB to operate under BaselⅡ’s advanced
approaches for risk measurement – the Foundation Internal Ratings-Based Approach (F-IRB) for
credit risk measurement, the Internal Model for market risk measurement, and the Advanced
Measurement Approach (AMA) for operational risk measurement – by the FSS
Capital Adequacy Framework Since January 2007, KEB has calculated risk-weighted
assets and internal risk capital requirements using the capital adequacy framework of the New
Basel Capital Accord. The core feature of the framework is that banks separate quantifiable risks
from non-quantifiable risks, and select and manage material risks. Quantifiable risks include
credit risk, market risk, operational risk, interest rate risk, credit concentration risk, and strategicrisk. Liquidity risk is a non-quantifiable risk, but is classified as a material risk.
−
The BaselⅡ's advanced approach calls for the Advanced Internal Ratings-Based (A-IRB)
approach in determining credit risk, the Internal Model to measure market risk, and the Advanced
Measurement Approach (AMA) for calculating operational risk, and sets the confidence level at
99.9%. The bank has also set an additional capital buffer of at least 8% of risk volume, and acorrelation matrix for integrating various risks volume has been introduced.
Credit Risk Since 2007, for operational purposes KEB has measured credit risk using the A-IRB
approach under BaselⅡ and the measured credit risk volume is used in setting and managing risk
limits. Credit risk assessments include the systems such as rating systems, estimation of probabilityof default (PD) and loss given default (LGD), and the retail Credit Scoring System (CSS) for calculating
calibrated credit risk. The Risk Based Pricing system that reflects expected loss (EL) and unexpected
loss (UL) in loan pricing by using the risk data is established and operated.
−
Since the second half of 2007, KEB has implemented the risk-adjusted performance measurement(RAPM) in each business unit by adopting the risk-adjusted return on capital (RAROC) as an index.
Since the first half of 2008, RAPM is reflected in target setting and performance evaluation ofbusiness unit and is also reflected to all branches in 2009.
−
Since September 2008, KEB’s regulatory BIS ratio has been calculated using the F-IRB approach under
BaselⅡ following approval by the FSS.
Market Risk KEB implemented the Basel Committee’s recommendation by refining ourmarket risk internal model. The risk volume measured by the model is reflected in setting our
risk-limits. Particularly since 2007, it has been reflected in our RAROC index with targets set andperformance managed on a divisional basis in the same manner as we do for credit risk volume.

33

To manage market risk, KEB monitors the 10-day Value at Risk (VaR) and manages compliancelimits by business unit. We assess the validity of the model using the daily back-testing results
which come from daily P/L and 1-day VaR of the previous day. KEB also conducts stress tests,
which measures possible losses under various scenarios, on a daily basis in order to be better
prepared for some possible crises not reflected in recent market factors.
−
In 2008, KEB received approval from the FSS for the use of its internal model and has since used
the model for calculation and management of regulatory capital.
O p e r a t i o n a l R i s k From 2007, KEB has implemented operational risk limits based on
AMA methodologies. For internal control and risk volume measurement of operational risk, we
conducted BaselⅡAMA-based Control Self-Assessment at our headquarters, domestic andoversea branches and subsidiaries in the first and second half of 2008. And after AMA-based
loss data collection and scenario assessment, AMA-based operational risk volume is calculated.
−
From 2008, AMA-based operational risk volume is measured by business units and 2% of
operational risk volume is reflected in RAROC of business units.
−
We have established an Internal Control Council under the lead of the Compliance Department
to strengthen internal control and the members of the council are the heads of operational risk,
compliance, audit & examination and finance department.
I n t e r e s t R i s k Currently, KEB is using the advanced deterministic VaR calculation
method since the development of our new system in 2007. We utilize the full valuation
method incorporating current value of assets and liabilities in measuring interest rate risk bydeterministic interest rate scenarios. Interest rate risk volume is managed from an economic
value perspective by VaR to estimate the maximum expected loss incurred from interest ratechanges.
−
From an earnings perspective, from 2008, we managed Earning at Risk (EaR) to estimate themaximum expected loss of the bank’s net interest income from an interest rate change.
Liquidity Risk From 2007, KEB implemented an enhanced daily liquidity risk monitoring
system. Additionally, a customer behavior model was developed for more advanced forecastingof effective asset and liability maturities.
−
Finally, to ensure that KEB copes effectively with any potential liquidity crisis with rapid response
measures, we created multi-level Liquidity Contingency Plans for both Korean won and foreign
currency and continue to update them as necessary in response to evolving market conditions.
Strategic Risk KEB has defined and calculated strategic risk business risk since 2007. Strategicrisk volume is measured by volatility of the deviation of actual operating income compared to
expected operating income estimates. Strategic risk limits are established and managed.

Transparent Corporate Culture &Foundation for Sharing

KEB Foundation received the“2008 Korea Sharing
Management Grand Prize.”

KEB has a responsibility to its employees,
customers and shareholders. • We honor
this commitment 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 public trust andenhance our reputation. • Through the KEB
Foundation, the Korean financial industry’s flagshipcharitable organization, KEB volunteers perform
a wide range of activities to assist society’s mostneedy and neglected members, build homes forthe homeless, support the arts, and provide relief
to those struck by disaster in communities where
we operate, both at home and overseas.

Corporate Ethics-

35

The men and women of KEB understand that the reputation of our bank depends on the integrityof our operations and the high standard of ethical behavior & mentality of our staff. To protect
the bank and our customers, employees, and shareholders, KEB pursues transparency in business
management through a comprehensive internal control system.
−
As part of measures to strengthen internal oversight and compliance, KEB has beenstrengthening the Chief Compliance Manager system. Based on their extensive bank experience,
Chief Compliance Managers visited branches and provided training on compliance and businessethics to raise the compliance and ethical mindset. They also made substantial contributions topreventing financial accidents by engaging in relevant prevention activities.
−
For the first time in the Korean banking industry, several years ago, KEB implemented an
independent Ombudsman system. The goal of the system is to promote the participation of
our employees in the process of identifying and elevating issues or concerns. Because theOmbudsman is totally independent, the system provides a safe channel for staff to raisequestions and protects the confidentiality of whistle blowers.

“
Thanks to the full independence of the Ombudsman and the confidentiality
guaranteed to whistleblowers, this system provides a safe channel
for KEB staff to raise questions that will improve bank operations.
”
In 2008, KEB became the first in Korea to employ an advanced Anti-Money Laundering (AML)
monitoring system following a multi-year development program. The system considers themoney laundering risk level of the customer, the correspondent, and the transaction type,
among other factors. KEB aims to maintain world-class controls to effectively prevent illegaltransactions and conform to international standards. This effort, combined with our Enhanced
Customer Due Diligence (EDD) work, earned KEB recognition as an “Outstanding Organization in
Preventing Money Laundering” by the Financial Services Commission in November 2008.

36

KEB Foundation-

KEB clearly understands the importance of a company’s social responsibilities. KEB created the
Korean banking industry’s first non-profit foundation, the KEB Foundation, in December 2005.
Since then, we have been conducting more systematic, sustained, and professional activities.
Although it has a short history, the KEB Foundation disbursed a total of KRW 6 billion during thelast four years, which was used to engage in various activities to help neighbors in need.
(1) Support for the marginalized
To help children in need, KEB performed various activities, including Christmas events for disabledchildren with Holt Children’s Services. We also financed and took part in hiking and nature tours
at Korea’s Jiri and Halla mountains and Jeju Island for children from local children’s centers. We
co-sponsored an essay contest for orphans with the Korea Welfare Foundation, with scholarships
giving teenagers dreams and hopes. Another meaningful event was inviting them to tour Goryeo
historical sites in China as well as historical sites in Kyushu an event that also fostered thepatriotic spirit of the youth.
−
By joining hands with renowned NPOs in Korea, such as World Vision, Korea Food for the Hungry
International, and Leftovers Love Sharing Community, KEB carried out a project involved withestablishing 1:1 sponsorship ties with underprivileged children at home and abroad. As a result,
KEB employees provide KRW 19 million a month for 761 children in need (KRW 228 million ayear).
−In terms of projects designed to help low-income families, KEB provided KRW 100 million a year
to the ‘social safety net’ project organized by the Jung-gu Office in Seoul for three years from2005 to 2007, thereby providing a helping hand to about 160 low-income households. At theend of 2008 and into January 2009, KEB delivered necessities, such as rice and Kimchi, to 87
households in need in the Jung-gu area, in connection with shops that have ties with KEB. We
have also been providing free monthly meals to the homeless and the solitary elderly in the Seoul
Station and Cheongnyangni area for the past four years, sharing rice cake soup on New Year’sDay, and giving out gifts on special occasions. Every year since 2006, KEB has been supporting
medical operation expenses at the Foreign Laborer Hospital, which is a free medical service
organization for foreign workers. In 2008, KEB provided souvenirs for an event held for immigrant
workers.
(2) Support for multicultural families
We are also steadily expanding multicultural family projects, in line with the number offoreigners residing in Korea reaching 1 million. In 2008, we expanded support projects bylaunching an essay contest on life in Korea for housewives of multicultural families, which KEB
conducted jointly with Pearl S Buck International, as well as an essay contest on life in Korea in
one’s mother language for housewives of multicultural families that was jointly carried out with
the Research Institute of Asian Women of Sookmyung Women’s University.
−
Together with the Ministry for Health, Welfare and Family Affairs, we chose housewives frommulticultural families to work as interpretation volunteers at local health care centers around thenation. The interpretation volunteers were given a chance to visit their families in their native
country of Vietnam, Indonesia, Philippines, Mongolia, and China.

37(3) Support for local communities
KEB also actively engages in volunteering activities for the local community. The ‘KEB Love
Sharing Team,’ a volunteer team consisting of over 1,000 employees and their families,
is steadily expanding its activities to include building houses for low-income families, incooperation with the Habitat House-building Campaign Headquarters.
(4) Scholarship program
Since 1989, KEB had a ‘KEB scholarship‘ program, which is currently operating under the KEB
Foundation. From 2006 to 2008, we provided scholarhips totaling KRW 460 million to high school
and university students from low-income families. An overseas ‘KEB scholarship’ program
was also established, through which scholarships of around KRW 200 million were given to
582 underprivileged university students from 2006 to 2008 in developing nations in South Asia
where KEB branches are located, such as Vietnam, Indonesia, and Philippines. This program
contributed to enhancing the reputation of KEB as well as Korea.
(5) International relief program
As a leading foreign exchange bank in Korea, KEB has an international relief program, which hasprovided support for victims of the earthquake in Pakistan, the tsunami in Indonesia, and floods
and other natural disasters in Vietnam, Philippines, Bangladesh, and Myanmar. We also helped
open ‘happy home schools’ for unfortunate children, provided scholarships for higher education,and supported the expansion of Ribo Elementary School building located in isolated areas inIndonesia.
−
Through our branch office in Arbil, Iraq and the Zaytun Division, we provided financial assistancefor surgery and treatments to 13 persons, including six children in Iraq, a country torn by war anddisease, who were suffering from hereditary heart disease in 2008.
−
To raise awareness and increase participation by KEB employees in social contribution activities,
KEB holds a ‘bank-wide neighborhood helping’ campaign every New Year’s Day, Chuseok, and at
the end of the year. The campaign is participated in by all branches across the nation. Throughthis campaign, we strive to establish a culture of sharing at the bank. We also carry out otherwelfare promotion projects, such as providing art education for children in need and inviting
them to concerts or plays to present them with opportunities to enjoy culture.
−
To fund the various social contribution activities held domestically and internationally, KEB
contributed KRW 2.3 billion and encouraged donations by its employees through the ‘Ten
Angels of Love Movement’ and ‘1:1 sponsorship program.’ As of the end of 2008, around 2,186
employees pitched in to raise donations of KRW 516 million. Thanks to the active spirit ofsharing demonstrated by the bank’s management and staff, KEB is performing a leading role inpromoting a culture of sharing and setting standards for returning corporate profits to society.
−As a result of such social contribution activities, KEB received from Kookmin Daily the ”2008
Korea Sharing Management Grand Prize” in the international social contribution category. The
activities of the KEB Foundation were also praised overseas.

Financial
Statements

40 Management Discussion & Analysis
52 	Non-Consolidated Financial Statements				 - Independent Auditors' Report
53 Non-Consolidated Balance Sheets
54 Non-Consolidated Statements of Income
56 	Non-Consolidated Statements of Appropriations of
Retained Earnings
57 	Non-Consolidated Statements of Changes In 							Shareholders’ Equity
58 Non-Consolidated Statements of Cash Flows
60 Notes to Non-Consolidated Financial Statements
117 	Independent Accountants’ Review Report on
Internal Accounting Control System (“IACS”)
118 	Evaluation Report on the Effectiveness of Internal
Accounting Management System by the Internal
Accounting Manager
119 Consolidated Financial Statements
		 - Independent Auditors' Report
120 Consolidated Balance Sheets
121 Consolidated Statements of Income
123 	Consolidated Statement of Changes inShareholders’ Equity
124 Consolidated Statements of Cash Flows
126 Notes to Consolidated Financial Statements

40

1.
Key Financial DataManagement Discussion & Analysis

In billions of KRW			2008 		2007

YoY

Operating Results			
Total Income
3,018.6
2,720.6+10.95%		Net Interest Income
2,238.1
1,886.6+18.63%		Fees & Commissions
562.8
581.2
-3.16%
		
Non Interest Income
217.6
252.8
-13.93%
Total Expenses (G&A)
1,145.3
1,092.2+4.86%
Operating Income
1,873.2
1,628.4+15.03%Net Income
782.6
960.9
-18.56%
Profitability Indices			Net Interest Margin (NIM)
2.90%
3.23%
-0.33%
Return on Assets
0.83%
1.29%
-0.46%p
Return on Equity
11.90%
15.05%-3.15%p
Balance Sheet Data at Year-End (inclg. Trust Account)				
Total Assets
114,351.9
97,924.7+16.78%
Total Credits
70,945.7
58,722.0+20.82%
Total Deposits
67,933.1
59,755.4+13.69%Asset Quality			
1.09%
0.61%
+0.48%p
NPL Ratio		
NPL Coverage Ratio
141.5%
203.5%-62.0%p
Precautionary & Below Ratio
2.10%
1.21%
+0.89%p		Pre & Bel. Coverage Ratio
73.6%
102.9%-29.3%p
Delinquency Ratio
0.92%
0.56%
+0.36%p
Capital Adequacy			BIS Ratio (2007: BaselⅠ, 2008: BaselⅡbasis)12.65%
11.44%+1.21%p		TierⅠ Ratio
8.82%
8.65%
+0.17%p		TierⅡ Ratio
3.82%
2.79%
+1.03%p2.
Overview

The year 2008 marked the start of an unprecedented economic downturn in both domestic and international markets as the global financial crisis
continued to gather momentum. Although KEB did showcase strong operating performance in the first half of the year, increasing volatility indomestic and international markets and the accelerating economic downturn had its effect on our performance starting in the third quarter. Despite
these difficulties, KEB generated a net income of KRW 782.6 billion in 2008 and the bank’s Board of Directors declared a dividend of KRW 125 pershare.
KEB maintained a very strong capital position even after reflecting the dividend payout, with a BIS capital ratio of 12.65% (BaselⅡ basis).
Despite the difficult economic environment, KEB has been able to maintain adequate asset quality. However, as the decline in asset
quality accelerated in the fourth quarter, management of credit risk is on the top of the agenda for KEB. As of the end of 2008, the NPL ratio hadrisen to 1.09% and the delinquency ratio to 0.92%.

3.
Profitability1) Summary of Profitability−
Despite a strong operating performance in 2008, the jump in loan loss provisioning led to a lower net income of KRW 782.6 billion in
2008, down 18.6% from the previous year. Operating income rose 15.0% on the back of stable asset growth and increases in gains from foreignexchange transactions and foreign currency related fees as well as increases in the merchant banking and trading profit. However, the sharp rise inloan loss provisioning, which came from an increase in normal assets (effect of KRW 18 billion increase in provisioning) and the deterioration in thedomestic and international business environment (effect of KRW 390 billion increase in provisioning after recoveries), led to a decline in net income(refer to Appendix 1). Given the current difficult environment, the bank’s profitability indicators – the ROA and ROE – declined to 0.83% and 11.90%,
respectively.

Management Discussion & Analysis

41

In billions of KRW			
FY 2008 														FY 2007						
4Q			
3Q			
2Q			
1Q
			
Bank Card 		
Bank Card
Bank Card		
Bank Card		
Bank Card		
Bank
Net Interest Income		
Fees & Commissions		Non Interest Income
Total Income		
Total Expenses (-) 		
Operating Income 		Impairment Loss, etc. (-)		
Income before Provision
Provision & Others (-)
Loan Loss Provision		
Other Provision
Income before Tax 		
Income Tax Expense (-) 		
Net Income		

2,238.1 1,789.7 448.3
562.8 722.3 -159.5
217.6 211.0
6.6
3,018.6 2,723.0 295.5
1,145.3 1,063.8
81.6
1,873.2 1,659.3 213.9-90.7 -82.4-8.2
1,963.8 1,741.7 222.1
796.4 757.4
39.0
726.9 695.2
31.7
22.6
17.8
4.8
1,167.5 984.3 183.2
384.9 384.9
782.6 599.4 183.2

685.1
148.5
2.3
835.9
268.8
567.1
-42.8
609.8
366.3
335.9
19.6
243.5
125.7
117.9

569.1
191.0
-1.7
758.5
250.7
507.8
-41.7
549.4
356.1
321.5
24.2
193.3
125.7
67.7

115.9
-42.6
4.0
77.3
18.1
59.3
-1.1
60.4
10.2
14.4
-4.6
50.2
50.2

540.5
128.8
82.2
751.4
308.7
442.7
-10.2
452.9
240.2
193.0
26.5
212.7
61.8
150.9

427.0
169.8
80.5
677.2
285.5
391.7
-7.1
398.8
232.2
185.1
27.5
166.6
61.8
104.8

113.5
-41.0
1.7
74.2
23.2
51.0
-3.1
54.1
8.0
7.9
-1.0
46.1
46.1

508.7
151.5
73.8
734.1
273.0
461.1
16.8
444.3
109.8
117.9
-18.1
334.5
88.1
246.4

396.7
190.5
77.6
664.7
255.1
409.6
17.8
391.8
99.2
111.8
-22.2
292.7
88.1
204.6

112.1
-38.9
-3.8
69.4
17.9
51.5
-1.0
52.5
10.7
6.1
4.1
41.8
41.8

503.8
134.1
59.2
697.1
294.8
402.3
-54.5
456.8
80.0
80.1
-5.4
376.8
109.3
267.4

397.0
171.0
54.5
622.6
272.4
350.2
-51.5
401.7
69.9
76.8
-11.7
331.7
109.3
222.4

Card

106.8 1,886.6 1,442.5 444.1-36.9 581.2 726.3 -145.1
4.7 252.8 244.8
8.0
74.6 2,720.6 2,413.6 307.0
22.4 1,092.2 1,008.2
84.0
52.1 1,628.4 1,405.4 223.0-3.0 -207.6 -197.0 -10.6
55.1 1,836.0 1,602.4 233.6
10.1 319.4 284.3
35.2
3.3 318.7 304.5
14.3
6.3 -56.7 -74.2
17.5
45.1 1,516.6 1,318.1 198.5- 555.6 555.6
45.1 960.9 762.5 198.5

Excluding special gains and charges, KEB’s normal business profitability decreased by 12.4% to KRW 821 billion due to higher provisions in line withdeteriorating asset quality.
In billions of KRW

Reported Net Income-18.6%

214

Higher special gains*
+33

821

Decline in normal profitability
-116

937

-233

Higher special charges*
-96

-137

Normal Business Profitability

Special Gains
Normal Business Profitability
Special Charges
Tax +/- Nominal 27.5% Rate-178

FY 2008
783

FY 2007
961

181

-20
-19

*The effect from bonus recognition timing is zero on an annual basis andwas therefore excluded.

42Management Discussion & Analysis

Details of Special Items

In billions of KRW		

FY 2008					

			
		
		
		
SpecialGains*
		
		
		
		
		
		
		
SpecialCharges*						Sale of debt-for-equity positions		
Reversal of impairment loss		
Recoveries/Sale of NPLs		
Retrieval from Non-Performing Asset Fund		
KEBCS-related legal penalty recovery		
Asset recognition of the shares of VISA Inc.		
Change in provision calculation method		Interest on reserves held at BOK		
Total		Retroactive CBA payments /special bonus		
Regulatory reserve changes		NTS tax assessment		
KEBCS-related legal penalty		
Return of dormant deposit		Impairment loss (Hanmi Bank) 		
Non-performing assets		
Reduction in DITA		
Total		

4Q
4
42
46
25
70
10
17
214
16
11
155
51
233

3Q
46
29
17
92
5
77
51
133

2Q
42
10
52
78
78

FY 2007

1Q
25
25
16
6
22

4
41
45
-

79
7
30
26
39
181
11
61
27
25
13
137

*The effect from bonus recognition timing is zero on an annual basis and was therefore excluded.

2) Net Interest Income−
Interest revenue in 2008 showed a 26.7% increase compared to the previous year, driven by an expansion in loan interest
revenue, which rose 25.0% amid lending asset growth and disciplined profitability management. Interest expenses increased 38.1%
year-on-year due to the increase in interest-bearing liabilities along with asset growth.
As a result, net interest income, defined as interest income minus interest expenses, rose 18.6% year-on-year.

In billions of KRW
FY 2008

		
Interest Revenue
Income on due from banks
Interest on securities
Interest income on loans
		 Bank
		 Card
OthersInterest Expenses
Interest on deposits
Interest on borrowings
Interest on debentures
OthersInsurance expenses for deposits &Contribution for Credit Guarantee Fund (-)
Other Interest Income
Net Interest Income
Bank
Card

				

4Q

3Q

2Q

FY 2007

YoY

1Q

5,167.1
145.1
459.9
4,517.6
3,924.9592.7
44.6
2,854.6
1,780.6
465.3
552.7
56.0

1,513.7
61.7
130.7
1,299.6
1,142.7
156.9
21.7
850.6
539.3
139.2
158.0
14.1

1,300.4
25.8
117.0
1,149.0
999.5
149.5
8.5
724.8
446.6
113.6
148.2
16.4

1,183.5
24.8
112.7
1,038.4
894.2
144.2
7.5
643.9
396.4
105.4
129.0
13.0

1,169.6
32.8
99.4
1,030.5
888.5
142.1
6.8
635.3
398.4
107.1
117.4
12.5

4,078.8
66.1
373.8
3,612.6
3,053.6
558.9
26.2
2,066.6
1,251.5
387.3
389.6
38.3

+26.7%+119.4%+23.0%+25.1%+28.5%+6.0%+69.7%+38.1%+42.3%+20.2%+41.9%+46.3%

141.9
67.4
2,238.1
1,789.8
448.3

38.1
60.1
685.1
569.1
115.9

35.8
0.7
540.5
427.0
113.5

34.3
3.5
508.7
396.7
112.1

33.6
3.1
503.8
397.0
106.8

126.4
0.8
1,886.6
1,442.5
444.1+12.3%
F+18.6%+24.1%+0.9%

Management Discussion & Analysis

433) Net Interest Margin (NIM)−
KEB’s NIM for 2008 came to 2.90%, down 0.33%p from the previous year. Despite improved pricing within business lines, NIM fell due toa mix effect as there was an increase in the percentage of lower NIM/lower risk assets in the bank’s interest bearing asset portfolio. On a quarterly
basis, NIM fell steadily until the third quarter and stabilized around 2.8% in the fourth quarter.
%
Cumulative Basis2008 				
4Q
3Q
2Q
1Q

			
Net Interest Margin (NIM)
NIM in KRW
NIM in Foreign currency
Loan to Deposit Spread in KRW (a-b)
Interest rate on Loans in KRW (a)Interest rate paid on Deposits in KRW (b)

2.90
3.64
1.07
2.75
7.19
4.44

2.92
3.64
1.01
2.74
7.07
4.33

NIM-Cumulative Basis

3.23%

4Q‘07

3.06%

1Q‘08

2.99
3.69
0.95
2.77
7.03
4.26

2007
4Q
3.06
3.76
0.90
2.86
7.09
4.23

3Q
3.23
3.84
1.20
3.10
6.62
3.52

2Q

1Q

3.24
3.85
1.21
3.12
6.54
3.42

3.32
3.93
1.30
3.19
6.53
3.34

3.34
3.92
1.45
3.20
6.46
3.26

NIM-Quarterly Basis

2.99%

2Q‘08

2.92%

3Q‘08

3.19%

2.90%

3.06%

4Q‘08

4Q‘07

1Q‘08

2.92%

2Q‘08

2.81%
3Q‘08

2.82%

4Q‘08

4) Fees & Commissions−
Fees & commissions continued to be a key component of total income for KEB.
Gains from foreign exchange transactions grew 21.2% year-on-year, helped by an increase in market volatility. Foreign currency related
fees & commissions also increased 18.9%, mainly driven by efforts to expand export/import volume. KRW currency related fees & commissions fell
35.4% in 2008, year-on-year, from a growth trend in recent years. The decrease was mainly due to falling investment product sales as a result of thedownturn in domestic and global stock markets.
In billions of KRW
FY 2008					
		
4Q
3Q
2Q
1Q
Gains from FX Transaction
Fees & Commissions
		 KRW currency-relatedBank		 Foreign currency-related
		 Others
Subtotal
Card			Total			

303.4
419.1
179.3
163.9
75.9
722.3
-159.5
562.8

91.3
99.8
31.4
46.2
22.2
191.0
-42.6
148.5

70.1
99.7
39.5
42.2
18.0
169.8
-41.0
128.8

75.4
115.1
56.1
39.3
19.7
190.5
-38.9
151.5

FY 2007
66.5
104.5
52.4
36.2
15.9
171.0
-36.9
134.1

250.3
475.9
277.5
137.8
60.6
726.3
-145.1
581.2

YoY+21.2%-11.9%-35.4%+18.9%+25.1%
-2.1%
U
-3.2%

44

Management Discussion & Analysis

5) Non-Interest Income−
Income from operating trust account increased 7.0% year-over-year. Merchant account showed a significant 101.0% increase, helped byan increase in volatility of the commercial paper market. Trading profit also increased 56.5% with a strong performance in foreign currency trading.
However, valuation equity method on subsidiaries decreased 44.5% mainly due to losses from the Los Angeles subsidiary, which was incurred frombad loans in the fourth quarter.
In billions of KRW
FY 2008					
		
4Q
3Q
2Q
1Q
Operating Trust AccountMerchant AccountTrading Profit
Valuation equity method
Card sector		
NPL sales		
Others		Non -Interest Income

35.0
36.5
145.9
30.3
6.7
-8.7
-28.2
217.6

9.1
11.3
51.8
-30.2
4.0
-14.5
-29.2
2.3

9.4
7.6
27.1
22.3
1.7
1.2
12.8
82.2

8.1
7.4
32.5
22.4
-3.8
4.6
2.7
73.8

FY 2007
8.4
10.2
34.6
15.8
4.7
-14.5
59.2

YoY

32.7
18.2
93.2
54.6
8.0
5.0
43.3
252.8

+7.0%
+101.0%+56.5%-44.5%-16.8%
U-168.9%-13.9%

6) G&A Expenses−
Personnel expenses showed only a small increase of 2.6% year-on-year as the bank froze salaries as part of efforts to overcome thecurrent global financial turmoil.
Operating expenses increased 11.6% year-on-year due to one-time advertising and logo replacement costs associated with theintroduction of the new corporate logo/image. The cost/income ratio (ratio of total expenses to total income) dropped 2.3%p to 37.9% as a result of
the salary freeze.
In billions of KRW
FY 2008					

		Salaries & Benefits
Salaries		
Employees benefits
Operating Expenses
Depreciation		
Tax & Dues		
Total Expenses
Bank		
Card		

4Q
661.1
512.0
149.1
317.7
119.4
47.2
1,145.3
1,063.7
81.6

3Q
119.8
84.9
34.9
95.9
35.5
17.6
268.8
250.7
18.1

2Q
184.5
160.3
24.1
82.4
29.1
12.7
308.7
285.5
23.2

FY 2007

YoY

1Q
165.0
104.4
60.6
71.7
28.1
8.3
273.0
255.1
17.9

191.8
162.4
29.4
67.6
26.8
8.6
294.8
272.4
22.4

644.1
509.8
134.4
284.7
126.2
37.0
1,092.2
1,008.2
84.0

+2.6%
+0.4%
+10.9%+11.6%-5.5%+27.3%
+4.9%
+5.5%
-2.9%

Management Discussion & Analysis

457) Provisions, Tax Expenses, etc.
−
Loan loss provisioning increased to KRW 726.9 billion in 2008 from KRW 318.7 billion in 2007. The significant increase in provisioning
came from various factors.
First, there was a KRW 18.2 billion increase in loan loss provisioning coming from an increase in normal assets as the bank saw large loan
growth in 2008. The majority of the increase in loan loss provisioning, however, came from the decline in asset quality, which was responsible for
KRW 390 billion (net amount after deducting for recoveries). Among them, KRW 131 billion was from several companies that went bankrupt due tounusual shocks in both the domestic and international markets in the third quarter. KRW 51 billion was set aside for companies that were selectedin the first round of restructuring of the construction and shipbuilding industries. The restructuring, which was undertaken by creditor banks to weedout ailing companies, showed that KEB had relatively low exposure to problem companies. The remaining increase in provisioning came from higher
SME delinquencies brought on by the economic downturn (refer to Appendix 1). Accordingly, KEB’s credit cost (ratio of loan loss provisioning to total
credits) jumped from 0.54% in 2007 to 1.02% in 2008.
In billions of KRW
FY 2008					
		
4Q
3Q
2Q
1Q
Loan Loss Provisioning<Bank>		
		
Corporate		Household<Card>		
Other Provisioning, etc.
Retirement Allowance
Total		

4.
Assets & Liabilities(Bank Account)

726.9
695.2
646.3
47.9
31.7
22.6
47.0
796.4

335.9
321.5
296.7
24.8
14.4
19.6
10.8
366.3

193.0
185.1
173.2
11.9
7.9
26.5
20.7
240.2

FY 2007

117.9
111.8
101.9
9.8
6.1
-18.1
10.1
109.8

80.1
76.8
75.3
1.4
3.3
-5.4
5.3
80.0

YoY

318.7
304.7
275.6
29.0
14.1
-56.7
57.3
319.4

+128.0%+128.2%+134.8%+65.2%+124.7%
U-18.1%+149.3%

1) Assets−
Total assets at the end of 2008 came to KRW 103.7 trillion, a 26.4% increase from KRW 82.0 trillion at the end of 2007.
Most of the increase of total assets came from loans and discounts, which totaled KRW 64.4 trillion at the end of 2008, up from KRW
54.1 trillion a year ago. Although loans and discounts sharply rose until the third quarter, strengthened risk management helped reduce loans in the
fourth quarter as compared to third quarter.
In billions of KRW			Cash & Due from Banks		
Securities
Loans & Discounts					Credit Card Receivables		
Other Asset		
Merchant Banking Accounts
Total Assets		

2008.12
10,107.7
12,112.6
64,412.3
2,552.6
13,712.6
3,363.1
103,708.3

2008.095,529.9
10,953.7
66,265.5
2,418.1
16,019.9
3,267.0
102,035.9

2008.06
5,994.1
10,489.1
59,108.7
2,385.2
14,147.8
2,759.5
92,499.2

2008.03
4,747.5
11,087.5
56,799.9
2,357.3
14,209.5
3,915.6
90,760.0

2007.125,118.4
9,773.4
54,055.4
2,440.6
9,724.0
3,353.8
82,024.9

YoY+97.5%+23.9%+19.2%+4.6%+41.0%+0.3%+26.4%

46

Management Discussion & Analysis

2) Liabilities−
Along with the bank’s asset growth, funding through deposit-taking, borrowings, and debenture issuance showed a corresponding
increase. Deposits increased to KRW 56.4 trillion at the end of 2008 from KRW 44.4 trillion at the end of 2007, with KRW denominated deposits
increasing to KRW 36.2 trillion from KRW 29.6 trillion. Borrowings increased by 35.0% year-over-year to KRW 12.0 trillion at the end of 2008.
Debentures stood at KRW 10.8 trillion, an increase of 26.2%.
In billions of KRW			Deposits
Borrowings
Debentures
Other Liabilities
Merchant Banking Accounts
Shareholders’ Equity
Liabilities & Shareholders’ Equity

2008.1256,397.4
11,958.8
10,790.6
14,402.5
3,495.6
6,663.5
103,708.3

2008.0949,523.6
13,595.5
10,887.2
19,087.5
2,369.2
6,572.9
102,035.9

2008.06
44,913.5
12,512.8
10,025.0
15,919.3
2,534.7
6,593.8
92,499.2

2008.03
42,941.1
11,389.8
8,472.1
18,071.2
3,400.2
6,485.5
90,760.0

2007.12

YoY

44,431.0
8,858.1
8,547.9
11,390.2
2,147.0
6,650.8
82,024.9+26.9%+35.0%+26.2%+26.4%+62.8%+0.2%+26.4%

3) Shareholders’ Equity−
Total shareholders’ equity increased by KRW 12.7 billion to KRW 6.7 trillion at the end of 2008 as most of the increase in retained
earnings was offset by the decrease in capital adjustment.
The increase amount of retained earnings was KRW 375.0 billion, less than the amount of net income for 2008, reflecting dividend for2007 of KRW 451 billion (KRW 700 per share), which was recognized in the first quarter of 2008.
On the other hand, capital adjustments fell by KRW 357.9 billion year-on-year. The decrease of KRW 779.8 billion in unrealized gains on
investment securities such as the bank’s holdings of debt-to-equity swapped stocks of Hynix and Hyundai E&C was partially offset by KRW 435.3
billion in gains from tangible assets revaluation (refer to Appendix 2), which was recognized in the fourth quarter of 2008.
In billions of KRW			Paid-in Capital
Capital Surplus
Capital Adjustment
Retained Earnings
Total Shareholders’ Equity
Book value Per Share (BPS)

5.
Major Business
Activities

2008.122007.123,224.5
0.9
749.2
2,693.3
6,663.5
10,333.0

YoY
3,224.5
0.9
1,107.1
2,318.3
6,650.8
10,313.0-357.9+375.0+12.7+20.01) Korean Won Currency Loans−KRW loans grew by 10.6% to KRW 44.5 trillion at the end of 2008 from KRW 40.3 trillion a year ago.
SME loans increased by KRW 1.5 trillion to KRW 20.7 trillion at the end of 2008, driven by focused customer segmentation marketing to highquality companies. Loans to large corporations increased by KRW 1.6 trillion to KRW 5.4 trillion, showing strong growth over the year due to limited
opportunities for direct funding in the more volatile capital markets environment.
Loans to households increased by KRW 1.1 trillion to KRW 15.8 trillion at the end of 2008 with modest growth in high quality individualloans. Housing loans, which had been falling until the first half of 2008, rebounded slightly from the third quarter as the government eased realestate regulations in order to boost sluggish real estate markets. Credit card receivables showed a moderate increase of KRW 0.2 trillion to total
KRW 2.6 trillion at the end of 2008.

Management Discussion & Analysis

47

In billions of KRW
			2008.12

Household		
Housing-related		
Personal loans
Corporate
		
SMEs
		
Large Corp.
Public & others
Subtotal 		Credit Card Receivables
Total 		2008.0915,762.5
8,197.8
7,564.7
26,076.7
20,707.6
5,369.1
129.7
41,968.9
2,552.6
44,521.5

15,557.1
8,099.9
7,457.2
28,211.8
21,956.6
6,255.2
132.4
43,901.3
2,418.1
46,319.4

2008.06
14,899.5
7,936.3
6,963.2
25,159.2
20,592.6
4,566.6
208.8
40,267.4
2,385.2
42,652.6

2008.03
14,538.8
7,966.0
6,572.8
24,094.7
19,980.9
4,113.8
198.6
38,832.1
2,357.3
41,189.4

2007.12

YoY

14,723.7
8,242.4
6,481.3
22,947.5
19,157.6
3,789.9
154.8
37,826.0
2,440.6
40,266.5

+7.1%
-0.5%
+7.6%
+13.6%+8.1%+41.7%-16.2%+11.0%+4.6%+10.6%

2) Foreign Exchange & Trade Finance−
KEB maintained its leading position in foreign exchange and trade financing markets in 2008. In the foreign exchange market, the bankexpanded its share by 3%p to cover 43% of transactions conducted by Korea’s seven leading commercial banks. The bank also expanded its sharein Korea’s total export volume by 2%p to 31% and maintained its 29% share in import volume. KEB’s continued efforts to enhance its expertise andbrand power have helped maintain the bank’s strong presence and leadership in the foreign exchange and trade market.

FX Market Share (%)

Export Market Share (%)

Import Market Share (%)

KEB 31%

KEB 29%KEB 43%

OthersKEB

6.
Asset Quality

OthersOthersKEB

OthersOthersKEB

Others1) Non-Performing Loans (NPLs)−
Although both domestic and international economic turmoil led to a decline in the bank’s asset quality from the third quarter, the bank’s
asset quality still remains adequate with the NPL ratio at the end of 2008 totaling 1.09%, up 0.48%p from 0.61% at the end of 2007.
As Korea is in the midst of an economic downturn, an overall increase in NPLs was inevitable. However, as can be seen from KEB’s relatively
small exposure to companies that were selected in the first round of restructuring in the construction and shipbuilding industries, uncontrolled large
losses from a specific industry or company did not occur as it did back in the Asian financial crisis, due to the bank’s strengthened risk management.
However, the bank does expect continued upward pressure on NPLs in 2009, particularly in the SME sector.
In billions of KRW						

2008. 12 		
2008. 09		
2008. 06		
2008. 03		2007. 12(EX. card)		
(EX. card)(EX. card)(EX. card)		
(EX. card)

Normal 		Precautionary		
Substandard		
Doubtful		
Estimated Loss		Total Credits		
Substandard & Below (NPL) (%)
Precautionary & Below (%)		
Loan Loss Reserve		
NPL Coverage (%)		
Precautionary & Below Coverage (%)

69,454.7 66,974.6 73,455.6 71,102.5 63,967.2 61,644.0 60,601.9 58,306.7 58,009.8 55,631.7
716.0
675.2
501.9
468.2
378.2
346.6
317.5
285.4
351.9
317.8
422.7
422.5
297.5
297.2
266.9
266.3
271.5
271.5
242.3
242.3
92.2
66.0
63.6
38.2
35.2
11.8
39.4
14.0
43.0
18.7
260.3
251.5
152.0
143.3
94.9
87.3
70.2
63.7
75.0
69.2
70,945.9 68,389.8 74,470.6 72,049.4 64,742.4 62,356.0 61,300.5 58,941.3 58,722.0 56,279.7
1.09% 1.08% 0.69% 0.66% 0.61% 0.59% 0.62% 0.59% 0.61% 0.59%
2.10% 2.07% 1.36% 1.31% 1.20% 1.14% 1.14% 1.08% 1.21% 1.15%
1,097.1 1,026.9
973.1
906.8
803.6
739.8
747.7
683.8
733.0
668.4
141.5% 138.8% 189.7% 189.4% 202.4% 202.5% 196.2% 195.8% 203.5% 202.4%
73.6% 72.6% 95.9% 95.8% 103.7% 103.9% 107.0% 107.8% 102.9% 103.2%

48

Management Discussion & Analysis2) Delinquency−
The delinquency ratio also increased to 0.92% at the end of 2008 from 0.56% at the end of 2007.

Reported BasisBank			Household
SME		
Large Corp./Others
Card			Normal bookRe-aged bookTotal Delinquency Ratio

2008.122008.09

0.86%
0.42%
1.54%
0.30%
2.36%
2.33%
13.14%
0.92%

0.54%
0.29%
1.07%
0.04%
2.20%
2.17%
11.96%
0.60%

2008.06
0.50%
0.26%
0.95%
0.04%
2.03%
2.01%
10.13%
0.57%

2008.03
0.59%
0.36%
1.06%
0.07%
2.05%
2.01%
10.32%
0.65%

2007.12

YoY

0.49%
0.34%
0.87%
0.04%
1.92%
1.88%
10.77%
0.56%+0.37%p+0.07%p+0.67%p+0.26%p+0.44%p+0.45%p+2.37%p+0.37%p3) Strict Risk Exposure Management – Minimal Exposure to US Mortgage Assets−
Indicative of KEB’s strict risk exposure management is the bank’s minimal exposure to US mortgage assets amidst the recent turmoil inglobal financial market caused by problems in US sub-prime mortgage market.
The bank has no direct holdings of US mortgages and US mortgage-backed securities. Indirect exposure to sub/mid prime mortgage
through collateralized debt obligations (CDOs) was USD 1.3 million, which was only 2.8% of USD 45.0 million in total CDO holdings at the end of
2008. The bank has no exposure through credit default swaps.
Details of exposures to Collateralized Debt Obligations (CDO)
Purchase
Credit Rating
Investment		 Maturity
Month					Apr-2006
AAA (US Treasury)		
5.00 Mar-2016
May-2006
BB		
20.00 Apr-2011
Mar-2007
AAA (Freddie Mac)		
20.00 Sep-2015
Total			45.00 		Net valuation of total CDO loss = USD 9.2 million as of end-Dec. 2008
(Net valuation loss of Sub/Mid-prime = USD 1.26 million)

In millions of USD
Sub-prime + Mid-prime Ratio Valuation 		 Valuation Loss(amount)(Dec 31, 07)		 CDO		 Sub/Mid
2.5% (0.12)		
4.46 		0.54		
0.12
-		14.60 		5.40		
5.7% (1.14)		
16.74 		3.26		
1.14
2.8% (1.26)		
35.80 		9.20		
1.26

Management Discussion & Analysis

7.
Dividend & Capital
Adequacy491) Dividend−
In a step consistent with the difficult financial environment, the bank’s Board of Directors agreed to substantially reduce its dividend to
KRW 125 per share, down more than 80% from last year’s level. This preserves a meaningful amount of core capital for KEB.
2) BIS Capital Adequacy Ratio−
KEB ended the year with a healthy total capital adequacy level of 12.65% (BaselⅡbasis). More importantly, the bank’s Tier I capital ratio
climbed to 8.82% with a reduction in risk weighted assets. The bank’s supplemental capital ratio (TierⅡ) also increased to 3.82% helped by theissuance of KRW 800 billion in KRW subordinate debt during the fourth quarter and a revaluation of the bank’s fixed assets in connection with theupcoming conversion to International Financial Reporting Standards (IFRS).

BIS Capital Adequacy Ratio under Basel Ⅱbasis

In billions of KRW

Risk Weighted Assets (FIRB)
CreditMarketOperation

66,616.2
60,793.7
705.2
5,117.3

BIS Capital

8,425.6

Tier Ⅰ				 Capital		 Capital Surplus
		 Retained Earnings
		 Hybrid Debentures
		 Other				 Deduction Items 1 (-)
		
Goodwill (-)
		Other Intangible Assets (-)
		
Deferred Income Tax Assets (-)
		
Valuation Loss on Investment Securities (-)
		Other		 Deduction Items 2 (-)
Tier Ⅱ		
		 45% of Evaluation Gain on Investment Securities
		 Loan Loss Provisioning for Normal & Precautionary Assets
		 Subordinated Debts
		 Deduction Items 2 (-)
BIS ratio		Tier Ⅰ ratio
Tier Ⅱ ratio

5878.83,224.5
0.9
2,711.8
250.0
1.8
297.6
0.0
66.5
80.6
29.3
121.2
12.6
2,546.8
184.5
255.6
1,727.3
12.6
12.65%
8.82%
3.82%

50

Management Discussion & Analysis

Appendix 1
Increase in Loan
Loss Provisions

Increase in provisions reflect loan asset growth and SME delinquencies
In billions of KRW

FY 2007

FY 2008

ChangeNet Income Effect Y o Y

318.7

726.9

+408.2

↓296

103.9

+18.2

↓ 13

816.9

+430.5

Loan loss provisioning (a)Normal Asset growth

85.7

Asset quality change

386.4

Recoveries-153.4-193.9Total credits (b)58,722

70,946

Net provisions/total credits (a/b)

0.54%

1.02%

Causes390-40.5

Causes of loan loss provisioning increase
Growth of normal assets: +18bn
		 •Asset increase: +18.2bn (2.1tr X 0.85%)
			-FX rate effect: +7.6bn
Asset quality change: +390bn (net amount after deduction for recoveries)		 •NPL ratio: 1.09%, +48bp YoY			-Affected by financial turmoil (Lehman, Taesan LCD, Kyungu Steel, IDH): 131bn
			-4Q'08 workout construction companies: 51bn
			-Affected by the increase in SME delinquencies

SME Delinquency Ratio
1-4Q'07

1-4Q'08
1.54%

0.74%

0.79%

0.71%

0.87%

1.06%

0.95%

1.07%

0.43%

Dec 2006 Mar 2007 Jun 2007

Sep 2007 Dec 2007 Mar 2008 Jun 2008 Sep 2008 Dec 2008

↓283

Management Discussion & Analysis

Appendix 2
Tangible Assets
Revaluation

51

1. Tangible Assets Revaluation•Revaluation of assets authorized by the FSC starting FY2008•70% of tangible assets revaluation gain → Approved as supplementary capital (newly established)vs. 100% of tangible assets revaluation loss → lncluded in net income (existing rule)
2. Effect on Financial Statements: Tangible assets +532.8bn, Deferred income tax liabilities (DITL) +117.2bn,
Accumulated other comprehensive income (AOCI): valuation gain +435.3bn, Net income -19.7bn
Revaluation
gain
558.1bn
Revaluation
loss
25.3bn

B/S

B/S
I/S

Tangible assets
DITL
AOCI (valuation gain)
Tangible assets
DITA
Valuation loss
Deferred tax income+558.1bn+122.8bn(=558.1bn X 22%)+435.3bn-25.3bn+5.6bn(=25.3bn X 22%)-25.3bn+5.6bn(=25.3bn X 22%)

Tangible assets+532.8bn
DITL +117.2bn
Net income -19.7bn

3. Effect on BIS Ratio

CapitalTier Ⅰ

AmountEffect on BIS ratio Comments+312.9bn+0.47%p+8.2bnTier Ⅱ +304.7bn
RWA+532.8bn
Overall effect on
BIS ratio

・N ew 117.2bn DITL offset existing 27.9bn DITL (core capital deduction item)→ Core capital +27.9bn, remaining DITL 89.3bn+0.01%p・Net income -19.7bn → Core capital -19.7bn+0.46%p ・R ecognize 70% of revaluation gain (after tax): 304.7bn (=435.3bn X 70%)-0.10%p ・O verall effect ftom change in capital and assets: Tier Ⅰ ratio-0.06%p, Tier
+0.37%p
ⅡCapital +0.43%p

52

Non-Consolidated Financial Statements
For the years ended December 31, 2008 and 2007

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 balance sheets of Korea Exchange Bank (the “Bank”) as of December 31, 2008 and 2007, andthe related non-consolidated statements of income, appropriations of retained earnings, changes in shareholders’ equity and cash flows for theyears then ended, all expressed in Korean Won. These financial statements are the responsibility of the Bank’s management. Our responsibility is toexpress 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, 2008 and 2007, and the results of its operations, changes in its retained earnings and its shareholders’ equity, and its cash flows for the years
then ended, in conformity with accounting principles generally accepted in the Republic of Korea.
Without qualifying our opinion, we drew attention to the following:
As discussed in Note 8 to the non-consolidated financial statements, the Bank adopted the amendment to the Statement of Korea AccountingStandards (“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 a result of this adoption, the book value of the land and net assets increased by ₩532,778
million and ₩415,567 million, respectively, as of December 31, 2008.
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, thisreport and the accompanying financial statements are for use by those knowledgeable about Korean accounting procedures and auditing standards
and their application in practice.

Deloitte Anjin LLC
Seoul, Korea
March 12, 2009

Notice to ReadersThis report is effective as of March 12, 2009, the auditors’ report date. Certain subsequent events or circumstances may have occurred between theauditors’ 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.

Non-Consolidated Balance Sheets

53

KOREA EXCHANGE BANK (BANKING ACCOUNT) as of December 31, 2008 and 2007

(In millions of won)

2008

2007

ASSETS₩Cash and due from banks (Notes 3, 18, 19, 24 and 29)
Securities (Notes 4, 17, 18, 19, 23 and 29)		
Loans (Notes 5, 6, 7, 17, 18, 19, 23 and 24)		
Tangible assets (Note 8)		Other assets (Notes 9, 17 and 24)		
Merchant banking account assets (Notes 10 and 18)		
₩10,107,706 ₩
12,112,577		
64,412,277		
1,427,218		
12,285,386		
3,363,112		
103,708,276 ₩

5,118,391
9,773,435
54,055,379
876,864
8,847,087
3,353,761
82,024,917

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)		
				

56,397,357 ₩
22,749,312		
14,402,472		
3,495,617		
97,044,758		

44,430,991
17,405,954
11,390,209
2,146,964
75,374,118

SHAREHOLDERS’ EQUITY (Notes 4, 8, 15, 17 and 21):
		 Common stock				 Capital surplus				 Capital adjustments		
		 Accumulated other comprehensive income		
		 Retained earnings		
				₩

3,224,534		
940		
(4,425)		
749,201		
2,693,268		
6,663,518		
103,708,276 ₩3,224,534
940(5,722)
1,090,015
2,341,032
6,650,799
82,024,917

See accompanying notes to non-consolidated financial statements.

54

Non-Consolidated Statements of Income
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

(In millions of won, except per share amounts)

2008
OPERATING REVENUES:Interest income (Notes 2, 19 and 24):
		 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
			Gain on valuation and disposal of securities (Note 4):
		 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 valuation and disposal of loans:
		 Gain on disposal of loans (Note 5)
Foreign exchange trading income
Gain on trading and valuation of derivatives (Notes 17 and 19)
Commission income (Notes 19 and 24)
Dividends income (Note 19)
Other operating revenue (Notes 10, 19 and 25)
		 Total operating revenues
OPERATING EXPENSES:Interest expenses (Notes 19 and 24):
		 Interest on deposits
		 Interest on borrowings
		 Other interest expenses
			
Loss on valuation and disposal of securities (Note 4):
		 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 valuation and disposal of loans:		 Provision for possible loan losses (Note 7)
		 Loss on disposal of loans (Notes 5 and 17)
			
See accompanying notes to non-consolidated financial statements.

₩

2007

145,086
29,482
287,410
142,952
4,517,574
25,945
5,148,449₩

66,13871,335
216,660
85,8453,612,561
26,2484,078,787

12,46642,21032,75893,555
180,989

405
91,77392,980139,421324,579

11,551

11,9202,567,115
13,986,684
500,11275,179260,41122,730,490

929,204
2,611,234
546,565
7,113
253,265
8,762,667

1,780,589
1,018,046
56,0322,854,667

1,251,465
776,855
38,263
2,066,583

6,892
44,59832,734
1,270

6,515
62,17522,4784,913

85,49496,081

719,840
26,034
745,874

307,0427,247
314,289

Non-Consolidated Statements of Income (Continued)

55

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

(In millions of won, except per share amounts)

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, 24 and 26)
Other operating expenses (Notes 14 and 19)
Total operating expenses

2008₩

2,470,846
13,645,121
240,984
1,192,242
341,432
21,576,660

2007₩

626,040
2,599,923
215,718
1,149,511
282,876
7,351,021

OPERATING INCOME

1,153,830

1,411,646

NON-OPERATING INCOME (Notes 4 and 20)

124,550

139,041

NON-OPERATING EXPENSES (Notes 4, 8 and 20)

110,890

34,098

INCOME BEFORE INCOME TAX

1,167,490

1,516,589

INCOME TAX EXPENSE (Note 21)384,872

555,644NET INCOME (Note 23)₩782,618₩

960,945

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

₩

1,214

₩

1,490

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

₩

1,214

₩

1,490

See accompanying notes to non-consolidated financial statements.

56

Non-Consolidated Statements of Appropriations of Retained Earnings
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

(In millions of won, except per share amounts)

2008
RETAINED EARNINGS BEFORE APPROPRIATIONS:
Beginning of the year
Accumulated effect of revision of accounting policies
Adjustments using the equity method
Net income₩

TRANSFER FROM VOLUNTARY RESERVES:Other reserve
APPROPRIATIONS:
Legal reserve (Note 17)
Other reserve
Capital adjustments (Valuation of securities using the equity method of		 overseas subsidiaries below zero)
Dividends
		 [Cash dividends (Note 28)
		 Dividends per share (rate):		 ₩ 125 (2.5%) at 2008		 ₩ 700 (14%) at 2007]
			
UNAPPROPRIATED RETAINED EARNINGS TO BE CARRIEDFORWARD TO SUBSEQUENT YEAR
See accompanying notes to non-consolidated financial statements.

₩

2007
1,557,599
1,233
782,618
2,341,450₩

1,121,941
22,820960,945
2,105,706

2,857

-

78,3001,100

96,100572

4,425
80,613

451,435

164,438

548,1072,179,869₩

1,557,599

Non-Consolidated Statements of Changes In Shareholders’ Equity

57

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

(In millions of won)

CapitalCapitalCapitalstock
surplusadjustments
				
				

Accumulated Retained
otherearnings
comprehensive
incomeTotal₩ 3,224,534 ₩As of January 1, 2007
Cumulative effect of accounting changes
Balance after adjustments
3,224,534
Dividend
Balance after appropriations
3,224,534
Changes in accounting estimation
Net income
Effect of exchange rate fluctuations foroverseas branches
Valuation of available-for-sale securities 		-		Valuation of held-to-maturity securities 		-		Valuation of securities using the equity method 		-		₩ 3,224,534 ₩As of December 31, 2007

940
940
940
-

₩ 1,134,965₩ 1,999,864₩ 6,379,165(17,098)
1,117,867
1,117,867-

22,8202,022,684(644,907)
1,377,777
960,945

6,379,165(644,907)
5,734,258(18,862)
960,945

-		
-		
-		
940 ₩

2,310
2,310
-		
(29,191)		
-		(29,191)
-		
410		
-		
410
-		
929		
-		
929
(5,722) ₩ 1,090,015 ₩ 2,341,032 ₩ 6,650,799₩ 3,224,534 ₩As of January 1, 2008
Cumulative effect of accounting changes
Balance after adjustments
3,224,534
Dividend
Balance after appropriations
3,224,534
Net income
Effect of exchange rate fluctuations foroverseas branches
Adjustment of valuation using the equity method
Valuation of available-for-sale securities 		-		Valuation of held-to-maturity securities 		-		Valuation of securities using the equity method 		-		Valuation of negative securities using theequity method 		-		Valuation of tangible assets 		-		₩ 3,224,534 ₩As of December 31, 2008

940
940
940
-

(5,722)(5,722)(5,722)-

See accompanying notes to non-consolidated financial statements.

₩₩

18,862(5,722)
13,14013,140(18,862)-₩ 1,107,113₩ 2,318,212₩ 6,650,799(17,098)
1,090,015
1,090,015-

22,8202,341,032(451,435)
1,889,597
782,618

6,650,799(451,435)
6,199,364
782,618

-		
-		
-		

1,297
-		
-		
-		

(779,834)		
44		
3,689		

19,820
1,233
-		
-		
-		

19,8202,530(779,834)
44
3,689

-		
-		
940 ₩

-		
-		
(4,425) ₩(50)		
-		
(50)
435,337		-		
435,337
749,201 ₩ 2,693,268 ₩ 6,663,518

58

Non-Consolidated Statements of Cash Flows
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

(In millions of won)

2008
CASH FLOWS FROM OPERATING ACTIVITIES:Net income
Adjustments to reconcile net income to net cash used in operating activities:
		 Loss (gain) on valuation of trading securities, net
		 Reversal of impairment loss on available-for-sale securities, net
		 Gain on valuation of securities using the equity method, net
		 Provision for possible loan losses
		 Loss on disposal of tangible assets, net
		 Depreciation and amortization
		 Loss on revaluation of tangible assets
		 Loss (gain) on valuation of financial derivatives, net
		 Provision for severance benefits
		 Compensation cost
		 Provision for (reversal of) allowance of unused credit limit
		 Stock option compensation costs, net
		 Loss on foreign exchange trading, net
		 Others, net
			Changes in assets and liabilities resulting from operations:
		 Net decrease (increase) in trading securities
		 Net decrease (increase) in available-for-sale securities
		 Net increase in held-to-maturity securities
		 Net decrease (increase) in call loans
		 Net increase in domestic import usance bill
		 Net increase credit card receivables
		 Net increase in bills bought in foreign currencies
		 Net decrease (increase) in bills bought
		 Net decrease (increase) in bonds purchased under repurchase agreements
		 Net increase in loans
		 Net increase in loans in foreign currencies
		 Net decrease (increase) in factoring receivables
		 Net decrease (increase) in advances for customers
		 Net decrease in privately placed bonds
		 Net increase in deferred loan origination fees and costs
		 Net decrease (increase) in accrued income
		 Net increase in prepaid expenses
		 Net increase in financial derivatives assets
		 Net increase in accrued expenses
		 Net increase in unearned revenues
Payment of severance benefits		 Increase in assets under management of pension benefits
		 Decrease in transfer to National Pension Fund
Increase in deposit of insurance for severance benefits		 Net increase in financial derivatives liabilities
See accompanying notes to non-consolidated financial statements.

₩

2007

782,618₩

960,945(5,574)(24)(30,349)
719,840
1,685
119,421
25,346(127,782)
46,901
4,728(17,220)(11,862)
286,075
619
1,011,804

6,110(70,502)(54,637)
307,042987
126,362
4,267
57,34423,76618,006
5,417
187(102,259)
322,090(644,878)(1,347,773)(1,776,052)
1,061,158(1,004,275)(138,181)(1,005,237)
391,733(2,340,000)(4,795,553)(3,617,665)
180,097(24,409)
186,169
19,058(83,468)(4,014)(3,755,077)
254,224
16,267(18,036)(324)
56(44,459)
3,756,655

867,057
548,042(319,704)(708,002)(372,120)(151,934)(393,494)(99,964)
200,000(6,306,550)(1,545,449)(10,626)
5,633
400,028
17,27347,923(644)(154,490)
1,617
26,881(15,835)
34(12,068)
33,288

Non-Consolidated Statements of Cash Flows (Continued)

59

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

(In millions of won)Net decrease in allowance for other liabilities
Decrease in accrued expenses
Net decrease in deferred income tax assets
Net increase in deferred income tax liabilities			
Net cash used in operating activities

2008₩(15,532)
115,553(14,633,963)(12,839,541)

2007₩(14,844)(6,499)826
43,227(7,920,394)(6,637,359)

CASH FLOWS FROM INVESTING ACTIVITIES:Net decrease (increase) in securities using the equity method
Disposal of tangible assets
Purchase of tangible assets
Purchase of intangible assets
Net decrease (increase) in accounts receivable
Net increase in guarantee deposits paid
Net increase in other assets
Net increase in merchant banking account assets
Net increase in due from banks
Net cash used in investing activities(1,061)
338(102,502)(16,583)
721,816(33,395)(1,048,137)(239)(4,920,803)(5,400,566)

593
4,504
(126,756)(28,625)(1,547,938)(127,431)(5,812,762)(1,254,496)(352,517)(9,245,428)

CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
Net increase in borrowings
Net increase in debentures
Net increase in other liabilities
Dividend
Net cash provided by financing activities

11,978,492
3,100,650
1,904,259
1,318,484(451,435)
17,850,450

5,953,672
1,292,784
2,195,106
8,152,114(644,907)
16,948,769

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS(389,657)

1,065,982

CASH AND DUE FROM BANKS, BEGINNING OF YEAR

3,689,561

2,623,579

CASH AND DUE FROM BANKS, END OF YEAR (Note 29)
See accompanying notes to non-consolidated financial statements.

₩

3,299,904₩

3,689,561

60

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

1.
GeneralKorea 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 throughthe merger with Korea International Merchant Bank, a domestic subsidiary of the Bank, and other related operations as permitted under the BankAct and other relevant laws and regulations in the Republic of Korea. The Bank operates through 353 branches (including 28 depositary offices)and 3 subsidiaries in Korea and 25 branches (including 5 depositary offices and 5 offices) and 8 subsidiaries in overseas as of December 31, 2008.
The Bank’s shareholders as of December 31, 2008 are as follows:
Shareholders
LSF-KEB Holdings, SCA
Export-Import Bank of Korea
Bank of Korea
OthersNumber of shares 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) As of December 31, 2008, the date of closing a shareholders’ list.

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 June 16, 2003. The balance below the par value wasrecognized as a discount on stock issued.
As of December 31, 2008, the total number of authorized shares of the Bank is 1,000 million (par value ₩5,000) while the paid-in capitalamounts 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 Statement 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 ofKorea. 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.
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 balance sheet date or defaulted loans, not secured by guarantees from financial institutions orcollateral deposits, is recognized on a cash basis. As of December 31, 2008 and 2007, accrued interest income not recognized due to such criteria
amounted to ₩122,334 million and ₩81,016 million, respectively.
Classification of Securities
At acquisition, the Bank classifies securities into one of the following categories: trading, available-for-sale, held-to-maturity andsecurities accounted for using the equity method, depending on marketability, purpose of acquisition and ability to hold. Debt and equity securities
that are bought and held for the purpose of selling them in the near 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 heldto-maturity securities. Securities that should be accounted for under the equity method are classified as securities accounted for using the equity
method. 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 change, available-for-sale securities can be reclassified to held-to-maturity
securities and held-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 to available-for-sale securities, all debt securities that are owned or purchased cannot be classified as held-to-maturity securities. On theother hand, trading securities cannot be recategorized to available-for-sale securities or held-to-maturity securities and vice versa. Nevertheless,trading securities are reclassified to available-for-sale securities only when the trading securities lose their marketability or when the Bank holds
them not to earn gains on trading in short period.

Notes to Non-Consolidated Financial Statements

61

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

Valuation of Securities
1) Valuation of Trading Securities
Trading equity and debt securities are initially recognized at acquisition cost plus incidental expenses determined by the individual
moving average method (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.
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 (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-for-sale 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 on 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 the face value of held-to-maturity securities differs from its acquisition cost, the effective interest method is applied to amortize thedifference over the remaining 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 (inaccordance with 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
or accumulated 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, theBank 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 not recognized during the period that theequity method was suspended.
In addition, any gain or loss from 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 balance sheets if the subsidiaries are still consolidated evenafter 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
non-operating 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 asgain 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 amortizedcost that 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 gainor loss on valuation of available-for-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-to-maturity securities
is amortized using effective interest rate method and the amortized amount is charged to interest income. In addition, when certain trading securities
lose their marketability, such securities are reclassified as available-for-sale securities at fair market value as of reclassification date.

62

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

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 thesale of the securities, the unrealized valuation gain or loss of securities included in accumulated other comprehensive income (loss) is added toor deducted from 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 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
estimated uncollectible accounts on a reasonable and objective basis. Presently, the historical loss rate (based on mitigation or roll-rate analysis)
is one of the 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 foreach asset classification category.
The Bank applies the Forward Looking Criteria (“FLC”) for its 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 healthand management 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 thedelinquency 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 balanceusing the prescribed minimum percentages of 0.85 percent (construction, real estate, wholesale & retail, hotel and restaurant industries are0.9%) 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 as those categories are 1.5 percent or more, 15 percent or more, 20 percent or more and 60 percent or more, respectively.
The Bank provides allowance for possible losses on confirmed acceptances and guarantees, unconfirmed acceptances and guarantees,
and endorsed 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 notbeen used at least once in recent one year) and unused loan commitments for corporate and retail loan customers considering the credit conversion
factor and minimum 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 through reorganization proceedings, court mediation or debt restructuring agreements of parties concerned, is recorded at fair value
at the time of the restructuring. 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 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 establishes additional allowances for the difference. Otherwise, the Bank reverses the allowances for loan losses.
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 theeffective 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 othersimilar transactions are stated at the present value of expected future cash flows, and the gain or loss on valuation of related receivables andpayables is reflected in current operations, unless the difference between nominal value and present value is immaterial. Present value discount or
premium is amortized 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 to tangible assets. The Bank adopted the amendment to the Statement of Korea Accounting Standards (“SKAS”) No. 5 “Property,
Plant and Equipment”, which permits certain items of its land and buildings to be revalued after acquisition date, applying the revaluation
models permitted under SKAS No. 5. As a result of this adoption, gain (loss) on revaluation of tangible assets is accounted as accumulated othercomprehensive income and non-operating expenses, respectively.

Notes to Non-Consolidated Financial Statements

63

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

Depreciation is computed by using the declining-balance method (Straight-line method for building and leasehold improvements) based on theestimated 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 identified 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 Property
Non-business use property included in fixed assets is recorded when the Bank acquires collateral by foreclosure on the mortgage forloans. Such assets are not depreciated. After foreclosure, the asset is carried at the lower of its carrying amount or fair value determined by its
estimated public auction price. As of December 31, 2008, the Bank does not have non-business use 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
in the balance sheet 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 have been
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 Liability Reserve
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 is recognized as contingent liabilities 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.
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 estimated accrued severance benefits, which would be payable assuming all eligible employees and executives were to terminate
their employment, amounted to ₩291,933 million and ₩263,806 million as of December 31, 2008 and 2007, respectively. The Bank runs thedefined benefit retirement pension plan (DB plan), whose investment manager is Merrill Lynch Trust Company, for retirees of closed branches
in U.S. The Bank accounted the present value of estimated pension benefits as of December 31, 2008 as pension benefits payable. The assets
invested in the DB plan is accounted as assets under management of pension benefits and pension benefits payable are deducted from it inaccordance with 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 forderivative 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 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 the specified criteria for hedge accounting differs depending on whether the transaction is a fair value hedge or a cash flow hedge. Fairvalue hedge accounting is applied to a derivative instrument designated as hedging the exposure to changes in the fair value of an asset or aliability 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 transactionthat is attributable to a particular risk. The effective portion of gain or loss on a derivative instrument designated as a cash flow hedge is recorded

64

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

as accumulated other comprehensive income (loss) and the ineffective portion is recorded in current operations. The effective portion of gain orloss 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 orloss 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
Accounting Standards 39-35 – Accounting for Stock Options., in case of equity-settled 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 incase of cash-settled 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 of the balance sheet date or the final settlement date. 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 thearrangement provide a choice for the Bank whether the Bank settles the transaction in cash or by issuing 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 anequity-settled share-based payment transaction if no such obligation exists. In case of a cash-settled share-based payment, compensation costis 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)
from those of the bank accounts in accordance with the Trust Business Act. 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 bank accounts. Also, the borrowings from the bankaccount are recorded as due from trust accounts of the bank accounts. The Bank receives fees for operation and management of the trust businessand 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, a fixed 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 bank accounts 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, 2008.
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 thedate of sale 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 otherexpenses, 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, basedon the excess of rental revenue over the cost of the related assets. Unearned interest is recognized as interest income on financing leases using theeffective 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 or deducted to 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 regarding to certain items are charged or credited directly
to related components of shareholders‘ equity.

Notes to Non-Consolidated Financial Statements

65

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

Accounting for Foreign Currency Transactions and Translation
The Bank maintains its accounts in Korean Won. Transactions in foreign currencies are recorded in Korean Won based on the basic rateof exchange on the transaction date. The Korean Won equivalent of assets and liabilities denominated in foreign currencies are translated in thesefinancial statements based on the basic rate (₩1,257.50 and ₩938.20 to US$ 1.00 at December 31, 2008 and 2007, respectively) announced bySeoul Money Brokerage Service, Ltd. or cross rates for other currencies other than U.S. Dollars at the balance sheet dates. Translation gains andlosses are credited or charged to operations. Financial statements of overseas branches are translated based on the basic rate at balance sheet
dates.
Application of the Statement of Korea Accounting Standards
The Korea Accounting Standard Board (KASB) under the Korea Accounting Institute (KAI) issued the Statements of Korea AccountingStandards (SKAS) for achieving a set of Korean accounting standards that should be internationally acceptable and comparable based on SKAS
Act 92. The Bank adopted SKAS No.1 (Accounting Changes and Error Corrections) through SKAS No. 20 (Related Party Disclosures) (excluding No.
14) as of or before December 31, 2007, and SKAS No. 11 (Discontinued Operation) and SKAS No. 21 (Preparation and Presentation of Financial
Statements) through SKAS No. 25 (Consolidated Financial Statements) have been adopted since January 1, 2007.
Some SKASs were revised and the material revisions of SKASs, which the Bank adapted, are as follows:
SKAS

Revision

No. 5 (Property, Plant
and Equipment)

Application of the cost method or the revaluation method may be chosen by each tangible asset type. Consistent
application of the method chosen is required.

No. 15 (Investments
in Associates)

Clarifies that in applying the equity method to subsidiaries, except for those instances where the total investment isequal to or less than zero, the net assets and net income or loss on the non-consolidated financial statements of thesubsidiary are identical to the net interest in the subsidiary’s net assets and net income or loss on the consolidated
financial statements of the parent.
Clarifies that Subparagraphs (Ga) to (Sa) of Paragraph 39 are illustrative. In addition, the difference between theconsideration for the net interest and the net interest in the net assets of the subsidiary, as described under Subparagraphs(Na) to (Ra) is recognized as additional paid-in-capital in the consolidated financial statements of the parent.

As the result of the revision of SKAS No. 5 (Property, Plant and Equipment), the net assets increased by ₩415,567 million and the net income
decreased by ₩19,770 million as of and for the year ended December 31, 2008.
In addition, the accompanying financial statements of the previous period are restated based on the above revision on SKAS No. 15. As
a result, the unappropriated retained earnings as of December 31, 2007 increased by ₩22,820 million. Gain on valuation of securities using theequity method in accumulated other comprehensive income and capital surplus (capital adjustments in case of below zero) as of December 31, 2007
decreased by ₩17,098 million and ₩5,722 million, respectively.
Reclassification
Certain accounts of the prior period were reclassified to conform to the current period’s presentation for comparative purposes; however,such reclassifications had no effect on the previously reported prior period’s net income or shareholders’ equity of the Bank.

3.
Cash and due frombanks

( 1 ) Cash and due from banks as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Account

2008
₩

Cash
Foreign currencies on handDue from banks in Won
Due from banks in foreign currencies

876,432
433,3934,684,353
4,113,528
10,107,706

₩

2007
₩

₩

972,061
357,266
2,433,120
1,355,944
5,118,391( 2 ) Due from banks in Won as of December 31, 2008 and 2007 consisted 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
Other banks
Other banks
Other financial institutions

Interest rate (%)
Dec. 31, 2008

2008₩
5.11~6.64		
0.10~2.40		
0.02~5.57		
₩2007
3,752,160 ₩
921,383		
3,312		7,498		4,684,353 ₩

1,437,782
991,3483,145
845
2,433,120

66

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 3 ) Due from banks in foreign currencies as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Account
Financial institution		Interest rate (%)
Dec. 31, 2008

2008₩
Reserve deposit
The Bank of Korea
Due from banks on time deposits
Overseas financial institutions
0.00~8.00		
Other due from banks
Overseas financial institutions
0.00~0.52		
Other due from banks
Other financial institutions
0.00~0.30		
Due from banks in otherbank-foreign currencies
Overseas financial institutions
0.00~1.00		
₩
				

2007
2,802,781 ₩
526,093		
432,530		
9,444		

413,203394,602
182,713
1,323

342,680		
4,113,528 ₩

364,103
1,355,944( 4 ) Restricted due from banks in Won and foreign currencies as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification
Due from banks in Won:
The Bank of Korea
Woori Bank and others
Samsung Futures and others
National Agricultural Cooperative Federation		Due from banks in foreign currencies:
The Bank of Korea
BNP Paribas and others
		

2008
₩

₩

2007
3,752,160
560
158
3,752,878
2,802,781
252,1433,054,924
6,807,802₩₩

Reason for restriction
1,437,782
611
175
1
1,438,569

Required under the BOK Act
Escrow account
Subscription related to derivatives
Restricted by double payment of card receivable

413,20335,227448,430
1,886,999

Required under the BOK Act
Subscription related to derivatives( 5 ) Term structure of due from banks in Won and foreign currencies as of December 31, 2008 was 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 more than five years

Due from banks

Due from banks in

Total

in Won₩foreign currencies₩
4,107,044

₩

4,704
1,780
4,113,528₩₩

4.
Securities

4,684,353
4,684,353₩

8,791,397
4,704
1,780
8,797,881( 1 ) Securities as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification
Trading securities
Available-for-sale securities
Held-to-maturity securities
Securities using the equity method

2008
₩

₩

1,049,999
7,126,882
3,391,566
544,130
12,112,577

2007
₩

₩

393,895
6,854,616
2,071,555
453,369
9,773,435

Notes to Non-Consolidated Financial Statements

67

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 2 ) Securities excluding securities using the equity method as of December 31, 2008 consisted of (Unit: In millions):
Classification
Face value
Acquisition		
cost (*)
			
Trading securities:
Equity securities
Beneficiary certificates
Government and public bonds
Finance bonds
Corporate bonds
		
Available-for-sale securities:
Equity securities
Equity investments
Beneficiary certificates
Government and public bonds
Finance bonds
Corporate bonds
Asset-backed securities
Other debt securities		
Held-to-maturity securities:
Government and public bonds
Finance bonds
Foreign government bonds
Asset-backed securities
Other debt securities		₩₩(*) Acquisition costs of trading securities are the book value before valuation.

5,000
221,001
758,803
41,4981,026,302₩

15,1825,000
226,553755,419
41,076
1,043,230

Adjusted byeffective interest
rate method₩

5,000
226,520756,457
41,266
1,029,243

Book value₩

10,662
4,841
228,430
766,424
39,642
1,049,999

197,718
665,219
4,104,556
826,738
150,588
87,636
6,032,455

781,150
66,821
197,718
663,920
4,079,528
828,759
238,262
87,636
6,943,794

197,718
651,657
4,057,242
815,148
182,921
66,153
5,970,839

1,139,676
65,300
198,117674,632
4,033,880
802,084
161,336
51,857
7,126,882

894,498
2,260,478
28,435
219,031957
3,403,399
10,462,156

881,280
2,259,273
27,682219,877950
3,389,062
11,376,086

887,680
2,258,221
25,727
218,988950
3,391,566
10,391,648

887,680
2,258,221
25,727
218,988950
3,391,566
11,568,447

₩

₩

₩

68

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

Securities excluding securities using the equity method as of December 31, 2007 consisted of (Unit: In millions):
Classification
Face value
Acquisition		
cost (*)
			
Trading securities:
Equity securities
Beneficiary certificates
Government and public bonds
Finance bonds
Corporate bonds
		
Available-for-sale securities:
Equity securities
Equity investments
Government and public bonds
Finance bonds
Foreign government bonds
Corporate bonds
Asset-backed securities
Other debt securities		
Held-to-maturity securities:
Government and public bonds
Finance bonds
Foreign government bonds
Corporate bonds
Asset-backed securities
Other debt securities
		

₩

₩

10,00055,743
256,567
30,961
353,271₩

48,681
10,00054,961
255,260
30,646
399,548

Adjusted byeffective interest
rate method₩

10,00055,141
255,53130,653351,325

Book value₩

45,402
9,730
54,639253,41630,708393,895

750,398
2,754,136
125
691,974
405,514
87,636
4,689,783

847,458
62,966758,451
2,748,856
125692,606
401,232
87,636
5,599,330

734,205
2,741,545
125
687,206
299,844
60,3604,523,285

2,272,262
69,305
733,476
2,719,522
125
682,336
311,436
66,154
6,854,616

795,566
1,109,846
18,280140,356
10,0001,323
2,075,371
7,118,425

794,503
1,116,420
17,574
141,706
9,989
1,312
2,081,504
8,080,382

793,074
1,109,390
16,665
140,675
9,996
1,312
2,071,112
6,945,722

793,074
1,109,822
16,665
140,686
9,996
1,312
2,071,555
9,320,066₩₩₩(*) 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 ₩12,466 million and ₩405 million, and loss on valuation of trading
securities amounting to ₩6,892 million and ₩6,515 million for the years ended December 31, 2008 and 2007, respectively.
The fair values of trading and available-for-sale debt securities were assessed by applying the average of base prices as of December 31,
2008, 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 SK Networks Co., Ltd. and 19 others, and the restrictedavailable-for-sale marketable equity securities such as Hyundai Engineering and Construction Co., Ltd. and 5 others was reliably measured byan independent appraisal institute using reasonable judgment. The fair value was determined based on more than one valuation models 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, thefinancial statements for 5 years are estimated based on past operating result. Also, assuming the same operation is continued during the estimatedperiod, the model is applied using the estimated financial statements from 2008 to 2012. Operating income and expenses are reasonably estimatedbased on the past result, the future plan and the expected market condition, and for non-operating income and expenses, gain or loss from irregulartransactions such as gain or loss on disposal of tangible assets are excluded. For the equity investment of association, net assets are calculated
deducting total liabilities from the present value of assets of each equity investment.

Notes to Non-Consolidated Financial Statements

69

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 3 ) D iscretionary investing contract assets included in beneficiary certificates of trading securities as of December 31,
2008 and 2007 consisted of (Unit: In millions):
Classification
Short-term financial instruments
StocksOthersTotal assets
Total liabilities
Net assets value

2008
₩

₩

4,275
573
4,848
7
4,841

2007
₩

₩

2,385
7,312
45
9,742
12
9,730

( 4 ) The book value of non-marketable stocks and equity investments among available-for-sale securities, whichwere not valuated at fair value as of December 31, 2008 and 2007, was as follows (Unit: In millions):<2008>
Company
Stocks:Samsung Life
Alpha Dome City
KAMCO
M Cieta Development
BLADEX
Hallyu-Wood
Others		
Equity investments:
Consolidated Fund for Impaired Loans		

Amounts₩₩

32,939
8,850
6,330
1,275
1,234
1,200
1,446
53,27436,68089,954<2007>
Company
Stocks:Samsung Life
Alpha Dome City
KAMCO
KCB
Hallyu-Wood
M Cieta Development (*)
BLADEX
C & Woobang ENC
Others		

Amounts₩

Equity investments:
Consolidated Fund for Impaired Loans
Others		₩(*) The company name was changed from M Ciety Development to M Cieta Development in 2007.

32,939
7,200
6,330
3,000
1,200
1,125
921
733
1,100
54,54836,6801
36,681
91,229

70

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 5 ) The impairment loss and the reversal of impairment loss on available-for-sale securities for the years ended
December 31, 2008 and 2007 were as follows (Unit : In millions):
Classification
Equity securities
Equity investments
Corporate bonds
Asset-backed securities
Bond in foreign currency

2008		

2007

Impairment₩
16,861

Impairment₩
6,891

15,87332,734₩

Reversal₩
1,364
31,092302₩
32,75815,58722,478₩

Reversal₩
1,364
36,680139
54,797₩
92,980( 6 ) L oaned securities included in securities as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification

2008₩

Securities in foreign currencies

-

2007
₩

12,701( 7 ) Securities provided as collateral as of December 31, 2008 were as follows (Unit: In millions):
Provided toCollateral amount

Korea securities depository & others
BOK
BOK
BOK
Others₩₩449,615
680,000
1,080,000
240,000
2,240,200
4,689,815

Book value

Provided for
446,416
685,645
1,081,632
242,982
2,236,396
4,693,071₩₩

Sale to RP to customer
Settlement of difference
Borrowings from BOK
RP sold
Derivatives settlement

In addition, securities that are possible to be discounted by BOK amounted to ₩3,096,617 million as of December 31, 2008.
( 8 ) Securities using the equity method
1) Securities using the equity method as of December 31, 2008 and 2007 were summarized as follows (Unit: sharesin thousand, in millions):<2008>
Company

No. of shares

Ownership (%)

Domestic stocks:
KEB Capital Inc. (KEBC)
14,976KEB Futures Co., Ltd. (KEBF)
3,000
KEB Fund Services Co., Ltd. (*1)
510
Lippo Incheon Development Co., Ltd. (*2)
388Realty Advisors Korea, Ltd.
200
Ilsan Project Co., Ltd. (*2)
288Soul Flora Co., Ltd. (*2)
20				Foreign stocks:
K.E.B. of Canada (KEBOC)
334
KEB Australia Ltd. (KEBA)
55,000K.E.B Deutschland A.G. (KEBDAG)
20
PT. Bank KEB Indonesia (KEBI)
1
Banco KEB do Brasil S.A. (KEBB)
33,726KEB NY Financial Corp. (NYFinco)
0.1
KEB LA Financial Corp. (LAFinco)
0.1
KEB USA International Corp. (USAI)
0.1
				

99.3
100.0
100.0
2.7
14.3
4.8
5.0

Acquisition cost Net asset value
₩

100.0
100.0
100.0
99.0
100.0
100.0
100.0
100.0
₩

74,881
15,000
2,550
1,939
1,000
2,880
100
98,35034,68047,85031,786
26,56816,72625,15025,1503,144
211,054309,404₩₩

106,210
40,764
5,943
1,863
2,955
2,775
88
160,598
105,456
33,332
72,993
106,865
17,43236,422
6,076
6,399
384,975
545,573

Book value₩₩

107,696
41,105
2,550
1,863
2,955
2,775
88
159,032
105,456
33,332
72,993106,953
17,43236,422
6,111
6,399
385,098
544,130(*1) T he investment securities were excluded from the application of equity method because the assets are less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.
(*2) The Bank has important influence over the company through designation of a director and others, although the ownership is less than 15%.

Notes to Non-Consolidated Financial Statements

71

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

<2007>
Company

No. of shares

Ownership (%)

Domestic stocks:
KEB Capital Inc. (KEBC)
14,976KEB Futures Co., Ltd. (KEBF)
3,000
KEB Fund Services Co., Ltd. (*)
510
Lippo Incheon Development Co., Ltd.
388
Realty Advisors Korea, Ltd. (*)
200
				Foreign stocks:
K.E.B. of Canada (KEBOC)
334
KEB Australia Ltd. (KEBA)
55,000K.E.B Deutschland A.G. (KEBDAG)
20
PT. Bank KEB Indonesia (KEBI)
1
Banco KEB do Brasil S.A. (KEBB)
33,726KEB NY Financial Corp. (NYFinco)
0.1
KEB LA Financial Corp. (LAFinco)
0.1
KEB USA International Corp. (USAI)
0.1
				

Acquisition cost Net asset value

99.3
100.0
100.0
2.7
14.3

₩

100.0
100.0
100.0
99.0
100.0
100.0
100.0
100.0
₩

74,881
15,000
2,550
1,939
1,000
95,37031,96145,257
24,718
23,11916,452
18,764
18,764
2,346
181,381276,751₩₩

98,31227,800
5,101
1,830
575
133,618
88,14231,50551,49079,757
16,26924,78025,257
4,236
321,436455,054

Book value
98,43928,115
2,550
1,830
1,000
131,934₩

88,14231,50551,49079,756
16,26924,78025,257
4,236
321,435
453,369₩(*) T he investment securities were excluded from the application of equity method because the assets are less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.

2) The valuation of securities using the equity method for the years ended December 31, 2008 and 2007 was asfollows (Unit: In millions):<2008>
Company

Acquisition Book value Increase
cost
before(Decrease)		valuation
Dividend
				
				
₩
KEBC
KEBF
KEBFS (*)
Lippo Incheon Development Co., Ltd.
Realty Advisors Korea, Ltd.
Ilsan Project Co., Ltd.
Soul Flora Co., Ltd.
KEBOC
KEBA
KEBDAGKEBIKEBBNYFinCoLAFinCo
USAI₩

74,881 ₩    98,439 ₩
15,00028,115
2,550
2,550
1,939
1,830
1,000
1,000
2,880
100
34,68088,14247,85031,50531,78651,49026,56879,756
16,726
16,26925,15024,78025,15025,257
3,144
4,236
309,404 ₩ 453,369 ₩Foreign
Equity inexchangeearnings
trading		income		(loss)		

- ₩(1,200)
2,880
100
(719)
1,061 ₩

- ₩
7,497
1,805
14,722
11,896
271
8,434
8,595
1,443
54,663 ₩Valuation of
securities
using theequitymethod9,298 ₩
8,261		
-		33		3,155		
(105)		
(12)		
9,817		22		7,500		15,301		
892		
3,208		
(27,741)		
720		
30,349 ₩Book value
after
valuation(41) ₩
4,729
4,688 ₩

107,696
41,105
2,550
1,863
2,955
2,775
88
105,456
33,332
72,993106,953
17,43236,422
6,111
6,399
544,130(*) The investment securities were excluded from the application of equity method because the assets were less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.

72

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

<2007>
Company

Acquisition Book value Increase
cost
before(Decrease)		valuation
Dividend
				
				
₩
KEBC
KEBF
KEBFS (*)
Lippo Incheon Development Co., Ltd.
Realty Advisors Korea, Ltd. (*)
KEBOC
KEBA
KEBDAGKEBIKEBBNYFinCoLAFinCo
USAI₩

74,881 ₩    85,917 ₩
15,00023,085
2,550
2,550
1,939
1,000
1,000
31,96162,74645,25724,00524,71843,16023,11970,79916,452
12,421
18,76423,55518,764
22,954
2,346
3,510
276,751 ₩ 375,702 ₩Foreign
Equity inexchangeearnings
trading		income		(loss)		

- ₩
1,939
(593)
1,346 ₩

- ₩12,1982,888
5,615(2,064)
2,744
218
212
32
21,843 ₩Valuation of
securities
using theequitymethod12,681 ₩5,030		-		(109)		
-		13,198		
4,612		3,308		11,021		
1,104		1,007		2,091		694		54,637 ₩Book value
after
valuation(159) ₩
(159) ₩

98,43928,115
2,550
1,830
1,000
88,14231,50551,49079,756
16,26924,78025,257
4,236
453,369(*) T he investment securities were excluded from the application of equity method because the assets were less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.

3) Elimination of Unrealized Profit from Inter-Company Transactions
Material unrealized profit from inter-company transactions is eliminated when equity investments were valued. Unrealized gain fromlease transaction of inter-company transaction amounted to ₩445 million and ₩762 million as of December 31, 2008 and 2007, respectively.
4) Summary of Financial Information of Affiliates
The summary of financial information of affiliates using the equity method as of and for the six months ended December 31, 2008 was asfollows (Unit: In millions):
Classification
Total assets
Total liabilities
Operation revenue
Net income

KEBC₩ 978,202
871,255
145,881
7,994

KEBOC
₩ 1,100,226
994,770
60,046
9,817

KEBA₩ 401,704

KEBDAG₩ 582,905

KEBI₩ 427,164

Others₩ 1,627,630

Total₩5,117,831

368,372
34,50822509,91243,5827,500

319,220
33,601
15,366

1,371,267
150,048
36,0304,434,796
467,666
76,729Unaudited financial statements as of December 31, 2008 were used for the application of the equity method. The significant events fromthe closing dates of the investees to that of the Bank were properly reflected in applying the equity method. There was no material exception as aresult of analytical review, such as analysis of major accounts to assess reliability of those financial statements.

Notes to Non-Consolidated Financial Statements

73

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 9 ) The portfolio of securities excluding securities using the equity method, by industry, as of December 31, 2008
and 2007 was as follows (Unit: In millions):
By industry type2008		

2007

AmountAmountPercentage (%)

Percentage (%)

Trading securities:₩
Government and government-invested public companies
Financial institutions		
Manufacturing		
Others		₩759,204
275,292
9,683
5,820
1,049,999

72.31 ₩
26.22		0.92		
0.55		
100.00 ₩332,237
7,505
32,15022,003393,895

84.35
1.90
8.16
5.59
100.00Available-for-sale securities:₩
Government and government-invested public companies
Financial institutions
Manufacturing		
Others		₩

2,211,891
2,918,899
840,085
1,156,007
7,126,882

31.04 ₩
40.96		11.79		16.21		100.00 ₩1,478,732
2,689,884
1,384,049
1,301,951
6,854,616

21.57
39.24
20.19
19.00
100.00

Held-to-maturity securities:₩
Government and government-invested public companies
Financial institutions		
Manufacturing		
Others		₩

2,278,525
1,038,336
38,88435,821
3,391,566

67.18 ₩
30.62		1.15		
1.05		
100.00 ₩1,142,419
871,220
20,37537,541
2,071,555

55.15
42.06
0.98
1.81
100.00( 10 ) T he portfolio of securities excluding securities using the equity method, by security type, as of December 31, 2008
and 2007 was as follows (Unit: In millions):
By security type2008		

2007

AmountAmountPercentage (%)

Percentage (%)

Trading securities:₩
StocksFixed rate bonds		
Floating rate bonds		
Beneficiary certificates₩

10,662986,663
47,833
4,841
1,049,999

1.01 ₩
93.97		4.56		
0.46		
100.00 ₩45,402
301,530
37,2339,730
393,895

11.53
76.55
9.45
2.47
100.00Available-for-sale securities:₩
StocksFixed rate bonds		
Floating rate bonds
Subordinated bonds		
Beneficiary certificates		
Others₩1,139,676
3,258,688
1,576,526
836,718
198,117
117,157
7,126,882

15.99 ₩
45.72		22.12		11.74		2.78		
1.65		
100.00 ₩2,272,262
2,385,862
1,299,720
761,313
135,4596,854,616

33.15
34.81
18.96
11.11
1.97
100.00

Held-to-maturity securities:₩
Fixed rate bonds
Floating rate bonds		
Subordinated bonds
Others₩2,816,695
44,568529,353950
3,391,566

83.05 ₩
1.31		
15.61		0.03		
100.00 ₩1,461,909
50,854
558,073719
2,071,555

70.57
2.45
26.94
0.04
100.0074

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 11 ) T he portfolio of securities excluding securities using the equity method, by country, as of December 31, 2008 and2007 was as follows (Unit: In millions):
By country type2008		

2007

AmountAmountPercentage (%)

Trading securities:₩
1,049,999
Korea
Available-for-sale securities:
		
Korea		7,055,396
Cayman Islands		
45,019USA		
6,533
Hong Kong (China)		
4,244
UK		
2,560
Others		13,130			
7,126,882
Held-to-maturity securities:
Korea		3,365,791
Singapore		
20,043
Philippines		
5,683
Hong Kong (China)		
49₩
3,391,566

Percentage (%)

100.00₩393,895
			
98.99		6,731,325
0.64		
38,6130.09		
63,0620.06		
5,852
0.04		
2,802
0.18		
12,962100.00		
6,854,616

100.0099.24		0.59		
0.17		
0.00		
100.00 ₩

99.19
0.56
0.25
0.00
100.00

98.20
0.56
0.92
0.09
0.04
0.19
100.002,054,854
11,5845,081
36
2,071,555( 12 ) Term structure of securities except for stocks and equity investments in available-for-sale and held-to-maturity
securities as of December 31, 2008 was as follows (Unit: In millions):
Classification

Due in 1 year
or less		

Due after 1
year through5 years

Government and public bonds
Finance bonds
Foreign government bonds
Corporate bonds
Beneficiary certificates
Asset-backed securities
Others₩₩₩832,3292,599,645
20,044205,402
4,841
50,291950
3,713,502₩

958,385
3,491,335
846,146
198,117
84,388
5,578,371

Due after 5
years through10 years₩₩

28
950,007
5,683
9,166
26,65751,857
1,043,398

More than
10 years
₩

₩

Total

17,53817,538₩₩1,790,742
7,058,525
25,7271,060,714
202,958
161,336
52,807
10,352,809( 13 ) S tructured securities relating to stock and interest rate and credit risk as of December 31, 2008 and 2007 were as
follows (Unit: In millions):<2008>Classification

Won

Foreign currencies

Structured notes relating to stock:₩45,070 ₩Convertible bonds (loans)
Bonds with warrant (loans)
101,500			
146,570
Structured notes relating to interest rate:		Long-term government bond floating rates notes
		 (CMT) (available-for-sale securities)
20,079Long-term government bond floating rates notes
		 (CMT) (held-to-maturity securities)
Range (accrual) bond (available-for-sale securities)
19,822
			
39,901
Structured notes relating to credit risk:
Synthetic CDO₩
186,471 ₩

Total
-

₩

45,070101,500
146,570-

20,079-19,82239,901

18,362
18,362₩

18,362
204,833

Notes to Non-Consolidated Financial Statements

75

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

<2007>Classification

Won

Foreign currencies

Total

Structured notes relating to stock:₩
24,820 ₩- ₩Convertible bonds (loans)
Structured notes relating to interest rate:			Long-term government bond floating rates notes
		 (CMT) (available-for-sale securities)
239,252
Long-term government bond floating rates notes
		 (CMT) (held-to-maturity securities)
40,144
			
279,396
Structured notes relating to credit risk:
Synthetic CDO
18,398₩304,216 ₩
18,398 ₩24,820239,252
40,144
279,396
18,398322,614( 14 ) Changes in accumulated other comprehensive income (loss) of available-for-sale securities for the year ended
December 31, 2008 were as follows (Unit: In millions):
Classification
Beginning		₩Equity securities
Debt securities		₩

Increase
Disposal(decrease)		

1,118,072 ₩(27,454)		
1,090,618 ₩(1,054,156) ₩(49,093)		
(1,103,249) ₩Deferredincome tax(9,405) ₩7,033		
(2,372) ₩Ending318,803 ₩6,984		325,787 ₩373,314(62,530)
310,784( 15 ) Changes in accumulated other comprehensive loss of held-to-maturity securities for the year ended December
31, 2008 were as follows (Unit: In millions):
Classification
Beginning		Debt securities₩

Increase
Disposal(decrease)		
(363)

₩

(2)

₩

Deferredincome tax
94

Ending
(48)

₩

(319)

₩

( 16 ) Changes in accumulated other comprehensive income of securities using the equity method for the year ended
December 31, 2008 were as follows (Unit: In millions):
Classification
Beginning		₩
Changes in securities using the equity method
Negative changes in securities using theequity method		

Increase
Disposal(decrease)		
-₩(240)		

4,729₩

(41)		

Deferredincome tax-₩

Ending(1,040)

-		

₩

(9)		

3,689
(290)

( 17 ) Acquisition of stocks of Visa Inc.
The Bank acquired shares of Visa Inc. through the IPO scheme on March 12, 2008, and recognized other non-operating income amounting
to ₩18,508 million. The Bank sold 3,219 thousand shares by purchasing treasury stock of Visa Group and recognized gain on disposal of availableof-sale securities amounting to ₩74,396 million.

5.
Loans

( 1 ) Loans as of December 31, 2008 and 2007 consisted 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
Privately placed bonds

2008₩

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

1,587,069
2,746,929
2,552,608
4,449,075
423,294
2,340,000
41,612,045
9,042,746
130,689
31,127
612,444
65,528,026(1,064,899)(50,850)
64,412,277

2007
₩

₩

2,648,227
1,742,654
2,440,553
3,443,838
815,027
37,120,145
5,479,975
310,786
6,718
798,61354,806,536(719,365)(31,792)
54,055,379

76

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 2 ) Loans in Won and loans in foreign currencies as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification

2008

Loans in Won:
Commercial
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
		
Others		Inter-bank loans
Total loans in foreign currencies			

2007

22,460,138
2,680,833₩

72,339506,575
25,719,885
13,564,000
2,198,526
15,762,526
95,97825,1868,470
129,634
41,612,045
1,119,121
3,683,900
4,088,502
151,223
9,042,746
50,654,791₩

20,014,990
1,665,272₩

80,170481,256
22,241,688
12,753,929
1,969,759
14,723,688
61,7083,505
89,556
154,769
37,120,145
898,043
1,519,028
2,885,534
177,3705,479,975
42,600,120₩( 3 ) L oans in Won, loans in foreign currencies and domestic import usance bill, classified by borrower type, as ofDecember 31, 2008 and 2007 were as follows (Unit: In millions):<2008>
By borrower type

Loans in Won

		Loans in foreign

Domestic import Total

currencies

usance bill			₩
5,337,329 ₩Large corporations
Small and medium corporations (*)
Households
Others₩

20,382,556
15,762,526
129,634
41,612,045₩

6,295,430
2,747,316
9,042,746₩₩

1,924,276
822,653
2,746,929₩₩

Percentage (%)
13,557,035
23,952,525
15,762,526
129,634
53,401,720

₩

₩

25.39
44.85
29.52
0.24
100.00(*) Small and medium corporations are prescribed in Article 2 of the Small and Medium-sized Enterprise Basic Act.

<2007>
By borrower type

Loans in Won

		Loans in foreign

Domestic import Total

currencies

usance bill			₩
3,642,676 ₩Large corporations
Small and medium corporations (*)
18,599,012
Households
14,723,688
Others154,769₩ 37,120,145 ₩4,449,470
1,030,505
5,479,975₩₩(*) Small and medium corporations are prescribed in Article 2 of the Small and Medium-sized Enterprise Basic Act.

1,122,379
620,275
1,742,654₩₩

Percentage (%)
9,214,525
20,249,792
14,723,688
154,769
44,342,774

₩

₩

20.78
45.67
33.20
0.35
100.00Notes to Non-Consolidated Financial Statements

77

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 4 ) Loans in foreign currencies and domestic import usance bill, classified by borrower’s country, as of December
31, 2008 and 2007 were as follows (Unit: In thousands of U.S. dollars, in millions of Won):<2008>Classification

Korea
Canada
Japan
USA
China
OthersLoans in foreign currencies

Domestic import usance bill Total

Loans in U.S. Translation

Loans in U.S. Translation

dollars (*)

dollars (*)$$

4,739,219
668,191
450,074
367,367
161,365
804,835
7,191,051

into Won₩ 5,959,567 $
840,250
565,968
461,964
202,917
1,012,080₩ 9,042,746 $Percentage (%)

into Won

2,184,437
2,184,437₩ 2,746,929₩ 8,706,496		

₩ 2,746,929

840,250
565,968
461,964
202,917
1,012,080₩11,789,675		

73.85
7.13
4.80
3.92
1.72
8.58
100.00(*) Foreign currencies other than U.S. dollars are converted into U.S. dollars at the rate at the balance sheet date.

<2007>Classification

Korea
Canada
USA
Japan
China
OthersLoans in foreign currencies

Domestic import usance bill Total

Loans in U.S. Translation

Loans in U.S. Translation

dollars (*)

dollars (*)$$

3,317,768
688,009501,314367,831
127,545
838,478
5,840,945

into Won₩ 3,112,730 $
645,490
470,333
345,099
119,663786,660₩ 5,479,975 $Percentage (%)

into Won

1,857,444
1,857,444₩ 1,742,654₩ 4,855,384		

₩ 1,742,654

645,490
470,333
345,099
119,663786,660₩ 7,222,629		

67.22
8.94
6.51
4.78
1.66
10.98
100.00(*) Foreign currencies other than U.S. dollars are converted into U.S. dollars at the rate at the balance sheet date.

( 5 ) L oans on Won, loans in foreign currencies and domestic import usance bill, classified by industry, as ofDecember 31, 2008 and 2007 were as follows (Unit: In millions):<2008>
By borrower type

Loans in Won

		Loans in foreign

Domestic import Total

currencies

usance bill			
₩ 25,719,885 ₩Corporations:
Manufacturing
Service
Real estate and renting and leasing
Construction
Transportation business
OthersHouseholds
Public sector and others
Loans of overseas branches₩

9,642,619
3,437,085
3,892,542
2,877,962
1,312,335
4,557,342
15,762,526
129,634
41,612,045
41,612,045₩

4,084,865
1,937,876
477,436
153,048
26,991
759,017730,497
4,084,865
4,957,881
9,042,746₩₩

2,746,929
2,325,019
381,23962
10,614
4,355
25,6402,746,929
2,746,929₩₩

Percentage (%)
32,551,679		
13,905,514
4,295,760
4,045,652
2,915,567
2,075,707
5,313,479
15,762,526
129,634
48,443,839
4,957,881
53,401,720

67.19
28.70
8.87
8.35
6.02
4.28
10.97
32.54
0.27
100.0078

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

<2007>
By borrower type

Loans in Won

		Loans in foreign

Domestic import Total

currencies

usance bill

₩ 22,241,688 ₩			Corporations:
Manufacturing
8,101,371
Finance and insurance
624,551
Telecommunications
36,081Service
5,197,444
Construction
3,090,027
Others5,192,214Households
14,723,688
Public sector and others
154,769
37,120,145
Loans of overseas branches₩ 37,120,145 ₩

2,168,815
1,130,476
257,563
268,471
45,088467,217
2,168,815
3,311,160
5,479,975₩₩

1,742,654
1,462,867
7
215,31145,83818,631
1,742,654
1,742,654₩₩

Percentage (%)
26,153,157		
10,694,714
882,11436,0885,681,226
3,180,953
5,678,062
14,723,688
154,769
41,031,614
3,311,160
44,342,774

63.74
26.06
2.15
0.09
13.85
7.75
13.84
35.88
0.38
100.00( 6 ) Loans to financial institutions as of December 31, 2008 and 2007 were as follows (Unit: In millions):<2008>Classification

Loans in Won

		
₩
Bank
Other financial institutions
Overseas financial institutions₩

54,792
913,976
968,768<2007>Classification
Loans in Won
		Bank
Other financial institutions
Overseas financial institutions₩₩

12,000612,551624,551

Loans in foreign
currencies (*)₩
101,760
151,223₩
252,983

Loans in foreign
currencies (*)₩₩

80,193
177,370
257,563

Call loans
₩

₩

Total

1,061,449
525,620
1,587,069

Call loans
₩

₩

₩

₩

Percentage (%)
1,116,241
1,015,736
676,8432,808,820

Total

1,505,959
1,142,268
2,648,227

₩

₩

39.74
36.16
24.10
100.00Percentage (%)
1,517,959
692,744
1,319,638
3,530,341

43.00
19.62
37.38
100.00( 7 ) T he term structure of loans in Won, loans in foreign currencies and domestic import usance bill as of December
31, 2008 was as follows (Unit: In millions):
Classification
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 after five years₩

Loans in foreign Domestic import Total
currencies
usance bill

30,568,562 ₩
2,980,717		
2,035,597
1,892,983
4,134,186
41,612,045 ₩5,826,136 ₩
492,878		
820,171936,798
966,763
9,042,746 ₩

2,746,701 ₩201		
27
2,746,929 ₩

39,141,399
3,473,796
2,855,768
2,829,781
5,100,976
53,401,720( 8 ) T he changes in deferred loan origination fees and costs for the year ended December 31, 2008 were as follows(Unit: In millions):
Beginning balance Increase
Deferred loan origination fees and costs₩

31,792₩

Decrease
51,066₩(32,008)

Ending balance₩

50,850Notes to Non-Consolidated Financial Statements

79

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 9 ) The disposed loans for the year ended December 31, 2008 were as follows (Unit: In millions):
Purchaser
Nominal amount
		
₩
5,484
Hyundai Asset Resolution Co., Ltd. (*)
KEB 16th Securitization Specialty Co., Ltd.		
KCR Partners Co., Ltd. (*)		
Tongyang Financial Co., Ltd. (*)		
Jinheung Savings Bank		

Allowance of possible
loan losses at disposal₩-

105,206		
55,236		
100,668		
110,273		

Gain (Loss) on
disposal of loans₩
1,385

14,370		-		-		7,329		

3,219
2,987
1,979
(25,855)(*) G ain on disposal of bad debts.

6.
Restructured loans( 1 ) T he loans that were restructured because of workouts plan and others for the year ended December 31, 2008 wereas follows (Unit: In millions):
Classification
Restructuring loans		₩357,258
Workout plan
Corporate reorganization		
Rationalization of industry		₩Present value (*)

Ending balance ofpresent value discounts₩-

357,258
105,629		
74,893		
537,780 ₩₩108,867		
109,696		
575,821 ₩

3,238
34,80338,041(*) A
 s the present value is calculated with fair value at the restructuring date, if there is no fair value, the present value of total future cash receipts under the restructuring plans is
discounted using interest rates of 6.43 percent to 13.46 percent. Also, the present value discount is calculated using effective interest rate method.

( 2 ) C hanges in the present value discounts relating to the outstanding restructured loans for the year ended December
31, 2008 were as follows (Unit: In millions):
		Amount (*1)
Classification
		
Loans:
Court receivership
Others		
Accounts receivable:
Court receivership
Others
		

₩

₩

4,138
97,012
101,150
18,733
18,733
119,883(*1) These only include restructured loans discounted at present value.
(*2) The present value discount is presented as allowance of possible loan losses.

Present value discounts
Beginning
Addition
Deductionbalance			
₩

₩

592
41,76042,352
2,134
5,136
7,270
49,622

₩

₩

161
161
503
503
664

₩

₩

(75)
(8,824)(8,899)(2,134)(1,212)(3,346)(12,245)

Endingbalance (*2)
₩

₩

517
33,09733,6144,427
4,427
38,041

80

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

7.
Allowance for possible
loan losses( 1 ) The allowance for possible loan losses as of December 31, 2008 and 2007 was summarized as follows (Unit: In millions):<2008>Classification
NormalPrecautionary Substandard Doubtful
Estimated loss Total
Loans:₩ 1,587,069 ₩
- ₩
- ₩
- ₩
- ₩ 1,587,069
Call loans
Allowance
Allowance percentage
Credit card loans
2,477,046
40,633
210
25,984
8,735
2,552,608
Allowance
37,1568,157
42
15,9308,735
70,020Allowance percentage
1.50%
20.07%
20.00%
61.31%
100.00%2.74%
Bills bought in foreign currencies (*1)
4,504,307
578
10,676
4,515,561
Allowance
38,28740
5,231
43,558
Allowance percentage
0.85%
7.00%
49.00%
0.96%
Bonds bought under resale agreements
2,340,000
2,340,000
Allowance
-		
-		
-		
Allowance percentage-		
Loans in Won (*2)		 40,782,246		
545,431		
374,402		
47,397		
186,360		 41,935,836
Allowance		
376,689		
45,695		
76,145		
26,776		
186,360		
711,665
Allowance percentage		
0.92%		8.38%		20.34%		
56.49%		
100.00%		
1.70%
Loans in foreign currencies (*3) 		 11,490,445		
97,090		
26,854		
10,308		
13,755		 11,638,452
Allowance 		104,240		
6,855		6,130		7,166		13,755		
138,146
Allowance percentage 		
0.91%		7.06%		22.83%		
69.51%		
100.00%		
1.19%Inter-bank loans 		
151,223		
-		
-		
-		
-		
151,223
Allowance 		
-		
-		
-		
-		
-		
Allowance percentage		
-		
-		
-		
-		
-		
Factoring receivables 		
130,689		
-		
-		
-		
-		
130,689
Allowance		
1,111		
-		
-		
-		
-		
1,111
Allowance percentage		
0.85%		
-		
-		
-		
-		
0.85%
Advances for customers (*4)		
3,016		8,180		3,165		46		16,182		
30,589Allowance		
26		
898		
633		
23		
16,182		
17,762
Allowance percentage		
0.85%		10.98%		
20.00%		
50.00%		
100.00%		
58.07%
Privately placed bonds (*5)		
607,534		
2,200		2,360		
-		291		612,385
Allowance		
5,164		
154		
472		
-		
291		
6,081
Allowance percentage 		
0.85%		7.00%		20.00%		-		
100.00%		
0.99%
Other accounts (*6)		
4,751		6,074		4,015		5,987		34,222		
55,049Allowance		
40		
425		
803		
3,025		34,222		
38,515
Allowance percentage		
0.85%		7.00%		20.00%		
50.53%		
100.00%		
69.96%
Sum:
Loans and other accounts		 64,078,326		
700,186		
421,682		
89,722		
259,545		 65,549,461
Allowance		
562,713		
62,224		
89,456		
52,920		
259,545		 1,026,858
Allowance percentage		
0.88%		8.89%		21.21%		
58.98%		
100.00%		
1.57%
Present value discounts		
34,802		
1,194		2,045		
-		-		38,041
Allowance for possible loan losses onbalance sheet											 ₩ 1,064,899(*1) L ocal L/C bills bought in Won amounting to ₩17,731 million and Local L/C bills bought in foreign currencies amounting to ₩48,755 million among bills bought in Won are
included in bills bought in foreign currencies.
(*2) C ommercial bills purchased amounting to ₩356,808 million among bills bought in Won are included in bills bought in foreign currencies, and present value discount amounting
to ₩33,017 million is deducted.
(*3) Domestic import usance bill is included in foreign currencies. Interbank loans in foreign currencies of ₩151,223 million is deducted.
(*4) Present value discount amounting to ₩538 million is deducted on advances for customers.
(*5) Present value discount amounting to ₩59 million is deducted on privately placed bonds.
(*6) O ther accounts consisted of account receivable (transfer-in bills bought in foreign currencies) amounting to ₩5,099 million, suspense payments in relation with loans amounting
to ₩49,000 million and securities (commercial paper) amounting to ₩950 million.

Notes to Non-Consolidated Financial Statements

81

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

<2007>Classification
NormalPrecautionary Substandard Doubtful
Estimated loss Total
Loans:₩ 2,648,227 ₩
- ₩
- ₩
- ₩
- ₩ 2,648,227
Call loans
Allowance
Allowance percentage
Credit card loans
2,376,605
34,03424,0675,847
2,440,553
Allowance
35,6497,943
15,062
5,847
64,501
Allowance percentage
1.50%
23.34%
62.58%
100.00%2.64%
Bills bought in foreign currencies (*1)
3,543,588
32
7,965
1,501
3,553,086
Allowance
30,121
2
3,903
751
34,777
Allowance percentage
0.85%
7.00%
49.00%
50.03%
0.98%
Loans in Won (*2)
37,270,341
247,837
193,592
9,239
65,13337,786,142
Allowance
344,949
19,24839,967
4,703
65,133474,000
20.64%		
50.90%		
100.00%		
1.25%
Allowance percentage		
0.93%		7.77%Loans in foreign currencies (*3)		 6,944,075		
55,014		
37,733		
6,227		464		 7,043,513
Allowance		
63,118		
5,609		8,130		4,551		464		81,872
Allowance percentage		
0.91%		10.20%		
21.55%		
73.08%		
100.00%		
1.16%Inter-bank loans 		
177,370		
-		
-		
-		
-		
177,370
Allowance 		
-		
-		
-		
-		
-		
Allowance percentage 		
-		
-		
-		
-		
-		
Factoring receivables 		
310,786		
-		
-		
-		
-		
310,786
Allowance 		
2,641		
-		
-		
-		
-		
2,641
Allowance percentage		
0.85%		
-		
-		
-		
-		
0.85%
Advances for customers (*4) 		
366		
2,622		1,190		10		1,804		5,992Allowance		
3		
487		
238		
5		
1,804		2,537Allowance percentage		
0.85%		18.57%		
20.00%		
50.00%		
100.00%		
42.34%
Privately placed bonds (*5)		
798,096		
245		
173		
-		
-		
798,514
Allowance		
6,784		
17		
35		
-		
-		
6,836
Allowance percentage		
0.85%		7.00%		20.23%		
-		
-		
0.86%
Other accounts (*6)		
1,331		86		1,634		1,138		1,665		5,854Allowance		
11		
7		
327		
569		
1,665		2,579Allowance percentage 		
0.85%		8.32%		20.00%		
50.00%		
100.00%		
44.06%
Sum:
Loans and other accounts		 54,070,785		
339,870		
242,287		
42,182		
74,913		 54,770,037
Allowance		
483,276		
33,313		
52,600		
25,641		
74,913		
669,743
Allowance percentage		
0.89%		9.80%		21.71%		
60.79%		
100.00%		
1.22%
Present value discounts		
41,463		
3,745		4,396		
-		18		49,622
Allowance for possible loan
losses on balance sheet											 ₩ 719,365(*1) L ocal L/C bills bought in Won amounting to ₩17,352 million and Local L/C bills bought in foreign currencies amounting to ₩91,896 million among bills bought in Won are
included in bills bought in foreign currencies.
(*2) C ommercial bills purchased amounting to ₩705,779 million among bills bought in Won are included in bills bought in foreign currencies, and present value discount amounting
to ₩39,782 million is deducted.
(*3) D omestic import usance bill is included and interbank loans in foreign currencies amounting to ₩177,370 million are excluded in loans in foreign currencies. Present value
discount amounting to ₩1,746 million is deducted.
(*4) Present value discount amounting to ₩726 million is deducted on advances for customers.
(*5) Present value discount amounting to ₩99 million is deducted on privately placed bonds.
(*6) O ther accounts consisted of account receivable (transfer-in bills bought in foreign currencies) amounting to ₩959 million, suspense payments in relation with loans amounting to₩3,583 million and securities (commercial paper) amounting to ₩1,312 million.

82

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 2 ) T he changes in allowance for possible loan losses for the years ended December 31, 2008 and 2007 were as follows(Unit: In millions):
Classification

2008₩

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

719,365
719,840(568,411)
183,818
18,334(8,047)
1,064,899

₩

2007
₩

614,102
307,042(355,682)
153,328
1,169(594)
719,365₩( 3 ) The allowance for possible loan losses compared to total loans, net of present value discount, was summarized
as follows (Unit: In millions):
Classification
Loans (*1)
Allowance for possible loan losses (*2)
Percentage (%)

2008₩

61,471,169
1,026,858
1.67

2007
₩

51,944,440
669,743
1.29

2006
₩

43,742,764
563,886
1.29(*1) Call loans, bonds purchased under repurchase agreements and interbank loans in foreign currencies are excluded.
(*2) Present value discounts are excluded.

8.
Tangible assets( 1 ) Tangible assets as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification

2008₩
Tangible assets
Less: accumulated depreciation		
₩2007
2,200,006 ₩(772,788)		
1,427,218 ₩

1,606,470(729,606)
876,864( 2 ) Tangible assets as of December 31, 2008 and 2007 consisted of (Unit: In millions):<2008>Classification
Acquisition cost		Land
Buildings
Leasehold improvements
Equipment and vehicles₩₩

938,810541,098
114,334
605,764
2,200,006<2007>Classification
Acquisition cost		Land
Buildings
Leasehold improvements
Equipment and vehicles
Construction in progress₩₩

377,328
513,696
100,562595,223
19,661
1,606,470

Accumulated
depreciation₩₩(182,609)(79,273)(510,906)(772,788)

Accumulated
depreciation₩₩(168,003)(66,606)(494,997)(729,606)

Book value₩₩

938,810358,489
35,061
94,8581,427,218

Book value₩₩

377,328
345,693
33,956100,226
19,661
876,864

Notes to Non-Consolidated Financial Statements

83

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 3 ) The changes in book value of tangible assets for the year ended December 31, 2008 were as follows (Unit: In millions):
Classification
Beginning Acquisition Reclassification Disposal
Depreciation Revaluation Others						
excess (*)
Land
Buildings
Leasehold improvements
Equipment and vehicles
Construction in progress		₩ 377,328
345,693
33,956100,226
19,661₩ 876,864₩ 10,702
21,032
12,636
58,132₩ 102,502₩ 17,329
2,330
2(19,661)
₩
-

(72)
(469)
(294)
(1,188)₩ (2,023)₩(13,041)(12,280)(63,056)₩ (88,377)₩ 532,778₩ 532,778₩

Ending
745
2,944
1,041
744
5,474

₩

₩

₩ 938,810
358,489
35,061
94,858₩1,427,218(*) B efore tax adjustment( 4 ) T he published value of the land was ₩755,083 million and ₩696,977 million as of December 31, 2008 and 2007,
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, 2008 and 2007, were as follows (Unit: In millions):
Type of insurance

Asset insured

Property composite

Insured balance Insurance company₩
339,719 Hyundai Marine Fire
Buildings
Leasehold improvements		
37,348		 Insurance Co., Ltd. and others
Equipment and vehicles		
93,661₩
470,728( 6 ) T he revaluation of tangible assets for the year ended December 31, 2008 was as follows (Unit: In millions):
Classification

BeginningLand₩

Revaluation profit Revaluation loss (*) Ending
406,032₩

558,124(25,346)₩₩

938,810(*) B efore tax adjustment

The Bank accounted gain on revaluation of tangible assets of ₩435,337 million, net of deferred tax liabilities amounting to ₩122,787
million, as accumulated other comprehensive income. The Bank accounted the loss on revaluation and deferred tax assets of ₩25,346 million and₩5,576 million, respectively. Nara and Daewha appraisal firms revaluated the Bank’s land as of December 31, 2008.

9.
Other assets( 1 ) Other assets as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification
Guarantee deposits paid
Accounts receivable
Accrued income
Prepaid expenses
Derivatives assets (see Note 17)
Intangible assets
Sundry assets

2008₩

654,646
5,205,352
378,678
12,926
4,674,174
65,905
1,293,705
12,285,386

₩

2007
₩

₩

621,251
5,927,168
295,210
8,912
786,839
80,151
1,127,556
8,847,087( 2 ) Intangible assets as of December 31, 2008 and 2007 consisted of (Unit: In millions):<2008>Classification
Acquisition cost		₩
Development expenditures
Others (*)		
₩(*) The effect of exchange rate fluctuation is included.

Accumulated
amortization

195,150 ₩2,331		197,481 ₩Book value(129,977) ₩(1,599)		
(131,576) ₩65,173732
65,905

84

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

<2007>Classification
Acquisition cost		₩
Development expenditures
Others (*)		
₩Accumulated
amortization

178,852 ₩4,297		183,149 ₩Book value(99,355) ₩(3,643)		
(102,998) ₩79,497654
80,151(*) The effect of exchange rate fluctuation is included.

( 3 ) The changes in intangible assets for the year ended December 31, 2008 were as follows (Unit: In millions):
Classification
Beginning
Acquisition
Amortization				₩
Development expenditures
Others		₩

79,497 ₩654		
80,151 ₩16,298 ₩285		
16,583 ₩Change in foreign
currencies(30,622) ₩(422)		
(31,044) ₩Ending

- ₩
215		
215 ₩

65,173732
65,905( 4 ) Sundry assets as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification
Suspense payments in Won
Suspense payments in foreign currencies
Articles of consumption
Deposited money
Money transfer receivable
Domestic exchange settlement debits
Bills unsettled
Others

2008
₩

₩

10.
Merchant banking
account assets

94,743
2,518
5,051
20,147200
1,153,061
17,124861
1,293,705

2007
₩

₩

54,547
2,595
4,231
19,682
1,002,749
42,625
1,127
1,127,556( 1 ) Merchant banking accounts assets as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification
Loans
Cash management accounts
Trading securities
Financing lease receivables
Other assets
Allowance for possible loan losses

2008
₩

₩

1,761,880
174,000
1,444,380(17,148)
3,363,112

2007
₩

₩

1,307,870
141,662
1,911,254
4,556
244(11,825)
3,353,761( 2 ) Loans as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification

2008₩
Bills discounted
Discount interest rate of short-term bill (%)		

2007
1,761,880 ₩
3.49~10.25		

1,307,870
4.73~8.01

The merchant banking division of the Bank provides discounting of short-term bills maturing in one year or less at the interest rate of
3.49~10.25 percent per annum.
( 3 ) Cash management accounts as of December 31, 2008 and 2007 were 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 value of such deposits. The income from the investments, less management fees, is distributed to the accounts on the contract
maturity date. If the deposit is withdrawn before maturity, distribution is based on a rate computed daily.
CMA assets as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification

2008₩
Bills discounted
Securities		
₩2007
174,000 ₩-		
174,000 ₩2,927
138,735
141,662

Notes to Non-Consolidated Financial Statements

85

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 4 ) Trading securities of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification
2008₩
Face value
Adjusted value (*)		
Fair value (Book value)2007
1,453,500 ₩
1,443,156		
1,444,380		

1,923,900
1,912,130
1,911,254(*) 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 ofDecember 31, 2008 and 2007 were as follows (Unit: In millions):<2008>Classification
NormalPrecautionary Substandard Doubtful
Estimated
Total									loss																Loans (*)

₩ 1,926,880

₩

9,000

₩

-

₩

-

₩

-

₩ 1,935,880

Allowance forpossible loan
losses₩17,148(*) Including bills discounted in CMA account.

<2007>Classification
NormalPrecautionary Substandard Doubtful
Estimated
Total
					
loss		
														
₩ 1,310,797
Loans (*)
Financial leases		₩ 1,310,797

₩
₩

- ₩
4,556		4,556 ₩

- ₩
-		
- ₩

- ₩
-		
- ₩

Allowance forpossible loan
and leaselosses- ₩ 1,310,797 ₩-		
4,556		
- ₩ 1,315,353 ₩

11,142683
11,825(*) Including bills discounted in CMA account.

( 6 ) Other assets included in the merchant banking assets as of December 31, 2008 and 2007 were as follows(Unit: In millions):
Classification
Accrued income

2008
₩

-

2007
₩

244

( 7 ) O perating income of merchant banking accounts for the years ended December 31, 2008 and 2007 was as follows(Unit: In millions):
Classification
Interest revenues
Commission revenues
Reversal of allowance for possible loan losses
Other revenues

2008
₩

₩

11.
Deposits

193,112286
14,435
207,833

2007₩₩

128,948
281
2,775
6,824
138,828( 1 ) Deposits as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification

2008₩
Demand deposits
Time deposits		
Negotiable certificates of deposits		
₩2007
18,893,827 ₩
30,081,512		
7,422,018		
56,397,357 ₩

18,176,330
20,683,185
5,571,476
44,430,991

86

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 2 ) Details of deposits as of December 31, 2008 and 2007 consisted of (Unit: In millions):
2008

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
		Time deposits in foreign currencies:
Time deposits
Notice deposits
Others		
Mutual installment savings
Negotiable certificates of deposits

2007
244,153
1,163,813
820,61227,812
11,988,076
14,244,466₩₩

224,068
1,276,736
878,238
38,522
12,253,108
14,670,672₩

969,997
3,663,760
15,6044,649,361

868,7732,607,019
29,866
3,505,658

20,441,411
893,182602,639
21,937,232

13,139,482
957,391
732,193
14,829,066

8,042,187
32,0406,188
8,080,415
63,865
7,422,018
56,397,357

5,716,899
26,5786,473
5,749,950
104,169
5,571,476
44,430,991₩( 3 ) Deposits with financial institutions as of December 31, 2008 and 2007 were as follows (Unit: In millions):<2008>ClassificationBank		
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₩₩

Other financial
institution
6,647
133,085
913,968
322,765
51,0001,427,465<2007>ClassificationBank		
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

₩

₩

₩

₩

175,557
15,651
2,811,364
537,968
2,581,994
6,122,534

Other financial
institution
1,081,072
394,263
90,000204,849
1,770,184₩₩

630,771
13,9643,780,311
133,619
165,625
4,724,290

Foreign financial Total
institution
₩

₩

7,759
225,230
22,012
255,001₩₩

189,963
373,966
3,747,344
860,733
2,632,994
7,805,000

Foreign financial Total
institution
₩

₩

7,492
122,861
67,430197,783₩₩

1,719,335
531,088
3,937,741
133,619
370,474
6,692,257

Notes to Non-Consolidated Financial Statements

87

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 4 ) Term structure of deposits as of December 31, 2008 was as follows (Unit: In millions):
Classification
Deposits in Won				

Deposits inforeigncurrencies

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

₩

₩

₩

12.
Borrowings

35,110,367
681,103
209,607
105,930
138,556
36,245,563₩

Negotiablecertificates ofdeposits

12,715,511
2,514
11,751
12,729,776

₩

₩

Total

7,392,000
30,018
7,422,018₩₩

55,217,878
713,635
221,358
105,930
138,556
56,397,357( 1 ) Borrowings as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification

2008₩

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

2,739,101
31,491
432,383
8,755,776
10,790,561(44,721)
22,749,312

₩

2007
₩

₩

808,582
64,009444,762
7,540,748
8,547,853(37,788)
17,405,954( 2 ) Call money as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Account

LenderAnnual interest rate (%) 2008

2007

		
Dec. 31, 2008
Call money in Won
Financial institution in Korea and others- ₩Call money in foreign currencies Foreign financial institution and others
2.60~8.80		
₩- ₩2,739,101		
2,739,101 ₩

39,700768,882
808,582( 3 ) Bills sold and bonds sold under repurchase agreements as of December 31, 2008 and 2007 consisted of thefollowing (Unit: In millions):
Account

Lender		
Bills soldGeneral customer
Bonds sold under 		repurchase agreements
General customer and others

Annual interest rate (%) 2008

2007

Dec. 31, 2008
1.80~6.86₩

3.20~8.00		
₩31,491₩64,009432,383		
463,874 ₩444,762
508,771

88

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 4 ) Borrowings as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Account

Lender		

Annual interest rate (%) 2008

2007

Dec. 31, 2008

Borrowings in Won:
Borrowings from the BOK
BOK1.75~2.25 ₩Borrowings from the Korean
Ministry of Finance and		 government		 Economy, and others
1.50~5.41		
Borrowings from banking institutions Industrial Bank of Korea
1.00~6.03		
Other borrowings
Small Business Corporation and others
0.00~5.83									Borrowings in foreign currencies:
Refinance
Export-Import Bank of Korea
3.89~6.62		
Short-term borrowing in foreign Foreign financial institution
1.85~6.99		
		 currencies
Middle and long-term
SMBC and others
2.87~6.43		
		 borrowing in foreign currencies
Borrowings from banks for sub-loan Industrial Bank of Korea-		
Other borrowings
Foreign financial institution
2.35~10.50		
							₩

837,166₩

641,864

309,342		
128,409		
484,264		
1,759,181		

282,046
268,194
397,618
1,589,722

1,235,760		
2,930,020		

541,341
3,318,227

608,557		

737,634-		
2,222,258		
6,996,595		
8,755,776 ₩

751
1,353,073
5,951,026
7,540,748( 5 ) I n the normal course of funding activities, the Bank provided securities as collateral for borrowings from the Bank of
Korea and other financial institutions as of December 31, 2008 (see Note 4).
( 6 ) Debentures
1) Debentures as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Account

Annual interest rate (%) 2008

2007

Dec. 31, 2008
Debentures in Won:
Finance debentures
4.89~7.73 ₩Subordinated financing debentures
4.90~7.80		
Hybrid debentures
8.50		
				
Discounts on debentures							
Debentures in foreign currencies:
Finance debentures
0.90~4.83		
Subordinated financing debentures
5.00		
				
Discounts on debentures							₩

8,191,000 ₩
1,367,109		
250,000		
9,808,109		
(39,979)		
9,768,130		

6,780,000
694,513250,000
7,724,513(34,065)
7,690,448

637,114		
390,059		
1,027,173		
(4,742)		
1,022,431		
10,790,561 ₩

579,269
281,859
861,128(3,723)
857,405
8,547,853

Notes to Non-Consolidated Financial Statements

89

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

2) As of December 31, 2008 and 2007, all finance debentures issued in Won were general debentures andconsisted of (Unit: In millions):
Issued date

Expiration date		Oct. 26, 2005
Jan. 03, 2006
Jan. 04, 2006
Jan. 11, 2006
Jan. 13, 2006
Feb. 08, 2006
Apr. 04, 2006
Apr. 05, 2006
Apr. 11, 2006
Apr. 12, 2006
Apr. 19, 2006
Apr. 25, 2006
May 03, 2006
May 08, 2006
May 11, 2006
May 12, 2006
May 16, 2006
May 17, 2006
May 19, 2006
Jul. 04, 2006
Jul. 05, 2006
Jul. 06, 2006
Jul. 19, 2006
Jul. 26, 2006
Nov. 17, 2006
Dec. 04, 2006
Dec. 06, 2006
Dec. 06, 2006
Dec. 08, 2006
Dec. 11, 2006
Dec. 12, 2006
Dec. 13, 2006
Dec. 14, 2006
Dec. 15, 2006
Dec. 19, 2006
Dec. 20, 2006
Jan. 09, 2007
Jan. 10, 2007
Jan. 11, 2007
Jan. 16, 2007
Jan. 17, 2007
Jan. 18, 2007
Jan. 18, 2007
Jan. 19, 2007
Jan. 25, 2007
Jan. 25, 2007
Feb. 05, 2007
Feb. 06, 2007
Feb. 06, 2007
Feb. 09, 2007
Feb. 14, 2007
Feb. 14, 2007
Feb. 15, 2007
Feb. 15, 2007
Feb. 16, 2007
Feb. 23, 2007

Oct. 26, 2008
Jan. 03, 2008
Jan. 04, 2008
Jan. 11, 2008
Jan. 13, 2008
Feb. 08, 2008
Apr. 04, 2008
Apr. 05, 2008
Apr. 11, 2008
Apr. 12, 2008
Apr. 19, 2008
Apr. 25, 2008
May 03, 2008
May 08, 2008
May 11, 2008
May 12, 2008
May 16, 2008
May 17, 2008
May 19, 2008
Jul. 04, 2008
Jul. 05, 2008
Jul. 06, 2008
Jul. 19, 2008
Jan. 26, 2008
Nov. 17, 2009
Dec. 04, 2008
Dec. 06, 2008
Dec. 06, 2009
Dec. 08, 2008
Dec. 11, 2009
Dec. 12, 2008
Dec. 13, 2008
Dec. 14, 2008
Dec. 15, 2008
Dec. 19, 2008
Dec. 20, 2008
Jan. 09, 2009
Jan. 10, 2010
Jan. 11, 2010
Jan. 16, 2008
Jan. 17, 2009
Jan. 18, 2009
Jan. 18, 2010
Jan. 19, 2009
Jan. 25, 2009
Jan. 25, 2010
Feb. 05, 2010
Feb. 06, 2008
Aug. 06, 2008
Feb. 09, 2010
Feb. 14, 2008
Aug. 14, 2008
Feb. 15, 2008
Aug. 15, 2008
Aug. 16, 2008
Aug. 23, 2008

Annual interest rate (%)

2008

2007

Dec. 31, 2008
5.32 ₩
5.27		
5.18		
5.20		
5.10		
5.06		
5.04		
5.03		
5.01		
5.00		
5.07		
5.01		
4.96		
4.93		
4.91		
4.91		
4.94		
4.91		
4.88		
5.05		
5.02		
5.00		
5.03		
4.99		
4.89		
4.94		
4.92		
4.98		
4.89		
5.00		
4.96		
4.95		
4.97		
4.99		
5.00		
5.02		
5.07		
5.10		
5.09		
5.09		
5.15		
5.17		
5.20		
5.16		
5.20		
5.23		
5.23		
5.10		
5.14		
5.14		
5.09		
5.11		
5.05		
5.06		
5.05		
5.03		

- ₩
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
50,000-		-		
40,00050,000
-		
-		
-		
-		
50,000		
50,00050,000		-		
50,000		
20,00030,000		
50,000		
20,00030,00050,000-		-		50,000		
-		
-		
-		

50,00030,00040,00050,00050,00050,00030,00050,00020,00040,00050,00050,00010,00050,00030,00050,00050,00050,00050,00050,00050,00050,00050,00050,00050,00010,00010,00040,00030,00050,00050,00050,00050,000120,000
50,00020,00050,00050,00050,00040,00050,00020,00030,00050,00020,00030,00050,00010,00030,00050,00040,00010,00030,00060,00020,00010,00090

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

Issued date

Expiration date		Feb. 28, 2007
Mar. 02, 2007
Mar. 09, 2007
Mar.12, 2007
Mar. 15, 2007
Mar. 15, 2007
Mar. 16, 2007
Mar. 23, 2007
Mar. 27, 2007
Mar. 27, 2007
Mar. 29, 2007
Apr. 03, 2007
Apr. 18, 2007
Apr. 19, 2007
Apr. 24, 2007
May 02, 2007
May 03, 2007
May 08, 2007
May 08, 2007
May 09, 2007
May 14, 2007
May 14, 2007
May 15, 2007
May 15, 2007
May 16, 2007
May 17, 2007
May 21, 2007
May 21, 2007
May 23, 2007
May 29, 2007
May 30, 2007
Jun. 01, 2007
Jun. 05, 2007
Jun. 13, 2007
Jun. 15, 2007
Jun. 18, 2007
Jun. 26, 2007
Jun. 28, 2007
Jul. 10, 2007
Jul. 11, 2007
Jul. 16, 2007
Jul. 16, 2007
Jul. 18, 2007
Jul. 19, 2007
Jul. 24, 2007
Jul. 24, 2007
Jul. 25, 2007
Jul. 26, 2007
Jul. 26, 2007
Jul. 30, 2007
Jul. 31, 2007
Jul. 31, 2007
Aug. 1, 2007
Aug. 3, 2007
Aug. 3, 2007
Aug. 8, 2007
Aug. 9, 2007
Aug. 14, 2007

Feb. 28, 2010
Mar. 02, 2008
Mar. 09, 2008
Mar. 12, 2008
Mar. 15, 2008
Mar. 15, 2009
Mar. 16, 2009
Sep. 23, 2008
Mar. 27, 2008
Mar. 27, 2009
Sep. 29, 2008
Apr. 03, 2009
Oct. 18, 2008
Oct. 19, 2008
Oct. 24, 2008
May 02, 2009
Nov. 03, 2008
May 08, 2008
May 08, 2009
May 09, 2009
May 14, 2008
May 14, 2010
May 15, 2008
May 15, 2009
May 16, 2010
May 17, 2010
May 21, 2009
May 21, 2010
May 23, 2010
May 29, 2008
May 30, 2010
Jun. 01, 2010
Jun. 05, 2009
Jun. 13, 2010
Dec. 15, 2008
Jun. 18, 2009
Jun. 26, 2009
Jun. 28, 2010
Jul. 10, 2009
Jul. 11, 2009
Jul. 16. 2008
Jan. 16, 2009
Jul. 18, 2008
Jan. 19, 2009
Jan. 24, 2009
Jul. 24, 2010
Jul. 25, 2010
Jan. 26, 2009
Jul. 26, 2009
Jul. 30, 2010
Jul. 31, 2009
Jul. 31, 2010
Aug. 1, 2009
Aug. 3, 2009
Aug. 3, 2010
Feb. 8, 2009
Aug. 9, 2009
Aug. 14, 2010

Annual interest rate (%)

2008

2007

Dec. 31, 2008
5.05 ₩
5.03		
5.00		
5.03		
5.03		
5.06		
5.05		
5.02		
5.01		
5.03		
5.02		
5.05		
5.11		
5.10		
5.15		
5.24		
5.20		
5.18		
5.24		
5.27		
5.22		
5.32		
5.24		
5.28		
5.35		
5.36		
5.33		
5.39		
5.38		
5.22		
5.36		
5.37		
5.28		
5.49		
5.35		
5.39		
5.40		
5.44		
5.50		
5.50		
5.40		
5.53		
5.41		
5.53		
5.52		
5.60		
5.61		
5.51		
5.55		
5.53		
5.48		
5.53		
5.45		
5.44		
5.48		
5.91		
5.57		
5.58		

30,000 ₩
-		
-		
-		
-		
20,000		
50,000-		-		
30,00050,000-		-		-		
50,000		
10,000		
20,000-		
40,000		-		
20,000		
50,00050,000		
20,000		
30,000100,000
50,000		
50,000		
50,000		
50,000		
30,00050,000		
50,00050,000		
50,000		-		
10,000-		
50,000		
30,00020,00050,00040,000		
10,000		
30,000		
20,000		
30,00020,00040,000		
10,00010,000		
40,00010,000		

30,00010,00040,00030,00030,00020,00050,00070,00020,00030,00010,00050,00010,00020,00020,00050,00030,00010,00010,00020,00010,00040,00010,00020,00050,00050,00020,00030,000100,000
50,00050,00050,00050,00050,00050,00030,00050,00050,00050,00050,00040,00010,00040,00050,00030,00020,00050,00040,00010,00030,00020,00030,00020,00040,00010,00010,00040,00010,000Notes to Non-Consolidated Financial Statements

91

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

Issued date

Expiration date		Aug. 23, 2007
Aug. 24, 2007
Aug. 28, 2007
Aug. 29, 2007
Sep. 10, 2007
Sep. 20, 2007
Sep. 27, 2007
Oct. 2, 2007
Oct. 9, 2007
Oct. 9, 2007
Oct. 10, 2007
Oct. 11, 2007
Oct. 11, 2007
Oct. 12, 2007
Oct. 16, 2007
Oct. 17, 2007
Oct. 18, 2007
Oct. 18, 2007
Oct. 23, 2007
Oct. 24, 2007
Oct. 24, 2007
Oct. 25, 2007
Oct. 26, 2007
Oct. 29, 2007
Oct. 29, 2007
Oct. 30, 2007
Oct. 30, 2007
Nov. 02, 2007
Nov. 05, 2007
Nov. 06, 2007
Nov. 08, 2007
Nov. 14, 2007
Nov. 23, 2007
Nov. 26, 2007
Nov. 30, 2007
Dec. 05, 2007
Dec. 17, 2007
Jan. 10, 2008
Jan. 11, 2008
Jan. 15, 2008
Jan. 23, 2008
Jan. 29, 2008
Jan. 30, 2008
Jan. 31, 2008
Feb. 15, 2008
Mar. 28, 2008
Apr. 01, 2008
Apr. 02, 2008
Apr. 04, 2008
Apr. 07, 2008
Apr. 07, 2008
Apr. 10, 2008
Apr. 11, 2008
Apr. 14, 2008
Apr. 15, 2008
Apr. 16, 2008
Apr. 17, 2008
Apr. 18, 2008

Aug. 23, 2010
Aug. 24, 2010
Aug. 28, 2008
Aug. 29, 2008
Sep. 10, 2010
Sep. 20, 2008
Sep. 27, 2008
Apr. 2, 2009
Oct. 9, 2008
Apr. 9, 2009
Oct. 10, 2010
Oct. 11, 2008
Apr. 11, 2009
Apr. 12, 2009
Apr. 16, 2009
Apr. 17, 2009
Oct. 18, 2009
Oct. 18, 2010
Oct. 23, 2010
Oct. 24, 2008
Oct. 24, 2009
Oct. 25, 2008
Apr. 26, 2009
Oct. 29, 2008
Apr. 29, 2009
Oct. 30, 2008
Apr. 30, 2009
Nov. 02, 2009
Nov. 05, 2008
Nov. 06, 2008
Nov. 08, 2010
Nov. 14, 2010
Nov. 23, 2010
Nov. 26, 2010
Nov. 30, 2010
Dec. 05, 2010
Dec. 17, 2008
Jul. 10, 2009
Jul. 11, 2009
Jan. 15, 2010
Jul. 23, 2009
Jul. 29, 2009
Jul. 30, 2008
Jan. 31, 2009
Feb. 15, 2010
Sep. 28, 2009
Oct. 01, 2009
Oct. 02, 2009
Oct. 04, 2009
Apr. 07, 2009
Oct. 07, 2009
Apr. 10, 2010
Apr. 11, 2009
Oct. 14, 2009
Apr. 15, 2010
Apr. 16, 2010
Apr. 17, 2010
Apr. 18, 2010

Annual interest rate (%)

2008

2007

Dec. 31, 2008
5.65 ₩
5.67		
5.50		
5.50		
5.77		
5.64		
5.65		
5.77		
5.65		
5.77		
5.93		
5.65		
5.78		
5.80		
5.81		
5.80		
5.84		
5.91		
5.84		
5.65		
5.78		
5.65		
5.74		
5.69		
5.76		
5.70		
5.76		
5.86		
5.72		
5.72		
5.88		
5.94		
6.22		
6.25		
6.63		
6.70		
6.33		
6.69		
6.59		
6.39		
5.67		
5.46		
5.42		
5.31		
5.30
5.77		
5.70		
5.77		
5.75		
6.16		
5.75		
5.71		
5.50		
5.55		
5.58		
5.54		
5.52		
5.50		

30,000 ₩50,000		-		-		
200,000		
-		
50,000		-		
20,000200,000
26,000		
50,000		
140,000		
50,000		
30,00070,00010,000		
40,000		-		
20,000		-		
30,000-		
30,000		
40,000200,000		
50,000		
70,000		
260,000		
170,000
140,000-		
50,00050,000		
50,000		
50,000		
20,00050,000		
30,000		
30,000		
50,00050,000100,000		
50,000		
20,000		
30,000		
200,000
100,000
50,000		
50,00050,000		
50,00050,000		

30,00050,00010,00010,000200,000
50,00050,00050,00010,00020,000200,000
24,00026,00050,000140,000
50,00030,00070,00010,00010,00040,00040,00020,00040,00030,000190,000
30,00040,00050,00010,000200,000
50,00070,000260,000
170,000
140,000
110,000-

92

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

Issued date

Expiration date		Annual interest rate (%)

2008

2007

Dec. 31, 2008

Apr. 21, 2008
Apr. 21, 20095.45 ₩
Apr. 24, 2008
Oct. 24, 20095.45		
Apr. 24, 2008
Apr. 24, 2010
5.47		
Apr. 29, 2008
Apr. 29, 20105.42		
Apr. 30, 2008
Apr. 30, 20105.39		
May 08, 2008
May 08, 2010
5.56		
May 14, 2008
Nov. 14, 20095.75		
May 15, 2008
May 15, 20105.80		
May 16, 2008
May 16, 20115.87		
May 22, 2008
May 22, 20115.93		
May 23, 2008
May 23, 20115.92		
May 26, 2008
May 26, 20105.87		
May 26, 2008
Nov. 26, 20105.92		
May 27, 2008
Nov. 27, 20095.79		
May 27, 2008
May 27, 20105.85		
May 28, 2008
May 28, 20105.82		
May 29, 2008
May 29, 20105.90		
May 30, 2008
May 30, 20095.63		
May 30, 2008
Nov. 30, 20095.85		
Jun. 03, 2008
Jun. 03, 20105.98		
Jun. 05, 2008
Jun. 05, 20095.68		
Jun. 05, 2008
Jun. 05, 20105.98		
Jun. 12, 2008
Jun. 12, 20095.89		
Jun. 12, 2008
Jun. 12, 20106.17		
Jun. 16, 2008
Jun. 16, 20095.90		
Jun. 16, 2008
Jun. 16, 20106.20		
Jun. 18, 2008
Jun. 18, 20095.85		
Jun. 18, 2008
Dec. 18, 20096.08		
Jun. 19, 2008
Dec. 19, 20096.11		
Jun. 19, 2008
Jun. 19, 20106.17		
Jun. 24, 2008
Jun. 24, 2009
6.00		
Jun. 24, 2008
Dec. 24, 20096.28		
Jun. 26, 2008
Dec. 26, 20096.25		
Jun. 26, 2008
Jun. 26, 2010
6.31		
Jul. 01, 2008
Jul. 01, 20096.02		
Jul. 03, 2008
Jul. 03, 20096.11		
Jul. 04, 2008
Jul. 04, 20096.16		
Jul. 04, 2008
Jul. 04, 2010
6.60		
Jul. 16, 2008
Jan. 16, 2010
6.87		
Jul. 17, 2008
Jul. 17, 2009
6.54		
Jul. 17, 2008
Jul. 17, 2010
6.92		
Jul. 18, 2008
Jan. 18, 2010
6.80		
Aug. 19, 2008
Aug. 19, 2009
6.03		
Aug. 21, 2008
Aug. 21, 20107.17		
Sep. 01, 2008
Sep. 01, 2010
7.05		
Sep. 04, 2008
Sep. 04, 20107.20		
Sep. 11, 2008
Sep. 11, 2009
6.64		
Sep. 12, 2008
Sep. 12, 20096.62		
Sep. 26, 2008
Sep. 26, 20097.10		
Sep. 29, 2008
Sep. 29, 20097.10		
Oct. 20, 2008
Oct. 20, 20097.60		
Oct. 29, 2008
Oct. 29, 20117.73		
Dec. 15, 2008
Dec. 15, 20096.20
				 ₩

50,000 ₩10,000		
40,000		
10,000		
50,000		
10,000		
50,00020,000		
100,000		
100,000
30,00010,00010,000		
200,000		
20,000		
10,000		
50,00020,00070,000		
20,00040,000		
60,000		
20,000		
70,000		
10,00040,000		
20,000		
40,00040,00010,00030,000		
20,00020,000		
30,000		
10,00010,00010,000		
10,00040,000		
110,000		
10,000		
200,000
120,000		
180,000		
130,000
120,000
70,00050,000		
80,000		
100,000		
45,000		
200,000
200,000
8,191,000 ₩

6,780,000

Notes to Non-Consolidated Financial Statements

93

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

3) Finance debentures issued in foreign currencies as of December 31, 2008 and 2007 consisted of (Unit: In
thousands of U.S. dollars, in millions of Won):
First underwriter
Issued date
Expiration date			Annual interest rate (%) 2008
Dec. 31, 2008

2007

- ₩
45,034
BNP Paribas, HSBC
Dec. 23, 2005
Dec. 23, 2008- ₩							
(US$48,000)
DBS
Jan. 25, 2007
Jan. 25, 2008-		-		32,447							
(US$34,585)
BOA
Feb. 16, 2007
Feb. 19, 2008-		-		
18,760							
(US$19,999)
HSBC
Mar. 14, 2007
Mar. 14, 2008-		-		46,901							
(US$49,998)
CalyonJul. 20, 2007
Jul. 20, 2012
4.83		
377,250		
281,460					 (US$300,000)		 (US$300,000)
NAB (*1)
Oct. 15, 2007
Oct. 15, 2009
4.79		
32,450		
24,052
					(US$25,800)		
(US$25,640)
MIZUHO
Oct. 29, 2007
Oct. 29, 20093.88		
62,875		
46,910					(US$50,000)		
(US$50,000)
MIZUHO
Oct. 30, 2007
Oct. 30, 20093.85		
25,150		
18,764
					(US$20,000)		
(US$20,000)
NAB (*2)
Nov. 05, 2007
Nov. 05, 2008-		-		45,699							
(US$48,716)
NAB (*3)
Nov. 07, 2007
Nov. 07, 2008-		-		
19,242							
(US$20,512)
SMBC, Tokyo (*4)
Sep. 12, 2008
Sep. 07, 20110.90		
139,389							 (US$110,850)₩
637,114 ₩579,269
				(US$506,650)		 (US$617,450)(*1) Issued in Hong Kong dollar (HKD) amounting to HKD 200 million(*2) Issued in Hong Kong dollar (HKD) amounting to HKD 380 million(*3) Issued in Hong Kong dollar (HKD) amounting to HKD 160 million(*4) Issued in Yen (JPY) amounting to JPY 10,000 million

94

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

4) Subordinated debentures as of December 31, 2008 and 2007 were as follows (Unit: In thousands of U.S.
dollars, in millions of Won):
Classification
Issued date
Expiration date			Annual interest rate (%) 2008
Dec. 31, 2008

2007

Debentures in Won:
387 ₩
2,009
General sale (*1)
May 28, 2001
Feb. 28, 2007
- ₩General sale (*1)
Oct. 28, 2002
Jan. 28, 2008
-		
290		
200,000
General sale (*1)
Mar. 28, 2003
Dec. 28, 2008
-		
16,432		
242,504
Underwriting sale (*2)
Oct. 21, 2004
Oct. 21, 20145.10		
170,000		
170,000
General sale (*2)
Nov. 28, 2004
Nov. 28, 20144.90		
80,000		
80,000Underwriting sale (*2)
Mar. 13, 2008
Mar. 13, 20186.11		
250,000		
General sale (*2)
Mar. 28, 2008
Mar. 28, 20186.20		
50,000		
General saleNov. 21, 2008
May 21, 20147.70		
60,860		
General saleNov. 24, 2008
May 24, 20147.70		
32,060		
General saleNov. 25, 2008
May 25, 20147.70		
27,570		
General saleNov. 26, 2008
May 26, 20147.70		
40,880		
General saleNov. 27, 2008
May 27, 20147.70		
37,651		
General saleNov. 28, 2008
May 28, 20147.70		
78,926
General sale
Dec. 01, 2008
Jun. 01, 20147.70		
22,053		
General sale
Dec. 19, 2008
Jun. 19, 2014
7.80
250,000		
General sale
Dec. 22, 2008
Jun. 22, 20147.30		
34,060		
General sale
Dec. 23, 2008
Jun. 23, 20147.30		
18,690		
General sale
Dec. 24, 2008
Jun. 24, 20147.30		
23,948		
General sale
Dec. 26, 2008
Jun. 26, 20147.30		
32,979General sale
Dec. 29, 2008
Jun. 29, 2014
7.30
93,487		
General sale
Dec. 30, 2008
Jun. 30, 20147.80		
46,836		
Underwriting sale					1,367,109		
694,513
Debentures in foreign currencies:
CITI group & HSBC (*2, *3)
Jun. 10, 2005
Jun. 10, 2015
5.00		
390,059
281,859								 (US$310,186)		 (US$300,426)₩
1,757,168 ₩976,372(*1) The 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 optional early redemption right can be exercised by the Bank.
(*3) The first underwriters

In addition, certain subordinated debentures are under swap contracts in order to hedge risks from changes in interest rates and exchange
rates. Loss on foreign currency transactions amounting to ₩12,328 million was accounted for in connection to such contracts for the year ended
December 31, 2008.

( 7 ) As of December 31, 2008, Hybrid Tier 1 bond was as follows (Unit: In millions):
Classification
Issued period (*2)
		Hybrid debentures 1st (*1)

Annual interest
rate (%) (*3)

May 28, 2003 ~May 28, 2033(*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 10.0%.

Balance8.50₩

250,000

Notes to Non-Consolidated Financial Statements

95

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 8 ) Term structure of borrowings as of December 31, 2008 was as follows (Unit: In millions):
Classification

Borrowing inWon

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

₩

₩

13.
Other liabilities

868,999
83,532
77,941
316,306
412,4031,759,181

Borrowing in
Debentures inforeign currencies Won₩₩

6,853,393
143,2026,996,595₩₩

Debentures in
Total
foreign currencies

3,788,109
3,990,000
430,000
1,600,000
9,808,109₩₩

120,475
139,389377,250
390,059
1,027,173₩₩

11,630,976
4,216,734
647,330
693,556
2,402,462
19,591,058( 1 ) Other liabilities as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification

2008

Accounts payable (see Note 17)
Accrued expenses (see Note 17)
Unearned revenues
Guarantee money received
Accrued payable foreign exchange
Deferred income tax liabilities (see Note 21)
Derivatives instruments liabilities (see Note 17)
Due to trust accounts
Accrued severance benefits
Pension benefit
Less: Assets under management of pension benefits
Less: Funds converted to National Pension
Less: Due to retirement insurance
Liability reserve for acceptances and guarantees
Liability reserve for unused credit limit
Allowance for other liabilities (see Note 17)
Sundry liabilities

₩

₩

2007
5,341,267
965,113100,079
161,468
204,441
89,5224,561,680
965,746
291,933
4,524(2,925)(684)(228,630)
57,601
163,194
130,537
1,597,606
14,402,472₩₩

6,225,943
718,028
83,812
136,849
337,041
176,823805,025
718,049
263,806(740)(184,171)55,179179,282
107,764
1,767,519
11,390,209( 2 ) Accrued severance benefits
A. The changes in accrued severance benefits for the years ended December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification
Beginning
Provision (*1)
Payment (*2)
Foreign currencies translation

2008₩

Pension benefits payables
Assets under management of pension benefits
Funds converted to National Pension
Due to retirement insurance₩

263,806
44,978(18,179)
1,328
291,933
4,524(2,925)(684)(228,630)
64,2182007₩₩(*1) The difference from severance benefits in the income statement amounting to ₩1,923 million was provision on accounts payable of severance pension.
(*2) The payment of severance benefits amounting to ₩143 million for the year ended December 31, 2008 is accounted as accounts payable.

As of December 31, 2008, parts of severance benefits were contributed to pension funds of Samsung Life Insurance Co., Ltd.

222,587
57,344(16,262)137
263,806(740)(184,171)
78,895

96

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

B. The pension benefits payables and assets under management of pension benefits were ₩4,524 million and ₩2,925 million,
respectively. The Bank reserved ₩1,923 million for accrued severance benefits for the year ended by December 31, 2008.
As of December 31, 2008, the assets under management of pension benefits were as follows (Unit: In millions):
Classification

Percentage (%)

Cash and due from banks		
Securities
		

14.78
85.22
100.00( 3 ) Liability reserve for acceptances and guarantees
1) Acceptances and guarantees as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification

2008

Confirmed acceptances and guarantees in Won:
Payment guarantee for issuance of debentures
Acceptances for letters of guarantee for importers
Payment guarantee for loans
Others		
Confirmed acceptances and guarantees in foreign currencies:
Acceptances on letters of credit
Acceptances for letters of guarantee for importers
Credit derivatives-sold
Others		
Unconfirmed acceptances and guarantees:
Letters of credit
Others		
Bills endorsed (see Note 17)

2007
4,478
93,214
741,618
839,310

₩

₩

2,253
719
70,6581,650,183
1,723,813₩

391,055
52,841
6,151,523
6,595,419

275,546
116,92247,4893,136,768
3,576,725

3,781,918
314,203
4,096,121
63,533
11,594,383

4,610,604
93,3594,703,963
62,165
10,066,666₩

2) The classification of asset quality for acceptances and guarantees and liability reserve for acceptancesand guarantees as of December 31, 2008 and 2007 were as follows (Unit: In millions):<2008>Classification
NormalPrecautionary Substandard Doubtful
Estimated
Total
					
loss		
														
₩ 7,423,853 ₩Confirmed acceptances
Unconfirmed acceptances		 4,078,889		
Bills endorsed		
63,533		
₩11,566,275 ₩

6,763 ₩
17,136		
-		
23,899 ₩

940 ₩
20		
-		
960 ₩

2,465 ₩
70		-		2,535 ₩

708 ₩ 7,434,729 ₩
6		 4,096,121		
-		
63,533		
714 ₩11,594,383 ₩<2007>Classification
NormalPrecautionary Substandard Doubtful
Estimated
Total
					
loss		
														Confirmed acceptances
Unconfirmed acceptances
Bills endorsed₩ 5,292,158
4,698,171
62,165₩10,052,494

₩

₩

7,485
3,159
10,644

₩

₩

2,521
2,521

₩

₩

748
35
783

₩

₩

Liability
reserve for
acceptancesand guarantees

147
77
224

48,6988,363
540
57,601

Liability
reserve for
acceptancesand guarantees₩ 5,300,538₩

4,703,963
62,165₩10,066,666₩

46,1348,516
529
55,179

Notes to Non-Consolidated Financial Statements

97

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

3) Acceptances and guarantees, by industry, except for the portion of overseas branches as of December 31,
2008 and 2007 were as follows (Unit: In millions):<2008>
By industry

Balance

Manufacturing
Construction
Wholesale/retail
FinanceElectricity, gas and water supply
Others₩Percentage (%)
3,855,445
1,278,689
465,165
362,640
292,578596,281
6,850,798
583,9317,434,729

Confirmed acceptance and guarantees in overseas branches		
₩

56.28
18.66
6.79
5.29
4.27
8.71
100.00<2007>
By industry

Balance

Manufacturing
Construction
Wholesale/retail & service
Finance
Telecommunication
Others₩Percentage (%)
3,244,398		
640,519
577,458
284,271
12,718304,836
5,064,200
236,3385,300,538

Confirmed acceptance and guarantees in overseas branches		
₩

64.07
12.65
11.40
5.61
0.25
6.02
100.004) Confirmed acceptances and guarantees in foreign currencies, by country, as of December 31, 2008 and 2007
were as follows (Unit: In thousands of U.S. Dollars, in millions of Won):<2008>
By country

Korea
USA
FranceUnited Kingdom
Germany
OthersConfirmed acceptancesand guarantees inforeign currencies (*1)

Translation
into Won$₩$

4,755,284
106,869
75,12251,55346,559209,479
5,244,866₩

Percentage (%)

5,979,771
134,387
94,46664,82858,548263,419
6,595,419

90.67
2.04
1.43
0.98
0.89
3.99
100.00(*) Foreign currencies other than U.S. dollars were converted into U.S. dollars at the basic rates of exchange at balance sheet dates.

<2007>
By country

Korea
TaipeiFranceUSA
Singapore
OthersConfirmed acceptancesand guarantees inforeign currencies (*1)

Translation
into Won$₩$

3,370,918
75,633
69,25248,80640,480207,238
3,812,327₩(*) Foreign currencies other than U.S. dollars were converted into U.S. dollars at the basic rates of exchange at balance sheet dates.

Percentage (%)

3,162,595
70,95964,97245,79037,978
194,431
3,576,725

88.42
1.98
1.82
1.28
1.06
5.44
100.0098

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

5) The percentage of liability reserve for acceptances and guarantees as of December 31, 2008, 2007 and 2006
was as follows (Unit: In millions):
Classification

Acceptances andguarantees₩
2008
2007		
2006		

Liability reserve

11,594,383 ₩
10,066,666		
6,338,062		

Percentage (%)

57,601
55,17940,617

0.50
0.55
0.64

( 4 ) Liability reserve for unused credit limit
The calculation of liability reserve for unused credit limit as of December 31, 2008 and 2007 was as follows (Unit: In millions):<2008>Classification
Limit (a)Balance (b)						Allowance (c) = Liability reserve(a-b) x credit
for unused
conversion factor credit limit (d)14,211,031 ₩
2,081,747 ₩6,064,418 ₩
76,503,742
42,880,868
9,544,473
3,634,249
1,595,976
410,084
11,7403,463
1,865₩ 94,360,762 ₩ 46,562,054 ₩ 16,020,840		
Merchant Banking Account (*2)								Liability reserve for unused credit limit							 ₩Card loans
Loans to enterprise (*1)
Loans to household
Loans to public and others₩

93,16284,8074,101
16
182,086(18,892)
163,194(*1) Unused credit limit of merchant banking account was included.
(*2) It was included in other liabilities of merchant banking account (see Note 14).

<2007>Classification
Limit (a)Balance (b)						Allowance (c) = Liability reserve(a-b) x credit
for unused
conversion factor credit limit (d)15,508,197 ₩2,006,812 ₩
6,750,429 ₩
65,471,645
25,102,582
9,762,067
3,405,898
1,429,844
398,239
133,939
83,246
10,139₩ 84,519,679 ₩ 28,622,484 ₩ 16,920,874		
Merchant Banking Account (*2)								Liability reserve for unused credit limit							 ₩Card loans
Loans to enterprise (*1)
Loans to household
Loans to public and others₩

106,962
85,093
3,982
86
196,123(16,841)
179,282(*1) Unused credit limit of merchant banking account was included.
(*2) It was included in other liabilities of merchant banking account.

( 5 ) Allowance for other liabilities
Allowance for other liabilities as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification
Reserve for money-back point & yes-point
Reserve for litigation (see Note 17)
Reserve for employees’ accident (*1)
Compensation to customers related to Won & Yen swap (*2)
Provision for severance and early retirement benefits (*3)
Reserve for derivatives assets (*4)
Others (*5)

2008
₩

₩

25,1299,017
2,047
15,962
16,46456,153
5,765
130,537

2007₩₩

21,20351,999600
17,741
12,172
4,049
107,764(*1) Provision was made for 4 suspense payment, which occurred in connection with employees’ illegal act such as embezzlement.
(*2) In addition, NTS notified the Bank and its customers of the tax on interest income on Won & Yen swap from 2003 to 2005. The Bank compensated its customers with thecondition of entrusting tax appeal procedures. The Bank accounted it as an allowance for other liabilities.
(*3) The Bank reserved the provision for severance and early retirement benefits for voluntary retirees who have worked for more than 15 years and are more than 40 years old.
(*4) The Bank reserved the allowance for possible derivatives losses by currency options.
(*5) T he main change is that the Bank were charged ₩1,949 million by Fair Trade Commission in violation of collusion on establishing exchange commission and raising commission
on giro.

Notes to Non-Consolidated Financial Statements

99

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 6 ) Sundry liabilities
Sundry liabilities as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification2008₩

Suspense receipt
Withholding taxes
Agency business accounts
AgencyCredit control deposits
Guarantee deposits for securities subscription
Domestic exchange settlements credits
Domestic remittance payable
Others32,95536,921
90,848
798,615577
16,481
607,928
12,655626
1,597,606₩

14.
Merchant banking
account liabilities

2007
₩

₩

250,355
31,32993,251820,170
2,150
14,999536,596
16,896
1,773
1,767,519( 1 ) Merchant banking accounts liabilities as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification

2008

2007
3,464,502 ₩
31,115		
3,495,617 ₩₩Deposits
Other liabilities		
₩

2,121,888
25,0762,146,964( 2 ) Deposits as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification

Annual interest rate (%)

2008

2007

Dec. 31, 2008
Notes payable (*1)
Due to CMA

2.00 ~ 5.01 ₩3.69 ~ 3.90		
₩3,265,838 ₩
198,664		
3,464,502 ₩

1,965,862
156,026
2,121,888(*) Notes payable matures within a maximum of one year from issue date and bears interest at variable rates according to market conditions and note terms.

( 3 ) Other liabilities as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification
Accrued expenses
Unearned income
Liability reserve

2008
₩

₩

1,716
10,507
18,892
31,115

2007
₩

₩

1,009
7,226
16,841
25,076( 4 ) O perating expenses of merchant banking accounts for the years ended December 31, 2008 and 2007 were as follows(Unit: In millions):
Classification
Interest expenses
Transfer to reserve of allowance for bad debts
Transfer to reserve for unused credit limit
Others

2008
₩

₩

15.
Shareholders’equity152,626
5,323
2,051
160,000

2007₩₩

116,075
6,932
976
123,983( 1 ) Capital stock
Capital stock as of December 31, 2008 and 2007 was as follows (Unit: in Won, shares):Classification

2008

Shares authorized		₩Per share
Shares issued		₩Common stocks

2007
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

100

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 2 ) Capital surplus
The amount of capital surplus as of December 31, 2008 and 2007 was transferred from stock option (accounted for as capital adjustment)
since it lapsed as it was not exercised.
( 3 ) Capital adjustments
Changes in capital adjustments for the year ended December 31, 2008 were as follows (Unit: In millions):
Beginning
Increase₩(5,722) ₩Stock option

Decrease

Ending- ₩1,297 ₩

(4,425)

Based on revised SKAS No. 15, the valuation of securities using the equity method on oversea subsidiaries as of December 31, 2007 wasreclassified to capital surplus (capital adjustment in case of below zero) (See Note 2).
( 4 ) Accumulated other comprehensive income
The changes in accumulated other comprehensive income for the year ended December 31, 2008 were as follows (Unit: In millions):
Classification
Beginning
Changes
Disposal				Gain (loss) on valuation of available-for-sale securities ₩Gain (loss) on valuation of held-to-maturity securities
Gain on valuation of securities using the equity
methodGain on valuation of negative securities using
the equity method
Gain on revaluation of tangible assets₩

1,090,618(363)₩(1,103,249)(2)₩

Deferredincome tax(2,372)
94₩

325,787(48)

Ending₩

310,784
(319)

-

4,729

-

(1,040)

3,689

(240)
1,090,015(41)
558,124(540,439)(2,278)(9)(122,787)
201,903(290)
435,337
749,201

₩

₩

₩

₩

( 5 ) Statements of comprehensive income
Comprehensive income consists 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, 2008 and 2007 was as follows(Unit: In millions):
Classification
Net income
Effect of exchange rate fluctuation
Adjustments using the equity method and others
Other comprehensive income (loss):
Gain (loss) on valuation of available-for-sale securities
Gain on valuation of held-to-maturity securities
Gain on valuation of securities using the equity method
Gain on valuation of negative securities using the equity method
Gain on revaluation of tangible assets
Less: Effect of income tax
Comprehensive income

2008
₩

₩

782,618
19,8201,233(1,105,621)
92
4,729
(41)
558,124
201,903462,8572007₩₩

960,945
2,310(40,264)
566
1,282
10,564935,403( 6 ) Retained earnings
Retained earnings as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification
Legal reserve (*1)
Other reserves (*2)
Unappropriated retained earnings

2008
₩

₩

292,600
59,2182,341,450
2,693,268

2007
₩

₩

196,500
38,8262,105,706
2,341,032(*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 and may be utilized upon liquidation of the Japanese branches. In
addition, Singapore and Hanoi branches’ statutory reserves are included in other statutory reserves.

Notes to Non-Consolidated Financial Statements

101

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 200716.
Share-based payment( 1 ) Stock options
The details of the stock options as of December 31, 2008 were as follows (Unit: share, in Won):
Grant dateAug. 26, 2002
Mar. 31, 2003 (*)
Sep. 04, 2003 (*)
Feb. 13, 2004
Mar. 07, 2005
Jun. 29, 2005
Mar. 07, 2006
Aug. 01, 2006
Mar. 08, 2007
Mar. 29, 2007
Aug. 10, 2007
Mar. 11, 2008
Aug. 01, 2008

Stock option
granted
725,000
101,401
53,3692,390,000
1,355,000
200,000
400,000
200,000
1,090,000
630,000
380,000
510,000
180,000
8,214,770

Stock option Stock option
expired to date exercised(421,850)(567,770)(344,895)(63,230)(112,690)(42,000)(264,990)(221,450)(84,630)(104,000)(24,330)(2,251,835)(303,150)(80,053)(1,427,510)(378,225)(26,340)(2,215,278)

Stock option
outstanding
21,34853,369394,720
631,880
110,430
287,310
158,000
825,010
408,550
295,370406,000
155,670
3,747,657

Exercise
price₩

Exercise period

6,300
13,266
15,533
7,000
8,800
9,000
13,30011,90013,90014,50013,90013,00013,500Aug. 27, 2005~Aug. 26, 2008
Apr. 01, 2006~Mar. 31, 2009
Sep. 05, 2006~Sep. 04, 2009
Feb. 14, 2006~Feb. 13, 2009
Mar. 08, 2007~Mar. 07, 2010
Jun. 30, 2007~Jun. 29, 2010
Mar. 08, 2008~Mar. 07, 2011
Aug. 02, 2008~Aug. 01, 2011
Mar. 09, 2009~Mar. 08, 2012
Mar. 30, 2009~Mar. 29, 2012
Aug. 11, 2009~Aug. 10, 2012
Mar. 12, 2010~Mar. 11, 2013
Aug. 02, 2010~Aug. 01, 2013(*) Granted from KEBC prior to the merger with the Bank. Exercise price per share and the shares outstanding were adjusted based on the merger ratio.

When the stock options are exercised, the Bank has the option to settle either through issuance of new shares or treasury stock, or throughpayment of cash equivalent to the difference between the market price and the exercise price. The number of exercisable stock option isdetermined in accordance with the management performance and the calculation criteria of 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 to Interpretations 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, 2008
were as follows (Unit: In Won):<Intrinsic value pricing model>
Grant dateMarket price (*2)
Exercise price		Mar.
31, 2003 (*1)		
6,911		13,266
Sep. 04, 2003 (*1)		
Feb. 13, 2004		
Mar. 07, 2005		
Jun. 29, 2005		
Mar. 07, 2006		
Aug. 01, 2006		

6,911		6,911		6,911		6,911		6,911		6,911		

Intrinsic value-

15,533
7,000
8,800
9,000
13,30011,900(*1) Granted from KEBCS prior to the merger with the Bank. Exercise price per share and the shares outstanding were adjusted based on the merger ratio.
(*2) Compensation price is measured as average price among the averages for two months, for a month and for a week’s stock prices in accordance with the Bank’s pricing method.

<Fair value pricing model – Black-Scholes Model>
Grant date

Risk freerate (%)
		Mar. 08, 2007
Mar. 29, 2007
Aug. 10, 2007
Mar. 11, 2008
Aug. 01, 2008

3.35
3.35
3.38
3.45
3.52

Expected
Volatility of the Expected
exercise period underlying stock dividend(year) (*1)
price (%) (*2)
rate (%) (*3)
4.02
4.02
4.02
4.02
4.02

(*1) The expected exercise period is measured based on the possibility of exercise of the right in the past.
(*2) The volatility of the underlying stock price is measured based on the data in the past.
(*3) The expected dividend rate is measured based on the average in 2006 and 2007.

46.02
45.65
43.74
42.52
41.39

6.31
6.31
6.31
6.31
6.31

Exercised
price₩

13,90014,50013,90013,00013,500Fair value

₩

281
254
303
414
403

102

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

The changes in long-term accrued expenses recognized for stock option for year ended December 31, 2008 were as follows (Unit: In millions):
Beginning balance Addition₩
17,780 ₩Long-term accrued expenses

Deduction (*1)
Ending balance₩
46(17,507) ₩319(*1) The deduction by exercise as of December 31, 2008 is ₩5,599 million.

( 2 ) The equity linked special incentive (Rose bonus)
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, 2008 is as follows (Unit: share, in Won):
Grant date

Stock option
grantedJul. 15, 2005
Dec. 21, 2006
Dec. 12, 2007

3,024,400
1,496,510
614,800
5,135,710

Stock option Stock option Stock option
expired to date exercised (*1) outstanding(55,206)(28,258)(5,254)(88,718)(2,778,194)(5,522)(626)(2,784,342)

191,000
1,462,730
608,920
2,262,650

Exercise
price₩

Exercise period-

Jul. 15, 2007~Jul. 14, 2010
Dec. 21, 2008~Dec. 20, 2011
Dec. 12, 2009~Dec. 11, 2012(*1) It can be exercised if an employee resigned within two years except for death, retirement age, position change and other cases imputable to an employee.

The equity linked special incentive is cash settlement transaction. It can be exercised since two years after grant date for three years.
The intrinsic value of “Rose bonus” 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 “Rose bonus” 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 Bankare categorized as the intrinsic value pricing model and the fair value pricing model. The details of these models as of December 31, 2008 were as
follows (Unit: In Won):<Intrinsic value pricing model>
Grant date
Rose price (*1)
		
₩
9,700
Jul. 15, 2005
Dec. 21, 2006		

Exercise price

Intrinsic value-₩

9,700		

9,700
9,700

₩

(*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 thelast day of the previous month of December 31, 2008.

<Fair value pricing model – Binomial Model>
Grant date

Risk freerate (%)
		Dec. 12, 2007

3.58

Expected
Volatility of the Expected
exercise period underlying stock dividend(year)
price (%) (*1)
rate (%) (*2)
5

39.07

Exercised
price
-

₩

Fair value

-

₩

9,700

(*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.

The changes in long-term accrued expenses recognized for “Rose bonus” for year ended December 31, 2008 were as follows (Unit: In millions):

Long-term accrued expenses

Beginning balance Addition₩
17,385 ₩Deduction
4,728 ₩

Ending balance(2,960) ₩19,153

Notes to Non-Consolidated Financial Statements

103

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 200717.
Contingencies
and commitments( 1 ) Derivatives
The notional amounts outstanding for derivative contracts as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Type (*)
Currency:
Currency forwards
Currency futures
Currency swaps
Currency options purchased
Currency options sold		Interest rate:
Interest rate futures
Interest rate swaps
		Index:
Stock index futures
Stock index purchased
Stock index sold		Credit:Credit derivatives purchased		2008			Trading
Hedge
Total

2007
Trading

Hedge₩36,046,100

₩

Total

-

₩36,046,100₩42,684,356

1,197,281
10,447,110
5,598,417
5,931,865
59,220,773

2,799,874
6,640,534
6,477,700
8,762,723
67,365,187-₩42,684,356

1,197,281
10,447,110
5,598,417
5,931,865
59,220,773
3,232,411
36,980,167
40,212,578

578,450
578,450

3,232,411
37,558,617
40,791,028

779,425
26,064,128
26,843,553

426,881426,881

779,425
26,491,009
27,270,434

3,893
48,15552,048-

3,893
48,15552,0482,178
37,204
92,389131,771-

2,178
37,204
92,389131,771

35,00035,000₩99,520,399

578,450

35,00035,000₩100,098,849₩94,340,511

426,881₩94,767,392

₩

₩

₩

2,799,874
6,640,534
6,477,700
8,762,723
67,365,187(*) F or transaction between Won and foreign currencies, unsettled amount of transaction is presented using the basic foreign exchange rate based on the contract amount in foreign
currencies. For transaction between foreign currencies and foreign currencies, unsettled amount is presented using the basic foreign exchange rate based on foreign currencies
purchased at balance sheet dates.

The details of derivatives as of December 31, 2008, and the valuation of derivatives for the year ended December 31, 2008 were as follows(Unit: In millions):
Type

Currency:
Currency forwards
Currency swaps
Currency options purchased
Currency options sold		Interest:
Interest rate swaps
Index:
Stock index purchased
Stock index sold
Credit:Credit derivatives purchased

P/L						Trading		Hedging		
Total
Gain onLoss onGain onLoss onGain onLoss onvaluation valuation valuation valuation valuation valuation₩ 2,751,439 ₩1,747,945

B/S
AssetsLiabilities

539,639648,772
25,071
3,964,921

1,420,104
22,393484,396
3,674,838-

646,709816,619

12,3287,818

659,037

824,437

612,650

802,683

7,999

1,980

-

-

7,999

1,980

-

11,725

1,556₩ 4,621,185 ₩ 4,493,437₩ 12,328₩₩₩- ₩ 2,751,439 ₩1,747,945 ₩2,775,886 ₩ 1,755,534
539,639
1,420,104522,685
1,367,230
648,772
22,393
761,153
25,071
484,396624,508
3,964,921
3,674,838
4,059,724
3,747,272

1,556
1,800
7,818 ₩ 4,633,513 ₩4,501,255 ₩4,674,174 ₩4,561,680

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 accounted for as fair value hedges applied to securities, debentures and bills discounted ofmerchant banking. The Bank recognized ₩7,852 million of gains on valuation of derivatives of securities and ₩12,328 million of losses on
valuation of derivatives of debentures for the year ended December 31, 2008. In addition, the interest rate swap covers the fair value changes of
the hedged items resulted from the fluctuation in interest rate and foreign exchange rate.
In addition, with the revision of Banking Supervisory Detailed Enforcement Regulations, the credit derivatives accounted as acceptanceand guarantees were recategorized as derivatives from this period.

104

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

The details and the valuation of derivatives for the year ended December 31, 2007 were as follows (Unit: In millions):
Type

Currency:
Currency forwards
Currency swaps
Currency options purchased
Currency options sold		Interest:
Interest rate swaps
Interest rate		 options purchased
Interest rate options sold		
Index:
Stock index purchased
Stock index sold
Others				

P/L						Trading		Hedging		
Total
Gain onLoss onGain onLoss onGain onLoss onvaluation valuation valuation valuation valuation valuation₩ 373,915 ₩ 340,937 ₩
56,97051,191
48,29812,54021,41736,603500,600
441,271- ₩-B/S
AssetsLiabilities- ₩ 373,915 ₩ 340,937 ₩ 377,600 ₩ 375,544
56,97051,191
154,32478,804
48,29812,54075,422
21,41736,60394,368500,600
441,271
607,346548,716

147,109

212,952

9,569

3,452

156,678

216,404

178,479

233,678         -        -        -        -        -        -        -        -147,109

212,952

9,569

3,452

156,678

216,404

178,479

233,678

1,336
1,336
1,014
3,617
34
3,617
34
22,631
3,617
1,370
3,617
1,370
1,014
22,631₩  651,326 ₩  655,593 ₩    9,569 ₩    3,452 ₩  660,895 ₩  659,045 ₩  786,839 ₩  805,025

The Bank holds derivative instruments accounted for as fair value hedges applied to securities, deposit, debentures and bills discounted ofmerchant banking. The Bank recognized ₩3,452 million of gains on valuation of derivatives of securities and ₩9,293 million and ₩276 million oflosses on valuation of derivatives of securities and debentures, respectively, for the year ended December 31, 2007. In addition, the interest rate
swap covers the fair value changes of the hedged items resulted from the fluctuation in interest rate and foreign exchange rate.
( 2 ) The Bank holds written-off loans, of which the claim for borrowers and guarantors have not been terminated,amounting to ₩1,416,543 million and ₩1,167,728 million as of December 31, 2008 and 2007, respectively.
( 3 ) E ndorsed notes with collateral amounted to ₩63,533 million and ₩62,165 million as of December 31, 2008
and 2007, respectively. Endorsed notes without collateral held at the merchant banking accounted amount to₩9,450,454 million and ₩8,095,294 million as of December 31, 2008 and 2007, respectively.
( 4 ) T h e B a n k i s o b l i g e d t o r e p u r c h a s e s o m e o f t h e l o a n s p r e v i o u s l y s o l d t o t h e K o r e a A s s e t M a n a g e m e n t
Corporation (“KAMCO”) under certain conditions including the following:- W hen it is considered impossible to collect the loans and interest due to delay in repayment of loans andinterest over six months.
- W hen it is considered impossible to collect the loans and interest due to the abrogation of court-receivershipprocess and the cancellation of mediation.
As of December 31, 2008, KAMCO and other loan purchasers may exercise the resale option for loans amounting to₩1,868
million. An additional loss or profit may occur, depending on the loan classification on valuation of loans or final arrangement onloans when KAMCO and other loan purchasers exercise their repurchase agreement.
( 5 ) Loans sold to asset backed securitization (ABS) (Unit: In millions)Classification
Date
Value of loans
Sale price				
KEB 12th Securitization Specialty Co., Ltd.
KEB 13th Securitization Specialty Co., Ltd.
KEB 14th Securitization Specialty Co., Ltd.
KEB 15th Securitization Specialty Co., Ltd.
KEB 16th Securitization Specialty Co., Ltd. (*2)₩
Nov. 14, 2005
May 08, 2006		
Nov. 10, 2006		
Jun. 20, 2007		Jun. 24, 2008		

(*1) The subordinated debentures are included in sale price.
(*2) The gains on disposal of loans have been recognized amounting to ₩3,219 million (see Note 5).

178,587 ₩121,173		
92,087		
121,121		
105,206		

Subordinateddebentures (*1)

136,000 ₩92,000		
74,000		
90,000		
77,000		

22,128

Notes to Non-Consolidated Financial Statements

105

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 6 ) The Bank has pending litigation as plaintiff or defendant in various legal actions arising from the normal courseof operation. The aggregate amounts of these claims brought by and against the Bank were approximately ₩354,234
million (2,497 cases) and ₩82,779 million (118 cases), respectively, as of December 31, 2008. The Bank recognized₩9,017 million of provisions related to these lawsuits (see Note 13).
In addition, Olympus Capital KEB Cards Ltd. and others (“the applicants”) ask for arbitration of compensation of USD 300 million 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 shares transference (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 to 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 ₩1,251,567 million as of December 31, 2008. 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 withrespect to Hynix Semiconductor Inc. (“Hynix”) as of December 31, 2008 amounted to ₩390,683 million and ₩232,642 million, respectively. As of
December 31, 2008, the Bank’s loans for Hynix are classified as normal. Joint control procedure for Hynix Semiconductor Inc. was completed on July12, 2005. Also, the Bank’s 37,742 thousand shares of Hynix are restricted for sale until completion of M&A and the gain on valuation of availablefor-sale securities amounting to ₩13,126 million is accounted as other comprehensive income as of December 31, 2008.
( 9 ) Debt to equity swap of Hyundai Engineering & Construction Co., Ltd.
As of December 31, 2008, the Bank has loans (including acceptances and guarantees) of ₩285,186 million and available-for-salesecurities of ₩702,157 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 13,778 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 valuationof available-for-sale securities amounting to ₩450,018 million is accounted as other comprehensive income as of December 31, 2008.
( 10 ) Commitments related to credit card business
The Bank has entered into trademark license (membership) agreements with Master Card International Incorporated in 1993, VISAInternational Service Association in 1988 and JCB International Service Association in 1997. The Bank pays and receives certain amounts of fees
and commissions in connection to the income and expense incurred pertaining to these agreements.
The Bank has entered into credit card affinity agreements with KDB Capital. Under the agreements, the Bank gives an allocation of thefee income related to the credit card affinities.
( 11 ) Indemnification obligations regarding the share subscription agreement by and between the Bank and the
LSF-KEB Holdings, SCA
The Bank shall indemnify LSF-KEB Holdings, SCA for all purchaser losses (*1) and pay for damages resulting from any breach by the Bankof any of the Bank’s covenants (*2) in the Share Subscription Agreement. The Bank’s indemnification obligations are as follows:
Duration of indemnification obligations are as follows:		 - Purchaser losses, excluding those mentioned below, may be indemnified until 18 months from the Closing Date (*3).
		 - Purchaser losses arising as a result of fraud or intentional misrepresentation by the Bank may be indemnified at the Closing Date andcontinue to be in full force and effective until three years from the Closing Date.
		 - Purchaser losses related to tax matters may be indemnified at the Closing Date and continue to be in full force effective until five
years from the Closing Date.
The Bank’s indemnification obligations expire after the duration periods stated above. However, if the Bank receives written claims fromLone Star before the expiration of the durations, regardless of the durations stated above, the Bank’s indemnification obligations continue to be inforce and effective until the related matter are brought to satisfactory settlement.
The Bank has no indemnification obligation for claims less than ₩100 million. The Bank’s indemnification obligation applies to claims
exceeding ₩15,000 million cumulative, and only losses exceeding ₩10,000 million may be indemnified.
The total amount of indemnification obligations cannot exceed the LSF-KEB Holdings, SCA’s investments in the Bank.
(*1) P urchase losses means the amount of any and all losses, costs, liabilities, damages, judgments, settlements and expenses that arise out of any
breach by the Bank of any of the Bank’s representations and warranties contained in the Share Subscription Agreement or any breach by the
Bank of any of the Bank’s covenants or agreements in the Share Subscription Agreement.
(*2) C ovenant means the conditions set forth in the Share Subscription Agreement that the Bank shall comply with the share subscription until the
Closing Date.
(*3) Closing Date means the date that the new shares come into effect, and falls on October 31, 2003.

106

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 200718.
Assets and liabilities
denominated inforeign currencies

Significant assets and liabilities denominated in foreign currencies as of December 31, 2008 and 2007 were as follows (Unit: In thousands of U.S.
dollars, in millions of Won):
Classification

2008		
USD
Translation
Equivalent (*)
into Won

Assets:Cash and due from bank:
		 Foreign currencies$
		 Due from banks in foreign currencies		
Securities:
		 Trading securities				 Available-for-sale securities
		 Held-to-maturity securities				 Securities using the equity method		
Loans:
		 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)		
Other assets:
		 Lease assets (financial lease receivable)		
Liabilities:
Deposits:
		 Demand deposits in foreign currencies				 Savings deposits in foreign currencies		
Borrowings:
		 Borrowings in foreign currencies				 Call money in foreign currencies				 Bonds in foreign currencies		
Other liabilities:
		 Accrued expenses in foreign currencies				 Pension benefit				 Asset under management of pension benefits		

2007
USD
Equivalent (*)

Translation
into Won

344,647 ₩3,271,195		

433,393 $4,113,528		

380,800 ₩1,445,261		

357,266
1,355,944

38,039		
991,087		
402,114		
306,240		

47,834		
1,246,292
505,659		
385,098		

39,686		
1,022,510		
483,349		
342,608		

37,233
959,319
453,478
321,435

1,262,083		
2,184,437		
3,134		3,538,032		
38,772		
7,191,051		
32,359		
8,559		
(46,210)		

1,587,069		
2,746,929		
3,941		4,449,075		
48,755		
9,042,746		
40,692		
10,764		
(58,109)		

2,236,439		
1,857,444		
2,004		3,670,686		
97,949		
5,840,945		
191,876		
8,559		
(47,930)		

2,098,227
1,742,654
1,880
3,443,838
91,896
5,479,975
180,018
8,030(44,968)-		-		

4,856		

4,556

3,697,305		
6,425,777		

￦ 4,649,361
8,080,415		

3,736,579		
6,128,704		

￦ 3,505,658￦ 5,749,950

5,563,893		
2,178,212		
816,837		

6,996,595		
2,739,101		
1,027,173		

6,343,025		
819,529		
917,851		

5,951,026
768,882
861,128

162,578		
3,598		
(2,326)		

204,441		
4,524		
(2,925)		

359,242		-		-		

337,041-(*) Foreign currencies other than U.S. dollars were converted into U.S. dollars at the basic rates of exchange at balance sheet dates.

19.
Operating revenue
and expenses( 1 ) Interest revenue and expenses
The average balance of the interest bearing assets and liabilities, and the related interest revenue and expenses as of and for the years
ended December 31, 2008 and 2007 were as follows (Unit: In millions):<2008>Classification
Average balance		Interest
revenue/expense

Rate of interest (%)

Interest revenue:₩
Due from banks (*1)(*2)
Securities 		
Loans		₩
￦ 		￦ 3,093,929 ₩
8,295,368		
63,095,756		
74,485,053 ₩￦ 121,688
459,844
4,517,574
5,099,106

3.93
5.54
7.16
6.85

Interest expense:₩
Deposits
Borrowings		₩￦ 		￦ 47,328,888 ₩
22,985,511		
70,314,399 ₩￦ 1,780,589
1,018,046￦ 2,798,635

3.76
4.43
3.98

(*1) Excluding the average balance and interest revenue of reserve deposits and interest revenue with BOK(*2) Excluding the average balance of stocks and beneficiary certificatesNotes to Non-Consolidated Financial Statements

107

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

<2007>Classification
Average balance		Interest revenue:₩
Due from banks (*1)
Securities (*2) 		
Loans		₩
￦ 		Interest expense:₩
Deposits
Borrowings		₩￦		Interest
revenue/expense

Rate of interest (%)

￦ 1,510,866 ₩
7,681,849		
49,683,702		
58,876,417 ₩￦ 66,138
373,840
3,612,561￦ 4,052,539

4.38
4.87
7.27
6.89

￦ 38,954,077 ₩
16,499,922		
55,453,999 ₩￦ 1,251,465
776,855￦ 2,028,320

3.21
4.71
3.66

(*1) Excluding the average balance of reserve deposits with BOK(*2) Excluding 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, 2008 and 2007 were as follows (Unit: In million):
Classification

2008

Gain:
₩
Gain on trading of derivatives
Gain on valuation of derivatives
₩
￦ 		
Loss:
₩
Loss on trading of derivatives
Loss on valuation of derivatives		
₩
￦ 		

2007
￦ 9,345,319 ₩
4,641,365		
13,986,684 ₩￦ 1,946,887
664,347￦ 2,611,234￦ 9,131,538 ₩
4,513,583		
13,645,121 ₩￦ 1,931,309
668,614￦ 2,599,923( 3 ) Commission income and expenses
Details of commission income and expenses for the years ended December 31, 2008 and 2007 were as follows (Unit: In million):
Classification

2008

2007

Commission income:₩Commission received
Guarantee fees received		
Other commission received		₩￦ 		￦ 467,504 ₩
32,522		
86		
500,112 ₩￦ 525,532
20,100933￦ 546,565

Commission expenses:₩
Commission paid
Other commission paid		₩￦ 		￦ 69,989 ₩
170,995		
240,984 ₩￦ 60,601
155,117￦ 215,718( 4 ) Dividend income
Details of dividend income for the years ended December 31, 2008 and 2007 were as follows (Unit: In million):
Classification

2008₩
Dividend income from trading securities
Dividend income from available-for-sale securities		
₩
￦

2007
￦ 1,111 ₩74,068		
75,179 ₩￦ 2,620
4,493￦ 7,113

108

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 5 ) Other operating revenue and expenses
Details of other operating revenue and expenses for the years ended December 31, 2008 and 2007 were as follows (Unit: In million):
2008
Classification
Other operating revenue:₩
Profit on operating trust accountReversal of reserve for guarantees		
Reversal of unused credit limit		
Operating income of merchant banking accounts		
Others		
₩
￦ 		

2007
￦ 35,299 ₩
17,220		-		
207,833		
59		
260,411 ₩￦ 32,818
81,619138,828￦ 253,265

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₩￦ 		￦ 141,956 ₩
1,698		
-		37,778		
160,000		
341,432 ₩￦ 126,409
14,47818,006
123,983￦ 282,876( 6 ) General and administrative expenses
General and administrative expenses for the years ended December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification

2008₩
Salaries
Expenses for fringe benefits		
Retirement allowances		
Honorary retirement		
Operating expense		
Depreciation		
Amortization		
Taxes		Rental		Entertainment		Advertising		
₩￦20.
Non-operating
income and expenses

2007￦ 511,979 ₩
148,993		
46,901		
3,534		190,004		
88,377		
31,044		
47,124		
72,926		
12,830		
38,530		
1,192,242 ₩

509,754
134,363
57,344
2,547
185,439
96,58029,78237,02047,923
11,73837,021￦ 1,149,511

Non-operating income and expenses for the years ended December 31, 2008 and 2007 consisted of (In millions):
Classification

2008

2007

Non-operating income:₩Gain on disposal of tangible assets
Rental income		
Gain on securities using the equity method		
Others		₩￦ 		￦ 198 ₩
2,367		58,207		
63,778		
124,550 ₩￦ 2,3022,186
54,74679,807139,041

Non-operating expenses:₩
Loss on disposal of tangible assets
Loss on securities using the equity method		
Loss on revaluation of tangible assets		
Others		₩￦		￦ 1,883 ₩
27,858		
25,346		
55,803110,890 ₩￦ 3,289109
30,700￦ 34,098

Notes to Non-Consolidated Financial Statements

109

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

21.
Income tax expense( 1 ) The components of income tax expense for the years ended December 31, 2008 and 2007 were summarized asfollows (Unit: In millions):
Classification

2008₩
Income tax currently payable
Change in deferred taxes due to temporary differences (*)		
Income taxes directly applied to shareholders’ equity		
Income tax expense in overseas branch		₩￦ 		(*) The ending balance of deferred income tax liabilities due to₩temporary differences
The beginning balance of deferred income tax liabilities due totemporary differences		₩Change in deferred taxes due to temporary differences

2007
228,994 ₩(75,430)		
202,853		
28,455		
384,872 ₩￦468,063
62,623
10,564
14,394555,644₩￦

176,823

164,952		
￦ (75,430) ₩114,200
62,62389,522

There is difference of ₩11,871 million between the ending balance of deferred taxes liabilities in 2007 amounting to ₩176,823 million
and the beginning balance in 2008 amounting to ₩164,952 million due to temporary differences. It is recognized as the beginning balance ofdeferred taxes liabilities in 2008 due to the result of final tax return of 2007.
( 2 ) The income tax on income before income tax and reconciling items
The income tax on income before income tax and reconciling items for years ended December 31, 2008 and 2007 were as follows (Units:
In millions):
Classification
2008
Income before income tax ( ① )￦₩Burden of taxation (Current applicable rate: 27.5%)		
Reconciliation items:
Non-taxable income (₩43,919 million in 2008 and ₩4,560 million in 2007)		
Non deducted expense (₩28,616 million in 2008 and ₩74,444 million in 2007)		
Tax deduction		
Additional payment (refund) of income tax		
Difference due to tax rate		
Income tax expense in overseas branch		Sum of reconciliation items		
Income tax expense ( ② )		
Effective tax rate ( ②÷① )		

2007
1,167,490 ₩
321,047		

1,516,589
417,049(12,077)		
7,869		
(8,840)		
(4,299)		
52,717		
28,455		
63,825		
￦ 384,872		
32.97%		

(1,254)
20,472(6,559)111,542
14,394
138,895￦ 555,644
36.64%

110

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 3 ) C hanges in cumulative temporary differences for the year ended December 31, 2008, and deferred income tax assets(liabilities) as of December 31, 2008 were as follows (Unit: In millions):
Taxable (deductible) temporary differences
Deferred income tax assets (liabilities) (*2)
Beginning Deduction Addition
EndingBeginning Deduction Addition
Endingbalance			balance (*6) balance (*1)			
balance(Deductible temporary differences)
Accrued income￦ ￦ (82,531) ￦ ￦ 82,531 ￦ ￦ (82,047) ￦￦ (82,047) ￦ ￦ (22,696) ￦ ￦ 22,696 ￦ ￦ (19,855) ￦ ￦ (19,855)
Gains or losses related		 to derivatives		 (35,996)		
35,996		 (178,692)		 (178,692)		
(9,899)		
9,899		 (54,745)		 (54,745)
Unearned dividend from SPC (*3)		
9,781		
(9,781)		
(1,283)		
(1,283)		
-		-		(310)		
(310)Gains or losses on valuation
		 of trading securities		 134,047		 (134,278)		
(8,239)		
(8,470)		
36,863		 (36,926)		
(1,941)		
(2,004)
Gains or losses on valuation
		 of held-to-maturity securities		
15,811		 (20,613)		 (10,615)		 (15,417)		
4,348		
(5,669)		
(2,194)		
(3,515)
Allowance for other liability (*4)		 303,887		 (303,887)		 312,623		 312,623		
76,694		 (76,694)		
68,348		
68,348
Liability reserve for guarantees		
55,179		 (55,179)		 ￦ 57,600		 ￦ 57,600 ￦
15,174		 ￦ (15,174)		 ￦ 12,672		 ￦ 12,672
Deferred loan organization
		 fees and costs		
25,840		 (25,840)		
44,278		
44,278		
7,106		
(7,106)		
9,741		9,741Compensation expense
		 for stock option		
17,780		 (17,780)		
319		
319		
4,890		
(4,890)		
70		
70Long term accrued expenses		
17,385		 (17,385)		
19,152		
19,152		
4,781		
(4,781)		
4,213		4,213Loss on revaluation
		 of tangible asset		-		-		
25,346		
25,346		-		-		
5,576		5,576Others		 503,641		 (37,101)		
17,572		 484,112		 138,501		 (10,203)		 (20,923)		 107,375				 964,824		 (503,317)		 196,014		 657,521		 255,762		 (128,848)		
652		 127,566(Accumulated othercomprehensive income) (*5)
Gain on disposal of available		 for-sale securities		 (1,504,301)		 1,504,301		 (398,680)		 (398,680)		 (413,683)		 413,683		 (87,896)		 (87,896)
Loss on valuation of held-to		 maturity securities		
501		(501)		
409		
409		
138		
(138)		90		90Unrealized gain on investment
		 in affiliates		 (23,253)		
23,253		
(4,357)		
(4,357)		
(6,395)		
6,395		
(959)		
(959)Gain on revaluation
		 of tangible asset		-		-		 (558,124)		 (558,124)		
-		-		 (122,787)		 (122,787)				 (1,527,053)		 1,527,053		 (960,752)		 (960,752)		 (419,940)		 419,940		 (211,552)		 (211,552)(Capital surplus due to using
equity method) (*5)
Other capital surplus(25,163)(25,163)-		
(5,536)		
(5,536)￦ (562,229) ￦1,023,736 ￦ (789,901)		￦(328,394)		￦(164,178) ￦ 291,092		￦(216,436) ￦ (89,522)(*1) The difference of retention amounting to₩2,815 million (₩774 million of the effect of deferred income tax) in the final income tax report for December 31, 2007 was adjusted.
(*2) T he tax rate used for calculating deferred income tax assets and liabilities is expected tax rate applied to the period for which temporary differences are reversed based on
settled tax rate at the balance date (24.2% in 2009 and 22% in or after 2010).
(*3) U nearned dividend from SPC consists of deferred tax assets as taxable items. As result of the tax probe, however, it was regarded as suspense receivable on related party; thus,
it’s possible to be taxable based on the provision of rejection of unfair act and the calculation when the Bank deducts it from income tax. Therefore, it wasn’t recognized asdeferred tax assets.
(*4) T he allowance for other liabilities recognized due to collusion about foreign exchange commission amounting to ₩1,949 million (see Note 13) was excluded from expense
and will not be able to be deducted from future’s taxable income because it was reported as permanent difference. The Bank didn’t recognize it as deferred income tax assets
as it fails to meet requirement of deferred tax assets recognition. In addition, the allowance for other liabilities involved in acquisition of KEB Credit Service Ltd. amounting to₩25,000 million wasn’t recognized by the same reason as above as of December 31, 2007. It was reversed by winning the appeal case and no temporary difference remains asof December 31, 2008.
(*5) The deferred income tax assets and liabilities based on accumulated other comprehensive income are added or deducted directly from accumulated other comprehensive income.
(*6) The estimated period on realization of the temporary differences are as follows:Notes to Non-Consolidated Financial Statements

111

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

Ending Balance(Deductible temporary differences)₩
Accrued income
Gains or losses related to derivatives		
Unearned dividend from SPC		
Gains or losses on valuation of trading securities		
Gains or losses on valuation of held-to-maturity securities		
Allowance for other liability		Liability reserve for guarantees		
Deferred loan organization fees and costs		
Compensation expense for stock option		
Long term accrued expenses		
Loss on revaluation of tangible asset		
Others					(Accumulated other comprehensive income)Gain on disposal of available-for-sale securities		
Loss on valuation of held-to-maturity securities		
Unrealized gain on investment in affiliates		
Gain on revaluation of tangible asset					(Capital surplus due to using equity method)
Other capital surplus		
₩
￦ 		

2009

2010 or after￦ (82,047) ₩(178,692)		
(1,283)		
(8,470)		
(15,417)		
312,623		
￦ 57,600		
44,278		
319		
19,152		
25,346		
484,112		
657,521		

￦ (82,047) ₩￦(701,487)		
(1,283)		
(6,424)		
(5,613)		
- 		
- 		
-		
-		
-		
- 		
39,568		
(757,286)		

522,795(2,046)(9,804)
312,623￦ 57,600
44,278319
19,152
25,346444,544
1,414,807(398,680)		
409		
(4,357)		
(558,124)		
(960,752)		

(8,474)		
- 		
- 		
- 		
(8,474)		

(390,206)
409(4,357)(558,124)(952,278)(25,163)		
(328,394) ₩- 		￦ (765,760) ₩(25,163)￦ 437,366( 4 ) There was no temporary difference due to deferred income tax liabilities as of December 31, 2008.
( 5 ) There was no carry-forward deficit as of December 31, 2008.
( 6 ) A ccrued income tax and receivables of prior year’s income tax before offsetting as of December 31, 2008 and2007 were as follows (Unit: In millions):
Classification

2008₩
Refund of prior year’s income tax before offsetting
Accrued income tax before offsetting		
Offset refund of prior year’s income tax (overseas)		
₩Offset accrued income tax

22.
Earnings per share

2007
88,538 ₩
179,530		
207		
￦ 91,199 ₩

207,371￦ 356,838￦ 101￦ 149,568( 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
number of outstanding common stock. The basic net income per share for the years ended December 31, 2008 and 2007 was as follows (Unit: In
millions except per share amounts):
2008₩
Net income
Weighted average number of common shares		₩
Basic net income per share (In currency units)
Classification

2007￦ 782,618		
644,906,826		
￦ 1,214		

￦ 960,945
644,906,826￦ 1,490

Both the weighted average number of outstanding common stock and the number of outstanding common stock are the same because
there is no change on the number of outstanding common stock for year ended December 31, 2008 and 2007.
( 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 recent two years. The diluted net income per share is the same as net income per share.

112

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

23.
Segment information( 1 ) Operating segments
1) General information of operating segments
The Bank’s operating segments were 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 others2) A s of and for the years ended December 31, 2008 and 2007, financial information on the Bank’s operating
segments was as follows (Unit: In millions):
Classification

2008			OperatingLoans (*1)
Securities (*2)
income before 		provision		

2007
OperatingLoans (*1)
income before
provision

Securities (*2)₩ ￦ 822,469 ₩ ￦21,938,704 ₩￦ - ₩ ￦ 846,539 ₩￦20,059,106 ₩￦Consumer
Corporate		
806,964		 32,881,037		 1,463,152		
628,218		 26,799,966		
1,923,741
Foreign		
97,082		 5,689,717		
546,100		
62,223		 4,758,937		
657,570
Credit card
222,140		 2,441,329		
2,652		233,680		 2,441,329		
2,652
Others		
15,306		 4,339,119		 11,545,053		
65,337		 2,055,068		
9,100,726₩ 1,963,861 ₩ 67,289,906 ₩ 13,556,957 ₩ ￦ 1,835,997 ₩ 56,114,406 ₩￦ 11,684,689(*1) Allowance for possible loan losses and deferred loan organization fees and costs are not deducted, and loans of merchant banking accounts are included.
(*2) Trading securities of merchant banking accounts are included.

3) Adjustment of income before liability reserve
Details of adjustment of income before liabilities reserve for the years ended December 31, 2008 and 2007 were as follows (Unit: In millions):
2008₩
Operating income before provision
Reversal of (provision for) allowance and reserve (*)		
Accrued severance benefits		
Income tax expense		₩
Net income

2007

Classification￦ 1,963,861 ₩(749,470)		
(46,901)		
(384,872)		
￦ 782,618 ₩￦ 1,835,997(262,064)(57,344)(555,644)￦ 960,945(*) Liability reserves for 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 bank for local residents and overseas bank for Korean residents abroad and overseas companies.
2) As of and for the years ended December 31, 2008 and 2007, financial information on the Bank’s geographicalsegments was as follows (Unit: In millions):
Classification
Operating revenue
Operation income
Loans (*1)
Securities (*2)

2008			

2007

Domestic
Overseas
Total
Domestic
Overseas
Total₩ 22,068,153 ₩ 662,337 ₩ 22,730,490 ₩ 8,399,872 ₩ 362,795 ₩ 8,762,667
1,047,019
61,600,189
13,010,858		

106,811		 1,153,830		 1,328,924		
5,689,717		 67,289,906		 51,355,405		
546,099		 13,556,957
11,321,822		

82,722		 1,411,646
4,759,001		 56,114,406
362,867		 11,684,689(*1) Allowance for possible loan losses and deferred loan organization fees and costs are not deducted, and loans of merchant banking accounts are included.
(*2) Trading securities of merchant banking accounts are included.

Notes to Non-Consolidated Financial Statements

113

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 200724.
Related party
transactions( 1 ) The parent company and subsidiaries of the Bank as of December 31, 2008 were as follows:
Company

Relation

LSF-KEB Holdings, SCA
KEBC
KEBF
KEBIS
KEBOC
KEBA
KEBDAGKEBIKEBBNYFinCoLAFinCo
USAI

Parent company
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary( 2 ) S ignificant balances made in the normal course of business with related parties as of December 31, 2008 and2007 are summarized as follows (Unit: In millions):<2008>Classification
KEBC
KEBF
KEBOC
KEBA
KEBDAG KEBI
Trust								Assets:Due from banks in foreign₩￦ - ₩ ￦ 3,588 ₩ ￦ 1,341 ₩ ￦ 17,138 ₩ ￦ 16,545 ₩ ￦ 388 ₩		 currencies
Loans in Won		 169,300		
-		
-		
-		
-		
-		
Loans in foreign currencies (*)		 40,125		-		-		 274,546		 65,331		 25,150		
Allowance for possible
		 loan losses		 (1,780)		
-		
-		
-		
-		
-		
Other assets		
207		
2		
-		
3,172		694		685		₩207,852 ₩ ￦ 3,590 ₩ ￦ 1,341 ₩ ￦294,856 ₩ ￦ 82,570 ₩ ￦ 26,223 ₩￦ 			
Liabilities:₩ ￦ 153 ₩￦ 33 ₩
￦- ₩
￦- ₩
￦- ₩
￦- ₩
Deposits in Won

Other
Total
subsidiaries￦- ₩￦ - ₩ ￦ 39,000-		-			 169,300-		 650,142			 1,055,294-		-			 (1,780)-		
4,020			8,780￦ - ₩ 654,162 ₩1,270,594￦ - ₩￦-		 ₩￦ 186
Deposits in foreign		 currencies		
51		
4,494		4,483		4		 12,945		
330		
-		
955			 23,262
Borrowings in foreign		 currencies		-		-		 12,647		 17,663		 108,904		 98,085		-		 11,855			 249,154
Other liabilities		
3,894		
344		
-		
798		
910		
999		 79,151		
176			 86,272₩ 4,098 ₩ ￦ 4,871 ₩ ￦ 17,130 ₩ ￦ 18,465 ₩ 122,759 ₩ ￦ 99,414 ₩ ￦ 79,151 ₩ ￦ 12,986 ￦₩ 358,874￦ 			(*) Call loans in foreign currencies were included.

<2007>Classification
KEBC
KEBF
KEBOC
KEBA
KEBDAG KEBI
Trust								Assets:Due from banks in foreign₩		 currencies￦ - ₩ ￦ 1,322 ₩ ￦ 2,777 ₩ ￦ 2,818 ₩ ￦ 57,265 ₩ ￦ 284 ₩Loans in Won		 51,300		
-		
-		
-		
-		
-		
Loans in foreign currencies (*)		 33,472		
-		-		 249,484		 60,489		 13,419		
Allowance for possible
		 loan losses		 (1,111)		
(340)		
-		
-		
-		
-		
Other assets		
139		
1		
-		
624		
830		
7		
₩ 83,800 ₩ ￦ 983 ₩ ￦ 2,777 ₩￦252,926 ₩￦ 118,584 ₩ ￦ 13,710 ₩￦ 			Liabilities:₩ ￦ 145 ₩￦ 35 ₩
￦- ₩
￦- ₩
￦- ₩
￦- ₩
Deposits in Won
Deposits in foreign currencies		-		3,562		Borrowings in foreign		 currencies		-		-		Other liabilities		
3,345		342		₩ 3,490 ₩ ￦ 3,939 ₩￦ 			(*) Call loans in foreign currencies were included.

-		

-		

889		

455		

Other
Total
subsidiaries￦- ₩￦ - ₩ ￦ 64,466-		-		 51,300-		 330,146		 687,010-		-		 (1,451)-		
3,475		5,076
￦ - ₩￦ 333,621 ₩￦806,401￦- ₩￦ - ₩ ￦ 180-		
1,245		6,151

-		 59,867		 54,926		
9,384		
-		 13,262		 137,439
-		
-		
618		
64		 108,751		
377		 113,497￦ - ₩ ￦ 59,867 ₩ ￦ 56,433 ₩ ￦ 9,903 ₩￦ 108,751 ₩ ￦ 14,884 ₩￦257,267

114

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

( 3 ) S ignificant transactions with related parties for the years ended December 31, 2008 and 2007 were as follows(Unit: In millions):<2008>Classification
KEBC
KEBF
KEBOC
KEBA
KEBDAG KEBI
Trust								Revenue:
Interest revenues in Won ₩ ￦ 7,805 ₩Interest revenues in		 foreign currencies		
2,240		Commission income in Won		-		
Commission income in		 foreign currencies		-		Other revenue		 12,809		
₩ 21,854 ₩￦ 			Expenses:￦- ₩Interest expenses in Won ₩Interest expenses in		 foreign currencies		
Commission expense in Won
Commission expense in		 foreign currencies		
Written-off of bad debts		
Other expenses		
₩
￦ 			

￦- ₩

￦- ₩

￦- ₩

4		
169		

15		
-		

-		
-		
￦ 173 ₩

-		418		4,172		35		2,448		
-		
￦ 50 ₩ ￦ 15,250 ₩ ￦ 7,945 ₩￦ 48 ₩

￦- ₩

58		
-		

114		
564		

105		
-		

-		
1,060		697		1,815 ₩

160		
-		
-		
￦ 886 ₩

-		
-		
915		
-		
-		
-		
-		
287		
-		
￦ 105 ₩ ￦ 2,352 ₩ ￦ 8,780 ₩

12,384		-		￦- ₩2,065		
-		￦- ₩3,773		
-		￦- ₩7,865		
-		

￦- ₩

￦- ₩

512		
-		

-		
-		

Interest expenses in		 foreign currencies		
-		
116		
Commission expense in Won		
-		
569		
Commission expense in		 foreign currencies		
-		
100		
Written-off of bad debts		
305		
-		
Other expenses		
1,262		36		
₩ 1,668 ₩ ￦ 822 ₩
￦ 			

￦- ₩
7		
-		

￦- ₩
8,580		
-		￦- ₩3,682		
-		￦ - ₩ ￦ 7,805
23,287		
-		

42,215
169

-		
-		
-		
4,590
-		 10,992		
-		 25,284￦ 512 ₩￦ 10,992 ₩￦ 23,287 ₩￦ 80,063￦ - ₩ ￦ 1,512 ₩￦ - ₩ ￦ 1,560

641		
-		

606		
-		

-		
-		

-		
-		
-		
-		
-		
-		
￦ 641 ₩ ￦ 1,512 ₩<2007>Classification
KEBC
KEBF
KEBOC
KEBA
KEBDAG KEBI
Trust								Revenue:￦- ₩Interest revenues in Won ₩ ￦ 5,954 ₩Interest revenues in		 foreign currencies		
1,912		
-		Commission income in Won		
-		
175		
Commission income in		 foreign currencies		-		-		Other revenue		
1,023		
-		₩ 8,889 ₩ ￦ 175 ₩￦ 			
Expenses:￦1 ₩Interest expenses in Won ₩ ￦ 101 ₩

Other
Total
subsidiaries￦- ₩1,377		
-		

11,454
564

-		
1,075
-		
1,060
-		
984
￦ 606 ₩￦ 16,697

Other
Total
subsidiaries
￦- ₩
-		
2		

￦ - ₩ ￦ 5,954
16,971		
-		

32,529
177

36		
-		
2,718		
-		
-		
26		
2,780
-		
-		
-		
-		 10,833		
535		 12,391￦ 43 ₩ ￦ 8,580 ₩ ￦ 6,400 ₩ ￦ 1,377 ₩ ￦ 10,835 ₩￦ 17,532 ₩￦ 53,831
￦- ₩
65		
-		

￦- ₩
1,495		
-		￦- ₩5,045		
-		￦ - ₩ ￦ 2,407 ₩
979		
-		

-		
-		

￦ - ₩ ￦ 2,509
1,244		
-		

8,944
569

-		
-		
101		
-		
-		
-		
201
-		
-		
-		
(16)		
-		
-		
289
-		
-		
-		
60		
-		
581		
1,939
￦ 65 ₩ ￦ 1,495 ₩ ￦ 5,146 ₩ ￦ 1,023 ₩ ￦ 2,407 ₩ ￦ 1,825 ₩￦ 14,451( 4 ) The key management compensations for the year ended December 31, 2008 were as follows (Unit: In millions):
Classification

Compensations₩
Short-term employee benefits
Employee benefits after resignation		
Stock option		₩￦ 		￦ 7,055
480(6,212)
1,323

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.

Notes to Non-Consolidated Financial Statements

115

KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 200725.
Operation performanceof trust accounts( 1 ) T he significant financial information relating to trust accounts for the years ended December 31, 2008 and 2007
was as follows (Unit: In millions):
Classification

2008

2007

Revenue:₩
Trust fees and commissions received from trust accounts
Commission from pre-payment		₩￦ 		￦ 35,299 ₩44		
35,343 ₩￦ 32,81837￦ 32,855

Expense:Interest on borrowings from trust accounts￦ 50,309￦ 34,299₩₩( 2 ) A s of December 31, 2008, 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 consisted of following (Unit: In millions):
Classification

Book value

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 trust					
Trust accounts guaranteeing a fixed rate of return and the repayment of principal:
Unspecified monetary trust		
Development money trust		
			
₩
￦ 		

26.
Computationof value added

27.
Financialinformation of
the fourth quarter(Unaudited)

Fair value￦ 275 ₩
2,273		5,210		46		232,286		
806,495		
44,348		
6,963		130,533		
1,228,429		

￦ 262
2,263
5,048
41
231,130
810,919
45,256
6,845
133,027
1,234,791

71		
1,659		1,730		1,230,159 ₩

68
28
96
￦ 1,234,887

Accounts required for computation of value added for the years ended December 31, 2008 and 2007 consist of the following (Unit: In millions):
Accounts

2008₩
Salaries
Retirement allowances		
Expenses for fringe benefits		
Rent		
Depreciation		
Amortization		
Taxes and dues		
₩
￦

2007
￦ 511,979 ₩
46,901		
148,993		
72,926		
88,377		
31,044		
47,124		
947,344 ₩￦ 509,754
57,344
134,363
47,92396,58029,78237,020￦ 912,766

The Bank is required to report interim financial statement but it doesn’t report the financial statement of last quarter. The Bank’s summary offinancial information for the last quarter ended December 31, 2008 and 2007 was as follows (Unit: In millions except per share amounts):
Classification

4thQ in 2008￦₩

Operating revenue
Net income		
Net income per share (In currency units)		

4thQ in 2007₩

9,205,972
117,903		
183		

￦ 2,831,677
250,905389

116

Notes to Non-Consolidated Financial Statements
KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2008 and 2007

28.
Dividends( 1 ) T he calculation of dividends for the years ended December 31, 2008 and 2007 was as follows (Unit: shares, Inmillions except per share amounts):
Classification

2008₩
Dividends per share (rate) (In currency units)
Shares issued		Dividends		

2007
125 (2.5%) ₩644,906,826		
80,613		

700 (14%)644,906,826
451,435( 2 ) The calculation of dividend payout ratio for the years ended December 31, 2008 and 2007 was as follows (Unit: In millions):
Classification

2008₩
Dividends
Net income		Dividend payout ratio (%)		

2007
80,613 ₩782,618		
10.30		

451,435
960,945
46.98

The calculation of dividend yield ratio for the years ended December 31, 2008 and 2007 was as follows (Unit: In currency units):
Classification

2008₩
Dividends per share
Closing price		
Dividend yield ratio (%)		

29.
Cash flows

2007
125 ₩
6,330		1.97		

700
14,500
4.83( 1 ) C ash in statements of cash flows consists of cash, due from bank (excluding restricted due from bank),
receivables and preferred stock with 3 months or less of maturity and securities under agreement to repurchasewith 3 months or less of maturity. Cash flows from operating activities are presented by the indirect method.
In addition, the Bank has reclassified the components of the cash flows; such as, changes in available-for-sale securities, held-to-maturity securities
and loans that were presented under cash flows from investing activities are currently presented under cash flows from operating activities.
( 2 ) T he cash and due from banks in the statements of cash flows for the years ended December 31, 2008 and 2007
were as follows (Unit: In millions):
Classification

2008₩
Cash and due from banks
Add: securities				Less: restricted due from bank		
₩
￦

2007
10,107,706 ₩-		
10,107,706		
(6,807,802)		
3,299,904 ₩

5,118,391
458,169
5,576,560(1,886,999)
3,689,561( 3 ) S ignificant transactions not involving cash inflows and outflows for the years ended December 31, 2008 and 2007
were as follows (Unit: In millions):
Classification

2008₩
Decrease of loans from write-offs of loans
Increase (decrease) of gain on valuation of available-for-sale securities		
Change on unsettled spot transactions		
Transferring of accrued expenses in stock option		

2007
793,961 ₩(779,834)		
881,988		-		

373,091(29,191)
5,439,166
17,780

117

Independent Accountants’ Review Report on
Internal Accounting Control System (“IACS”)
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 ExchangeBank (the “Bank”) as of December 31, 2008. 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 the accompanying Management’s Report that “based on the assessment of the IACS as of December 31, 2008, the Bank’s IACS has been
appropriately designed and is operating effectively as of December 31, 2008, 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. Those standards 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. A review 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 reasonableassurance regarding the reliability of financial statements prepared, in accordance with accounting principles generally accepted in the Republicof Korea, for the purpose of preparing and disclosing reliable accounting information. Because of its inherent limitations, IACS may not preventor detect a material misstatement of the financial statements. Also, projections of any evaluation of effectiveness of IACS to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies orprocedures 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, 2008, and we did not review its IACS subsequent to December 31, 2008. 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 otherpurposes or for other users.

Deloitte Anjin LLC
Seoul, Korea
March 12, 2009

118

Evaluation Report on the Effectiveness ofInternal Accounting Management System by
the Internal Accounting Manager
English Translation of a Report Originally Issued in Korean

Dear Board of Directors & Audit Committee of
Korea Exchange Bank:−I, the Internal Accounting Manager, evaluated the design and operation effectiveness of the KEB's Internal Accounting Management
System for the fiscal year 2008.
I understand that the management of KEB, including me, the Internal Accounting Manager, share the responsibility for the design andoperation of the Internal Accounting Management System. For reliable financial statements and public disclosures, I conducted the evaluation as towhether our bank's Internal Accounting Management System has been effectively designed and operated to prevent and find out frauds or material
errors that can cause misstatement of financial statements. The evaluation has been conducted in accordance with the "Guidelines for Internal
Accounting Management System. "Based on the above evaluation, I express my opinion that KEB's Internal Accounting Management System is, in material respects,
effectively designed and operated as designed as of Dec. 31, 2008.
								Feb. 3, 2009

Richard F. Wacker
President & CEO

Jee Won Kim
Internal Accounting Manager

Consolidated Financial Statements

119

For the years ended December 31, 2008 and 2007

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 balance sheets of Korea Exchange Bank (the “Bank”) and its subsidiaries as ofDecember 31, 2008 and 2007, and the related consolidated statements of income, changes in shareholders’ equity and cash 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 toexpress an opinion on these financial statements based on our audits. We have not audited the financial statements of KEB Australia Ltd., Korea
Exchange Bank of Canada, PT. Bank KEB Indonesia, Korea Exchange Bank (Deutschland) A.G., Banco KEB do Brasil S.A., KEB NY Financial Corp., and
KEB LA Financial Corp. whose statements reflect total assets constituting 3.16 percent of consolidated total assets as of December 31, 2008 andtotal revenues constituting 1.03 percent of consolidated total revenues for the year then ended. Those statements 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 thereports of such other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require thatwe plan and 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
the accounting 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, financial statements referred to above present fairly, in all material
respects, the financial position of the Bank and its subsidiaries as of December 31, 2008 and 2007, 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 Republicof Korea.
Without qualifying our opinion, we drew attention to the following:
As discussed in Note 10 to the consolidated financial statements, the Bank adopted the amendment to the Statement of Korea AccountingStandards (“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 a result of this adoption, the book value of the land and net assets increased by ￦532,778
million and ￦415,567 million, respectively, as of December 31, 2008.
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 accordancewith 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 andauditing standards and their application in practice.

Deloitte Anjin LLC
Seoul, Korea
March 12, 2009

Notice to Readers−This report is effective as of March 12, 2009, the auditors’ report date. Certain subsequent events or circumstances may have occurred between theauditors’ 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.

120

Consolidated Balance Sheets
KOREA EXCHANGE BANK AND SUBSIDIARIES as of December 31, 2008 and 2007

(In millions of won)

2008
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, 17, 18, 24 and 25)₩

SHAREHOLDERS’ EQUITY (Notes 4, 6, 10, 15, 17 and 24):
Common stock
Other capital surplus
Capital adjustments
Accumulated other comprehensive income
Retained earnings
Minority interests₩
See accompanying notes to consolidated financial statements.

2007
10,764,255
13,950,068
68,762,502
1,450,580
12,391,283
107,318,688₩

62,563,590
23,556,601
14,514,667
100,634,858₩

3,224,534
940(4,425)749,200
2,711,764
1,817
6,683,830
107,318,688₩₩

5,650,475
12,128,017
57,344,247
909,889
8,903,538
84,936,166

48,671,354
18,149,233
11,444,666
78,265,253

3,224,534
940(5,722)
1,090,015
2,359,658
1,488
6,670,913
84,936,166

Consolidated Statements of Income

121

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(In millions of won, except per share amounts)

2008
OPERATING REVENUES (Note 24):
Interest income (Notes 20 and 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

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 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 EXPENSES (Note 24):
Interest expenses (Notes 20 and 25):
Interest on deposits
Interest on borrowings
Other interest expenses

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 valuation and disposal of loans:
Provision for possible loan losses (Notes 9 and 25)
Loss on disposal of loans (Note 7)(Continued)

₩

2007

177,780
174,742
287,617
157,143
4,769,031
34,4935,600,806₩

87,278157,188
217,642
88,911
3,811,763
34,212
4,396,994

23,89354,70432,876
93,761
205,234

3,980
97,61392,980141,394
335,967

21,901

18,4392,639,900
13,994,493
568,763
79,064
41,631
23,151,792

938,684
2,615,278
579,071
8,159
103,573
8,996,165

2,032,919
1,072,460
54,492
3,159,871

1,429,539
798,872
35,8502,264,261

9,665
55,08038,802
1,271
104,818

12,28569,35922,4784,962
109,084

778,445
26,302804,747

304,777
7,246
312,023

122

Consolidated Statements of Income (continued)
KOREA EXCHANGE BANK AND SUBSIDIARIES  for the years ended December 31, 2008 and 2007

(In millions of won, except per share amounts)

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

2008₩

2,538,579
13,654,039
247,967
1,256,071
191,671
21,957,763

2007₩

630,378
2,605,516
222,434
1,197,362
168,865
7,509,923

1,194,029

1,486,242

NON-OPERATING INCOME (Notes 6, 21 and 24)

71,85086,828

NON-OPERATING EXPENSES (Notes 6, 21 and 24)

86,16436,459INCOME BEFORE INCOME TAX (Note 24)

1,179,715

1,536,611

INCOME TAX EXPENSE (Notes 22 and 24)

397,133

575,468

OPERATING INCOME (Note 24)

NET INCOME (Notes 23 and 24)
Controlling company interests, gain
Minority interests, gain₩₩

782,373209
782,582₩

960,945198
961,143

BASIC NET INCOME PER SHARE (In currency units) (Note 23)

₩

1,213

₩

1,490

DILUTED NET INCOME PER SHARE (In currency units) (Note 23)

₩

1,213

₩

1,490

See accompanying notes to consolidated financial statements.

₩

Consolidated Statement of Changes in Shareholders’ Equity

123

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(In millions of won)January 1, 2007
Cumulative effect ofaccounting changes
Balance after adjustments
Dividend
Balance after appropriations
Net income
Gain (loss) on foreignexchange trading
Changes in accounting estimation(Stock option)
Valuation of available-for-salesecurities
Valuation of held-to-maturity
securities
Trust reserved
December 31, 2007
January 1, 2008
Cumulative effect of accountingchanges
Balance after adjustments
Dividend
Balance after appropriations
Net income
Gain on foreign exchange trading
Valuation of available-for-salesecurities
Valuation of held-to-maturity
securities
Effect on change of income tax rate
Gain on valuation of tangible assets
Trust reserved
December 31, 2008

Capitalstock

Capitalsurplus₩3,224,534₩

CapitalAccumulated Retained
adjustments otherearnings
comprehensive
income-₩Minority
interests

18,862₩ 1,122,961₩ 2,036,379

₩

Total

1,310

₩ 6,404,046

3,224,534
3,224,534
-

940
940
940
-

(5,722)
13,14013,140-(4,049)1,118,912
1,118,912-

5,322
2,041,701(644,907)
1,396,794
960,945

1,310
1,310
198

(3,509)6,400,537(644,907)
5,755,630
961,143

-

-

-

-

2,310

(19)

2,291

-

-

(18,862)---(18,862)---(29,307)-(1)(29,308)₩ 3,224,534

₩

940

₩

(5,722)410₩ 1,090,015(391)₩ 2,359,658

₩

1,488

410
(391)
₩ 6,670,913₩ 3,224,534

₩

-

₩

-

₩ 1,094,064₩ 2,355,777

₩

1,488

₩ 6,675,863

3,224,534
3,224,534
-

940
940
940
-

(5,722)(5,722)(5,722)-(4,049)1,090,015
1,090,015-

3,881
2,359,658(451,435)
1,908,223
782,373
21,052

1,488
1,488
209
120

(4,950)6,670,913(451,435)
6,219,478
782,582
21,172---(776,196)--(776,196)₩ 3,224,534

940

1,297
(4,425)44435,337₩ 749,200

116₩ 2,711,764

1,817

44
1,297
435,337
116₩ 6,683,830

See accompanying notes to consolidated financial statements.

₩

₩

₩

124

Consolidated Statements of Cash Flows
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(In millions of won)

2008
CASH FLOWS FROM OPERATING ACTIVITIES:Net income
Adjustments to reconcile net income to net cash used in operating activities:
Loss (gain) on valuation of trading securities, net
Impairment loss (reversal of impairment loss) on available-for-salesecurities, net
Gain on valuation of securities using the equity method, net
Provision for possible loan losses
Loss on disposal of tangible assets, net
Depreciation and amortization
Loss on revaluation of tangible assets
Loss (gain) on valuation of financial derivatives, net
Provision for severance benefits
Compensation cost
Provision for (reversal of) allowance for other liabilities
Stock option compensation costs, net
Loss on foreign exchange trading, net
Others, net

Changes in assets and liabilities resulting from operations:
Net increase in trading securities
Net decrease (increase) in available-for-sale securities
Net increase in held-to-maturity securities
Net decrease (increase) in call loans
Net increase in domestic import usance bill
Net increase credit card receivables
Net increase in bills bought in foreign currencies
Net decrease (increase) in bills bought
Net decrease (increase) in bonds purchased under repurchase agreements
Net increase in loans in Won
Net increase in loans in foreign currencies
Net decrease (increase) in factoring receivables
Net decrease (increase) in advances for customers
Net decrease in privately placed bonds
Net decrease in deferred loan origination fees and costs
Net decrease (increase) in accrued income
Net increase in prepaid expenses
Net increase in deferred income tax assets
Net increase in financial derivatives assets
Net increase in accrued expenses
Net increase 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 increase in financial derivatives liabilities
Net decrease in allowance for other liabilities
Net decrease in accrued expenses (exercise of stock option)
Net increase in deferred income tax liabilities

Net cash used in operating activities(Continued)₩

2007
782,582₩

961,143(14,228)

8,305

5,926
(3,766)
778,445
1,699
129,373
25,346(128,554)
48,514
4,728
44,085(11,862)355,992(39,268)
1,196,430(70,502)(585)
304,777
1,963
137,331
4,407
58,137
23,766(79,004)
5,417
20,743
6,818
421,573(91,498)(1,823,848)(1,417,129)
1,546,814(1,004,275)(138,180)(954,859)(152,389)(2,342,717)(4,804,150)(4,692,014)
180,097(24,408)
154,991
21,387(92,252)(10,953)(18,392)(3,753,863)
274,926
18,433(18,381)57(44,461)(324)
3,756,179(15,532)
115,462(15,331,279)(1,090,574)
545,580(266,823)(521,290)(372,120)(151,935)(418,027)
601,007200,000(6,563,089)(2,088,755)(10,626)
5,632
305,447
17,273
41,370(75)(2,582)(154,031)
2,260
26,137(16,170)33(12,060)
33,012(17,741)(6,499)45,220(9,869,426)(13,352,267)(8,486,710)

Consolidated Statements of Cash Flows (continued)

125

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(In millions of won)

2008
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of securities using the equity method
Disposal of tangible assets
Acquisition of securities using the equity method
Purchase of tangible assets
Net increase in guarantee deposits paid
Purchase of intangible assets
Net decrease (increase) in accounts receivable
Net increase in other assets
Net increase in due from banks
Net cash used in investing activities

₩

2007
1,200
3,863
(2,980)(106,444)(35,115)(16,603)
713,644(1,055,380)(4,922,342)(5,420,157)

₩

7,028
(4,000)(134,659)(127,952)(29,064)(1,548,684)(5,813,785)(348,820)(7,999,936)

CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
Net increase in borrowings
Net increase in debentures
Net increase (decrease) in other liabilities
Dividend (Note 27)
Net cash provided by financing activities

13,904,362
3,048,427
2,007,168(2,829)(451,435)
18,505,693

6,879,826
1,552,539
2,361,784
7,669,758(644,907)
17,819,000

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS(266,731)

1,332,354

CASH AND DUE FROM BANKS, BEGINNING OF YEAR

4,216,788

2,884,434

CASH AND DUE FROM BANKS, END OF YEAR (Note 28)
See accompanying notes to consolidated financial statements.

₩

3,950,057₩

4,216,788

126

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

1.
GeneralKorea 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 throughthe merger with Korea International Merchant Bank, a domestic subsidiary of the Bank, and other related operations as permitted under the BankAct and other relevant laws and regulations in the Republic of Korea. The Bank operates through 353 branches (including 28 depositary offices) and 3
subsidiaries in Korea and 25 branches (including 5 depositary offices and 5 offices) and 8 subsidiaries in overseas as of December 31, 2008.
The Bank’s shareholders as of December 31, 2008 are as follows:
Number of shares owned (*1) Ownership (%)

Shareholders
LSF-KEB Holdings, SCA
Export-Import Bank of Korea
Bank of Korea
Others329,042,672
40,314,387
39,500,000
236,049,767
644,906,826

51.02
6.25
6.12
36.61
100.00(*1) As of December 31, 2008 - the date of closing a shareholders’ list

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, 2008, the total number of authorized shares of the Bank is 1,000 million (par value ₩5,000) while the paid-in capitalamounts to ₩3,224,534 million (with 644,906,826 shares of common stock outstanding with par value of ₩5,000).

2.
Scope of consolidationand equity method
accounting

The consolidated financial statements are based on the financial statements of the KEB (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, 2008 and 2007 were as follows:<2008>
Subsidiaries

Closing dateNo. of shares(unit: thousand)

Percentage ofownership (%)

Business

Consolidated (Domestic):
KEB Capital Inc. (“KEBC”)KEB Futures Co., Ltd. (“KEBF”)

March 31
March 31

14,9763,000

99.30
100.00

Leasing and Installment Financing
Brokerage services for futurestransactions

Consolidated (Oversea):
Korea Exchange Bank of Canada(“KEBOC”)
KEB Australia Ltd. (“KEBA”)

December 31
December 31

334
55,000100.00100.00Banking service
Commercial banking business andforeign exchange operation

Korea Exchange Bank
(Deutschland) A.G. (“KEBDAG”)
PT. Bank KEB Indonesia (“KEBI”)
Banco KEB do Brasil S. A. (“KEBB”)
KEB NY Financial Corp. (“KEBNYFINCO”)

December 31
December 31
December 31
December 3120
133,7260.1

100.0099.00
100.00100.00

KEB LA Financial Corp. (“KEBLAFINCO”)

December 31

0.1

100.00Banking service
Banking service
Banking service.
Commercial banking business andforeign exchange operation
Commercial banking business andforeign exchange operation

Accounted for using the equity method:
Lippo Incheon Development Co., Ltd.
Realty Advisors Korea, Ltd.

December 31
June 31

388
200

2.70
14.29

Ilsan Project Co., Ltd.
Soul Flora Co., Ltd.
KEB Fund Services Co., Ltd. (*1)
KEB USA Int'l Corp. (*1)

December 31
December 31
December 31
December 31

288
20
510
0.1

4.80
5.00
100.00100.00Developing Woonbook Leisure Complex
Maintenance Service on Nonresidence Real-estate Investments
Real-estate brokerage service
Real-estate rental service
General office service
Remitting US dollars of the bank(*1) The investment securities were excluded from the application of equity method because the assets are less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.

Notes to Consolidated Financial Statements

127

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

<2007>
Subsidiaries

Closing dateNo. of shares

Percentage ofownership (%)

Business

Consolidated (Domestic):
KEB Capital Inc. (“KEBC”)KEB Futures Co., Ltd. (“KEBF”)

March 31
March 31

14,9763,000

99.30
100.00

Leasing and Installment Financing
Brokerage services for futures transactions

Consolidated (Oversea):
Korea Exchange Bank of Canada(“KEBOC”)
KEB Australia Ltd. (“KEBA”)

December 31
December 31

334
55,000100.00100.00Banking service.
Commercial banking business andforeign exchange operation

Korea Exchange Bank
(Deutschland) A.G. ( “KEBDAG”)
PT. Bank KEB Indonesia (“KEBI”)
Banco KEB do Brasil S. A. (“KEBB”)
KEB NY Financial Corp. (“KEBNYFINCO”)

December 31
December 31
December 31
December 3120
133,7260.1

100.0099.00
100.00100.00

KEB LA Financial Corp. (“KEBLAFINCO”)

December 31

0.1

100.00Banking service
Banking service
Banking service
Commercial banking business andforeign exchange operation
Commercial banking business andforeign exchange operation

Accounted for using the equity method:
Lippo Incheon Development Co., Ltd.
Realty Advisors Korea, Ltd.

December 31
June 31

388
200

2.70
14.29

KEB Fund Services Co., Ltd. (*1)
KEB USA Int'l Corp. (*1)

December 31
December 31

510
0.1

100.00100.00Developing Woonbook Leisure Complex
Maintenance service on nonresidence real-estate Investments
General office service
Remitting US dollars of the bank(*1) The investment securities were excluded from the application of equity method because the assets are less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.

SUBSIDIARIES
TRUST ACCOUNTS
Certain trust accounts whose principal or fixed rate of return is guaranteed by the Bank are included in the consolidated financial
statements in accordance with the accounting guidelines of the Financial Supervisory Commission in the Republic of Korea. The trust accounts as ofDecember 31, 2008 and 2007 were as follows (Unit: In millions):
2008
Total assets
Consolidated
Not consolidated₩₩

1,234,889
9,897,224
11,132,113

Operatingrevenue₩₩

96,620736,170
832,7902007
Total assets₩₩

1,126,066
15,348,911
16,474,977

Operatingrevenue₩₩

66,081
767,476
833,557

KEB Capital Co., Ltd. (“KEBC”)
KEBC was incorporated on September 11, 1989 to engage in leasing industrial equipment and registered in Korea Securities Dealers
Automated Quotation (“KOSDAQ”) on January 15, 1995. As KEBC continued to experience negative capital until March 31, 2001, its registration
with KOSDAQ was canceled by KOSDAQ Committee on July 11, 2001 and withdrawn from KOSDAQ market on August 24, 2001. As of December
31, 2008, 99.3% of 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
ownership association as of November 9, 2001, for the purpose of debt restructuring due to the work-out process, based on the resolution at theshareholders’ meeting on October 13, 2001. This capital reduction resulted in a gain on capital reduction of ₩34,725 million which was used torecover 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 accordancewith the resolution of the board of directors on October 26, 2001. The proceeds of the new stock issuance were used for the repayment ofborrowings amounting to ￦74,024 million from the Bank.
As of December 31, 2008, the total paid-in-capital amounts to ₩75,400 million.

128

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

KEB Futures Co., Ltd. (“KEBF”)
KEBF was incorporated on September 24, 1997 as an integrated futures brokerage 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% equity ownershipas of December 31, 2008, and the total paid-in-capital amounts to ₩15,000 million.
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 andthe surrounding area. The Bank retains 100% equity ownership as of December 31, 2008, and the total paid-in-capital of KEBA amounts to AUD
55,000 thousand.
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 the surrounding area. The Bank retains 100% equity ownership as of December 31, 2008 and the total paid-in-capital of KEBOC amounts to
CAD 33,400 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 the surrounding area. KEBI changed the firm name from PT. Korea Exchange Bank Danamon to PT. Bank KEB Indonesia in 2007. The
Bank retains 99% equity ownership as of December 31, 2008, and the total paid-in-capital of KEBI amounts to IDR 150,000 million.
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% equity ownership as of December 31, 2008 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 andthe surrounding area. The Bank retains 100% equity ownership as of December 31, 2008, and the total paid-in-capital of KEBNYFINCO amounts to USD 1.
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 and the surrounding area. The Bank retains 100% equity ownership as of December 31, 2008, and the total-in-capital of KEBLAFINCO
amounts to USD 1.
A summary of significant financial data of the Bank‘s subsidiaries, included in the balance sheets as of December 31, 2008 and 2007, andincome statements for the years ended December 31, 2008 and 2007 are as follows (Unit: In millions):
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.

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.

2008
Total assets₩

1,234,889
978,202161,205
1,100,226
401,704
582,905
427,164
79,654
366,813429,7292007
Total assets₩

1,126,066
810,237
105,867
821,187
385,014425,832
256,993
47,988
238,740
196,425

Capital stock₩

75,40015,00034,68047,85027,245
17,22018,196-

Capital stock₩

75,40015,00031,96145,257
21,187
14,985
17,898-

Shareholders’equity₩18,496
106,947
40,764105,456
33,331
72,993
107,944
17,432
6,076
36,422

Shareholders’equity₩18,381
98,99327,80088,14231,50551,49080,562
16,26924,78025,257

Operatingrevenue₩

96,620145,881
38,91060,04634,50843,58233,601
20,54722,022
28,941

Operatingrevenue₩

66,08158,79920,552
51,794
22,25926,711
24,742
6,276
17,376
16,649Net income(loss)
₩

7,994
8,236
9,817
22
7,500
15,366892
3,208(27,777)

Net income₩

12,676
4,994
13,198
4,611
3,307
11,148
1,103
1,008
2,091

Notes to Consolidated Financial Statements

129

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

3.
Summary of significant
accounting policies

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 thesubsidiaries. The differences between the amounts of investment and the equity accounts are recorded as goodwill or negative goodwill, whichis amortized or reversed using the straight-line 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 agree with the year-end balance sheet 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  ) 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
due to 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.
(  4  ) Equity Method
For investments in affiliates accounted for using the equity method, the difference between acquisition cost and net assets acquired at
the acquisition 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 from thecarrying amount of investments.
(  5  ) Balance Sheet Date for the Consolidated Financial Statements
Balance sheet date for the consolidated financial statements is the closing date of the Bank, the parent company. The accounts of consolidated
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.
(  6  ) 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.
(  7  ) Minority Interests
Non-controlling, outside ownership interests in a subsidiary’s shareholders’ equity are presented as minority interests. Gain (loss)
attributable to minority interests is disclosed on the face of the income statement.

4.
Accounting policies of
the consolidated entities

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.

Accounting standards of the banking industry & the General Banking act
Trust Business Act
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.

130

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

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 balance sheet date or defaulted loans, not secured by guarantees
from financial institutions or collateral deposits, is recognized on a cash basis. As of December 31, 2008 and 2007, accrued interest income notrecognized due to such criteria amounted to ₩122,665 million and ₩81,296 million, respectively.
Classification of Securities
At acquisition, the Bank and its subsidiaries classify securities into one of the following categories: trading, available-for-sale, held-tomaturity and securities accounted for using the equity method, depending on marketability, purpose of acquisition and ability to hold. Debt andequity securities that are bought and held for the purpose of selling them in the near term and actively traded are classified as trading securities.
Debt securities with fixed and determinable payments and fixed maturity that the Bank and its subsidiaries have the positive intent and ability
to hold to maturity are classified as held-to-maturity securities. Securities that should be accounted for under the equity method are classified
as securities accounted for using the equity method. Debt and equity securities not classified as the above are categorized as available-for-salesecurities.
If the objective and ability to hold securities of the Bank and its subsidiaries change, available-for-sale securities can be reclassified to heldto-maturity securities and held-to-maturity securities can be reclassified to available-for-sale securities. Whereas, if the Bank and its subsidiaries sellheld-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
held-to-maturity securities to available-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.
Nevertheless, trading securities are reclassified to available-for-sale securities only when the trading securities lose their marketability or when the
Bank and its subsidiaries hold them not to earn gains on trading in short period.
Valuation of Securities(  1  ) Valuation of Trading Securities
Trading equity and debt securities are initially recognized at acquisition cost plus incidental expenses determined by the individual
moving average method (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.
(  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 (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-for-sale 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 on 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 the face value of held-to-maturity securities differs from its acquisition cost, the effective interest method is applied to amortize thedifference over the remaining 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 and its subsidiaries are able to exercise significant influence overthe 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 to exercise significant influence) are accounted for using the equity method. The Bank’s share in net income or net loss of investees is includedin current 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 the equity
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 Bankand 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
other comprehensive income (loss) resulting from applying the equity method in the balance sheets if the subsidiaries are still consolidated evenafter the Bank disposes of a portion of equity securities.

Notes to Consolidated Financial Statements

131

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  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 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 asgain 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 amortizedcost that 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 gainor loss on valuation of available-for-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-to-maturity securities
is amortized using effective interest rate method and the amortized amount is charged to interest income. In addition, when certain trading securities
lose their marketability, such securities are reclassified as available-for-sale securities at fair market value as of reclassification 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 thesale of the securities, the unrealized valuation gain or loss of securities included in accumulated other comprehensive income (loss) is added toor deducted from 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 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
estimated uncollectible accounts on a reasonable and objective basis. Presently, the historical loss rate (based on mitigation or roll-rate analysis)
is one of the permitted 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 ofloss provision for each asset classification category.
The Bank and its subsidiaries apply the Forward Looking Criteria (“FLC”) for their loan classification for large corporate based on thecredit rating to determine allowance for loan losses. Under this method, the borrowers’ future debt repayment capacity as well as their overall
financial health and management soundness are considered in developing the credit rating and the reserve for possible loan losses related tolarge corporate customers. However, loan classification for the smaller corporate, household loans and credit card receivables is classified basedon 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 as normal, 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 (construction, real estate, wholesale & retail, hotel andrestaurant industries are 0.9%) 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 as 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 acceptancesand guarantees, 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 cardthat have not been used at least once in recent one year) and unused loan commitments for corporate and retail loan customers considering thecredit 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 andsubsidiaries’ loans, collected through reorganization proceedings, court mediation or debt restructuring agreements of parties concerned, isrecorded at fair value at the time of the restructuring. In cases where 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 arecomputed 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 for loan losses.

132

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

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 areamortized 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 othersimilar transactions are stated at the present value of expected future cash flows, and the gain or loss on valuation of related receivables andpayables is reflected in current operations, unless the difference between nominal value and present value is immaterial. Present value discount or
premium is amortized 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 asadditions to tangible assets.
Depreciation is computed by using the declining-balance method (straight-line method for building and leasehold improvements) based on
the estimated useful lives of the assets as follows:

Tangible assets

Estimated useful life

Depreciation method

Construction
Leasehold improvements
Equipment

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 identified 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 Property
Non-business use 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 determinedby its estimated public auction price. As of December 31, 2008, the Bank and its subsidiaries do not have non-business use 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
in the balance sheet 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 have been
determined had no impairment loss been recognized. The Bank and its subsidiaries assess the collective value based on expected selling price orappraisal 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 Liability Reserve
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 contingent liabilities when it
is probable that an outflow of resources embodying economic benefits required and the amount of the obligation can be measured with sufficientreliability. Where the effect of the time value of money is material, the amount of the liabilities is the present value of the expenditures expected tobe required to settle the obligation.

Notes to Consolidated Financial Statements

133

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

Accrued Severance Benefits
The accrued severance benefits that would be payable to assuming all eligible employees and directors were to resign are included inother liabilities. The Bank and its domestic subsidiaries 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 estimated accrued severance benefits, which would be payable assuming all eligible employees and executives were to terminate
their employment, amounted to ₩294,797 million and ₩265,369 million as of December 31, 2008 and 2007, respectively. In addition, the actual
severance benefits paid for the years ended December 31, 2008 and 2007 are ₩18,381 million and ₩16,170 million, respectively.
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 totheir 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 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 the specified criteria for hedge accounting differs depending on whether the transaction is a fair value hedge or a cash flow hedge. Fairvalue hedge accounting is applied to a derivative instrument designated as hedging the exposure to changes in the fair value of an asset or aliability 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 transactionthat is attributable to a particular risk. 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 orloss 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 orloss 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
Accounting Standards 39-35 - Accounting for Stock Options., in case of equity-settled 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 incase of cash-settled 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. The other liabilities (accrued expenses) by cash-settled share-based payment transactions
are assessed at fair value of the closing day or the final settlement day (assessed at intrinsic value for the portion occurred before December 31,2008). 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 by issuing 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 acash-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)
from those of the bank accounts in accordance with the Trust Business Act. 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 bank accounts. Also, the borrowings from the bankaccount are recorded as due from trust accounts of the bank accounts. The Bank receives fees for operation and management of the trust businessand 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, a fixed 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 bank accounts of the Bank. If the Bank pays compensating contributions to the guaranteed return trusts to cover such deficiencies, thesecontributions 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, 2008.
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 thedate of sale based on the difference between the purchase and sales prices of the notes, adjusted for interest earned during the holding period.

134

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  2  ) Cash Management Accounts (“CMA”)
The Bank recognizes interest income from CMA investments and interest expense from CMA deposits as other income and otherexpenses, 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, basedon the excess of rental revenue over the cost of the related assets. Unearned interest is recognized as interest income on financing leases using theeffective 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 or deducted to 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 regarding to certain items are charged or credited directly
to related 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 based on the basic rate of exchange on 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 (₩1,257.50 and ₩938.20 to US$ 1.00 at December 31, 2008 and2007, respectively) announced by Seoul Money Brokerage Service, Ltd. or cross rates for other currencies other than U.S. Dollars at the balance
sheet dates. Translation gains and losses are credited or charged to operations. Financial statements of overseas branches are translated based on
the basic rate at balance sheet dates.
Application of the Statement 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 should be internationally acceptable and comparable based on SKAS Act 92. The Bank adopted SKAS No.1 (Accounting
Changes and Error Corrections) through SKAS No. 20 (Related Party Disclosures) (excluding No. 14) as of or before December 31, 2008, and SKAS
No. 11 (Discontinued Operation) and SKAS No. 21 (Preparation and Presentation of Financial Statements) through SKAS No. 25 (Consolidated
Financial Statements) have been adopted since January 1, 2007.
The material revisions of SKASs, which the Bank adapted, are as follows:
SKAS

Revision

No. 5 (Property, Plant
and Equipment)

Application of the cost method or the revaluation method may be chosen by each tangible asset type.
Consistent application of the method chosen is required.

No. 15 (Investments in
Associates)

Clarifies that in applying the equity method to subsidiaries, except for those instances where the total investment
is equal to or less than zero, the net assets and net income or loss on the non-consolidated financial statementsof the subsidiary are identical to the net interest in the subsidiary’s net assets and net income or loss on the
consolidated financial statements of the parent.
Clarifies that Subparagraphs (Ga) to (Sa) of Paragraph 39 are illustrative. In addition, the difference between
the consideration for the net interest and the net interest in the net assets of the subsidiary, as described under
Subparagraphs (Na) to (Ra) is recognized as additional paid-in-capital in the consolidated financial statements ofthe parent.

As the result of the revision of SKAS No. 5 (Property, Plant and Equipment), the net assets increased by ₩415,567 million and thenet income decreased by ₩19,770 million as of and for the year ended December 31, 2008. In addition, with the revision of SKAS No. 15(Investments in Associates), the accompanying financial statements of the previous period are restated based on the above revision. As a result, theunappropriated retained earnings and capital surplus as of December 31, 2007 increased by ₩3,881 million and ₩940 million, respectively. Capitaladjustments and other comprehensive income as of December 31, 2007 decreased by ₩5,722 million and ₩4,049 million, respectively.
Reclassification
Certain accounts of the prior period were reclassified to conform to the current period’s presentation for comparative purposes; however,such reclassifications had no effect on either the previously reported prior period’s net income or shareholders’ equity of the Bank and its
subsidiaries.

Notes to Consolidated Financial Statements

135

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

5.
Cash and due frombank(  1  ) Cash and due from banks as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Account

2008

CashForeign currencies on handDue from banks in Won
Due from banks in foreign currencies₩

2007
876,432
437,446
5,106,517
4,343,860
10,764,255₩

972,061
360,496
2,694,677
1,623,241
5,650,475₩₩(  2  ) Due from banks in Won as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Account
Reserve deposit
Current deposit
Due from banks on time deposits
Other due from banks
Other due from banks

Financial institution

Interest rate (%)

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

Dec. 31, 2008
0.10~0.30
5.11~7.55
0.00~5.70
0.02~5.57

2008
₩

₩

2007
3,752,160
40
1,234,418
5,338
114,561
5,106,517₩₩

1,437,782
1,179,153
3,145
74,5972,694,677(  3   ) Due from banks in foreign currencies as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Account

Financial institution

Interest rate (%)

2008

2007

Dec. 31, 2008
Reserve deposit
Due from banks on time deposits
Due from banks on time deposits
Other due from banks
Other due from banks
Due from banks in otherbank–foreign currencies

The Bank of Korea
Domestic financial institutions
Overseas financial institutions
Domestic financial institutions
Overseas financial institutions

2.33~6.94
0.00~8.00
0.00~1.16
0.00~15.40

Overseas financial institutions

0.00~1.00₩₩

2,802,781
145,490583,2439,444
487,436
315,466
4,343,860

418,825
131,093459,388
312,976₩₩

300,959
1,623,241(  4  ) Restricted due from banks in Won and foreign currencies as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification
Due from banks in Won:
The Bank of Korea
Woori Bank and others
Samsung Securities
Kookmin Bank
National agricultural cooperative federation

2008₩

Due from banks in foreign currencies:
The Bank of Korea
BNP Paribas and others
The Bank of Indonesia
The Bank of Brazil and others₩

2007
3,752,160
560
158
2,022
-

₩

Reason for restriction
1,437,782
611
337
1

3,754,900

1,438,731

2,802,781
252,143
4,094
280
3,059,298
6,814,198

413,20333,8275,622
473
453,125
1,891,856₩

Required under the BOK Act
Escrow account
Subscription related to derivatives
Pledged asset related to borrowings
Restricted by double payment of card
receivable

Required under the BOK Act
Subscription related to derivatives
Reserve deposits
Deposits related Microcredito Act

136

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  5   ) Term structure of due from banks in Won and foreign currencies as of December 31, 2008 was 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 more than five years

Due from banks
in Won₩5,106,517

Due from banks inforeign currencies₩
4,337,377₩

5,106,517

4,704
1,779
4,343,860₩₩

6.
Securities

₩

Total
9,443,894
4,704
1,779
9,450,377(  1  ) Securities as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification

2008₩

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

3,215,885
7,163,333
3,550,246
20,604
13,950,068

₩

2007
₩

3,108,987
6,874,425
2,130,989
13,616
12,128,017₩(  2  ) Securities excluding securities using the equity method as of December 31, 2008 and 2007 consisted of (Unit: In
millions):<2008>Classification

Trading securities:
Equity securities
Beneficiary certificates
Government and public bonds
Finance bonds
Corporate bonds
Commercial papers

Face value₩

Available-for-sale securities:
Equity securities
Equity investments
Beneficiary certificates
Government and public bonds
Finance bonds
Corporate bonds
Asset-backed securities
Other debt securities
Held-to-maturity securities:
Government and public bonds
Finance bonds
Foreign government bonds
Corporate bonds
Other debt securities₩(*) Acquisition costs of trading securities are the book value before valuation.

5,000
366,505
1,242,477
121,498
1,453,500
3,188,980

Acquisition
cost (*)₩

21,842
5,000
371,978
1,236,691
120,506
1,433,921
3,189,938

Adjusted byeffective interest
rate method₩

5,000
372,516
1,238,052
121,091
1,443,156
3,179,815

Book value₩

14,7894,841
376,938
1,254,816
120,1211,444,380
3,215,885

199,518
665,219
4,104,556
834,938
150,588
87,644
6,042,463

796,418
82,821
199,518
663,920
4,079,528
836,959
238,262
87,644
6,985,070

199,518
651,657
4,057,242
823,348
182,921
66,1615,980,847

1,144,056
87,821
199,459
674,632
4,033,880
810,284
161,336
51,865
7,163,333

911,915
2,368,100
37,607244,324957
3,562,903
12,794,346

897,780
2,366,272
35,927245,171950
3,546,100
13,721,108

904,584
2,365,660
34,771
244,281950
3,550,246
12,710,908

904,584
2,365,660
34,771
244,281950
3,550,246
13,929,464

₩

₩

₩

Notes to Consolidated Financial Statements

137

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

<2007>Classification

Trading securities:
Equity securities
Beneficiary certificates
Government and public bonds
Finance bonds
Corporate bonds
Commercial papers
Other debt securities

Face value₩

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

10,000193,754
687,479
101,828
2,063,900
3,056,961

Acquisition
cost (*)₩

65,426
10,000
192,972
686,171
101,5142,041,798
9,280
3,107,161

Adjusted byeffective interest
rate method₩

10,000
193,152
686,443
101,520
2,050,966
3,042,081

Book value₩

64,8309,730
192,253
681,241
101,6642,049,989
9,280
3,108,987

2,000
750,398
2,754,136
125
698,724
405,514
87,636
4,698,533

858,976
62,9662,000
758,451
2,748,857
125
699,357
401,232
87,636
5,619,600

2,000
734,205
2,741,545
125
693,956
299,844
60,3604,532,035

2,283,243
69,305
2,078
733,476
2,719,522
125
689,086
311,436
66,154
6,874,425

803,482
1,153,877
24,796140,356
10,0001,323
2,133,834
9,889,328

802,775
1,162,000
23,430141,706
9,989
1,312
2,141,212
10,867,973

800,738
1,153,424
24,402
140,675
9,996
1,312
2,130,547
9,704,663

800,737
1,153,856
24,402
140,686
9,996
1,312
2,130,989
12,114,401

₩

₩

₩

(*) 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 costfor stocks) was recorded as gain on valuation of trading securities amounting to ₩23,893 million and ₩3,980 million, and loss on valuation of
trading securities amounting to ₩9,665 million and ₩12,285 million for the years ended December 31, 2008 and 2007, respectively.
The fair values of trading and available-for-sale debt securities were assessed by applying the average of base prices as of December 31,
2008, 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 SK Networks Co., Ltd. and 20 others, and the restrictedavailable-for-sale marketable equity securities such as Hyundai Engineering and Construction Co., Ltd. and 5 others was reliably measured byan independent appraisal institute using reasonable judgment. The fair value was determined based on more than one valuation models 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, thefinancial statements for 5 years are estimated based on past operating result. Also, assuming the same operation is continued during the estimatedperiod, the model is applied using the estimated financial statements from 2007 to 2011. Operating income and expenses are reasonably estimatedbased on the past result, the future plan and the expected market condition, and for non-operating income and expenses, gain or loss from irregulartransactions such as gain or loss on disposition of tangible assets are excluded. For the equity investment of association, net assets are calculated
deducting total liabilities from the present value of assets of each equity investment.

138

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  3  ) D iscretionary investing contract assets included in beneficiary certificate of trading securities as of December 31,
2008 and 2007 consisted of (Unit: In millions):
Classification

2008

Short-term financial instruments
StocksOthersTotal assets
Total liabilities
Net assets value

₩

₩

2007
4,275
573
4,848
7
4,841

₩

₩

2,385
7,312
45
9,742
12
9,730

(  4  ) T he book value of non-marketable stocks and equity investments among available-for-sale securities, which were
not valuated at fair value as of December 31, 2008 and 2007, was as follows (Unit: In millions):<2008>
Company
Stocks:Samsung Life
Alpha Dome City
KAMCO
PDHD
M Cieta Development
BLADEX
Hallyu-Wood
OthersAmounts₩

Equity investments:
Consolidated Fund for Impaired Loans
SHCF Private Equity Fund
Westend Corporate Restructuring Corporate
HTIC 6th Corporate Restructuring Corporate₩<2007>
Company
Stocks:Samsung Life
Alpha Dome City
KAMCO
KCB
KRX
Hallyu-Wood
M Cieta Development (*)
BLADEX
C & Woobang ENC
Others

36,680
5,000
5,000
3,000
49,680104,954

Amounts₩

Equity investments:
Consolidated Fund for Impaired Loans
Others₩(*) The company name was changed from M Ciety Development to M Cieta Development in 2007.

32,939
8,850
6,330
2,000
1,275
1,234
1,200
1,446
55,27432,939
7,200
6,330
3,000
3,000
1,200
1,125
921
733
1,802
58,25036,6801
36,681
94,931

Notes to Consolidated Financial Statements

139

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  5   )  T he impairment loss and the reversal of impairment loss on available-for-sale securities for the years ended December
31, 2008 and 2007 were as follows (Unit: In millions):
Classification

2008
Impairment

Equity securities
Equity investments
Corporate bonds
Asset-backed securities
Beneficiary certificates

22,92915,87338,802₩₩

2007
Impairment

Reversal
₩

₩

1,482
31,092302
32,876

6,891
15,58722,478₩₩

Reversal
₩

₩

1,364
36,680139
54,797
92,980(  6  ) Loaned securities included in securities as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification

2008₩

Securities in foreign currencies

-

2007
₩

12,701(  7  ) Securities provided as collateral as of December 31, 2008 were as follows (Unit: In millions):
Provided toCollateral amount

Korea securities depository & others
BOK
BOK
BOK
Futures Corporations, Securities
Corporation, Banks
KRX
Brazilian money brokerage service
Deutsche Bundes Bank₩

449,615
680,000
1,080,000
240,000
2,240,200
16,903
1,914
888
4,709,520₩

Book value₩₩

Provided for
446,416
685,645
1,081,632
242,982

Sale to RP to customer
Settlement of difference
Borrowings from BOK
RP sold

2,236,396
16,903
1,914
874
4,712,762

Derivatives settlement
Derivatives settlement
Collateral
Borrowings from Deutsche Bundes Bank

In addition, securities that are possible to be discounted by BOK amounted to ￦3,096,617 million as of December 31, 2008.
(  8  ) Securities using the equity method
1) Securities using the equity method as of December 31, 2008 and 2007 were summarized as follows (Unit: sharesin thousand, in millions):<2008>
Company
KEB Fund Services Co., Ltd. (KEBFS) (*1)
Realty Advisors Korea, Ltd. (*2)
Lippo Incheon Development Co., Ltd. (*2)
Ilsan Project Co., Ltd. (*2)
Soul Flora Co., Ltd. (*2)
KEB USA International Corp. (USAI)HTIC2 Corporate Restructuring Association

No. of shares
510
388
200
288
20
0.1
0.04

Ownership (%)
100.0
2.7
14.3
4.80
5.00
100.0
20.0

Acquisition cost Net asset value
₩

₩

2,550
1,939
1,000
2,880
100
3,144
4,000
15,613

₩

₩

5,943
1,863
2,955
2,775
88
6,399
3,974
23,997

Book value
₩

₩

2,550
1,863
2,955
2,775
88
6,399
3,974
20,604(*1) The investment securities were excluded from the application of equity method because the assets are less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.
(*2) The Bank has important influence over the company through designation of a director and others, although the ownership is less than 15%.

140

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

<2007>
Company
KEB Fund Services Co., Ltd. (KEBFS) (*1)
Lippo Incheon Development Co., Ltd.
Realty Advisors Korea, Ltd. (*1 & 2)
KEB USA International Corp. (USAI)HTIC2 Corporate Restructuring Association (*3)

No. of shares

Ownership (%)

510
388
200
0.1
0.04

100.0
2.7
14.3
100.0
20.0

Acquisition cost Net asset value
2,550
1,939
1,000
2,346
4,000
11,835

₩

₩

5,101
1,830
575
4,236
4,000
15,742₩₩

Book value
2,550
1,830
1,000
4,236
4,000
13,616₩₩(*1) The investment securities were excluded from the application of equity method because the assets are less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.
(*2) Reclassified from available-for-sale securities to securities using equity method in this period.
(*3) It hasn’t started its business.

2) The valuation of securities using the equity method for the years ended December 31, 2008 and 2007 was asfollows (Unit: In millions):<2008>
Company

KEBFS (*1)
Realty Advisors Korea, Ltd. (*2)
Lippo Incheon Development Co., Ltd. (*2)
Ilsan Project Co., Ltd. (*2)
Soul Flora Co., Ltd. (*2)
KEB USA International Corp. (USAI)HTIC2 Corporate restructuring association

Acquisition Book value Increase Foreign
cost
before(Decrease) exchange
valuation Dividend
trading
income(loss)

Equity inearnings

2,550
1,939
1,000
2,880
100
3,144
4,000
₩ 15,613

₩

₩

2,550
1,830
1,000
4,236
4,000
₩ 13,616₩(1,200)2,880
100₩ 1,780
₩

₩

₩

1,442
1,442

₩

33
3,155
(105)
(12)
721
(26)
3,766

Book value
after
valuation

2,550
1,863
2,955
2,775
88
6,399
3,974
₩ 20,604₩(*1) The investment securities were excluded from the application of equity method because the assets are less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.
(*2) The Bank has important influence over the company through designation of a director and others, although the ownership is less than 15%.

<2007>
Company

KEBFS (*1)
Realty Advisors Korea, Ltd. (*1)
Lippo Incheon Development Co., Ltd. (*2)
KEB USA International Corp. (USAI)HTIC2 Corporate restructuring association (*3)

Acquisition Book value Increase Foreign
cost
before(Decrease) exchange
valuation Dividend
trading
income(loss)

Equity inearnings

2,550
1,000
1,939
2,346
4,000
₩ 11,835

₩

₩

2,550
1,000
3,510
₩ 7,060

₩

₩

₩

1,939
4,000
5,939

₩

₩

32
32

₩

Book value
after
valuation- ₩ 2,550
1,000
(109)
1,830
694
4,236
4,000
585 ₩ 13,616

 (*1) The investment securities were excluded from the application of equity method because the assets were less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.
(*2) Reclassified from available-for-sale securities to securities using equity method in this period.
(*3) It hasn’t started its business.

Notes to Consolidated Financial Statements

141

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

3) Summary of Financial Information of Affiliates
The summary of financial information in affiliates using the equity method as of and for the period ended December 31, 2008 was asfollows (Unit: In millions):
Classification

Total assets
Total liabilities
Operation revenue
Net income (loss)

Lippo
Ilsan
RealtyHTIC2KEB Fund Others
Total
IncheonProject Co., Advisors
Corporate Services
Development Ltd.
Korea,
Restructuring Co., Ltd.
Co., Ltd.
Ltd.
Association₩ 500,336 ₩ 60,281 ₩ 21,275 ₩ 20,080 ₩ 7,917 ₩ 8,336 ₩ 618,225
431,332
2,460
587
210
1,974
182
436,745
36,226
86
8,852
3,403
48,567
1,232(2,179)22,088
(131)
1,490
477
22,977

Unaudited financial statements as of December 31, 2008 were used for the application of the equity method. The significant events fromthe closing dates of the investees to that of the Bank and its subsidiaries were properly reflected in applying the equity method. There was nomaterial exception as a result of analytical review, such as analysis of major accounts to assess reliability of those financial statements.
(  9  )  T he portfolio of securities excluding securities using the equity method, by industry, as of December 31, 2008 and 2007
was as follows (Unit: In millions):
By industry typeTrading securities:
Government and government-invested public companies
Financial institutions
Manufacturing
Others2008
Amount₩Available-for-sale securities:
Government and government-invested public companies
Financial institutions
Manufacturing
Others
Held-to-maturity securities:
Government and government-invested public companies
Financial institutions
Manufacturing
Others₩Percentage (%)

1,101,259
1,694,576
31,644388,406
3,215,885

34.25
52.69
0.98
12.08
100.002,221,412
2,933,240
845,475
1,163,206
7,163,333
2,295,429
1,154,819
64,17835,8203,550,246
13,929,464

2007
AmountPercentage (%)

933,689
1,900,392
87,888187,018
3,108,987

30.02
61.13
2.83
6.02
100.00

31.01
40.95
11.80
16.24
100.001,478,732
2,692,883
1,394,371
1,308,439
6,874,425

21.51
39.18
20.28
19.03
100.00

64.65
32.53
1.81
1.01
100.001,157,820
915,254
20,37537,5402,130,989
12,114,401

54.33
42.95
0.96
1.76
100.00₩₩142

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  10  ) T he portfolio of securities excluding securities using the equity method, by security type, as of December 31, 2008
and 2007 was as follows (Unit: In millions):
By security typeTrading securities:
StocksFixed rate bonds
Floating rate bonds
Beneficiary certificates

2008
Amount₩Available-for-sale securities:
StocksFixed rate bonds
Floating rate bonds
Subordinated bonds
Beneficiary certificates
Others
Held-to-maturity securities:
Fixed rate bonds
Floating rate bonds
Subordinated bonds
Others₩Percentage (%)

14,7893,148,422
47,8334,841
3,215,885

0.46
97.90
1.49
0.15
100.001,144,056
3,266,888
1,576,525
836,717
199,459
139,688
7,163,333
2,950,082
69,861
529,353950
3,550,246
13,929,464

2007
AmountPercentage (%)

64,8302,997,194
37,2339,730
3,108,987

2.09
96.40
1.20
0.31
100.00

15.97
45.61
22.01
11.68
2.78
1.95
100.002,282,779
2,392,612
1,299,720
761,313
2,078
135,923
6,874,425

33.21
34.80
18.91
11.07
0.03
1.98
100.00

83.10
1.97
14.91
0.02
100.001,513,606
58,591
558,073719
2,130,989
12,114,401

71.03
2.75
26.19
0.03
100.00₩₩(  11  ) T he portfolio of securities excluding securities using the equity method, by country, as of December 31, 2008 and2007 was as follows (Unit: In millions):
By country typeTrading securities:
Korea
Available-for-sale securities:
Korea
Cayman Islands
USA
Hong Kong (China)
UK
Others2008
Amount₩Held-to-maturity securities:
Korea
Indonesia
Singapore
Philippines
BrazilOthers₩Percentage (%)

3,215,885

100.007,091,847
45,019
6,532
4,244
2,560
13,131
7,163,333
3,445,715
68,47420,044
5,683
9,407
923
3,550,246
13,929,464

2007
AmountPercentage (%)

3,108,987

100.00

99.00
0.63
0.09
0.06
0.04
0.18
100.006,751,134
38,61363,061
5,852
2,803
12,962
6,874,425

98.20
0.56
0.92
0.09
0.04
0.19
100.00

97.06
1.93
0.56
0.16
0.26
0.03
100.002,105,327
11,583
5,081
8,271
727
2,130,989
12,114,401

98.80
0.54
0.24
0.39
0.03
100.00₩₩Notes to Consolidated Financial Statements

143

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(   12   ) Term structure of securities except for stocks and equity investments in available-for-sale and held-to-maturity
securities as of December 31, 2008 was as follows (Unit: In millions):
Classification

Due in 1 year
or less

Government and public bonds
Finance bonds
Foreign government bonds
Corporate bonds
Beneficiary certificates
Asset-backed securities
Others₩₩860,173
2,942,572
29,088235,206
4,841
50,291
1,445,330
5,567,501

Due after 1
year through5 years₩₩

1,065,996
3,725,375
930,314
199,459
84,38886,005,540

Due after 5
years through10 years₩₩

29,985
968,871
5,683
9,166
26,65751,857
1,092,219

More than
10 years
₩

₩

Total

17,53817,538₩₩

1,956,154
7,654,356
34,771
1,174,686
204,300
161,336
1,497,195
12,682,798(  13  ) S tructured securities relating to stock and interest rate and credit risk as of December 31, 2008 and 2007 were as
follows (Unit: In millions):<2008>Classification
Structured notes relating to stock:
Convertible bonds (available-for-sale securities)
Convertible bonds (loans)
Bonds with stock warrants (available-for-sale securities)
Bonds with stock warrants (loans)
Equity Linked Warrants

Won₩

Structured notes relating to interest rate:Long-term government bond floating rates notes(CMT) (available-for-sale securities)
Long-term government bond floating rates notes(CMT) (held-to-maturity securities)
Range (accrual) bond (available-for sale securities)
Structured notes relating to credit risk:
Synthetic CDO₩

Foreign currencies
1,500
45,0706,700
101,500
8
154,778

Total
-

₩

₩

1,500
45,0706,700
101,500
8
154,778

20,079-20,07919,82239,901-

19,82239,901

194,679₩

18,362
18,362₩

18,362
213,041<2007>Classification
Structured notes relating to stock:
Convertible bonds (available-for-sale securities)
Convertible bonds (loans)
Bonds with stock warrants (available-for-sale securities)
Bonds with stock warrants (loans)
Equity Linked Warrants

Won₩

Structured notes relating to interest rate:Long-term government bond floating rates notes(CMT) (available-for-sale securities)
Long-term government bond floating rates notes(CMT) (held-to-maturity securities)
Range (accrual) bond (available-for sale securities)
Structured notes relating to credit risk:
Synthetic CDO₩

Foreign currencies
3,000
24,8203,750
831,578

₩

Total
-

₩

3,000
24,8203,750
831,578239,252-

239,252

40,144
279,396-

40,144
279,396

310,974₩

18,39818,398₩18,398329,372

144

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(   14   ) Changes in accumulated other comprehensive income (loss) of available-for-sale securities for the year ended
December 31, 2008 were as follows (Unit: In millions):
Classification

Beginning

Equity securities
Debt securities₩₩

Increase(decrease)

1,117,832(27,454)
1,090,378₩₩

Disposal(1,049,409)(49,093)(1,098,502)₩₩

Deferredincome tax(9,466)
7,033(2,433)₩₩Ending317,755
6,984
324,739

376,712(62,530)
314,182₩₩(  15  ) C hanges in accumulated other comprehensive loss of held-to-maturity securities for the year ended December 31,
2008 were as follows (Unit: In millions):
Classification

Beginning

Debt securities₩

Increase(decrease)
(363)

₩

Disposal(2)₩

Deferredincome tax
94

Ending
(48)

₩

₩

(319)

(  16  ) Acquisition of stocks of Visa Inc.
The Bank acquired shares of Visa Inc. through the IPO scheme on March 12, 2008, and recognized other non-operating income amounting to₩18,508 million. The Bank sold 3,219 thousand shares by purchasing treasury stock of Visa Group and recognized gain on disposal of available-of-salesecurities amounting to ₩74,396 million.

7.
Loans

(  1   ) Loans as of December 31, 2008 and 2007 consisted 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
Privately placed bonds

2008₩

Less: Allowance for possible loan losses (see Note 19)
Deferred loan origination fees and costs₩

841,077
2,746,929
2,552,607
4,479,977
2,263,270
2,342,717
42,325,196
11,495,741
130,689
31,127738,203
69,947,533(1,131,852)(53,179)
68,762,502

2007
₩

₩

2,387,891
1,742,654
2,440,553
3,525,118
2,110,881
37,824,623
6,887,316
310,786
6,719
893,194
58,129,735(753,696)(31,792)
57,344,247

Notes to Consolidated Financial Statements

145

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  2   ) Loans in Won and loans in foreign currencies as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification
Loans in Won:
Commercial

2008
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₩

2007

22,390,838
3,343,602
72,339506,575
26,313,354
13,574,160
2,288,830
15,862,990
95,97844,4048,470
148,852
42,325,196
1,930,606
4,157,987
5,380,589
26,55911,495,741
53,820,937₩₩

19,996,690
2,222,066
80,170481,256
22,780,182
12,770,776
2,098,893
14,869,669
61,70823,50889,556
174,772
37,824,623
1,393,068
1,738,515
3,755,733
6,887,316
44,711,939(  3  )  L oans in Won, loans in foreign currencies and domestic import usance bill, classified by borrower type, as ofDecember 31, 2008 and 2007 were as follows (Unit: In millions):<2008>
By borrower type
Large corporations
Small and medium corporations (*)
Households
OthersLoans in Won₩₩

5,283,208
21,030,146
15,862,990
148,852
42,325,196

Loans in foreign

Domestic import Total

currencies₩
6,859,179
3,900,862
524,362
211,338₩ 11,495,741

usance bill₩
1,924,276
822,653₩
2,746,929₩₩

Percentage (%)
14,066,663
25,753,661
16,387,352
360,190
56,567,866

24.87
45.53
28.97
0.63
100.00(*) Small and medium corporations are prescribed in Article 2 of the Small and Medium-sized Enterprise Basic Act.

<2007>
By borrower type

Loans in Won

Large corporations
Small and medium corporations (*)
Households
Others₩₩3,632,117
19,148,065
14,869,669
174,772
37,824,623

Loans in foreign

Domestic import Total

currencies₩
4,600,894
1,835,231
403,21047,981₩
6,887,316

usance bill₩
1,122,379
620,275₩
1,742,654(*) Small and medium corporations are prescribed in Article 2 of the Small and Medium-sized Enterprise Basic Act.

₩₩

Percentage (%)
9,355,390
21,603,571
15,272,879
222,753
46,454,593

20.14
46.50
32.88
0.48
100.00146

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  4  ) L oans in foreign currencies and domestic import usance bill, classified by borrower’s country, as of December
31, 2008 and 2007 were as follows (Unit: In thousands of U.S. Dollars, in millions of Won):<2008>Classification

Korea
CanadaUSA
Japan
Singapore
OthersLoans in foreign currencies

Domestic import usance bill

Loans in U.S. Translation

Loans in U.S. Translation

Dollars (*)

Dollars (*)$$

5,416,437
1,360,041
910,855
450,074
161,365
842,970
9,141,742

into Won₩ 6,811,169 $
1,710,252
1,145,401
565,968
202,917
1,060,034₩11,495,741 $Percentage (%)

Total

into Won

2,184,437
2,184,437₩ 2,746,929₩ 9,558,098₩ 2,746,929

1,710,252
1,145,401
565,968
202,917
1,060,034₩14,242,670

67.12
12.01
8.04
3.97
1.42
7.44
100.00(*) Foreign currencies other than U.S. Dollars are converted into U.S. Dollars at the rate at the balance sheet date.

<2007>Classification

Korea
Canada
USA
Japan
China
OthersLoans in foreign currencies$$

Domestic import usance bill

Loans in U.S. Translation

Loans in U.S. Translation

Dollars (*)

Dollars (*)

3,728,672
688,009446,314367,831
127,545
1,982,619
7,340,990

into Won₩ 3,498,240 $
645,490418,732
345,099
119,663
1,860,092₩ 6,887,316   $Percentage (%)

Total

into Won

1,857,444
1,857,444₩ 1,742,654₩ 5,240,894₩ 1,742,654

645,490418,732
345,099
119,663
1,860,092₩ 8,629,970

60.73
7.48
4.85
4.00
1.39
21.55
100.00(*) Foreign currencies other than U.S. Dollars are converted into U.S. Dollars at the rate at the balance sheet date.

(  5   ) Loans on Won, loans in foreign currencies and domestic import usance bill, classified by industry, as ofDecember 31, 2008 and 2007 were as follows (Unit: In millions):<2008>
By borrower type
Corporations:     Manufacturing     Service     Real estate and renting and leasing     Construction     Transportation business     Others
Households
Public sector and others

Loans in Won₩

Loans of overseas branches₩

26,313,354
10,146,952
3,446,780
3,892,542
2,980,393
1,312,335
4,534,352
15,862,990
148,852
42,325,196
42,325,196

Loans in foreign

Domestic import Total

currencies₩
5,802,160

usance bill₩

2,724,646
1,432,851
153,048
41,384759,017691,214524,362
211,338
6,537,860
4,957,881
11,495,741₩₩

2,746,929
2,325,019
381,23962
10,614
4,355
25,6402,746,929
2,746,929₩₩

Percentage (%)
34,862,443
15,196,617
5,260,870
4,045,652
3,032,391
2,075,707
5,251,206
16,387,352
360,190
51,609,985
4,957,881
56,567,866

67.55
29.45
10.19
7.84
5.88
4.02
10.17
31.75
0.70
100.00Notes to Consolidated Financial Statements

147

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

<2007>
By borrower type
Corporations:     Manufacturing     Finance and insurance     Telecommunications     Service     Construction     Others
Households
Public sector and others

Loans in Won₩

Loans of overseas branches₩

22,780,182
8,400,049
632,657
36,081
5,210,933
3,308,248
5,192,214
14,869,669
174,772
37,824,623
37,824,623

Loans in foreign

Domestic import Total

currencies₩
3,102,542

usance bill₩

1,556,510
24,613300
958,076
51,805511,238
430,126
43,4883,576,156
3,311,160
6,887,316₩₩

1,742,654
1,462,867
7
215,31145,83818,631
1,742,654
1,742,654₩₩

Percentage (%)
27,625,378
11,419,426
657,270
36,3886,384,320
3,405,891
5,722,083
15,299,795
218,260
43,143,433
3,311,160
46,454,593

64.03
26.48
1.52
0.08
14.80
7.89
13.26
35.46
0.51
100.00(  6  ) Loans to financial institutions as of December 31, 2008 and 2007 were as follows (Unit: In millions):<2008>Classification
Bank
Other financial institutions
Overseas financial institutions

Loans in Won₩₩

54,792
844,676
899,468

Loans in foreign
currencies (*)₩
47,86026,559₩74,419Call loans

Total

201,913639,164
841,077

₩

₩

₩

₩

Percentage (%)
256,705
892,536
665,723
1,814,964

14.14
49.18
36.68
100.00(*) Domestic import usance bill is included in loans in foreign currencies.

<2007>Classification

Loans in Won

Loans in foreign

Call loans

Total

Percentage (%)

currencies (*)
Bank
Other financial institutions
Overseas financial institutions₩₩

12,000612,551624,551₩₩

81,882
81,882₩₩

1,090,624
1,297,267
2,387,891₩₩

1,102,624
694,433
1,297,267
3,094,324

35.64
22.44
41.92
100.00(*) Domestic import usance bill is included in loans in foreign currencies.

(  7  ) The term structure of loans as of December 31, 2008 was as follows (Unit: In millions):
Classification

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 after five years₩₩

30,831,745
3,201,232
2,137,018
2,016,707
4,138,494
42,325,196

Loans in foreign Domestic import Total
currencies
usance bill₩₩

6,823,300
858,320
1,277,794
1,437,127
1,099,200
11,495,741₩₩

2,746,701
201
27
2,746,929₩₩

40,401,746
4,059,753
3,414,812
3,453,834
5,237,721
56,567,866(  8  ) T he changes in deferred loan origination fees and costs for the year ended December 31, 2008 were as follows(Unit: In millions):
Beginning balance    Addition
Deferred loan origination fees and costs₩

31,792₩

Decrease
54,101₩(32,714)Ending balance₩

53,179

148

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  9  ) The disposed loans for the year ended December 31, 2008 were as follows (Unit: In millions):
Purchaser

Nominal amountHyundai Asset Resolution Co., Ltd. (*)
KEB 16th Securitization Specialty Co., Ltd.
KCR Partners Co., Ltd. (*)
Tongyang Financial Co., Ltd. (*)
Jinheung Savings Bank₩

Allowance of possible loan
Gain (Loss) on disposal
losses at disposalof loans
5,484 ₩
- ₩1,385
105,206
14,3703,219
55,236
2,987
100,668
1,979
110,273
7,329(25,855)(*) Gain on disposal of bad debts.

8.
Restructuredloans  (  1  ) T he loans that were restructured because of workouts plan and others for the year ended December 31, 2008
were as follows (Unit: In millions):
Classification

Restructuring loans

Workout plan
Corporate reorganization
Rationalization of industry

357,258
108,867
109,696
575,821₩₩

Present value (*)

Ending balance of

357,258
105,629
74,893537,780₩₩

present value discounts₩
3,238
34,80338,041₩(*) As the present value is calculated with fair value at the restructuring date, if there is no fair value, the present value of total future cash receipts under the restructuring plans is
discounted using interest rates of 6.43 percent to 13.46 percent. Also, the present value discount is calculated using effective interest rate method.

(  2   ) Changes in the present value discounts relating to the outstanding restructured loans for the year ended December         31, 2008 were as follows (Unit: In millions):
Classification

Amount (*1)

Present value discounts
Beginning

Addition

Deductionbalance (*2)

balance
Loans:
Court receivership
Others

₩Accounts receivable:
Court receivership
Others₩

4,138
97,012
101,150
18,733
18,733
119,883(*1) These only include restructured loans discounted at present value.
(*2) The present value discount is presented as allowance of possible loan losses.

₩₩

Ending592
41,76042,352
2,134
5,136
7,270
49,622

₩

₩

161
161
503
503
664

₩

₩

(75)
(8,824)(8,899)(2,134)(1,212)(3,346)(12,245)₩₩517
33,09733,6144,427
4,427
38,041

Notes to Consolidated Financial Statements

149

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

9.
Allowance forpossible loan
losses(  1  ) The allowance for possible loan losses as of December 31, 2008 and 2007 was summarized as follows (Unit: In millions):<2008>Classification
Loans:
Call loans
    Allowance
    Allowance percentage
Credit card loans
    Allowance
    Allowance percentage
Bills bought in foreign currencies
    Allowance         Allowance percentage     Bonds bought under resale agreements         Allowance         Allowance percentage     Loans in Won         Allowance         Allowance percentage     Loans in foreign currencies         Allowance           Allowance percentage       Inter-bank loans        Allowance           Allowance percentage     Factoring receivables           Allowance        Allowance percentage     Advances for customers        Allowance        Allowance percentage     Privately placed bonds        Allowance        Allowance percentage
Other accounts     Allowance     Allowance percentage
Sum:
Loans and other accounts     Allowance     Allowance percentage
Present value discounts
Allowance for possible loan     losses on balance sheet

Normal
841,077
2,477,045
37,1561.50%
4,535,209
38,5550.85%
2,342,717
43,303,426
398,941
0.92%
13,992,855
119,879
0.86%
26,559130,689
1,111
0.85%
3,016
26
0.85%
733,293
5,353
0.73%
12,29178
0.64%₩

68,398,177
601,099
0.88%
34,802Precautionary Substandard Doubtful₩

40,6338,157
20.07%
578
40
7.00%
565,627
46,445
8.21%
148,492
11,976
8.07%
8,180
898
10.98%
2,200
154
7.00%
6,548
430
6.57%
772,258
68,100
8.82%
1,194

₩

210
42
20.00%
10,676
5,231
49.00%
385,029
78,26220.33%
37,848
11,74631.03%
3,165
633
20.00%
2,360
472
20.00%
4,259
852
20.00%
443,547
97,23821.92%
2,045₩

25,984
15,93061.31%
48,521
27,61956.92%
15,061
11,91979.13%
46
23
50.00%
6,020
3,049
50.65%
95,63258,54061.21%-

Estimated loss

Total

8,735
8,735
100.00%186,360
186,360
100.00%21,85521,855100.00%16,182
16,182100.00%291
291
100.00%35,41135,411100.00%₩₩268,834
268,834
100.00%-841,077
2,552,607
70,0202.74%
4,546,463
43,8260.96%
2,342,717
44,488,963
737,627
1.66%
14,216,111
177,375
1.25%
26,559130,689
1,111
0.85%
30,58917,76258.07%
738,144
6,270
0.85%
64,52939,82061.71%
69,978,448
1,093,811
1.56%
38,041₩ 1,131,852(*1) Local L/C bills bought in Won amounting to ₩17,731 million and Local L/C bills bought in foreign currencies amounting to ₩48,755 million among bills bought in Won are       included in bills bought in foreign currencies.
(*2) Commercial bills purchased amounting to ₩2,196,784 million among bills bought in Won are included in bills bought in foreign currencies, and present value discount amounting            to ₩33,017 million is deducted.
(*3) Domestic import usance bill is included in foreign currencies. Interbank loans in foreign currencies of ₩26,559 million is deducted.
(*4) Present value discount amounting to ₩538 million is deducted on advances for customers.
(*5) Present value discount amounting to ₩59 million is deducted on privately placed bonds.
(*6) Other accounts consisted of account receivable (transfer-in bills bought in foreign currencies) amounting to ₩5,099 million, suspense payments in relation with loans amounting
to ₩58,480 million and securities (commercial paper) amounting to ₩950 million.     150Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

<2007>Classification
Loans:
Call loans
    Allowance
    Allowance percentage
Credit card loans
    Allowance
    Allowance percentage
Bills bought in foreign currencies (*1)
         Allowance         Allowance percentage     Loans in Won (*2)
         Allowance         Allowance percentage     Loans in foreign currencies (*3)
         Allowance         Allowance percentage
Factoring receivables        Allowance           Allowance percentage     Advances for customers (*4)
        Allowance        Allowance percentage     Privately placed bonds (*5)
        Allowance        Allowance percentage
Other accounts (*6)
     Allowance     Allowance percentage
Sum:
Loans and other accounts     Allowance     Allowance percentage
Present value discounts
Allowance for possible loan     losses on balance sheet

NormalPrecautionary Substandard Doubtful₩ 2,387,891₩

2,376,605
35,6491.50%
3,624,868
30,5240.84%
39,264,157
362,8650.92%
8,520,466
74,9540.88%
310,786
2,641
0.85%
366
3
0.82%
892,677
6,784
0.76%
1,331
11
0.83%

34,034
7,943
23.34%
322
6.25%
250,931
19,2797.68%
60,3676,323
10.47%
2,622
487
18.57%
245
17
6.94%
86
7
8.14%

57,379,147
513,4310.89%
41,463

348,317
34,058
9.78%
3,745

₩

7,965
3,903
49.00%
195,997
40,62020.72%
38,7858,305
21.41%
1,190
238
20.00%
173
35
20.23%
1,636
327
19.99%
245,746
53,42821.74%
4,396₩

24,067
15,06262.58%
1,501
751
50.03%
10,2385,452
53.25%
6,559
4,881
74.42%
10
5
50.00%
1,138
569
50.00%
43,513
26,72061.41%-

Estimated loss
₩

Total

5,847
5,847
100.00%65,151
65,151100.00%2,047
1,963
95.90%
1,805
1,805
100.00%1,671
1,671
100.00%₩ 2,387,891

76,521
76,43799.89%
18

58,093,244
704,074
1.21%
49,6222,440,553
64,501
2.64%
3,634,366
35,1800.97%
39,786,474
493,367
1.24%
8,628,224
96,426
1.12%
310,786
2,641
0.85%
5,993
2,538
42.35%
893,095
6,836
0.77%
5,862
2,585
44.10%₩

753,696(*1) Local L/C bills bought in Won amounting to ₩17,352 million and Local L/C bills bought in foreign currencies amounting to ₩91,896 million among bills bought in Won are       included in bills bought in foreign currencies.
(*2) Commercial bills purchased amounting to ₩2,001,633 million among bills bought in Won are included in bills bought in foreign currencies, and present value discount amounting                  to ₩39,782 million is deducted.
(*3) Domestic import usance bill is included in foreign currencies. Present value discount amounting to ₩1,746 million is deducted.
(*4) Present value discount amounting to ₩726 million is deducted on advances for customers.
(*5) Present value discount amounting to ₩99 million is deducted on privately placed bonds.
(*6) Other accounts consisted of account receivable (transfer-in bills bought in foreign currencies) amounting to ₩959 million, suspense payments in relation with loans amounting to       ₩3,591 million and securities (commercial paper) amounting to ₩1,312 million.

Notes to Consolidated Financial Statements

151

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  2  ) T he changes in allowance for possible loan losses for the years ended December 31, 2008 and 2007 were as follows(Unit: In millions):
Classification

2008

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₩

2007
753,696
778,445(597,106)
183,783
21,081(8,047)
1,131,852₩

648,642304,777(355,998)
155,0291,840(594)
753,696₩₩(  3  ) The allowance for possible loan losses compared to total loans, net of present value discount, was summarized as           follows (Unit: In millions):
Classification
Loans (*1)
Allowance for possible loan losses (*2)
Percentage (%)

2008₩

66,768,095
1,093,811
1.64

2007
₩

55,705,353
704,074
1.26

2006
₩

47,106,926
598,426
1.27(*1) Call loans, bonds purchased under repurchase agreements and interbank loans in foreign currencies are excluded.
(*2) Present value discounts are excluded.

10.
Tangible assets(  1  ) Tangible assets as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification

2008₩

Tangible assets
Less: accumulated depreciation

2,252,934(802,354)
1,450,580

₩

2007
₩
₩

1,666,440(756,551)
909,889(  2  ) Tangible assets as of December 31, 2008 and 2007 consisted of (Unit: In millions):  
<2008>Classification
Land
Construction
Leasehold improvements
Equipment and vehicles
Construction in progress

Acquisition cost￦￦<2007>Classification
Land
Construction
Leasehold improvements
Equipment and vehicles
Construction in progress

938,810541,098
121,908
651,09622
2,252,934

Acquisition cost₩₩

377,328
513,696
104,236
651,519
19,661
1,666,440

Accumulated
depreciation￦￦(182,609)(82,565)(537,180)(802,354)

Accumulated
depreciation₩₩(168,003)(68,611)(519,937)(756,551)

Book value￦￦

938,810358,489
39,343113,91622
1,450,580

Book value₩₩

377,328
345,693
35,625131,582
19,661
909,889

152

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  3  ) The changes in book value of tangible assets for the year ended December 31, 2008 were as follows (Unit: In millions):
Classification

Beginning

Acquisition Reclassification Disposal

Depreciation Revaluation Others
excess (*)

Land
Buildings
Leasehold improvements
Equipment and vehicles
Construction in progress₩ 377,328
345,693
35,625131,582
19,661₩ 909,889₩ 10,702
21,032
15,46959,21922₩ 106,444₩₩ 17,329
2,330
2(19,661)
₩
-

(72)
(469)
(294)
(4,727)₩ (5,562)₩(13,041)(13,042)(71,941)₩ (98,024)₩ 532,778₩ 532,778

Ending
745
2,944
1,583
(217)
5,055

₩

₩

₩ 938,810
358,489
39,343113,91622₩1,450,580(*) Before tax adjustment(  4  ) T he published value of the land was ￦755,083 million and ￦696,977 million as of December 31, 2008 and 2007,
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, 2008 were as follows (Unit: In millions):
Type of insurance

Asset insured

Property composite

Construction
Leasehold improvements
Equipment and vehicles

Insured balance Insurance company₩
339,719 Hyundai Marine & Fire Insurance Co., Ltd.
44,314 Hyundai Marine & Fire Insurance Co., Ltd.,131,645 ING and others₩
515,678(  6  ) T he revaluation of tangible assets for the year ended December 31, 2008 were as follows (Unit: In millions):
Classification

Beginning                    Revaluation profit(*) Revaluation loss(*) Ending

Land

₩

406,032₩

558,124(25,346)₩₩

938,810(*) Before tax adjustment   

The Bank accounted gain on revaluation of tangible assets of ₩435,337 million, net of deferred tax liabilities amounting to ₩122,787
million, as accumulated other comprehensive income. The Bank accounted the loss on revaluation and deferred tax assets of ₩25,346 million and₩5,576 million, respectively. Nara and Daewha appraisal firms revaluated the Bank’s land as of December 31, 2008.

11.
Other assets(  1  ) Other assets as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification

2008

Guarantee deposits paid
Accounts receivable
Accrued income
Prepaid expenses
Deferred income tax assets (see Note 22)
Derivatives assets (see Note 17)
Intangible assets
Sundry assets₩

2007
659,883
5,217,384
412,834
21,772
29,3404,673,463
66,522
1,310,085
12,391,283₩

624,768
5,931,028
320,582
10,81910,948786,570
81,0591,137,764
8,903,538₩₩(  2  ) Intangible assets as of December 31, 2008 and 2007 consisted of (Unit: In millions):<2008>Classification
Development expenditures
Others (*)

Acquisition cost₩₩(*) The effect of exchange rate fluctuation is included.

196,887
2,754
199,641

Accumulated
amortization₩₩(131,182)(1,937)(133,119)Book value₩₩

65,705817
66,522

Notes to Consolidated Financial Statements

153

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

<2007>Classification

Acquisition cost

Development expenditures
Others (*)₩₩

180,973
4,866
185,839

Accumulated
amortization

Book value(100,702)(4,078)(104,780)₩₩

80,271
788
81,059₩₩(*) The effect of exchange rate fluctuation is included.

(  3  ) The changes in intangible assets for the year ended December 31, 2008 were as follows (Unit: In millions):
Classification

Beginning

Acquisition

DisposalAmortization Change in
foreigncurrencies

Development expenditures
Others₩    80,271 ₩    16,299 ₩          - ₩    (30,865)
788
304
(484)
₩    81,059 ₩    16,603 ₩        - ₩    (31,349)

Ending65,705- ₩209
817₩       209 ₩     66,522₩(  4  ) Sundry assets as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification
Suspense payments in Won
Suspense payments in foreign currencies
Deposited money
Cash sending to other banks
Domestic exchange settlement debits
Bills unsettled
Unsettled inter-office transaction
Others

2008
₩

₩

12.
Deposits

94,743
8,949
5,051
20,147200
1,153,061
18,611
9,323
1,310,085

2007
₩

₩

54,547
3,259
4,231
19,682
1,002,749
42,633
10,663
1,137,764(  1  ) Deposits as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification
Demand deposits
Time deposits
Negotiable certificates of deposits

2008
₩

₩

24,110,040
31,031,532
7,422,018
62,563,590

2007
₩

₩

21,751,581
21,329,740
5,590,033
48,671,354(  2  ) Details of deposits as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification

2008

Demand deposits:
Demand deposits in Won
Demand deposits in foreign currencies₩

Time deposits:
Time deposits in Won
Time deposits in foreign currencies
Mutual installment savings
Negotiable certificates of deposits₩

2007
18,992,722
5,117,318
24,110,040
21,937,233
9,030,434
63,86531,031,532
7,422,018
62,563,590₩₩

17,949,291
3,802,290
21,751,581
14,829,065
6,396,506
104,169
21,329,740
5,590,033
48,671,354

154

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  3  ) Deposits with financial institutions as of December 31, 2008 and 2007 were as follows (Unit: In millions):<2008>Classification

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

6,647
133,737₩

913,968
322,765
51,0001,428,117₩<2007>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₩₩

197,718
11,330₩₩Foreign financial Total
institution

2,811,364
537,917
2,581,994
6,140,323

Other financial
institution
2,196,375
395,004
90,000204,849
2,886,228₩₩

67,048208,204₩

22,012
4,165
301,429₩₩₩

271,413353,271
3,747,344
864,847
2,632,994
7,869,869

Foreign financial Total
institution

1,353,455
14,8303,780,311
133,619
165,625
5,447,840

46,306
123,755₩

67,430237,491₩₩₩

3,596,136
533,589
3,937,741
133,619
370,474
8,571,559(  4  ) Term structure of deposits as of December 31, 2008 was 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 after five years

₩

₩

13.
Borrowings

38,705,363
714,754
243,663
156,872
1,173,168
40,993,820

Deposits inforeigncurrencies₩₩

Negotiablecertificates ofdeposits

13,969,832
65,58372,251
40,08614,147,752

₩

₩

Total

7,392,000
30,018
7,422,018₩₩

60,067,195
810,355
315,914
196,958
1,173,168
62,563,590(  1  ) Borrowings as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification

2008

Call money
Bills soldBonds sold under repurchase agreements
Borrowings
Debentures
Less: Discount on debentures₩2007
2,664,341
31,491
432,384
9,252,475
11,221,427(45,517)
23,556,601₩

854,566
64,009444,762
7,968,927
8,855,629(38,660)
18,149,233₩₩(  2  ) Call money as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Account

LenderAnnual interest rate (%) 2008

2007

Dec. 31, 2008
Call money in Won
Call money in foreign currencies

Financial institution in Korea and others
Foreign financial institution and others

1.25~8.80₩₩

2,664,341
2,664,341₩₩

39,700814,866
854,566

Notes to Consolidated Financial Statements

155

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  3  ) Bills sold, bonds sold under repurchase agreements and due to BOK in foreign currencies as of December 31,         2008 and 2007 consisted of the following (Unit: In millions):
Account

LenderAnnual interest rate (%) 2008

2007

Dec. 31, 2008
Bills soldBonds sold under
repurchase agreements

General customer

1.80~6.86

General customer and others

3.20~8.00₩

31,491₩64,009₩432,384
463,875₩

444,762
508,771(  4  ) Borrowings as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Account

LenderAnnual interest rate (%) 2008

2007

Dec. 31, 2008
Borrowings in Won:
Borrowings from the BOK
Borrowings from the Korean
government
Borrowings from banking institutions
Other borrowings
Borrowings in foreign currencies:
Refinance
Short term borrowing in foreign
currencies
Middle and long term
borrowing in foreign currencies
Borrowings from banks for sub-loan
Other borrowings

BOK
Ministry of Finance andEconomy, and others
Industrial Bank of Korea
Small Business Corporation and others

1.75~2.25
1.50~5.41
1.00~6.03
0.00~5.83

309,342
128,409551,564
1,826,481

282,046
268,194
571,118
1,763,222

Korea Exim Bank and others

3.89~6.62

1,235,760

541,341

Foreign financial institution

1.85~6.99

3,340,359

3,588,669

SMBC and others
Industrial Bank of Korea and others
Foreign financial institution

2.87~6.43
2.35~10.50

725,753
2,124,122
7,425,994
9,252,475

847,961
1,589
1,226,145
6,205,705
7,968,927₩₩

837,166₩₩

641,864(  5  ) I n the normal course of funding activities, the Bank provided securities as collateral for borrowings from the Bank of
Korea and other financial institutions as of December 31, 2008 [see Note 6(7)].
(  6  ) Debentures
1) Debentures as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Account

Annual interest rate (%) 2008

2007

Dec. 31, 2008
Debentures in Won:
Finance debentures
Subordinated financing debentures
Hybrid debentures

4.89~8.90
4.90~7.80
8.50₩

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

0.90~4.83
5.00

Discounts on debentures₩

8,511,000
1,367,109
250,000
10,128,109(40,620)
10,087,489
703,259
390,059
1,093,318(4,897)
1,088,421
11,175,910₩₩

7,010,000
694,513250,000
7,954,513(34,752)
7,919,761
619,257
281,859
901,116(3,908)897,208
8,816,969

156

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

2) As of December 31, 2008, all finance debentures issued in Won were general debentures and consisted of(Unit: In millions):
Issued date

Expiration date

Annual interest rates (%)

2008

2007

Dec. 31, 2008
Oct. 26, 2005
Jan. 03, 2006
Jan. 04, 2006
Jan. 11, 2006
Jan. 13, 2006
Feb. 08, 2006
Apr. 04, 2006
Apr. 05, 2006
Apr. 11, 2006
Apr. 12, 2006
Apr. 19, 2006
Apr. 25, 2006
May 03, 2006
May 08, 2006
May 11, 2006
May 12, 2006
May 16, 2006
May 17, 2006
May 19, 2006
Jul. 04, 2006
Jul. 05, 2006
Jul. 06, 2006
Jul. 19, 2006
Jul. 26, 2006
Nov. 13, 2006
Nov. 17, 2006
Dec. 04, 2006
Dec. 06, 2006
Dec. 06, 2006
Dec. 08, 2006
Dec. 11, 2006
Dec. 12, 2006
Dec. 13, 2006
Dec. 14, 2006
Dec. 15, 2006
Dec. 18, 2006
Dec. 19, 2006
Dec. 20, 2006
Jan. 09, 2007
Jan. 10, 2007
Jan. 11, 2007
Jan. 16, 2007
Jan. 17, 2007
Jan. 18, 2007
Jan. 18, 2007
Jan. 19, 2007
Jan. 25, 2007
Jan. 25, 2007
Jan. 26, 2007

Oct. 26, 2008
Jan. 03, 2008
Jan. 04, 2008
Jan. 11, 2008
Jan. 13, 2008
Feb. 08, 2008
Apr. 04, 2008
Apr. 05, 2008
Apr. 11, 2008
Apr. 12, 2008
Apr. 19, 2008
Apr. 25, 2008
May 03, 2008
May 08, 2008
May 11, 2008
May 12, 2008
May 16, 2008
May 17, 2008
May 19, 2008
Jul. 04, 2008
Jul. 05, 2008
Jul. 06, 2008
Jul. 19, 2008
Jan. 26, 2008
Nov. 13, 2009
Nov. 17, 2009
Dec. 04, 2008
Dec. 06, 2008
Dec. 06, 2009
Dec. 08, 2008
Dec. 11, 2009
Dec. 12, 2008
Dec. 13, 2008
Dec. 14, 2008
Dec. 15, 2008
Dec. 18, 2008
Dec. 19, 2008
Dec. 20, 2008
Jan. 09, 2009
Jan. 10, 2010
Jan. 11, 2010
Jan. 16, 2008
Jan. 17, 2009
Jan. 18, 2009
Jan. 18, 2010
Jan. 19, 2009
Jan. 25, 2009
Jan. 25, 2010
Jan. 26, 2010

5.32
5.27
5.18
5.20
5.10
5.06
5.04
5.03
5.01
5.00
5.07
5.01
4.96
4.93
4.91
4.91
4.94
4.91
4.88
5.05
5.02
5.00
5.03
4.99
5.03
4.89
4.94
4.92
4.98
4.89
5.00
4.96
4.95
4.97
4.99
5.04
5.00
5.02
5.07
5.10
5.09
5.09
5.15
5.17
5.20
5.16
5.20
5.23
5.47

₩

50,00050,00040,00050,00050,00050,00050,00050,00020,00030,00050,00020,00030,00030,000₩50,00030,00040,00050,00050,00050,00030,00050,00020,00040,00050,00050,00010,00050,00030,00050,00050,00050,00050,00050,00050,00050,00050,00050,00050,00050,00010,00010,00040,00030,00050,00050,00050,00050,000120,000
20,00050,00020,00050,00050,00050,00040,00050,00020,00030,00050,00020,00030,00030,000Notes to Consolidated Financial Statements

157

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

Issued date

Expiration date

Annual interest rates (%)

2008

2007

Dec. 31, 2008
Feb. 05, 2007
Feb. 06, 2007
Feb. 06, 2007
Feb. 09, 2007
Feb. 14, 2007
Feb. 14, 2007
Feb. 15, 2007
Feb. 15, 2007
Feb. 16, 2007
Feb. 23, 2007
Feb. 28, 2007
Mar. 02, 2007
Mar. 09, 2007
Mar. 12, 2007
Mar. 15, 2007
Mar. 15, 2007
Mar. 16, 2007
Mar. 23, 2007
Mar. 27, 2007
Mar. 27, 2007
Mar. 27, 2007
Mar. 27, 2007
Mar. 29, 2007
Apr. 03, 2007
Apr. 18, 2007
Apr. 19, 2007
Apr. 24, 2007
May 02, 2007
May 03, 2007
May 08, 2007
May 08, 2007
May 09, 2007
May 14, 2007
May 14, 2007
May 15, 2007
May 15, 2007
May 16, 2007
May 17, 2007
May 21, 2007
May 21, 2007
May 23, 2007
May 25, 2007
May 29, 2007
May 30, 2007
Jun. 01, 2007
Jun. 05, 2007
Jun. 13, 2007
Jun. 15, 2007
Jun. 18, 2007
Jun. 26, 2007
Jun. 28, 2007

Feb. 05, 2010
Feb. 06, 2008
Aug. 06, 2008
Feb. 09, 2010
Feb. 14, 2008
Aug. 14, 2008
Feb. 15, 2008
Aug. 15, 2008
Aug. 16, 2008
Aug. 23, 2008
Feb. 28, 2010
Mar. 02, 2008
Mar. 09, 2008
Mar. 12, 2008
Mar. 15, 2008
Mar. 15, 2009
Mar. 16, 2009
Sep. 23, 2008
Mar. 27, 2008
Mar. 27, 2009
Mar. 27, 2009
Mar. 27, 2010
Sep. 29, 2008
Apr. 03, 2009
Oct. 18, 2008
Oct. 19, 2008
Oct. 24, 2008
May 02, 2009
Nov. 03, 2008
May 08, 2008
May 08, 2009
May 09, 2009
May 14, 2008
May 14, 2010
May 15, 2008
May 15, 2009
May 16, 2010
May 17, 2010
May 21, 2009
May 21, 2010
May 23, 2010
May 25, 2010
May 29, 2008
May 30, 2010
Jun. 01, 2010
Jun. 05, 2009
Jun. 13, 2010
Dec. 15, 2008
Jun. 18, 2009
Jun. 26, 2009
Jun. 28, 2010

5.23
5.10
5.14
5.14
5.09
5.11
5.05
5.06
5.05
5.03
5.05
5.03
5.00
5.03
5.03
5.06
5.05
5.02
5.01
5.03
5.21
5.26
5.02
5.05
5.11
5.10
5.15
5.24
5.20
5.18
5.24
5.27
5.22
5.32
5.24
5.28
5.35
5.36
5.33
5.39
5.38
5.67
5.22
5.36
5.37
5.28
5.49
5.35
5.39
5.40
5.44

₩

50,00050,00030,00020,00050,00030,00040,00010,00050,00050,00010,00020,00040,00020,00050,00050,00020,00030,000100,000
40,00050,00050,00050,00050,00030,00050,00050,000₩50,00010,00030,00050,00040,00010,00030,00060,00020,00010,00030,00010,00040,00030,00030,00020,00050,00070,00020,00030,00040,00010,00010,00050,00010,00020,00020,00050,00030,00010,00010,00020,00010,00040,00010,00020,00050,00050,00020,00030,000100,000
40,00050,00050,00050,00050,00050,00050,00030,00050,00050,000158

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

Issued date

Expiration date

Annual interest rates (%)

2008

2007

Dec. 31, 2008
Jul. 10, 2007
Jul. 11, 2007
Jul. 16, 2007
Jul. 16, 2007
Jul. 18, 2007
Jul. 19, 2007
Jul. 24, 2007
Jul. 24, 2007
Jul. 25, 2007
Jul. 26, 2007
Jul. 26, 2007
Jul. 30, 2007
Jul. 31, 2007
Jul. 31, 2007
Aug. 01, 2007
Aug. 03, 2007
Aug. 03, 2007
Aug. 08, 2007
Aug. 09, 2007
Aug. 14, 2007
Aug. 23, 2007
Aug. 24, 2007
Aug. 28, 2007
Aug. 29, 2007
Sep. 10, 2007
Sep. 17, 2007
Sep. 17, 2007
Sep. 20, 2007
Sep. 27, 2007
Oct. 02, 2007
Oct. 09, 2007
Oct. 09, 2007
Oct. 10, 2007
Oct. 11, 2007
Oct. 11, 2007
Oct. 12, 2007
Oct. 16, 2007
Oct. 17, 2007
Oct. 18, 2007
Oct. 18, 2007
Oct. 23, 2007
Oct. 24, 2007
Oct. 24, 2007
Oct. 25, 2007
Oct. 26, 2007
Oct. 29, 2007
Oct. 29, 2007
Oct. 30, 2007
Oct. 30, 2007
Nov. 02, 2007
Nov. 05, 2007

Jul. 10, 2009
Jul. 11, 2009
Jul. 16, 2008
Jan. 16, 2009
Jul. 18, 2008
Jan. 19, 2009
Jan. 24, 2009
Jul. 24, 2010
Jul. 25, 2010
Jan. 26, 2009
Jul. 26, 2009
Jul. 30, 2010
Jul. 31, 2009
Jul. 31, 2010
Aug. 01, 2009
Aug. 03, 2009
Aug. 03, 2010
Feb. 08, 2009
Aug. 09, 2009
Aug. 14, 2010
Aug. 23, 2010
Aug. 24, 2010
Aug. 28, 2008
Aug. 29, 2008
Sep. 10, 2010
Sep. 17, 2009
Sep. 17, 2010
Sep. 20, 2008
Sep. 27, 2008
Apr. 02, 2009
Oct. 09, 2008
Apr. 09, 2009
Oct. 10, 2010
Oct. 11, 2008
Apr. 11, 2009
Apr. 12, 2009
Apr. 16, 2009
Apr. 17, 2009
Oct. 18, 2009
Oct. 18, 2010
Oct. 23, 2010
Oct. 24, 2008
Oct. 24, 2009
Oct. 25, 2008
Apr. 26, 2009
Oct. 29, 2008
Apr. 29, 2009
Oct. 30, 2008
Apr. 30, 2009
Nov. 02, 2009
Nov. 05, 2008

5.50
5.50
5.40
5.53
5.41
5.53
5.52
5.60
5.61
5.51
5.55
5.53
5.48
5.53
5.45
5.44
5.48
5.91
5.57
5.58
5.65
5.67
5.50
5.50
5.77
6.00
6.06
5.64
5.65
5.77
5.65
5.77
5.93
5.65
5.78
5.80
5.81
5.80
5.84
5.91
5.84
5.65
5.78
5.65
5.74
5.69
5.76
5.70
5.76
5.86
5.72

₩

50,00050,00010,00050,00030,00020,00050,00040,00010,00030,00020,00030,00020,00040,00010,00010,00040,00010,00030,00050,000200,000
20,00020,00050,00020,000200,000
26,00050,000140,000
50,00030,00070,00010,00040,00020,00030,00030,00040,000-₩50,00050,00040,00010,00040,00050,00030,00020,00050,00040,00010,00030,00020,00030,00020,00040,00010,00010,00040,00010,00030,00050,00010,00010,000200,000
20,00020,00050,00050,00050,00010,00020,000200,000
24,00026,00050,000140,000
50,00030,00070,00010,00010,00040,00040,00020,00040,00030,000190,000
30,00040,00050,000Notes to Consolidated Financial Statements

159

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

Issued date

Expiration date

Annual interest rates (%)

2008

2007

Dec. 31, 2008
Nov. 06, 2007
Nov. 08, 2007
Nov. 14, 2007
Nov. 23, 2007
Nov. 26, 2007
Nov. 30, 2007
Dec. 05, 2007
Dec. 17, 2007
Jan. 10, 2008
Jan. 11, 2008
Jan. 15, 2008
Jan. 23, 2008
Jan. 29, 2008
Jan. 30, 2008
Jan. 31, 2008
Feb. 15, 2008
Mar. 04, 2008
Mar. 04, 2008
Mar. 28, 2008
Apr. 01, 2008
Apr. 02, 2008
Apr. 04, 2008
Apr. 07, 2008
Apr. 07, 2008
Apr. 10, 2008
Apr. 11, 2008
Apr. 14, 2008
Apr. 15, 2008
Apr. 16, 2008
Apr. 17, 2008
Apr. 18, 2008
Apr. 21, 2008
Apr. 24, 2008
Apr. 24, 2008
Apr. 29, 2008
Apr. 30, 2008
May 08, 2008
May 14, 2008
May 15, 2008
May 16, 2008
May 22, 2008
May 23, 2008
May 26, 2008
May 26, 2008
May 27, 2008
May 27, 2008
May 28, 2008
May 29, 2008
May 30, 2008
May 30, 2008
Jun. 03, 2008

Nov. 06, 2008
Nov. 08, 2010
Nov. 14, 2010
Nov. 23, 2010
Nov. 26, 2010
Nov. 30, 2010
Dec. 05, 2010
Dec. 17, 2008
Jul. 10, 2009
Jul. 11, 2009
Jan. 15, 2010
Jul. 23, 2009
Jul. 29, 2009
Jul. 30, 2008
Jan. 31, 2009
Feb. 15, 2010
Sep. 04, 2009
Mar. 04, 2011
Sep. 28, 2009
Oct. 01, 2009
Oct. 02, 2009
Oct. 04, 2009
Apr. 07, 2009
Oct. 07, 2009
Apr. 10, 2010
Apr. 11, 2009
Oct. 14, 2009
Apr. 15, 2010
Apr. 16, 2010
Apr. 17, 2010
Apr. 18, 2010
Apr. 21, 2009
Oct. 24, 2009
Apr. 24, 2010
Apr. 29, 2010
Apr. 30, 2010
May 08, 2010
Nov. 14, 2009
May 15, 2010
May 16, 2011
May 22, 2011
May 23, 2011
May 26, 2010
Nov. 26, 2010
Nov. 27, 2009
May 27, 2010
May 28, 2010
May 29, 2010
May 30, 2009
Nov. 30, 2009
Jun. 03, 2010

5.72
5.88
5.94
6.22
6.25
6.63
6.70
6.33
6.69
6.59
6.39
5.67
5.46
5.42
5.30
5.30
6.20
6.32
5.77
5.70
5.77
5.75
6.16
5.75
5.71
5.51
5.55
5.58
5.54
5.52
5.50
5.45
5.45
5.47
5.42
5.39
5.56
5.75
5.80
5.87
5.93
5.92
5.87
5.92
5.79
5.85
5.82
5.90
5.63
5.85
5.98

₩

200,000
50,00070,000260,000
170,000
140,000
50,00050,00050,00050,00020,00050,00030,00030,00030,00020,00050,00050,000100,000
50,00020,00030,000200,000
100,000
50,00050,00050,00050,00050,00050,00010,00040,00010,00050,00010,00050,00020,000100,000
100,000
30,00010,00010,000200,000
20,00010,00050,00020,00070,00020,000₩10,000200,000
50,00070,000260,000
170,000
140,000
110,000-

160

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

Issued date

Expiration date

Annual interest rates (%)

2008

2007

Dec. 31, 2008
Jun. 05, 2008
Jun. 05, 2008
Jun. 12, 2008
Jun. 12, 2008
Jun. 16, 2008
Jun. 16, 2008
Jun. 18, 2008
Jun. 18, 2008
Jun. 19, 2008
Jun. 19, 2008
Jun. 24, 2008
Jun. 24, 2008
Jun. 24, 2008
Jun. 24, 2008
Jun. 26, 2008
Jun. 26, 2008
Jul. 01, 2008
Jul. 03, 2008
Jul. 04, 2008
Jul. 04, 2008
Jul. 16, 2008
Jul. 17, 2008
Jul. 17, 2008
Jul. 18, 2008
Aug. 19, 2008
Aug. 21, 2008
Sep. 01, 2008
Sep. 04, 2008
Sep. 11, 2008
Sep. 12, 2008
Sep. 26, 2008
Sep. 29, 2008
Oct. 20, 2008
Oct. 29, 2008
Nov. 06, 2008
Dec. 15, 2008

Jun. 05, 2009
Jun. 05, 2010
Jun. 12, 2009
Jun. 12, 2010
Jun. 16, 2009
Jun. 16, 2010
Jun. 18, 2009
Dec. 18, 2009
Dec. 19, 2009
Jun. 19, 2010
Jun. 24, 2009
Dec. 24, 2009
Jun. 24, 2010
Jun. 24, 2010
Dec. 26, 2009
Jun. 26, 2010
Jul. 01, 2009
Jul. 03, 2009
Jul. 04, 2009
Jul. 04, 2010
Jan. 16, 2010
Jul. 17, 2009
Jul. 17, 2010
Jan. 18, 2010
Aug. 19, 2009
Aug. 21, 2010
Sep. 01, 2010
Sep. 04, 2010
Sep. 11, 2009
Sep. 12, 2009
Sep. 26, 2009
Sep. 29, 2009
Oct. 20, 2009
Oct. 29, 2011
Nov. 06, 2009
Dec. 15, 2009

5.69
5.98
5.90
6.17
5.91
6.20
5.85
6.08
6.11
6.17
6.01
6.28
7.32
7.37
6.25
6.31
6.02
6.11
6.17
6.60
6.87
6.54
6.92
6.80
6.03
7.17
7.05
7.20
6.64
6.62
7.10
7.20
7.61
7.73
8.90
6.20

₩

₩

40,00060,00020,00070,00010,00040,00020,00040,00040,00010,00030,00020,00030,00010,00020,00030,00010,00010,00010,00010,00040,000110,000
10,000200,000
120,000
180,000
130,000
120,000
70,00050,00080,000100,000
45,000200,000
20,000200,000
8,511,000₩₩

7,010,000

Notes to Consolidated Financial Statements

161

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

3) Finance debentures issued in foreign currencies as of December 31, 2008 and 2007 consisted of (Unit: In
thousands of U.S. Dollars, in millions of Won):
First underwriter

Issued date

Expiration date

BNP Paribas, HSBC

Dec. 23, 2005

Dec. 23, 2008-

DBS

Jan. 25, 2007

Jan. 25, 2008

-

-

BOA

Feb. 16, 2007

Feb. 19, 2008

-

-

HSBC

Mar. 14, 2007

Mar. 14, 2008--

NH Investment & Securities
Korea Investment & Securities         Jul. 13, 2007

May 25, 2010

5.48

50,300(US$40,000)

CalyonJul. 20, 2007

Jul. 20, 2012

4.83

NAB (*1)

Oct. 15, 2007

Oct. 15, 2009

4.79

MIZUHO

Oct. 29, 2007

Oct. 29, 2009

3.88

MIZUHO

Oct. 30, 2007

Oct. 30, 2009

3.85

NAB (*2)

Nov. 05, 2007

Nov. 05, 2008-

377,250(US$300,000)
32,450(US$25,800)
62,875(US$50,000)
25,150(US$20,000)-

NAB (*3)

Nov. 07, 2007

Nov. 07, 2008--

SMBC, Tokyo (*4)

Sep. 12, 2008

Sep. 12, 2011

0.90

139,389(US$110,850)
15,845(US$12,600)₩
703,259(US$559,250)

Others(*1) Issued in Hong Kong dollar (HKD) amounting to HKD 200 million(*2) Issued in Hong Kong dollar (HKD) amounting to HKD 380 million(*3) Issued in Hong Kong dollar (HKD) amounting to HKD 160 million(*4) Issued in Japan yen (JPY) amounting to JPY 10,000 million--

Annual interest
rate (%)
Dec. 31, 2008

-

2008

₩

2007

-

₩

45,034(US$48,000)
32,447(US$34,585)
18,760(US$19,999)
46,901(US$49,998)
37,528(US$40,000)
281,460(US$300,000)
24,052(US$25,640)
46,910(US$50,000)
18,764(US$20,000)
45,699(US$48,716)
19,242(US$20,512)-

2,460(US$2,622)₩
619,257(US$660,072)

162

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

4) Subordinated debentures as of December 31, 2008 and 2007 were 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)
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
Underwriting sale
Debentures in foreign currencies:
CITI group & HSBC (*2, *3)

Annual interest
rate (%)
Dec. 31, 2008

2008

Feb. 28, 2007
Jan. 28, 2008
Dec. 28, 2008
Oct. 21, 2014
Nov. 28, 2014
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. 01, 2014
Jun. 19, 2014
Jun. 22, 2014
Jun. 23, 2014
Jun. 24, 2014
Jun. 26, 2014
Jun. 29, 2014
Jun. 30, 2014

5.10
4.90
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

₩

Jun. 10, 2015

5.00

390,059(US$310,186)₩
1,757,168

Issued date

Expiration date

May 28, 2001
Oct. 28, 2002
Mar. 28, 2003
Oct. 21, 2004
Nov. 28, 2004
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. 01, 2008
Dec. 19, 2008
Dec. 22, 2008
Dec. 23, 2008
Dec. 24, 2008
Dec. 26, 2008
Dec. 29, 2008
Dec. 30, 2008

Jun. 10, 2005

2007

387
290
16,432
170,000
80,000250,000
50,00060,86032,06027,57040,88037,651
78,92622,053250,000
34,06018,69023,94832,97993,487
46,836
1,367,109₩

2,009
200,000
242,504
170,000
80,000694,513281,859(US$300,426)₩
976,372(*1) The 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 optional early redemption right can be exercised by the Bank.
(*3) The first underwriters

In addition, certain subordinated debentures are under swap contracts in order to hedge risks from changes in interest rates and exchange
rates. Loss on valuation of derivatives amounting to ₩12,328 million and ₩9,293 million was accounted for in connection to such contracts for theyears ended December 31, 2008 and 2007, respectively.
5) As of December 31, 2008 and 2007, Hybrid Tier 1 bond was as follows (Unit: In millions):
Classification

Issued period (*2)

Hybrid debentures 1st (*1)

May 28, 2003 ~ May 28, 2033

Annual interest
rate (%) (*3)

2008

2007

8.50 ₩

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 10.0%.

(  7  ) Term structure of borrowings as of December 31, 2008 was as follows (Unit: In millions):
Classification

Borrowing inWon

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₩₩

936,299
83,532
77,941
316,306
412,4031,826,481

Borrowing in
Debentures inforeign currencies Won₩₩

7,165,813
254,032
6,149
7,425,994₩₩

3,948,109
4,130,000
450,000
1,600,000
10,128,109

Debentures in
Total
foreign currencies₩₩

136,320
50,300139,389377,250
390,059
1,093,318₩₩

12,186,541
4,517,864
673,479
693,556
2,402,462
20,473,902

Notes to Consolidated Financial Statements

163

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

14. 
Other Liabilities(  1  ) Other liabilities as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification

2008

Accounts payable
Accrued expenses (see Notes 17 and 19)
Unearned revenues
Guarantee money received
Accrued payable foreign exchange
Deferred income tax liabilities
Derivatives instruments liabilities (see Note 16)
Due to trust accounts
Accrued severance benefits (see Note 3)
Pension benefit
Less: Asset under management of pension benefits
Less: Funds transferred to National Pension
Less: Due to retirement insurance
Liability reserve for acceptances and guarantees
Liability reserve for unused credit limit
Allowance for other liabilities (see Note 17)
Sundry liabilities

₩

₩

2007
5,356,833
1,010,843
111,930
235,367
208,461
91,4254,561,680
886,595
294,797
4,524(2,925)(686)(228,659)
59,283
183,272
137,341
1,604,586
14,514,667₩₩

6,235,955
743,056
93,497
214,429
338,981
178,817805,501
609,298
265,369(743)(184,198)
56,085
196,813108,259
1,783,547
11,444,666(  2  ) Accrued severance benefits
1) The changes in accrued severance benefits for the years ended December 31, 2008 and 2007 were as
follows (Unit: In millions):
Classification

2008

Beginning
Provision (*1)
Payment (*2)
Foreign currencies translation₩

Pension benefits payables
Assets under management of pension benefits
Funds transferred to National Pension
Due to Retirement Insurance₩

2007
265,369
46,591(18,524)
1,361
294,797
4,524(2,925)(686)(228,659)
67,051₩₩

223,694
58,137(16,597)135
265,369(743)(184,198)
80,428(*1) The difference from severance benefits in the income statement (see Note 19) amounting to ￦1,923 million is provision on accounts payable of severance pension.
(*2) The payment of severance benefits amounting to ￦143 million for the year ended December 31, 2008 is accounted as accounts payable.

As of December 31, 2008, parts of severance benefits were contributed to pension funds of Samsung Life Insurance Co., Ltd. and others.
2) The pension benefits payables and assets under management of pension benefits are ￦4,524 million and￦2,925 million, respectively. The Bank reserved ￦1,923 million for accrued severance benefits for the year ended
December 31, 2008.
As of December 31, 2008, the assets under management of pension benefits are as follows (Unit: In millions):
Classification
Cash and due from banks
Securities

Percentage (%)
14.78
85.22
100.00164

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  3  ) Liability reserve for acceptances and guarantees
1) Acceptances and guarantees as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification

2008

Confirmed acceptances and guarantees in Won:
Payment guarantee for issuance of debentures
Acceptances for letters of guarantee for importers
Payment guarantee for loans
Others2007
4,478
93,214
701,618
799,310￦

Confirmed acceptances and guarantees in foreign currencies:
Acceptances on letters of credit
Acceptances for letters of guarantee for importers
Credit derivatives-sold
OthersUnconfirmed acceptances and guarantees:
Letters of credit
OthersBills endorsed
￦

2,253
719
70,6581,650,183
1,723,813￦

395,664
52,841
6,222,561
6,671,066

280,958
116,944
47,4893,212,635
3,658,026

3,820,754
348,040
4,168,794
63,533
11,702,703

4,793,835
20,131
4,813,966
62,165
10,257,970￦

2) The classification of asset quality for acceptances and guarantees and liability reserve for acceptancesand guarantees as of December 31, 2008 and 2007 was as follows (Unit: In millions):< 2008>Classification

Confirmed acceptances
Unconfirmed acceptances
Bills endorsed<2007>Classification

Confirmed acceptances
Unconfirmed acceptances
Bills endorsed

NormalPrecautionary Substandard₩ 7,450,697
4,151,562
63,533₩11,665,792₩₩

NormalPrecautionary Substandard₩ 5,373,439
4,806,173
62,165₩10,241,777₩₩

15,566
17,13632,702

7,485
3,159
10,644

₩

₩

₩

₩

940
20
960

20
4,522
4,542

Doubtful₩₩

Estimated
loss

2,465
70
2,535

Doubtful

₩

₩

₩

₩

708
6
714

Estimated
loss

748
35
783

₩

₩

147
77
224

Total

Liability
reserve for
acceptancesand guarantees₩ 7,470,376 ₩
4,168,794
63,533₩ 11,702,703 ₩

50,1528,591
540
59,283

Total

Liability
reserve for
acceptancesand guarantees₩ 5,381,839
4,813,966
62,165₩10,257,970₩₩

46,6338,923
529
56,0853) Acceptances and guarantees, by industry, except for the portion of overseas branches as of December 31,
2008 and 2007 were as follows (Unit: In millions):<2008>
By industry
Manufacturing
Construction
Wholesale/retail
FinanceElectricity, gas and water supply
OthersBalance₩

Confirmed acceptance and guarantees in overseas branches₩

Percentage (%)
3,862,439
508,939
1,278,760
313,842
292,578
629,8876,886,445
583,9317,470,376

56.09
7.39
18.57
4.56
4.25
9.14
100.00Notes to Consolidated Financial Statements

165

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

<2007>
By industry
Manufacturing
Construction
Wholesale/retail & service
Finance
Telecommunication
OthersBalance

Percentage (%)
3,253,373
608,254641,312284,857
18,635339,070
5,145,501
236,338
5,381,839₩

Confirmed acceptance and guarantees in overseas branches
₩

63.23
11.82
12.46
5.54
0.36
6.59
100.004) Confirmed acceptances and guarantees in foreign currencies, by country, as of December 31, 2008 and 2007
were as follows (Unit: In thousands of U.S. Dollars, in millions of Won):<2008>
By country

Korea
USA
FranceUK
Germany
OthersConfirmed acceptances Translationand guarantees in
into Won
foreign currencies (*)$$

4,763,952
128,273
75,12251,55347,602
238,5205,305,022₩₩

Percentage (%)

5,990,670
161,303
94,46664,82859,860299,939
6,671,066

89.80
2.42
1.42
0.96
0.90
4.50
100.00(*) Foreign currencies other than U.S. Dollars were converted into U.S. Dollars at the basic rates of exchange at balance sheet dates.

<2007>
By country

Korea
TaiwanFranceUSA
Singapore
OthersConfirmed acceptances Translationand guarantees in
into Won
foreign currencies (*)$$

3,391,350
75,633
69,25258,81740,480263,451
3,898,983₩₩

Percentage (%)

3,181,765
70,95964,972
55,182
37,978247,1703,658,026

86.97
1.94
1.78
1.51
1.04
6.76
100.00(*) Foreign currencies other than U.S. Dollars were converted into U.S. Dollars at the basic rates of exchange at balance sheet dates.

5) The percentage of liability reserve for acceptances and guarantees as of December 31, 2008, 2007 and 2006
was as follows (Unit: In millions):
Classification

Acceptances andguarantees

2008
2007
2006

₩

11,702,703
10,257,970
6,504,769

Liability reserve₩

59,28356,085
41,142

Percentage (%)
0.51
0.55
0.63

166

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  4  ) Liability reserve for unused credit limit
The calculation of liability reserve for unused credit limit as of December 31, 2008 and 2007 was as follows (Unit: In millions):<2008>Classification

Card loans
Loans to enterprise
Loans to household
Loans to public and others

Limit (a)₩₩14,211,031
76,503,744
3,634,249
11,74094,360,764

Balance (b)₩₩2,081,747
42,880,867
1,595,976
3,463
46,562,053

Allowance (c) = Liability reserve(a-b) x credit
for unused
conversion factor credit limit (d)₩₩6,064,418
9,544,472
410,085
1,865
16,020,840

Subsidiaries
Liability reserve for unused credit limit<2007>Classification

Card loans
Loans to enterprise
Loans to household
Loans to public and others₩₩

Limit (a)₩₩15,508,197
65,471,645
3,405,898
133,939
84,519,679

Balance (b)₩₩2,006,812
25,102,582
1,429,844
83,246
28,622,484

93,16284,8074,101
16
182,086
1,186
183,272

Allowance (c) = Liability reserve(a-b) x credit
for unused
conversion factor credit limit (d)₩₩6,750,429
9,762,067
398,239
10,13916,920,874

Subsidiaries
Liability reserve for unused credit limit₩₩

106,962
85,093
3,982
86
196,123690
196,813(  5  ) Allowance for other liabilities
Allowance for other liabilities as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification

2008

Reserve for money-back point & yes-point
Reserve for litigation (see Note 17)
Reserve for employees’ accident (*1)
Compensation to customers related to Won & Yen swap (*2)
Provision for severance and early retirement benefits (*3)
Reserve for derivatives assets (*4)
Others (*5)

₩

₩

2007
25,1299,348
8,061
15,962
16,46456,153
6,224
137,341₩₩

21,20352,268600
17,741
12,172
4,275
108,259(*1) Provision was made for 5 suspense payments, which occurred in connection with employees’ illegal act such as embezzlement.
(*2) In addition, NTS notified the Bank and its customers of the tax on interest income on Won & Yen swap from 2003 to 2005. The Bank compensated its customers with thecondition of entrusting tax appeal procedures. The Bank accounted it as an allowance for other liabilities.
(*3) The Bank reserved the provision for severance and early retirement benefits for voluntary retirees who have worked for more than 15 years and are more than 40 years old.
(*4) The Bank reserved the allowance for possible derivatives losses by currency options.
(*5) The main change is that the Bank were charged ￦1,949 million by Fair Trade Commission in violation of collusion on establishing exchange commission and raising commission on giro.

(  6  ) Sundry liabilities
Sundry liabilities as of December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification2008

Suspense receipt
Withholding taxes
Agency business accounts
AgencyCredit control deposits
Guarantee deposits for securities subscription
Domestic exchange settlements credits
Domestic remittance payable
Others￦￦2007
34,11237,64890,848
798,615577
16,481
607,928
12,655
5,722
1,604,586￦￦

256,757
32,193
93,251820,170
2,150
14,999536,596
16,896
10,535
1,783,547

Notes to Consolidated Financial Statements

167

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 200715.
Shareholders’equity(  1  ) Capital stock
Capital stock as of December 31, 2008 and 2007 was as follows (Unit: In millions except per share amounts):
Classification

2008

Shares authorized
Par share (In currency units)
Shares issued
Common stock￦2007
1,000,000,000
5,000
644,906,826
3,224,534

1,000,000,000
5,000
644,906,826
3,224,534￦￦(  2  ) Capital surplus
The amount of capital surplus as of December 31, 2008 and 2007 was transferred from stock option (accounted for as capital adjustment)
since it lapsed as it was not exercised.
(  3  ) Capital adjustments
Changes in capital adjustments for the year ended December 31, 2008 were as follows (Unit: In millions):
Beginning
Other capital adjustments(5,722)￦

Increase￦

Decrease-￦

Ending
1,297￦(4,425)

In accordance with SKAS No. 25 - Consolidated Financial Statements, the valuation of securities using equity method on oversea
subsidiaries as of December 31, 2007 was reclassified to capital surplus (capital adjustment in case of below zero) (See Note 4).
(  4  ) Accumulated other comprehensive income
The changes in accumulated other comprehensive income for the year ended December 31, 2008 were as follows (Unit: In millions):
Classification

Beginning

Gain (loss) on valuation of available-for-sale securities
Gain (loss) on valuation of held-to-maturity securities
Gain on revaluation of tangible assets￦￦

1,090,378(363)
1,090,015

Changes￦￦(1,098,502)(2)
558,124(540,380)

Disposal￦￦

Deferredincome tax(2,433)94(2,339)￦￦324,739(48)(122,787)
201,904

Ending￦￦314,182(319)
435,337
749,200(  5  ) Statements of comprehensive income
Comprehensive income consists of all changes in equity during a period from transactions and other events except those resulting
from investments by owners and distributions to owners. Comprehensive income for the year ended December 31, 2008 was as follows (Unit: In
millions):
Classification
Net income
Effect of exchange rate fluctuation
Retained earnings on trust accounts
Other comprehensive income:Gain on valuation of available-for-sale securities
Gain on valuation of held-to-maturity securities
Gain on revaluation of tangible assets
Less: Effect of income tax
Comprehensive income
Controlling company’s comprehensive income
Minority’s comprehensive income

2008
￦

￦
￦
￦

782,582
21,172116(1,100,935)
92
558,124
201,904
463,055
462,726
329

2007
￦

￦
￦
￦

961,143
2,291(391)(40,424)566
10,960934,145933,967
178

168

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  6  ) Appropriated retained earnings
Appropriated retained earnings as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification

2008₩

Legal reserve (*1)
Other reserves (*2)

292,600
92,998385,598

₩

2007
₩
₩

196,500
39,379235,897(*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 and may be utilized upon liquidation of the Japanese branches.
Singapore and Hanoi branches’ statutory reserves are included in other statutory reserves. In addition, it includes futures transaction reserves by the Act of futures transactionand electronic commerce accident reserve by the Act of electronic commerce reserved by KEBFC.

16.
Share-based
payment(  1  ) The details of the stock options as of December 31, 2008 were as follows (Unit: share, in Won):
Grant date

Stock option
grantedAug. 26, 2002
Mar. 31, 2003 (*)
Sep. 04, 2003 (*)
Feb. 13, 2004
Mar. 07, 2005
Jun. 29, 2005
Mar. 07, 2006
Aug. 01, 2006
Mar. 08, 2007
Mar. 29, 2007
Aug. 10, 2007
Mar. 11, 2008
Aug. 01, 2008

725,000
101,401
53,3692,390,000
1,355,000
200,000
400,000
200,000
1,090,000
630,000
380,000
510,000
180,000
8,214,770

Stock option Stock option
expired to date exercised(421,850)(567,770)(344,895)(63,230)(112,690)(42,000)(264,990)(221,450)(84,630)(104,000)(24,330)(2,251,835)(303,150)(80,053)(1,427,510)(378,225)(26,340)(2,215,278)

Stock option
outstanding
21,34853,369394,720
631,880
110,430
287,310
158,000
825,010
408,550
295,370406,000
155,670
3,747,657

Exercise
price￦

Exercise period

6,300
13,266
15,533
7,000
8,800
9,000
13,30011,90013,90014,50013,90013,00013,500Aug. 27, 2005~Aug. 26, 2008
Apr. 01, 2006~Mar. 31, 2009
Sep. 05, 2006~Sep. 04, 2009
Feb. 14, 2006~Feb. 13, 2009
Mar. 08, 2007~Mar. 07, 2010
Jun. 30, 2007~Jun. 29, 2010
Mar. 08, 2008~Mar. 07, 2011
Aug. 02, 2008~Aug. 01, 2011
Mar. 09, 2009~Mar. 08, 2012
Mar. 30, 2009~Mar. 29, 2012
Aug. 11, 2009~Aug. 10, 2012
Mar. 12, 2010~Mar. 11, 2013
Aug. 02, 2010~Aug. 01, 2013(*) Granted from KEBCS prior to the merger with the Bank. Exercise price per share and the shares outstanding were adjusted based on the merger ratio.

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 isdetermined in accordance with the management performance and the calculation criteria of 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 to Interpretations 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, 2008
were as follows (Unit: In Won):<Intrinsic value pricing model>
Grant dateMarket price (*2)

Mar. 31, 2003 (*1)  
Sep. 04, 2003 (*1)
Feb. 13, 2004
Mar. 07, 2005
Jun. 29, 2005
Mar. 07, 2006
Aug. 01, 2006￦

Exercise price

6,911 ￦
6,911
6,911
6,911
6,911
6,911
6,911

Intrinsic value

13,266 ￦
15,533
7,000
8,800
9,000
13,30011,900(*1) Granted from KEBCS prior to the merger with the Bank. Exercise price per share and the shares outstanding were adjusted based on the merger ratio.
(*2) Compensation price is measured as average price among the averages for two months, for a month and for a week’s stock prices in accordance with the Bank’s pricing method.

-

Notes to Consolidated Financial Statements

169

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

<Fair value pricing model – Black-Scholes Model>
Grant date

Risk freerate (%)

Mar. 08, 2007
Mar. 29, 2007
Aug. 10, 2007
Mar. 11, 2008
Aug. 01, 2008

Expected
Volatility of the Expected
exercise
underlying stock dividend
period (year) (*1) price (%) (*2)
rate (%) (*3)
3.35
3.35
3.38
3.45
3.52

4.02
4.02
4.02
4.02
4.02

46.02
45.65
43.74
42.52
41.39

Exercised
price
6.31
6.31
6.31
6.31
6.31

Fair value

13,90014,50013,90013,00013,500

￦

￦

281
254
303
414
403

(*1) The expected exercise period is measured based on the early exercisability of right in the past.
(*2) The volatility of the underlying stock price is measured based on the volatility in the past.
(*3) The expected dividend rate is measured based on the dividend rate of simple average of 2006 and 2007.

The changes in long-term accrued expenses recognized for stock option for year ended December 31, 2008 were as follows (Unit: In
millions):
Beginning balance
Addition￦
17,780 ￦Long-term accrued expenses

46

Deduction (*)
Ending balance￦(17,507) ￦319(*) The deduction by exercise as of December 31, 2008 is ￦5,599 million.

(  2  ) The equity linked special incentive (Rose bonus)
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, 2008 is as follows (Unit: share, in Won):
Grant date

Stock option
grantedJul. 15, 2005
Dec. 21, 2006
Dec. 12, 2007

3,024,400
1,496,510
614,800
5,135,710

Stock option Stock option
expired to date exercised (*)(55,206)(28,258)(5,254)(88,718)(2,778,194)(5,522)(626)(2,784,342)

Stock option
outstanding
191,000
1,462,730
608,920
2,262,650

Exercise
price

Exercise period-￦

Jul. 15, 2007~Jul. 14, 2010
Dec. 21, 2008~Dec. 20, 2011
Dec. 12, 2009~Dec. 11, 2012(*) It can be exercised if an employee resigned within two years except for death, retirement age, position change and other cases imputable to an employee.

The equity linked special incentive is cash settlement transaction. It can be exercised since two years after grant date for three years.
The intrinsic value of “Rose bonus” 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 “Rose bonus” 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 Bankare categorized as the intrinsic value pricing model and the fair value pricing model. The details of these models as of December 31, 2008 are as
follows (Unit: In Won):<Intrinsic value pricing model>
Grant date

Rose price (*1)

Jul. 15, 2005
Dec. 21, 2006￦

Exercise price
9,700
9,700

Intrinsic value
-

￦

9,700
9,700

￦

(*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 thelast day of the previous month of December 31, 2008.

<Fair value pricing model – Binomial Model>
Grant date

Dec. 12, 2007

Risk freerate (%)

Expected
exerciseperiod (year)
3.58

Volatility of the Expectedunderlying stock dividend
price (%) (*1)
rate (%) (*2)
5

39.07

Exercised
price
-

￦

(*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.

Fair value

-

￦

9,700

170

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

The changes in long-term accrued expenses recognized for “Rose bonus” for year ended December 31, 2008 were as follows (Unit: In
millions):
Beginning balance
Addition￦
17,385 ￦Long-term accrued expenses

17.
Contingencies
and commitments

Deductio￦

4,728(2,960)Ending balance￦
19,153(  1  ) Derivatives
The notional amounts outstanding for derivative contracts as of December 31, 2008 and 2007 were as follows (Unit: In millions):
Type (*)

2008
Trading

Currency:
Currency forwards
Currency futures
Currency swaps
Currency options purchased
Currency options sold

Total

2007
Trading-￦ 36,046,100
1,197,281
10,457,110
5,598,417
5,931,865
59,230,773￦ 42,704,051
2,828,810
6,640,534
6,477,700
8,762,723
67,413,818

3,232,411
36,942,439
40,174,850

578,450
578,450

3,232,411
37,520,889
40,753,300

3,893
48,15552,048-

3,893
48,15552,04835,00035,000￦ 99,492,671

578,450￦ 36,046,100
1,197,281
10,457,110
5,598,417
5,931,865
59,230,773

Interest rate:
Interest rate futures
Interest rate swaps
Index:
Stock index futures
Stock index purchased
Stock index sold
Credit:Credit derivatives purchased

Hedge
￦

￦

Hedge

Total
-

￦ 42,704,051
2,828,810
6,640,534
6,477,700
8,762,723
67,413,818

779,424
26,084,129
26,863,553

426,881426,881

779,424
26,511,010
27,290,434

2,178
45,64899,628147,454-

2,178
45,64899,628147,454

35,00035,000￦ 100,071,121 ￦ 94,424,825

426,881￦ 94,851,706￦￦(*) For transaction between Won and foreign currencies, unsettled amount of transaction is presented using the basic foreign exchange rate based on the contract amount in foreign
currencies. For transaction between foreign currencies and foreign currencies, unsettled amount is presented using the basic foreign exchange rate based on foreign currencies
purchased at balance sheet dates.

The details of derivatives as of December 31, 2008, and the valuation of derivatives for the year ended December 31, 2008 were as
follows (Unit: In millions):
Type

Currency:
Currency forwards
Currency swaps
Currency options purchased
Currency options soldInterest:
Interest rate swaps
Index:
Stock index purchased
Stock index sold
Credit:Credit derivatives purchased

P/L
TradingGain onvaluation

Loss onvaluation￦ 2,751,438 ￦ 1,747,945
542,2211,420,103
648,772
22,39325,071
484,3963,967,502
3,674,837

HedgingGain onvaluation￦

Total
Gain onvaluation

Loss onvaluation
-

￦

-

B/S
AssetsLiabilities

Loss onvaluation￦ 2,751,438 ￦ 1,747,945 ￦ 2,775,886 ￦ 1,755,534
542,2211,420,103
524,035
1,367,230
648,772
22,393
761,152
25,071
484,396624,508
3,967,502
3,674,837
4,061,073
3,747,272

645,033

816,753

12,328

7,818

657,361824,571

610,590

802,683

7,999

1,980

-

-

7,999

1,980

-

11,725

7,818

1,556
￦ 4,634,418

1,556￦ 4,622,090 ￦ 4,493,570￦

12,328￦1,800￦ 4,501,388 ￦ 4,673,463 ￦4,561,680

Notes to Consolidated Financial Statements

171

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

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 in interest
rates or foreign exchange rates.
The Bank holds derivative instruments accounted for as fair value hedges applied to securities, debentures and bills discounted of merchantbanking. The Bank recognized ￦7,852 million of gains on valuation of derivatives of securities and ￦12,328 million of losses on valuation of derivativesof debentures for the year ended December 31, 2008. In addition, the interest rate swap covers the fair value changes of the hedged items resulted fromthe fluctuation in interest rate and foreign exchange rate.
The details of derivatives and the valuation of derivatives for the year ended December 31, 2007 were as follows (Unit: In millions):

Type

Currency:
Currency forwards
Currency swaps
Currency options purchased
Currency options soldInterest:
Interest rate swaps
Index:
Stock index purchased
Stock index soldP/L
TradingGain onvaluation

Loss onvaluation￦ 374,033
56,97048,29821,417500,718￦ 340,957
51,191
12,54036,603441,291

146,813
146,813

212,897
212,897

3,647
3,647
￦ 651,178

1,363
34
1,397
￦ 655,585

HedgingGain onvaluation￦￦

B/S
AssetsLiabilities￦ 340,957
51,191
12,54036,603441,291￦ 377,619
154,324
75,422607,365￦ 376,020
78,804
94,368549,192

156,382
156,382

216,349
216,349

178,190
178,190

233,678
233,678

3,647
3,647
￦ 660,747

1,363
34
1,397
￦ 659,037

1,015
1,015
￦ 786,570

22,631
22,631￦ 805,501

Total
Gain onvaluation

Loss onvaluation-￦ 374,033
56,97048,29821,417500,718

9,569
9,569

3,452
3,452

9,569

3,452

Loss onvaluation-￦￦

The Bank holds derivative instruments accounted for as fair value hedges applied to securities, debentures and bills discounted ofmerchant banking. The Bank recognized ￦3,452 million of gains on valuation of derivatives of available-for-sale securities, and ￦276 million and￦9,293 million of losses on valuation of derivatives of available-for-sale securities and finance debentures in foreign currencies, respectively,
for the year ended December 31, 2007. In addition, the interest rate swap covers the fair value changes of the hedged items resulted from thefluctuation in interest rate and foreign exchange rate.
(  2  ) T he Bank holds written-off loans, of which the claim for borrowers and guarantors have not been terminated ,amounting to ￦1,416,543 million and ￦1,167,728 million as of December 31, 2008 and 2007, respectively.
(  3  ) E ndorsed notes with collateral amounted to ￦63,533 million and ￦62,165 million as of December 31, 2008
and 2007, respectively. Endorsed notes without collateral held at the merchant banking accounted amount to￦9,450,454 million and ￦8,095,294 million as of December 31, 2008 and 2007, respectively.
(  4  ) T h e B a n k i s o b l i g e d t o r e p u r c h a s e s o m e o f t h e l o a n s p r e v i o u s l y s o l d t o t h e K o r e a A s s e t M a n a g e m e n t
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 court-receivership process and thecancellation of mediation.
As of December 31, 2008, KAMCO and other loan purchasers may exercise the resale option for loans amounting to ￦1,868 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 otherloan purchasers exercise their repurchase agreement.

172

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  5  ) L oans sold to asset backed securitization (ABS) (Unit: In millions)Classification

Date

Value of loans

KEB 12th  Securitization Specialty Co., Ltd.
KEB 13th Securitization Specialty Co., Ltd.
KEB 14th Securitization Specialty Co., Ltd.
KEB 15th Securitization Specialty Co., Ltd.
KEB 16th Securitization Specialty Co., Ltd. (*2)

Nov. 14, 2005
May 08, 2006
Nov. 10, 2006
Jun. 20, 2007
Jun. 24, 2008￦

178,587
121,173
92,087
121,121105,206

Sale price￦

136,000
92,00074,00090,00077,000Subordinateddebentures (*1)
￦

22,128(*1) The subordinated debentures are included in sale price.
(*2) The gains on disposal of loans have been recognized amounting to ￦3,219 million (see Note 8).

(  6  ) T he Bank has pending litigation as plaintiff or defendant in various legal actions arising from the normal courseof operation. The aggregate amounts of these claims brought by and against the Bank were approximately￦354,234 million (2,497 cases) and ￦83,081 million (120 cases), respectively, as of December 31, 2008. The Bank
recognized ￦9,348 million of provisions related to these lawsuits (see Note 14).
In addition, Olympus Capital KEB Cards Ltd. and others (“the applicants”) ask for arbitration of compensation of USD 300 million 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 shares transference (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 to the Bank’s financial position or operations.
(  7  ) Credit to work-out companies
As of December 31, 2008, the Bank’s outstanding loans and guarantees to the companies under workout programs amounted to￦1,251,567 million. Actual losses on the above loans and guarantees may differ from the allowances for such losses provided by the Bank.
(  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 withrespect to Hynix Semiconductor Inc. (“Hynix”) as of December 31, 2008 amounted to ￦390,683 million and ￦232,642 million, respectively. As of
December 31, 2008, the Bank’s loans for Hynix are classified as normal. Joint control procedure for Hynix Semiconductor Inc. was completed on July12, 2005. Also, the Bank’s 37,742 thousand shares of Hynix are restricted for sale until completion of M&A and the gain on valuation of availablefor-sale securities amounting to ￦13,126 million is accounted as other comprehensive income as of December 31, 2008.
(  9  ) Debt to equity swap of Hyundai Engineering & Construction Co., Ltd.
As of December 31, 2008, the Bank has loans (including acceptances and guarantees) of ￦285,186 million and available-for-salesecurities of ￦702,157 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 13,778 thousand shares of Hyundai Engineering & Construction Co., Ltd., which are restricted for sale until completionof M&A of Hyundai Engineering & Construction Co., Ltd. With regards to these securities, the gain on valuation of available-for-sale securities
amounting to ￦450,018 million is accounted as other comprehensive income as of December 31, 2008.
(  10  ) Commitments related to credit card business
The Bank has entered into trademark license (membership) agreements with Master Card International Incorporated in 1993, VISAInternational Service Association in 1988 and JCB International Service Association in 1997. The Bank pays and receives certain amounts of fees
and commissions in connection to the income and expense incurred pertaining to these agreements.
The Bank has entered into credit card affinity agreements with KDB Capital. Under the agreements, the Bank gives an allocation of thefee income related to the credit card affinities.
(  11  ) I ndemnification obligations regarding the share subscription agreement by and between the Bank and the LSFKEB Holdings, SCA
The Bank shall indemnify LSF-KEB Holdings, SCA for all purchaser losses (*1) and pay for damages resulting from any breach by the Bankof any of the Bank’s covenants (*2) in the Share Subscription Agreement. The Bank’s indemnification obligations are as follows:
Duration of indemnification obligations are as follows:- Purchaser losses, excluding those mentioned below, may be indemnified until 18 months from the Closing Date (*3).
- Purchaser losses arising as a result of fraud or intentional misrepresentation by the Bank may be indemnified at the Closing Date andcontinue to be in full force and effective until three years from the Closing Date.
- Purchaser losses related to tax matters may be indemnified at the Closing Date and continue to be in full force effective until five years
from the Closing Date.
The Bank’s indemnification obligations expire after the duration periods stated above. However, if the Bank receives written claims fromLone Star before the expiration of the durations, regardless of the durations stated above, the Bank’s indemnification obligations continue to be inforce and effective until the related matter are brought to satisfactory settlement.
The Bank has no indemnification obligation for claims less than ￦100 million. The Bank’s indemnification obligation applies to claims

Notes to Consolidated Financial Statements

173

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

exceeding ￦15,000 million cumulative, and only losses exceeding ￦10,000 million may be indemnified.
The total amount of indemnification obligations cannot exceed the LSF-KEB Holdings, SCA’s investments in the Bank.
(*1) Purchase losses means the amount of any and all losses, costs, liabilities, damages, judgments, settlements and expenses that arise out of any breach by the Bank of any of
the Bank’s representations and warranties contained in the Share Subscription Agreement or any breach by the Bank of any of the Bank’s covenants or agreements in the Share
Subscription Agreement.
(*2) Covenant means the conditions set forth in the Share Subscription Agreement that the Bank shall comply with the share subscription until the Closing Date.
(*3) Closing Date means the date that the new shares come into effect, and falls on October 31, 2003.

18.
Assets and liabilities
denominated inforeign currencies

Significant assets and liabilities denominated in foreign currencies as of December 31, 2008 and 2007 were as follows (Unit: In thousands of U.S.
Dollars, in millions of Won):
Classification

Assets:Cash and due from bank:Foreign currencies
Due from banks in foreign currencies
Securities:
Trading securities
Available-for-sale securities
Held-to-maturity securities
Securities using the equity method
Loans:
Call loans
Domestic import usance bill
Credit card receivables
Bills bought in foreign currencies
Advances for customers
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
Borrowings:
Borrowings in foreign currencies
Call money in foreign currencies
Bonds in foreign currencies
Other liabilities:
Accrued expenses in foreign currencies
Pension benefit
Asset under management of pension benefits

2008
USD
equivalent (*)

Translation
into Won$￦

347,870
3,454,362

437,446
4,343,860

2007
USD
equivalent (*)

Translation
into Won$￦

384,242
1,730,165

360,496
1,623,241

38,039991,087
514,859
5,089

47,834
1,246,292
647,435
6,399

39,686
1,022,510
492,901
4,516

37,233
959,319
462,440
4,236

668,849
2,184,437
3,134
3,562,606
38,7719,141,742
32,359108,566(78,143)

841,077
2,746,929
3,941
4,479,977
48,755
11,495,741
40,692
136,522(98,265)

1,958,954
1,857,444
2,004
3,757,320
1
97,9497,340,989
191,876
109,370(67,444)

1,837,891
1,742,654
1,880
3,525,118
1
91,896
6,887,316
180,018
102,611(63,276)

4,069,438
7,181,260

5,117,318
9,030,434

4,052,749
6,817,849

3,802,290
6,396,506

5,905,363
2,118,760
869,438

7,425,994
2,664,341
1,093,318

6,614,481
868,542
960,474

6,205,705
814,866
901,116

165,774
3,598(2,326)

208,461
4,524(2,925)361,310-

338,981-(*) Foreign currencies other than U.S. Dollars were converted into U.S. Dollars at the basic rates of exchange at balance sheet dates.

19.
Operatingrevenueand expenses(  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, 2008 and 2007 were as follows (Unit: In millions):
Classification

2008

Gain:
Gain on trading of derivatives
Gain on valuation of derivatives

￦
￦

Loss:
Loss on trading of derivatives
Loss on valuation of derivatives

￦
￦

2007
9,352,223
4,642,270
13,994,493￦  

9,140,323
4,513,716
13,654,039

￦  

￦  

￦

1,951,079
664,1992,615,278
1,936,910
668,606
2,605,516

174

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  2  ) Commission income and expenses
Details of commission income and expenses for the years ended December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification
Commission income:Commission received
Guarantee fees received
Other commission received

2008
₩

₩
Commission expenses:
Commission paid
Other commission paid

₩
₩

2007
535,493
33,186
84568,763₩

76,822
171,145247,967₩₩₩

557,241
20,862968
579,071
67,239155,195
222,434(  3  ) Dividend income
Details of dividend income for the years ended December 31, 2008 and 2007 were as follows (Unit: In millions)Classification

2008

Dividend income from trading securities
Dividend income from available-for-sale securities

₩
₩

2007
4,391
74,67379,064

₩
₩

3,458
4,701
8,159

(  4  ) Other operating revenue and expenses
Details of other operating revenue and expenses for the years ended December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification
Other operating revenue:
Profit on operating trust accountReversal of provision for unused credit limit
Reversal of provision for other liabilities
Others2008₩₩
Other operating expenses:
Fund contributions
Provision for allowance for acceptances and guarantees
Provision for unused credit limit
Provision for other liabilities
Others₩₩2007
24,30815,0232,300
41,631₩

144,2542,215
44,085
1,117
191,671₩₩₩

21,98579,004
2,584
103,573
128,293
14,737
24,464
1,371
168,865(  5  ) General and administrative expenses
General and administrative expenses for the years ended December 31, 2008 and 2007 were as follows (Unit: In millions):
Classification

2008

Salaries
Expenses for fringe benefits
Retirement allowances
Honorary retirement
Operating expense
Depreciation
Amortization
Taxes
RentalEntertainment
Advertising

₩

₩

2007
541,452
153,171
48,514
3,534
198,885
98,024
31,34948,53878,87913,52540,2001,256,071₩₩

528,241
137,550
58,1372,547
193,218
107,305
30,026
38,59751,926
12,27737,538
1,197,362

Notes to Consolidated Financial Statements

175

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 200720.
Other interest
income and expenses

Other interest income and expenses for the years ended December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification
Other interest income:Interest on domestic transaction
Miscellaneous interest revenues
Interest on cashier's check reimbursement
Others2008₩₩
Other interest expenses:
Interest paid on domestic transaction
Interest on borrowings from trust account
Others₩₩21.
Non-operating
income and expenses

15,65915,8601,538
1,436
34,493₩

5,527
48,796
169
54,492₩₩₩

13,116
8,178
3,281
9,637
34,212
3,661
31,892297
35,850Non-operating income and expenses for the years ended December 31, 2008 and 2007 consisted of (Unit: In millions):
Classification
Non-operating income:Gain on disposal of tangible assets
Rental income
Gain on securities using the equity method
Others2008₩₩
Non-operating expenses:
Loss on disposal of tangible assets
Loss on securities using the equity method
Loss on revaluation of tangible assets
Others₩₩22.
Income tax expense

2007

2007
321
2,569
3,909
65,051
71,850

₩

2,020
143
25,34658,655
86,164

₩

₩

₩

3,485
2,243
694
80,40686,8285,448
109
30,90236,459(  1  ) Components of income tax expense
The components of income tax expense for the years ended December 31, 2008 and 2007 were summarized as follows (Unit: In millions):
Classification
Bank:
Income tax currently payable
Change in deferred taxes due to temporary differences
Income tax directly applied to shareholders’ equity
Income tax expense of overseas branch
Income tax expense
Subsidiaries:
Income tax currently payable
Changes in deferred income tax assets
Income tax directly applied to shareholders’ equity
Income tax expense

2008
₩

₩

2007
228,994(75,430)
202,853
28,455384,872
32,066(18,483)(1,322)
12,261
397,133₩₩

468,063
62,623
10,564
14,394555,644
21,194(1,414)44
19,824575,468

176

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  2  ) D eferred income tax assets in the consolidated financial statements as of December 31, 2008 and 2007 were as
follows (Unit: In millions):
Classification
KEBC
KEBOC
KEBA
KEBI
KEB NY FINCO
KEB LA FINCO

2008
₩

₩

4,064
1,996
2,185
403
3,348
17,34429,340

2007
₩

₩

2,562
1,511
3,934
555
1,304
1,082
10,948(  3  ) D eferred income tax liabilities in the consolidated financial statements as of December 31, 2008 and 2007 wereas follows (Unit: In millions):
Classification
KEB
KEBF
KEBA

2008
₩

₩

89,522
1,903
91,425

2007₩₩

176,823
127
1,867
178,817(  3  ) T he statutory income tax rate applicable to the Bank and its subsidiaries, including resident tax surcharges, is27.5 percent for the years ended December 31, 2008 and 2007, respectively. However, due to tax adjustments,
the effective tax rates for the years ended December 31, 2008 and 2007 are 33.66 percent and 37.45 percent,respectively.

23.
Earnings per share(  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
the weighted average number of outstanding common stock. The basic net income per share for the years ended December 31, 2008 and 2007 was
as follows (Unit: In Won):
Classification
Controlling company’s net income
Weighted average number of common shares
Basic net income per share

2008
₩
₩

782,372,580,444
644,906,826
1,213

2007
₩
₩

960,944,014,839
644,906,826
1,490

Both the weighted average number of outstanding common stock and the number of outstanding common stock are the same because
there is no change on the number of outstanding common stock for years ended December 31, 2008 and 2007.
(  2  ) Diluted net income per share
Diluted net income per share for the years ended December 31, 2008 and 2007 represent diluted controlling company’s net income
divided by the number of common shares and dilutive common shares. Since the Bank transferred stock option included in other accumulatedcomprehensive income to accrued expense as of December 31, 2008 and did not have dilutive common stocks, the basic net income per share anddiluted net income per share were the same.

Notes to Consolidated Financial Statements

177

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

24.
Segment
information(  1  ) B alance sheets per business segment as of December 31, 2008 and 2007 were as follows (Unit: In millions):<2008>
Financial & insurance Consolidation
business
adjustment
Asset:Cash and due from banks
Securities
Loans
Tangible assets
Other assets₩₩
Liability:
Deposits
Borrowings
Other liabilities₩

Shareholders’ equity:
Common stock
Capital surplus
Capital adjustment
Accumulated other comprehensive income
Retained earnings
Minority interests₩

10,827,081
14,477,568
70,313,006
1,452,808
12,400,304
109,470,767₩

62,610,388
25,030,348
14,620,651
102,261,387

Total(62,826)(527,500)(1,550,504)(2,228)(9,021)(2,152,079)₩₩(46,798)(1,473,747)(105,984)(1,626,529)₩

3,460,125
55,781(4,425)753,554
2,944,345-  
7,209,380
109,470,767 ₩(235,591)(54,841)(4,354)(232,581)
1,817(525,550)(2,152,079)

₩

₩

₩

10,764,255
13,950,068
68,762,502
1,450,580
12,391,283
107,318,688
62,563,590
23,556,601
14,514,667
100,634,858
3,224,534
940(4,425)749,200
2,711,764
1,817
6,683,830
107,318,688<2007>
Financial & insurance Consolidation
business
adjustment
Asset:Cash and due from banks
Securities
Loans
Tangible assets
Other assets₩₩
Liability:
Deposits
Borrowings
Other liabilities₩

Shareholders’ equity:
Common stock
Capital surplus
Capital adjustments
Accumulated other comprehensive income
Retained earnings
Minority interests₩

5,759,429
12,571,770
58,289,464
912,740
10,112,659
87,646,062₩

48,740,719
19,028,425
12,767,890
80,537,034₩

3,446,222
42,940(5,722)
1,102,731
2,522,857
7,109,028
87,646,062

₩

₩

Total

(108,954)(443,753)(945,217)(2,851)(1,209,121)(2,709,896)₩(69,365)(879,192)(1,323,224)(2,271,781)₩(221,688)(42,000)(12,716)(163,199)
1,488(438,115)(2,709,896)₩₩

5,650,475
12,128,017
57,344,247
909,889
8,903,538
84,936,166
48,671,354
18,149,233
11,444,666
78,265,253
3,224,534
940(5,722)
1,090,015
2,359,658
1,488
6,670,913
84,936,166

178

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  2  ) S tatements of income per business segment for the years ended December 31, 2008 and 2007 were as follows (Unit:
In millions):<2008>
Financial & insurance Consolidation
business
adjustment
Operating revenue
Operating expenses
Operating income
Non-operating income
Non-operating expenses
Income before income Tax
Income tax expense
Net income
Controlling company interests
Minority interests₩₩₩

23,246,345
22,049,404
1,196,941
126,148
118,078
1,205,011
397,133
807,878
807,878-

Total(94,553)(91,641)(2,912)(54,298)(31,914)(25,296)(25,296)(25,505)
209₩₩

23,151,792
21,957,763
1,194,029
71,85086,164
1,179,715
397,133
782,582
782,373
209

₩

₩
₩

<2007>
Financial & insurance Consolidation
business
adjustment
Operating revenue
Operating expenses
Operating income
Non-operating income
Non-operating expenses
Income before income Tax
Income tax expense
Net income
Controlling company interests
Minority interests₩₩₩

9,113,174
7,613,641
1,499,533
141,026
50,011
1,590,548
575,468
1,015,080
1,015,080-

Total(117,009)(103,718)(13,291)(54,198)(13,552)(53,937)(53,937)(54,135)
198

₩

₩
₩

8,996,165
7,509,923
1,486,242
86,82836,459
1,536,611
575,468
961,143
960,945
198

₩

₩
₩

(  3  ) F inancial information per business segment as of and for years ended December 31, 2008 and 2007 was as follows(Unit: In millions):<2008>

Operating revenue
Less: inter-company transaction
Net operating revenue
Operating income (loss)
Cash and due from banks
Securities
Loans
Tangible assets
Other assets

Banking

Trust account

22,884,431(88,492)
22,795,939₩
1,206,268₩ 10,380,398
13,661,006
68,114,558
1,431,302
12,310,960₩ 105,898,224₩

Banking

Trust account

₩

₩
₩

₩

94,204(1,512)
92,692313,039
721,506
181,487
18,857
1,234,889

Others₩₩₩₩Consolidation
adjustment
267,710(4,549)263,161(9,327)
133,644
95,0562,016,961
21,50670,4872,337,654

₩

₩
₩

₩

(94,553)
94,553(2,912)(62,826)(527,500)(1,550,504)(2,228)(9,021)(2,152,079)

Total
23,151,792
23,151,792₩
1,194,029₩ 10,764,255
13,950,068
68,762,502
1,450,580
12,391,283₩ 107,318,688₩<2007>

Operating revenue
Less: inter-company transaction
Net operating revenue
Operating income
Cash and due from banks
Securities
Loans
Tangible assets
Other assets

￦

￦
￦

￦

8,909,485(108,555)
8,800,930
1,457,065
5,405,380
11,832,386
56,596,566
878,800
10,070,582
84,783,714

￦

￦
￦

￦

Others

66,081 ￦(2,407)
63,674
10,833 ￦187,969 ￦665,102265,019-  
7,975
1,126,065 ￦Consolidation
adjustment
137,608(6,047)
131,561
31,635
166,080
74,282
1,427,879
33,94034,102
1,736,283

￦

￦
￦

￦

(117,009)
117,009(13,291)(108,954)(443,753)(945,217)(2,851)(1,209,121)(2,709,896)

Total
￦

￦
￦

￦

8,996,165
8,996,165
1,486,242
5,650,475
12,128,017
57,344,247
909,889
8,903,538
84,936,166

Notes to Consolidated Financial Statements

179

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

(  4   ) F inancial information per geographical area as of and for the years ended December 31, 2008 and 2007 was asfollows (Unit: In millions):<2008>

Operating revenue
Less: inter-company transaction
Net operating revenue
Operating income
Cash and due from banks
Securities
Loans
Tangible assets
Other assets

Domestic

Overseas

23,007,434(82,040)
22,925,394₩
1,181,127₩ 10,550,813
14,335,792
67,415,048
1,446,887
12,334,031₩ 106,082,571₩

Domestic

Overseas₩

Consolidation
adjustment

238,911(12,513)226,398
15,814276,268
141,776
2,897,958
5,921
66,273
3,388,196

₩
₩

₩

₩

₩
₩

₩

Total

(94,553)
94,553(2,912)(62,826)(527,500)(1,550,504)(2,228)(9,021)(2,152,079)

23,151,792
23,151,792₩
1,194,029₩ 10,764,255
13,950,068
68,762,502
1,450,580
12,391,283₩ 107,318,688₩<2007>

Operating revenue
Less: inter-company transaction
Net operating revenue
Operating income
Cash and due from banks
Securities
Loans
Tangible assets
Other assets

8,947,367(106,345)
8,841,022
1,443,182
5,395,448
12,519,999
56,367,494
909,651
10,081,291
85,273,883

￦

￦
￦

￦

25.
Significant transactions
between the bankand subsidiaries

Consolidation
adjustment

165,807(10,664)
155,143
56,351
363,981
51,771
1,921,970
3,089
31,3682,372,179

￦

￦
￦

￦

￦

￦
￦

￦

Total

(117,009)
117,009(13,291)(108,954)(443,753)(945,217)(2,851)(1,209,121)(2,709,896)

8,996,165
8,996,165
1,486,242
5,650,475
12,128,017
57,344,247
909,889
8,903,538
84,936,166

￦

￦
￦

￦

(  1  ) S ignificant balances made in the normal course of business with subsidiaries as of December 31, 2008 and 2007
are summarized as follows (Unit: In millions):<2008>Classification
Assets:Due from banks inforeign currencies
Loans in Won
Loans in foreign
currencies (*)
Allowance for possible
loan losses
Other assets
Liabilities:
Deposits in Won
Deposits inforeign currencies
Borrowings inforeign currencies
Other liabilities

KEBC

KEBF

KEBOC

KEBA

KEBDAG

KEBI￦
169,300￦ 3,588-￦ 1,341-￦ 17,138-￦ 16,545-￦

40,125--274,546

65,331

25,150(1,780)207￦ 207,852

2￦ 3,590￦ 1,341

3,172￦ 294,856

694￦ 82,570

685￦ 26,223
-

￦

153

￦

33

￦

-

￦

-

51

4,494

4,483

4

3,894
￦ 4,098344￦ 4,871

12,647￦ 17,130

17,663798￦ 18,465(*) Call loans in foreign currencies are included.

￦

12,945

￦

Trust

388
-

Other
Total
subsidiaries-￦ 39,000
169,300-

650,142

1,055,294

￦

-

4,020
￦ 654,162(1,780)8,780￦1,270,594

￦

-

￦

￦

-

￦

-

￦

186

330

-

955

23,262

108,904
98,085910
999￦ 122,759 ￦ 99,414

79,151￦ 79,151

11,855176￦ 12,986

249,154286,272￦ 358,874

180

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

<2007>Classification
Assets:Due from banks inforeign currencies
Loans in Won
Loans in foreign
currencies (*)
Allowance for possible
loan losses
Other assets
Liabilities:
Deposits in Won
Deposits inforeign currencies
Borrowings inforeign currencies
Other liabilities

KEBC

KEBF

KEBOC

KEBA

KEBDAG

KEBI

51,300￦ 1,322-￦ 2,777-￦ 2,818-￦ 57,265-￦

33,472--

249,484

60,48913,419(1,111)
139￦ 83,800

￦

(340)
1
983

￦ 2,777624￦ 252,926

830￦ 118,584

7￦ 13,710

145

￦

35

-

￦

￦

-

￦

-

￦

-

￦

Trust

284
-

￦

Other
Total
subsidiaries-￦ 64,466
51,300  -

330,146

689,010  

￦

-

3,475
￦ 333,621(1,451)  
5,076  
￦ 806,401  

￦

-

￦

￦

-

-

3,562

-

-

889

455

-

3,345
￦ 3,490342￦ 3,939-

59,867￦ 59,867

54,926618￦ 56,433

9,384
64￦ 9,903108,751￦108,751

￦

￦

-

180  

￦

1,245

6,151  

13,262
137,439377
113,497  ￦ 14,884   ￦ 257,267(*) Call loans in foreign currencies are included.

(  2  ) S ignificant transactions with subsidiaries for the years ended December 31, 2008 and 2007 were as follows (Unit:
In millions):<2008>Classification
Revenue:
Interest revenues in Won
Interest revenues in  
foreign currencies
Commission income in Won
Commission income inforeign currencies
Other revenue

KEBC

KEBF

₩ 7,805

₩

KEBOC

-

₩

KEBA

-

₩

KEBDAG

-

₩

KEBI

-

₩

Trust

-

₩

Other
Total
subsidiaries-₩-₩ 7,805

2,240
-

4
169

15
-

12,384
-

3,773
-

512
-

-

23,287-42,215169

11,809₩ 21,854

₩

173

₩

35
50

418
2,448
₩ 15,250

4,172₩ 7,945₩512

10,992₩ 10,992₩ 23,287

4,590
25,284₩ 80,063

₩

48

₩

-

₩

-

₩

-

₩ 1,512₩-₩ 1,560

Expenses:
Interest expenses in Won ₩Interest expenses inforeign currencies
58
Commission expense in Won
Commission expense inforeign currencies
Written-off of bad debts
1,060
Other expenses
697₩ 1,815

₩

-

₩

114
564

105
-

2,065
-

7,865
-

641
-

-

606
-

11,454
564

160
886

105

287
₩ 2,352915₩ 8,780641₩ 1,512

606

1,075
1,060
984
₩ 16,697₩₩₩

Notes to Consolidated Financial Statements

181

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

<2007>Classification
Revenue:
Interest revenues in Won
Interest revenues in  
foreign currencies
Commission income in Won
Commission income inforeign currencies
Other revenue

KEBC

KEBF

￦ 5,954

￦

KEBOC

-

KEBA

-

￦

KEBDAG

-

￦

KEBI

-

￦

￦

Trust

-

￦

Other
Total
subsidiaries-￦-￦ 5,954  

1,912
-

175

7
-

8,580
-

3,682
-

1,377
-

2

16,971-

32,529177

1,023￦ 8,889

￦

175

￦

36
43

￦ 8,580

2,718￦ 6,400￦ 1,377

10,833￦ 10,835

26
535￦ 17,532

2,780  12,391  
￦ 53,831  

￦

1

￦

-

￦

-

￦ 2,407￦-￦ 2,509  

Expenses:
Interest expenses in Won ￦ 101
Interest expenses inforeign currencies
Commission expense in Won
Commission expense inforeign currencies
Written-off of bad debts
305
Other expenses
1,262￦ 1,668

￦

-

-

￦

￦

116
569

65
-

1,495
-

5,045
-

979
-

-

1,244
-

8,944  
569  

100
36
822

65

￦ 1,495101￦ 5,146(16)
60￦ 1,023￦ 2,407581￦ 1,825

201
289  
1,939
￦ 14,451￦(  3  ) D etails of significant receivables and payables among subsidiaries as of December 31, 2008 were as follows (Unit: In
millions):
Subsidiaries

Classification

Amount

KEBF
KEBF
KEBC
KEBC
KEBI
KEBDAGDue from Retirement Insurance
Due from Retirement Insurance
Due from Retirement Insurance
Due from Retirement Insurance
Due from banks in foreign currencies
Due from banks in foreign currencies

￦

757
41
354
7
244
144

Counterparty Classification

Amount

Trust
Trust
Trust
Trust
KEBDAG
KEBOC￦

Time deposits in Won
Accrued expenses
Time deposits in Won
Accrued expenses
Demand deposits in foreign currencies
Demand deposits in foreign currencies

757
41
354
7
244
144

(  4  ) D etails of significant transactions among subsidiaries for the year ended December 31, 2008 were as follows (Unit:
In millions):
Subsidiaries

Classification

Amount

KEBOC
KEBF
KEBC

Interest on call loan in foreign currency
Interest on deposits in Won
Interest on deposits in Won

￦

14
19
18

Counterparty Classification

AmountKEBNYFinco
Trust
Trust

￦

Commission Income in foreign currency
Interest on due from banks in Won
Interest on due from banks in Won

14
19
18

(  5  ) Guarantees and acceptances with subsidiaries as of December 31, 2008 were as follows (Unit: In millions):
Subsidiaries

Classification

Amount

BANK
BANK
BANK
KEBA
KEBLAF

Guarantees and acceptances in Won
Guarantees and acceptances in foreign currency
L/C opening relationship
Guarantees and acceptances in foreign currency
Guarantees and acceptances in foreign currency￦

40,000
8,803
4,141
4,013
4,006

Counterparty
KEBF
KEBC
KEBC
BANK
BANK

(  6  ) The key management compensations for the year ended December 31, 2008 were as follows (Unit: In millions):
Classification

Compensations

Short-term employee benefits
Employee benefits after resignation
Stock option

￦

￦

7,055
480
(6,212)
1,323

The key management includes the directors, the executives and the officers who have authorities and responsibilities for decision-makingof the business plan, operations and control over the Bank.

182

Notes to Consolidated Financial Statements
KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 2007

26.
Computation ofvalue added

Accounts required for computation of value added for the years ended December 31, 2008 and 2007 consisted of the following (Unit: In millions):
Accounts

2008

Salaries
Retirement allowances
Expenses for fringe benefit
Rent
Depreciation
Amortization
Taxes and dues

₩

₩

27.
Dividends

2007
541,452
48,514
153,171
78,87898,024
31,34948,538
999,926₩₩

528,241
58,137
137,550
51,926
107,305
30,026
38,597
951,782(  1  ) T he calculation of dividends for the years ended December 31, 2008 and 2007 was as follows (Unit: shares, In millions
except per share amounts):
Classification

2008

Dividends per share (rate) (In currency units)
Shares issued
Dividends

₩
₩

2007
125 (2.5%)
644,906,826
80,613₩₩700 (14%)644,906,826
451,435(  2  ) T he calculation of dividend payout ratio for the years ended December 31, 2008 and 2007 was as follows (Unit: In
millions):
Classification

2008

Dividends
Net income
Dividend payout ratio (%)₩

2007
80,613
782,61810.30₩

451,435
960,94546.98(  3  ) T he calculation of dividend yield for the years ended December 31, 2008 and 2007 was as follows (Unit: In currency
units):Classification

2008

Dividends
Closing price
Dividend yield ratio (%)

₩  

2007
125
6,330
1.97

₩

700
14,5004.83

Notes to Consolidated Financial Statements

183

KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2008 and 200728.
Cash flows(  1  ) C ash in statements of cash flows consists of cash, due from bank (excluding restricted due from bank),
receivables and preferred stock with 3 months or less of maturity and securities under agreement to repurchasewith 3 months or less of maturity. Cash flows from operating activities are presented by the indirect method.
I n addition, the Bank has reclassified the components of the cash flows; such as, changes in available-for-salesecurities, held-to-maturity securities and loans that were presented under cash flows from investing activities
are currently presented under cash flows from operating activities.

(  2  ) T he cash and due from banks in the statements of cash flows for the years ended December 31, 2008 and 2007
were as follows (Unit : In millions)Classification

2008

Cash and due from banks
Add: securities₩

Less: restricted due from bank₩2007
10,764,255
10,764,255(6,814,198)
3,950,057₩₩

5,650,475
458,169
6,108,644(1,891,856)
4,216,788(  3  ) S ignificant transactions not involving cash inflows and outflows for the years ended December 31, 2008 and 2007
were as follows (Unit : In millions):
Classification

2008

Decrease of loans from write-offs of loans
Decrease of gain on valuation of available-for-sale securities
Change on unsettled spot transactions
Transferring of accrued expenses in stock option

₩    

2007
597,106
776,196
881,988-₩355,998
29,3075,439,166
17,780Organization Chart

184

February 4, 2009

3 Banks

General Meeting of Shareholders

10 Groups
27 Departments

Board of Directors

Channel Development Committee

43 Divisions
125 Teams

President & CEO

Compensation Committee

Risk Management Committee

Audit Committee

Audit & Examination Division

Outside Director Candidate Recommendation Committee

Compliance Dept.

Global Products Dept.

Corporate Group
Global Corporate BankWorld Corporate Group

Large Corporate Support Dept.

Capital Markets Dept.

International group
Business
Units
Foreign Customer Marketing Support Dept.

Retail BankPB Marketing Support Dept.

Card Bank

Operations
GroupsCredit Management

Special Credit Management Dept.

Service Delivery

Service Delivery Dept.

Information & Technology

Finance

SupportFunctions

Risk Management

Risk Management Dept.

Human Resources

Communications

Communication Management Dept.

Board of Directors & Managing Directors
As of March 31, 2009

Board of Directors

Standing Directors
Richard F. Wacker

Chairman

Larry A. Klane

President & CEO

Jang, Myoung-Kee

Deputy President

Outside Directors
Ellis Short

Ex-Vice President, Lone Star

Michael D. Thomson

General Counsel, Lone StarPaul Yoo

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, Joung-Soo

Ex-Director of Economic Research at JoongAng Daily

Lee, Jae-Ouk  

Ex-Deputy Governor, Bank of Korea

Kim, Jin-Ho

Ex-Deputy President, Export - Import Bank of Korea

Managing Directo r s

Lee, Jong-Kyu

AuditorSuh, Choong-Suk

Senior Managing Director, CRO

Yun, Jong-Ho

Senior Managing Director, Global Corporate Bank/World Corporate Group

Kim, Gwi-Hyun

Senior Managing Director, Retail Bank

Jhun, Joong-Gyu

Managing Director, Special Credit Mgmt. Dept.

Alexander S. Kim

Managing Director, Service Delivery Dept.

Kwon, Moo-Kyung

Managing Director, Corporate Group

Lee, Sang-Don

Managing Director, Capital Markets Dept.

Jang, Chan-Woong

Managing Director, Information&Technology

Park, Jae-HongManaging Director, PB Marketing Support Dept.

Chang, Kab-SoonManaging Director, Human Resources

Kim, Jee-Won

Managing Director, CFO

Chung, Soo-CheonManaging Director, Card Bank



185

186

Global Directory

Financial Institutions Division

Foreign Customer Division

Investment Banking Division

•

•

•

Global Head of Financial Institutions
Chung, Chung-Won
Tel : 82-2-729-0432    Fax : 82-2-775-2565

Foreign Customer Marketing Team
Team Head
Cho, Jin-Je
Tel : 82-2-729-0533

Head of Investment Banking Division
Cho, In-Gyun
Tel :  82-2-729-0557

Western Europe, Africa, Clearing
Services, CLS
Senior Area Manager : Kim, Chi-Ok
Tel : 82-2-729-0457    Fax : 82-2-775-2565
North America, China, Hong Kong,
TaiwanSenior Area Manager : Chang, Suk-Ho
Tel : 82-2-729-0464    Fax : 82-2-775-2565
Middle East, Eastern Europe, Russia,
CIS - FI London Desk
Senior Area Manager : Choi, Sung-Ho
E-mail : csh3193@keb.co.kr
Middle East, Eastern Europe, Russia, CIS,   South America, Asia (excl. China,
Hong Kong, Taiwan, Japan, Singapore) FI Korean DeskArea Manager : Joh, Nam-Gyong
Tel : 82-2-729-0465    Fax : 82-2-775-2565
Germany, Oceania, Japan, Singapore
Senior Area Manager : Choi, Sui
Tel : 82-2-729-0448    Fax : 82-2-775-2565
Korean Banks
Senior Area Manager : Kim, Jong-Wook
Tel : 82-2-729-8916    Fax : 82-2-775-2565

Treasury Division•
General Manager
Lee, Hyung-Soo
Tel :  82-2-729-0531
Medium & Long-Term Financing
Head of Foreign Currency Treasury Team
Park, Jun-Sik
Tel : 82-2-729-0365
Senior Manager
Kim, Beom-Rae
Tel : 82-2-729-0520

USA
RM
Lee, Sun-Ki
Tel : 82-2-729-0288
Asia
RM
Cho, Bang-Hwan
Tel : 82-2-3671-1882
EuropeRM
Chang, Tae-Yung
Tel : 82-2-729-0304
FDI Consulting Desk
FDI Marketer
Lee, Jong-Woo
Tel : 82-2-3671-1846
FDI Consultant
Shon, Suk-Yeong
Tel : 82-2-729-0281
FDI Consultant
Yoo, Sin-Young
Tel : 82-2-729-0285[P/F, S/F]
Head of Project/Structured
Finance Team
Cho, Yong-Woo
Tel :  82-2-729-0542
Project Finance
Chief Manager of Project
Finance Team
Jeong, Jong-Min
Tel : 82-2-729-0943
Structured Finance
Chief Manager of Structured
Finance Team
Lee, Hoa-Sun
Tel : 82-2-729-0547[C/F, SOC, R/E]
Head of Corporate Finance/SOC/
Real Estate Team
Lee, Jae-Hak
Tel : 82-2-729-0292
Corporate Finance
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
Chief Manager of Real Estate TeamChoi, Yun-Hyun
Tel :  82-2-729-0546

FX Trading•
Head of FX Dealing Team
Lee, Sang-Bae
Tel : 82-2-729-0472
Chief Dealer
Lee, Hang-Joon
Tel : 82-2-729-0159
Chief Dealer
Kim, Doo-Hyeon
Tel : 82-2-729-0507
Chief Dealer
Yun, Jeong-A
Tel : 82-2-729-0483

Overseas Network

187

As of March 31, 2009

Branches &Representative Off i c e s

AMERICAS• Panama Branch
General Manager : Lim, Young-No
Calle 50, Urbanizacion Obarrio Edificio Torre Global Bank No. 19, Oficina No. 1902
Panama, Republica de Panama.
Tel : 507-340-3360    Fax : 507-340-3359• Santiago Representative Office
General Manager : Lee, Jae-Sung
Av. Nueva Tajamar 481, Office 304, Torre Norte, WTC, Las Condes, Santiago, Chile
Tel : 56-2-246-9105    Fax : 56-2-946-0171• Ho Chi Minh City Representative Office
Chief Representative : Jeong, Han-Kyu
Unit 502,5th Floor, Diamond Plaza,34 Le Duan St.Dist.1, Ho Chi Minh City,
VietnamTel : 84-8-827-4273    Fax : 84-8-827-4281
China• Hong Kong Branch
General Manager : Shin, Hyun-Seung  
Branch 32Fl., Far East Finance Centre, 16 Harcourt Road, Hong Kong, China
Tel : 852-2520-1221    Fax : 852-2861-2379-

EUROPE• London Branch
General Manager : Kim, Dae-Hwan
30 Old Jewry, London EC2R 8EB, U.K
Tel : 44-20-7606-0191 Fax : 44-20-7606-9968• Paris Branch
General Manager : Lee, Dong-Seob
17-19 Avenue Montaigne, 75008 P aris, France
Tel : 33-1-5367-1200     Fax : 33-1-5367-1234

Tel : 852-2369-2131    Fax : 852-2311-0390• Beijing Branch
General Manager : Lee, Byung-Seok#510, Henderson Center, Office Tower 2, 18 Jianguomennei Avenue,
Beijing 100005, China
Tel : 86-10-6518-3101    Fax : 86-10-6518-3106-• Amsterdam Branch
General Manager : Min, Seung-Ki  
Dr.Willem Dreesweg 2, 1185VB, Amstelveen, The Netherlands
Tel : 31-20-546-9377    Fax : 31-20-546-9399• Moscow Representative Office
General Manager : Han, Sang-Gwa
World Trade Center, Ent.3, Office Building 1308A,
Krasnopresnenskaya nab.12, Moscow 123610, Russia
Tel : 7-495-258-2405    Fax : 7-495-258-2407
MIDDLE EAST ASIA
• Bahrain Branch
General Manager : Woo, Gi-Hyun
5th Floor, Yateem Center Bldg., P.O. Box 5767, Manama, Bahrain
Tel : 973-17-229333    Fax : 973-17-225327• Dubai Representative Office
Chief Representative : Choi, Min-Gyu  
Office No. 202 (BlockA) Concorde Complex Bldg.,Plot
125-130, P.O.Box 14535, Dubai, U.A.E
Tel : 971-4-2281133    Fax: 971-4-2281132• New Deli Representative Office
General Manager : Lee, Yong-Hyo
Flat No. 511, Ansal Bhawan, 16 Kasturba Gandhi Marg, New Delhi 110001, India
Tel : 91-11-4354-8960    Fax: 91-11-4354-8964
Southeast Asia
• Singapore Branch
General Manager : Moon, Seung-Chan  
30 Cecil St., #24-03, 08 Prudential Tower Singapore 049712
Tel : 65-6536-1633     Fax : 65-6538-2522• Manila Branch
General Manager : Jeon, Jong-Bai
33rd Floor, Citi Bank Tower 8741 Paseo de Roxas
St. Makati City Metro Manila, Philippines
Tel : 63-2-848-1988     Fax : 63-2-848-1776• Hanoi Branch
General Manager : Lee, Don-Keun
14th Floor, Daeha Business Center 360 Kim Ma St., Ba Dinh Dist., Hanoi, Vietnam
Tel : 84-4-771-6800     Fax : 84-4-771-6784

Kowloon (Hong Kong Sub Branch)
General Manager : Shin, Hyun-SeungRoom 803, Energy Plaza Bldg., 92 Grandville Road, Tsim, Sha Tsui, East Kowloon,
Hong Kong, China



Wangjing(Beijing Sub Branch)
General Manager : Lee, Byung-SeokRoom A212-213 Wangjing International Business Center, No. 9 Wangjing
ST.Chaoyang District, Beijing 100102, China.
Wudaokou (Beijing Sub Branch)
General Manager : Lee, Bum-Hwan
U-center C #101, 28 Chengfulu Road. Haidian District, Beijing 100083, China
Tel : 86-10-6266-6710~14    Fax : 86-10-6266-6715• Tianjin Branch
General Manager : Lee, Kwang-Hyun1st Floor, Huaqiao Building No.92-1 Nanjing Road, Heping District, Tianjin
300042, China
Tel : 86-22-2319-2595/7    Fax : 86-22-2319-2594
Binhai (Tianjin Sub Branch)
General Manager : Lee, Kwang-Hyun
No. E-7B-108, Binhai Financial Service Zone, No.20 Guangchang dong Road,
TEDA, Tianjin, China 300457
Tel : 86-22-5981-1155• Dalian Branch
General Manager : Han, Sa-Kwon
25th Fl., World Trade Center, No. 25 Tongxing Road, Zhongshan
District, Dalian, China
Tel : 86-411-8253-1988    Fax : 86-411-8281-6150• Shanghai Branch
General Manager : Jeong, Sang-Hyeon
17f Pufa Tower, No 588 Pudong South Road, pudong New
District,Shanghai 200120. China
Tel : 86-21-5882-5998    Fax : 86-21-5882-8743
Japan• Tokyo Branch
General Manager : Joo, Jae-Jung
The Shin Kokusai Bldg., 4-1, Marunouchi, 3-Chome,
Chiyoda-ku, Tokyo, Japan
Tel : 81-3-3216-3561    Fax : 81-3-3214-4491-

Shinjuku(Tokyo Sub Branch)
General Manager : Joo, Jae-JungAsuka Shinyoukumiai Honbu B/D 2F 32-9, Kabuki-cho, 2-Chome, Shinjuku-ku,
Tokyo, Japan
Tel : 81-3-3208-5211   Fax: 81-3-3208-5260• Osaka Branch
General Manager : Han, Yong-Gab
Yodoyabashi Mitsui Bldg., 1-1, Imabashi 4Chome,
Chuoku, Osaka, Japan
Tel : 81-06-6201-2600    Fax : 81-06-6201-2616

188

Overseas Network (Continued)
As of March 31, 2009

Subsidiaries
• KEB NY Financial Corp.
Preasident  :  Min, Young-Soo
460 Park Ave. 14th Floor, New York, N.Y.10022 U.S.A
Tel : 1-212-838-4949    Fax : 1-212-371-5290• KEB USA International Corp.
President : Yang, Jin-Young
460 Park Ave. 15th Floor, New York, N.Y.10022 U.S.A.
Tel : 1-212-838-4949    Fax : 1-212-752-8551• KEB LA Financial Corp.
President : Hwang, Hyo-Sang
777 South Figueroa Street, Suite 3000, Los Angeles, CA.90017 U.S.
Tel : 1-213-683-0830    Fax : 1-213-622-5378• Korea Exchange Bank of Canada (H.O.)
President : Kang, Tae-Jong
Madison Centre Suite 1101, 4950 Yonge St. Toronto Ontario M2N 6K1, Canada
Tel : 1-416-222-5200    Fax : 1-416-222-5822• KEB Australia Ltd.
Managing Director : Park, Seung-Kil
Suite 902, Level 9, Chifley Tower, 2 Chifley Square,
Sydney NSW 2000 AUSTRALIA. (P.O Box N595 Grosvenor Pl. Nsw 1220 Australia)
Tel : 61-2-9251-3355    Fax : 61-2-9251-3853• Korea Exchange Bank (Deutschland) A.G.
Managing Director : Lee, Jae-Cheol
Bockenheimer Landstrasse 51-53, 60325 Frankfurt/M Germany
Tel : 49-69-7129-0    Fax : 49-69-7129-122• PT Bank KEB Indonesia
Managing Director : Cho, Chong-Soo
Wisma GKBI 20th Fl., Suite 2002 Jalan Jenderal
Sudirman No.28  P.O. Box 2317 Jakarta 10210 Indonesia
Tel : 6221-574-1030    Fax : 6221-574-1031• Banco KEB do Brasil S.A.
President : Lee, Seong-Cheon
Av.Doutor Chucri Zaidan 940, Torre II,18 Andar,CEP 04583-110, Cordeiro, Sao Paulo, SP, Brasil
Tel : 55-11-5188-1122     Fax : 55-11-5188-1120

Domestic Network
As of March 31, 2009

Head Office•

181, Euljiro 2-ga, Jung-gu, C.P.O.Box 2924, Seoul 100-793, Korea
Tel : 82-1544-3000 Tlx : K23141

Branches•

355

Subsidiaries•

KEB Capital Inc. 10F Hanwi Building, 70 Da-dong, Jung-gu, Seoul 100-180, Korea
Tel : 82-2-3708-2100 Fax : 82-2-756-5269
KEB Futures Co.,Ltd. 11F Yuhwa Building, 23-7 Youido-dong, Youngdungpo-gu, Seoul 150-738, Korea
Tel : 82-2-3770-4100 Fax : 82-2-3770-4147
KEB Investor Services Co.,Ltd. 23F KEB Head Office, 181 Euljiro 2-ga, Jung-gu, Seoul 100-793, Korea
Tel : 82-2-729-0447 Fax: 82-2-777-5311

SMART & PROFITABLE GROWTH
KOREA EXCHANGE BANK
2 0 0 8 ANNUAL REPORT

181, Euljiro 2-ga, Jung-gu, C.P.O. Box 2924, Seoul 100-793, Korea
Tel. 82-1544-3000 SWIFT. KOEXKRSE Telex. K23141