ONETRUSTEDGROUPHANA FINANCIAL GROUPANNUAL REPORT 2015

ONE
TRUSTEDGROUPHANA FINANCIAL GROUPANNUAL REPORT 2015

CONTENTSHIGHLIGHTSKey Highlights

004

Financial Highlights

006

Hana Financial Group became a trusted financial group with a

Stock Information

008

singular purpose: to be better by expanding into the global market andseizing the domestic market with the leading digital banking system. All

GROUP OVERVIEW
Letter from the CEO

012

of us at Hana Financial Group did our best to improve customer satisfaction

CEO Briefing

016

and to enhance shareholder value in face of challenging economic

Board of Directors

030

At a Glance032

circumstances domestically and on a global scale. In 2016, the trusted Hana

Corporate Governance034

Financial Group will continue to move forward by creating synergies andRisk Management036

improving upon its competencies in banking, securities, credit card,
insurance products, retail financing and overseas businesses. We will

REVIEW OF OPERATIONSRetail Banking

040

Corporate Banking

045

Global Operations

049

IB & Asset Management

052

Credit Card055

Trust & Pension

058

Corporate Social Responsibility

060

FINANCIAL REVIEWManagement’s Discussion and Analysis

067

Independent Auditors’ Report

105

Consolidated Financial Statements

106

Notes to the Consolidated Financial Statements

112

Corporate Information

224

Forward Looking Statements

225

also do our share in building a better society for all.

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

KEY HIGHLIGHTS
Total Assets (Consolidated)

KRW Loans

408

172

KRW trillion

349

2012

137

151

2013

390

2014

As of Mar. 2016

The Industry’s Largest Global Network
KRW trillion

2012

368

2013

Global Network

2014

Points of Operation

24

Countries

158

Europe &Middle East

10163
America

408

2015

2015

24

172

KRW Deposits (Ending Balance)

Global Awards in 2015

173

The Banker“Top 1000 World
Banks 2015”“Bank of the Year in Asia-Pacific”

82

2012

KRW trillion

The Banker(the first Korean bank to be selected)

As of July 2015nd

Employees

As of Dec. 2015

20,454

Asia & Pacific103

Mobile Banking
Users

As of Dec. 2015

6,041,891

153“Bank of the Year in Korea”
2013

2014

2015

159

The Banker

170“Best Private Bank in Korea”
173

Euromoney(8 times)K E B H a n a B a n k ra n ke d 532 n d (19 93)

004

005

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

FINANCIAL HIGHLIGHTS
Financial Summary

unit: KRW billion

2015

2014

Net Interest Income (Consolidated)

4,539

6,331.6

1,010.5

1,243.4

Consolidated Net Income

909.7

937.7

ROA

0.29%

0.32%

ROE

4.17%

4.55%

EPS (KRW)

3,001

3,177

67.73%

62.17%

Total Assets

407,695.6

390,486.7

Total Sales

298,701.4

289,769.6(Total Deposits)

266,957.2

260,230.6(Sales of Beneficiary Certificates)

31,744.2

29,539.0

1.27%

1.35%

131.45%123.30%

0.68%

0.62%

13.31%

12.63%

Cost to Income Ratio
Business Volume

2.13%
1.94%

4,599

2013

KRW billion

1,621.5
1.81%

4,671

933.9

937.7

2013

2014

4,539

4,485

2012

Net Income (Consolidated)

909.7

1.91%

6,689.6

Operating Income

Int. Income

KRW billion

Profitability
General Operating Income

NIM

2014

2015

2012

NPL Ratio (Consolidated)

Credit Cost (Cumulative)

1.27

0.47

%

909.7
2015

%

0.71%

1.48%
1.35%

1.34%

1.27%

0.53%

0.51%

2013

2014

0.47%

Asset Soundness
Substandard & Below (NPL) Ratio
Substandard & Below (NPL) Coverage Ratio
Delinquency Ratio

2012

2013

2014

2015

2012

Major Indices (Cumulative, %)67.73

Capital Adequacy*
BIS CARTier 1 Ratio

10.43%

9.67%

Common Equity Tier 1 Ratio

9.79%

9.18%

72,31971,848

BPS (KRW)*Based on Basel III standards

Cost toIncome Ratio

61.64%

62.17%

5.16%

4.55%

0.34%

0.32%

2013

2014

%

51.00%

10.56%

ROE
0.60%

ROA
2012

006

2015

2015

4.17
0.29

%

%
007

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

STOCK INFORMATION
Consistent Dividend History

Market Capitalization

6.98

12.73
8.64

2011

650

KRW trillion

9.28

600
450

2011

2012

400

2013

2014

Outstanding Credit Ratings

As of May 2016

(KEB Hana Bank)

21.1%

650

600

2015

2014

Dividend per share
(KRW)

12.4%
6.8%

6.98

2013

18.5%

11.8%

8.43

2012

KRW per share

Dividend Payout Ratio

2015

Share Ownership

As of Dec. 2015

S&P

Moody's

Fitch

A

A1 A-

Stock Performance

Hana Financial GroupKRX Bank

KOSPI

300%

FOREIGNDOMESTIC

33.97

66.03

%

250%

%

200%

150%

100%

Share Price Movements

unit: KRW, Point
50%

2015

2014

2013

2012

2011

High

33,85043,85043,90044,90049,700Low

23,60031,45031,85030,35029,000Year-end
KOSPI index (year-end)008

23,6001,961.31

32,0001,915.59

43,9002,011.34

34,7001,997.05

35,5501,825.74

2008.122009.122010.122011.12

Feb. 2010
Successfully weathered a financial crisis

Jan. 2012
The FSC approved the KEB acquisition

Feb. 2010
Hana SK Card inked JV pact with SK Telecom

Jan. 2013
BoD approved plan to turn Korea Exchange Bank
into a 100% subsidiary through a share swap

Nov. 2010
Signed to acquire Korea Exchange Bank (KEB)

Apr. 2010
KEB delisted, new shares ofHana Financial Group listed

2012.122013.122014.122015.12Jan. 2014
New Vision ‘The Trusted Premier Global
Financial Group’ promulgatedFeb. 04, 2015
Court approved an injunction sought by KEB labor
union against the bank integration

Mar. 2014
PT Bank KEB Hana, the integrated
Indonesian subsidiary, launched

Jul 13, 2015
HFG & KEB Labor Union announced “The Bank
Integration”

Dec. 2014
Newly integrated KEB Hana Card launched
Newly integrated subsidiary, Hana Bank
(China) Ltd. launched

Sept. 01, 2015
Launch of KEB Hana Bank

009

GROUPOVERVIEW

Letter from the CEO

012

CEO Briefing

016

Board of Directors

030

At a Glance032

Corporate Governance034

Risk Management036

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

LETTER FROM THE CEO“As the past decade witnessed ourtransformation into a leading financial
franchise of Korea, our next chapter is to
grow into a global premier financial groupby realizing the true integration synergy.

”

Chairman & CEO of Hana Financial GroupKim Jung-tai

Dear valued shareholders and customers,
I am delighted to share with our shareholders and customers
that we have strengthened the foundation for future growththrough the integration of our bank operations.
The year 2015 was a year rife with challenges in thedomestic and global economic environment. Nevertheless,efforts to increase shareholder value continued unabatedat our operations. We are especially proud of having
finalized the integration between Hana Bank and Korea
Exchange Bank (KEB).
The integration between the two banks was an important final
step in our structural reorganization, and was much needed
for the implementation of unified, group-wide businessstrategies, as well as providing us with the basis for future
growth. In this sense, 2015 was a uniquely fruitful year for us.

012

013

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

LETTER FROM THE CEO

Despite challenging operating environment, our focused execution of global/digitalbanking strategy, prudent risk management and the timely integration enabled us torealize our vision as a trusted premier global financial group.

A TIMELY INTEGRATION

AT THE FOREFRONT OF DIGITAL BANKINGSUSTAINABLE FINANCE

Today, We are One

Paving Our Path to Future Finance

Building a Better Tomorrow for Everyone

With the launch of KEB Hana Bank, we are now set on avital and concrete path toward a future of becoming a
global financial group. Its significance, therefore, can hardly
be exaggerated. The integration between the two banks
has been widely praised by both Korean and international
financial industries as a smart move to secure a solid basis for
future growth. In 2015, KEB Hana Bank was named the “Bankof the Year in Asia-Pacific” and the “Bank of the Yearin Korea” by The Banker, the world-renowned financial
industry publication.

One of the most salient trends in the global banking industry
today is the acceleration of digital banking. In a proactive
response to this trend, we are offering a variety of Fin-techservices to lead this promising new segment of the banking
market. “Future Finance,” the new market paradigm, will beincorporated into our global business strategy to power our
medium and long-term growth.

We set our mission, “Growing Together, Sharing Happiness,”to create a sustainable business environment. To do so,
we reach out to our communities through donations andvoluntary activities for welfare facilities and internal
fund-raising for low-income households and multicultural
youths. In addition, we are reducing expenses throughenergy saving activities and financing giving back activities
such as planting trees in our neighborhoods, investing ingreenhouse gas emission reduction systems, and assistingenergy-poor segments in our community. All of these actions
will allow us to open up a new path toward our sustainablegrowth and ultimately make a better tomorrow for everyone.

RIGOROUS RISK MANAGEMENT
Preemptive Risk Management Leads to Qualitative Growth

PROFESSIONAL SERVICESAND OPTIMIZED PORTFOLIOBe Better - The One Goal
Following the integration, KEB Hana Bank has become
an unrivaled leader in the Korean foreign exchange andprivate banking market as it achieved an impressive 38%
share of the foreign exchange market and was selected as
the Best Private Bank. KEB Hana Bank owes its remarkablesuccess to its accumulated expertise, outstanding staffs,
and innovative products. Going forward, we will continue
to make the most of the synergy generated by the
integration between the two banks.

We face the financial environment that is currently
characterized by persistent low growth and low interest
rates. To remain competitive in such an environment, we
maintain our focus firmly on qualitative growth, rather thanquantitative expansion: in other words, we concentrateon profitability and risk management. We are striving
to optimize our asset quality and to improve our capital
adequacy ratios.

We thank all our stakeholders including employees, customers,
communities and shareholders for their confidence and trustin our group.

TRANSPARENT GOVERNANCE
Consolidated Value Creation by Diversification and Interaction
In tandem with giving ourselves a new engine for growththrough the integration between Hana Bank and KEB,

EXPANSION OF GLOBAL OPERATIONS
Expanding into the Wider WorldThe combination of KEB’s vast global business networks andHana Bank’s proactive localization strategy has afforded us aunique formula for differentiated global business operations.
To attract new global customers, we will not only broaden
our existing business channels, but also build new engines for
growth through localization efforts. The goal is to ensure thecontinued expansion of our global operations.
014

we are also accelerating our efforts to build transparent
corporate governance by ensuring the independence andexpertise of the Board of Directors (BoD). To grow into a
trusted global financial group, we will promote the businesspractices with our subsidiaries and bring their growthstrategies into line with the group-wide strategies whichhave also proved beneficial for the development of Korea’s

Kim Jung-tai

financial industries.

Chairman & CEO of Hana Financial Group015

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWCEO BRIEFINGHANA FINANCIAL GROUP ANNUAL REPORT 2015

A TIMELY
INTEGRATIONPROFESSIONALSERVICES AND
OPTIMIZED PORTFOLIOEXPANSION
OF GLOBALOPERATIONSAT THEFOREFRONT OF
DIGITAL BANKINGRIGOROUSRISK MANAGEMENTTRANSPARENT
GOVERNANCE

SUSTAINABLE
FINANCEA TIMELY
INTEGRATION
Today, We are One
On September 1, 2015, KEB Hana Bank was officially launched
as a result of the integration between Hana Bank and KEB.
Followed by the integration, KEB Hana Bank has become thelargest Korean bank in terms of total assets, possessing vast
global business networks that comprise 137 branches and offices
in 24 countries around the world. Moreover, other subsidiaries
have formulated new missions and conducted an organizational
overhaul to ready themselves for a new period of growth.
Although the group-wide performance in 2015 failed to meet
expectations due to the integration costs, we expect our efforts
to bear fruit from this year by continuing with risk management
and cost control that started in 2012 upon acquiring KEB.

ASSET SIZE

1This outlook is widely shared in the financial industries, as attested

No.

to by winning two prestigious awards: the “Bank of the Year in
Korea” award and the “Bank of the Year in Asia-Pacific” award inin Korea2015 by The Banker, an exceptional honor as KEB Hana Bank is thefirst Korean bank recipient to receive the award.
Going forward, the synergy gained from the integration will

NUMBER OF DOMESTIC BRANCHES

help us to expand the scale of our operations to maximize
shareholders’ value, and propel us into the top ranks of global
financial groups.

1,101“BANK OF THE YEAR IN ASIA-PACIFIC”

1st

Korean Bank recipient by “The Banker”

016

017

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWCEO BRIEFINGHANA FINANCIAL GROUP ANNUAL REPORT 2015

A TIMELY
INTEGRATIONPROFESSIONALSERVICES AND
OPTIMIZED PORTFOLIOEXPANSION
OF GLOBALOPERATIONSAT THEFOREFRONT OF
DIGITAL BANKINGRIGOROUSRISK MANAGEMENTTRANSPARENT
GOVERNANCE

SUSTAINABLE
FINANCE

PROFESSIONALSERVICES AND
OPTIMIZED PORTFOLIOBe Better - The One Goal
KEB Hana Bank has accomplished 38% share of the foreign exchange market
and 35% share in export-import markets as the end of 2015. In addition, it
was selected as the Best Private Bank in Korea 2015 by Euromoney.
Being recognized by reputable organizations and the current market sharedata, KEB Hana Bank has emerged as an uncontested leader both in the foreignexchange and the private banking markets of Korea, since its inception throughthe integration. Accumulated know-hows, outstanding staffs, and innovative
products helped establish its dominant market position.
In the private banking segment, the main strength of Hana Bank, quality services
are now offered to all our customers, through a vast network of 934 domestic
branches and 137 global networks. Under the initiative to expand its privatebanking capabilities, all our employees have been trained to provide customers
with personalized asset management services.
In 2016, new investment-type products designed to meet the needs of VIP
customers, such as ISA (Individual Savings Account), tax-exempt overseas equity
funds and real estate investment consulting, will be launched, thereby diversifying
our asset portfolio. Moreover, personalized foreign exchange advisory services will
be made available to our customers through private bankers, who will undergo
new training to equip themselves with necessary expertise in this area.
After the integration of the bank IT system scheduled for completion in“BEST PRIVATE BANK IN KOREA”

8 timesawarded by Euromoney

June 2016, we expect the creation of great synergy through the efficient
operation of manpower and business channels resulting from employee
reshuffles and reassignments.

FX / TRADE FINANCE MARKET SHARE

1

No.
018

019

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWCEO BRIEFINGHANA FINANCIAL GROUP ANNUAL REPORT 2015

A TIMELY
INTEGRATIONPROFESSIONALSERVICES AND
OPTIMIZED PORTFOLIOEXPANSION
OF GLOBALOPERATIONSAT THEFOREFRONT OF
DIGITAL BANKINGRIGOROUSRISK MANAGEMENTTRANSPARENT
GOVERNANCE

SUSTAINABLE
FINANCEEXPANSION OF
GLOBALOPERATIONS
Expanding into the Wider World
Since 2012, we have pushed for an early integration in order
to secure a new growth engine, which is vital in becoming a
global financial group. The goal was to use the synergy from theearly integration to expand global operations, broaden businesschannels, launch future financial services for the global market,
and invest in non-banking businesses to develop new revenue
streams, over the medium to long term.
By coupling the vast worldwide business networks owned by
KEB with Hana Bank’s proactive localization strategy, we plan tomake inroads in the global market through differentiated businessmodels. In China, we are receiving high returns from investmentof financial institutions such as the Bank of Jilin and other various
lease and investment firms. In Southeast Asia, we are working on
equity investment and conducting M&A to increase our share of
the global market.
By attracting new global customers through the widening ofbusiness channels and implementing localization strategies that

NET PROFIT CONTRIBUTION OF
GLOBAL BUSINESSES

are optimally adapted to individual regions, we are creating anengine for sustainable growth and improving the efficiency ofour businesses. Meanwhile, to enhance the profit structure, weare strengthening the non-banking segment of our portfolio by
supporting the growth of the securities, capital and credit card
arms of our group. By thus balancing our profit structure, we will
ensure the medium to long-term stability of our revenue stream.

020

24
137

GLOBAL NETWORKS

21%
Countries
Networks021

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWCEO BRIEFINGHANA FINANCIAL GROUP ANNUAL REPORT 2015

A TIMELY
INTEGRATIONPROFESSIONALSERVICES AND
OPTIMIZED PORTFOLIOEXPANSION
OF GLOBALOPERATIONSAT THEFOREFRONT OF
DIGITAL BANKINGRIGOROUSRISK MANAGEMENTTRANSPARENT
GOVERNANCE

SUSTAINABLE
FINANCE

AT THEFOREFRONT OF
DIGITAL BANKING
Paving Our Path to Future FinanceIn an effort to venture into the rapidly growing global digitalbanking market, we will be launching new services to stake anearly claim in this field.
“Hana Members,” the first comprehensive membership service
in the Korean financial market, had attracted over 3.1 million
members by March 2016, while “1Q Credit/Debit Card,” linked tothis service, reached 430,000 issues, with over 220,000 customers
opening a Hana Members Installment Savings account. In Canada
and China, we launched “1Q Bank” our global online banking
system. In the Philippines, we have begun the “1Q Transfer”, afaster and more convenient service at lower fees that also allows
direct transfer to any of the 24 countries around the world thatare covered by our global networks. Also, we released "mobi 1,"
the world's first mobile-only credit card optimized for mobile
payment service, in 2015. These are only a few examples of how
we are leading change in the financial service industry.

“HANA MEMBERS” LAUNCHED

We are going to enlarge the customer base of our overseas
branches utilizing “1Q Bank” in the future, while “1Q Transfer” will
be used to transfer funds between overseas branches and offices
within our worldwide networks to secure greater efficiency in the
global retail banking business. We plan to closely integrate the

1stintegrated membership program in
Korean Financial Industry

concept of “Future Finance” with our global business strategy todevelop new engines for medium to long-term growth.

“mobi 1” RELEASED

1stmobile-only credit card in the world

022

023

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWCEO BRIEFINGHANA FINANCIAL GROUP ANNUAL REPORT 2015

A TIMELY
INTEGRATIONPROFESSIONALSERVICES AND
OPTIMIZED PORTFOLIOEXPANSION
OF GLOBALOPERATIONSAT THEFOREFRONT OF
DIGITAL BANKINGRIGOROUSRISK MANAGEMENTTRANSPARENT
GOVERNANCE

SUSTAINABLE
FINANCE

RIGOROUSRISKMANAGEMENT
Preemptive Risk Management
Leads to Qualitative Growth
We are prioritizing qualitative growth over quantitative expansion
by shifting our focus to profitability and risk management tocope with any economic and structural headwinds that might
wait before us.
In an effort to implement proactive risk management, we havebeen rapidly reducing loan exposures to large corporates in
KEB had sparked apprehension about our capital adequacy, as

CURTAILING EXCESSIVE LARGE CORPORATESEXPOSURE

this brought down our capital ratios relatively.

(2014 → 2015)

our watch list and macro-sensitive sectors. The acquisition of

We are rapidly improving common equity tier 1 capital ratio
through continuous RoRWA management that is increasing
profitability, and decreasing RWA through curtailing excessive
loan exposures to large corporates. These efforts are resulting

32 %in tangible improvements in both asset quality and capital
adequacy.
Understanding that systematic risk management is the key%

PREEMPTIVELY REDUCING MACRO-SENSITIVE
INDUSTRY EXPOSURE

to the sound financial footing, and strengthening our risk
management capabilities and our ability to proactively respondto a crisis will be a top priority.

25

KRW

-5.5

trillion

TIGHT CONTROL ON RWA GROWTH IN
GROUP-LEVEL

-1.3

%

※ Respective exposures as of total credits in KEB Hana Bank

024

025

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWCEO BRIEFINGHANA FINANCIAL GROUP ANNUAL REPORT 2015

A TIMELY
INTEGRATIONPROFESSIONALSERVICES AND
OPTIMIZED PORTFOLIOEXPANSION
OF GLOBALOPERATIONSAT THEFOREFRONT OF
DIGITAL BANKINGRIGOROUSRISK MANAGEMENTTRANSPARENT
GOVERNANCE

SUSTAINABLE
FINANCE

TRANSPARENT
GOVERNANCE
Consolidated Value Creation by
Diversification and Interaction
We are making continuous efforts to enhance our corporate
governance structure by bringing about greater transparency
and efficiency in the composition and operation of the Boardof Director (BoD), strengthening its role and ensuring that its
responsibilities are effectively fulfilled. As the highest decisionmaking body, at least two-thirds of the board is composed ofoutside directors (8 outside directors and 3 inside directors),
strengthening its ability to keep the management in check.
Its members, experts in wide-ranging fields, advise themanagement.
The BoD is regularly reviewed and evaluated by outside directors
concerning its roles and functions, and its operation, as well as thecomposition and the qualifications of its members. The evaluation
is carried out in the form of a paper survey to guarantee theindependence of the process.
Meanwhile, to align interests and values of shareholders, themajority of executives compensation is determined by theequity linked Performance Share Plan (PSP). PSP is a deferredpayout system which reflects both our earnings and share pricerelative to peers, which are evaluated over the performance forthe past three years. The payout is either in the form of stock
shares or an equivalent amount of cash and is given one year
after the end of the evaluation period.

EVALUATION RATING OF CORPORATE
GOVERNANCE(As of Dec.2015)※ ESG evaluation ratings by Korea Corporate Governance Service

026

A+
027

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWCEO BRIEFINGHANA FINANCIAL GROUP ANNUAL REPORT 2015

A TIMELY
INTEGRATIONPROFESSIONALSERVICES AND
OPTIMIZED PORTFOLIOEXPANSION
OF GLOBALOPERATIONSAT THEFOREFRONT OF
DIGITAL BANKINGRIGOROUSRISK MANAGEMENTTRANSPARENT
GOVERNANCE

SUSTAINABLE
FINANCESUSTAINABLE
FINANCE
Building a Better Tomorrow
for Everyone
We are fulfilling in our corporate social responsibility throughsocial and environmental management to open a new sustainable
path for the financial industry. As we thus work toward creatinga sustainable business environment, we are one step closer tofulfilling our mission: “Growing Together, Sharing Happiness.”
As part of our community involvement efforts, our volunteer
corps, composed of staffs and their family members, regularly
engages in community service activities. Our employees havealso been active in charitable work, giving to welfare facilities,
low-income households and multicultural youths via internal
fund-raising efforts. Since 2011, we have been matching
charitable donations by our staffs through a program called“Hana the Matching.”
We have declared every day over the two-month period from
November 11 of each year to January 11 of the following year
“Everyone Hana Day” campaign, which includes community
services and sharing with those in need.
Moreover, our corporate and social responsibility activities include
our effort to fight against global warming and creating solutions
to climate change. Under an environmental management

SOCIALLY RESPONSIBLE FINANCE

1st

Korean bank to set up a Financial
Consumer Protection Systemstrategy focused on helping the transition toward a low-carbon
society, we are making efforts at various levels in a drive to
reduce the carbon footprint of our operations. In 2016, KEB Hana
Bank became the first Korean financial institution to sign an MOU
with the Ministry of Environment and KCEN (Korea Climate &Environment Network), pledging to “reduce greenhouse gases
by one ton per employee.” A variety of plans to cut energy
consumption will be implemented at all of our domestic branchesfrom 2016.

028

ENVIRONMENTALLY RESPONSIBLE FINANCE

ExcellenceAward 2015
in “Greenhouse Gas Reduction
Practice Commendation”

029

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

BOARD OF DIRECTORSYoon Sung-bock

Hong Eun-joo

Ham Young-joo

Yoon Jong-nam(Chairman of BoD)

Kim Jung-tai

Kim In-bae

Song Ki-jin

Park Moon-kyu

Kim Byoung-ho

Yang Won-keun

Park Won-koo

Former CEO,KPMG Samjong
Accounting Corp

Professor of Economics &Finance in Hanyang Cyber
University

President & CEO,KEB Hana Bank

Representative Attorney,
Law Office Chung-Pyung

Chairman & CEO,
Hana Financial Group

Professor of Economics inEwha Womans University

Non-executive Advisor,
DR & AJU Law Firm

Chairman, AJ Co., Ltd.

Vice Chairman,
Hana Financial Group

Former Deputy President of KB
Financial Group•President & CEO, Hana
Bank•President & CEO, PMK Inc.

•Standing Auditor Committee
Member, Woori Bank

•Director, Suwon District
Prosecutor’s Office•President & CEO, Hana
Daetoo Securities Co.,
Ltd.

•Associate Professor of
Economics & International
Commerce, Soong-sil
University•President & CEO, Hana Bank

•CEO, iMBC

•Director, Seoul Southern
District Prosecutor’s Office•President & CEO, Kwangju Bank

•Head of Audit,
KPMG Samjong
Accounting Corp.

•Deputy President,
Chungchong BusinessGroup, Hana Bank

Professor of Seoul National
University Global Education
Center for Engineers

030•Head of Financial Editor,
MBC•Assistant Deputy President,
Daejeon Regional Business
Division, Hana Bank

•Deputy President, Woori Bank

•President & CEO, AJ Co., Ltd.

•Deputy President & Group Head,
Marketing & Global BusinessGroup, Hana Bank

•Executive Director, Korea Deposit
Insurance Corporation•Professor of Graduate Schoolof MOT in Korea University•CEO, Erlang System Inc.

031

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

AT A GLANCEHANA FINANCIAL GROUP
Founded in 2005, Hana Financial Group is expanding its

unit: KRW billion

TOTAL ASSETS_CONSOLIDATED

global presence through its combined overseas network,

407,696

the largest in Korea. Hana Financial Group serves as theholding company for its subsidiaries and is responsible
for group level management strategies, resources
and support. The subsidiaries include 10 first-tier, 23
second-tier and 2 third-tier subsidiaries.

NET INCOME_CONSOLIDATED(as of March 2016)

unit: KRW billion

909.7
SHAREHOLDERS' EQUITY

unit: KRW billion

22,972CONSOLIDATED FINANCIAL STATEMENTS

KEB Hana Bank

Hana Savings BankKEB Hana Bank was launched on September 1, 2015, following the integration
between Hana Bank and Korea Exchange Bank (KEB). (Hana Bank was createdin July 1991 when its predecessor, Korea Investment and Finance Corporation(founded in June 1971) was re-organized as a bank. On December 1, 2002,
Hana Bank absorbed Seoul Bank, a historic bank founded in December 1959.
KEB was founded in January 1967) The integration between Hana Bank and
KEB meant a winning combination of the respective strengths of the two
institutions. With an unparalleled competitiveness in private banking and FX,
KEB Hana Bank is marching its journey to become a top-tier global bank.

Hana Savings Bank joined Hana Financial Group in 2012, bringing in quality
banking services dedicated to middle income and lower classes andexpanding the selection of financial products and services for Hana Financial
Group customers with competitive savings products.

Hana Financial Investment
Hana Financial Investment originates from Korea Investment Corporation, apublic corporation established in December 1968. In 1977, Korea Investment
Corporation was re-launched as Korea Investment Trust which was again
renamed, in September 2015, “Hana Financial Investment.” As the asset
management arm of Hana Financial Group, Hana Financial Investment has been
consistently at the forefront of the Korean capital market. Its many milestones
include the establishment of Korea’s first investment fund and attaining number
one rank in brand power in investment trust for six consecutive years. Hana
Financial Investment is also known for its unique and innovative investmentbanking model. By taking advantage of Hana Financial Group’s extensive global
network, Hana Financial Investment is today on a path to rise as Asia’s top
investment bank, a worthy competitor among the world’s major investmentbanks.

KEB Hana Card

unit: KRW billion

Hana SK Card, a result of collaboration between SK Telecom and Hana Bank’scard division formed in 1992, was established in 2010. In December 2014,
Hana SK Card was re-launched as KEB Hana Card following the integration
with KEB Card (established in 1978). The first Korean card company to offera mobile card, KEB Hana Card, is currently the leader in the mobile payment
market promoting “Smart Life” as the “Smart Financial Innovator.”

HFG Ownership

Total Assets

Net Income

Shareholders' Equity-

407,696

909.7

22,972

Hana LifeKEB Hana Bank100%

329,088366.8

21,372

Hana Financial Investment

100%

26,329

149.1

1,789

KEB Hana Card

85%

6,738

10.9

1,337

Hana Life

100%

3,851

22.5

267

50.13%

4,472

65.1

569

An industry trailblazer, Hana Life became, in February 2003, the first
Korean insurance firm to venture into the bancassurance business. Hana
Life combines an extensive selection of reliable insurance products with
optimal financial planning and follow-up services. As a member of a major
financial group possessing wide-reaching marketing channels and advanced
insurance technologies, Hana Life is making impressive headway into
becoming Korea’s most trusted insurance company.

Hana Savings Bank

100%

1,086

18.1

178

Hana Asset Trust100%

24,09710.5

10589.98%

228

2.4

107

Hana Institute of Finance

100%

5

0.1

4

Hana Investors Services

100%

27.7

5.0

23.3

Hana Financial Group Inc.

Hana Capital

Hana I&S* The percentages are the shares of equity held by the parent company in the respective subsidiaries (current as of December 2015)032

Hana Capital

Hana Asset Trust
Hana Asset Trust, launched in 2004, became a member of Hana Financial
Group in March 2010. By collaborating with other affiliates of Hana Financial
Group, Hana Asset Trust is tapping advanced financial techniques todevelop innovative new products. The real estate services offered by Hana
Asset Trust are a prime example of its uniquely innovative service offerings.
Bolstered by expert manpower specialized in real estate and the strong
trust of customers, Hana Asset Trust is quickly emerging as a leader of thisfield, providing the whole gamut of real estate services.

Hana I&S
Hana I&S is the IT arm of Hana Financial Group and its key engine for growth.
Since its creation in 1990, Hana I&S has built systems for a complete spectrumof financial fields, ranging from banking and securities to credit cards andinsurances, and has accumulated an impressive body of knowledge related totheir operation. With the opening of the Hana Integrated Global Data Centerin Cheongna, scheduled for 2017, Hana I&S is expected to further consolidate
its position as the future leader of Korean IT.

Hana Institute of FinanceHana Institute of Finance is Hana Financial Group’s think-tank as well as its
knowledge center. Since its inception in June 1987, Hana Institute of Financehas been responsible for drawing up management strategies aimed atstrengthening the core capacities of the holding company and subsidiaries
and providing group level support. By developing and implementing
knowledge management systems, Hana Institute of Finance is leading change
and spearheading advancement in Korea’s financial industry.

Hana Investors Services
Hana Investors Services is a fund accounting and administration company
that was established in accordance with Article 254 of the Capital Market
and Financial Investment Business Act. Hana Investors Services is mainly
engaged in calculating the net asset value of funds and offers full support andsystems related to investment asset compliance, performance analysis, risk
management, order management and other operations. Since its inception,
Hana Investors Services has grown rapidly by focusing on customer-oriented
solutions and serving a broad array of institutional investors, such as asset
managers, public and corporate pensions, insurers, and bank trust accounts.

Hana Capital is a retail credit-specialized financial company and joined Hana
Financial Group in 2005. Its portfolio of services includes leases, installment
loans and loans. Benefiting from Hana Financial Group’s vast stock of knowhow in various financial fields and brand competitiveness, Hana Capitalis continuously developing new products that are both convenient forcustomers and highly differentiated. Currently, Hana Capital is also setting its
sights on overseas markets to find new engines for growth.

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CORPORATE GOVERNANCE
We are striving to establish a fair and transparent
governance structure by guaranteeing theindependence of the BoD: an essential precondition
for the success of our effort to create a greatcustomer, shareholder and employee value.

Efforts to Ensure the Independence andTransparency of the BoD
The BoD, the most important decision-making body of Hana Financial Group,
is composed of 8 outside directors and 3 inside directors. The BoD, as its
majority is made up of outside directors, is effectively serving its functionof checking the activities of the management, while ensuring the highest
standards of transparency.
Moreover, the BoD assumes an advisory role toward the management, as its
members are experts in wide-ranging fields, including finance, business admin,and law. The BoD may also receive consulting from outside organizations,when necessary.

2012

Rating:

2013

2014

2015

A+ A+ A+ A+

When appointing an outside director, a candidate is nominated by the Outside
Director Nomination Committee, taking into consideration the expertise anddiversity of the BoD. To ensure that the candidates meet the required standardsof independence, expertise, professional integrity and ethical conduct, they arethoroughly verified through a fair and objective process, using eligible criteria
under relevant laws and regulations, as well as pursuant to the Financial Corporate
Governance Code. Furthermore, for greater transparency, the activities of the BoD
are made known to shareholders, investors and customers through a disclosure
on a regular basis.

※ ESG evaluation ratings by Korea Corporate Governance Service

Title

Composition

Purpose and Responsibilities

Committees of the BoD

Steering Committeeof BoD

1 inside director,
4 outside directors

Deliberation on issues related to the enhancement of the governancestructure, efficient operation of the BoD and its committees and othermatters delegated by the BoD

Audit Committee

5 outside directors

Planning and conducting of internal audits, including accounting andbusiness audits and other audits incidental thereto: evaluation of theaudit results, implementation of follow-up measures and establishmentof improvement strategies

Risk Management
Committee

5 outside directors

Establishment, approval and management of policies and plans for
managing various risks to business operations

Management
Development andCompensation
Committee

3 outside directors

Deliberation on, and establishment of, group level compensation
policies: evaluation of executive officers performance for theholding company and subsidiaries and deliberation on performancecompensation

Outside Director
Nomination Committee

1 inside director,
4 outside directors

Establishment of the guidelines for appointing outside directors,
searching and nominating qualified outside director candidates fromvarious fields

Auditor Nomination
Committee

8 outside directors

Selecting candidates to the Audit Committee and nominating them at
the General Meeting of Shareholders

To improve the transparency of management, we are enhancing thegovernance structure and increase the efficiency of the BoD, 6 standing
committees have been put into place: namely, Steering Committee of BoD,
Audit Committee, Risk Management Committee, Management Development
and Compensation Committee, Outside Director Nomination Committee andAuditor Nomination Committee.
The BoD delegates some of its authority, when necessary, to a board committee
within the limits allowed by relevant laws and regulations and the Articles ofIncorporation. Through these committees, the BoD deliberates on issues suchas improvement of the governance structure, efficiency of the BoD's operation,accounting and business audits, management of various risks to business
operations, group level compensation policies, as well as nomination of outside
directors and auditors. The highlights of the activities of the BoD and committees
thereof are disclosed on a regular basis.

Stock-linked Performance Share Plan
for Alignment of Interests
At Hana Financial Group, an important part of variable compensation for executive
officers is provided through an equity-linked Performance Share Plan.
The Performance Share Plan is a deferred payout system which reflects boththe company’s earnings and the share price relative to peers that are evaluatedover the performance for the past three years. The payout is either in the formof stock shares or an equivalent amount of cash and is given one year after
the end of the deferral period. Executive officers receive 50% or more of theirvariable compensation package through the Performance Share Plan to ensure thealignment of interests between shareholders and the management.

034

EVALUATION RATINGS OF CORPORATE GOVERNANCE

BOARD COMMITTEES

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

RISK MANAGEMENT
We understand how vital a proactive andsystemic risk management is for the successof financial operations.

in real time. In case of a crisis, a stage-by-stage response procedure has been
established to effectively minimize losses.
Group BoD

Responsible for integrated risk
management of HFG

Management of Liquidity Risk
Liquidity is managed so that the level stays above pre-established minimums
at all times. Furthermore, to effectively respond to potential liquidity
crises that may occur from market uncertainty and meet the related
recommendations from the supervisory authority, an early warning system
is in place. Liquidity stress is continuously tested through statistical analysis,
performed under various simulated stress scenarios. Finally, a comprehensivecrisis response procedure has been established to prepare our organization
for the eventuality of a liquidity shock.

We are, therefore, making continuous efforts
to maximize our risk management capacity sothat we can respond to any crisis or contingency
effectively. Our risk management efforts cover aGroup Risk
Management
Committee

Committee Head: Outside
director Committee Members:
Maximum 8 people(Outside
Directors occupying a majorityof the committee)

Group Risk
Management
Subcommittee

Committee Head: Group CRO
Committee Members: Subsidiary
CRO and executive officer
designated by group CRO

Subsidiaries
Risk-related
Committee/
council

Responsible for integrated risk
management of HFG

broad spectrum of risks that may occur during
the course of business activities at the group level.
Credit, market, liquidity and operational risks
are managed in accordance with the group level

Management of Operational Risk
HoldingCompany’s Risk
Management
Team

guidelines, through successive stages of detection,measurement, monitoring, control and reporting.

Risk Management in 2015:
Status and Accomplishments
In 2015, under the goal of raising our levels of asset quality and capital adequacy
to the highest standards, Hana Financial Group selected three core tasks:
strengthening systems for improving capital efficiency, qualitatively enhancing
the asset portfolio, increasing the capacity for proactive risk management andupgrading the risk management system. Ahead of the coming into effect of fullphased the Basel III capital regulations, we implemented more stringent capital
adequacy management procedures and macro-sensitive sectors and companies
with increased risk and reduced credit exposure to this group of borrowers.
Moreover, to obtain the approval under the Group Basel Credit Risk Internal
Rating-Based Approach, we established a system infrastructure including agroup-wide credit assessment model.

Risk Governance
At Hana Financial Group, risks to our operations are comprehensively managed
at a group-wide level by a Chief Risk Officer (CRO) in a manner to allow timely
recognition of the risks affecting all affiliates of our business network, and aproactive response to them. The Risk Management Committee, our highest
risk management decision-making body, is responsible for establishing,approving and managing related group level policies and master plans for all
types of risks that can occur. A Group Risk Management Execution Committee
convenes on a monthly basis to discuss risk agenda of our subsidiaries including
KEB Hana Bank, our flagship subsidiary, and other affiliates of our businessnetwork, and strategies to contain and minimize any detected risks. The risk
governance system in place is, therefore, highly interactive, as it rests uponclose communication with our subsidiaries.

036

Management Strategy by Type of Risk
Management of Credit Risk
To comprehensively manage credit risk across all segments, we havedeveloped an independent credit rating system, also putting into place aninternal risk management structure and monitoring systems such as an early
warning system. Furthermore, the likelihood of borrower or counterparty
default is measured through credit rating, pricing and a risk management
system, by type of assets (retail or business loan assets). Meanwhile, in lightof the growth in non-performing loans as a result of the recent wave ofcorporate restructuring and the property market slowdown, coupled with
the increase in country risk amid the uncertainty in the global financial
market, efforts were actively undertaken to minimize the risk of loss fromcounterparty default by diversifying the portfolio. We overhauled our credit
line management system at the group level to set differentiated credit caps
among the same type of borrowers and established the maximum lines ofcredit per industry simultaneously with placing sectors with a poor outlook
in the watch list for close monitoring. Our efforts also included setting the
maximum lines of credit for real estate PF, and the maximum credit exposure
by country and by financial institution.

The amount of operational risk, incurred as a result of changes in the businessenvironment or at the level of internal control, is periodically measured
quantitatively to keep it at a manageable level. The overall amount ofoperational risk is routinely monitored to ensure that it is below the maximum
allowable level at all times. Each of our affiliates calculates the amount ofoperational risk for their respective business sector, using a methodology that isin compliance with the guidelines set by the supervisory authority. The resultsof estimation are then reported to the group-level Risk Management Executive
Committee and Risk Management Committee on a monthly as well as aquarterly basis. Even those affiliates that are subject to no particular regulations
concerning operational risk are required to report the results of monitoring
related losses and IT disruptions to the holding company.
There is also a newly integrated operational risk management system which
was set up at KEB Hana Bank in 2016 combining the respective strengths of thesystems of Hana Bank and KEB. This optimized system is expected to greatly
enhance our operational risk management capacity at the group level.

For instance, the five sectors that are likely candidates for industry restructuring(shipbuilding, shipping, petrochemicals, steel and construction), as the slowing
Chinese economy leads the world into a recession, have been already receiving
our attention and placed in our watch list. Moreover, marginal firms in these fivesectors are subject to particularly strict risk management controls.

RoRWA Management to Enhance Common
Equity Tier 1 Capital Ratio
In 2015, in an effort to increase capital efficiency, we adopted a new strategy of
reducing assets with below minimum threshold of return on risk-weighted assets infavor of high RoRWA assets. As a result, this brought down our RWA while increasing
profitability, lifting our common equity tier 1 capital ratio by 0.61%, from 9.18% in
the end of 2014 to 9.79% in the end of 2015.
In 2016, the effort to improve capital efficiency will continue through a portfolio
strategy consisting in increasing capital investment in assets with high RoRWA andclosely managing our asset quality and profitability.

KEY RISK MANAGEMENT TASKS FOR 2016

Reducing Exposure of Watchlists

Proactive risk management

At Hana Financial Group, high-risk corporate borrowers are selected every
year and placed on a watch list, using an internally-developed credit rating
model. Companies awarded with a credit line that is greater than 0.1% of thetotal available credit line or exceeding a certain limit in the overall amount ofcredit transactions are evaluated as a group, according to both financial andnon-financial factors, to determine the likelihood of liquidity risk and shockabsorption capacity.

Proactive management of high-risk portfolios, systemic management ofcredit costs, and improvement of the market crisis response system.

Companies in the watch list are subject to special monitoring, which tracks key
risk factors, changes in credit rating and the subject companies' rehabilitation
plan, if they are under court-ordered restructuring, so that the level of
exposure to this group can be controlled and managed accordingly.

Management of Market Risk
For proactive management of market risk, a maximum level of market risk,
including maximum exposure, maximum VaR (Value at Risk) and maximum
loss, is set for each segment of operation per product or division/ organization.
The level of market risk is measured on a daily basis. The results of daily
monitoring are then reported to the group level Risk Management Executive
Committee and the group level Risk Management Committee every month aswell as on a quarterly basis, so that the level of market risk may be adequately
controlled at all times. Moreover, to prepare for a possible outbreak of anotherfinancial crisis amid signs of uncertainty in the financial market, a set of various
early alert indicators and internal management indicators are being monitored

outlook thereof and are used for the management of our portfolio.
For sectors on our watch list, selected according to these ratings, appropriate limits
are set on exposure. The industry ratings are also reflected on the credit ratings ofindividual borrowers.

Controlling Exposure of
Cyclical Industries VIA
Proactive Risk Management
To prepare for the risk arising from the process of industry restructuring amid
the global economic slowdown and oversupply, we are currently selecting andmanaging high-risk sectors. Hana Institute of Finance periodically publishes
industry ratings as part of an effort of routine monitoring of industry risks andindependent industry evaluation. The industry ratings published by the Hana
Institute of Finance reflect the estimated risk specific to each industry and the

Improve the efficiency of the capital adequacy
management system
Enhancing the capacity for the management of capital adequacy at thegroup level, setting up a Basel Pillars 2 & 3 response system.

Portfolio optimization
An asset expansion strategy which takes into account capital efficiency,
strengthening risk management by reducing unused credit lines.

Upgrading the risk management system for
greater effectiveness and stability
Approval of the group-level Foundation IRB by the supervisory authority,group-wide use of a single credit rating system, development of an
integrated early warning system.

Risk Management in anticipation of global expansion
through broadening of the overseas network
Strengthening the risk management system for overseas subsidiaries andstepping up the control of sovereign risk.

037

REVIEW OFOPERATIONSRetail Banking

040

Corporate Banking

045

Global Operations

049

IB & Asset Management

052

Credit Card055

Trust & Pension

058

Corporate Social Responsibility

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

Household Loans

RETAIL
BANKING

In 2015, the launch of KEB Hana Bank provided us with asolid basis to pursue our expansion into a top-tier global
financial group. By capitalizing on our competitiveness inasset management, foreign exchange and overseas network,
we intend to grow into a premier financial provider.

KRW HOUSEHOLD LOANS

87,691

unit: KRW billion

Household Loan Market in 2015 and Outlook for 2016
In 2015, the volume of lending to households increased sharply in Korea to hit the KRW 1,200
trillion mark at year’s end. Amid this uptrend, Hana Financial Group’s share in the householdloan market also edged up +0.4% YoY to 15.6%. The volume of mortgage loans jumped
particularly sharply due to a combination of factors, including high prices of Jeonse (house
leases or rental deposit) driving up the home buying demand, an increase in collective loan
due to high numbers of new apartment sales, surge in loan demand ahead of new loan
regulation that became effective in 2016, and continuously low interest rates. Despite theupswing in the volume of household loans, the delinquency rate fell from 0.39% in 2014 to
0.26% in 2015, proving sound asset quality.

KRW HOUSEHOLD LOANS

unit: KRW trillion

76.6

2013

79.0

2014

87.7

2015

LOW COST FUNDING(LCF)
MMDA

Core Deposits

unit: KRW trillion

LCF Weight (%)

2013

20.7

29.4

2014

25.0

33.3

2015

26.9

40.6

30.4%
31.5%

34.3%

In 2016, the growth in mortgage loans is expected to slow down somewhat, suppressedby the weak demand recovery amid the global economic downturn and other unfavorable
economic conditions. Another factor that may cause the mortgage market to shrink is the newloan review process which includes a more strict repayment capacity review and is designed
to move borrowers away from non-amortizable. Due to high principal repayment burden, it
will have an overall effect of suppressing new demand and thereby shrinking the size of themortgage market. However, as the new loan review process will be applied across all segmentsof the financial market, losing business to competitors will be unlikely.
With a possible slowdown in the housing market in 2016, amid the slowdown in real estate
price growth and decrease in transaction volume, we plan to continue our strategy from 2015of actively selling Korea Housing Finance Corporation loans as a way of hedging the risks andincreasing fee income. This will be coupled with measures to ensure the quality of loan assets
such as strengthening the loan review procedure for collective loans and risk management forloans to borrowers with a high repayment burden. Finally, in line with the current government
policy, the focus in mortgage loans will be on fixed-rate loans and amortizable loans.

040

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In 2016, the effort to broaden the overall customer base and increase the share of low costfunding deposits by bringing more customers to use KEB Hana Bank as their primary bank willcontinue. One of the plans is to make the most of the Current Account Switch Service to bringin customers with a good payment track record, at the same time as effectively managing
relationships with existing customers. Moreover, efforts will be made to increase cross-selling
among ISA customers and widen the offering of unsecured loans to outstanding customers to
improve return on assets.

Bancassurance
Number One Market Share in Guarantee-Type Insurance
Following the revision of the tax benefits, the domestic bancassurance market shifted its
attention from VIPs purchasing large-amount policies to middle-class customers who are
relatively less sensitive to the effect of the revised regulations.

KRW DEPOSITS

unit: KRW billion

173,310Enhancing the Funding Structure to Improve NIM
Following its launch in September 2015, KEB Hana Bank engaged in an active effort to attract
new customers to give itself a customer base befitting the leading commercial bank it aims
to become. As a result of this effort, the number of customers increased by 870,000 to 17.9
million, the highest customer growth rate among major Korean banks. KEB Hana Bank’s
deposits also increased 3.3% YoY to KRW 196.6 trillion. Meanwhile, the continuous effort toenhance the funding structure resulted in a 21.6% increase in core deposits to nearly KRW
40.6 trillion, and a 6.7% decrease in high cost funding sources like time deposits to KRW 94.4
trillion, significantly improving the NIM.

FOREIGN CURRENCY DEPOSITS
2013
2014
2015

unit: KRW trillion

The lower renewal fee for savings-type and broader spread of the fee payment schedule
for installment-based, which began in 2015, will remain in effect in 2016. These new rules,
however, do not apply to guarantee-type insurance product, which will continue to be our
key product category in 2016. We plan to step up training for this product category, also
increasing marketing support. By concentrating our sales efforts on annuities and guaranteetype insurance/installment-based products, we intend to secure fee income over a long term.
To increase our income over a short term, we are looking to expand our offering of deferred
endowments, savings annuity and immediate annuity products.

17.7

Investment Funds

20.1

23.3

In 2016, with the anticipation of a new competitive landscape in the financial market and thereorganization of the market as a result of the emergence of internet-primary banks and thelaunch of Current Account Switch Service and new products such as ISA (Individual Savings
Accounts), KEB Hana Bank is planning to make all-out efforts to rise above the competition byattracting new customers and effectively managing the existing customer base. To achieve
this goal, the customer relationship unit will be overhauled for greater efficiency, with the
behavioral analysis of customers stepped up. Along with putting into place customer-oriented
services and systems, marketing operations will use data-backed targeted approaches thatare adapted to different goals. One of the major banking trends today is the decrease intransactions at branches in favor of more transactions using smart devices. Going forward, theplan is therefore to strengthen marketing efforts linked to non face-to-face online channels
such as the internet, smartphones and call centers. The goal is to attract new customers,
re-engage inactive customers and continuously reduce the leakage of current customers.
Efforts are also underway to increase the number of customers using KEB Hana Bank as theirprimary bank, using the rapidly expanding base of “Hana Members,” the first comprehensive
membership program in the Korean financial market, launched in October 2015.

042

With the focus on policies geared toward the middle market, such as annuity, endowment andguarantee-type insurance products, we have been strengthening training for our sales staffs,
including product training and sales skills training, so that they can be more confident andproactive in their sales efforts. This effort has borne fruit, recording sales of 22,252, jump of
170% YoY while newly contracted amount had a 264% increase YoY. This has also handed us
the largest share in the guarantee-type insurance market, at 51%.

Increased Needs of Mid-Risk/Return Funds
During the first half of 2015, as quantitative easing continued globally, and stock indices inmost developed countries fared well, hitting the year’s high. During this period, sales were
driven mainly by equity funds invested in the developed world, such as 1) European countries
and Japan where quantitative easing was expected, 2) Chinese market-related funds which
performed well since the launch of Shanghai-Hong Kong Stock Connect and 3) Korean equity
funds and mid-risk/return hybrid funds that gained in popularity as alternatives to otheremerging market funds.
In the 2nd half, amid the market concerns about an US interest rate hike, the mood turned
for market correction due to the disappointing economic indicators in China and a slump ofoil prices. During this period, the focus was placed on mid-risk/return Korean hybrid funds
and publicly offered IPO fund that are adapted for a highly volatile market environment,
addressing investors’ preference for flight to quality and low risk appetite. Long-short funds,
designed to capitalize on market volatility, were also among the key products sold during
this period.

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

Private Banking
BANK CUSTOMERS WITH
+KRW 100 MILLION IN AUM

unit: customers

195,440

Broader Offering of Private Banking Services
Following the integration, KEB Hana Bank has extended asset management services tocustomers with an AUM of KRW 30 million or more at all branches. The team of experts
comprising portfolio managers, tax advisors and real estate consultants from our privatebanking HQs are now made available to customers of all branches. Meanwhile, existing
private banking customers continue to receive comprehensive wealth management
services from 350 PBs serving the members of the Gold Club/VIP Club.
Moreover, to further boost our competitiveness in this field, we are planning to add foreignexchange advisory services, tailored to the individual needs of private banking customers.
We are aggressively courting expat customers, building a close relationship of cooperation
with foreign-invested firms and local governments while increasing our share of the foreign
worker market to maximize our revenues.

CORPORATEBANKING

In 2015, in line with the government’s policy to promotecreative finance, we made active efforts to attract new SME
customers and increase SME loans. These efforts have yielded
their fruit: during the second half, we were ranked second
overall in the “Bank Innovation Assessment” and earned thesecond place in the area of technology financing.

In 2016, new investment products and services, designed to meet the needs of VIP customers,such as ISA, tax-exempt overseas equity funds and real estate consulting will be released,diversifying customers’ overall asset portfolio. Special efforts will be also made to enhancecustomer satisfaction by creating a team dedicated to providing follow-up advisory services.
Meanwhile, the opening of the International PB Center (IPC) in Yeoksam, Seoul, in June 2015
will be followed by a series of other IPCs in locations such as Jeju and Busan to manage assetsof high net worth individuals in Korea, China and worldwide.

PRIVATE BANKING AWARDS RECEIVED IN 2015

“Best Private Bank in Korea 2015 by Euromoney”( (8 times)“Best Private Bank in Korea 2015 by Global Finance”(the first Korean bank to be selected)“Best Private Bank in Korea 2015 by Asian Private Banker”(3 consecutive years)“Outstanding Private Bank “North Asia Regional Player and the Outstanding Wealth Management”(Technology Initiative - Front End by PBI)

044

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015SME
KRW SME LOANS

unit: KRW billion

Korea Exim Bank On-lending Loan, launched in January 2016, is the first of a series of newloans geared toward import-export firms we will be releasing this year.

Strategic Growth in SME Loans
In 2015, SME loans increased 10.5% YoY to KRW 62.4 trillion, at a rate far surpassing theindustry average. The number of SME loan customers also rose sharply, by 19.0%, compared
to late 2014, to 207,382; the highest growth rate in the last three years.

62,441Furthermore, as a result of the effort to rebalance our loan portfolio, the share of SME loans
in the total corporate loans has been expanding every year. In 2015, the share of SME loans
edged up 7.2% to 74.1% from 66.9% in 2014. Our share of the SME loan market has also been
increasing commensurately, as a consequence.

We will strengthen our customer base by bringing more SMEs to do business with us as theirprimary bank and further improve our profits by increasing complex transactions with SMEs.
In business banking products such as foreign exchange accounts, master salary accounts,
retirement accounts and corporate credit cards, we are looking to add more complex
transaction items like salary transfer, unsecured loan and credit card services. We will bedevising complex transaction packages, at the same time, to create new customer relationshipand enhance their loyalty. Currently, our Corporate Marketing System is undergoing upgrades
to support complex transactions by corporate customers.

In 2015, robust efforts for marketing new products designed to attract new SME customers
and gain the loyalty of existing customers, such as “Sharing Happiness Loans,” “Loyal Customer
Preferential SME Loans,” and “SME Plus Loans” helped bring in close to KRW 2.4 trillion in new
loan assets. To further accelerate the growth in SME loans, the offering of products in therespective strength areas of Hana Bank and KEB, such as government loans, regional credit
guarantee foundation-guaranteed loans and special Korea Trade Insurance Corporationguaranteed loans, was broadened, thus maximizing the synergy from the integration.
Meanwhile, to actively cooperate with the government policy to promote creative finance, ourCreative Finance Support Center was expanded and re-organized. Its programs and systems
were overhauled, and more specialized manpower was brought onboard. Thanks to a massive
drive for performance enhancement, the total loan issuance amounted to KRW 3.5 trillion as
the end of 2015, giving us an impressive scorecard in innovation.
During the 2nd half, we were ranked second overall in the Bank Innovation Assessment andearned the second place in the area of technology financing.

KRW SME LOANS
2013
2014
2015

NUMBER OF
SME CUSTOMERS

unit: customers

207,382(44,702 SMES / 162,680 SOHOS)
Number of customers = Monthly average number of corporate borrowers

046

unit: KRW trillion

51.7
56.5

62.4

SME Loan Differentiation Strategy in 2016
In 2016, to widen the SME customer base, a comparatively weaker segment of KEB Hana
Bank, the strategy will focus on selling small-value loans in large quantities and bringing morecustomers to use the bank as their primary bank. New SME products, tailored to different
types of customers and geographic areas, will be continuously developed and released; moreparticularly those offering preferential terms to customers banking mainly with KEB Hana Bank.
By entering into agreements with regional credit guarantee foundations and other similar
guarantee agencies, we plan to increase our offering of unsecured guarantor loans, whichshould also help our goal of selling small-value loans in large quantities. Another important goal
for this period is to attract long-term customers of good standing. Moreover, to attract newcustomers from the export-import firms, we are offering special guaranteed loan products incollaboration with the Trade Insurance Corporation.

In a proactive response to the New Guarantee System, which goes into effect in 2017, we areentering into cooperation agreements with various credit guarantee agencies and launching
related products to establish an early foothold in the startup guarantee market. Furthermore,in anticipation of the inception of the indirect credit guarantee program, credit guarantee
agency program or entrusted credit guarantee services, we are preparing manpower andsystems necessary to support the guarantee review process. To increase our technology
financing operations, we plan to discover SMEs possessing promising new technologies andput into place an internal technology evaluation system.
Finally, we are looking to make a vigorous effort to tap customers from emerging growth or
niche markets. Targeted marketing efforts, directed at internet shopping malls, care facilities(including nursing homes and hospitals) and city bus operators, are currently underway by 1Q
bankers at branches across the country, together with local relationship managers (RMs).
Going forward, we also plan to set up a group level cooperation system to assist with thecontinuous discovery of new growth/niche markets.

047

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWKRW SOHO LOANS

unit: KRW billion

28,561

HANA FINANCIAL GROUP ANNUAL REPORT 2015

Highest Growth in SOHO LoansAs the end of 2015, our total balance of SOHO (Small Office/Home Office) loans stood at KRW
28.6 trillion, up 26.4% YoY which is the industry’s highest rate. This impressive growth was
mainly driven by the massive increase in high-quality loan assets such as real estate-secured or
guaranteed loans. In other words, quantitative growth was coupled with improvement in thequality of assets.
67.1% of the total increase in SOHO loans, corresponding to KRW 4 trillion, was accounted by
the real estate rental and leasing sector. Continuously low interest rates have been turninginvestors away from banks, toward the real estate rental and leasing market, considered amore stable source of income. Our marketing efforts, targeting high net-worth customers,
have successfully taken advantage of this trend.

KRW SOHO LOANS
2013
2014

GLOBALOPERATIONSIn 2015, we completed the integration process between Hana
Bank and KEB, which is instrumental to our ability to foray
into global markets and find new engines for growth. Over a
medium and long term, we plan to make most of the synergy
from this integration by expanding our global businesses andbusiness channels and building capacity in non-banking segments.

unit: KRW trillion

18.3
22.6

2015

28.6

Risk Management in SOHO Loans in 2016
In 2016, as we make a continuous effort to increase our SOHO loan assets, focusing on highquality borrowers, we will be also hedging our risk by expanding our offering of loans guaranteedby external credit guarantee agencies. The current drop in property prices and slow recovery indomestic demand point toward the possibility of a prolonged economic downturn. Accordingly,
our product development and credit review processes will take into consideration comprehensive
factors related to the repayment capacity of borrowers, including sales, cash flow and DSR, tominimize the risk. By analyzing potential risks by business sector and by region, and according to
the business environment, we plan to identify potential defaults before they occur. Under a boldand proactive action plan, we will be re-adjusting the maximum lines of credit and modifying theloan terms according to the level of risk.

Large Corporates
KRW LARGE
CORPORATE LOANS

unit: KRW billion

20,020048

Optimization of the Portfolio through Management of RoRWA
In 2015, the loans to large corporates fell 22.3%, KRW 5.7 trillion YoY to KRW 20 trillion.
This appears to be due mainly to the adjustment of the portfolio following the integration
between Hana Bank and KEB, combined with the strengthened risk management procedureamid uncertainty in the global financial market. The share of loans to large corporates inoverall business loans has been decreasing continuously, YoY, from 30.5% in 2014 to 23.8%,-6.7%p in 2015.
In 2016, the economic outlook remains bleak, with a round of government-led corporate
restructuring planned to kick in. We will accordingly strengthen our risk management
procedures, which will have a dampening effect on the growth of loans to large corporates.
Our strategy is, therefore, to seek qualitative growth in corporate finance through the
optimization of our loan portfolio by focusing on the RoRWA.

049

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEW

Mexico City officeopened on
Feb. 3, 2015.
Chennai branch
opened on
Feb. 10, 2015.
Ho Chi Minh City
branch opened on
Apr. 23, 2015.

HANA FINANCIAL GROUP ANNUAL REPORT 2015

Securing future growth through development of newmarkets and localization in global operations

Korea’s largest global network, with
137 points of operation in 24 countries

First, we actively forayed into new business areas in an effort to endow ourselves withnew engines for growth. In China, we stepped into the leasing business by setting up CM
International Financial Leasing Co., in collaboration with our local partners. In Indonesia, weestablished PT Sinarmas Hana Finance, a joint venture firm, to make inroads into the local
consumer finance market.

As of Mar. 2016

Second, we developed business models to tap into new sources of income. Our London
branch office set up the Global FX Center which began its services in April 2015. In May, we
took on the re-issuance of payment guarantees by the Construction Guarantee Cooperative toassist small and medium-size construction firms with the intake of overseas orders.

EUROPE & MIDDLE EAST

10

Our Brazilian subsidiary launched online banking services, and the Singapore branch office
introduced its Global IB Desk to expand its global investment banking business.
Third, the license and permit process for overseas offices which was necessary following
the integration between Hana Bank and KEB was fully completed. KEB’s subsidiaries in Hong
Kong, Singapore and Tokyo were successfully integrated with Hana Bank’s offices in the same
regions. Meanwhile, to build a system of cooperation between the global networks of thetwo banks, the “Global Regional Committees” was established. The committees are four innumber, each for China, Southeast Asia, North America and Europe. The Southeast Asian
committee convened in Jakarta in November 2015. The European committee was held in
London, in December 2015. These regional committees are expected to greatly contribute tocollaboration between the global networks, helping to maximize the synergy between them.
Currently, Korean financial institutions are faced with two major challenges. One is thesaturation of the domestic market, and the other the plateaued growth in the banking sector.
Therefore, over a long term, they must develop new engines for growth. We under the goalof achieving stable growth in the global financial market, centered on the banking business,and increasing profits in non-banking businesses, we plan to expand into non-banking
markets, such as microfinance, consumer credit and leasing, in high-growth regions likeSoutheast Asia and China, and promote collaboration between them and the existing banking
network in these regions. The existing bank branches and offices will be moved to morestrategic locations, based on the results of an in-depth market analysis. If deemed necessary,
additional offices will be set up to expand the market coverage.
To strengthen overseas operations in non-banking sectors, we are actively considering theoption of venturing into microfinance, consumer credit, microcredit and leasing markets
in growth regions like Southeast Asia. If we create a profitable position in non-banking
businesses and gain an early foothold in markets with high potential for growth, we will thenbe able to give a serious consideration to the option of entering local retail markets. The
current plan is to closely collaborate with PT Sinarmas Hana Finance, the newly-establishedconsumer credit company in Indonesia, and PT Bank KEB HANA Indonesia, providing also abenchmark for other regions.

AMERICA

24

ASIA & PACIFIC

103
Strategy for widening global channels and localization in 2016
Strategy for Widening Global Channels
In India, a new branch was opened in Gurgaon, while the Mexican office was incorporated into
an independent entity. Additionally, to compensate for the insufficiency in network channels,
relative to the number of banks and banking offices worldwide, we are making an active use ofnon-contact channels, such as “1Q Transfer” and “Global Cash Management Service” (GCMS), tobroaden our global customer base.

Localization Strategy
To better address the needs of customers in specific world regions, we will be localizing our
products and services, as well as personnel.
For the localization of personnel, we will be recruiting staff from the local manpower pool,including core staff, and setting up a performance-based compensation and promotion
system. By tapping into the local talent pool, we plan to optimize our operations, at the sametime as fostering manpower specialized in credit review and risk management.
Also in the plan is the implementation of an accountable management system. We will
broaden the path to managerial positions for competent local employees, give greater
discretionary power to the head of local subsidiaries and evaluate personnel based on
performance and accomplishments.
Initially, the emphasis will be placed on the expansion of retail banking and SME services inplaces like China and Indonesia, and the retail service in Canada. Differentiated product lines
will be developed for individual markets, with products tapping the popularity of the Korean
Wave released in some markets and 1Q Banking-based products in some others. Moreover,
our advanced system resources will be exported from Korea to support our overseas
operations.

050

051

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

Investment Banking

IB & ASSETMANAGEMENT

In 2015, despite the persistent volatility of the global economic
environment, we posted the strongest performance in our
history, as we were able to rise above the competition in
acquisition finance and diversify our IB services. Furthermore,in asset management and brokerage, we managed to further
expand our market share by developing new strategic products,
designed to increase customers' return on investment, and by
diversifying income sources.

TOTAL ACQUISITIONFINANCING

unit: KRW billion

In 2015, the investment banking division of Hana Financial Investment arranged financing forthe acquisition of Pan Ocean, refinancing of the acquisition of LOEN Entertainment, financingof the acquisition of Bodyfriend and Homeplus. In overseas investment markets, we successfullyarranged financing for investment in gas-fired power plants in New Mexico and Long Island,building on a trend begun in 2014. This outstanding investment banking performance
garnered Hana Financial Investment the top prize of the Korea Investment Banking Awards
by Moneytoday, in February 2016. Hana Financial Investment was also selected as the Best
Syndication Loan Arranger for the second year in a row. Hana Financial Investment was widely
praised for the advanced acquisition model it used for the acquisition of Homeplus, thelargest M&A deal concluded in Asia, in 2015. For the security of the loan, Homeplus and other
involved parties were made to supply real estate assets as collateral, at the same time as
being given the opportunity to invest in high-quality loan assets.

1,543(13.2% market share, 4th largest)

SECURITIES SALES

unit: KRW billion

160,701(including ETF and ELW)

Building an Advanced Acquisition Financing System

An Impressive M&A Market Share
Although Hana Financial Investment holds a dominant position in the M&A market, competition
has intensified in this market, with the recent participation of large securities firms.
Nevertheless, by arranging ten total financing deals in 2015 (KRW 1.656 trillion in total value),
Hana Financial Investment maintained the top share of the M&A market at 14.57%.
Going forward, Hana Financial Investment will do its utmost to defend its leading positionin the market by further strengthening the network of PEF investors, the key segment ofacquisition financing customers. Hana Financial Investment will also make an active use of theacquisition fund for which it is the General Partner (GP), invite competitors, in the case oflarge-scale acquisition financing projects, to participate as co-arrangers.

SECURITIES SALES (INCLUDING ETF AND ELW)
2013
2014
2015

unit: KRW trillion

101.8
105.0

161.0

Beyond Integration: Toward an Organic Integration between Hana Bank and KEB
In 2015, KEB Hana Bank’s Investment Banking Headquarters arranged sixty-three financing deals fora total value of over KRW 10 trillion, thanks to a robust performance in three areas:1)acquisition financing, 2) structured financing and 3) real estate financing. In addition, thediversification efforts that include developing new growth engines such as entering overseas realestate finance markets and aircraft operating lease markets contributed as well. This helped lift theoperating income to KRW 176.5 billion and raise productivity to the highest level in the banking
sector. Big deals, exemplified by the 1.6 trillion financing project for the acquisition of Halla Visteon
Climate Control Corp. (current Hanon Systems), were arranged during this period. A strong
performance was recorded also in the renewable energy field, with six financing deals arranged
for fuel cell firms. 2015 was also memorable for KEB Hana Bank becoming the first commercialbank to arrange financing for aircraft operating leases and the first Korean bank to participate
in U.S. construction loans for a high-end residential housing development project in New York.
Furthermore, KEB Hana Bank became a promoter shareholder of a special-purpose acquisition
company (SPAC), the first in the Korean banking sector. These are only a few of the examples ofour continuous efforts to diversify our revenue sources by expanding into new business areas.

052

053

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWThe completion of the integration between Hana Bank and KEB in 2015 resulted in a closer
integration of supply channels for personal corporate investment banking (PCIB) products.
This has made it possible to seamlessly share the supply channels of the two banks, making agreater variety of products available to customers. Notably, this is expected to further
expand the supply of PCIB products of overseas alternative investment types that are eliciting
keen interest among investors. The integration of supply channels is also expected to help
Hana Financial Investment consolidate its leading position by diversifying its sales channels in
the overseas alternative investment market.
Moreover, the corporate customer network of KEB, known for its strong investment banking
division, makes it possible to offer corporate solutions including services that are normallyprovided by securities firms such as underwriting securities and stocks, thus widening therange of service offerings at a group level.

HANA FINANCIAL GROUP ANNUAL REPORT 2015

CREDIT CARD

In 2015, shortly after the integration between Hana SK Cardand KEB Card, the systems of the two companies were
integrated in a manner to draw synergy benefits from theintegration. Moreover, “Hana Members,” the first membershipprogram in the financial sector, was launched during thisperiod. This groundbreaking program garnered us the 2015 Korea
Banking Innovation Award in Financial Products and Services.

Asset Management
BENEFICIARYCERTIFICATES AUM

unit: KRW trillion

Strengthening Sales of Low Risk OTC Products
In 2015, in an environment where continuous low interest rates were driving up the demandfor products of the type “deposit rates + α” we concentrated on selling over-the-counter (OTC)
products that are more structurally stable. As a result, our group level ELT Equity-Linked Trustbalance jumped from KRW 2 trillion to KRW 6 trillion. The balance of wrap accounts in Hana
Financial Investment grew by KRW 0.2 trillion to KRW 8.6 trillion, offering versatile asset strategies.

16.1

The balance of trust accounts in Hana Financial Investment also sharply increased by KRW 2.4
trillion YoY to KRW 9.4 trillion on the bank of strong growth in flexible, individualized types ofcorporate trust accounts. This result bears impressive testimony to our outstanding in-houseproduct development capacity.

Brokerage
BROKERAGECOMMISSIONS

149

unit: KRW billion

Active Rebalancing of Customer Portfolios
In 2015, the Korean securities market, in an upswing since the beginning of the year, eventually
approached 2,200 points, setting off the expectation that the market may break the range.
However, after May, under the influence of the outbreak of MERS and the correction of theChinese securities market, coupled with worries about a Grexit and interest rate hike in the U.S.,KOSPI plunged to the range of 1,800 points. Market volatility was worsened by an additional
slump in oil prices, with heightened volatility seen in markets around the world by year’s end.
In our operations, we concentrated our business resources on diversifying our revenue sources
and improving customers’ return on investment. We made the most of the expansion in ouroverseas brokerage business opportunities, following the implementation of Shanghai-Hong
Kong Connect, strengthened the operation of global subsidiaries, based on high-quality market
research data, and actively rebalanced customer portfolios through the market call system.
This helped us boost our net fee income to KRW 148.9 billion, up KRW 42.1 billion from 2014,
raising also our market share to 3.6%, up 0.05%.

054

055

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

MOBILE BANKING

unit: users

6,041,891
NUMBER OF“HANA MEMBERS” SIGN-UP
INTRODUCED IN 2016

TOTAL CREDIT CARD
MEMBERSHIP

unit: thousand

In 2015, we were able to build a solid basis of growth for our newly-merged credit cardarm. An early IT integration was critical for our ability to draw meaningful benefits fromthe integration. Through a concentrated effort, involving all our staff, we were able tocomplete the IT integration of systems on July 20, 2015, eight months after the card company
integration. The integration of system resources is likely to greatly improve manpower andcost efficiency, while also allowing us to enhance the quality of our customer services.
In 2015, the card business reported KRW 56.5 trillion in total value of card transactions,representing an increase of KRW 3.8 trillion (7.1%) YoY. The number of cardholders remainedroughly unchanged YoY, standing at 4.673 million. Net earnings for the year amounted to
KRW 10.1 billion, up KRW 5 billion YoY.

4,673
NUMBER OF MERCHANTSIT Integration for Greater Manpower and Cost Efficiency

unit: thousand

Approx.

2,479,278

In 2015, the market entry by internet-primary bank is expected to intensify competition in the
mid-level interest-rate loan segment. Meanwhile, with the accelerated trend toward mobile andother simplified payment methods, credit card companies are likely to face steep competition
from Fin-tech firms. KEB Hana Card, the first card company to launch a mobile card (2015),
possesses a significant capital of Fin-tech know-how and is keeping abreast of the rapidlychanging payment market through its e-wallet platform.
In 2016, the credit card market is expected to face numerous threats and destabilizing factors,
such as a merchant fee cut which will be effective as of January 2016. This, in tandem withthe downward pressure on interest rates and new regulations related to incomplete sales, hasmade a careful management more important than ever.
To improve profitability, KEB Hana Card is currently making efforts to rationalize SG&A expenses
through the IT integration, reduce customer reward programs and adjust VAN fee.

3.1 million
as the end of Mar. 2016

During this year, “Hana Members,” the first comprehensive membership program in the
Korean financial sector, was launched. With over 3.1 million members as the end of March
2016, “Hana Members” is off to a strong start.
Also unveiled during this period was “1Q Card,” a product linked to the membershipprogram, which allows members to accumulate reward points, known as “Hana Money.”
By late December, barely three months after its launch, the number of “1Q Card” issues
hit 434,000, and this figure is expected to soon pass the 1 million mark. This impressive
performance has also made us the winner of the 2015 Korea Financial Awards by Maeil
Business News, in the Credit Finance category.

TOTAL SALES
2013
2014
2015

056

unit: members

A Forward-looking Fin-tech Service Lineup

unit: KRW trillion

51.5
55.2

56.5

057

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

Retirement Pension

TRUST &PENSIONAs part of its overall effort to supply diverse and competitive
products at the right time, we develop quality assets andoffers them through diverse channels. In the retirement
pension business, we target public institutions through direct
marketing, mid/large-size corporates through branch-linked
marketing, and pursues market share expansion.

TOTAL TRUST INCOME

unit: KRW billion

In 2015, total retirement pension market in Korea amounted to KRW 126,468.3 billion, up
18.8% (KRW 19,971.6 billion) from the end of 2014 (KRW 106,496.7 billion). Total retirement
pension received by KEB Hana Bank stood at KRW 8,321.2 billion, an increase of 12.7%
compared to 2014.

162
CUMULATIVE PENSIONCONTRIBUTIONS

As in the previous year, KEB Hana Bank’s sales efforts focused on SMEs and SOHOs thathave had low enrollment rate in the financial industry. To increase its share in the defined
contribution (DC) retirement segment of the market, emphasis in our marketing efforts
was placed on broadening the enrollment base for DC plans. As a result, the balance of thecontributions to DC plans jumped 22.1% (KRW 1,460.8 billion) YoY to KRW 1,783.4 billion.
unit: KRW trillion(AUM BASIS)

8.6

Maintaining High Growth in Retirement Pension by Targeting DC Market- KEB Hana Bank: KRW 8.3 trillion- Hana Financial Investment: KRW 0.3 trillion

The number of companies offering a DC plan through us stood at 2,910 (net increase of
2,095), and the number of enrollees/contributors at 72,440 (net increase of 17,457) as theend of 2015. Moreover, a robust growth was seen in IRP (Individual Retirement Plans), in
which we have invested much effort since 2013, in a bid to increase the asset size andcustomer base. At the end of 2015, the number of IRP accounts stood at 358,251 for total
contributions of KRW 903.5 billion (net increase of 134,134 accounts, and KRW 261.7 billion incontributions).

RETIREMENT PENSION CONTRIBUTION BALANCEKEB Hana BankTOTAL TRUST ASSETS

unit: KRW billion(KEB HANA BANK)

50,652

Portfolio Diversification to Meet Varying Needs of Customers
In 2015, the goal in the KEB Hana Bank trust operation was to release a wide variety ofcompetitive products that correspond to the different needs of customers in a timely fashion.
High-quality assets were, therefore, discovered and distributed through our sales channels, tohelp diversify the portfolios of our customers. For example, we pushed for “Specific Money
Trust Chance-up ELT,” a mid-risk/return product adapted to the current market trend. In
2015, the balance of trust account amounted to KRW 50.6 trillion in total value (KRW 28.3
trillion in money trust, KRW 22.3 trillion in assets trust) for a total profit of KRW 162 billion. In
the non-profit trust business, we launched a youth employment support trust product, while
continuing existing ones aimed at providing funding for socially and financially marginalized,
thus marking a difference for our society through financial services.
The AUM growth in the custody operation was driven, in 2015, by domestic bond-typed
funds, MMF (Money Market Fund), real estate funds and AI (Alternative Investment) funds.
Through a strategy consists of expanding sales in publicly-traded equity funds, our traditional
strength area, real estate funds and AI (Alternative Investment) funds, we recorded KRW 143
trillion worth of sales, grossing KRW 45.4 billion in total profit from this source.

058

unit: KRW trillion

Hana Financial Investment

2014

7.4

2015

8.3

0.3

7.7
0.3

8.6

In 2016, the interest rate-based competition in principal-protected products, as aconsequence of the new rules on retirement fund investment, is expected to continue.
Our plan is to lift the limit in the amount of external principal-protected products to better
meet the needs of our customers, as well as developing new principal-protected derivatives
as part of an effort to supply alternative products that are both stable and profitable.
Furthermore, we intend to make the most of our asset management know-how to increase
return for our retirement pension customer and also propose a group-wide portfolio
solution to cater to customer’s growing needs.

unit: KRW billion

RETIREMENT PENSION CONTRIBUTIONS BREAKDOWN2014

KEB Hana Bank

2015

Net change % Change

Net change % Change

Total contributions*

73,832

14,27123.96%

83,2129,380

12.70%

DB

52,4488,717

19.93%

55,947

3,499

6.67%

DC

14,6084,742

48.06%

17,8343,226

22.08%

IRP

6,418

747

13.17%

9,035

2,617

40.78%* Excluding corporate IRP contributions.

059

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWCORPORATESOCIALRESPONSIBILITYHANA FINANCIAL GROUP ANNUAL REPORT 2015

In 2015, as we worked toward our mission of “Growing
Together, Sharing Happiness,” we were also able to build astrategic framework to guide our efforts to achieve the goalof becoming “The Trusted Premier Global Financial Group.”
We will always strive to grow together with our employees,
customers, shareholders and the society to create a happierworld for all.

Social Responsibility Management
NO. OF EMPLOYEESINVOLVED INCOMMUNITY SERVICE

17,435

unit: person

Mission: Growing Together and Sharing Happiness through FinanceHana Financial Group’s mission, “Growing together and sharing happiness through finance”,
is about a commitment to sustainable business practices to create a better future forall stakeholders. Our various social responsibility activities serve as valuable channels ofcommunication with the community and are carried out in five areas deemed most important
to make meaningful contributions to our society and the happiness of its members.
We understand the importance of social and cultural integration and global solidarity for us
here in Korea as well as people worldwide. We are an active participant in the fight against
poverty, inequality and discrimination against minorities. Moreover, as a corporate citizen of adivided nation, we are engaged in various support projects for North Korean refugees, which
is a crucial part of our preparation for the future of a unified Korea.

Korea is today a multicultural nation where over 1.5 million foreign nationals reside on apermanent basis. Since as early as the mid-2000’s, we have carried out projects aimed atmaking Korea a place where diversity thrives and is respected. “Hana Kids of Asia”,
for example, is a project to support multicultural households. Meanwhile, “Darin” is a centerfor cultural diversity where foreign nationals, immigrants and Koreans come together forvarious community events. Darin center also offers courses on Korean culture and Korean
language classes.

060

061

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWTOTAL HOURS OFCOMMUNITY SERVICE

55,317

unit: hours

We invest in the future of our country by offering financial education sessions for youth
to help them become responsible consumers and wise members of the society. Cultural
programs benefiting youth include the theater program for troubled youth, touring music
concerts and musicals.
Our employees are extending a helping hand to those in need under a program called “Happy
Box.” On traditional holidays, they visit homes of poor seniors and low-income families withboxes filled with food and other necessities.

HANA FINANCIAL GROUP ANNUAL REPORT 2015

CSR EXPENDITURE

38.8

unit: billion

We have declared every day over the two-month period from November 11 of each year to
January 11 of the following year “Everyone Hana Day” campaign, which includes community
services and sharing with those in need. During this period, all employees of Hana Financial
Group are particularly strongly encouraged to take part in a variety of volunteer activities andgiving activities benefiting the community.

Environmental Management
Green Business Paves the Way for a Sustainable Environment
Climate change is today one of the top challenges facing our planet which is also rapidly
rising on the corporate agenda worldwide. Combating climate change has indeed become
one of the pillars of corporate citizenship. In countries around the world, governments have
set targets for reduction of greenhouse gas emissions, while global corporates are looking to
make green business into a new opportunity for growth. In Korea, a target was set, in 2015, toreduce national greenhouse gas emissions by 37% before the year 2030. An incentive system
to encourage participation by industry has been announced by the government as well.

Meanwhile, a group-wide volunteer corps engage in community service activities, along with
their family, on a regular basis, by visiting various social service facilities. The money raisedfor charity is donated once a month to the needed. Starting in 2011, the money donated by
employees is matched by the company under a program known as “Hana the Matching.”

062

We are actively participating in the national effort to combat climate change and accelerate
the transition toward a low carbon economy and society. With green strategies establishedacross all of our business, we are currently engaged in various initiatives to reduce the carbon
footprint of our operations.
In January 2016, KEB Hana Bank signed an MOU on the reduction of greenhouse gas emissions
with the Ministry of Environment and Korea Climate & Environment Network: the greenhousegas reduction campaign by the Ministry of Environment is a program in which industries andbusinesses enter into an agreement with it on a voluntary basis, to participate in the national
effort to cut emissions. Employees of KEB Hana Bank have pledged to the goal of cutting one
ton of greenhouse gas emissions per person annually.

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEW

A variety of measures for cutting energy consumption, based on the results of the internalmonitoring and analysis on greenhouse gas emissions will be implemented across all of ourdomestic branches, starting in May 2016.
The money saved from energy saving efforts will be contributed to our social responsibility
fund and given back to the community, through activities like planting trees, investing in new
greenhouse gas reduction equipment and assisting energy-poor populations.
Moving forward, we will continue our effort for the creation of a sustainable businessenvironment. By closely communicating with our stakeholders, we will strive to make a better
society for all.

Ethical Management
Hana Financial Group Declaring New Code of Ethics, “Code One”
In January 2016, we adopted a new code of ethics “Code One” to better live up to ethicalstandards expected of us from society and strengthen our role in the community as acorporate citizen.
The “Code One” was proclaimed into effect simultaneously in Korea and overseas throughour global channels. Employees pledged to abide by the group-wide code of ethics so thatthe values set forth in it are shared and practiced across our group.
To promote an ethical organizational culture and increase ethical awareness among
employees, KEB Hana Bank holds an annual call for nominations to select and share best
ethical management practices, many of which are useful examples of decision-making ina situation of ethical dilemma. Also, through regularly-scheduled internal audits of ethicaland regulatory compliance, employees are given opportunities to learn whether theirinteraction with certain stakeholders or their handling of a task is in compliance with relevant
ethical standards or regulations.
As part of an effort to foster an ethical organizational culture and promote the internalizationof ethical values among employees, we also issue compliance newsletters on a periodicalbasis and provide ethics education during employee training sessions as a mandatorycomponent of the program.

HANA FINANCIAL GROUP ANNUAL REPORT 2015

HANA FINANCIAL GROUP CHARTER OF ETHICS
Hana officers and employees shall place the utmost priority on ethical values based on ethics and responsibility, in order to provide financial
services that enable customers and employees to be happy and grow together.
Hana officers and employees shall comply with all applicable laws and principles, draw a clear line between the public and private spheres, andtreat all persons, including customers, with a spirit of mutual respect and cooperation.
Hana officers and employees shall fulfill their responsibility to help Hana Financial Group merit the trust and respect of Group members,customers, and the community by embodying the mindset of “I represent the company,” and always performing their duties in a mature manner.

Code One

Hana Financial Group Code of Ethics
Questions for Ethical Judgment● Does my decision comply with Code One?
● Will no problems result if the action I plan to take is disclosed to the media and/or to other employees?
● Would others make the same decision if they were in the same situation as me?

If you answered “Yes” to all of the above questions, you may act based on ethical judgment.
If it is difficult to make a judgment on your own, please speak with company units in charge of ethics and/or compliance.

Chapter 1
Attitude of Officers and Employees

Chapter 2
Attitude toward Officers and Employees

01. [Sense of Duty] Hana officers and employees shall carry out their assignments with a strong sense of duty andresponsibility based on integrity and transparency.

18. [Fair Evaluation and Rewards] A company shall evaluate and provide compensation to its officers and employees
based on fair standards.

02. [Mutual Respect and Prohibition against Discrimination] Hana officers and employees shall respect each other and shallnot discriminate against each other for any reasons whatsoever on the basis of a person’s nationality, gender,
educational background, etc.

19. [Provision of Growth Opportunities] A company shall provide opportunities for self-development in a bid to enhancethe expertise and/or capabilities of its employees.

03. [Separation of Public and Private Matters] Hana officers and employees shall draw a clear line between public and private
matters and shall not pursue personal interests.

20. [Contentment of Group Members] A company shall make efforts to help its officers and employees achieve a balance
between work and life and enjoy a healthy family and personal life.

04. [Compliance] Hana officers and employees shall fully understand and observe policies relating to compliance andcode of ethics.
05. [Protection of Information] Hana officers and employees shall protect information about customers and the company,
and shall not use any such information for their personal interests or the interests of a third party.
06. [Protection of Company Assets] Hana officers and employees shall use and protect the tangible and intangible assets ofthe company, including the company’s brand.
07. [Execution of Expenditures] Hana officers and employees shall utilize expenditures in an appropriate manner and shallnot use their budget for their personal interests.
08. [Prohibition against Inappropriate Orders] Hana officers and employees shall not give inappropriate orders tosubordinates and shall not follow any inappropriate order(s) from supervisors.
09. [Prohibition against Sexual Harassment] Hana officers and employees shall not engage in sexually inappropriate behavior
causing humiliation or shame.
10. [Prohibition against Extension of Personal Loans] Hana officers and employees shall not lend money to or borrow moneyfrom a customer or from other officers or employees and shall not extend any guarantees to such persons.
11. [Prohibition against Conflicts of Interest] Hana officers and employees shall not be involved in conflicts of interest withcustomers or a company (investment, business deals, etc.) and shall not take a concurrent position at a different
company without prior approval from the company.

Chapter 3
Attitude toward Interested Parties
21. [Protection of Customers’ Assets] Hana officers and employees shall provide trustworthy products and services thatsatisfy customers and protect customers’ assets, based on a fiduciary duty.
22. [Protection of Customers’ Right to Know] Hana officers and employees shall protect customers’ right-to-know andprovide them with the information required for rational decisions in an timely and accurate manner.
23. [Win-Win with Partner Companies] Hana officers and employees shall conduct transactions with partner companies ina fair and transparent manner and make efforts to grow together.
24. [Protection of Shareholders’ Interest] Hana officers and employees shall respect the reasonable demands andsuggestions of shareholders and make efforts to enhance shareholder value.
25. [Social Responsibility] Hana officers and employees shall create value in society through legal and fair businessactivities, contribute to the country’s development, and fulfill the responsibilities and duties of a company as amember of the community.

12. [Restrictions on Receiving Gifts, etc.] Hana officers and employees shall not receive or request any tangible or intangible
benefits such as money or gifts from interested parties.
13. [Whistle-blowing and Whistle-blower Protection] Hana officers and employees shall report any violation of complianceand/or the code of ethics and any possible violation of compliance or code of ethics to the divisions in charge of ethics,
compliance, or audit and examination; and a company shall protect the whistle-blower’s identity and prevent any
possible disadvantages to the whistle-blower.
14. [Outside Activities] Hana officers and employees shall not express their opinions regarding the business of a company in
any outside media, publication, and lecture without the prior approval of a company.
15. [Prohibition against Political Activities] Hana officers and employees shall not be involved in political activities within acompany and shall not express political opinions that could affect a company externally.
16. [Records and their Preservation] Hana officers and employees shall accurately prepare and preserve any records,
materials, and/or information related to business, and shall not falsify or make any false report regarding records,
materials, and/or information related to business.
17. [Cooperation among Group Members] Hana officers and employees shall cooperate with each other in the interests of acustomer and the Group and shall not engage in any unfair transactions.

064

065

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

MANAGEMENT’S DISCUSSION AND ANALYSISHANA FINANCIAL GROUPI Overview
In 2015, the Korean economy expanded at a rate slower than forecast at the beginning of the year,
due to sluggish exports, combined with a sudden MERS outbreak. In spite of vigorous government
efforts to shore up growth, such as lowering of interest rates and supplementary budgeting, real
growth remained continuously below potential growth, as the Korean economy suffered fromstructural weaknesses.
We implemented a series of strategic tasks, selected at the beginning of 2015, including ‘creatinggroup level synergy from the integration’ and ‘developing new engines for growth to achieve
the group’s vision.’ The integration between Hana Bank and KEB was successfully brought tocompletion, with KEB Hana Bank launched in September 2015. Sustained efforts were made at agroup level toward an effective and organic integration of the two banks and the maximization ofsynergy benefits from this integration.

FINANCIALREVIEW

With the further base rate cut by the Bank of Korea (BOK), low interest rate trends persisted
throughout 2015, causing our group level NIM to drop 0.10%p YoY to 1.81%. Meanwhile, thegroup level consolidated net income for this period fell KRW 28.0 billion YoY to KRW 909.7 billion,
as it reflected integration costs, arising from the integration between Hana Bank and KEB. This
had a negative effect on our ROE, ROA and other profitability indicators. As a result, our C/I Ratio
also edged up 5.56%p, YoY, to 67.73%.
In 2015, our total assets at the group level continued the previous uptrend to record a 3.6%
growth from the level at the end of 2014, despite the rebalancing of our corporate loan portfolio.
Total deposits increased 2.6% from the end of 2014, with fund sales jumping 7.5%. As a result, werecorded a 3.1% growth in total group-wide sales in this period.
Our asset quality at a group level also improved, compared to the previous period. Our NPL
ratio showed a downtick of 0.08%p to stand at 1.27%. NPL coverage ratio improved as well, to131.45%, increasing by 8.15%p from the end of 2014. Although the delinquency rate went slightly
up to 0.68%, compared to the end of the 2014, our asset quality nevertheless remained robust
during this period.
Our Basel III-based BIS capital adequacy ratio stood at 13.31%, and tier 1 ratio 10.43%. Capital
adequacy ratios were well above the regulatory guidelines set by the Financial Supervisory Service(FSS), both for the group and its affiliates.
Moving forward, we expect tangible synergy benefits from the integration between Hana Bankand KEB, which will increase our performance and shareholder value, as we further consolidate ourdominant position in the market through differentiated services like "Hana Members," and makeaggressive inroads into the Fin-tech segment."		
Table 1. Summarized Financial Information

unit: KRW billion

Management’s Discussion and Analysis

067

Independent Auditor’s Report

105

General Operating Income

6,689.6

6,331.6

358.1

5.7%

Consolidated Financial Statements

106

Operating Income

1,010.5

1,243.4-232.9-18.7%

Notes to the Consolidated Financial Statements

112

Consolidated Net Income

909.7

937.7

-28.0

-3.0%

Corporate Information

224

ROA

0.29%

0.32%

-0.03%p

-

ROE

4.17%

4.55%

-0.37%p-

Forward Looking Statements

225

EPS (KRW)

3,001

3,177

-177

-5.6%

066

2015

2014

YoY

%

TOTAL ASSETS

unit: KRW billion

326.9
315.5

Profitability(Continued on next page)

2014

2015
067

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

MANAGEMENT’S DISCUSSION AND ANALYSISHANA FINANCIAL GROUP
2015

2014

YoY

%

67.73%

62.17%

5.56%p-Total Assets 1)

326,912.7

315,548.2

11,364.5

3.6%

Total Sales

298,701.4

289,769.6

8,931.8

3.1%(Total Deposits)

266,957.2

260,230.6

6,726.6

2.6%(Sale of Beneficiary Certificates)

31,744.2

29,539.0

2,205.2

7.5%

1.27%

1.35%

-0.08%p-

131.45%123.30%8.15%p

-

0.68%

0.62%

0.06%p-72,31971,848472

0.7%

Cost to Income Ratio

BIS CARunit: %

Business Volume

13.3
12.6

Asset Soundness
Substandard & Below (NPL) Ratio
Substandard & Below (NPL) Coverage Ratio
Delinquency Ratio
BPS (KRW)A slight increase was recorded in other operating income, reflecting a growth in dividend income
and decrease in contributions to the Credit Guarantee Fund.
The group’s general and administrative expenses increased YoY to KRW 4,531.0 billion due to onetime costs incurred from the integration between Hana Bank and KEB and the ERP conducted at
year’s end.

Capital Adequacy 2)
13.31%

12.63%

0.68%p-Tier 1 Ratio - Group

10.43%

9.67%

0.76%p-Common Equity Tier 1 Ratio - Group

9.79%

9.18%

0.61%pBIS CAR - Group

3)

14.65%

14.40%

0.25%p-Tier 1 Ratio - KEB Hana Bank

11.48%

11.72%-0.24%p-

Common Equity Tier 1 Ratio - KEB Hana Bank

11.37%

11.44%-0.07%p

Net Capital Ratio - Hana Financial Investment

400.03%422.56%-22.52%p-

Adjusted Equity Capital Ratio - KEB Hana Card22.80%

21.78%

1.02%p-

Solvency Margin Ratio - Hana Life

218.11%211.20%6.91%p-Adjusted Equity Capital Ratio - Hana Capital

13.76%

9.29%

4.47%p-BIS CAR - KEB Hana Bank

The group’s general operating income increased YoY to KRW 6,689.6 billion. Although net interest
income was reduced under low interest rates environment, net fee and commission income rose
thanks to an increase in trust fee income on the increased sales in ELT products and securities
brokerage commission income from an expanded volume of stock transactions. Meanwhile, gains
on disposition and valuation increased by KRW 361.8 billion YoY due to realization of active security
sales.

2014

2015

Credit loss provision of the group amounted to KRW 1,148.2 billion, down KRW 3.8 billion fromthe previous year. Despite the additional provision for shipbuilding and other industries, loan loss
provision decreased KRW 101 billion YoY thanks to the write-back for Taihan Electric Wire following
the normalization of the company. However, an increase was recorded in other provisions, whichreflects, among others, the base effect of the decline seen during the previous year as result of awrite-back from litigations.
This brought down Hana Financial Group’s operating income to KRW 1,010.5 billion, down KRW
232.9 billion YoY.

Note 1) Total assets exclusive of trust assets 					Note 2) Based on Basel III standards 					Note 3) 2014 : KEB(surviving entity)'s capital ratio

Table 2-2. Comprehensive Income Statement by Subsidiaries (Separated) 				KEB Hana
Bank 1)II Summary of Business Performance
In 2015, the consolidated net income of Hana Financial Group decreased by KRW 28.0 billion to
KRW 909.7 billion. This slight dip in consolidated net income reflects the overall trend towardshrinking net interest margins, as well as one-off expenses incurred from the integration between
Hana Bank and KEB and the year-end Early Retirement Program (ERP).
Table 2-1. Comprehensive Income Statement (Consolidated)
General Operating Income

		

2015

2014

YoY

%

Hana
CapitalHana
Asset Trust

Hana
Asset
Management

Hana
Life

Overseas
Affiliates

Hana
Savings

China

Indonesia

475.0

551.5

189.2

31.9

17.2

59.4

42.7

307.3

141.7

84.8

4,069.5

206.6-137.0

180.1

1.7

0.1

68.0

42.5

265.3

122.8

72.3

Net Fee and Commission Income

807.1

282.2

664.7

10.9

32.8

17.5

25.5

1.5

26.6

10.3

7.2

Gains on Disposition & Valuation

838.9

-31.1

16.8

1.4

-2.6

-0.3

33.0

1.5

29.1

19.6

7.4

Other Operating Income-404.2

17.3

7.0

-3.3

0.0

-0.2

-67.1

-2.8

-13.6

-11.1

-2.2

General & Administrative Expenses

3,346.4

344.5

361.1

51.6

15.8

6.4

31.0

26.0

186.1

91.5

34.2

Pre- Provisioning
Operating Profit (PPOP)

1,964.9

130.5

190.5

137.6

16.1

10.8

28.4

16.7

121.3

50.2

50.5

Net Interest Income

unit: KRW billion
NET INCOME
ATTRIBUTABLE TO
CONTROLLING INTERESTSKEB Hana
Card 2)

5,311.2

General Operating Income

unit: KRW billion

Hana
Financial
Investment

unit: KRW billion

6,689.6

6,331.6

358.1

5.7%

Net Interest Income

4,538.9

4,670.6-131.7-2.8%

Credit Loss Provision

921.3

-44.8

179.0

54.9

1.7

0.2

0.8

-7.5

24.4

22.3

1.0

Net Fee and Commission Income

1,865.6

1,762.5

103.0

5.8%

Operating Income

1,043.6

175.3

11.4

82.7

14.4

10.6

27.6

24.1

96.8

27.9

49.6

Non-Operating Income

100.5

19.3

-12.6

-0.1

-1.7

-0.4

0.1

-0.3

-3.9

0.0

0.1

1,144.1

194.6

-1.1

82.6

12.7

10.1

27.7

23.8

92.9

27.9

49.7

Gains on Disposition & Valuation

821.2

459.4

361.8

78.8%

Other Operating Income-535.9-560.925.0-

General & Administrative Expenses

4,531.0

3,936.2

594.8

15.1%

Pre- Provisioning Operating Profit (PPOP)

2,158.7

2,395.4-236.7-9.9%

Credit Loss Provision

1,148.2

1,151.9

-3.8

-0.3%

Operating Income

1,010.5

1,243.4-232.9-18.7%

185.9

9.1

176.8

1,938.9%

Non-Operating Income
Net Income before Income Tax

1,196.4

1,252.6

-56.2

-4.5%

Income Tax Expense

242.1

272.8

-30.7

-11.2%Net Income

954.3

979.8

-25.5

-2.6%

Attributable to Non-Controlling Interests

44.5

42.1

2.5

5.9%

Net Income Attributable to Controlling Interests

909.7

937.7

-28.0

-3.0%

068

Net Income before Income Tax

937.7
909.7

Income Tax Expense

174.1

45.5

-11.3

17.6

2.2

2.0

5.2

5.7

32.1

7.4

13.9

Net Income

969.9

149.1

10.1

65.1

10.5

8.1

22.5

18.1

60.8

20.5

35.8

Note 1) Includes Hana Bank's Income for period prior to the merger
Note 2) Consolidated

2014

2015

069

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

MANAGEMENT’S DISCUSSION AND ANALYSISHANA FINANCIAL GROUP
By subsidiary, KEB Hana Bank’s net income dropped KRW 269.6 billion to KRW 969.9 billion on a
YoY basis. General operating income amounted to KRW 5,311.2 billion, up KRW 232.7 billion YoY,
despite a decline in interest income, which was caused by shrinking interest margins. A solid
growth in trust fee income, fueled by increased sales in ELT, and securities trading income fromthe sale of SK Hynix shares explains this result.

2015

2014

YoY

-535.9-560.9

25.0

-

69.1

49.1

20.0

40.8%

Contribution to the Credit Guarantee Fund

-330.8-345.3

14.6-

Deposit Insurance Fee-279.5-287.7

8.2

-

5.3

23.0

-17.8

-77.2%

2,150.8

1,661.0

489.8

29.5%

Other Operating Income
Dividend Income

Others
Total

General and administrative expenses increased by KRW 494.5 billion YoY to KRW 3,346.4 billion,
due to large one-off costs incurred during this period, including local taxes and other expenses
related to the integration (KRW 261.2 billion) and those related to the Early Retirement Program(ERP) conducted at year’s end (KRW 239.5 billion). Despite write-back for Taihan Electric Wire,
following the company’s normalization, loan loss provision jumped KRW 121.9 billion to KRW 921.3
billion, as provisions for such struggling sectors as shipbuilding and shipping increased during thesame period.

Hana Financial Group’s non-interest income jumped 31% to KRW 2,150.8 billion YoY. A sharp
surge in gains on disposition and valuation was seen, with a healthy growth in both net fee andcommission income and other operating income.
By component, net fee and commission income increased by KRW 103.0 billion despite there-registration fee on mortgage from the integration (KRW 20.4 billion). The surge in stocktransactions boosted securities brokerage fee income as well. Similarly, trust fee income andunderwriting/consulting fee income were lifted by expanded sales in ELT products and thebuoyancy in IB, respectively. On the other hand, credit card fee income declined as a resultof aggressive marketing after the integration. Sales commission income in bancassurance fell,following the previous trend which began with the recent rule changes. Foreign exchange fee
income was also reduced on the shrinking volume of overall imports and exports and the erosionof margins by more intense competition against competitors.

Hana Financial Investment’s net income grew nearly 82% to KRW 149.1 billion. This robust growth
was driven by a number of factors, including an increase in stock transactions, which liftedbrokerage income, and the buoyancy in IB operations, which resulted in a surge of underwriting
and consulting fee income. The provision write-back from litigations, following the conclusion oflegal proceedings from the previous period, also contributed to this result.
KEB Hana Card swung back to profit, posting a net income of KRW 10.1 billion. Thanks to an
aggressive business strategy adopted since the integration in 2014, KEB Hana Card added 1.17
million new customers. In 2015, the total value of card transactions handled, including mobile
cards, amounted to KRW 56.5 trillion. Expenses incurred from the integration were more thanoffset by the increase in interest income, resulting from the decrease in funding costs, and the
reduction in credit loss provision.

Hana Financial Group’s market shares in fee income by source were as follows: The share of stocktransactions handled by Hana Financial Group edged up 0.16%p to 3.36%. The share of credit cardsales stayed roughly at the same level as in the previous period, at 8.0%. The shares in the foreignexchange market and in the fund sales dropped slightly YoY to 40% and 7.5%, respectively.
The group’s gains on disposition and valuation jumped KRW 361.8 billion to KRW 821.2 billion.
More active trading in bonds to compensate for the dip in market interest rates and profits fromthe sale of shares of SK Hynix and the Korea Housing and Urban Guarantee Corporation led to KRW
440.8 billion, up KRW 235.9 billion. The rise of foreign exchange and derivative-related income to405.2 billion (an increase of KRW 150.6 billion over 2014) also contributed to this result.

Hana Capital’s general operating income edged up KRW 17.7 billion YoY, benefiting from a surge ininterest income from its growing asset base and lease fee income. Although expanded operations
lifted slightly general and administrative expenses, the net income jumped KRW 14.7 billion to KRW
65.1 billion on the reduction in credit loss provision.
Hana Life recorded a net income of KRW 22.5 billion, a YoY increase of KRW 19.6 billion, as a resultof a healthy growth in incomes of insurance-related fee & commission and securities trading.
Hana Savings Bank benefited from stable operations to gross a net income of KRW 18.1 billion, up
7 billion YoY. Finally, Hana Asset Trust managed to post a larger profit than the previous year inspite of the property market slump.
Table 3. Non-Interest Income (Consolidated)

				
2014

YoY

%

1,865.6

1,762.5

103.0

5.8%

Credit Card

762.5

783.9

-21.3

-2.7%

Loan and FX-related

458.5

453.0

5.5

1.2%

Asset Management

550.6

472.5

78.1

16.5%

Beneficiary Certificates

123.3

126.2

-2.9

-2.3%

Brokerage

149.0

106.7

42.3

39.6%

Trust Fees

179.7

147.5

32.2

21.8%

Bancassurance

55.4

65.6

-10.2

-15.6%

61.7

34.1

27.6

80.8%

M&A Advisory
OthersGains on Disposition & Valuation

070

Other operating income is composed of business-related expense accounts such as deposit
insurance fees and contributions to the Credit Guarantee Fund, and income accounts such as stock
dividends and other income. Dividend income grew KRW 20 billion to 69.1 billion, while a slightdecrease was realized in contributions to the Credit Guarantee Fund and deposit insurance fees,
standing at KRW 330.8 billion and KRW 279.5 billion, respectively.

unit: KRW billion

2015
Net Fee & Commission Income

%

32.2

19.1

13.2

69.0%

821.2

459.4

361.8

78.8%

(Continued on next page)

NET FEE &COMMISSIONINCOME

unit: KRW billion

1,865.6
1,762.5

Table 4. General and Administrative Expenses (Consolidated) 		
2014

YoY

%

General & Administrative Expenses

4,531.0

3,936.2

594.8

15.1%

Salaries and Employment Benefits

2,008.6

1,812.5

196.1

10.8%

Severance and Retirement Benefits

510.7

274.3

236.4

86.2%

1,322.7

1,247.4

75.4

6.0%

463.6

466.3

-2.8

-0.6%

Administrative Expenses
Depreciation and Amortization
Taxes and Dues
Cost to Income Ratio

2014

2015

unit: KRW billion

2015

225.5

135.7

89.7

66.1%

67.73%

62.17%

5.56%p-

In 2015, Hana Financial Group’s general and administrative expenses increased 15.1% YoY to KRW
4,531.0 billion. This result reflects expenditures associated with the integration between Hana BankCOST TO INCOME RATIO

unit: %

67.73
62.17

2014

2015
071

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

MANAGEMENT’S DISCUSSION AND ANALYSISHANA FINANCIAL GROUP
and KEB (KRW 261.2 billion) and the ERP at year’s end (conducted at three subsidiaries, including
KEB Hana Bank, for a total cost of KRW 254.4 billion).

Our total liabilities rose 3.5% YoY to KRW 303,941.0 billion. Deposits increased nearly 2.7% YoY to
KRW 207,350.2 billion, and borrowings dropped 4.6% to KRW 22,202.1 billion.

By component, salaries and employee benefits increased KRW 196.1 billion over 2014 to KRW 2,008.6
billion as a result, among others, of the bank integration that took place during this period.

Notably, LCF deposits in total KRW deposits jumped 21.3% YoY to KRW 41,936.5 billion. Such ameaningful growth in low-interest rate deposits is expected to cut funding costs and help toward
continuous improvement of NIM.

Severance and retirement benefits amounted to KRW 510.7 billion, up 236.4 billion from 2014,
due to the ERP.

Shareholder’s equity increased 4.9% YoY to KRW 22,971.7 billion thanks to the consolidated net
income of KRW 909.7 billion realized during this period, which resulted in a growth in retained
earnings. The issue of hybrid capital instruments worth KRW 445 billion also contributed to thisresult.

Administrative expenses edged up 6.0% YoY to KRW 1,322.7 billion, in spite of the effort to cut
cost through greater cost efficiency, as advertising expenses increased significantly following thebank integration.
The group’s C/I ratio rose 5.56%p from YoY to 67.73%, due to large one-off expenditures
incurred from the merger and the ERP, even as strong efforts were made to control general andadministrative expenses during this period.

IV Asset Quality
Table 6. Asset Quality and Loan Loss Provision 		

III Summarized Group Financial Position
Table 5. Condensed Balance Sheets (Consolidated)			
Interest Earning Assets
Due from Banks

unit: KRW billion

2015

2014

YoY

%

283,161.8

272,674.9

10,486.9

3.8%

11,254.6

11,212.5

42.0

0.4%

SHAREHOLDERS'EQUITY

unit : KRW billion

unit: KRW billion

2015

2014

YoY

%

Total Credit

233,090.6

230,818.7

2,272.0

1.0%

Normal227,792.1

225,147.2

2,644.8

1.2%

Precautionary

2,329.4

2,552.9-223.5-8.8%

Substandard

1,647.1

2,005.5-358.4-17.9%

Doubtful

652.7

574.8

77.9

13.6%

Estimated Loss

669.4

538.3

131.1

24.4%

Amount5,298.6

5,671.4-372.9

-6.6%

Ratio

2.27%

2.46%

-0.18%p-

Amount2,969.2

3,118.5-149.4

-4.8%

Ratio

1.27%

1.35%

-0.08%p-

3,902.9

3,845.2

57.7

1.5%

Precautionary & Below

Fixed Income Securities

50,570.4

47,499.2

3,071.2

Loans

221,336.8

213,963.1

7,373.7

3.4%

Other Revenue Earning Assets

8,214.2

5,973.0

2,241.3

37.5%

Non-Revenue Earning Assets

35,536.7

36,900.4-1,363.7-3.7%

Total Assets

326,912.7

315,548.2

Interest Bearing Liabilities

266,710.9

259,620.1

7,090.8

2.7%

Loan Loss Allowance

207,350.2

201,897.0

5,453.2

2.7%

Loan Loss Reserve

2,232.5

2,134.4

98.0

4.6%

Credit Loss Reserve

1,670.5

1,710.7

-40.3

-2.4%

131.45%123.30%8.15%p-Deposits

11,364.5

6.5%

3.6%

Borrowings

22,202.1

23,264.0-1,061.9-4.6%

Debentures

30,109.2

29,557.2

552.0

1.9%

Policy Reserve2,410.2

2,019.2

391.1

19.4%

Borrowings from Trust Accounts

4,639.2

2,882.8

1,756.4

60.9%

Non-Interest Bearing Liabilities

37,230.0

34,034.5

3,195.5

9.4%

Total Liabilities

303,941.0

293,654.6

10,286.4

3.5%

Shareholders' Equity

22,971.7

21,893.6

1,078.1

4.9%

Total Liabilities & Shareholders' Equity

326,912.7

315,548.2

11,364.5

3.6%

In 2015, our total assets grew 3.6%p YoY to KRW 326,912.7 billion, with a solid asset growth also
seen among key subsidiaries. Through continuous management of the assets portfolio and risks,
we strove to achieve qualitative improvement, at the same time as quantitative expansion. As
a result, the NPL ratio fell 0.08%p YoY to 1.27%, and the delinquency rate remained stable. We
equaled if not exceeded our competitors in terms of asset quality indicators, during this period.
By asset component, loans, accounting for the largest share of interest-earning assets, increased
3.49% YoY to KRW 221,336.8 billion. KRW loans grew 6.1% to KRW 598.4 billion, bolstered bya high demand in SOHO and household loans. A 5.9% increase was recorded on a YoY basis inforeign-currency loans which stood at KRW 22.8 trillion.
072

22,971.7
21,893.6

2015

unit: %

123.3
131.5

Substandard & Below (NPL)

Substandard & Below (NPL) Coverage ratio

2014

NPL COVERAGE RATIO

2014

2015

As the end of 2015, the total credits stood at KRW 233,090.6 billion, a 1.0% increase YoY. NPL
stood at KRW 2,969.2 billion. The share of precautionary and below loans dropped 2.27% YoY,
with NPL ratio also declining 1.27%. The asset quality, therefore, improved overall. Despite asignificant growth in assets, NPL coverage ratio rose 8.15%p from the level of the previous period
to 131.45%. To prepare for any additional losses, we are making strong efforts for proactive
management of risks.
To improve the loan portfolio of KEB Hana Bank, our flagship subsidiary, credit exposure to large
corporates has been continuously reduced. In 2015, large corporate loans decreased by KRW 14.6
trillion. The percentage share of large corporate loans in the loan portfolio also shrank as a result,from 32.4% at the end of 2014 to 25.3% at the end of 2015, a 7.1%p decrease. The reductionof credit exposure to large corporates is mainly directed at companies which have 1) excessive
exposures 2) are either on the watch list or macro-sensitive industries 3) with low credit ratings.

073

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

MANAGEMENT’S DISCUSSION AND ANALYSISKEB HANA BANKI Overview

Every year, companies with substantial credit exposures with KEB Hana Bank are reviewed forinclusion in the watch list. The review considers both financial and non-financial factors to evaluate
the likelihood of liquidity risk and capacity for shock absorption. Companies on the watch list are
subject to close monitoring to detect major risk factors, changes in credit ratings and progress in
the restructuring process, if applicable, so that credit exposure can be proactively managed.

On September 1, 2015, following the successful integration with Hana Bank, KEB was re-launched
as KEB Hana Bank, becoming the largest Korean bank in asset size. To effectively weather out
the unfavorable conditions such as low growth and low interest rates, it further consolidated its
customer base and actively brought in new money into low interest rate deposit products.

We, in an attempt to proactively counteract against the scheduled corporate restructuring, havebeen selecting and managing vulnerable industries. Sectors that have recently emerged as macrosensitive industries are managed particularly closely to reduce credit exposure.

In 2016, under the new slogan, “Customer Satisfaction, Our One and Only Goal,” it will strive tofurther strengthen customers’ trust and confidence in the services it provides through equitablebusiness practices. It plans to build the capacity to lead the Korean financial market by achieving
stable growth in assets through an innovative management strategy and by remaining flexible andresponsive to the changing business environment.

V Capital Adequacy
Table 7. BIS Capital and Ratio

					

unit: KRW billion, %

2015

2014

YoY

%

Common Equity Tier 1 Capital

18,201.8

17,302.0

899.8

5.2%

Additional Tier 1 Capital

1,180.9

906.0

274.9

30.3%

Tier 2 Capital

5,361.5

5,578.7-217.2-3.9%

Total BIS Capital

24,744.2

23,786.7

957.5

4.0%

Risk Weighted Assets

185,879.7

188,380.7-2,501.0-1.3%

13.31%

12.63%

0.69%p-Tier 1 Ratio

10.43%

9.67%

0.76%p-Common Equity Tier 1 Ratio

9.79%

9.18%

0.61%p-BIS Capital Adequacy Ratio** Based on Basel III standards

COMMON EQUITYTIER 1 RATIO

9.18

unit: %

The financial data under "KEB Hana Bank" is a sum of 1)the cumulative performance ofKEB(surviving entity) from January 2015 to August 2015 and 2) four months (from September 2015
to December 2015) performance of KEB Hana Bank. The financial data under "KEB Hana Bank"
before the integration is the performance of (formerly) KEB.

9.79

II Summary of Business Performance
Table 1. Comprehensive Income Statement (Separated)
2014

2015

General Operating Income

The growth in total BIS capital was driven mainly by the robust net income realized in thisperiod and increase in common equity tier 1 capital by KRW 899.8 billion as a result of a capitalincrease through third-party allocation of new shares (May 2015). Additional tier 1 capital was
lifted by KRW 274.9 billion to KRW 1,180.9 billion despite the limited recognition of hybrid capital
instruments that were issued prior to Basel III adaptation following the issue of Basel III-compliant
instruments (May, November 2015). This increase is helping us to offset the reduction in therecognition of our existing holding of non-compliant subordinated bonds as tier 2 capital.
Finally, thanks to an aggressive risk management approach and sustained efforts to enhance
the asset quality, the decrease of risk-weighted assets by 1.3% greatly contributed to theimprovement of our common equity tier 1 ratio by 0.61%p to 9.79%.

2014

YoY

%

5,311.2

5,078.5

232.7

4.6%
-3.7%

4,069.5

4,226.6-157.1Net Fee and Commission Income

807.1

819.1

-12.0

-1.5%

Gains on Disposition & Valuation

838.9

506.9

332.0

65.5%

Other Operating Income-404.2-474.069.8-

General & Administrative Expenses

3,346.4

2,851.9

494.5

17.3%

Pre- Provisioning Operating Profit (PPOP)

1,964.9

2,226.6-261.8-11.8%Net Interest Income

In 2015, our total BIS capital increased KRW 957.5 billion YoY to KRW 24,744.2 billion, at a rate of
4.0%. Risk-weighted assets were reduced by KRW 2,501.0 billion to KRW 185,879.7 billion, a 1.3%
decrease. As a result, our capital adequacy ratio was lifted 0.69%p YoY to 13.31%.

unit: KRW billion

2015

Credit Loss Provision

921.3

799.4

121.9

15.3%

Operating Income

1,043.6

1,427.2-383.7-26.9%

Non-Operating Income
Net Income before Income Tax

100.5

84.5

16.0

18.9%

1,144.1

1,511.7-367.7-24.3%

Income Tax Expense

174.1

272.2

-98.1

-36.0%Net Income

969.9

1,239.5-269.6-21.7%

63.01%

56.16%

6.85%p12.2%

Cost to Income Ratio

Note) Including Hana Bank’s income for the period before the integration. The 2014 data reflect the effect of the spin-off of thecredit card division 							NET INCOME

unit: KRW billion

1,239.5
969.9

2014

2015

In 2015, KEB Hana Bank’s net income dropped by KRW 269.6 billion to KRW 969.9 billion, mainly
due to the one-off integration costs. While general operating income grew by KRW 232.7 billion,
general and administrative expenses and credit loss provision increased KRW 494.5 billion and KRW
121.9 billion, respectively, causing a decrease in operating income of KRW 383.7 billion YoY.
Net interest income recorded a decline of 3.7% YoY to stand at KRW 4,069.5 billion. The Bank’s
NIM fell 0.10%p, as it was negatively affected by two-time base rate cuts occurred in 2015 and thecontinuous drop in market interest rates. Due to this, despite the expansion of interest-earning

074

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

MANAGEMENT’S DISCUSSION AND ANALYSISKEB HANA BANK
assets and reduced funding costs through increased core deposits, interest income decreased by
KRW 157.1 billion.

Other Operating Income

General Operating Income
Net Interest Income
Net Fee and Commission Income

unit: KRW billion

2014

YoY

%

3,221.1

2,307.9

913.2

39.6%

2,427.9

1,660.7

767.2

46.2%

511.1

568.1

-57.0

-10.0%
88.8%

Gains on Disposition & Valuation

516.7

273.7

243.0

Other Operating Income-234.6-194.6-40.0-

2,282.5

1,358.0

924.5

68.1%

Pre- Provisioning Operating Profit (PPOP)

938.6

949.9

-11.3

-1.2%

Credit Loss Provision

640.1

451.9

188.2

41.6%

Operating Income

298.5

498.0

-199.5-40.1%

Non-Operating Income

83.5

-62.8

146.3

-

Net Income before Income Tax

382.0

435.2

-53.2

-12.2%

Income Tax Expense

15.2

44.4

-29.2

-65.8%

General & Administrative Expenses

Net Income
Cost to Income Ratio

67.5

34.0

33.5

98.6%

-266.2-276.210.0-

Contribution to the Credit Guarantee Fund

-330.8-345.2

14.4-

Others

125.3

113.4

11.9

10.4%

(Public disclosure data)						Net Fee & Commission Income

390.8

-24.0

-6.1%

Credit Card

58.84%

12.02%p

20.4%

Loan & FX-related

Note) Based on public disclosure data

Net Fee & Commission Income
Credit Card
Loan & FX-relatedunit: KRW billion

2014

YoY

%

807.1

819.1

-12.0

-1.5%

unit: KRW billion

YoY

%

511.1

568.1

-57.0

-10.0%

0.0

199.7-199.7-100.0%

347.6

260.2

87.4

33.6%

Fees in Acceptances and Guarantees

59.2

57.1

2.2

3.8%

Fees Related to Loans

155.3

80.3

75.0

93.3%

Fees in Foreign Currencies

133.0

122.8

10.2

8.3%

0.0

0.0

0.0

-

163.4

108.2

55.2

51.1%

OthersNET FEE & COMMISSIONINCOME BREAK-DOWN

2014

Asset Management

0.1

0.1

0.0

0.0%

Sales of Beneficiary Certificate

50.5

30.7

19.9

64.7%

496.1

515.8

-19.7

-3.8%

Bancassurance

34.8

23.2

11.6

49.9%

Trust Fees

78.1

54.3

23.8

43.8%

Gains on Disposition & Valuation

516.7

273.7

243.0

88.8%

Other Operating Income-234.6-194.6-40.0-

Dividend Income

33.1

9.7

23.4

240.3%-

Fees in Acceptances and Guarantees

74.3

81.3

-7.0

-8.7%

261.6

269.5

-7.9

-2.9%

Fees in Foreign Currencies

160.2

164.9

-4.7

-2.9%

0.0

0.0

0.0

-

310.9

303.2

7.7

2.5%

Deposit Insurance Fee-154.3-110.2

-44.1

87.2

89.2

-2.0

-2.3%

Contribution to the Credit Guarantee Fund

-196.4-141.0-55.4-

Others

83.1

46.9

36.2

77.1%

Asset Management
Sales of Beneficiary Certificate
Bancassurance

68.5

81.5

-13.0

-16.0%

Trust Fees

155.2

132.5

22.7

17.1%

838.9

506.9

332.0

65.5%

Gains on Disposition & Valuation

838.9
506.9

2014

2015

unit: KRW billion

2015

Fees Related to Loans
Othersunit: KRW billion

Other operating income recorded a increase of KRW 69.8 billion YoY thanks to the sales ofmortgage through housing loan conversion program.

366.8

2015

GAINS ON DISPOSITION& VALUATION

Gains on disposition and valuation surged by KRW 332.0 billion to KRW 838.9 billion. Although theweakened KRW caused FX-translation losses to increase by KRW 29.6 billion, stock impairment
losses were reduced by KRW 249.2 billion YoY. Disposition gains increased by KRW 33 billion, liftedby proceeds from sales of shares of the Korea Housing and Urban Guarantee Corporation and SK
Hynix.

70.86%

Table 2. Non-Interest Income (Separated)				

-In net fee and commission income, trust fee income increased by KRW 22.7 billion on buoyant
sales in ELT, and the strengthened IB operations lifted the fee revenue in P/F investment financing
by KRW 14.3 billion. Fee income on Korea Housing Finance Corporation Mortgage Loans jumped
KRW 21.7 billion on increased transaction volume, and fee income on retirement pension grew
by KRW 2.9 billion. On the other hand, fee income in bancassurance fell KRW 13.0 billion, due tounfavorable regulatory changes. Net fee and commission income was further reduced by thefee expense of KRW 20.4 billion incurred for re-registration fee for the mortgage in regards tointegration.

Credit loss provision increased by KRW 121.9 billion YoY to KRW 921.3 billion, and non-operating
income rose KRW 16.0 billion YoY.

2015

%

69.8

In 2015, non-interest income recorded an increase of KRW 389.8 billion to stand at KRW 1,241.8
billion.

General and administrative expenses rose 17.3% YoY to KRW 3,346.4 billion. The result reflects
large non-recurring expenses such as taxes and dues related to the integration process,administrative costs related to the integration between the two banks, and the ERP cost.

				

YoY

Note) Includes Hana Bank’s income for the period before the integration. The 2014 data reflect the effect of the spin-off of thecredit card division.

Gains on disposition and valuation jumped 65.5% YoY to KRW 838.9 billion. Although FXtranslation losses increased from the depreciation in Korean won, the sale of shares of the Korea
Housing and Urban Guarantee Corporation and SK Hynix resulted in enhanced profits.

(Public disclosure data)

2014-474.0

Deposit Insurance Fee

Dividend Income

Net fee and commission income amounted to KRW 807.1 billion, down 1.5% YoY. Trust fee income
for the period increased by KRW 22.7 billion, driven mainly by active ELT sales, with growth seen
also in IB fee income. However, this was more than offset mainly due to the expense of KRW 20.4
billion incurred for re-registration fee of mortgage in relation to the integration.

2015-404.2

310.9

Loan & FX-related
Asset Management

496.1Note) Based on public disclosure data

(Continued on next page)

076

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

MANAGEMENT’S DISCUSSION AND ANALYSISKEB HANA BANK
Table 3. General and Administrative Expenses (Separated)			
General & Administrative Expenses

unit: KRW billion

2015

2014

YoY

%

3,346.4

2,851.9

494.5

17.3%

1,568.3

1,410.6

157.7

11.2%

Severance and Retirement Benefits

472.6

234.5

238.1

101.5%

Administrative Expenses

927.6

899.0

28.6

3.2%

Depreciation and Amortization

189.5

209.3

-19.7

-9.4%

Taxes and Dues

188.3

98.5

89.9

91.3%

63.01%

56.16%

6.85%p-Salaries and Employee Benefits

Cost to Income Ratio

Note) Includes Hana Bank’s income for the period before the integration. The 2014 data reflect the effect of the spin-off of thecredit card division.

unit: KRW billion

3,346.4

Interest-earning assets rose by KRW 12,030.6 billion to KRW 240,437.3 billion. Household loans
and corporate loans increased by KRW 8,678.9 billion and KRW 810.8 billion, YoY, respectively.
Marketable securities grew by KRW 1,865.8 billion.
Interest-bearing liabilities recorded an increase of KRW 7,841.2 billion over 2014, mainly driven bydeposit growth.

2,851.9

In 2015, general and administrative expenses rose by KRW 494.5 billion to KRW 3,346.4 billion. Oneoff compensation following the integration resulted in an increase of KRW 157.7 billion in salaries
and employee benefits. Severance and retirement benefits also increased by KRW 238.1 billion YoY,
due to the ERP held at the end of 2015.
(Public disclosure data)						GENERAL &ADMINISTRATIVE
EXPENSES

In 2015, the Bank’s total assets expanded to KRW 281,919.9 billion, a YoY growth of KRW 9,967.2
billion. While interest-earning assets such as loans and marketable securities increased, deposits
with BOK and other non-interest earning assets decreased during this period.

Shareholders’ equity expanded KRW 533.9 billion YoY.
(Public disclosure data)

2014

2015

unit: KRW billion						

Interest Earning Assets

unit: KRW billion

2015

2014

YoY

%

240,437.3

88,982.4

151,454.8

170.2%

Due from Banks

6,464.1

3,981.0

2,483.1

62.4%

Fixed Income Securities

36,254.4

13,770.4

22,484.0

163.3%

Loans

197,718.8

71,231.0

126,487.8

177.6%

10,815.1

1,613.3

9,201.9

570.4%

2015

2014

YoY

%

2,282.5

1,358.0

924.5

68.1%

1,016.4

709.4

307.0

43.3%

Stocks and Others

7,200.7

1,524.9

5,675.8

372.2%

Severance and Retirement Benefits

388.8

92.3

296.4

321.0%

Domestic Import Usance

3,614.5

88.4

3,526.1

3990.0%Administrative Expenses

608.2

420.9

187.3

44.5%

Non-Revenue Earning Assets

30,667.5

16,732.3

13,935.2

83.3%

Depreciation and Amortization

126.3

97.6

28.7

29.4%

Total Assets

281,919.9

107,328.0

174,591.9

162.7%

Interest Bearing Liabilities

General & Administrative Expenses
Salaries and Employee Benefits

142.9

37.7

105.2

279.0%

70.86%

58.84%

12.02%p-

Taxes and Dues
Cost to Income Ratio

Other Revenue Earning Assets

Note) Based on public disclosure data

III Summarized Financial Position
Table 4. Condensed Balance Sheets (Separated)
Interest Earning Assets

unit: KRW billion

2015

2014

YoY

%

240,437.3

228,406.7

12,030.6

5.3%

Due from Banks

6,464.1

5,642.2

821.9

14.6%

Fixed Income Securities

36,254.4

34,388.6

1,865.8

5.4%

Loans

197,718.8

188,376.0

9,342.8

5.0%

10,815.1

11,109.8-294.7-2.7%

7,200.7

5,593.3

1,607.4

28.7%

Other Revenue Earning Assets
Stocks and Others
Domestic Import Usance

3,614.5

5,516.6-1,902.1-34.5%

Non-Revenue Earning Assets

30,667.5

32,436.2-1,768.6-5.5%

Total Assets

281,919.9

271,952.7

9,967.2

3.7%

Interest Bearing Liabilities

235,654.4

227,813.2

7,841.2

3.4%

Deposits

195,952.7

189,640.6

6,312.2

3.3%

Borrowings

15,951.3

17,745.7-1,794.4-10.1%

Debentures

18,356.0

17,478.3

877.7

5.0%

Borrowings from Trust Accounts

4,753.1

2,948.7

1,804.4

61.2%

Non-Interest Bearing Liabilities

24,893.5

23,301.4

1,592.1

6.8%

Total Liabilities

260,547.8

251,114.6

9,433.3

3.8%

Shareholders' Equity

21,372.1

20,838.2

533.9

2.6%

Total Liabilities & Shareholders' Equity

281,919.9

271,952.7

9,967.2

3.7%Note) Simple sums of the respective balances of the Hana Bank and KEB.

078

INTEREST EARNINGASSETS

unit: KRW billion

235,654.4

84,462.4

151,192.0

179.0%

Deposits

195,952.7

69,371.0

126,581.8

182.5%

Borrowings

15,951.3

9,018.2

6,933.1

76.9%

Debentures

18,356.0

4,872.5

13,483.4

276.7%
295.9%

Borrowings from Trust Accounts

4,753.1

1,200.7

3,552.4

Non-Interest Bearing Liabilities

24,893.5

14,051.8

10,841.7

77.2%

Total Liabilities

260,547.8

98,514.2

162,033.6

164.5%

Shareholders' Equity

21,372.1

8,813.8

12,558.3

142.5%

Total Liabilities & Shareholders' Equity

281,919.9

107,328.0

174,591.9

162.7%Note) Based on public disclosure data

Table 5. KRW Loans & Deposits 				240,437.3

2015

2014

YoY

%

171,926.5

163,426.6

8,499.9

5.2%

84,235.7

84,414.3-178.7-0.2%

62,441.0

56,485.5

5,955.5

10.5%

28,561.1

22,594.7

5,966.4

26.4%

Large Corporate

20,019.7

25,752.7-5,733.0-22.3%

Others1,775.0

2,176.2-401.2-18.4%
11.0%

KRW Loans 1)

228,406.7

Loans to Corporate
SME(SOHO)

87,690.8

79,011.9

8,678.9

173,310.3

170,153.6

3,156.7

1.9%

Low Cost Funding

67,420.2

58,332.4

9,087.8

15.6%(Core Deposits)

40,566.9

33,348.5

7,218.4

21.6%(MMDA)

26,853.3

24,983.9

1,869.4

7.5%

Time Deposits

94,418.9

101,154.6-6,735.6-6.7%

Installment Deposits

9,079.9

9,400.4-320.5-3.4%

CD & Others

2,391.3

1,266.2

1,125.0

88.8%

Loans to Households
KRW Deposits 2)

2014

2015

unit: KRW billion

KRW LOANS

unit: KRW billion

171,926.5
163,426.6

2014

2015

Note 1) Based on simple sums of the Hana Bank and KEB's balances.
Note 2) Excluding foreign currency and trust deposits 		

079

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

MANAGEMENT’S DISCUSSION AND ANALYSISKEB HANA BANKKRW loans increased KRW 8,499.9 billion to KRW 171,926.5 billion. Corporate loans fell KRW 178.7
billion from 2014, as the increase of KRW 5,966.4 billion realized in SOHO loans was more thanoffset by the rebalancing of the portfolio, consisting in reducing loans to large corporates by
KRW 5,733.0 billion. Household loans expanded to KRW 87,690.8 billion on the back of mortgage
growth.

As the end of 2015, total credit recorded KRW 209,304.5 billion, up KRW 823.7 billion YoY.
Precautionary & below loans and NPL decreased by KRW 148.0 billion and KRW 79.7 billion, YoY,
respectively.
The continuous management of deteriorated loans and sustained risk management efforts brought
down the ratio of precautionary and below loans and that of NPL by 0.08%p and 0.04%p to 1.89%
and 1.21%, respectively. The NPL coverage ratio also improved to stand at 128.95%.

KRW deposits recorded a YoY increase of KRW 3,156.7 billion to KRW 173,310.3 billion. LCF grew massively
by KRW 9,087.8 billion, with the balance of core deposits increasing KRW 7,218.4 billion YoY.

(Public disclosure data)					(Public disclosure data)						KRW Loans
Loans to Corporate
SME(SOHO)
Large Corporate
OthersLoans to Households
KRW Deposits

2015

2014

YoY

%

171,926.5

52,504.0

119,422.4

227.5%

84,235.7

31,176.2

53,059.5

170.2%

62,441.0

19,807.8

42,633.2

215.2%

28,561.1

5,491.4

23,069.7

420.1%

20,019.7

10,310.2

9,709.4

94.2%

1,775.0

1,058.1

716.8

67.7%

87,690.8

21,327.8

66,363.0

311.2%

173,310.3

54,111.2

119,199.1

220.3%

Low Cost Funding

67,420.2

20,524.3

46,895.9

228.5%(Core Deposits)

40,566.9

13,926.8

26,640.1

191.3%(MMDA)

26,853.3

6,597.5

20,255.8

307.0%

Time Deposits

94,418.930,557.5

63,861.4

208.9%

Installment Deposits

9,079.9

2,799.5

6,280.5

224.4%

CD & Others

2,391.3

230.0

2,161.3

939.8%KRW SOHO LOANS

28,561.1
22,594.7

2014

YoY

%

Total Credit

209,304.5

81,687.0

127,617.5

156.2%

Normal205,350.7

79,878.3

125,472.4

157.1%

Precautionary

1,429.9

696.7

733.2

105.2%

Substandard

1,514.0

850.8

663.2

78.0%

Doubtful

487.7

143.5

344.2

239.9%

Estimated Loss

522.2

117.7

404.5

343.6%

Amount3,953.8

1,808.7

2,145.1

118.6%

Ratio

1.89%

2.21%

-0.33%p-

Amount2,523.9

1,112.0

1,411.9127.0%

Ratio

1.21%

1.36%

-0.16%p-

1,565.2

655.6

909.6

138.7%

Precautionary & Below

Substandard & Below (NPL)

Loan Loss Reserves

2014Note) Based on public disclosure data

unit: KRW billion

unit: KRW billion

2015

unit: KRW billion

Credit Loss Reserves

1,689.4

517.0

1,172.4

226.8%

Substandard & Below (NPL) Coverage Ratio

128.95%105.45%23.50%p-Note) Based on public disclosure data

2015

IV Asset Quality
Table 6. Asset Quality and Loan Loss Provision

unit: KRW billion

2015

2014

YoY

%

Total Credit

209,304.5

208,480.7

823.7

0.4%

Normal205,350.7

204,378.9

971.8

0.5%

Precautionary

1,429.9

1,498.2

-68.3

-4.6%

Substandard

1,514.0

1,810.3-296.3-16.4%

Doubtful

487.7

411.4

76.3

18.5%

Estimated Loss

522.2

381.9

140.3

36.7%

Amount3,953.8

4,101.8-148.0

-3.6%

Ratio

1.89%

1.97%

-0.08%p-

Amount2,523.9

2,603.6

-79.7

-3.1%

Ratio

1.21%

1.25%

-0.04%p-

1,565.2

1,544.3

21.0

1.4%

NPL RATIO

unit: %

1.25

Precautionary & Below

1.21

Substandard & Below (NPL)

Loan Loss Reserves
Credit Loss Reserves

1,689.4

1,581.7

107.7

6.8%

Substandard & Below (NPL) Coverage Ratio

128.95%120.06%

8.89%p

-

2014

2015

Note) Based on simple sums of Hana Bank and KEB's balances.

080

081

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

MANAGEMENT’S DISCUSSION AND ANALYSISHANA FINANCIAL INVESTMENT
V Capital Adequacy

I Overview

Table 7. BIS Capital and Ratio 				Tier 1 Capital
Common Equity Tier 1 Capital
Additional Tier 1 Capital
Tier 2 Capital

unit: KRW billion

2015

2014

YoY

%

19,0398,063

10,975136.1%

18,854

7,870

10,985

139.6%

184

194

-9

-4.9%

5,257

1,841

3,416

185.6%

Loan Loss Reserve

1,057

558

499

89.5%

Subordinated Bonds

4,195

1,266

2,929

231.4%

517-12-71.0%

OthersTotal BIS Capital

24,295

9,904

14,391145.3%

Risk Weighted Assets

165,869

68,782

97,087141.2%BIS Capital Adequacy Ratio 1)

14.65%

14.40%

0.25%p-Common Equity Tier 1 Ratio

11.37%

11.44%-0.07%p-Tier 1 Ratio

11.48%

11.72%-0.24%p-Tier 2 Ratio

3.17%

2.68%

0.49%p-Note 1) Based on Basel III standards

In 2015, ahead of fully phased Basel III, the Bank made continuous efforts to expand its capital by,among others, issuing KRW 600 billion worth of subordinated bonds.
As the end of 2015, BIS capital adequacy ratio stood at 14.65%, well above the regulatory
minimum guideline (8%).
The Bank’s capital is, therefore, composed mainly of common equity tier 1 capital, in conformity
with the regulatory goal in Basel III. Going forward, it will strive to continuously maintain its capital
adequacy at a sufficient level by strengthening the capital.

BIS CARunit: %In the first half of 2015, the securities market experienced a massive improvement in profit,
especially in net fee and commission income. This is explained by several factors including a
stock market rally, continuously low interest rates and heightened investor interest. The IB market
expanded significantly, as a series of large M&A deals resulted in an increased demand for
acquisition finance, at the same time as a surge occurred in real estate financing demand. Finally,
the positive impact of the restructuring undertaken in 2014 also contributed to this result.

14.65
14.40

2014

However, in the latter half, under the effect of the interest rate hike in the U. S. and weakness of
the Chinese securities market and commodities market, profits in OTC products shrank, raisingconcern in profit management.

2015

Throughout 2015, Hana Financial Investment sought to capitalize the volatile market environment,
recording an over 80% increase in net income YoY. In 2015, It also implemented proactive
risk management procedures to prepare for the possibility of a hike in US interest rates and aslowdown of the Chinese economy.
Table 1. Summarized Financial Information (Separated)

unit: KRW billion, %

2015

2014

YoY

%

Total Assets

16,425.7

15,068.2

1,357.5

9.0%

Shareholders' Equity

1,788.8

1,639.5

149.4

9.1%

General Operating Income

475.0

404.8

70.2

17.3%

Operating Income

175.3

93.0

82.3

88.6%

Business Volume

TOTAL ASSETS

unit: KRW billion

Profitability

Net Income

149.1

82.0

67.1

81.9%

ROA

0.91%

0.59%

0.32%p

-

ROE

8.70%

5.06%

3.64%p-Cost to Income Ratio

72.53%

76.26%-3.73%p-

400.03%422.56%-22.52%p-

16,425.7
15,068.2

Capital Adequacy
Net Capital Ratio

2014

2015

II Summary of Business Performance
In 2015, net income rose KRW 67.1 billion to KRW 149.1 billion on the growth of net fee andcommission income from brokerage and IB, coupled with an increase in write-back.
Table 2. Comprehensive Income Statement (Separated)			

unit: KRW billion

2015

2014

YoY

%

475.0

404.8

70.2

17.3%

Net Interest Income

206.6

152.2

54.4

35.8%

Net Fee and Commission Income

282.2

206.8

75.4

36.5%

Gains on Disposition & Valuation

-31.1

23.8

-54.9

-231.0%General Operating Income

17.3

22.1

-4.8

-21.8%

General & Administrative Expenses

344.5

308.7

35.8

11.6%

Pre- Provisioning Operating Profit (PPOP)

130.5

96.1

34.4

35.8%

Credit Loss Provision

-44.8

3.2

-48.0

-1520.9%

Operating Income

175.3

93.0

82.3

88.6%

Other Operating Income(Continued on next page)

082

083

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

MANAGEMENT’S DISCUSSION AND ANALYSISHANA FINANCIAL INVESTMENT
2015

2014

YoY

%

Non-Operating Income

19.3

12.6

6.7

53.4%

Income before Income Tax

194.6

105.6

89.1

84.4%

Income Tax Expense

45.5

23.6

21.9

92.9%

Net Income

149.1

82.0

67.1

81.9%

NET INCOME

unit: KRW billion

149.1
General operating income jumped 17.3% YoY to KRW 475.0 billion. By component, net fee andcommission income surged by KRW 75.4 billion to KRW 282.2 billion, bolstered by robust brokerage
income from increased transactions and an equally strong performance in IB thanks to big deals
concluded in this period.
Net interest income and gains on disposition and valuation remained at a solid level of KRW
175.5 billion, despite economic uncertainty in the U.S. and China that caused heightened market
volatility. This result reflects the collection of Principal Investment (PI) (KRW 10.7 billion) and thesteady inflow of OTC equity and fixed income.

In the asset management segment, net fee and commission income was reduced in outsourced
products, while it increased in in-house products.
IB commission income sharply surged (+ KRW 27.6 billion), with underwriting and M&A
commissions totaling KRW 25.1 billion and 36.6 billion, respectively.
The solid commission income was grossed across all areas of IB in 2015. Big deals, including
Homeplus and Pan Ocean, were arranged, as well as investment in overseas power plants. It
underwrote the IPO of NS Homeshopping and Pharma Research Products, provided consulting
for the PF deal on the residential-commercial complex in Wirye and arranged the sales of Taihan
Electric Wire shares. As a result, commission income from this segment surged 80.76 % YoY.

82.0

Table 4. General and Administrative Expenses (Separated)			
2014

2015

General and administrative expenses recorded an increase of KRW 35.8 billion to KRW 344.5 billion
due to the cost of the ERP (KRW 7 billion), which was conducted to streamline the operation to thechanged business environment, and the salary growth resulting from the increase in performancebonus payout.

unit: KRW billion

2015

2014

YoY

%

344.5

308.7

35.8

11.6%

Salaries and Employee Benefits

203.3

166.1

37.2

22.4%

Severance and Retirement Benefits

17.1

28.0

-10.8

-38.7%

Administrative Expenses

100.1

91.6

8.5

9.3%

Depreciation and Amortization

11.2

11.2

-0.1

-0.6%

Taxes and Dues

12.8

11.7

1.0

8.9%

72.53%

76.26%-3.73%p-

General & Administrative Expenses

Cost to Income Ratio

GENERAL &ADMINISTRATIVE
EXPENSES

unit: KRW billion

344.5
308.7

Credit loss provisions were reduced by KRW 48.0 billion YoY.
This result reflects write-back from litigations following the amicable settlement in the lawsuit with
Deutsche Securities, in the amount of KRW 42.6 billion.

In 2015, general and administrative expenses increased KRW 35.8 billion to KRW 344.5 billion.
Notwithstanding, C/I ratio dropped 3.73%p compared YoY, helped by the upturn in the stock
market and other favorable market conditions, resulting in a strong growth in operating income.

Non-operating income grew KRW 6.7 billion to KRW 19.3 billion due, among others, to theincrease in dividends on PEF investment.

By expense component, salaries and employee benefits rose KRW 37.2 billion to KRW 203.3 billion
due to an increase in performance bonus payout as a result of an improved business performance.

In result, net income before income tax surged to KRW 194.6 billion, up 84.4% or KRW 89.1 billion
YoY.

Administrative expenses edged up KRW 8.5 billion to KRW 100.1 billion despite efforts toward
greater cost efficiency through closing and consolidation of 6 branches and cost-cutting, due to
expenses incurred from the change of the company name, implementation of a next-generation
IT system and the opening of PB centers (bank-linked PB centers) and other new projects.

Table 3. Net Fee & Commission Income (Separated)

unit: KRW billion

2015

2014

YoY

%

282.2

206.8

75.4

36.5%

Brokerage Commissions

148.9

106.8

42.1

39.5%

Management Fee on Wrap Account and Asset Management

75.8

69.6

6.2

8.9%

Underwriting Commissions

25.1

11.8

13.2

112.0%

Commissions on Merger & Acquisition

36.6

22.3

14.3

64.2%

Others

-4.1

-3.7

-0.5

-

Net Fee & Commission Income

NET FEE &COMMISSIONINCOMEIII Key Figures
282.2

206.8

Table 5. AUM Breakdown2015						

unit: KRW billion

2015

2014

YoY

%

63,116.5

57,772.9

5,343.5

9.2%

Beneficiary Certificates

16,136.7

15,899.4

237.3

1.5%

Equity (Hybrid) Type3,578.5

3,700.5-122.0-3.3%

Fixed Income (Hybrid) Type2,997.1

3,450.6-453.5-13.1%

MMF

3,484.8

3,756.8-272.0

-7.2%

Other

6,076.3

4,991.4

1,084.8

21.7%

Customer Assets of HFI (AUM)

25,772.8

24,273.8

1,499.0

6.2%

Trust

9,615.8

7,112.1

2,503.7

35.2%

RP3,497.4

3,370.0

127.4

3.8%

Fixed Income/CD/CP

7,349.0

7,405.3

-56.4

-0.8%

Financial Products

2014

2015

unit: KRW billion

Net fee and commission income jumped 36.5% YoY to KRW 282.2 billion thanks to the increased
stock market transactions, investors' stronger appetite in asset management products sparked by
low interest rates, and a series of big financing deals arranged by the IB division.
Brokerage income rose KRW 42.1 billion YoY to KRW 148.9 billion, lifted by the expansion of theshare of retail trading, particularly in the KOSDAQ market, and the growth of overseas brokerage
markets, including Shanghai-Hong Kong Connect. Hana Financial Investment’s market share also
grew, as a result, to 3.59%, up 0.05%p YoY.

2014

(Continued on next page)

084

085

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

MANAGEMENT’S DISCUSSION AND ANALYSISHANA FINANCIAL INVESTMENT

Other

2015

2014

YoY

%

5,310.7

6,386.4-1,075.7-16.8%

21,207.0

17,599.8

3,607.2

20.5%

Market421,720.5

381,902.6

39,817.9

10.4%

M/S

3.83%

4.16%

-0.34%p-

Entrusted Assets

AUM increased KRW 5,343.5 billion to KRW 63,116.5 billion, lifted by a particularly sizeable growthin entrusted assets and financial products.
In beneficiary certificate, there was a visible movement away from security products to alternative
investment products, echoing the uncertainty in the capital market. In financial products, thepopularity of customized corporate products such as customized trust helped greatly expand
assets under management.
Entrusted assets rose KRW 3,607.2 billion YoY to KRW 21,207.0 billion on the strength of the
KOSDAQ market, coupled with growth in customer deposits and an increase in Foreign Direct
Investment (FDI). The rational and effective management of customers’ return on investment,using the market call system, based on market outlooks by the research center, also contributed tothis result.
Moving forward, Hana Financial Investment will strive to further diversify its investment productofferings and investment channels to optimize customers’ asset portfolios and ensure stable return.
Table 6. Acquisition and Issuance 				Table 7. Brokerage Contracts			

unit: KRW billion

2015

2014

YoY

%

160,700.8

104,953.9

55,746.9

53.1%

OFF

40,139.4

32,506.7

7,632.8

23.5%

ON

120,561.3

72,447.2

48,114.1

66.4%

Market

4,776,244.4

3,270,961.1

1,505,283.2

31.5%

M/S

3.36%

3.21%

0.16%p-Brokerage Contracts

In 2015, with higher average daily trading value, the stock market offered favorable conditions forsecurities companies, conducive to the improvement of profits.
Hana Financial Investment’s brokerage contracts jumped 53.1% YoY to KRW 161 trillion in value,
which also extended its market share to 3.36%, up 0.16%p YoY.
The main contributing factor to this result appears to be the expanded volume of online trading
thanks to the improvement in the trading platform. The loading speed of the mobile trading
system improved, and its UI was made easier to use. Timely market research data were available
to online traders, as well as a variety of investment consulting services.

unit: KRW billion

2015

2014

YoY

%

200.1

41.3

158.8

384.5%

Debenture Issued

1,461.0

1,340.0

121.0

9.0%

ELS/DLS Issued (ELB/DLB included)

8,015.0

7,504.0

511.0

6.8%

IPO & Capital Increase (Lead-managed)

Amid the global economic turmoil and heightened market volatility, the Sales and Trading Division,nevertheless, managed to gross KRW 104.5 billion in operating income during this period, thanks
to prudent investment decisions.

IV Asset Quality
Table 8. Asset Quality and Loan Loss Provision

In 2015, Hana Financial Investment underwrote a total of nine ECM deals as the lead-manager,
making the ECM league table as one of the top ten bookrunners, a huge improvement over 2014
when it ranked 23rd.

The IPOs of NS Homeshopping and Pharma Research Product were mega-deals, worth over KRW 1billion in lead management fees. After underwriting the IPOs of three SPACs in 2014, it added IPO
deals for three other SPACs in 2015. In March 2015, Hana Financial Investment successfully arranged
the integration between Woosung IB and a SPAC, further cementing its reputation as the SPAC
specialist.

2015

2014

YoY

%

1,662.0

1,185.6

476.4

40.2%

Normal

1,606.7

1,069.1

537.6

50.3%

0.5

0.9

-0.4

-45.0%-79.1%

Substandard

4.9

23.7

-18.8

Doubtful

7.9

6.7

1.1

16.8%

Estimated Loss

42.0

85.2

-43.2

-50.7%In 2015, KRW 8,015.3 billion worth of OTC products were issued for a market share of 7.91%,
which placed Hana Financial Investment at the sixth place in terms of issuance volume.

NPL RATIO

unit: %

9.75

Precautionary & Below
Amount

55.3

116.5

-61.3

-52.6%

Ratio

3.33%

9.83%

-6.50%p-52.6%

3.30

Substandard & Below (NPL)
Amount

54.8

115.6

-60.9

Ratio

3.30%

9.75%

-6.46%p

-

49.8

91.9

-42.1

-45.8%

Loan Loss Reserve

KRW 1.5 trillion worth of debentures were underwritten in 2015, up 9.0%p from 2014. This shored
up Hana Financial Investment’s ranking in the league table to the eighth place from the tenth place
YoY.

unit: KRW billion

Total Credit
Precautionary

In IPO, Hana Financial Investment underwrote the 8 IPOs, including three SPACs (Special Purpose
Acquisition Companies).

			

-

-

-

-

Precautionary

0.0

0.0

-

-

Substandard

-

-

-

-

Doubtful

7.8

6.7

1.1

16.7%

Estimated Loss

42.0

85.2

-43.2

-50.7%

Normal2014

2015

Precautionary & Below
Loan Loss Reserve
Coverage Ratio

49.8

91.9

-42.1

-45.8%

90.12%

78.89%

11.23%p-(Continued on next page)

086

087

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

MANAGEMENT’S DISCUSSION AND ANALYSISKEB HANA CARD
2015

2014

YoY

%

Substandard & Below (NPL)
Loan Loss Reserve
Coverage Ratio

49.8

91.9

-42.1

-45.8%

90.93%

79.51%

11.43%p-In 2015, total credit increased to KRW 1,662.0 billion from KRW 1,185.6 billion in 2014 mainly due toinclusion of repayment guarantees that were previously left unclassified, accounting for KRW 419.1
billion of the total increase.

NPL COVERAGE RATIO

unit: %KEB Hana Card was established through Hana SK Card’s integration with KEB Card in which KEB
Card is the surviving entity. Therefore, the public financial data of KEB Hana Card are the sums ofaccumulated performance data of KEB Card for August to November 2014, in other words, fromthe spin-off until the integration with KEB Hana Card, and those of KEB Hana Card for the monthof December, in other words, since the integration. For ease of comparison, the financial data of
KEB Hana Card for 2014, presented hereinafter, are based on the simple sums of those of Hana SK
Card for January to December 2014, those of the Credit Card Division of KEB for January to June
2014, those of KEB Card for August to November 2014 and those of Hana Card for December
2014.

90.93
79.51

The NPL ratio improved 6.46%p, and loan loss reserves were reduced by KRW 42.1 billion YoY. This
result is mainly explained by the collection of stock receivable (KRW 42.6 billion) from Hyundai Wise
Assets as the lawsuit with Deutsche Bank was settled through mediation.
2014

I Overview

Table 1. Summarized Financial Information (Consolidated)		

2015

unit: KRW billion, thousands

2015

2014

YoY

%

Profitability

V Capital Adequacy

General Operating Income

551.5

540.2

11.3

2.1%

Operating Income

11.4

-4.2

15.7

-

Table 9. Net Capital Ratio						Net Income

10.1

-0.9

11.0

-

ROA 2)

0.14%

-

-

-

ROE 2)

0.76%

-

-

-

Cost to Income Ratio

65.47%

57.98%

7.49%p-56,486.2

52,723.0

3,763.2

7.1%

Lump-sum

44,671.8

40,330.4

4,341.3

10.8%

Installment

4,900.9

4,858.9

42.0

0.9%

Cash Advance

4,450.0

5,132.4-682.4-13.3%

Card Loans

2,463.6

2,401.3

62.3

2.6%

Net Capital(+) Shareholders' Equity on B/S

unit: KRW billion, %

2015

2014

YoY

%

1,536.4

1,412.8

123.6

8.7%

1,788.8

1,639.5

149.4

9.1%

(+) Allowances for Currency Assets

3.9

3.9

0.0

-0.2%

(+) Subordinated debentures

40.0

60.0

-20.0

-33.3%(-) Fixed Assets

58.5

73.0

-14.5

-19.9%(-) Prepaid Expenses

28.2

3.2

25.0

792.1%(-) Unsecured Loans(over 3M)

101.6

99.7

2.0

2.0%

(-) Others

108.0

114.6

-6.7

-5.8%

384.1

334.4

49.7

14.9%

Market Risk

251.4

227.9

23.5

10.3%

Counter Party Risk

66.3

43.2

23.1

53.3%

Credit Concentration Risk

15.8

16.0

-0.2

-1.0%

Operational Risk

50.5

47.2

3.3

7.0%

Indirect Investment Risk

0.0

0.0

-

-

400.03%422.56%-22.52%p-

Gross Risk Amount

Net Capital Ratio

As the end of 2015, Hana Financial Investment’s net capital ratio (NCR) stood at 400%, down
22.5%p YoY. This figure remains well above the regulatory guideline (150%), and well above the
200% level by the Capital Market Act, and the 250% level set by Hana Financial Group.
Shareholders' equity on the B/S increased KRW 149.4 billion to KRW 1,788.8 billion. The increase of
net capital can be attributed to a decrease in loans with 3-month and longer maturities.
The gross risk amount recorded an increase of KRW 49.7 billion, reflecting an increase in market
risk following the growth of assets.

NET CAPITAL RATIO

unit: %

Business Volume 1)

422.56400.03Note 1) Other credit card assets and installments are included in credit sales.

In 2015, despite incurring KRW 54 billion in one-off expenses related to the integration between
Hana SK Card and KEB Card and IT integration infrastructure, KEB Hana Card recorded a net
income of KRW 10.1 billion. This result owes to the expanded customer base as a result of theintegration, which strengthened the Company’s marketing capability, and a timely elimination of
overlapping investment costs which allowed it to make most of the synergy from the integration.
2014

2015

General operating income rose KRW 11.3 billion YoY, and operating income recorded an increaseof KRW 15.7 billion, taking the Company back to the black. Notwithstanding, due to a large
extraordinary expense of KRW 54 billion, incurred in relation to the integration, the C/I Ratio
edged up 7.49%p YoY.
KEB Hana Card's business volume expanded 7.1% YoY on an 10.8% increase in the volume
of lump-sum and check card transactions. Although cash advances dropped 13.3% due to aheightened level of competition and the credit line lowered following the integration, this decrease
was partially offset by an increase in card loans. Lending was expanded in the card loan segment
in 2015, after a stricter risk management.
In 2016, a merchant fee cut for small businesses entered into effect, yet it was a developmentthat hurt credit-card companies’ profits. In addition, the market entry by internet-primary bankintensified competition in the mid-level interest rate loan market.

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MANAGEMENT’S DISCUSSION AND ANALYSISKEB HANA CARD
Accordingly, the top priority for 2016 will be cutting costs and improving profitability to ensure astable income structure, as the effort for business expansion continues.

Table 3. Fee Structure (Consolidated)					
2015

2014

YoY

%

1,509.3307.8

1,201.5

390.3%

Credit Card Receivables in Won

779.3

155.3

624.0

401.9%Cash Advance

107.6

23.0

84.6

367.2%

Card Loan

217.5

38.7

178.9

462.4%

Others

404.8

90.9

314.0

345.6%

Fee Revenue(Public disclosure data)

				
2015

unit: KRW billion, thousands

2014

YoY

%

Profitability

unit: KRW billion

General Operating Income

551.5

107.9

443.7

411.2%

Operating Income

11.4

-8.0

19.4

-

Fee Expenses

844.6

174.7

669.9

383.5%Net Income

10.1

-11.2

21.3

-

Fee Income

664.7

133.2

531.6

399.2%

0.14%

-

-

-

Note ) Based on public disclosure data.

-

ROA
ROE

0.76%

-

-

Cost to Income Ratio

65.47%

73.00%-7.53%p-

56,486.2

10,199.0

46,287.2

453.8%

Lump-sum

44,671.8

7,909.0

36,762.8

464.8%

Installment

4,900.9882.0

4,018.9455.7%Cash Advance

4,450.0

1,036.0

3,414.0

329.5%

Card Loans

2,463.6372.0

2,091.6

562.3%

Business Volume 1)

Table 4. General and Administrative Expenses (Consolidated)		
2015

2014

YoY

%

361.1

313.2

47.9

15.3%

Salaries and Employee Benefits

72.0

81.6

-9.6

-11.7%

Severance and Retirement Benefits

13.0

4.5

8.5

186.9%

Administrative Expenses

215.8

174.4

41.4

23.7%

Depreciation and Amortization

48.0

33.4

14.5

43.4%

Taxes and Dues

12.3

19.2

-6.9

-36.0%

65.47%

57.98%

7.49%p-General & Administrative Expenses

Note ) Based on public disclosure data.
Note 1) Other credit card assets and installments are included in credit sales.

Cost to Income Ratio

II Summary of Business Performance
Table 2. Comprehensive Income Statement (Consolidated)		

unit: KRW billion

2015

2014

YoY

%

551.5

540.2

11.3

2.1%

Net Interest Income-137.0-153.8

16.8-

Net Fee & Commission Income

664.7

670.8

-6.1

-0.9%

Gains on Disposition & Valuation

16.8

7.8

8.9

114.0%

General Operating Income

Other Operating Income
General & Administrative Expense
Pre-Provisioning Operating Profit (PPOP)

7.0

15.4

-8.4

-54.5%

361.1

313.2

47.9

15.3%

190.5

227.0

-36.6

-16.1%NET FEE &COMMISSIONINCOME

unit: KRW billion

unit: KRW billion

Salaries and employee benefits decreased KRW 9.6 billion YoY, while severance and retirement
benefits surged KRW 8.5 billion, reflecting the cost of the ERP carried out in 2015. Administrative
expenses rose due to various one-off expenditures incurred in relation to IT upgrade, depreciation
costs of capitalized IT assets, and advertising costs for the new, integrated company. Taxes anddues declined KRW 6.9 billion, owing mainly to the base effect of KRW 6.8 billion paid to the Credit
Finance Association in 2014, in cost sharing for the replacement of card readers by IC-chip readers.
(Public disclosure data)						

670.8
664.7

unit: KRW billion

2015

2014

YoY

%

361.1

78.8

282.3

358.5%

Salaries and Employee Benefits

72.0

18.7

53.3

284.0%

Severance and Retirement Benefits

13.0

1.0

12.0

1173.4%General & Administrative Expenses

Credit Loss Provision

179.0

231.3

-52.2

Operating Income

11.4

-4.2

15.7

-

Administrative Expenses

215.8

41.2

174.6

423.4%

Non-Operating Income

-12.6

3.9

-16.5

-420.8%Depreciation and Amortization

48.0

8.7

39.2

448.3%

Income Tax Expense

-11.3

0.6

-11.8

-2063.4%

Taxes and Dues

12.3

9.0

3.3

36.6%

Net Income 1)

10.1

-0.9

11.0

-

65.47%

73.00%-7.53%p--22.6%

Cost to Income Ratio

2014

2015

Note ) Based on public disclosure data.

Net interest income grew KRW 16.8 billion, benefiting from improved efficiency in funding andinvestment of assets. Despite the efforts to expand high-yielding business items, non-interest
incomes have decreased by KRW 5.5 billion YoY.
General and administrative expenses were up KRW 47.9 billion, reflecting KRW 54 billion in total
one-off expenditures incurred from the IT integration between Hana SK Card and KEB Card in July2015.
The credit loss provision was reduced by KRW 52.2 billion to KRW 179.0 billion, and a loss of KRW
12.6 billion was recorded in non-operating income.

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MANAGEMENT’S DISCUSSION AND ANALYSISKEB HANA CARD
III Key Figures
Table 5. Earning Asset Portfolio					unit: KRW billion

2015

2014

YoY

%

5,730.9

6,167.0-436.1-7.1%

Estimated Loss

Credit Purchase2,709.5

2,712.3

-2.8

-0.1%

Coverage Ratio

Cash Advances

527.5

603.9

-76.4

-12.6%

1,547.3

1,601.3

-54.0

-3.4%

(Re-aged Loan)

57.4

62.4

-5.0

-8.0%

Note 1) NPL Ratio inclusive of factoring

Installment Finance

-

-

-

-

Lease

-

-

-

-

Others946.6

1,249.5-302.9-24.2%

Earning Assets (Managed) 1)

Card Loan

2015

2014

YoY

%

14.5

26.4

-11.9

-45.0%

Substandard & Below (NPL) Coverage

215.05%204.34%10.71%p-

Precautionary & Below

53.92%

57.39%-3.46%p-

Note 1) Earning assets show figures that have yet to deduct allowance for bad debts, realization of balance,, etc.

At the end of 2015, total credit totaled KRW 5,884.8 billion, down KRW 415.7 billion YoY. The NPL
ratio stood at 1.53%, which, although representing an increase of 0.06%p YoY continues to beamong the lowest in the industry, thanks to a conservative risk management approach. The ratio
of precautionary and below loans dropped 0.43%p YoY to 5.46%.

Earning assets decreased KRW 436.1 billion due to a continuous decline in factoring assets. KEB
Hana Card has been steadily reducing its installment finance assets since the 2nd half of 2012 tobring down its leverage below the regulatory guideline.

The NPL coverage ratio also improved YoY to 215.05%.

Credit purchases amounted to KRW 2,709.5 billion, roughly the same as in 2014. Cash advances andcard loans dropped by KRW 76.4 billion and KRW 54.0 billion, respectively. This result is explainedby more stringent regulations, as well as the lowering of credit limits following the integration
between the two card companies.

V Capital Adequacy
Table 7. Adjusted Equity Capital Ratio and Leverage Ratio 			Going forward, while continuing the effort to expand loan assets through optimization of sales
channels and prices, KEB Hana Card is planning to increase, more particularly, high-yield loan
assets by strengthening risk management capacity and improving the convenience of services tocustomers.

unit: KRW billion

2015

2014

YoY

%

Adjusted Equity Capital

1,324.1

1,418.9

-94.8

-6.7%

Adjusted Total Asset

5,806.5

6,514.0-707.5-10.9%

22.8%

21.8%

1.0%p

-

Total Equity Capital

1,336.5

1,326.6

9.8

0.7%

Total Assets

6,737.7

7,233.7-496.0

-6.9%

5.04

5.45

-0.41

-7.5%

Adjusted Equity Capital Ratio (%)

Leverage Ratio (Multiples) 1)

Note 1) Adjusted Equity Capital Ratio based on separate F/S; Leverage Ratio based on consolidated F/SIV Asset Quality
Table 6. Asset Quality and Loan Loss Provision

			
2015

2014

YoY

%

Total Credit

5,884.8

6,300.5-415.7-6.6%

Normal

5,563.8

5,930.0-366.2

-6.2%

230.9

277.6

-46.8

-16.8%

Precautionary
Substandard

0.5

0.5

0.0

-8.6%

Doubtful

70.8

60.6

10.2

16.8%

Estimated Loss

18.9

31.8

-12.9

-40.6%

Substandard & Below (NPL)

90.2

92.9

-2.8

-3.0%

Substandard & Below (NPL) Ratio 1)

1.53%

1.47%

0.06%p-Precautionary & Below

321.0

370.6

-49.5

-13.4%

Precautionary & Below ratio

5.46%

5.88%

-0.43%p

-

184.2

199.8

-15.6

-7.8%

Normal

68.1

80.7

-12.6

-15.6%

Precautionary

49.4

45.7

3.7

8.1%

Substandard

0.4

0.5

0.0

-8.8%

Doubtful

51.8

46.6

5.2

11.2%

Loan Loss Reserves

KEB Hana Card’s leverage ratio declined from 5.45 in 2014 to 5.04 in 2015, in other words, well
below the regulatory guideline of 6.0. Adjusted equity capital ratio also improved from 21.8% at
the end of 2014 to 22.8% at the end of 2015.

unit: KRW billion

NPL COVERAGE RATIO

204.342014

unit: %

215.05

2015(Continued on next page)

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MANAGEMENT’S DISCUSSION AND ANALYSISHANA CAPITALI Overview

Domestic auto, facility and construction equipment financing increased by KRW 297.3 billion, KRW
186.3 billion and KRW 46.4 billion, respectively. The share of automotive assets in total assets grew
2.1%p to 61.2%, from 59.1% in 2014. On the other hand, the share of equipment, construction
and commercial financing assets dropped 1.7%p YoY to 15.6% from 17.3%.

In 2015, the growth of the capital market slowed somewhat in spite of the progressive expansionof the automotive finance market, suppressed by the regulatory tightening on household loans
and the weak demand for corporate loans.

General and administrative expenses surged 20.4% YoY to KRW 51.6 billion, due to the increase inemployees, as well as in administrative expenditures, as required by expanded assets.

Asset quality remained solid also in 2015, helped by stricter regulations on household loans and also
due to sound asset quality of auto finance.

Credit loss provision was reduced by KRW 10.1 billion thanks to pre-emptive risk management.
Table 1. Summarized Financial Information (Consolidated)		

unit: KRW billion, thousands

2015

2014

YoY

%

General Operating Income

189.2

171.5

17.7

10.3%

Operating Income

82.7

63.7

19.0

29.8%

Net Income

65.1

50.4

14.7

29.2%

ROA

1.58%

1.39%

0.19%pROE

13.52%

17.54%

Cost to Income Ratio

27.26%

Table 3. General and Administrative Expenses (Separated)

Profitability

Installment

unit: KRW billion

2015

2014

YoY

%

51.6

42.8

8.8

20.4%

Salaries and Employee Benefits

21.7

16.9

4.8

28.4%

Severance and Retirement Benefits

1.4

1.2

0.1

11.7%

-

Administrative Expenses

21.9

18.7

3.1

16.7%

-4.02%p-

Depreciation and Amortization

4.3

4.0

0.3

8.6%

24.97%

2.29%p-Taxes and Dues

2.3

2.0

0.3

17.2%

27.26%

24.97%

2.29%p

-

1,503

1,267

236

18.6%

242

241

2

0.7%

General & Administrative Expenses

Financial Assets
Lease

		

Cost to Income Ratio

Salaries and employee benefits also rose, by 16% YoY due to the increase of head counts following
the asset growth. Administrative expenses were driven up by relocation and addition of branch
offices and the relocation of the head office. As a result, the C/I ratio also climbed 2.29%p YoY to27.26%.

II Summary of Business Performance
In 2015, Hana Capital’s net income recorded historical high of KRW 65.1 billion, with financial
assets totaling KRW 4,372.7 billion. Through continuous expansion of assets and effective risk
management, Hana Capital is seeking business growth while maintaining high asset quality.

III Financial Assets
Table 4. Lease / Installment						In 2016, by offering a greater variety of products and expanding non-auto financing, Hana Capitalplans to diversify its portfolio and increase cost efficiency to maximize profits.
Table 2. Comprehensive Income Statement (Separated)			

unit: KRW billion

2015

2014

YoY

%

Lease

1,503.3

1,267.2

236.1

18.6%

Auto

1,279.9

998.1

281.8

28.2%

General

223.4

269.1

-45.7

-17.0%

Installment

242.4

240.8

1.6

0.7%

Durable Goods

107.4

81.5

26.0

31.9%

13.1%

Auto

130.5

158.4

-27.9

-17.6%

132.1%

General

4.5

0.9

3.6

404.9%

1,745.7

1,508.0

237.7

15.8%

2015

2014

YoY

%

189.2

171.5

17.7

10.3%

Net Interest Income

180.1

159.3

20.9

Net Fee and Commission Income

10.9

4.7

6.2

Gains on Disposition & Valuation

1.4

-0.2

1.6

-

Other Operating Income

-3.3

7.7

-11.0

-142.3%General Operating Income

unit: KRW billion, %General & Administrative Expenses

51.6

42.8

8.8

20.4%

Pre-Provisioning Operating Profit (PPOP)

137.6

128.7

8.9

6.9%

Credit Loss Provision

54.9

65.0

-10.1

-15.5%

Operating Income

82.7

63.7

19.0

29.8%

Non-Operating Income

-0.1

1.8

-1.9

-105.3%Net Income before Income Tax

82.6

65.5

17.1

26.1%

Income Tax Expense

17.6

15.2

2.4

15.8%

Net Income

65.1

50.4

14.7

29.2%

NET INCOME

unit: KRW billion

65.1
50.4

Total

In 2015, lease and installment finance assets amounted to KRW 1,745.7 billion on, up KRW 237.7 billion
15.8% YoY. Stable business channels helped ensure continuous growth in auto leases, an increase of
28.2% YoY and durable goods installment financing increased by 31.9% YoY.
2014

2015

Auto installment showed a sharp fall due to the reclassification of the used car financing as used carloan, effective from the 2nd quarter of 2013.

In 2015, general operating income jumped 10.3% YoY, bolstered by asset growth of KRW 595.4
billion and an increase in net interest income and net fee and commission income.
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MANAGEMENT’S DISCUSSION AND ANALYSISHANA CAPITALIV Asset Quality

V Capital Adequacy

Table 5. Asset Quality and Loan Loss Provision				

Table 6. Adjusted Equity Capital Ratio					unit: KRW billion

2015

2014

YoY

%

Total Credit

4,372.7

3,777.3

595.4

15.8%

NormalNPL RATIO

unit: %

Adjusted Equity Capital

unit: KRW billion, %

2015

2014

YoY

%

607.9

357.7

250.2

69.9%

419.6

311.7

107.9

34.6%

419.6

311.7

107.9

34.6%

192.7

46.0

146.6

318.5%

4,231.8

3,599.0

632.8

17.6%

Precautionary

70.9

99.4

-28.5

-28.7%

Substandard

30.5

37.8

-7.4

-19.4%

Doubtful

35.2

37.8

-2.6

-7.0%

Subordinate Debt

151.6

4.0

147.6

3690.4%

Estimated Loss

4.3

3.2

1.0

31.6%

Loan Loss Reserve

41.1

49.0

-7.9

-16.1%

4.4

6.9

-2.5

-36.7%

Adjusted Total Assets

4,417.7

3,848.5

569.2

14.8%

Total Assets on B/S

4,471.6

3,870.7

600.9

15.5%

54.6

22.2

32.4

146.0%

13.76%

9.29%

4.47%p-Tier 1 Capital

2.09

Shareholders' Equity

1.60

Precautionary & Below(-)Deduction

Amount

140.8

178.3

-37.5

-21.0%

Ratio

3.22%

4.72%

-1.50%p-

Substandard & Below (NPL)(-)Deduction

Amount

69.9

78.9

-9.0

-11.4%

Ratio

1.60%

2.09%

-0.49%p-

Loan Loss Reserve

Tier 2 Capital

77.8

88.6

-10.8

-12.2%

Normal

30.1

24.6

5.5

22.2%

Precautionary

11.0

24.3

-13.4

-55.0%

Substandard

6.7

5.8

0.9

14.8%

Doubtful

26.5

30.8

-4.3

-14.0%

Estimated Loss

3.5

3.0

0.5

16.9%

2014

2015

Adjusted Equity Capital Ratio

The adjusted equity capital ratio rose 4.47%p YoY to 13.76%, as the capital was increased throughthe issue of hybrid bonds and new shares. This ratio, well above the regulatory minimum of 7%, is inline with the corresponding industry average.

Precautionary & Below
Loan Loss Reserve
Coverage Ratio

47.7

64.0

-16.3

-25.5%

55.23%

49.70%

5.54%p-Substandard & Below (NPL)
Loan Loss Reserve
Coverage Ratio

36.7

39.7

-2.9

-7.4%

111.20%112.30%-1.10%p-

NPLs decreased KRW 9.0 billion to KRW 69.9 billion thanks to effective risk management. The NPL
coverage ratio stood at 111.2%, in line with the ratio in 2014. The expansion of assets, methodical
management of delinquent accounts and the reduction of loan loss reserves by 10.8 billion
contributed to this result.
The NPL ratio was brought down 0.49%p to 1.60% by a strong anti-fraud policy and the sustained
effort to improve asset quality. This rate, far above 3%, the average among key competitors, bears
testimony to Hana Capital’s outstanding asset quality.

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MANAGEMENT’S DISCUSSION AND ANALYSISHANA LIFEI Overview

Table 2. Comprehensive Income Statement (Separated)			

Hana Life is realigning its product line in a manner to increase high-yield products and diversifying
the investment portfolio by taking on loans and alternative investment vehicles. The plan is
also to actively control costs and step up risk management to guarantee profitability. This year,
sales efforts were concentrated on bancassurance by taking advantage of the Group’s business
infrastructure and initiating the group level synergy. As a result, a massive increase was realized
in sales of guarantee-type insurance products through bancassurance channels. Moreover, Hana
Life moved away from its past investment pattern, centered on low-risk assets, and increased theshare of loans and alternative investments to post strong results in this period, despite unfavorable
market conditions.

Net Insurance Business Income

unit: KRW billion, %

2014

YoY

%

196.8

96.6

49.1%

547.6

448.3

99.3

22.2%

540.1

441.0

99.1

22.5%

Reinsurance Income

7.5

7.3

0.2

2.7%
1.1%

254.2

251.5

2.7

Benefit & Payments

191.7

191.3

0.4

0.2%

Reinsurance Expense

9.2

8.2

1.0

12.2%

General & Administrative Expense

33.8

30.9

2.9

9.4%

Increase of Deferred Acquisition Cost

19.5

21.1

-1.6

-7.6%

Insurance Expense

0.0

0.0

-

-

102.0

91.4

10.6

11.6%

Investment Income

109.8

95.4

14.4

15.1%

Investment Expense

7.8

4.0

3.8

95.0%

391.1

302.5

88.6

29.3%

Operating Income

4.3

-14.3

18.6

-

Discount

Table 1. Main Performance Indicators (Separated)			

2015
293.4

Premium Income

Insurance Income

Net Investment Business Income

II Summary of Business Performance

unit: KRW billion

Increase of Policy Reserve

2015

2014

YoY

%

Non-Operating Income

23.4

18.9

4.5

23.8%

11.0

10.6

0.4

3.8%

Net Income before Income Tax

27.7

4.7

23.0

489.4%

Annuity

5.1

4.6

0.5

10.9%

Income Tax Expense

5.2

1.8

3.4

188.9%

Saving

4.1

5.6

-1.5

-26.8%Net Income

22.5

2.9

19.6

675.9%

Protection

1.8

0.4

1.4

350.0%

Variable

0.0

0.0

-

-

540.1

441.0

99.1

22.5%

MCP(Monthly Converged Premiums)

Premium Income
Investment Income
Investment Income Ratio
Net Income

109.8

95.4

14.4

15.1%

4.44%

4.65%

-0.21%p

675.9%

22.5

2.9

19.6

ROA

0.62%

0.09%

0.53%p

-

ROE

8.40%

1.47%

6.93%p-Cost to Income Ratio

52.16%

91.30%-39.14%p-

In 2015, premium income increased KRW 99.1 billion for a net income of KRW 22.5 billion, up KRW
19.6 billion YoY. Therefore, a major stride was made during this period toward building a profitable
and sustainable business model.
Moreover, the release of new guarantee-type insurance products resulted in a significant sales
increase of this category through bancassurance sales channels.
The development of “Top 3,” a new product line, provided the company with a sustainable profit
base, making it also an industry leader in terms of efficiency.
An important element of Hana Life’s business strategy is the diversification of the product line,
focusing on key sales channels. The effort to increase sales in guarantee-type insurance products
through bancassurance sales channels will therefore continue unabated.

098

NET INSURANCE
BUSINESS INCOME

unit: KRW billion

293.4
196.8

2014

NET INVESTMENT
BUSINESS INCOME

91.4

2015

unit: KRW billion

102.0

Hana Life’s net income rose KRW 19.6 billion YoY to KRW 22.5 billion. 				Net insurance business income recorded a YoY increase of KRW 96.6 billon to KRW 293.4 billion.
This result is explained by the continuous expansion in business volume lifting premium income
and also the lowered rate of policy cancelation. 								Net investment business income amounted to KRW 102.0 billion, up KRW 10.6 billion YoY, on theincrease in gains on the disposition of marketable securities (increase of KRW 12.8 billion). Hana
Life’s policy reserve rose proportionately to the growth in premium income.
Table 3. General and Administrative Expenses (Separated)			
2014

YoY

%

31.0

29.4

1.6

5.3%

Salaries and Employee Benefits

12.5

10.4

2.1

20.2%

Severance and Retirement Benefits

1.3

1.1

0.2

17.8%

Administrative Expenses

13.6

14.2

-0.6

-4.2%

Depreciation and Amortization

2.8

3.1

-0.3

-9.3%

Taxes and Dues

0.7

0.5

0.2

29.1%

52.16%

91.30%-39.14%p-

Cost to Income Ratio

2015

unit: KRW billion

2015
General & Administrative Expenses

2014

In 2015, salaries and employee benefits increased KRW 2.1 billion YoY, due to a salary growth
resulting in increased performance bonus payout.

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MANAGEMENT’S DISCUSSION AND ANALYSISHANA SAVINGS BANKIII Capital Adequacy

I Overview

Table 4. Solvency Margin Ratio					unit: KRW billion, %

2015

2014

YoY

%

268.9

253.8

15.1

6.0%

Shareholders' Equity

267.3

251.5

15.7

6.3%

Loan Loss Reserve

1.4

0.6

0.8

130.0%

Solvency Margin

Subordinated Debts

0.0

0.0

-

-

Net Premium Reserve in Excess

45.6

54.2

-8.6

-15.8%(-)Deduction
Standard Amount of Solvency Margin
Solvency Margin Ratio

45.4

52.5

-7.2

-13.7%

123.3

120.2

3.1

2.6%

218.1%

211.2%

6.91%p-At the end of 2015, Hana Life’s solvency margin ratio stood at 218.1%, up 6.91%p from the end of
2014.
The solvency margin was boosted by an increase in valuation gains of bonds and the growth inretained earnings to KRW 268.9 billion, up KRW 15.1 billion from 2014.
The standard amount of solvency margin rose KRW 3.1 billion YoY to KRW 123.3 billion on thedecrease of interest rate risk (KRW 18 billion) and increase of credit risk (KRW 25.1 billion).
The sale of long-term bonds and purchase of short-term bonds to match durations of assets andliabilities reduced interest rate risks. Meanwhile, there was an upsurge in credit risk exposure due tothe increased exposure of beneficiary certificates and loans and tightened regulatory change.

Hana Savings Bank, backed by relatively strong capital capacity, has been successfully building a
reputation for reliability and dependability. By tapping into the business network of KEB Hana Bank
such as issuing joint loans, it is improving profits and strengthening operational capacity throughsynergy from this collaboration.
In 2014, it was honored as "Family-friendly Company" and a commendation from the Ministry of
Gender Equality and Family. Winner of the "2014 Aju Business Daily Finance and Securities Award,"
it was honored, in 2016, with the "Best Banker Award," the latest entry to its long list of awards
and recognitions.

II Summary of Business Performance
Table 1. Comprehensive Income Statement (Separated)			

unit: KRW billion

2015

2014

YoY

%

42.7

49.1

-6.4

-13.0%Net Interest Income

42.5

47.2

-4.7

-9.9%

Net Fee and Commission Income

1.5

1.0

0.5

55.4%

General Operating Income

Gains on Disposition & Valuation

1.5

2.6

-1.2

-44.0%

Other Operating Income (Expenses)

-2.8

-1.7

-1.1

-

General & Administrative Expenses

26.0

25.0

1.0

4.1%

Pre- Provisioning Operating Income (PPOP)

16.7

24.1

-7.4

-30.8%

Credit Loss Provision

-7.5

10.0

-17.5

-174.6%

Operating Income

24.1

14.0

10.1

71.9%

Non-Operating Income

-0.3

0.2

-0.5

-271.0%Net Income before Income Tax

23.8

14.2

9.6

67.7%

Income Tax Expense

5.7

3.1

2.7

87.5%

Net Income

18.1

11.2

7.0

62.3%

NET INCOME

unit: KRW billion

11.2

18.1

2014

2015

Hana Savings Bank was launched in February 2012 (through acquisition of Jeil Savings Bank II and
Ace Mutual Savings Bank) and absorbed Korea Mutual Savings Bank on September 5 of the same
year. Having posted a net income (KRW 5.8 billion) for the first time in 2013, one year after its
establishment, it realized a net income of KRW 11.2 billion and KRW 18.1 billion in 2014 and 2015,
respectively.
In 2015, although loan assets increased, net interest income declined due to the reduction in highyield loans. However, operating income surged YoY, as a large portion of non-performing loans
were collected which allowing the significant write-back.
After passing the break-even point in 2013, it continuously increased the share of high quality
assets in its loan portfolio. Now, four years into operation, it has a more stable income structure
thanks to a growth strategy focused on asset quality.

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MANAGEMENT’S DISCUSSION AND ANALYSISHANA SAVINGS BANK
Table 2. General and Administrative Expenses (Separated)			
2015

2014

YoY

%

26.0

25.0

1.0

4.1%

Salaries and Employee Benefits

10.8

10.0

0.7

7.2%

Severance and Retirement Benefits

0.7

0.7

0.0

-

Administrative Expenses

7.0

6.8

0.2

3.2%

Depreciation and Amortization

6.5

6.4

0.1

1.6%

Taxes and Dues

1.1

1.0

0.0

3.6%

60.97%

50.94%

10.18%-

General & Administrative Expenses

Cost to Income Ratio

Loans amounted to KRW 946.8 billion with household loans increasing KRW 18.4 billion YoY to KRW
358.9 billion, and corporate loans increasing KRW 45.7 billion to KRW 587.9 billion, respectively.

unit: KRW billion

Meanwhile, low-interest rate demand deposits rose KRW 5.3 billion, which helped reduce funding
costs and stabilize the funding structure.

IV Asset Quality

In 2015, salaries and employee benefits rose KRW 0.7 billion on the back of increased headcounts, which also lifted general and administrative expenses by KRW 1.0 billion YoY. Meanwhile,
profitability on loans shrank due to a decrease in high-yield loans, causing general operating
income to drop and resulting in a slight uptick in C/I ratio.

Table 4. Asset Quality and Loan Loss Provision				

III Summary of Financial Condition
unit: KRW billion

2015

2014

966.8

948.2

18.7

2.0%

102.2

157.7

-55.5

-35.2%

0.0

0.0

0.0

-

946.8

882.7

64.1

7.3%

-82.2

-92.3

10.1

-10.9%

29.6

23.3

6.4

27.4%

Stocks and Others

26.4

19.9

6.5

32.9%

Lease

0.0

0.0

0.0

-

Trust Account Assets

0.0

0.0

0.0

-

Due from Banks
Fixed Income Securities
Loans
Loan Loss Allowance
Other Revenue Earning Assets

Domestic Exchange Settlement
Non-Revenue Earning Assets
Total Assets
Interest Bearing Liabilities

YoY

%

3.3

3.4

-0.1

-4.2%

89.2

95.4

-6.2

-6.5%

1,085.7

1,066.8

18.9

1.8%

885.4

885.9

-0.5

-0.1%

Deposits

885.4

885.9

-0.5

-0.1%

Borrowings

0.0

0.0

0.0

-

Debentures

0.0

0.0

0.0

-

Policy Reserve

0.0

0.0

0.0

-

Borrowings from Trust Accounts

0.0

0.0

0.0

-

Trust Account Liabilities

0.0

0.0

0.0

-

Domestic Exchange Settlement

0.0

0.0

0.0

-

Non-Interest Bearing Liabilities

22.5

21.5

1.0

4.5%

Total Liabilities

907.9

907.4

0.5

0.1%

Shareholders' Equity

177.8

159.4

18.4

11.5%

1,085.7

1,066.8

18.9

1.8%

Total Liabilities & Shareholders' Equity

2015

2014

YoY

%

Total Credit

947.3

883.2

64.0

7.3%

Normal

409.3

347.3

61.9

17.8%

Precautionary

432.4

414.9

17.5

4.2%

Substandard

41.4

48.9

-7.5

-15.3%

Doubtful

30.0

45.5

-15.5

-34.1%

Estimated Loss

34.2

26.6

7.6

28.5%

NPL RATIO

13.70

unit: %

11.15

Precautionary & Below

Table 3. Condensed Balance Sheets (Separated)				
Interest Earning Assets

unit: KRW billion

LOANS

unit: KRW billion

946.8
882.7

Amount

538.0

535.9

2.1

0.4%

Ratio

56.80%

60.68%-3.88%p-

Substandard & Below (NPL)
Amount

105.6

121.0

-15.4

-12.7%

Ratio

11.15%

13.70%-2.55%p-

Loan Loss Reserve

82.5

92.6

-10.1

-10.9%

Normal

4.4

5.0

-0.5

-10.4%

Precautionary

11.1

13.2

-2.1

-16.1%

Substandard

18.5

20.2

-1.7

-8.3%

Doubtful

21.6

33.0

-11.4

-34.6%

Estimated Loss

26.9

21.2

5.6

26.5%

2014

2015

Precautionary & Below
Loan Loss Reserve
Coverage Ratio

2014

2015

78.1

87.6

-9.6

-10.9%

15.33%

17.28%-1.94%p-

Substandard & Below (NPL)
Loan Loss Reserve
Coverage Ratio

67.0

74.5

-7.5

-10.0%

78.13%

76.53%

1.60%p-

In 2015, active product development and lending promotions across all branches resulted inincrease of KRW 64.0 billion YoY in total credit to KRW 947.3 billion.
The continuous effort to improve asset quality resulted in a decrease of KRW 15.4 billion in NPL to
KRW 105.6 billion. Accordingly, the NPL ratio in overall loans also fell 2.55%p to 11.15%.

Note) The above financial statement contains figures that are different from those in Hana Financial Group's K-IFRS-based
consolidated statements

In 2015, the Bank’s total assets increased KRW 18.9 billion YoY to KRW 1,085.7 billion, joining theranks of the nation’s top savings banks in asset size.

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Independent Auditors' Report

V Capital Adequacy
Table 5. BIS Capital and Ratio					Tier 1 Capital

unit: KRW billion

2015

2014

YoY

%

122.1

102.5

19.6

19.1%

122.1

102.5

19.6

19.1%

Capital Stock

75.0

75.0

0.0

-

Capital Surplus

108.3

108.3

0.0

-

Retained Earnings

-6.5

-19.0

12.5

-66.0%-11.4%

Common Equity Capital

Others

-54.7

-61.8

7.1

Hybrid Bonds

0.0

0.0

0.0

-

Tier 2 Capital

13.2

12.5

0.6

5.2%

Loan Loss Reserve

12.4

11.7

0.7

5.9%

Subordinated Bonds

0.0

0.0

0.0

-

Others

0.8

0.8

0.0

-5.7%

135.3

115.0

20.3

17.6%

Total BIS Capital
Risk Weighted Assets

925.9

865.1

60.7

7.0%

14.61%

13.30%

1.31%p-Tier 1 Ratio

13.19%

11.85%

1.34%p-Tier 2 Ratio

1.42%

1.45%

-0.02%p-

BIS Capital Adequacy Ratio 1)

Note 1) Based on Basel I standards

At the end of 2015, the BIS capital ratio stood at 14.61%, well above the regulatory guideline of 6%
pursuant to the Savings Bank Act, attesting to the Bank’s consistently high level of capital adequacy.
The BIS Capital ratio rose 1.31%p from 2014, in spite of an expansion of assets, as the net income
during this period sharply reduced the amount of deficit carried forward.
Moving forward, it will continue to enhance its profitability to further strengthen its capital
adequacy ratio.

The Board of Directors (BoD) and Shareholders
Hana Financial Group Inc. and its subsidiaries
We have audited the accompanying consolidated financial statements of Hana Financial Group Inc. (HFG, the Company or the Parent Company)
and its subsidiaries (collectively, the Group), which comprise the consolidated statements of financial position as at December 31, 2015 and 2014
and the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash
flows for the years then ended and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with KoreanInternational Financial Reporting Standards (KIFRS), and for such internal control as management determines is necessary to enable the preparationof consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordancewith auditing standards generally accepted in the Republic of Korea. Those standards require that we comply with ethical requirements and planand perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to theentity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion the consolidated financial statements present fairly, in all material respects, the financial position of Hana Financial Group Inc. and its
subsidiaries as at December 31, 2015 and 2014 and its financial performance and cash flows for the years then ended in accordance with KoreanInternational Financial Reporting Standards.
March 9, 2016

This audit report is effective as at March 9, 2016, the independent auditors’ report date. Accordingly, certain material subsequent events orcircumstances may have occurred during the period from the date of the independent auditors’ report to the time this report is used. Such eventsand circumstances could significantly affect the accompanying consolidated financial statements and may result in modifications to this report.

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

AS AT DECEMBER 31, 2015 AND 2014

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

unit: KRW million

Notes

December 31, 2015

unit: KRW million, except per share amounts

December 31, 2014

AssetsNotes
Net interest income

2015

2014

39, 405, 6, 7, 9, 11, 56\ 19,745,776\ 22,257,731

Interest income\ 9,037,902\ 10,092,874

5, 6, 7, 8, 9, 12, 16, 18

18,580,780

17,218,152

Interest expense(4,499,043)(5,398,366)

5, 6, 7, 9, 13

1,414,424

1,045,676

4,538,859

4,694,508

Available-for-sale financial assets

5, 6, 7, 8, 9, 14, 16

37,701,159

35,065,938

Net fee and commission income

Held-to-maturity investments

5, 6, 7, 9, 15, 16

5,616,734

4,365,450

Fee and commission income

2,688,786

2,535,613

Fee and commission expense

Cash and due from banks
Financial assets held-for-trading
Financial assets designated at fair value through profit and loss

5, 6, 7, 8, 9, 16, 17, 22

221,336,818

213,963,138

Derivative assets used for hedging purposes

5, 6, 7, 8, 9, 18

65,442

87,894

Investments in associates and joint ventures

10, 191,155,939

984,294

Property and equipment

10, 202,873,575

2,759,339

Investment property

10, 21

674,774

512,988

Intangible assets

10, 23

1,091,866

1,258,332

52

56,61651,045Gain on foreign currency translation and transactions

85,326

7,364

Total operating income

Loans receivable

Deferred income tax assets
Current tax assets
Non-current assets held for sale
Other assets

Financial liabilities held-for-trading 		

39, 42(20,230)

238,80639, 43202,181(158,126)

Net gain (loss) on derivative financial instruments used for hedging purposes

39, 44(6,185)

6,120

Net gain on available-for-sale financial assets and other financial assets not measured at fair value39, 45771,243

493,611415

529

16,513,064

15,970,376\ 326,912,708\ 315,548,246

5,753,318

5,239,660

Operating income

5, 6, 7, 8, 9, 18, 26(917,786)
1,617,827

Net gain (loss) on financial assets and liabilities designated at fair value through profit and loss

24

Liabilities(992,341)
1,696,445

Net trading income (loss)

5, 6, 7, 8, 9, 25

Total assets

39, 41

Impairment loss on financial assets

39, 46

Net operating income

126,823

273,275

7,309,136

7,166,021(1,122,644)(1,444,010)

6,186,492

5,722,011(4,530,976)(3,936,205)

General and administrative expenses

39, 47

Other operating income

39, 48

831,754792,313

Other operating expenses

39, 49(1,476,755)(1,334,672)

1,010,515

1,243,447
122,441

Financial liabilities designated at fair value through profit and loss

5, 6, 7, 9, 27

8,037,863

6,687,800

Deposits

5, 6, 7, 9, 28

206,810,358

201,896,985

Borrowings

5, 6, 7, 8, 9, 29

22,202,136

23,263,986

Share of earnings from investments in associates and joint ventures

10, 1990,290Debentures

5, 6, 7, 9, 30

30,008,472

29,308,115

Other non-operating income

50

198,441

90,237

5, 6, 7, 8, 9, 18

43,00850,736

Other non-operating expenses

51(102,856)(203,562)

31

161,925

169,168

185,875

9,116

1,196,390

1,252,563(242,109)(272,774)

Derivative liabilities used for hedging purposes
Net defined benefit liability

Non-operating expense

Provisions

32

338,772

364,295

Net income before income tax

Deferred income tax liabilities

52

392,623354,258

Income tax expense

14,57971,675

Net income

954,281979,789

30,177,910

26,247,926

Attributable to: Equity holders of the parent

909,732

937,707

303,940,964

293,654,604

44,54942,082

335,194

Current tax liabilities
Other liabilities

5, 6, 7, 8, 9, 33

Total liabilities
Equity52

Non-controlling interests
Other comprehensive income

36

Issued capital

34

1,480,015

1,449,470

Hybrid equity securities

34

742,890299,121

Gain (loss) on valuation of available-for-sale financial assets(192,975)

Capital surplus

34

10,464,530

10,351,748

Exchange differences on transaction of foreign operations(2,996)

20,483

Capital adjustments

35(13,232)(13,122)

Changes in unrealized gain on valuation of equity method investments

11,976(10,715)

Loss on valuation of net investment hedges of foreign operations

Accumulated other comprehensive income

36(6,382)

251,158

Retained earnings

37

9,481,847

8,788,923

22,149,668

21,127,298

Equity attributable to equity holders of the parent
Non-controlling shareholders' equity
Total equity
Total liabilities and equity
The accompanying notes are integral part of the consolidated financial statements.

822,076

766,344

22,971,744

21,893,642\ 326,912,708\ 315,548,246

Items that could be recycled to profit or loss at a future point in time:

Net income (loss) on cash flow hedges(15,346)-

1,757(2,689)Items that will never be recycled:(60,876)(81,445)\ 695,821\ 1,240,617

652,192

1,198,605

43,62942,012

Basic earnings per share (won)\ 3,001\ 3,177

Diluted earnings per share (won)

2,990

3,168

Remeasurement of the net defined benefit liability (asset)
Total comprehensive income
Attributable to: Equity holders of the parent
Non-controlling interests
Earnings per share

54

The accompanying notes are integral part of the consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

unit: KRW million

Notes
As at January 1, 2014

Issued capitalHybrid equity
securities

Capital surplus

Capital adjustments

Accumulated othercomprehensive
incomeRetained earnings

Equity attributable
to equity holders of
the parent

Non-controllingshareholders' equity

Total\ 20,889,625\ 1,449,470\ 299,121\ 10,380,574\ (170,261)\ (9,740)\ 7,982,838\ 19,932,002\ 957,623

Dividends

53

-

-

-

-

-

(71,388)(71,388)-(71,388)

Interim dividends

53

-

-

-

-

-

(43,484)(43,484)-(43,484)
9,832

Issuance of share capital in subsidiaries

-

-

(235)

-

-

-

(235)

10,067Merger of subsidiaries--(46,756)---(46,756)

46,735(21)

Spin-off of subsidiaries--(3,087)---(3,087)-(3,087)--

16,725---

16,725(266,725)(250,000)

Dividends on hybrid equity securities

Redemption of hybrid equity securities issued by subsidiary
53

-

-

-

-

-

(19,082)(19,082)(14,325)(33,407)

Acquisition and disposal of treasury stock

35

-

-

4,648

170,023--

174,671-

174,671---(13,095)--(13,095)(6,845)(19,940)

Acquisition of treasury stock of subsidiary
Others

-

-

(121)

211

-

2,332

2,422

(2,198)224

1,449,470

299,121

10,351,748(13,122)(9,740)7,851,216

19,928,693

724,332

20,653,025

Net income for the year

-

-

-

-

-

937,707937,707

42,082

979,789

Gain on valuation of available-for-sale financial assets

-

-

-

-

334,800-

334,800

394

335,194-

Exchange differences on transaction of foreign operations--

Changes in unrealized gain on valuation of equity method investments

-

-

-

18,666-

18,666

1,817

20,483-(10,602)-(10,602)(113)(10,715)

Net loss on cash flow hedges

-

-

-

-

(1,211)-(1,211)(1,478)(2,689)Remeasurement of the net defined benefit liability

-

-

-

-

(80,755)-(80,755)(690)(81,445)

Total comprehensive income
As at December 31, 2014

Notes
As at January 1, 2015

-

-

-

-

260,898

937,707

1,198,605

42,012

1,240,617\ 1,449,470\ 299,121\ 10,351,748\ (13,122)\ 251,158\ 8,788,923\ 21,127,298\ 766,344\ 21,893,642

Issued capitalHybrid equity
securities

Capital surplus

Capital adjustments

Accumulated othercomprehensive
incomeRetained earnings

Equity attributable
to equity holders of
the parent

Non-controllingshareholders' equity

Total\ 1,449,470\ 299,121\ 10,351,748\ (13,122)\ 251,158\ 8,788,923\ 21,127,298\ 766,344\ 21,893,642

Dividends

53

-

-

-

-

-

(130,452)(130,452)-(130,452)

Interim dividends

53

-

-

-

-

-

(44,400)(44,400)-(44,400)

30,545-

149,298---

179,843-

179,843-443,769

-

-

-

-

443,769-

443,769

Issuance of share capitalIssuance of hybrid equity securities
Issuance of share capital in subsidiaries

-

-

(30)

-

-

-

(30)

37,34737,317Merger of subsidiaries--(13,320)---(13,320)-(13,320)(177,711)

Acquisition of additional equity interests in subsidiaries--(20,929)---(20,929)(156,782)

Issuance of hybrid equity securities in subsidiaries

-

-

-

-

-

-

-

149,617

149,617

-

-

-

-

-

(27,014)(27,014)(18,089)(45,103)

Dividends on hybrid equity securities

53

Acquisition and disposal of treasury stock

35

Others

-

-

(16)

-

-

-

(16)

-

(16)

-

-

(2,221)(110)-(14,942)(17,273)10(17,263)
22,275,923

1,480,015

742,890

10,464,530(13,232)

251,158

8,572,115

21,497,476

778,447

Net income for the year

-

-

-

-

-

909,732

909,732

44,549954,281

Loss on valuation of available-for-sale financial assets

-

-

-

-

(192,739)-(192,739)(236)(192,975)

Exchange differences on transaction of foreign operations

-

-

-

-

(2,527)-(2,527)(469)(2,996)

Changes in unrealized gain on valuation of equity method investments

-

-

-

-

11,968-

11,968

8

11,976(15,346)-(15,346)

Loss on valuation of net investment hedges of foreign operations(15,346)

Net gain on cash flow hedges

-

-

-

-

1,471

-

1,471

286

1,757

Remeasurement of the net defined benefit liability

-

-

-

-

(60,367)-(60,367)(509)(60,876)

Total comprehensive income
As at December 31, 2015

-

-

-

-

(257,540)

909,732

652,192

43,629695,821\ 1,480,015\ 742,890\ 10,464,530\ (13,232)\ (6,382)\ 9,481,847\ 22,149,668\ 822,076\ 22,971,744

The accompanying notes are integral part of the consolidated financial statements.

108

109

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

unit: KRW million

Notes

2015
\ 1,196,390\ 1,252,563

Net interest expense

294,790

124,759

Net loss (gain) on valuation of trading securities

145,439(40,541)

Net loss (gain) on valuation of financial assets and liabilities designatedat fair value through profit and loss

(341,131)

33,710Net gain on disposal of available-for-sale financial assets(606,041)(388,186)

15,684(2,059)-(492)

Net loss (gain) on fair value of hedged items

75,800310,214(149,484)

34,871

Provision of allowance for possible loan losses

1,046,844

1,133,796

Depreciation and amortization

474,908

470,487

Share based payment income(3,138)(1,467)

Provision of post-employment benefit obligations

175,500

181,110

Net gain on valuation of investments in associates and joint ventures(90,290)(122,441)

Other loss relating to property, equipment and intangible assets, net

13,185

20,684497(7,394)

1,052,563

1,747,051

OthersChanges in operating assets and liabilities:

1,208,025(3,257,262)(1,481,169)(1,370,598)

Loan receivables(8,552,105)(11,145,206)

Financial assets designated at fair value through profit and loss

(516,194)(791,954)

Derivative assets used for hedging purposes(28,598)

59,445Investment in associates and joint ventures
Other assets
Financial liabilities held-for-trading

28,99559,496(489,332)

468,975

513,168

863,132

Financial liabilities designated at fair value through profit and loss

1,838,640

1,736,794

Deposits

4,628,505

14,365,476(7,728)(89,345)(263,054)(281,442)

Derivative liabilities used for hedging purposes
Net defined benefit liabilities

Purchase of available-for-sale financial assets(28,397,043)(33,463,371)

26,677,273

28,444,313

Purchase of held-to-maturity financial assets(4,085,125)(1,981,407)

Proceeds from redemption of held-to-maturity financial assets

3,079,969

2,360,685

Purchase of investments in associates(202,562)(1,109)Acquisition of property and equipment
Proceeds from disposal of property and equipment
Purchase of investment property
Proceeds from disposal of investment property
Purchase of intangible assets
Proceeds from disposal of intangible assets
Decrease (increase) in guarantee deposit, net
Net cash flows provided by (used in) investing activities

Provisions(102,522)(44,885)

Other liabilities

3,761,921

1,756,876

538,552

2,329,502

Payment of income tax(262,009)(272,546)

Net cash flows provided by operating activities

2,525,496

5,056,570

93,67933,863(503,458)(317,619)

165,278

48,818(170,149)(1,995)

8,798

6,596

(123,428)(104,123)

3,505

9,422

285,164(19,372)(3,168,099)(4,985,299)

Financing activities
Increase in borrowings, net(1,428,038)

1,312,855

Issuance of debentures

11,702,707

8,536,460(11,501,388)(10,103,398)

Redemption of debentures
Issuance of share capital
Dividends paid

Financial assets held-for-trading

Due from banks

2014

Proceeds from disposal of available-for-sale financial assets

Proceeds from disposal of investments in associates

Net loss (gain) on foreign exchange translation

Impairment loss on available-for-sale financial assets

2015

Investing activities

Adjustments to reconcile net income before income tax to net cash flows:Net gain on redemption of held-to-maturity financial assets

Notes

2014

Operating activities
Net income before income tax

unit: KRW million

179,843-(174,852)(114,872)

Issuance of hybrid equity securities

443,769-

Dividends of hybrid equity securities(27,014)(19,082)
176,155

Acquisition and disposal of treasury stock(21)

Cost arising from issuance of share capital(13,320)(3,087)

Decrease in non-controlling shareholders' equity, net(8,866)(274,433)(827,180)(489,402)

Net cash flows provided by financing activities		
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents (I+II+III+IV)

32,30675,184(1,437,477)(342,947)

Cash and cash equivalents at the beginning of the year56

9,671,645

10,014,592

Cash and cash equivalents at the end of the year56

\ 8,234,168\ 9,671,645

The accompanying notes are integral part of the consolidated financial statements.

The accompanying notes are integral part of the consolidated financial statements.

110

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

Country

Major business

Number of shares

Ownership (%)

Reporting date

Korea

Specified money intrust--

December 31

Hana Bank (China) Co., Ltd.
(*1)

China

Banking-

100.0

December 31

Hana Micro Finance Ltd.

MyanmarSpecial money intrust(*1) (*2)
Subsidiaries of KEB Hana Bank:

1. Company information
The accompanying consolidated financial statements include Hana Financial Group Inc. (HFG, the Company or the Parent Company), a
parent company according to KIFRS 1110 “Consolidated Financial Statements,” and its controlled subsidiaries (collectively, the Group). General
information describing HFG, the Group and joint ventures is provided below.

1.1 HFGHFG was incorporated on December 1, 2005 under the Financial Holding Company Act, by issuing 204,256,243 common shares with theaggregate par value of ￦1,021,281 million to the shareholders of Hana Bank, Hana Finance Investment Co., Ltd. (formerly Hana Daetoo
Securities Co., Ltd. (H&DS)), Hana Information & System Co., Ltd. (Hana I&S), and Hana Institute of Finance (HIF) in exchange for those entities’
shares owned by their shareholders. HFG was established to primarily engage in management of its subsidiaries, which operate in the financial
services industry in the Republic of Korea.

Other financial business

97,357

99.9

December 31

Korea

Investment and management
service for NPL assets backed
securities

18,975,720

99.5

December 31

Hana Future Co., Ltd.
(formerly KEB Futures Co.,
Ltd.)

Korea

Futures brokerage service

3,000,000

100.00December 31

Korea Exchange Bankof Canada

CanadaFinancial business

834,000

100.00December 31

Korea Exchange Bank
(Deutschland) A.G.

Germany

Financial business

40,000100.00December 31

PT Bank KEB Hana (*3)

Indonesia

Financial business

2,157,794,863

88.9

December 31

Banco KEB do Brasil S.A.

BrazilFinancial business

69,726,415

100.0

December 31

KEB NY Financial Corp.

U.S.

Financial business

100

100.0

December 31

KEB LA Financial Corp.

U.S.

Financial business

200

100.0

December 31

KEB USA Int’l Corp.

U.S.

Financial business

100

100.0

December 31

KEB Asia Finance Limited

Hong Kong

Financial business

50,000,000

100.0

December 31

KEB Russia (*1)

RussiaFinancial business

-

99.9

December 31

Korea

Private investment trust company

-

100.0

December 31

Hana F&I, Inc.
(formerly KEB F&I)

Date of acquisition

Subsidiaries

Notes

October 13, 2006

Hana IB Securities Co., Ltd. (Hana IB)

Acquired by H&DS in 2008

April 27, 2007

Hana Capital Co., Ltd. (Hana Capital)

Acquired through the stock swap transaction with Hana Bank

August 10, 2007

Hana Life Insurance Co., Ltd. (Hana Life Insurance)

Acquired through the stock swap transaction with Hana BankUBS Hana Power Private
Investment Trust 21[Bond] (*1)

October 31, 2009

Hana SK Card Co., Ltd. (Hana SK Card)

Established through the spin-off of Hana Bank’s credit cardbusiness

Hyundai Trust PEF Invest
16 [Bond] (*1)

Korea

Private investment trust company

-

100.0

December 31

March 10, 2010

Hana Asset Trust Co., Ltd. (Hana Asset Trust)

Acquired through the purchase of common shares

February 8, 2012

Hana Savings Bank Co., Ltd. (Hana Savings Bank)

Established through the purchase and assumption agreement

Korea

Private investment trust company

-

100.0

December 31

February 9, 2012

Korea Exchange Bank (KEB)

Acquired through the purchase of common shares

Korea Investment Basic 63
Private Equity Investment
Vehicles [Bond] (*1)

August 30, 2013

Hana Bancorp, Inc.

Acquired through the purchase of common shares

September 1, 2014

KEB Hana Card Co., Ltd. (KEB Hana Card) (formerly KEB Card)

Established through the spin-off of KEB credit card business

LS Leading Solution 143
Private Equity Investment
Vehicles [Bond] (*1)

Korea

Private investment trust company

-

100.0

December 31

December 29, 2015

Hana Investors Services Co., Ltd.

Acquired through the purchase of common shares held by HanaBank

Sevenstar Co., Ltd (*1)

Korea

SPC

-

-

December 31

Marine Solution
Co., Ltd. (*1)

Korea

SPC

-

-

December 31

Chungangstar Co., Ltd.
(*1)

Korea

SPC

-

-

December 31

HB Rainbow LLC (*1)

Korea

SPC

-

-

December 31

Trust Accounts (*1)

Korea

Trust accounts--

December 31

Korea

Asset securitization

50

5.0

December 31

Korea

Asset securitization--

December 31

The total number of the Company’s issued and outstanding common shares is 296,003,062 shares with the aggregate par value of ￦1,480,015
million as at December 31, 2015. The Company’s common shares were listed on the Korea Exchange (KRX) on December 12, 2005 and theCompany’s authorized common shares are 800,000,000 shares as at December 31, 2015.

Subsidiaries of Hana F&I Inc.

1.2 Scope of consolidation
Country

Major business

Number of shares

Ownership (%)

Reporting dateBanking

1,071,915,717

100.0

December 31

Subsidiaries of HFG:KEB Hana Bank
(formerly KEB)

Korea

HFI (formerly H&DS)

Korea

Financial Investments

35,060,263

100.0

December 31

KEB Hana Card

Korea

Credit card business

226,113,162

85.0

December 31

Hana Capital

Korea

Installment credit financing

7,261,199

50.1

December 31

Hana Asset Trust

Korea

Real estate trsut

10,000,000

100.0

December 31

Hana I&S

Korea

System development service

18,600,000

90.0

December 31

HIF

Korea

Specialized service

640,000

100.0

December 31

Hana Savings Bank

Korea

Mutual savings banking

15,000,000

100.0

December 31

Hana Life Insurance

Korea

Life insurance

27,040,200

100.0

December 31

Hana Bancorp, Inc.

U.S.

Financial holdings company

7,141,563

75.4

December 31

HIS (formerly KEB Fund
Services Co., Ltd.)

Korea

Transfer agent

510,000

100.0

December 31(Continued on next page)

KEBW First Securitization
Specialty Co., Ltd.
KEB VERITAS Second
Securitization Co., Ltd.
(*1)
KEBS First
Securitization Co., Ltd.

Korea

Asset securitization

30

5.0

December 31

KEBS Second
Securitization Co., Ltd.

Korea

Asset securitization

30

5.0

December 31

KEB Pepper First
Securitization Co., Ltd.

Korea

Asset securitization

30

5.0

December 31

KEBI First
Securitization Co., Ltd.

Korea

Asset securitization

18

9.0

December 31

KEBBS First
Securitization Co., Ltd.

Korea

Asset securitization

30

5.0

December 31

KEBS Third
Securitization Co., Ltd.

Korea

Asset securitization

10

5.0

December 31

Korea

Asset securitization

10

5.0

December 31

Korea

Asset securitization--

December 31

KEBT First Securitization
Specialty Co., Ltd.
Hongdae Picasso Co.,
Ltd. (*1)(Continued on next page)

112

113

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

Country

Major business

Number of shares

Ownership (%)

Reporting date

KEB The Loft Co., Ltd. (*1)

Korea

Asset securitization--

December 31

HFS First Securitization
Specialty Co., Ltd.

Korea

Asset securitization

28

14.0

December 31

HANAMIRAEASSET Third
Securitization Specialty
Co.,Ltd.

Korea

Asset securitization

510

5.1

December 31

Shinseung Building Inc.
(*1)

Korea

Asset securitization--

December 31

Echo Asset Management
Company Inc. (*1)

Korea

Asset securitization--

December 31

Hanastone First Inc. (*1)

Korea

Asset securitization--

December 31

Korea

Asset securitization

10

5.0

Korea

Asset securitization--

HFT Second Securitization
Specialty Co., Ltd.
Hanastone Second
Inc. (*1)

The financial information of subsidiaries as at December 31, 2015 and 2014 is as follows (Korean won in millions):
December 31, 2015
Other
Comprehensive
comprehensive
income (lossincome (loss)

AssetsLiabilities

EquityRevenue

Net income(loss)\ 292,404,100\ 270,860,222\ 21,543,878\ 28,721,261\ 1,074,413\ (352,733)\ 721,680

HFI (formerly H&DS)(*1)

16,656,399

14,857,076

1,799,323

2,894,860

129,832

31,284

161,116

KEB Hana Card (*1)

6,737,654

5,401,163

1,336,491

1,505,253

10,119

(547)

9,572

Hana Capital

4,472,303

3,903,093

569,210332,319

65,134844

65,978December 31

Hana Asset
Trust (*1)

144,473

24,398120,075

52,623

18,736106

18,842

December 31

Hana I&S

228,432

121,228

107,204

128,233

2,391(1,005)

1,386

4,511

993

3,518

9,966

69

28

97

KEB Hana Bank
(formerly KEB)(*1)(*2)

HHM First Co., Ltd. (*1)

Korea

Asset securitization--

December 31

HIF

Hanastone Third Inc. (*1)

Korea

Asset securitization--

December 31

Hana Savings Bank

1,085,671

907,873

177,798

78,48918,113

118

18,231

Hana Life
Insurance (*1)

3,984,692

3,717,279

267,413684,240

22,410(6,788)15,622

Hana Bancorp,
Inc.(*1)

276,690

253,592

23,098

10,817(10,121)

1,734(8,387)

HIS (*4)

27,713

4,413

23,300----Subsidiaries of HFI:
Hana the First Private
Equity Fund (*1)

Korea

Hana Asia Limited (*1)

Hong Kong

Hana Power Limited
Liability Company (*1)

Private equity fund

-

48.9

December 31

Advisory services for securities--

December 31

Korea

Private equity fund-

0.9

December 31

Hana Daol Land Chip
Heungdeok Real Estate
Private Fund 35 (*1)

Korea

Investment trust

-

100.0

December 31

KoFC Hana-Dongbu
Frontier Champ 2010
No. 6 Private Equity
Fund (*1)

Korea

Hana Global Investment
Consulting Co., Ltd. (*1)

China

Hana Land Chip Houston
Real Estate
Private Fund 59 (*1)

Korea

Private equity fundInvestment consulting

Investment trust

-

-

-

29.2

100.0

100.0

December 31

December 31

December 31

Subsidiaries of Hana theFirst Private Equity Fund:

December 31, 2014

Hana Bank (*1)

AssetsLiabilities

EquityRevenue

Net income(loss)

Other
Comprehensive
comprehensive
income (lossincome (loss)\ 172,455,354\ 159,695,785\ 12,759,569\ 14,378,839\ 856,419\ 182,325\ 1,038,744

KEB (*1)

112,339,636

103,312,956

9,026,680

9,976,423

376,394(37,769)

338,625

H&DS (*1)

15,293,071

13,655,378

1,637,693

2,084,675

96,327(13,004)

83,323

KEB Hana Card (*1)(*3)

7,233,659

5,907,010

1,326,649

1,069,161

5,090(4,242)

848

Hana Capital (*1)

3,870,668

3,558,993

311,675

307,91050,36839

50,407

Hana Asset Trust (*1)

112,013

10,326

101,687

32,848

11,197(476)

10,721

Hana I&S

131,607

25,791

105,816

93,512

2,261

(668)

1,593

4,428

1,007

3,421

9,900

70

(164)

(94)

HIF

Radian 1 SPC Co., Ltd

Korea

SPC

60,000,020

100.0

December 31

Hana Savings Bank

1,066,787

907,383

159,404

78,179

11,161866

12,027

Warden 1 SPC Ltd.

Korea

SPC

1,001,340,000

100.0

December 31

Hana Life Insurance

3,376,553

3,124,967

251,586

563,125

2,875

30,59033,465

298,040

266,582

31,458

10,959(14,472)

1,387(13,085)

Subsidiaries of KEB Hana
Card:
Special money intrust (*2)

Hana Bancorp,
Inc.(*1)
Korea

Special money intrust--

December 31

Korea

Asset management

2,000,000

100.0

December 31

Subsidiaries of Hana Asset
Trust:
Hana Asset Management
Co., Ltd.

(*4) HIS’s net income for the year ended December 31, 2015 is included in KEB Hana Bank’s comprehensive income because HIS has become a subsidiary of HFG from that of KEB Hana Bank.

Subsidiaries of Hana
Life Insurance:
Hana Land Chip Real
Estate Private Equity
Fund 68 (*1)

ReasonIncluded in scope of consolidation:
Korea

Investment trust

-

100.0

December 31

BNB Hana Bank, N.A

U.S

Banking

500,100

100.0

December 31

BNB Statutory trust I

U.S

SPC

155,000

100.0

December 31

Subsidiary of BNB Hana
Bank, N.A:
U.S

SPC

-

-

December 31(*1) The Group did not present number of investment shares since the company did not issue shares.
(*2) Special money intrust accounts consist of many accounts, but the number of accounts is not recorded.
(*3) The Group considered the treasury stock owned by PT Bank KEB Hana when assessing whether or not the Group has significant influence on PT Bank KEB Hana owned by KEB Hana Bank,a subsidiary of HFG.

114

Changes in scope of consolidation for the year ended December 31, 2015 are as follows:
Name of subsidiaries

Subsidiaries of Hana
Bancorp, Inc.:BNB Funding Corp. (*1)(*1) Consolidated financial information including subsidiaries(*2) Hana Bank’s net income for the period ended August 31, 2015 is included.
(*3) Hana SK Card’s profit or loss for the current year is included.

KEBS Third Securitization Co., Ltd.

Included due to the new investments

HB Rainbow LLC

Included due to the new investments

KEBT First Securitization Specialty Co., Ltd.

Included due to the new investments

Hongdae Picasso Co., Ltd.

Included due to the new investments

KEB The Loft Co., Ltd.

Included due to the new investments

HFS First Securitization Specialty Co., Ltd.

Included due to the new investments

HANAMIRAEASSET Third Securitization
Specialty Co., Ltd.

Included due to the new investments

Hana Land Chip Real Estate Private Equity Fund 68

Included due to the new investments(Continued on next page)115

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

Reason1.2.5 Hana Asset Trust

Shinseung Building Inc.

Included due to the new investments

Echo Asset Management Company Inc.

Included due to the new investments

Hana Asset Trust was incorporated on June 15, 1999 for the purpose of conducting research and analysis of regional and local developments. On
February 27, 2004, Hana Asset Trust changed its primary business to a real estate investment trust company, pursuant to the Trust Business Act.
The Company acquired 58% ownership of Hana Daol Trust (formerly Daol Trust Co., Ltd.) and incorporated Hana Daol Trust as its subsidiaryas at March 10, 2010. The Company additionally acquired 7% ownership of Hana Daol Trust as at December 30, 2011, and purchased residualinterest in Hana Daol Trust for the year ended December 31, 2013 and incorporated Hana Asset Trust (formerly Hana Daol Trust) as its wholly
owned subsidiary as at December 31, 2013.

Name of subsidiaries

Hanastone First Inc.
HFT Second Securitization Specialty Co., Ltd.

Included due to the new investments

Hanastone Second Inc.

Included due to the new investments

HHM First Co., Ltd.

Included due to the new investments

Hanastone Third Inc.

Included due to the new investments

Excluded from scope of consolidation:
Hana CSP Co., Ltd

Excluded due to the liquidation

KEB VERITAS First Securitization Co., Ltd.

Excluded due to the disposal

Athene 1st Co., Ltd.

Excluded due to the liquidation

Athene 2nd Co., Ltd.

Excluded due to the liquidation

Saenggakdaero T 17th Securitization Specialty Co., Ltd.

Excluded due to the liquidation

Hyundai Trust PEF Invest 15 [Bond]

Excluded due to the disposal

UBS Hana Power Private Investment Trust 20 [Bond]

Excluded due to the disposal

Hana Capital Special money intrust

Excluded due to the disposal

HFI Special money intrust

Excluded due to the disposal

KEB(Australia) Holdings Ltd.

Excluded due to the liquidation

KEB Australia Ltd.

Excluded due to the liquidation

Hana Bank (formerly Hana Bank)

Merged with KEB

Coverbill LLC

Excluded due to the liquidation

1.2.1 KEB Hana Bank (formerly KEB)
KEB was established on January 30, 1967, as a government-invested bank to engage in foreign exchange and trade finance business under
the Korea Exchange Bank Act proclaimed on July 28, 1966. On December 30, 1989, the Korea Exchange Bank Act was repealed and KEB wasconverted into a corporation under the Commercial Code of the Republic of Korea. On April 4, 1994, KEB was listed on the Korean Stock
Exchange. The integration between KEB and Korea Exchange Bank Credit Service Co., Ltd. was finalized on February 28, 2004. KEB primarily
provides commercial banking services, trust banking services, foreign exchange, merchant banking business through the integration with Korea
International Merchant Bank, a domestic subsidiary of the Bank, and other related operations as permitted under the Banking Act, the CapitalMarket and the Financial Investment Business Act and other relevant laws and regulations in the Republic of Korea. As at Febrary 9, 2012, theCompany purchased 57.27% interest in KEB, which gives it control of KEB. On March 15, 2013, the Company’s BoD approved a share swap
contract to acquire a 100 percent stake of KEB. Pursuant ot the contract, KEB was incorporated into the Company’s wholly owned subsidiary as
at April 5, 2013. As at September 1, 2014, Hana Card (formerly KEB Card) was spun off from the credit card business unit of KEB. KEB mergedwith Hana Bank and changed its name to KEB Hana Bank on September 1, 2015.

1.2.2 Hana Financial Investment Co., Ltd. (formerly H&DS)
Hana Financial Investment Co., Ltd. (HFI) was incorporated on January 18, 1977 pursuant to the Security Investment Trust Act of the Republic ofKorea for the purpose of providing a wide range of security investment trust services for its customers. H&DS combined with Hana IB (formerly
Hana Securities Co., Ltd.) as a business combination under common control (wholly-owned by HFG) on December 1, 2008, and changed its
name to HFI on September 3, 2015.

1.2.3 KEB Hana Card
Hana SK Card was merged into Korea Exchange Bank Credit Service Co., Ltd. (formerly KEB Card) on December 1, 2014 and KEB Card changed
its name to KEB Hana Card. The common shares were exchanged at a ratio of 1 common share of Hana SK Card for 1.1731316 common sharesof KEB Card.

1.2.4 Hana Capital
Hana Capital(formerly Kolon Capital Co., Ltd.) was incorporated on February 13, 1987 and changed its name to Hana Capital on April 8, 2005.
Hana Capital obtained a license to engage in the installment financing business on January 9, 1996 in accordance with the Credit Card BusinessAct of the Republic of Korea and was registered as an installment financing company in accordance with the Credit-Specialized Financial
Business Act of the Republic of Korea on January 16, 1998 to engage in leasing, installment financing and corporate and consumer loan business.
The Company acquired a 50.13% ownership of Hana Capital through a stock swap transaction with Hana Bank on April 27, 2007.
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1.2.6 Hana I&S
Hana I&S was incorporated on August 30, 1990 pursuant to the laws of the Republic of Korea for the purpose of developing and maintaining
software used in the financial service industry.

1.2.7 HIF
HIF (formerly Korea Investment & Economy Research Inc.) was incorporated on July 3, 1990 pursuant to the laws of the Republic of Korea for the
purpose of engaging in research and analysis of domestic and global economies, various industry sectors, including the financial industry, andsales of such research findings, and changed its name to HIF on January, 2005.

1.2.8 Hana Savings Bank
Hana Savings Bank was incorporated on February 8, 2012 pursuant to the Depositor Protection Act of the Republic of Korea for the purpose ofengaging in the credit business as permitted by Financial Services Commission and the Company made a purchase and assumption agreementwith Korea Deposit Insurance Corporation. In accordance to the agreement, Hana Savings Bank commenced its business after purchasing
assets and assuming liabilities from Ace Savings Bank and Jeil-Ⅱ Savings Bank on February 17, 2012. On September 5, 2012, Hana Savings Bank
purchased assets and assumed liabilities from Korea Mutual Savings Bank in accordance to the purchase and assumption agreement with Korea
Deposit Insurance Corporation after the approval of the BoD held on August 21, 2012.

1.2.9 Hana Life Insurance
Hana Life Insurance Co., Ltd (the Hana Life Insurance) was incorporated on November 25, 1991 pursuant to the laws of the Republic of Korea
after getting permission of foreign investment to engage in the life insurance business from Ministry of Strategy and Finance. The namechanged from France Life Insurance Co., Ltd. to Hana Life Insurance Co., Ltd. on March 21, 2003. The Company acquired 100% ownershipof Hana Life Insurance Co., Ltd. through acquisition of Hana Bank’s equities on August 10, 2007 and the Company subsequently sold its 50%
ownership minus 1 share of Hana Life Insurance on January 28, 2008 to the HSBC Group (HSBC Insurance (Asia-Pacific) Holding Ltd.). As a result,
Hana Life Insurance became joint venture and changed its name to Hana HSBC Insurance. The Company re-acquired the sold ownership of Hana
HSBC Insurance after the Company’s BoD approved a share purchase contract to acquire a 50 percent minus 1 share of Hana HSBC Insurance on
April 26, 2013. Then, it changed its name to Hana Life Insurance on May 10, 2013.

1.2.10 Hana Bancorp, Inc.
Hana Bancorp, Inc. (formerly BNB Financial Service Corporation) was incorporated on April 8, 1988 to engage in the bank business. The
Company acquired 52.29% ownership of BNB Financial Service Corporation and incorporated Hana Bancorp, Inc. as its subsidiaries as at October30, 2013.

1.2.11 Hana Investors Services Co., Ltd. (formerly KEB Fund Services)
Hana Investors Sevices Co., Ltd. (HIS) was established on April 1, 2003 to provide trust services for securities companies and general services
including accounting and trust services for banks, pension funds and other companies under the Capital Market and Financial Investment
Business Act (formerly Indirect Investment Asset Management Business Act). The Company acquired 100% ownership of HIS from Hana Bank on
December 29, 2015.

1.2.12 Special money intrust
In accordance with the KIFRS 1110 Consolidated Financial Statements, the Company consolidated the special money intrust because theCompany is exposed, or has rights, to variable returns from its involvement with the private equity investment vehicles and has the ability toaffect those returns through its power over the private equity investment vehicles.
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1.2.13 Subsidiaries of KEB Hana Bank

1.2.13.9 KEB NY Financial Corp. (NYFinCo)

1.2.13.1 Hana F&I, Inc. (formerly KEB F&I Inc.)

NYFinCo was established in New York, USA on April 8, 2004 to provide financial services to Korean companies and residents in New York and thesurrounding area.

Hana F&I, Inc. (Hana F&I) was established on September 11, 1989, to engage in equipment rental and other relevant businesses under theSpecialized Credit Financial Business Act (formerly Equipment Rental Business Act) and was listed on the Korea Securities Dealers AutomatedQuotation (KOSDAQ) on January 15, 1995. As HFG acquired KEB and its subsidiaries including Hana F&I, KEB is restricted to control a company
which runs the specialized credit financial business in accordance with the Financial Holding Companies Act Article 19 as on and after January
31, 2014. On October 17, 2013, Hana F&I’s BoD approved to change business field to investment in asset backed securities and management ofasset securitization firm in Asset-Backed Securitization Act. On September 30, 2015, Hana F&I changed its name to Hana F&I, Inc. resulting fromthe integration of Hana Bank and KEB.

1.2.13.10 KEB LA Financial Corp. (LAFinCo)
LAFinCo was established in Los Angeles, USA on July 2, 2009 to provide financial services to Korean companies and residents in Los Angeles andthe surrounding area.

1.2.13.11 KEB USA Int’l Corp. (USAI)USAI was incorporated on May 3, 2004 to engage in the foreign exchange business.

1.2.13.2 Hana Futures Co., Ltd. (formerly KEB Futures Co., Ltd. (KEBF))
KEBF was incorporated on September 24, 1997 as an integrated futures broker of KEB. In 1998, KEBF was granted a futures trading license foroverseas markets and domestic operations from the Ministry of Economy and Finance. KEBF changed its name to KEB Futures Co., Ltd. on March
19, 1999. KEBF changed its name to Hana Futures Co. Ltd. on September 1, 2015 resulting from the integration of Hana Bank and KEB.

1.2.13.12 KEB Asia Finance Limited (KAF)

1.2.13.3 Hana Bank (China) Co., Ltd. (Hana Bank China)

1.2.13.13 KEB Russia

Hana Bank China was incorporated in Beijing to engage in commercial banking, foreign currency exchanges and other related operationsin China on December 14, 2007. On December 24, 2007, KEB Hana Bank took investment in kind through assets and liabilities of branches inShanghai and Syenyang and shares in Qingdao International Bank owned by KEB Hana Bank. The branches and Qingdao International Bank werechanged into the branches of Hana Bank China. Hana Bank China was merged with KEB China and incorporated into a subsidiary of KEB Hana
Bank in December, 2014 since KEB Hana Bank acquired control over Hana Bank China after the integration.

KEB launched a Moscow representative office in 2008 to provide financial information and consulting services for Korean and local companies in
Russia.

1.2.13.4 Hana Micro Finance Ltd.
Hana Micro Finance Ltd., a subsidiary established in Yangon, Myanmar on August 7, 2014, is doing small-loan finance services. The objectiveof the service is to satisfy low incomers' demand for small-loan finance and at the same time to lay the foundation for a retail market withexcellent growth potential. It owns a head office in Yangon.

1.2.13.5 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 andthe surrounding area.

1.2.13.6 Korea Exchange Bank (Deutschland) A.G. (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.

KAF was established on July 2, 2009 to provide finance services for foreign clients, advisory services, finance arrangement and security
investment trust services regarding overseas investment for domestic companies.

1.2.13.14 Hyundai Trust PEF Invest 16 [Bond] and other 3 collective Private investment trust company
In accordance with KIFRS 1110 Consolidated Financial Statements, the Group has consolidated 4 collective private investment trust company
including Hyundai Trust PEF Invest 16 [Bond] because they currently have controlling power to instruct the activities of investees, are exposed toor hold rights to the changeable profits of the investees, and are capable of influencing on the profits of the investees.

1.2.13.15 Special Purpose Entities
In accordance with the KIFRS 1110 Consolidated Financial Statements, the Group consolidated 4 special purpose companies because the Group is
exposed, or has rights, to variable returns from its involvement with the SPEs and has the ability to affect those returns through its power over
the SPEs.

1.2.13.16 Trust Accounts
In accordance with the KIFRS 1110 Consolidated Financial Statements, the Group consolidated trust accounts with a guarantee of principal
repayment or with a guarantee of principal and interest repayment because the Group is exposed, or has rights, to variable returns from its
involvement with the trust accounts and has the ability to affect those returns through its power over the trust accounts.

1.2.14 Subsidiaries of HFI
1.2.13.7 PT. Bank KEB Hana
PT. Bank KEB Hana was established in Jakarta, Indonesia on November 5, 1990 to provide financial services to Korean companies and residents in
Jakarta. In accordance with the regulations of the Bank Indonesia, 2 or more local banks with the same ultimate parent company are prohibitedto operate as an independent entity in Indonesia. Accordingly, PT. Bank KEB Indonesia (KEBI), a subsidiary of the Bank, and PT. Bank Hana, asubsidiary of Hana Bank, have completed a integration process on February 20, 2014 and changed the name to PT. Bank KEB Hana. PT. Bank KEB
Hana incorporated into a subsidiary of KEB on February 28, 2014 since KEB owned the major shares of PT. Bank KEB Hana after the acquisition.

1.2.13.8 Banco KEB do Brasil S. A. (KEBB)KEBB was incorporated on May 21, 1999 to provide finance services for foreign clients, advisory services, finance arrangement and security
investment trust services regarding overseas investment for domestic companies.

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1.2.14.1 Hana the First Private Equity Fund
Hana the First Private Equity Fund (Hana the First PEF) was established on December 22, 2009 as a joint-stock company under the Capital Market
Financial Investment Business Act for the purpose of distributing to the partners of Hana the First PEF the profits generated from participating incontrol, improving financial, business and governance structures of invested companies. Hana the First PEF is owned by KEB Hana Bank (29.97%
ownership) as a limited partner and HFI (18.93% ownership) as a general and management partner.

1.2.14.2 Hana Asia Limited
Hana Asia Limited was incorporated on July 3, 2008 under the Securities and Futures Ordinance to engage in investment trusts. It is going
through the process of liquidation as at December 31, 2015.

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1.2.14.3 Hana Power Limited Liability Company

1.2.17.1 Hana Land Chip Real Estate Private Equity Fund 68

Hana Power Limited Liability Company was incorporated on December 27, 2010 under the Commercial Act to acquire and manage commonshares issued by Commerce & Industry Energy Co., Ltd. and the related rights. Issued capital of Hana Power Limited Liability Company amounts
to \10,000 thousand as at the reporting date. HFI controls Hana Power Limited Liability Company because HFI is exposed, or has rights, tovariable returns from its involvement with Hana Power Limited Liability Company and has the ability to affect those returns through its powerover Hana Power Limited Liability Company based on the facts that the Company obtains benefits from the loans and equity investments andprovides credit enhancements.

Hana Land Chip Real Estate Private Equity Fund 68 was incorporated in accordance with the Financial Investment Services and Capital Markets
Act. It manages a building located in Gangnam-gu for occupancy by subsidiaries of HFG. The collective investment company, an asset
management company, is Hana Asset Management Co., Ltd. and the trustor is NongHyup Bank.

1.2.14.4 Hana Daol Land Chip Heungdeok Real Estate Private Fund 35
Hana Daol Land Chip Heungdeok Real Estate Private Fund 35 was incorporated on September 19, 2011 in accordance with the Financial
Investment Services and Capital Markets Act and wholly owned by HFI. It manages Knowledge Industrial Center (apartment-style factory),
Heungdeok IT Valley that was built in Heungdeok housing site development district G1 block. The collective investment company, an asset
management company, is Hana Asset Management Co., Ltd. and the trustor is National Agricultural Cooperative Federation.

1.2.14.5 KoFC Hana-Dongbu Frontier Champ 2010 No. 6 Private Equity Fund
KoFC Hana-Dongbu Frontier Champ 2010 No. 6 Private Equity Fund was incorporated on November 22, 2010 as a joint-stock company under
the Capital Market Financial Investment Business Act for the purpose of distributing to the partners of KoFC Hana-Dongbu Frontier Champ2010 No. 6 Private Equity Fund the profits generated from participating in control, improving financial, business and governance structures ofinvested companies.

1.2.14.6 Hana Global Investment Consulting Co., Ltd.
Hana Global Investment Consulting Co., Ltd. was incorporated in Beijing on October 14, 2011 and engages in advisory services on issuing bonds,
listing China companies on the Korean stock market, cross-border M&A transactions and others.

1.2.14.7 Hana Land Chip Houston Real Estate Private Fund 59
Hana Land Chief Houston Private Equity Real Estate Investment Trust (REIT) 59, which was established by the Capital Markets and Financial
Investment Services Act on October 30, 2014, manages common stocks of FG US Holdings 2 LLC that was established to acquire preferred stocksof 3000Post Oak Blvd. in Houston, the USA. The collective investment company, or an asset management company, is Hana Asset Management
Co., Ltd. and the trustor is National Agricultural Cooperative Federation.

1.2.15 Subsidiaries of KEB Hana Card

1.3 The financial support to a consolidated structured entity
Nature and reason of the contractual arrangements for providing the financial support to a consolidated structured entity as at December 31,
2015 are as follows:
EntityThe Characteristics and Purposes

The Group offers principal conservation commitment to trust accounts.
Trust accounts with guarantee of the repayment
The Group is required to conserve the deficit amount in case the trust accountof principal and interest
stands below the principal as a result of the operation.

Intention
Credit risk mitigation on
financial management oftrust accountSevenstar Co., Ltd.

The Group lends \57,000 million to Sevenstar Co., Ltd.

Operating activities

Choong-ang star Co., Ltd.

The Group lends \90,300 million to Choong-ang star Co., Ltd.

Operating activities

HB Rainbow LLC

The Group lends \14,300 million to HB Rainbow LLC.

Operating activities

KEBW First Securitization Specialty Co., Ltd

The Group purchased the unsubordinated securities and subordinated securities
issued by KEBW First Securitization Specialty Co., Ltd. in the amount of ￦34,700
million, respectively.

Operating activities

KEBS First Securitization Co., Ltd.

The Group underwrote ￦21,800 million of senior bonds issued by KEBS First
Securitization Co., Ltd.

Operating activities

KEBS Second Securitization Co., Ltd

The Group underwrote ￦18,300 million of senior bonds issued by KEBS Second
Securitization Co., Ltd.

Operating activities

KEB Pepper First Securitization Co., Ltd.

The Group underwrote ￦4,900 million of senior bonds and ￦3,300 million ofsubordinated bonds issued by KEB Pepper First Securitization Co., Ltd.

Operating activities

KEBI First Securitization Co., Ltd.

The Group underwrote ￦40,700 million of senior bonds and ￦40,700 million ofsubordinated bonds issued by KEBI First Securitization Co., Ltd.

Operating activities

KEBBS First Securitization Co., Ltd.

The Group underwrote ￦21,700 million of senior bonds issued by KEBBS First
Securitization Co., Ltd.

Operating activities

KEBS Third Securitization Co., Ltd.

The Group underwrote ￦21,614 million of subordinated bonds issued by KEBS
Third Securitization Co., Ltd.

Operating activities

KEBT First Securitization Specialty Co., Ltd.

The Group underwrote ￦14,220 million of bonds issued by KEBT First Securitization
Specialty Co., Ltd.

Operating activities

Hongdae Picasso Co., Ltd.

The Group underwrote ￦15,860 million of bonds issued by Hongdae Picasso Co., Ltd.

Operating activities

KEB The Loft Co., Ltd.

The Group underwrote ￦18,000 million of bonds issued by KEB The Loft Co., Ltd.

Operating activities

KEB VERITAS Second Securitization Co., Ltd.

The Group underwrote ￦25,400 million bonds issued by KEB VERITAS Second
Securitization Co., Ltd.

Operating activities

HFS First Securitization Specialty Co., Ltd.

The Group underwrote ￦29,700 million of senior bonds and ￦21,293 million ofsubordinated bonds issued by HFS First Securitization Specialty Co., Ltd.

Operating activities

HANAMIRAEASSET Third Securitization Specialty
Co., Ltd.

The Group underwrote ￦7,900 million of bonds issued by HANAMIRAEASSET Third
Securitization Specialty Co., Ltd.

Operating activities

Shinseung Building Inc.

The Group underwrote ￦66,600 million of bonds issued by Shinseung Building Inc.

Operating activities

1.2.15.1 Special money intrust

Echo Asset Management Company Inc.

The Group underwrote tranche 1 bonds of ￦4,000 million and tranche 2 bonds of￦500 million issued by Echo Asset Management Company Inc.

Operating activities

In accordance with the KIFRS 1110 Consolidated Financial Statements, the Group consolidated special money intrust because the Group is
exposed, or has rights, to variable returns from its involvement with the private equity investment vehicles and has the ability to affect those
returns through its power over the private equity investment vehicles.

Hanastone First Inc.

The Group underwrote ￦17,500 million of bonds issued by Hanastone First Inc.

Operating activities

HFT Second Securitization Specialty Co., Ltd.

The Group underwrote \21,800 million of the unsubordinated bonds and \14,500
million of the subordinated bonds issued by HFT Second Securitization Specialty
Co., Ltd.

Operating activities

Hanastone Second Inc.

The Group underwrote ￦6,800 million of bonds issued by Hanastone Second Inc.

Operating activities

HHM First Co., Ltd

The Group underwrote ￦15,600 million of senior bonds issued by HHM First Co.,Ltd

Operating activities

1.2.16 Subsidiaries of Hana Asset Trust

Hanastone Third Inc.

1.2.16.1 Hana Asset Management Co., Ltd.
Hana Asset Management Co., Ltd. (Hana Asset Management) was incorporated on April 14, 2006 for the purpose of providing asset
management and investment advisory services, pursuant to the Capital Market Financial Investment Business Act. Hana Asset Managementchanges its name from Hana Daol Fund Management to Hana Asset Management on December 12, 2013.

Hana the First PEF
KoFC Hana-Dongbu FrontierChamp 2010 No. 6 Private Equity FundThe Group underwrote ￦14,000 million of bonds issued by Hanastone Third Inc.
The Group is obligated to meet capital call request by the General Partner
within the limit of capital commitment (\317,000 million) and the accumulated
investment in capital amounts to \312,900 million as at December 31, 2015.
The Group is obligated to meet capital call request by the General Partner
within the limit of capital commitment (\120,000 million) and the accumulated
investment in capital amounts to \78,000 million as at December 31, 2015.

Operating activities
Operating activities

Operating activities

1.2.17 Subsidiaries of Hana Life Insurance

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2. Unconsolidated structured entities

3. Summary of significant accounting policies and Basis of preparation

Details of the nature of the Group’s interests in unconsolidated structured entities as at December 31, 2015 and 2014 are as follows (Korean won
in millions):
Total assets
Classification

PurposeFinancing arrangement

December 31, 2015

December 31, 2014

Special purpose
company

Financing throughasset liquidation and securitization

Issuing ABL/ABCP andothers\ 9,300,435\ 12,604,058

Real estate financeOperation for realestate (including SOC) development

Investment and borrowing

101,767,902

33,989,439

Shipping finance andprimary market finance

Financing to purchaseships, NPL and ownership

Investment and borrowing

44,910,591

26,279,991

Investment fundManaging investment fund and trust

Issuing beneficiary
certificates

104,095,098

42,635,266

3.1 Basis of preparation
The Group prepares statutory consolidated financial statements in the Korean language for the year ended December 31, 2015, which havebeen prepared in accordance with Korea International Financial Reporting Standards (KIFRS) enacted by the Act on External Audit of Stock
Companies.
The accompanying consolidated financial statements have been translated into English from the Korean language financial statements. In theevent of any differences in interpreting the financial statements or the independent auditors’ report thereon, the Korean version, which is used
for regulatory reporting purposes, shall prevail.

3.2 Principles of consolidation
Details of the Company’s maximum exposure to loss from its interests in unconsolidated structured entities as at December 31, 2015 and 2014
are as follows (Korean won in millions):
December 31, 2015
Classification

3.2.1 Subsidiaries

Special purpose
company

Real estate finance

Shipping finance andprimary market finance

Investment fund

Assets:\ 1,001,121\ 587,041\ 1,324,084\ 346,659

Securities (B)46,50980,221-

6,981,501

Derivatives (C)

614

5,600

25,18522,740

2,643

2,118

4,123

1,048

-

-

3,921

7,505

Loans receivable (A)Others (D)Liabilities:
Derivatives
Provision

386

6

72

-

Net asset

1,050,501

674,974

1,349,399

7,344,443

1,050,887

674,980

1,353,392

7,351,948

882,564

10,983132,023

644

Credit and other commitment

December 31, 2014
Classification

Special purpose
company

Real estate finance

Shipping finance andprimary market finance

Investment fund

Assets:Loans receivable (A)Subsidiaries are the companies controlled by the Group, and the Group has rights to determine the financial and operational policies of thesubsidiaries. Generally, it has at least 50% voting rights, and special purpose vehicles are included. When the Group evaluates whether acompany falls under a subsidiary, it considers the existence of an exercisable or convertible potential voting right and its effect. When the Group
controls a subsidiary, the subsidiary is subject to consolidation; when the Group loses the control, it is eliminated from the consolidation.

3.2.2 Offsetting investment account against equity account
The investment accounts of the Group and the corresponding equity accounts of the subsidiaries were offset and eliminated as at the date ofacquiring control.

3.2.3 Difference between net assets of an investee and acquisition costs

Maximum exposure to loss
Financial assets (A+B+C+D)

The significant accounting policies that the Group adopts in preparing the consolidated financial statements are as follows.

When offsetting the investment of the parent company and the equity of a subsidiary, the Group applies an acquisition method in accounting
treatment. When applying the acquisition method, if the purchase price to acquire shares of the subsidiary’s assets and liabilities at fair value
exceeds the investment as at the date of acquiring control, the excess is recognized as goodwill and recorded as an intangible asset, and theGroup tests goodwill for impairment annually at the end of reporting period.
If the parent acquires additional shares of the subsidiary after acquiring the control of the subsidiary, the investment of the parent company
and the equity of the subsidiary are offset and eliminated as at the initial acquisition date: at this time, if the investment and the corresponding
equity are not equal, the difference is recorded as consolidated capital surplus (or consolidated capital adjustments).

\ 2,143,051\ 2,191,817\ 2,491,357\ 1,177,429

Securities (B)64,898104,397-

1,619,255

Derivatives (C)12,349

5,260

262

7,576

3.2.4 Elimination of related party transactions and unrealized gains or losses

Others (D)24,002

7,558

8,974

4,305

The Group offset and eliminated intercompany accounts receivable-payable, and intercompany revenues-expenses, and interest incomes or
expenses arising from intercompany loans by applying an interest rate for the current term.

Liabilities:
Derivatives

-

-

485

5,541

Provision

415

208

112

1,093

Others

14,391

3,186

-

-

Net asset

2,229,494

2,305,638

2,499,996

2,801,931

Financial assets (A+B+C+D)

2,244,300

2,309,032

2,500,593

2,808,565

Credit and other commitment

2,276,084

105,061

284,822640

Maximum exposure to loss

122

3.2.5 Application of equity method
According to the sources of changes in net assets of an investee under equity method, the Group differently records the changes in accounting
treatments. If the net assets of an investee are changed due to a net profit or loss for the current term, the change is recorded as an investment
income or loss under equity method; if the net assets are changed due to an increase or decrease in retained earnings carried over from theprevious term, the change is recorded as a positive or negative change in retained earnings under equity method; if the net assets are changed
due to an increase or decrease in equity other than the net profit or loss for the current term or the change in retained earnings carried overfrom the previous term, the change is recorded as a positive or negative change in equity under equity method.

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3.2.6 Special reserve of trust account

3.3 Foreign exchange

In the trusts with stipulations of preserving principals and interests, which are consolidated, special reserves accumulated in accordance with theterms and conditions of the trusts are adjusted in the consolidated retained earnings in accordance with the detailed enforcement regulations
on banking supervision.

3.3.1 Functional currency

3.2.7 Non-controlling interests
The Group recognizes equity in a subsidiary not attributable to a parent as non-controlling interests. The Group also attributes total
comprehensive income to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. the Group
presents the deficit balance as a negative number in equity.

3.2.8 Business combination

3.2.8.1 Business combination
Acquisition method is applied to business combinations except a business combination between entities or business under the control of thesame ultimate parent company. The Group recognizes identifiable assets acquired and liabilities taken over at fair value on the acquisition date
except the following cases.
- Lease contracts: classified by the terms and conditions of contracts on the date of contract- Contingent liabilities: recognized as the liabilities that can be reliably measured as current obligations- Deferred tax assets and liabilities: recognized and measured in accordance with KIFRS 1012 corporate income tax.
- Employee benefits: recognized and measured in accordance with KIFRS 1019 employee benefits- Compensable assets: recognized and measured in accordance with standards applicable to compensable items- Reacquired rights: measured in accordance with special regulations- Stock options: stock option related debt or equity securities are measured in accordance with KIFRS 1102 stock options- Assets held-for-sale: measured at net fair value in accordance with KIFRS 1105 non-current assets held-for-sale and discontinued operation
In business combination, consideration for transfer is measured at fair value, which is a sum of the fair values of assets transferred by theGroup, liabilities that the Group bears for the previous owner of a company being acquired, and equity instruments issued by the Group on
the acquisition date. However, the stock options included in the consideration for transfer, which the acquirer grants to exchange for thecompensations that are held by the employees of the acquiree, are not measured at fair value but evaluated in the way described above.
The acquisition-related costs are costs the acquirer has incurred to achieve effects of business combination. Those costs include brokerage fees
– in other words, advisory, legal, accounting, valuation and other professional or consulting fees – general administrative costs including costs ofmaintaining an internal acquisitions department, and costs to register and issue debt securities and equity securities. Except the costs of issuingdebt and equity securities under KIFRS 1032 and KIFRS 1039, the acquirer recognizes acquisition related costs as expenses in the periods in which
the costs are incurred and the services are received.

When the Group prepares the financial statements, it measures and recognizes all transactions according to the functional currency. The
functional currency is the currency of the primary economic environment in which the entity operates and entities with different functional
currencies measures and recognizes in its own functional currencies.

3.3.2 Translation of foreign currency transactions and balances at the end of the reporting period
Transactions in foreign currencies are initially recorded at the functional currency rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate at the reporting date and the exchange
difference is recognized as profit or loss. Non–monetary items measured at fair value in a foreign currency are translated at the exchange
rates at the end of reporting date. When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange
component of that gain or loss is recognized in other comprehensive income. Conversely, when a gain or loss on a non-monetary item isrecognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss. Non–monetary items that are measured
in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.
The Group may have a monetary item that is receivable from or payable to a foreign operation. An item for which settlement is neither
planned nor likely to occur in the foreseeable future is, in substance, a part of the entity's net investment in that foreign operation. Exchange
differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation are recognized initially inother comprehensive income and reclassified from equity to profit or loss on disposal of the net investment.

3.3.3 Translation to the presentation currency
The Group translates the results and financial position of overseas branches and subsidiaries recorded on its own functional currencies into thepresentation currency of the Group, Korean Won (KRW). The Group translates (i) assets and liabilities for each statement of financial positionat the closing rate at the date of that statement of financial position and (ii) income and expenses for each statement presenting profit or loss
and other comprehensive income at exchange rates at the dates of the transactions or an average rate of the period. The Group recognizes all
resulting exchange differences as other comprehensive income.

3.4 Cash and cash equivalents
Cash and cash equivalent comprise of cash at banks and on hand and short-term demand deposits. The purpose of cash and cash equivalents
are to make short-term investments and to meet short-term cash demands. Cash equivalents are short-term, highly liquid investments that arereadily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

3.5. Classification and measurement of financial assets
Financial assets within the scope of KIFRS 1039 are classified as financial assets at fair value through profit or loss, loans and receivables, held-tomaturity investments or available-for-sale financial assets.

3.2.8.2 Goodwill or gain on bargain purchase
The Group recognizes goodwill as at the acquisition date measured as the excess of (a) the aggregate of (i) the consideration transferredmeasured which generally requires acquisition-date fair value and (ii) the amount of any non-controlling interest in the acquire over (b) the netof the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If (b) exceeds (a), the Group reassess whether it
has correctly identified all of the assets acquired and all of the liabilities assumed. After reassessments, the Group recognizes the resulting gain in
profit or loss (a gain on bargain purchase) on the acquisition date
Additional acquisition of non-controlling interest is taken into account as transactions between the shareholders, and the resulting goodwill, etc.
is not recognized.

The Group recognizes and derecognizes a regular way purchase or sale of financial assets, as applicable, using trade date accounting or
settlement date accounting. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms requiredelivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.
All financial assets are measured initially at fair value plus, in the case of financial assets not at fair value through profit or loss, transaction costs
that are directly attributable to the acquisition.

3.5.1 Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held-for-trading and financial assets designated upon initialrecognition at fair value through profit or loss. Financial assets are classified as held-for-trading if they are acquired for the purpose of sellingor repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held-for-trading unless they
are designated as effective hedging instruments or financial guarantee contracts. After initial recognition, the Group subsequently measuresfinancial assets at fair value through profit or loss at fair value and recognizes related gain or loss on valuation, interest income and dividends as
profit or loss.

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWThe Group may only designate financial assets as financial assets at fair value through profit or loss upon initial recognition when the following
criteria are met.
- The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities
or recognizing gains or losses on them on a different basis.
- The assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated ona fair value basis, in accordance with a documented risk management or investment strategy.
- The financial instrument contains one or more embedded derivatives which significantly modify the cash flows that otherwise would be requiredby the contract.

3.5.2 Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as loans
and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. A gain or loss arising from a change inthe fair value of an available-for-sale financial asset is recognized as other comprehensive income, except for impairment losses and foreignexchange gains and losses. Investments in equity instruments that do not have a quoted price in an active market and whose fair value cannot
be reliably measured are measured at cost. When an available-for-sale financial asset is derecognized or impaired, the cumulative gain or loss
previously recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment. Dividends on
an available-for-sale equity instrument are recognized in profit or loss when the Group's right to receive payment is established.

HANA FINANCIAL GROUP ANNUAL REPORT 2015

3.6.1 Fair value hedges
For fair value hedge accounting, the Group recognizes a gain or a loss on valuation of the hedging instrument and the hedged item as profit
or loss for offsetting the changes in the fair value of the hedging instrument and the hedged item. The Group discontinues prospectively thehedge accounting if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from the change in the fair value ofthe hedged financial instrument for which the effective interest method is used is amortized to profit or loss fully by maturity of the hedged
financial instrument.

3.6.2 Cash flow hedges
For cash flow hedge accounting, the Group recognizes the effective portion of the gain or loss on the hedging instrument directly as othercomprehensive income for offsetting the exposure to changes in cash flows of the hedging instrument and the hedged item attributable to thehedged risk. The Group reclassified from equity to profit or loss the associated gain or loss that was recognized in other comprehensive incomein the same period during which the hedged forecast cash flows affect profit or loss. The Group discontinues prospectively the cash flow hedge
accounting if the hedge no longer meets the criteria for hedge accounting.

3.6.3 Embedded derivatives
An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract—with the effectthat some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. The Group separates an embedded
derivative from the host contract and accounted for as a derivative only if the requirements of separation are met.

3.5.3 Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as heldto maturity when the Group has the positive intention and ability to hold it to maturity. After initial recognition, held-to-maturity investments
are measured at amortized cost using the effective interest method, less accumulated impairment. The Group recognizes the unwinding of the
discount relating to effective interest amortization as interest income or expense in the statements of comprehensive income.

3.6.4 ‘Day 1’ profit or loss

3.5.4 Loans and receivables

3.6.5 Credit risk valuation adjustment

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Afterinitial recognition, such financial assets are subsequently measured at amortized cost using the effective interest method, less allowance forbad debt. The Company recognizes the unwinding of the discount relating to effective interest amortization as interest income or expensein the statements of comprehensive income, except for short-term receivables that its difference between par value and amortized cost are
insignificant.

When measuring derivatives at fair value, credit risk valuation adjustment is calculated to reflect the effectiveness of the adjustment for
counterparties.

3.6 Derivative financial instruments and hedge accounting
The Group measures derivative financial instruments at fair value at initial recognition The Group classifies derivative financial instruments
as derivative financial instruments held for trading purpose or hedging instruments. After initial recognition, the Group measures derivative
financial instruments at fair value and gains or loss arising from changes in the fair value as profit or loss, except the following cases. When thederivative financial instruments are previously a designated and effective hedging instrument in a cash flow hedge or net investment hedge nolonger qualifies, the Group recognizes the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge asother comprehensive income.
The Group applies fair value hedge accounting for a hedge of the exposure to changes in fair value of a recognized asset or liability or an
unrecognized firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk
and could affect profit or loss. The Group applies cash flow hedge for a hedge of the exposure to variability in cash flows that is attributable
to a particular risk associated with a recognized asset or liability (such as all or some future interest payments on variable rate debt) or a highly
probable forecast transaction.
The Group formally documents the hedging relationship, Group's risk management objective and strategy for undertaking the hedge, therisk being hedged and how to assess the hedging instrument's effectiveness for applying hedge accounting. The effectiveness of the hedge isthe hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to thehedged risk. The Group assesses the hedge on an ongoing basis and determined actually to have been highly effective throughout the financial
reporting periods for which the hedge was designated and documents the result of assessment.

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In case of derivatives in level 3, whose fair value is determined using data which is not observable from markets, the difference between thetransaction price and fair value at initial recognition (a ‘Day 1’ profit or loss) is deferred and amortized over the life of the associated instrument
using the straight–line method and the amortization is recognized in the statement of comprehensive income.

3.7 Investments in associates and joint ventures
Investments in entities over which the Group has joint control or significant influence (investments in associates and joint ventures) areaccounted for using the equity method. Under the equity method, on initial recognition the Group recognizes investments in associates andjoint ventures cost. Subsequently, the Group adjusts the carrying amount of the investments in associates and joint ventures to recognize theGroup's share of the profit or loss of the investee as profit or loss in the statement of comprehensive income. The Group recognizes the Group’s
share of changes in equity (except for profit or loss of the investee) directly in the related equity account to the statement of financial position.
If the Group’s share of losses of the investee equals or exceeds its interest in the associates and joint ventures, it suspends recognizing its shareof further losses. However, if the Group has other long-term interests in the investee, it continues recognizing its share of further losses to theextent of the carrying amount of such long-term interests. Such items include preference shares and long-term receivables or loans. The Group
resumes the application of the equity method if the Group’s share of income or change in equity of an investee exceeds the Group’s share oflosses accumulated during the period of suspension of the equity method.
On acquisition of the investment, the excess of the cost of the investment over the Group’s share of the net fair value of the investee’s
identifiable assets and liabilities is accounted for as goodwill. The Group does not amortize goodwill relating to an associates or a joint venture
and tests the investment for impairment if there is an indication which the investment is impaired. Further, the Group’s share of any difference
between the net fair value of the investee’s identifiable assets and liabilities, and the net book value of such assets and liabilities is amortizedbased on the investee’s accounting treatments on the related assets and liabilities and charged or credited to the valuation gain or loss on theequity method investments in the statement of comprehensive income
The Group’s share in the investee’s unrealized profits and losses resulting from transactions between the Group and its investee are eliminatedto the extent of the interest in the investee.

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3.8 Impairment of financial assets

HANA FINANCIAL GROUP ANNUAL REPORT 2015

receivables with similar credit risk characteristics. LGD is estimated by applying EIR of a group of loan receivables and reflecting types of
products and collaterals.

3.8.1 Available-for-sale financial assets
When there is any objective evidence that an available-for-sale financial asset is impaired, the cumulative loss that had been recognized in othercomprehensive income reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been
derecognized. The amount of the cumulative loss that is reclassified from equity to profit or loss Iess the difference between the acquisition
cost (net of any principal repayment and amortization) and current fair value, less any impairment loss on that financial asset previously
recognized in profit or loss.
Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available for sale are not reversed throughprofit or loss and the change in the fair value of the equity instrument is recognized as other comprehensive income. If there is objective
evidence that an impairment loss has been incurred on an equity instrument carried at cost, the amount of the impairment loss is measured
as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at thecurrent market rate of return for a similar financial asset. Such impairment losses are not reversed. If, in a subsequent period, the fair value of adebt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment
loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.

3.8.2 Held-to-maturity investments
If there is any objective evidence that a held-to-maturity investment is impaired, the amount of the loss is measured as the difference between
the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest
rate. The amount of the loss is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and thedecrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss isreversed. The reversal is not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the
impairment not been recognized at the date the impairment is reversed.

3.8.3 Loans and receivables
The Group first assesses whether objective evidence of impairment exists individually financial assets that are individually significant. If there
is any objective evidence that a financial asset is impaired, the Group assesses the asset individually for impairment. If the Group determinesthat no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in agroup of financial assets with similar credit risk characteristics and collectively assesses them for impairment. The Group assesses collectively for
financial assets that are not significant.
If there is any objective evidence that an individually assessed loan or receivable is impaired, the amount of the loss is measured as thedifference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that havenot been incurred) discounted at the asset's original effective interest rate.
If an individually assessed financial asset is not expected to recover in future periods and the collection through the disposal of all collateralis complete, the Group writes off both the financial asset and the allowance. If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognizedimpairment is reversed by adjusting an allowance account.
The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variableinterest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The calculation of the present value ofthe estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining
and selling the collateral, whether or not foreclosure is probable.
For a collective assessment of impairment, the Group classifies loans and receivables by similar credit risk characteristics. Such characteristics
include asset type, industry, geographical location, collateral type, past–due status and other relevant factors.
A collective evaluation of impairment is based on incurred loss model. The ratio of allowance for possible loan losses on credit by collective
assessment is the incurred but not reported possibility of default (IBNR PD) times loss given default (LGD). IBNR PD is estimated by applying
Loss Emergence Period (LEP) to Probability of default (PD) regulated by Basel II on the basis of historical loss experience for a group of loan

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3.9 Reclassification of financial assets
The Group reclassifies financial assets in the following circumstances.
(i) Financial assets at fair value through profit or loss may be reclassified out of the fair value through profit or loss category only in rare
circumstances if financial assets are no longer held for the purpose of selling or repurchasing it in the near term. Financial assets that would
have met the definition of loans and receivables (if the financial asset had not been required to be classified as held for trading at initialrecognition) may be reclassified out of the fair value through profit or loss category if the Group has the intention and ability to hold thefinancial asset for the foreseeable future or until maturity.
(ii) A financial asset classified as available for sale that would have met the definition of loans and receivables (if it had not been designated asavailable for sale) may be reclassified out of the available-for-sale category to the loans and receivables category if the Group has theintention and ability to hold the financial asset for the foreseeable future or until maturity.
(iii) If, as a result of a change in intention or ability, it is no longer appropriate to classify an investment as held to maturity, it can be reclassified
as available for sale. If there are sales or reclassification of more than an insignificant amount of held-to-maturity investments, the Group
reclassifies any remaining held-to-maturity investments as available for sale.

3.10 Derecognition of financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when (i) therights to receive cash flows from the asset have expired or, (ii) the Group has transferred substantially all the risks and rewards of the asset.
If the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset,
the Group recognizes the asset and the associated liability to the extent of the Group’s continuing involvement in the asset. If the Group hasretained substantially all the risks and rewards of ownership of the transferred asset, the Group continues to recognize the transferred asset andrecognizes a collateralized borrowing for the consideration received.

3.11 Classification and measurement of financial liabilities
When a financial liability is recognized initially, the Group classifies the liability as financial liability at fair value through profit or loss orborrowings, etc. and measures it at its fair value plus, in the case of a financial liability not at fair value through profit or loss, transaction costs
that are directly attributable to the issue of the financial liability.

3.11.1 Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held-for-trading and financial liabilities designated upon initialrecognition as at fair value through profit or loss. Financial liabilities are classified as held-for-trading if they are acquired for the purpose of
selling in the near term. All financial liabilities including an embedded derivative separated from the host contract are reclassified as financial
liabilities at fair value through profit or loss except for financial liabilities designated as effective hedging instruments or financial guarantee
contracts. After initial recognition, the changes in the fair value of the financial liabilities at fair value through profit or loss and the related
interest expense are recognized as profit or loss.
The Group performs securities lending and borrowing classified to held-for-trading financial liabilities. When the Group borrows securities
from Korea Securities Depository, securities borrowed are managed as memorandum value and when selling them, they are recorded as
securities sold. At closing, the difference in the price securities are sold and the market price prevailing on the closing date is taken into accountas valuation gain or loss on securities sold, and at the time of selling the securities, the difference in book value and the price securities arepurchased is recorded as trading gain or loss on securities sold.

3.11.2 Deposits, borrowings, and debentures
After initial recognition, interest bearing deposits, borrowings and debentures are subsequently measured at amortized cost using the effective
interest rate method. Gains and losses are recognized in the statement of comprehensive income when the liabilities are derecognized as wellas through the EIR method amortization process.
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3.12 Derecognition of financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability
is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, suchan exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in therespective carrying amounts is recognized in the statement of comprehensive income.

3.13 Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is acurrently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset andsettle the liability simultaneously.

3.14 Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amountof the obligation. The provision is used only for expenditures for which the provision was originally recognized. If a present obligation is notprobable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation
cannot be measured with sufficient reliability, the Group discloses the obligation as a contingent liability. If the effect of the time value of money
is material, provisions are measured at present value, the amount of a provision is measured at the present value of the expenditures expected
to be required to settle the obligation.
The Group recognizes a provision for confirmed acceptances and guarantees, unconfirmed acceptances and guarantees, bills endorsed, unused
credit line and cash advance commitments on credit cards by applying credit conversion factor (CCF). The Group measures provisions for suchoff-statement of financial position items in the same way that is applied to collective assessments of loans and receivables.

HANA FINANCIAL GROUP ANNUAL REPORT 2015

Land is not depreciated. Depreciation of other item of property and equipment is calculated using methods listed below to write down the costof property and equipment to their residual values over their estimated useful lives. The depreciation methods and estimated useful lives are as
follows:
Depreciation method

Years

Buildings for business purpose, equipment attached to the building and Construction structures

Straight-line method

5 to 50

Vehicles, furniture and fixtures, leasehold improvements

Straight-line method or Declining balance method

3 to 20

When the carrying amount of an asset exceeds its recoverable amount, the asset is written down to its recoverable amount. The residual valueof and useful life of an asset is reviewed at each financial year end and, if expectations differ from previous estimates, the Group applies change
in estimates. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and thecarrying amount of the asset) is included in non-operating income in the statements of comprehensive income.
Government grants are recognized where there is reasonable assurance that the grant will be received and all attached conditions will becomplied with. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the related
costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognized as income in equal amounts
over the expected useful life of the related asset.

3.18 Investment properties
An item of investment properties is measured at its cost less any accumulated depreciation. The cost of an item of investment properties
includes any costs directly attributable to acquisition of an item. After initial recognition, the Group measures all of its investment properties inaccordance with the cost model in IAS 40.
Land is not depreciated. Depreciation of other item of investment properties is calculated using methods listed below to write down the costof investment properties to their residual values over their estimated useful lives. The depreciation methods and estimated useful lives are as
follows:

3.15 Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs
because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument and ismeasured at fair value on date of initial recognition. After initial recognition, the Group, as an issuer of such a contract, measures it at thehigher of (i) the amount determined in accordance with IAS 37 and (ii) the amount initially recognized less, when appropriate, cumulative
amortization recognized in accordance with IAS 18.

3.16 Bonds purchased under resale agreements and bonds sold under repurchase agreements
Bonds purchased under resale agreements and bonds sold under repurchase agreements are included in loans receivable and borrowings,
respectively, in the accompanying statement of financial position. Interest income and expense from purchase or sale are recognized as interest
income on loan receivables and interest expense on borrowings.

Buildings

Depreciation method

Years

Straight-line method

40 to 50

Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn
from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying
amount of the asset is recognized in the statement of comprehensive income in the period of derecognition. Transfers to, or from, investment
properties are made when, and only when, there is a change in use.
For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the dateof change in use. If owner occupied property becomes an investment property, the Group accounts for such property in accordance with thepolicy stated under property, plant and equipment up to the date of change in use.

3.19 Lease
3.17 Property and equipment
An item of property and equipment is measured at its cost less any accumulated depreciation. The cost of an item of property and equipment
includes any costs directly attributable to acquisition of an item.
Subsequent cost is recognized as an asset if, and only if it is probable that future economic benefits associated with the cost will follow to theGroup and the cost can be measured reliably. The carrying amount of parts that are replaced is derecognized. The Group recognizes otherrepair and maintenance costs as profit or loss for the current period.

The Group classifies a lease as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. Otherwise, a lease isclassified as an operating lease.

3.19.1 Finance lease
The Group measures financial lease receivables at an amount equal to the net investment in the lease Initial direct costs are included in theinitial measurement of the finance lease receivable. Initial direct costs include amounts such as commissions, legal fees and internal costs that are
incremental and directly attributable to negotiating and arranging a lease. Lease payments relating to the period, excluding costs for services,
are applied against the gross investment in the lease to reduce both the principal and the unearned finance income. The finance income iscalculated by using the EIR method on the Group's net investment in the lease contract.

3.19.2 Operating lease
The Group presents operating lease assets in the statements of financial position according to the nature of the assets. Initial direct costs
incurred by lessors in negotiating and arranging the lease contract are added to the carrying amount of the operating lease assets and
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recognized as an expense over the period of the lease contract corresponding to the amount of lease revenues. Depreciation of operating leaseassets is calculated using the same method of other similar assets.

3.20 Intangible assets
An intangible asset is recognized only when its cost can be measured reliably and it is probable that the expected future economic benefits thatare attributable to it will flow to the Group. Intangible assets include industrial right, software, development cost and others.
Amortization of items of intangible assets is calculated using methods listed below to write down the cost of items to their residual values overtheir estimated useful lives. The amortization methods and estimated useful lives are as follows:
Depreciation method
Industrial property, software, system development, trademark rights

Straight-line method

Years
5

Core deposit

Straight-line method

7

Client membership

Straight-line method

10

OthersStraight-line method

1 to 7

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combinationis their fair value as at the date of acquisition in accordance with KIFRS 1103 Business Combinations. Following initial recognition, the carrying
amount of intangible assets with finite useful lives is allocated on a systematic basis over their useful lives. The intangible assets with indefinite
useful lives are not amortized and the Group tests those assets for impairment annually and whenever there is an indication that the intangible
asset may be impaired. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to besupportable.

3.21 Non-current assets held for sale

Changes in the actuarial estimates and actuarial gains and losses between estimates and results are recognized in the period they occur as partof other comprehensive income. The past service cost is recognized immediately.
The Group has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit
expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future
payments is available.

3.24 Share-based payment transactions
The Group grants share options to its employees in the form of share-based payment transactions. For equity-settled share-based paymenttransactions, the Group measures the goods or services received, and the corresponding increase in equity, directly, at the fair value of thegoods or services received, and recognizes the cost as employee benefits expense and other capital adjustment in equity. If the Group cannot
estimate reliably the fair value of the goods or services received, the Group measures their value, and the corresponding increase in equity,
indirectly, by reference to the fair value of the equity instruments granted and recognizes the cost as employee benefits expense and othercapital adjustment in equity. For cash-settled share-based payment transactions, the Group measures the goods or services acquired and theliability incurred at the fair value of the liability. Until the liability is settled, the Group remeasures the fair value of the liability at the end ofeach reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the period. For share-based
payment transactions in which the terms of the arrangement provide the counterparty with a choice of settlement, the Group accounted forthe transactions in accordance with their commercial substance.

3.25 Income tax expenses and deferred tax assets and liabilities
Income taxes comprise of current and deferred taxes. All items related to taxes, other than those recognized directly in equity, are accounted
for in the statement of comprehensive income. Accordingly, items recognized directly in equity and the related taxes are accounted for asother comprehensive income in the consolidated statements of comprehensive income.

The Group classifies a non-current asset or disposal group as held for sale if its carrying amount will be recovered principally through a saletransaction rather than through continuing use. For this to be the case, the asset or disposal group must be available for immediate sale inits present condition and its sale must be highly probable. The asset (or disposal group) must be available for immediate sale in its present
condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable.

Current income tax expenses are computed based on the tax rates and tax laws enacted or substantively enacted in the jurisdictions that theGroup operates in and generates taxable income at the end of the reporting period. If application of related tax law or regulation depends on
the interpretation, the Group measures the current tax liabilities at the amount expected to be paid to the taxation authorities based on its
interpretation and assesses its initial interpretation periodically.

The Group measures a non-current asset (or disposal group) classified as held for sale at the lower of its carrying amount and fair value lesscosts to sell.

Deferred tax is provided on the temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes

3.22 Impairment of non-financial assets
The Group tests the depreciable asset for impairment whenever there is a change of environment or an event that the carrying amount may
not be recoverable. The Group recognizes an excess of the carrying amount over the recoverable amount as an impairment loss. The Groupdefines recoverable amount as the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. For measuring
the impairment of assets, the Group identifies the lowest aggregation of assets that generate largely independent cash inflows (CGU). The
Group assesses reversal of an impairment loss recognized for the non-financial assets other than goodwill at the end of reporting period.

3.23 Retirement benefits
The Group has both defined benefit (DB plan) and defined contribution (DC plan) plans. A defined contribution plan is a pension plan underwhich the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions
if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service rendered in the current and priorperiods. Defined benefit plans are all post-employment benefit plans except for defined contribution plans. A defined benefit plan is a pension
plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors, such asage, years of service and compensation.
The defined benefit liability is the present value of the defined benefit obligation less the fair value of plan assets. The cost of providing benefits
under the defined benefit plan is determined separately using the projected unit credit actuarial valuation method. The present value of thedefined benefit liability is recorded in the same currency as the payment itself and is calculated by discounting the expected future cash flow
and using the interest rate of other reputable companies with similar payment and end of reporting dates.

132

When the initial recognition of an asset or liability in a transaction which is not a business and at the time of the transaction, affects neither
accounting profit nor taxable profit, the Group does not recognize a deferred tax asset or liability. The Group measures deferred tax assets andliabilities at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and taxlaws) that have been enacted or substantively enacted by the end of the reporting period.
The Group recognizes a deferred tax asset for all deductible temporary differences to the extent that it is probable that taxable profit will beavailable against which the deductible temporary difference can be utilized.
The Group recognizes a deferred tax liability for all taxable temporary differences with investments in subsidiaries, except to the extent thatboth of the following conditions are satisfied: (a) the parent is able to control the timing of the reversal of the temporary difference; and (b) it
is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax
liabilities and the deferred taxes relate to the same taxable entity and taxation authority.
The Group offsets deferred assets and liabilities if, and only if (a) the Group has a legally enforceable right to set off current tax assets against
current tax liabilities and, (b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority
on either on (i) the same taxable entity or (ii) different taxable entities which intend either to settle current tax liabilities and assets on a net
basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities
or assets are expected to be settled or recovered.

133

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWThe Company and its wholly owned subsidiaries have adopted a Consolidated Tax Return which is calculated based on the consolidated taxable
income. Under the Consolidated Tax Return, the Group recognizes the current tax liabilities on behalf of its subsidiary and also recognizes accounts
receivable or accounts payable for the amount to be collected from or to be paid to the subsidiary for its share of the consolidated taxation.

HANA FINANCIAL GROUP ANNUAL REPORT 2015

acquisition cost, including transaction costs. Consideration received on the sale or issuance of the Group’s own equity instruments is recognizeddirectly in equity.

3.28 Per share amounts
3.26 Insurance contracts
Hana Life Insurance’s significant accounting policies relating to insurance contracts are as follows.

Basic and diluted earnings per share are computed by dividing net income by the weighted-average number of shares of common stock
outstanding during the year.

3.26.1 Reinsurance assets

3.29 Accounting basis for trust accounts

The Group does not offset the reinsurance assets against the related reinsurance liabilities. If a reinsurance asset is impaired, the Group reduces
its carrying amount accordingly and recognizes that impairment loss in profit or loss.

The Group separates trust properties from proprietary properties in accordance with the Supervisory Regulations on Financial Investment
Business. The Group recognizes funds lent or borrowed to trust accounts as accounts receivables or account payables, respectively. The Group
recognizes trust commissions earned from trust accounts as income from trust operations. When a loss is incurred on a trust account that
includes a guarantee of principal repayment, the corresponding loss is recognized as a loss from trust operations.

3.26.2 Deferred acquisition costs
The Group amortized the acquisition costs arising from long-duration contracts during the term of the contracts in the straight-line method in
accordance with accounting standards for insurance business article 31 and article 3 of the supplementary provisions. If the acquisition costs exceed
the expected amount or the additional premiums are settled highly for earlier term of the contracts to collect the acquisition costs in early stage,
the acquisition costs are recognized in the period they occur as profit or loss. The deferred acquisition costs are amortized over the term of thecontracts within the limits of 7 years. The unamortized costs of surrendered insurance contract are amortized in the period it is surrendered.

3.30 Merchant banking accounts
As permitted by the Restructuring of Financial Institutions Act, the Group may continue its merchant banking operations, including businessaffairs of bill management accounts, until the existing contracts acquired from Korea International Merchant Bank upon integration are
terminated. Significant accounting policies applied to the Group’s merchant banking operations are summarized as follows:

3.26.3 Liabilities reserves

3.30.1 Revenue recognition on discounted notes

The Group recognizes liabilities reserves by types of insurance contracts as at the reporting date in accordance with the Insurance Business Act
and the related regulations. The liabilities reserves refer to an amount calculated pursuant to the premiums and liabilities reserves calculation
manual for payment of claims, bonus return and policyholders dividend.

Interest income on discounted notes is accrued over the term of the notes. Income from the sale of the 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.

3.30.2 Cash Management Accounts (CMA)
3.26.4 Valuation of special accounts assets and liabilities
The Group designates and operates any of the retirement insurance contracts, retirement dividend insurance contracts and variable insurance
contracts (including variable universal insurance contracts) as special accounts pursuant to Article 108 (1) of the Insurance Business Act and Article
52 of the Regulations on Supervision of Insurance Business.

3.27 Equity

3.27.1 Classification of equity
The Group classifies a financial instrument on initial recognition as a financial liability or an equity instrument in accordance with the substanceof the contractual arrangement. If the Group has the right to avoid contractual obligation relating to an issued financial instrument, the Group
classifies the financial instrument as an equity instrument in accordance with the substance of the contractual arrangement. The Group classifies
a hybrid equity security on initial recognition as equity if it meets the condition of an equity instrument.

3.27.2 Stock issuance costs
Additional stock issuance costs or incremental costs related to the stock issuance for business combinations are recorded as a deduction fromissued capital net of tax effects.

The Group recognizes interest income from CMA investments and interest expense from CMA deposits as other income and other expenses,
respectively.

3.31 Interest income and interest expense
The Group recognizes interest income and expense using the effective interest method by the passage of time.
The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or group of financial assets
or financial liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the ratethat exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, ashorter period to the net carrying amount of the financial asset or financial liability. The Group estimates cash flows considering all contractual
terms of the financial instrument but do not consider future credit losses. The cash flows include all fees and points paid or received by theGroup including transaction costs, and all other premiums or discounts.
If it is probable that interest income arising from a financial asset will flow to the Group, the interest income is recognized as income when theGroup receives interest payments. For the impaired loans and receivable that are individually assessed, the Group recognizes the adjustment asinterest income if recoverability of the assets subsequently increases.

3.32 Fee and commission income
3.27.3 Dividends on common stock
Dividends from common stock are deducted from the Group’s equity and recognized as a liability upon approval of dividend distributions at
the shareholders’ meeting (the BoD for the interim dividends). Dividends declared for the year that is approved after the reporting date aredisclosed as a subsequent event.

3.27.4 Treasury stock
Equity instruments of the Group which are acquired by the Group or any of its subsidiaries are deducted from its equity and recorded at
134

The Group earns fees and commissions income from a diverse range of services it provides to its customers. Fees and commissions income
from financial services are accounted for based on the related accounting standards of financial instruments and their purpose of such fees andcommissions. Fees and commissions income are accounted for as follows:- When the earned fees and commissions are a significant component of EIR from the related financial assets, the income is accounted for using
the EIR method.
- Fees and commissions income earned from rendering services are recognized throughout the service period.
- Fees and commissions income earned through financial services are recognized immediately when the services are complete.

135

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEW

3.33 Dividend income
Dividend income is recognized when the Group’s right to receive the payment is established.

HANA FINANCIAL GROUP ANNUAL REPORT 2015

3.36.4 KIFRS 1016 Tangible assets and 1038 Intangible assets (amendments) – Allowable depreciation methods and the clarification of
the depreciation methods

The Company conducted accounting treatment of transactions under common control based on book value. Therefore, the Company
recognized (eliminated) asset, liability and capital as at integration and spinoff date as book value and didn’t recognize transaction gain (loss).

These amendments specify that as an income reflects the economic benefit that is generated by operating the business in which an asset isincluded rather than reflecting the economic benefit that is consumed by using the asset, a depreciation method based on the income cannot
be used to depreciate a tangible asset but can be used to amortize an intangible asset in a very limited circumstance. These amendments
are progressively effective for annual periods beginning on or after January 1, 2016 or earlier. As the Group does not apply the income-based
depreciation method, it does not expect that the amendments will have an impact on its financial statements.

3.35 New and amended standards and interpretations

3.36.5 KIFRS 1027 ‘Equity Method in Separate Financial Statements’ (amendments)

The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the preparation of theGroup's annual financial statements for the year ended December 31, 2014, except for the adoption of new standards and interpretations as atJanuary 1, 2015. The nature and the impact of each new standards and amendments are described below:

The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in theirseparate financial statements. The amendments will apply retrospectively and are effective for annual periods beginning on or after January 1,
2016, with early adoption permitted. These amendments will not have any impact on the Group’s financial statements.

3.35.1 Amendments to KIFRS 1019 Defined Benefit Plans: Employee Contributions

3.36.6 KIFRS 1016 and KIFRS 1041 ‘Agriculture’: Bearer Plants (amendments)KIFRS 1019 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where
the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if
the amount of the contributions is independent of the number of years of service, an entity is permitted to recognize such contributions as a
reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. This
amendment is effective for annual periods beginning on or after July 1, 2014. Because the Group does not operate defined benefit pension plan
to which employees or a third party make a contribution, these amendments have no impact on the Group.

The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments,
biological assets that meet the definition of bearer plants will no longer be within the scope of KIFRS 1041. Instead, KIFRS 1016 will apply. Afterinitial recognition, bearer plants will be measured under KIFRS 1016 at accumulated cost (before maturity) and using either the cost model orrevaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of KIFRS
1041 measured at fair value less costs to sell. For government grants related to bearer plants, KIFRS 1020 Accounting for Government Grants andDisclosure of Government Assistance will apply. The amendments are retrospectively effective for annual periods beginning on or after January 1,
2016, with early adoption permitted. These amendments are not expected to have any impact on the Group’s financial statements as the Group
does not have any bearer plants.

3.34 Transaction under common control

3.36 Standards issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s consolidated financial
statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

3.36.1 KIFRS 1109 ‘Financial Instruments’
The KASB issued the final version of KIFRS 1109 Financial Instruments that replaces KIFRS 1039 Financial Instruments: Recognition andMeasurement and all previous versions. KIFRS 1109 brings together all three aspects of the accounting for financial instruments project:classification and measurement, impairment and hedge accounting. KIFRS 1109 is effective for annual periods beginning on or after January
1, 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative
information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The
Group is in the process of evaluating the impact of these amendments on its financial statements, and plans to adopt the new standard on therequired effective date.

3.36.2 KIFRS 1115 ‘Revenue from Contracts with Customers’
KIFRS 1115 suggests a five-step model on revenue from contracts with customers. Under KIFRS 1115, revenue is recognized at an amount thatreflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The newrevenue standard will supersede all current revenue recognition requirements under KIFRS. Either a full retrospective application or a modified
retrospective application is required for annual periods beginning on or after January 1, 2018. Early adoption is permitted. The Group evaluates
the effect on its financial statements by the standard, and plans to adopt the new standard on the required effective date.

3.36.3 KIFRS 1111 ‘Joint Arrangements’ (amendments): Accounting for Acquisitions of Interests
The amendments to KIFRS 1111 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which theactivity of the joint operation constitutes a business, must apply the relevant KIFRS 1103 principles for business combinations accounting. The
amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in
the same joint operation while joint control is retained. In addition, an exclusion of a scope has been added to KIFRS 1111 to specify that theamendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same
ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any
additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after January 1, 2016, withearly adoption permitted. These amendments are not expected to have an impact on the Group’s financial statements.
136

3.36.7 Amendments to KIFRS 1110, KIFRS 1112 and KIFRS 1028 Investment Entities: Applying the Consolidation Exception
The amendments address issues that have arisen in applying the investment entities exception under KIFRS 1110. The amendments to KIFRS
1110 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment
entity, when the investment entity measures all of its subsidiaries at fair value.
Furthermore, the amendments to KIFRS 1110 clarify that only a subsidiary of an investment entity that is not an investment entity itself andthat provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fairvalue. The amendments to KIFRS 1028 allow the investor, when applying the equity method, to retain the fair value measurement applied by
the investment entity associate or joint venture to its interests in subsidiaries. These amendments must be applied retrospectively and are
effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. The Group evaluates the effect on its financial
statements by the amendments, and applies the amendments for the year ended December 31, 2015.
The Group has not early adopted any other standards, interpretations or amendments that have been issued but are not yet effective, except
for the amendments noted in 3.36.7.

3.37 Reclassification
The Group reclassified a part of financial statement for the year ended December 31, 2014 based on the financial statement for the year ended
December 31, 2015 to make the comparison easy. There is no effect of reclassification on the net asset value and net income. Because of thereclassification, interest income and expense have decreased by \122,559 million and \163,160 million, respectively. The gain and loss onfinancial assets held-for-trading have increased by \122,559 million and \163,160 million, respectively.

4. Significant judgments and accounting estimates
For applying accounting policies of the Group’s consolidated financial statements, management are required to make judgments, estimatesand assumptions that affect the amount of assets and liabilities which are difficult to identify through other resources. The estimates andassumptions are based on the other factors considered that they are related to historical experience. Actual results may differ from theseestimations.

137

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWManagement reviews these estimates and assumptions regularly. The effect of a change in an accounting estimate is recognized in profit or loss
in the period of the change, if the change affects that period only and the effect of a change in an accounting estimate is recognized in profit
or loss in the period of the change and the future periods, if the change affects both.
In the process of applying the Group’s accounting policies, management has made the following judgments that have a significant effect on theamounts recognized in the consolidated financial statements.

HANA FINANCIAL GROUP ANNUAL REPORT 2015

4.7 Share-based payment transactions
The Group measured the compensation cost of share-based payment transactions at fair value. The fair value is estimated by applying
appropriate valuation model taking into account the terms of conditions upon which those equity instruments were granted. The Group should
determine and assume the inputs of valuation model including the expected life, volatility and dividend ratio of the share option. The applied
assumptions and models are described in Note 55.

4.1 Fair value of financial instruments

5. Fair value measurement of financial assets and financial liabilities

Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active
markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models
are derived from observable market data where possible, but where observable market data is not available, a degree of judgment is required
to establish fair values. The judgments include considerations of liquidity and model inputs such as volatility for longer dated derivatives anddiscount rates, prepayment rates and default rate assumptions for asset backed securities.

The following standards are applied in measuring fair value of financial assets and financial liabilities:

4.2 Impairment losses on available-for-sale equity instruments
The Group assesses its equity securities classified as available–for–sale investments at the end of each reporting period whether there is any
indication that an asset may be impaired.
The Group also records impairment charges on available–for–sale equity investments when there has been a significant or prolonged decline
in the fair value of the investment below their cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. In making thisjudgment, the Group evaluates, among other factors, historical share price movements and duration and extent to which the fair value of aninvestment is less than its cost.
When the fair value below the cost of available-for-sale equity instruments is significant or prolonged, the Group reclassifies the cumulative loss
and is recognized as other comprehensive income from equity to profit or loss.

4.3 Impairment losses on loans
The Group assesses loans individually or collectively to determine the amount of impairment loss. The Group estimates future cash flow basedon business and collateral of borrowers to measure recoverable amount of loans that are individually assessed. The Group estimates probabilityof default (PD), loan emergence period (LEP) and loss given default (LGD) using statistical method based on past experience of impairment loss.

4.4 Provision for severance and retirement benefits
The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit method.
Actuarial assumptions were made for the discount rate, the overall expected rates of return on assets, and an increase in the future pay rate.
Severance and retirement benefits include significant uncertainties in the estimates due to the long duration of the period.

- Financial assets and financial liabilities traded in active markets at the reporting date are based on their quoted market price or dealer pricequotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For all other financial
instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques.
- Valuation techniques include the discounted cash flow method, comparison with the similar instruments for which market observable prices
exist, options pricing models, credit models and other relevant valuation models. These techniques incorporate the Group’s estimate ofassumptions that a market participant would make when valuing the instruments. Valuation techniques which provide reliable estimates on
mark–to–market prices are applied.
- When determining fair value by using the valuation techniques, comparison with the current market transaction of another instrument that is
substantially the same as the financial instrument needed to be objectively substantiated or inclusion of variables in the marketable data mustbe performed. Not all of the significant market variables are observable and in relevant cases, the reasonable estimates or assumptions are
required to determine the fair value.
- Investments in equity instruments that do not have a quoted market price in an active market as well as the derivatives that are linked tothese equity instruments are accounted for using the cost method when it is determined that their fair values cannot be reliably measured.
The fair value hierarchy of financial instruments measured at fair value as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015
Level 1

Level 2

Level 3

Total

Debt securities\ 2,914,743\ 9,269,260\-\ 12,184,003

Equity securities

202,142402,652-

604,794

Derivative assets used for trading

13,796

4,954,465

141,443

5,109,704--

682,279

682,279

3,130,681

14,626,377

823,722

18,580,780-

85,242

1,329,182

1,414,424

10,787,346

22,152,510

20,48632,960,342

638,858

3,351,224

738,015

4,728,097--

12,72012,720\ 11,426,204\ 25,503,734\ 771,221\ 37,701,159

Financial assets :Financial assets held-for-trading
through profit or loss

Other

Financial assets designated atfair value through profit or loss
Available–for–sale financial assets
Debt securities

4.5 Impairment of non-financial assets

Equity securities (*)

The Group assesses at the end of the reporting period whether there is any indication that a non-financial assets may be impaired. The Group
tests an intangible asset with an indefinite useful life for impairment annually or if any such indication exists. The Group tests an intangible asset
with definite useful life. For impairment if any such indication exists. Management estimates future cash flow associated with an asset or a cashgenerating unit, and selects the adequate discount rate to compute present value of future cash flow.

Others

4.6 Income taxes
Different taxation laws that the Group’s foreign subsidiaries are exposed to require judgment in determining the amount of tax expenses
that can be recognized. In addition, there has been various transactions and tax accounting methods which have made computing the final
tax expenses for the period uncertain. The contingent liability from any future tax assessments is based on the estimates of the likelihood ofadditional taxes imposed and has been included in the Group’s consolidated financial statements for the current period. When the finalized
tax expense assessments are different from the appropriated amounts, the differences, if any, are recognized in current deferred tax assets,
liabilities, and expenses for the period.

138

December 31, 2015
Level 1

Level 2

Level 3

Total-

61,121

4,321

65,442\ 14,556,885\ 40,276,474\ 2,928,446\ 57,761,805

Financial liabilities held-for-trading Securities sold148,5224,859,565

513,218

5,521,305

Derivative liabilities used for trading

232,013--232,013

380,535

4,859,565

513,218

8,037,863

Derivative assets used for Hedging

Financial liabilities:(Continued on next page)139

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

December 31, 2015

Financial liabilities designated atfair value through profit or loss
Derivative liabilities used for hedging

Level 1

Level 2

Level 3

Total-

2,154,331

5,883,532

8,037,863

250

42,758-43,008\ 380,785\ 7,056,654\ 6,396,750\ 13,834,189

December 31, 2014
Level 1

Level 2

Level 3

\ 2,306,390

Equity securities

114,8131,600

21,402

137,815

4,996

4,372,891

240,8714,618,758

Financial assets designated atfair value through profit or loss

\ 9,374,869\-

30,457

146,567

603,296780,320

13,895,927

865,569

17,218,152-

417,794

627,882

1,045,676

Available–for–sale financial assets
Debt securities
Equity securities (*)
OthersDerivative assets used for Hedging

Debt securities\ 9,269,260\ 9,374,869

DCF model, etc.

Discount rate, etc.

Equity securities

402,652

1,600

DCF model, etc.

Discount rate, etc.

4,954,465

4,372,891

Black-Scholes model,
Hull-White 1 factor model,
Black model, DCF model,
Gaussian 1 factor model, etc

Volatility, Discount rate,
Stock price, Exchange rate,
Interest rate,
CDS premium, etc.

DCF model, etc.

Discount rate, etc.

Black-Scholes model,
Hull-White 1 factor model,
Black model, DCF model,
Gaussian 1 factor model, etc.

Volatility, Discount rate,
Stock price, exchange rate,
Interest rate,
CDS premium, etc.

Financial assets held-for-trading-

146,567

14,626,377

13,895,927

85,242417,794

Debt securities

22,152,510

18,463,765

DCF model, etc.

Discount rate, etc.

Equity securities

3,351,224

1,436,833

DCF model, etc.

Discount rate, etc.

-

149,117

DCF model, etc.

Discount rate, etc.

25,503,734

20,049,715

61,121

77,047Hull-White 1 factor model,
Black model,
DCF model, etc.

Volatility, Discount rate,
Exchange rate, etc.

\ 40,276,474\ 34,440,483\ 4,859,565\ 4,337,862

Black-Scholes model,
Hull-white 1 factor model,
Black model, DCF model,
Gaussian 1 factor model, etc.

Volatility, Discount rate,
Stock price, Exchange rate,
Interest rate,
CDS premium, etc.

--

DCF model, etc.

\ 4,859,565\ 4,337,862\ 11,681,259

2,456,656

13,352,259

18,463,765

46,086

31,862,110

707,721

1,436,833

889,186

3,033,740

681

149,117

20,290170,088

14,060,661

20,049,715

955,562

35,065,938-

77,047

10,84787,894\ 16,517,317\ 34,440,483\ 2,459,860\ 53,417,660

Input variable

Financial assets :OtherDebt securities

Valuation method

December 31, 2014

Derivative assets used for trading

Financial assets held-for-trading
through profit or loss

Other

Fair Value
December 31, 2015

Total

Financial assets :Derivative assets used for trading

Fair value, valuation method, and input variables used to measure fair value of financial instruments classified as fair value hierarchy Level 2 as at
December 31, 2015 and 2014 are as follows (Korean won in millions):

Financial assets designated atfair value through profit or loss
Available–for–sale financial assets

OthersDerivative assets used for hedging

Financial liabilities :December 31, 2014
Level 1

Level 2Financial liabilities held-for-trading
Level 3

Total

Financial liabilities:

Derivative liabilities used for trading

Financial liabilities held-for-trading
Securities sold
Derivative liabilities used for trading
Financial liabilities designated atfair value through profit or loss
Derivative liabilities used for hedging\ 499,388\-\-\ 499,388

47,5494,337,862

354,861

4,740,272

546,937

4,337,862

354,861

5,239,660-

1,438,733

5,249,067

6,687,800-

50,736-50,736\ 546,937\ 5,827,331\ 5,603,928\ 11,978,196

Securities soldFair Value

Since their fair values were not able to be reasonably estimated and there is no quoted price in active market, they are included in Level 3 in the fair value hierarchy.

Valuation method

Input variable

1,438,733

Black-Scholes model,
Hull-white 1 factor model,
DCF model, Gaussian 1 factor
model, etc.

Volatility, Discount rate,
Stock price, exchange rate,
Interest rate,
CDS premium, etc.

42,75850,736Hull-White 1 factor model,
Black model, DCF model,

Volatility, Discount rate,
Exchange rate, etc.

\ 7,056,654\ 5,827,331

December 31, 2015

December 31, 2014

Financial liabilities designated at fairvalue through profit or loss

2,154,331

Derivative liabilities used for hedging(*) Equity securities from available–for–sale financial assets in the amount of \73,599 million and \67,459 million were valued at cost as at December 31, 2015 and 2014, respectively.

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

140

Volatility, Discount rate,
Stock price, Exchange rate,interest rate

141

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

Fair value, valuation method, input variables and significant unobservable input variables information used to measure fair value of financial
instruments classified as fair value hierarchy Level 3 are as follows (Korean won in millions):
Fair Value
December 31,
2015

December 31,
2014

Description of
the valuation
techniqueSignificant
Inputs used inunobservable
the fair value
inputs usedmeasurement in the fair value
measurement

Fair Value
December 31,
2015

The effect ofchanges inRange unobservable
Inputs on fairvalue

Financial assets :\ 4,321

Financial assets
held-for-trading
Equity securities

Derivative assets
used for trading\-

141,443

DCF model, etc.

Volatility, Discount rate,etc.

Black-Scholes model,
Hull-white 1 factor model,
240,871
Black model, DCF model,
Gaussian 1 factor model,
binomial tree model, etc.

KRW interest swap
yield curve, KRW treasury
bond yield curve, Volatility,
Discount rate, Stock price,
Exchange rate, Interest
rate, CDS premium,correlation of underlying
assets, risk free rate

\ 21,402

Volatility

Financial assets
designated at fairvalue through profit
or loss

682,279

603,296\ 823,722\ 865,569\ 1,329,182

DCF model, etc.

Discount rate, etc.

Black-Scholes model,
Hull-white 1 factor model,\ 627,882
DCF model,
Gaussian 1 factor model

Volatility, Discount rate,
Stock price, Exchange rate,
Interest rate, CDS premium,
Correlation of underlying
assets etc.

\ 10,847

Derivative assets
used for hedging

Discount rate,
Exchange rate

0.0 ~ 1.0

Negative

2,928,446

Equity securities

Others

20,486-1.0~1.0

Positive(negative insome cases)

Discount rate,etc.

Volatility

0.0 ~ 1.0

Negative

Correlation ofunderlying assets(each yield) etc.

-1.0~1.0

Positive(negative insome cases)

738,015

DCF model, etc.

Discount rate, etc.

Discount rate,etc.

34.83%

Negative

NAV model

Individual asset soundness
included in portfolio--

Positive

DCF model, NAV model,
Comparative on similar
889,186
business, Utilization of pasttransaction

Growth rate,
Discount rate

Growth rate

1.0%
~2.0%

Discount rate

4.2%
~15.4%

Positive

Discount rate

5.78%
~20.19%Positive

46,086

12,72020,290\ 771,221\ 955,562

DCF model
Comparative on similarbusiness, WACC model

The effect ofchanges inRange unobservable
Inputs on fairvalue

KRW interest swap yield
curve USD treasury
bond yield curve Volatilityof interest rate Correlation
Correlation of
Hull-White 1 factor modelof underlying assets underlying assets
Correlation between USD
interest rate and KRW/USD
exchange rate

0.94
~ 0.95

Positive

Correlation
between USD
interest rateand KRW/USD
exchange rate

0.23

Positive

Volatility

0.0 ~ 0.1

Negative

Correlation ofunderlying assets(each yield)-1.0 ~+1.0

Positive(negative insome cases)

KRW interest swap yield
curve USD treasury bondyield curve Volatility ofCorrelation ofinterest rate Correlation ofunderlying assets
Hull-White 1 factor model
underlying assets(each yield)
Correlation between USD
interest rate and KRW/USD
exchange rate

-1.0
~+1.0

Positive

Correlation
between USD
interest rateand KRW/USD
exchange rate

0.23

Positive

2,459,860

Financial liabilities
held for trading
Derivative liabilities
used for trading

Financial liabilities
designated at fairvalue through profit
or loss

513,218

354,861

5,883,532

5,249,067

Available-for-salefinancial assets
Debt securities

Significant
Inputs used inunobservable
the fair value
inputs usedmeasurement in the fair value
measurement

Financial liabilities :Correlation ofunderlying assets(each yield) etc.
Others

December 31,
2014

Description of
the valuation
technique\ 6,396,750

Black-Scholes model,
KRW interest swap yield
Hull-White 1 factor, curve KRW treasury bond
DCF model,
yield curve Volatility ofGaussian 1 factor, interest rate Correlation of
Binomial tree model
underlying assets\ 5,603,928

Positive

Changes in the fair value of Level 3 financial instruments for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Discount rate

Financial assets
held-for-trading
Equitysecurities

Financialassetsdesignatedat fair value
Othersthrough
profit or loss

Financial
Net derivative instruments
liabilities
designatedat fair value
Held-forHeld forOthers
through-trading
hedging
profit or loss

Available-for-sale financial assets
Debt
securities

Equitysecurities

January 1, 2015

\ 21,402\ 603,296\ 627,882\ 46,086\ 889,186\ 20,290\ 5,249,067\ (113,990)\ 10,847

From others to
Level 3 (*)

-

-

-

-

4,273

-

-

-

-

From Level 3 to
Others (*)

-

-

-

-

(46,253)

-

-

-

-

2,862

10,988(148,123)309

139,366-(500,283)(29,751)(5,926)

-

-

-

199

17,138----Net income
Other
comprehensive
incomeBuy / Issue
Sell / Settlement
December 31, 2015

142-

214,176

1,393,474-

117,858

1,332

4,840,663(153,995)-(24,264)(146,181)(544,051)(26,108)(383,553)(8,902)(3,705,915)(74,039)

(600)

\-

\ 682,279\ 1,329,182\ 20,486\ 738,015\ 12,720\ 5,883,532\ (371,775)\ 4,321143

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEW

Financial assets
held-for-trading

Financialassetsdesignatedat fair value
Othersthrough
profit or loss

Equitysecurities
January 1, 2014

\ 20,591\ 868,651

HANA FINANCIAL GROUP ANNUAL REPORT 2015

Financial
Net derivative instruments
liabilities
designatedat fair value
Held-forHeld forOthers
through-trading
hedging
profit or loss

Available-for-sale financial assets
Debt
securities\ 101,702\ 65,196

Equitysecurities\ 911,149\ 18,524\ 4,264,160\ 178,857

-

-

-

-

45,905----

From Level 3 to
Others (*)

-

-

-

-

(48,922)

-

-

-

-

811

13,615

4,501

1,863

(263,560)

27

4.019

29,259

4,491

Other
comprehensive
income

-

-

-

(985)

61,145421-

Classification\ 6,281

From others to
Level 3 (*)

Net income

Changes in significant unobservable input variables are subject of a sensitivity analysis, which measures the impact on the fair value of financial
instruments classified as Level 3. The amount of impact reported as favorable and unfavorable changes for the years ended December 31, 2015
and 2014 are as follows (Korean won in millions):--

Financial assets designated atfair value through profit or loss

163,527

569,045-251,039

2,066

3,743,044(7,530)160

Debt securities(47,366)(19,988)(67,570)(748)(2,762,156)(314,577)(85)

Equity securities (*2)

\ 21,402\ 603,296\ 627,882\ 46,086\ 889,186\ 20,290\ 5,249,067\ (113,990)\ 10,847

Total gains or losses
recognized in profit orloss

Total gains or losses
recognized in profit orloss

The line item in profit
or loss in which thosegains or losses arerecognized\ (15,901)\ (182,494)\ 43,685

Gain (loss) on financial assets designated at FVTPL

352,160

360,023482(1,456)

Derivative instruments used for hedging(5,926)

2,156

4,491

(3,158)Gain on other financial instruments

157,557-

14,958882

Impairment loss on other financial Instruments(17,882)(6,435)(276,628)(275,530)\ 470,008\ 173,250\ (213,012)\ (282,082)

Gain (loss) on financial assets held-for-trading\ 214\ (211)

(13)

898

(833)

3,983

(3,983)

1,675(1,632)

-

-

92

(59)

70,211(30,142)

170,123(49,359)

-

-

139

(136)

1,066

(1,026)2,330(2,464)75,278(35,164)

175,471(54,694)

(515)

514

1,394

(1,359)4,746(4,746)

2,571(2,571)\ 4,231\ (4,232)\ 3,965\ (3,930)

Others (*2)
Derivative assets used for hedging (*1)

Financial liabilities :Financial liabilities held-for-trading
Derivative liabilities held-for-trading (*1)

December 31, 2014

The line item in profit
or loss in which thosegains or losses arerecognized\-

18

Available-for-sale financial assets(442,497)

Classification\-

Equity securities-

December 31, 2015

Unfavorable changes

Derivative assets held-for-trading (*1)-

Total gains or losses recognized in profit or loss, and the line item in profit or loss in which those gains or losses related with the Level 3 financial
instruments are recognized for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Favorable changes

Financial assets held-for-trading

Buy / Issue
December 31, 2014

\ (2,820)

December 31, 2014

Unfavorable changes

Financial assets

Sell / Settlement(*) The Group recognizes transfers between the levels in the fair value hierarchy at the beginning of every quarter when an event or a change in circumstance, which causes the transfers, occurs

December 31, 2015
Favorable changes

Financial liabilities designated atfair value through profit or loss (*1)(*1) By increasing or decreasing 10% of (i) correlation between interest rate swap rates of KRW, (ii) correlation between interest rates of treasury, (iii) correlation between interest rate
swap and interest rate of treasury, (iv) correlation between KRW-USD interest rate swap rate, and (v) correlation between KRW/USD exchange rate and interest rate swap rate, favorable orunfavorable changes of fair value were measured.
(*2) Fair value variation of equity securities is measured by increasing or decreasing growth rate (0.0~1.0%) and discount rate. In case of beneficiary securities, it is impossible to calculatesensitivity in practice. But if it consists of real estate, impact on fair value can be measured by increasing or decreasing discount rate of rental cash flow (-1.0~1.0%) and growth rate of saleprice of real estate (-1.0~1.0%).

Fair value hierarchy of financial instruments disclosed as fair value though it cannot be measured as fair value as at December 31, 2015 and 2014
are as follows (Korean won in millions):
The amount of transfers into or out of level 3 of the fair value hierarchy for the years ended December 31, 2015 and 2014 are as follows (Korean
won in millions):

December 31, 2015
Fair Value

December 31, 2015

December 31, 2014

Transfer to level 1 from level 3\ (46,253)\ (18,014)

Transfer to level 2 from level 3-(30,908)\ (46,253)\ (48,922)

4,273

45,905Loans\ 4,273\ 45,905

OthersTransfer to level 3 from level 1

Total

Level 1

Level 2

Level 3

\ 2,248,698\ 17,497,077\-

1,678,446

4,133,689-

5,812,135--

222,029,011

222,029,011

Financial assets :Cash and due from Banks
Held-to-maturity investments\ 19,745,775

-

9,203

15,091,786

15,100,989\ 3,927,144\ 21,639,969\ 237,120,797\ 262,687,910\ 207,173,540

Financial liabilities :Deposits\-\ 128,839,243\ 78,334,297

Borrowings-

13,008,383

9,194,213

22,202,596

Debentures-

30,478,484

17,06930,495,553

Others144-

351,591

25,568,019

25,919,610\-\ 172,677,701\ 113,113,598\ 285,791,299

145

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

December 31, 2014
Fair Value
Level 1

Total
Level 2

Fair value, valuation method, and input variables of financial instruments disclosured as fair value though it cannot be measured as fair value andthe fair value hierarchy Level 3 as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Level 3

December 31, 2015

Financial assets :Cash and due from Banks
Held-to-maturity investments
Loans
Others\ 2,894,963\ 19,355,196\-\ 22,250,159

1,701,697

2,839,341-

4,541,038--

215,190,891

215,190,891

Loans
Others-9,454

14,449,801

14,459,255\ 4,596,660\ 22,203,991\ 229,640,692\ 256,441,343

Deposits\-\ 126,664,733\ 75,961,144\ 202,625,877

Borrowings-

9,463,409

13,794,785

23,258,194

Debentures-

29,663,021

183,215

29,846,236

Others-284,172

22,352,758

22,636,930\-\ 166,075,335\ 112,291,902\ 278,367,237

Financial liabilities :Fair Value

Valuation method

Input variables\ 222,029,011

DCF model, etc.

Credit spread, other spread andRate of advanced redemption, etc.

15,091,786(*)

Financial assets :\ 237,120,797
Financial liabilities :\ 78,334,297

DCF model, etc.

Other spread,
Rate of advanced redemption

Borrowings

9,194,213

DCF model, etc.

Other spread

Debentures

17,069

DCF model, etc.

Other spread,
Rate of inherence bankruptcy

25,568,019(*)

Other spread

Deposits

Others\ 113,113,598

Fair value, valuation method, and input variables of financial instruments disclosured as fair value though it cannot be measured as fair value andthe fair value hierarchy Level 2 as at December 31, 2015 and 2014 are as follows (Korean won in millions):

December 31, 2014

December 31, 2015
Fair Value

Valuation method

Input variables

Financial assets :Cash and due from banks
Held-to-maturity investments
Others\ 17,497,077

DCF model, etc.

Credit and other spread, etc.

4,133,689

DCF model, etc.

Discount rate

9,203

DCF model, etc.

Other spread

Loans
OthersDebentures
Others

Input variables\ 215,190,891

DCF model, etc.

Credit spread, other spread andRate of advanced redemption, etc.

14,449,801(*)\ 229,640,692\ 21,639,969

Borrowings

Valuation method

Financial assets :Financial liabilities :Financial liabilities :Deposits

Fair Value\ 128,839,243

DCF model, etc.

Other spread,
Rate of advanced redemption

13,008,383

DCF model, etc.

Other spread

30,478,484

DCF model, etc.

Other spread,
Rate of inherence bankruptcy

351,591

DCF model, etc.

Other spread

Other spread,
Rate of advanced redemption

Deposits\ 75,961,144

DCF model, etc.

Borrowings

13,794,785

DCF model, etc.

Other spread183,215

DCF model, etc.

Other spread,
Rate of inherence bankruptcy

22,352,758(*)

Other spread

Debentures
Others\ 112,291,902\ 172,677,701(*) Other financial instruments are temporary accounts derived from various transactions, with maturity not fixed or short. Therefore, the Group doesn’t apply DCF method to calculate fairvalue and discloses book value as fair value.

December 31, 2014
Fair Value

Valuation method

Input variables\ 19,355,196

DCF model, etc.

Credit and other spread, etc.

2,839,341

DCF model, etc.

Discount rate

Changes in deferred Day 1 gain (loss), for the years ended December 31, 2015 and 2014 are summarized as follows (Korean won in millions):

Financial assets :Cash and due from banks
Held-to-maturity investments
Others

9,454

DCF model, etc.

Other spread\ 22,203,991
Financial liabilities :Deposits
Borrowings
Debentures
OthersOther spread,
Rate of advanced redemption\ 126,664,733

DCF model, etc.

9,463,409

DCF model, etc.

Other spread

29,663,021

DCF model, etc.

Other spread,
Rate of inherence bankruptcy

284,172

DCF model, etc.

Other spreadYear ended December 31, 2015

Year ended December 31, 2014

\ (18,593)\ (25,795)(12,622)(12,553)

Profit or loss

18,50016,325

Repayment

236

3,430

\ (12,479)\ (18,593)

Beginning balance
Increase

Ending balance\ 166,075,335

146

147

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

6. Fair value of financial assets and liabilities

7. Categories of financial assets and financial liabilities

Details of carrying amount and fair value of financial instruments as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Categories of financial assets and financial liabilities as at December 31, 2015 and 2014 are as follows (Korean won in millions):

December 31, 2015
Carrying amount

December 31, 2014
Fair value

Carrying amount

December 31, 2015
Fair value

Financial assets :Cash and due from banks\ 19,745,776\ 19,745,775\ 22,257,731\ 22,250,159

Financial assets held-for-trading

18,580,780

18,580,780

17,218,152

17,218,152

Financial assets designated at fair value
through profit or loss

1,414,424

1,414,424

1,045,676

1,045,676

Available-for-sale financial assets

37,701,159

37,701,159

35,065,938

35,065,938

Held-to-maturity investments

5,616,734

5,812,135

4,365,450

4,541,038

221,336,818

222,029,011

213,963,138

215,190,891

65,44265,442

87,89487,894Loans
Derivative assets used for hedging
Others

15,097,300

15,100,989

14,459,373

14,459,255\ 319,558,433\ 320,449,715\ 308,463,352\ 309,859,003\ 5,753,318\ 5,753,318\ 5,239,660\ 5,239,660

8,037,863

8,037,863

6,687,800

6,687,800

Financial liabilities :Financial liabilities held-for-trading
Financial assets designated at fair value
through profit or loss
Deposits

206,810,358

207,173,540

201,896,985

202,625,877

Borrowings

22,202,136

22,202,596

23,263,986

23,258,194

Debentures

30,008,472

30,495,553

29,308,115

29,846,236

43,00843,00850,73650,736

Derivative liabilities used for hedging
Others25,920,233

25,919,610

22,623,185

22,636,930\ 298,775,388\ 299,625,488\ 289,070,467\ 290,345,433

The following standards are applied in measuring the fair value of financial instruments:- Loans and receivable: Expected cash flows, current market interest rates and discount rates including borrowers’ credit risks are factors to
calculate the fair value of loans and receivables. For lines of credit and loans that have a short term maturity (less than three months), it isassumed that the carrying amounts approximate to their fair value.
- Investment in financial assets: The fair value of financial assets held-to-maturity are as stated by the market, broker, or by credible sources.
If none of the information is usable, published market price of financial instruments with similar credit rating, maturity, and ROI is used toestimate the fair value.
- Depository liabilities: For deposits with no interests, deposits without an explicit maturity period, deposits that have a short term maturity (lessthan three months), and deposits with a floating rate readjustment period of less than three months, it is assumed that the carrying amounts
approximate to their fair value. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailingmoney-market interest rates for debts with similar credit risk and maturity.
- Borrowing liabilities: For borrowings that have a short term maturity (less than three months) and borrowings with floating rate readjustment
period of less than three months, it is assumed that the carrying amounts approximate to their fair value. The estimated fair value of fixedinterest bearing borrowings is based on and discounted cash flows using prevailing money-market interest rates for debts with similar credit
risk and maturity.
- Debentures: For quoted debt issued the fair values are determined based on quoted market prices. For those notes issued where quoted market
prices are not available, a discounted cash flow model is used based on a current interest rate yield curve appropriate for the remaining term
to maturity and credit spreads.

Financial
instruments
held-forTrading

Financial
instruments
designatedat fair value
through profit
or loss

Available-forsale financial
instruments

Held-tomaturity
investments

Amortized
cost of afinancial asset
or financial
liability

Derivatives
for hedging
purposes

Total

\-

\-

\-

\-

\ 19,745,776\-\ 19,745,776

18,580,780

-

-

-

-

-

18,580,780-

1,414,424

-

-

-

-

1,414,424--

37,701,159

-

-

-

37,701,159

-

-

-

5,616,734--

5,616,734

-

-

-

-

221,336,818-

221,336,818

-

-

-

-

-

65,44265,442Financial assets:
Cash and due from banks
Financial assets held-fortrading
Financial assets designatedat fair value through profit
or loss
Available-for-sale financial
assets
Held-to-maturity
investments
Loans
Derivative for hedging
purposes

-

-

-

-

15,097,300-

15,097,300\ 18,580,780\ 1,414,424\ 37,701,159\ 5,616,734\ 256,179,894\ 65,442\ 319,558,433

Financial assets held-fortrading\ 5,753,318

\-

\-

\-

\-

\-

\ 5,753,318

Financial liabilities
designated at fair value
through profit or loss-

8,037,863

-

-

-

-

8,037,863

Deposits

-

-

-

-

206,810,358-

206,810,358

Borrowings

-

-

-

-

22,202,136-

22,202,136

Debentures

-

-

-

-

30,008,472-

30,008,472

Derivative for hedging
purposes

-

-

-

-

-

43,00843,008Others----25,920,233-

25,920,233\ 5,753,318\ 8,037,863\-\-\ 284,941,199\ 43,008\ 298,775,388

Financial
instruments
held-forTrading

Financial
instruments
designatedat fair value
through profit
or loss

Available-forsale financial
instruments

Held-tomaturity
investments

Amortized
cost of afinancial asset
or financial
liability

Derivatives
for hedging
purposes

Total

\-

\-

\-

\-

\ 22,257,731\-\ 22,257,731

17,218,152

-

-

-

-

-

17,218,152-

1,045,676

-

-

-

-

1,045,676--

35,065,938

-

-

-

35,065,938

-

-

-

4,365,450--

4,365,450

-

-

-

-

213,963,138-

213,963,138

-

-

-

-

-

87,89487,894

OthersFinancial liabilities:

December 31, 2014

Financial assets:
Cash and due from banks
Financial assets held-fortrading
Financial assets designatedat fair value through profit
or loss
Available-for-sale financial
assets
Held-to-maturity
investments
Loans
Derivative for hedging
purposes
Others----

14,459,373-

14,459,373\ 17,218,152\ 1,045,676\ 35,065,938\ 4,365,450\ 250,680,242\ 87,894\ 308,463,352(Continued on next page)

148

149

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

Details of financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements as at December 31, 2015
and 2014 are as follows (Korean won in millions):

December 31, 2014
Financial
instruments
held-forTrading

Financial
instruments
designatedat fair value
through profit
or loss

Available-forsale financial
instruments\-\-

Held-tomaturity
investments

Amortized
cost of afinancial asset
or financial
liability

Derivatives
for hedging
purposes\-\-

December 31, 2015
Total
Gross amountsof recognizedfinancial assets

Financial liabilities:
Financial assets held-fortrading\ 5,239,660\-\ 5,239,660\-\ 5,111,360\ (4,697,893)\ (192,346)

Agreements

4,609,093-

4,609,093(4,609,093)--

Payables unpaid spot exchange

8,767,909-

8,767,909(8,764,136)

-

3,773

23,263,986

Domestic exchange settlement credits

27,413,471(23,874,112)

3,539,359--

3,539,359

29,308,115

Others281,924(229,442)

52,482--52,482\ 46,183,757\ (24,103,554)\ 22,080,203\ (18,071,122)\ (192,346)\ 3,816,735

Gross amounts of
Net amounts of Related amounts not offset in therecognizedfinancial assets statement of financial position (*)
financial liabilities
presented in theset off in the
Financial
Cash collateralstatement ofstatement of
instruments
receivedfinancial position
financial position

Net amount-

6,687,800

-

-

-

-

6,687,800

Deposits

-

-

-

-

201,896,985-

201,896,985

Borrowings

-

-

-

-

23,263,986-

Debentures

-

-

-

-

29,308,115-

Derivative for hedging
purposes

-

-

-

-

-

50,73650,736----

22,623,185-

22,623,185\ 5,239,660\ 6,687,800\-\-\ 277,092,271\ 50,736\ 289,070,467

Derivatives

December 31, 2014
Gross amountsof recognizedfinancial assets

Details of financial assets subject to offsetting, enforceable master netting arrangements and similar agreements as at December 31, 2015 and2014 are as follows (Korean won in millions):
December 31, 2015
Gross amounts of
Net amounts of Related amounts not offset in therecognizedfinancial assets statement of financial position (*)
financial liabilities
presented in theset off in the
Financial
Cash collateralstatement ofstatement of
instruments
receivedfinancial position
financial position

Net amount\-\ 4,942,501\ (3,346,128)\ (25,107)\ 1,571,266-

190,653(190,653)--

Bonds purchased under resale agreement

1,330,701-

1,330,701(1,330,701)--

Receivables unpaid spot exchanges

8,766,115-

8,766,115(8,763,568)

-

2,547

Domestic exchange settlement debts

24,765,723(23,874,112)

891,611--

891,611229,442(229,442)

-

-

-

-

\ 40,225,135\ (24,103,554)\ 16,121,581\ (13,631,050)\ (25,107)\ 2,465,424

December 31, 2014
Gross amountsof recognizedfinancial assets
Derivatives
Equity securities
Bonds purchased under resale agreement

Gross amounts of
Net amounts of Related amounts not offset in therecognizedfinancial assets statement of financial position (*)
financial liabilities
presented in theset off in the
Financial
Cash collateralstatement ofstatement of
instruments
receivedfinancial position
financial position

Net amount\ 4,475,019\-\ 4,475,019\ (3,015,932)\ (51,308)\ 1,407,779

273,210-273,210(273,210)--

1,687,460-

1,687,460(1,687,460)--

Receivables unpaid spot exchanges

1,833,607-

1,833,607(1,833,330)-

277

Domestic exchange settlement debts

25,971,412(24,263,214)

1,708,198--

1,708,198

Others\ 3,941,417\-\ 3,941,417\ (2,818,293)\ (154,722)

Agreements

4,714,813-

4,714,813(4,714,813)--

Payables unpaid spot exchange

1,834,807-

1,834,807(1,833,330)

-

1,477

Domestic exchange settlement credits

26,483,336(24,263,214)

2,220,122(1,316,032)-

904,090214,074(208,938)

5,136(1,647)-3,489\ 37,188,447\ (24,472,152)\ 12,716,295\ (10,684,115)\ (154,722)\ 1,877,458

Others190,653

OthersDerivatives\ 968,402

Bonds sold under repurchase\ 4,942,501

Derivatives
Equity securities\ 221,121

Bonds sold under repurchase

8. Offsetting financial assets and liabilities

Gross amountsof recognizedfinancial assets

Net amount\ 5,111,360

Financial liabilities
designated at fair value
through profit or loss

OthersGross amounts of
Net amounts of Related amounts not offset in therecognizedfinancial assets statement of financial position (*)
financial liabilities
presented in theset off in the
Financial
Cash collateralstatement ofstatement of
instruments
receivedfinancial position
financial position

217,025(208,938)

8,087(1,647)-

6,440\ 34,457,733\ (24,472,152)\ 9,985,581\ (6,811,579)\ (51,308)\ 3,122,694(*) The rights to offset exist only in case of default, insolvency or bankruptcy. Accordingly, the amounts are not offset in the statement of financial position as they do not meet the criteria for offsetting.

9. Risk management
The Group is exposed to credit risk, liquidity risk, market risk and operational risk of its financial instruments. Risk management is the basic
activities to use the Group’s limited capital effectively under the rapidly changing financial circumstances. The ultimate goal of risk management
is to maximize the Group’s shareholder value with minimizing the sudden fluctuation of its income through a proper balance between risks andreturns.
To keep the consistent risk management on a group level basis, the Group establishes and manages the group risk management policies andeach of its subsidiaries also establishes its own risk management systems and policies suitable for the subsidiaries’ industry through the risk
committees and working-level councils under the group risk management policies. The Group identifies improvements by diagnosing thesubsidiaries’ risk management performance at least once a year and continuously enforces the subsidiaries’ risk management activities to makethem reflect the improvements.
The group risk management committee is the top decision-making organization of the group risk management and has responsibilities toestablish and monitor risk management strategies and policies, allowable risk limits and investment limits, and capital allocation, which arerequired to be managed on a group level basis. The subsidiaries’ risk management committees (or BoD) are responsible for its own risk
management strategies, policies and monitoring. If necessary, the group risk management committee or group risk management executioncommittee can apply separate risk management standards considering distinct characteristics of each subsidiary.

(*) The rights to offset exist only in case of default, insolvency or bankruptcy. Accordingly, the amounts are not offset in the statement of financial position as they do not meet the criteria
for offsetting.

9.1 Credit risk
Credit risk is the risk that the Group will incur a loss because its customers’ or counterparties’ credit rating goes down or fail to discharge
their contractual obligations. Credit risk is the highest risk exposed to the Group. Credit risk arises from on-balance and off-balance accounts
including loans, financial guarantees, securities and derivatives. The purpose of managing credit risk is to control the relevant losses uponcounterparties’ default, for a certain period, within the allowable range.

150

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The Group’s group risk management committee and group risk management execution committee examines its credit risk on a regular basis.
The Group continuously monitors whether credit limits set for each individual, corporation, borrower, subsidiary and major shareholder arecomplied and reviews the subsidiaries’ asset quality. The Group also checks the status of change of risk exposure, residual limit, profitability,delinquency rate and change of loan loss provision, etc. at least on a quarterly basis.

December 31, 2014
Impaired loan

Unimpaired loan

Individual assessment

Collective assessment

Past due

Non past due

Total\ 96,752\ 95,620\ 69,968\ 18,588,433\ 18,850,773
3,892,467

Guarantees

412

13,57527,124

3,851,356

The Group classifies expected loss and unexpected loss calculating the credit risk. The expected loss is assessed based on estimated LGD (LossGiven Default). The LGD is calculated by using EAD (Exposure at Default), estimated PD (Probability of Default), which is based on a historicaldefault rate, and historical collection rate. The assessed expected loss is reflected on the interest rates on new or rolled over loans and loan loss
provision. The unexpected loss, which means a potential volatility between estimate loss and actual loss, is estimated as a credit risk exposure ofa portfolio using statistical models. The unexpected loss is used for the Group’s internal management purpose.

DepositMovable assets

14,072--36,31250,384

Real estate692,270

391,354

301,074

85,579,329

86,964,027

Securities

265,549

2,188

2,765

3,970,146

4,240,648

Others

1,484

3,672

5,398

468,516

479,070\ 1,070,539\ 506,409\ 406,329\ 112,494,092\ 114,477,369

The maximum exposure to credit risk as at December 31, 2015 and 2014 are as follows. The following table shows the maximum exposure tocredit risk for the items in the statement of financial position, including derivatives, by geography of counterparty and by industry before theeffect of mitigation through the use of master netting and collateral agreements. Equity securities in the trading financial assets and financial
assets available-for-sale are excluded (Korean won in millions):

Details of delinquency rates on loans and receivable as at December 31, 2015 and 2014 are as follows (Korean won in millions):

December 31, 2015

December 31, 2014

\ 17,497,078\ 19,361,988

December 31, 2015
Corporate loans
Household Loans

Due from banks
Financial assets held-for-trading
Debt securities

12,184,003

11,681,259

Derivative assets held-for-trading

5,109,704

4,618,758

682,279

603,296

Financial assets designated at fair value through profit
or loss

1,110,223

809,757

Available-for-sale financial assets

32,973,036

31,873,489

Held-to-maturity investments

5,616,734

4,365,450

65,442

87,894

OthersDerivative assets for hedging purposes\ 42,900,248\ 67,590,161\ 12,441,005\ 5,424,701

244,473

22,369164,707

36,684

159,961

91,534,598

628,194

Impaired

443,037

1,408,154

1,405,792

101,057

125,389

3,483,429

91,521,635

44,330,771

69,160,660

12,578,746

5,710,051

223,301,863

Deferred loan fees and expenses

235,090(17,309)45,3687,905

1271,055

Present value premium (discount)(1,347)(1,092)76-(1,816)(4,179)Allowance for possible loan losses(220,780)(849,078)(903,450)(79,069)(179,544)(2,231,921)\ 91,534,598\ 43,463,292\ 68,302,654\ 12,507,582\ 5,528,692\ 221,336,818

Small and medium Public institution Credit card loans
businessand others

Total

December 31, 2014

Large business

43,463,292

49,511,275

68,302,654

62,503,210

Public institution and others

12,507,582

13,514,872

Credit card loans
Others\ 48,888,780\ 61,423,020\ 13,468,110\ 5,776,369

393,717

18,786170,291

20,722

174,105\ 211,185,427
777,621

Impaired592,417

1,478,327

1,658,486

81,188130,590

3,941,008

5,886,213
213,963,138

82,615,282

50,385,893

63,251,797

13,570,020

6,081,064

215,904,056

15,097,300

14,459,373

Deferred loan fees and expenses

179,293(18,470)

20,8336,100

1187,757\ 311,672,617\ 301,824,402

Present value premium (discount)93(2,574)(779)-(2,353)(5,613)

Allowance for possible loan losses(291,273)(629,724)(948,318)(61,248)(192,499)(2,123,062)\ 82,503,395\ 49,735,125\ 62,323,533\ 13,514,872\ 5,886,213\ 213,963,138

Financial guarantees\ 2,202,946\ 2,901,767

19,653,200

24,798,969

118,681,797

124,653,652\ 140,537,943\ 152,354,388

Details of collateral management and credit risk mitigation as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015

Delinquency occurs when a counterparty is unable to make principle and interest payments at the due date. A financial item is deemed impaired
if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of theitem (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows, such as changes in arrears or
economic conditions that correlate with defaults, delinquency in interest for more than 90 days, credit deterioration resulting in misleading
information, damages incurred due to poor exposure.

Unimpaired loan

Individual assessment

Collective assessment

Past due

Non past due

Total\ 113,334\ 85,407\ 59,472\ 20,350,857\ 20,609,070

40,97813,452

16,1002,648,468

2,718,998

Movable assets

22,342669

16,775334,046

373,832

Real estate

621,715357,836

267,947

86,367,771

87,615,269

Securities

286,253

2,119

1,901

2,652,193

2,942,466

594

4,721

1,500

714,435

721,250\ 1,085,216\ 464,204\ 363,695\ 113,067,770\ 114,980,885

152\ 81,629,148

Past due but unimpaired

5,528,692

Guarantee contracts

Impaired loan

Neither past due nor impaired

Large business

221,336,818

Off balance accounts:

Commitment

Household Loans

82,547,568

Small and medium business

Others\ 219,190,240

Corporate loans

Household loans

DepositTotal\ 90,834,125

Loans receivable:

Guarantees

Small and medium Public institution Credit card loans
businessand others

Past due but unimpaired

Neither past due nor impaired

On balance accounts:

Large business

Internal credit grades of loans that are neither past due nor impaired as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015
Corporate loans
Household Loans

Large business

Small and medium Public institution Credit card loans
businessand others

Total

Grade 1

\ 63,835,718\ 24,439,963\ 9,306,087\ 4,439,159\ 2,341,744\ 104,362,671

Grade 2

23,688,417

17,012,508

51,560,792

4,735,272

3,077,484

100,074,473

Grade 3

553,578

1,363,481

3,471,574

2,020,866

5,473

7,414,972

Others2,756,412

84,2963,251,708

1,245,708-

7,338,124\ 90,834,125\ 42,900,248\ 67,590,161\ 12,441,005\ 5,424,701\ 219,190,240

153HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

December 31, 2014

December 31, 2015

Corporate loans
Household Loans

Large businessCorporate loans

Small and medium Public institution Credit card loans
businessand others

Total

Household Loans

Grade 1

\ 58,432,039\ 22,387,328\ 7,373,567\ 4,243,868\ 1,421,024\ 93,857,826

Grade 2

20,246,339

25,270,799

48,142,048

5,368,483

4,132,954

103,160,623

Collective
impairment:

Grade 3560,853

1,065,171

3,467,681

1,133,925

222,389

6,450,019

Book value
Deferred loan
fees and expenses

Others2,389,917

165,4822,439,724

2,721,834

2

7,716,959\ 81,629,148\ 48,888,780\ 61,423,020\ 13,468,110\ 5,776,369\ 211,185,427

The Group classifies the grade of loans in accordance with a credit rating chart below, based on the character of the borrowers.
Household loans

Corporate loans

SOHO

Grade 1Less or equal to 0.37% of PD

A1+ ~ A3

Grade 1~4

Grade 2

From 0.37% to 9.03% of PD

B1+ ~ B3

Grade 5 ~ 20

Grade 3

From 9.03% to 100% of PD

C1 ~ C3

Grade 21 ~ 29

Present value
discount
Allowance forpossible loan losses

Large business

Small and medium
business

Public institution
and others

Credit card loans

Total\ 439,958\ 38,617\ 324,154\ 22,520\ 125,389\ 950,638

710

-

120

49

-

879

(155)

-

(5)

-

(12)

(172)

(108,309)(7,528)(100,970)(9,992)(101,776)(328,575)

332,204

31,089223,299

12,577

23,601

622,770\ 332,895\ 713,804\ 853,454\ 57,797\ 23,601\ 1,981,551

December 31, 2014
Corporate loans
Household Loans

Types of unimpaired loans and receivables with delinquent payments as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Large business

Small and medium
business

Public institution
and others

Credit card loans

Total

December 31, 2015
Corporate loans
Household Loans

Large business

Small and medium
business

Public institution
and others

Credit card loans

Total\ 22,260\ 10,734\ 40,663\ 23,587\ 123,743\ 220,987

31 to 60 days

192,770

11,635

81,7746,500

18,875311,554

61 to 90 days

29,181-

40,6286,102

15,11591,026

262

-

1,642

495

2,228

4,627

\ 244,473\ 22,369\ 164,707\ 36,684\ 159,961\ 628,194

Less than 30 days

OthersIndividual
impairment:
Book value\ 4,221\ 1,411,571\ 1,335,805\ 63,548-\ 2,815,145

Deferred loan
fees and expenses

-

(78)

(818)

-

-

(896)

Allowance forpossible loan losses(2,096)(470,646)(525,576)(17,657)-(1,015,975)

2,125

940,847

809,41145,891-

1,798,274

December 31, 2014

December 31, 2014

Corporate loans

Corporate loans
Household Loans
Less than 30 days

Large business

Small and medium
business

Public institution
and others

Credit card loans

Total

Household Loans\ 335,151\ 18,786\ 132,904\ 14,524\ 130,820\ 632,185

31 to 60 days

38,836-

19,722

4,139

27,10189,798

Collective
impairment:

61 to 90 days

19,730-17,627

1,184

11,071

49,612

Book value

-

-

38

875

5,113

6,026

\ 393,717\ 18,786\ 20,722\ 20,722\ 174,105\ 777,621

Deferred loan
fees and expenses

OthersPresent value
discount
Allowance forpossible loan losses

Types of impaired loans and receivables as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015
Corporate loans
Household Loans

Large business

Small and medium
business

Public institution
and others

Credit card loans

Total

Public institution
and others

Credit card loans

Total\ 588,196\ 66,756\ 322,681\ 17,640\ 130,590\ 1,125,863

1,088

-

69

80

-

1,237

9

-

-

-

-

9

(131,712)(24,207)(99,086)(6,490)(102,924)(364,419)

457,581

42,549223,664

11,23027,666762,690\ 459,706\ 983,396\ 1,033,075\ 57,121\ 27,666\ 2,560,964

December 31, 2015
\ 3,079\ 1,369,537\ 1,081,638\ 78,537-\ 2,532,791

Deferred loan
fees and expenses

-

(39)

(426)

29

-

(436)

Allowance forpossible loan losses(2,388)(686,783)(451,057)(33,346)-(1,173,574)

Individual
impairment

691

682,715

630,155

45,220-1,358,781

Collective
impairment

154

Small and medium
business

Interest income on impaired loans and receivables as at December 31, 2015 and 2014 is as follows (Korean won in millions):

Individual
impairment:
Book value

Large businessCorporate loans
Household Loans

Large business

Small and medium
business

Public institution
and others

Credit card loans

Total

\ 86

\ 19,546\ 12,537

\ 715

\-

\ 32,884

5,825

4,257

5,008

231

3,800

19,121\ 5,911\ 23,803\ 17,545\ 946\ 3,800\ 52,005

155

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The credit rating classification of debt securities, which is rated by external rating agencies and applied by KEB Hana Bank, is as follows:

December 31, 2014

Overseas rating agencies

Corporate loans
Household Loans

Large business

Small and medium
business

Public institution
and others

Credit card loans

Total

Individual
impairment\ 153\ 44,789\ 36,780\ 1,083\-\ 82,805

Collective
impairment

26,893

2,541

11,100875

1,876

43,285\ 27,046\ 47,330\ 47,880\ 1,958\ 1,876\ 126,090

Internal rating

Domestic rating agencies

Moody's

S&P

Fitch

Grade 1A1+ ~ A3

AAA ~ A-

Aaa ~ Baa2

AAA ~ BBB

AAA ~ BBB

Grade 2

B1+ ~ B3

BBB+ ~ BB

Baa3 ~ B3

BBB- ~ B-

BBB- ~ B-

Grade 3

C1 ~ C3

BB- ~ B-

Caa1 ~ Caa3

CCC+ ~ CCC-

CCC+ ~ CCC-

Credit risk concentration in each major industry as at December 31, 2015 and 2014 is as follows (Korean won in millions):
December 31, 2015

Overdue payments on debt securities as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Industry

Korean won

Foreign currency

December 31, 2015
Available-for-salefinancial assets

Neither past due
nor impaired\ 12,184,003\ 234,038\ 32,952,680\ 5,616,734\ 50,987,455

Impaired

-

-

7,662

-

7,662

\ 12,184,003\ 234,038\ 32,960,342\ 5,616,734\ 50,995,117

Held-to-maturity
investments

Total

Due from banks

Neither past due
nor impaired
Impaired\ 11,681,259

Financial assets
designated at fair value
through profit or loss
\ 809,757

Available-for-salefinancial assets\ 31,855,318

Held-to-maturity
investments\ 4,365,450

Total\ 48,711,784

-

-

6,792

-

6,792

\ 11,681,259\ 809,757\ 31,862,110\ 4,365,450\ 48,718,576

Internal credit ratings of debt securities as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015

\ 8,985,506\ 8,096,886\ 17,082,392

-

1,542

1,542

-

Others36,604

376,540

413,1442.4

9,022,110

8,474,968

17,497,078

100.0

Financial services

5,785,090

479,663

6,264,753

51.4

Manufacturing506,330

83,757590,087

4.8

Public administration

4,005,092

45,1094,050,201

33.2
0.3

Construction

41,232-

41,232Wholesale & retail\ 50,206\-\ 50,206

0.4

Others

1,149,756

37,7681,187,524

0.9

11,537,706

646,297

12,184,003

100.0

Financial assets
designated at fair value
through profit and loss

Financial services

1,049,879

60,344

1,110,223

100.0

Available-for-salefinancial assets

Financial services

12,076,788

3,338,108

15,414,896

46.8

Manufacturing

220,712

24,696245,408

0.7

Public administration

14,287,835

759,159

15,046,994

45.6

Construction

440,560-

440,560

1.3

Wholesale & retail40,303-40,3030.1

1,384,825

400,050

1,784,875

5.5

28,451,023

4,522,013

32,973,036

100.0

2,953,176

131,4073,084,583

54.9

Financial assets heldfor-trading

Financial assets
designated at fair value
through profit or loss

Available-for-salefinancial assets

Held-to-maturity
investments

Total

Grade 1

\ 2,212,066\-\ 32,405,416\ 5,456,369\ 40,073,851

Grade 2--

72,60750,365

122,972

OthersGrade 3

-

-

7,662

-

7,662

Others

97.6

Financial services
Public administration

Financial assets
held-for-trading(Debt securities)

December 31, 2014
Financial assets heldfor-trading

Ratio (%)

On balance accounts:

Financial assets
designated at fair value
through profit or loss

Financial assets heldfor-trading

Total
Amount

9,971,937

234,038

474,657

110,000

10,790,632\ 12,184,003\ 234,038\ 32,960,342\ 5,616,734\ 50,995,117

Held-to-maturity
investments

December 31, 2014

Financial services
Manufacturing

82,778-82,778

1.5

Public administration

1,604,850

107,524

1,712,374

30.5

Construction

235,518-

235,518

4.2

Others

501,364

117

501,4818.9

5,377,686

239,0485,616,734

100.0
41.3

Financial assets heldfor-trading

Financial assets
designated at fair value
through profit or loss

Available-for-salefinancial assets

Held-to-maturity
investments

Total

Grade 1

\ 2,662,195\-\ 31,488,355\ 4,136,474\ 38,287,024

Household loans

90,525,278

996,357

91,521,635

Grade 2--

52,106

118,973

171,079

Credit card loans

5,710,051-

5,710,051

2.6

Others9,019,064

809,757

321,649

110,003

10,260,473

Business loans

26,578,328

14,124,204

40,702,532

18.4\ 11,681,259\ 809,757\ 31,862,110\ 4,365,450\ 48,718,576

Loans receivable:

Manufacturing
Construction

3,274,991

550,514

3,825,505

1.7

Wholesale & retail

11,243,066

3,997,151

15,240,217

6.9

Financial services

6,272,646

8,695,370

14,968,016

6.8Real estate rental

20,098,737

1,469,122

21,567,859

9.7Transportation

13,026-

13,026-

Electricity, gas andwater supply

477,040

276,992754,032

0.3(Continued on next page)

156

157

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

December 31, 2015

December 31, 2014

Industry

Korean won

Foreign currency

Others22,899,611\ 280,697

Deferred loan feesand expenses
Present value
premium(discount)(4,260)Allowance forpossible loan losses

AmountRatio (%)

6,099,379

28,998,990

13.2\ (9,642)\ 271,055

0.1

81(1,826,944)

Total(404,977)(4,179)-(2,231,921)

Industry

Korean won

Foreign currency

Financial assets
designated at fair value
through profit and loss

Financial services

753,070

Available-for-salefinancial assets

Financial services

11,514,888(1.0)

185,542,267

35,794,551

221,336,818

100.0\ 240,980,671\ 49,737,221\ 290,717,892

Manufacturing\ 330,873\ 859,179\ 1,190,052

54.0

Construction

18,954

68,152

87,1064.0

Wholesale & retail

139,344276,077

415,42118.9

Real estate rental

60,005

16,982

76,987

3.5

Others214,251

219,129433,38019.6

763,427

1,439,519

2,202,946

Guarantee contracts

Manufacturing734,027

7,551,016

Construction

95,891

3,495,000

Commitment

100.0

1,708,849

13,223,737

41.5

Manufacturing526,666

69,019595,685

1.9

14,850,308

643,710

15,494,018

48.6
0.6

Construction

180,617-

180,617Wholesale & retail

60,844-60,844

0.2

Others2,098,048

220,540

2,318,588

7.2

29,231,371

2,642,118

31,873,489

100.0

December 31, 2014
Total
AmountRatio (%)

Financial services\ 2,055,293\ 88,883\ 2,144,176\ 49.1

100.0

Manufacturing

49,908-49,9081.1

8,285,043

42.2

Public administration

1,190,676

107,390

1,298,066

29.7

3,590,891

18.3

Construction

30,000-30,000

0.7

Others838,668

4,632

843,300

19.4

4,164,545

200,905

4,365,450

100.0Household loans

81,878,187

737,095

82,615,282

38.6

Credit card loans

6,081,064-

6,081,064

2.8

29,511,181

16,343,790

45,854,971

21.4

1,942,397

2,516,821

12.8

7,568

1,043,946

1,051,514

5.4

Real estate rental

38,52336,84275,365

0.4

Others708,167

3,425,399

4,133,566

20.9

2,158,600

17,494,600

19,653,200

100.0

Manufacturing

24,576,344

15,418,754

39,995,098

33.7

Construction

2,355,904

1,444,879

3,800,783

3.2

Wholesale & retail

6,132,017

5,109,413

11,241,430

9.5

Financial services

6,913,489

205,202

7,118,691

6.0Real estate rental

2,021,870

13,153

2,035,023

1.7

Electricity, gas andwater supply

25,600-25,600-

Others51,706,807

2,758,365

54,465,172

45.9
100.0

93,732,031

24,949,766

118,681,797\ 96,654,058\ 43,883,885\ 140,537,943

December 31, 2014

Held-to-maturity investments

Loans receivable:

Business loans

Manufacturing
Construction

3,784,758

566,469

4,351,227

2.0

Wholesale & retail

11,585,349

5,313,776

16,899,125

7.9

Financial services

6,007,311

6,407,255

12,414,566

5.8Real estate rental

16,205,662

906,060

17,111,722

8.0

Transportation

969,911

1,101,599

2,071,510

1.0Electricity, gas andwater supply

530,732

147,679

678,411

0.3

Others21,523,353

6,302,825

27,826,178

13.1

Deferred loan feesand expenses

195,299(7,542)

187,757

0.1

Present value premium(discount)(5,703)90(5,613)-

Allowance for possible loan losses

Total
AmountRatio (%)

On balance accounts:
Due from banks

809,757

Foreign currency

574,424

Foreign currency

56,687

Korean won

Financial services

Korean won

Ratio (%)

Industry

Wholesale & retailIndustry

AmountPublic administration

Off-balance accounts:
Financial guarantees

Total

98.3

(1,857,189)(265,873)(2,123,062)(1.0)

176,409,915

37,553,223

213,963,138

100.0\ 232,766,519\ 49,288,562\ 282,055,081

Off-balance accounts:

Financial services\ 10,965,344\ 8,062,460\ 19,027,804

Public administration-

46,28746,2870.2

Manufacturing\ 485,075\ 852,037\ 1,337,112

Others-287,897

287,897

1.5

Construction

30,47885,027

115,505

4.0

10,965,344

8,396,644

19,361,988

100.0

Wholesale & retail245,986

248,925494,911

17.1

Real estate rental

60,006

11,102

71,108

2.5

Transportation

430

17,847

18,277

0.6

Financial guarantees

Financial assets
held-for-trading(Debt securities)

46.1

Financial services

4,980,099

304,086

5,284,185

45.2

Electricity, gas andwater supply-

12,146

12,146

0.4

Manufacturing

721,989

72,445

794,434

6.8

Others\ 272,741\ 579,967\ 852,708

29.3

Public administration

3,887,899

40,435

3,928,334

33.6

Construction

221,403-

221,403

1.9

Wholesale & retail

50,409-50,4090.4

Others1,380,475

22,0191,402,494

12.1

11,242,274

438,985

11,681,259

100.0

Guarantee contracts

Manufacturing

1,094,716

1,807,051

2,901,767

100.0

872,533

10,422,847

11,295,380

45.5(Continued on next page)(Continued on next page)

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December 31, 2015

December 31, 2014

Commitment

Industry

Korean won

Foreign currency

Construction

217,186

Wholesale & retail
Financial services

Total

Korean won

Foreign currency

AmountRatio (%)

Korea

5,377,686

117

5,377,803

95.7

13.2

U.S

-

1

1

0.0

4.4

China

-

55,06855,0681.0

193,220

0.8

Hong Kong-

21,827

21,827

0.4

222,3100.9

Brazil

-14,63014,6300.3

OthersRatio (%)

4,799,568

5,016,754

20.2

576,7882,689,818

3,266,606

16,083

1,063,049

1,079,132

Real estate rental

15,835

177,385

Transportation

128,305

94,005

Electricity, gas and water supply-

453,121453,121

1.8

Others562,4222,710,024

3,272,446

13.2

2,389,152

22,409,817

24,798,969

100.0

Manufacturing

26,815,693

17,074,721

43,890,414

35.2

Construction

2,683,745

963,332

3,647,077

2.9

Wholesale & retail7,622,265

4,925,086

12,547,351

10.1

Financial services

5,522,527

210,267

5,732,794

4.6

Real estate rental

1,753,944

18,217

1,772,161

1.4

Transportation

846,911

193,663

1,040,574

Electricity, gas and water supply

2,668,312

231,750

2,900,062

Others

Held-to-maturity investments

Financial assets held-fortrading (Debt securities)

Total
AmountRatio (%)

Korea

186,713,379

19,237,221

205,950,600

93.0

0.8

U.S

120,864

1,915,890

2,036,754

0.9

2.3

China

18,4294,908,454

4,926,883

2.2

Loans receivable:

50,410,638

2,712,581

53,123,219

42.7

Japan

17,391

341,145

358,536

0.2

98,324,035

26,329,617

124,653,652

100.0

Hong Kong

4,845

1,423,971

1,428,816

0.6\ 101,807,903\ 50,546,485\ 152,354,388

Others217,866

8,382,408

8,600,274

4.0

Deferred loan fees and expenses

280,697(9,642)271,055

0.1

Present value premium (discount)(4,260)81(4,179)0.0

Allowance for possible loan losses(1,826,944)(404,977)(2,231,921)

(1.0)
100.0

Korean won

Foreign currency\ 9,022,110\ 1,608,022

185,542,267

35,794,551

221,336,818\ 240,980,671\ 49,737,221\ 290,717,892

Korea\ 751,494\ 1,439,519\ 2,191,013

Others11,933-

11,933

0.5

763,427

1,439,519

2,202,946

100.0
88.9

Total
AmountRatio (%)

Off-balance accounts:\ 10,630,132

60.8
17.2

99.5

U.S

-

3,004,571

3,004,571

China

-

1,246,718

1,246,718

7.1

Korea

2,141,591

15,325,294

17,466,885

Japan

-

230,086

230,086

1.3

U.S

-

171,871

171,871

0.9

China

-

1,304,144

1,304,144

6.6

Guarantee contracts

Singapore-

168,251

168,251

1.0

Hong Kong-

58,30158,301

0.3

Japan

-

56,62556,625

0.3

Others-2,159,019

2,159,019

12.3

Hong Kong-

34,441

34,441

0.2

9,022,110

8,474,968

17,497,078

100.0

OthersKorea

11,537,706

339,715

11,877,421

97.5

U.S

-

138,325

138,325

1.1

China

-

20,141

20,141

0.2

Commitment

17,009602,225

619,234

3.1

2,158,600

17,494,600

19,653,200

100.0

Korea

93,729,503

22,741,549

116,471,052

98.1

U.S

1,838

211,676

213,514

0.2

China

234

135,609

135,843

0.1

Japan

-

25,77425,774

0.2

Japan

-

70,99470,9940.1

Hong Kong-

21,53021,5300.2

Others456

1,789,938

1,790,394

1.5
100.0

Korea
U.S

Available-for-salefinancial assets

2.6
100.0

Foreign currency

Financial guarantees

OthersFinancial assets
designated at fair value
through profit and loss

147,405
5,616,734

Korean won

On balance accounts:
Korea

147,405
239,048

December 31, 2015

December 31, 2015

Due from banks

5,377,686

Country

Credit risk concentration in each country as at December 31, 2015 and 2014 is as follows (Korean won in millions):

Country

Total

Country

AmountKorea-

100,812

100,8120.8

93,732,031

24,949,766

118,681,797

11,537,706

646,297

12,184,003

100.0\ 96,654,058\ 43,883,885\ 140,537,943

1,049,879-

1,049,879

94.6-

60,34460,3445.4

1,049,879

60,344

1,110,223

100.0

28,451,023

2,856,767

31,307,790

94.9

U.S

-

317,876

317,876

1.0

China

-

202,423

202,423

0.6

Japan

-

128,648

128,648

0.4

Hong Kong-

274,203274,203

0.8

Others-742,096742,096

2.3

28,451,023

4,522,013

32,973,036

100.0(Continued on next page)

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

December 31, 2014
Country

Korean won

December 31, 2014

Foreign currency

Total
AmountRatio (%)

On balance accounts:
Due from banks

Financial assets held-fortrading (Debt securities)

Financial assets
designated at fair value
through profit and loss

Available-for-sale financial
assets

Held-to-maturity
investments

Loans receivable:

Korean won

Foreign currency

Total
AmountRatio (%)

Off-balance accounts:
Korea\ 10,965,344\ 687,323\ 11,652,667

60.2

Financial guarantees

Korea\ 1,094,716\ 1,807,051\ 2,901,767

100.0

U.S

-

2,455,072

2,455,072

12.7

Guarantee contracts

Korea

2,175,939

19,466,985

21,642,924

87.3

China

-

2,727,210

2,727,210

14.1

U.S

-

104,738

104,738

0.4

Japan

-

112,117

112,117

0.6

China

-

1,096,002

1,096,002

4.4

Singapore-

324,719

324,719

1.7

Japan

-

63,187

63,1870.3

Hong Kong-

17,58017,5800.1

Singapore-

118,455

118,455

0.5

Brazil-30,81830,8180.2

Hong Kong-

38,261

38,261

0.2

Others-2,041,805

2,041,805

10.4

Germany

346

74,07574,075

0.3

10,965,344

8,396,644

19,361,988

100.0

Panama

-

9,439

9,439

0.0

Others212,867

1,438,675

1,651,542

6.6

2,389,152

22,409,817

24,798,969

100.0

Korea

98,322,487

24,223,648

122,546,135

98.3

Korea

11,242,274

307,706

11,549,980

98.9

U.S

-

30,60730,607

0.3

China

-

23,20823,208

0.2

U.S

700

304,062304,762

0.2

Others-77,464

77,464

0.6

China

54

237,464

237,518

0.2

11,242,274

438,985

11,681,259

100.0

Commitment

Japan

-

91,97891,9780.1

Singapore-

328,302328,3020.3

Hong Kong-

186,775

186,775

0.1

Others794

957,388958,182

0.8

26,329,617

124,653,652

100.0\ 50,546,485\ 152,354,388

Korea

753,070-753,070

93.0

Others-56,68756,6877.0

98,324,035\ 101,807,903

753,070

56,687809,757

100.0

Korea

29,231,371

1,953,882

31,185,253

97.8

U.S

-

73,72273,722

0.2

China

-

90,921

90,921

0.3

Japan

-

25,73525,7350.1

Singapore-

14,66914,6690.0

Hong Kong-

176,965

176,965

0.6

Malaysia

-

8,708

8,708

0.0

Others-297,516

297,516

1.0

29,231,371

2,642,118

31,873,489

100.0

4,164,545

31,717

4,196,262

96.1

Korea
U.S

-

259

259

00.0

Hong Kong-

20,85820,8580.5

Brazil

-23,613

23,613

0.5

Others-124,458

124,458

2.9\ 4,164,545\ 200,905\ 4,365,450

100.0

Korea

\ 177,760,426\ 22,538,832\ 200,299,258

93.6

U.S

115,199

1,792,539

1,907,738

0.9

China

12,0873,243,780

3,255,867

1.5

Japan

12,916

502,593

515,5090.2

Singapore

3,525

435,659

439,184

0.2

Hong Kong

3,676

1,848,617

1,852,293

0.9

Panama-455,667

455,667

0.2

Germany

1,259

190,555

191,814

0.1

Others168,420

6,818,306

6,986,726

3.3

Deferred loan fees andexpenses

195,299(7,542)

187,757

0.1

Present value premium(discount)(5,703)90(5,613)-

Allowance for possible loan
lossesCountry(1,857,189)(265,873)(2,123,062)(1.0)\ 176,409,915\ 37,553,223\ 213,963,138

100.0

9.2 Liquidity risk
Liquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. The purpose
to manage liquidity risk is to early identify the potential risk factors upon raising and operating the Group’s funds and to obtain a stable revenue
base maintaining an appropriate level of the Group’s liquidity by systematically managing the risk.
The targets of liquidity risk management are all assets and liabilities outstanding in the Group’s statements of financial position.
The Group’s principles regarding liquidity risk management are as follows:- Set up and comply with tolerable limits to liquidity risk
- Maintain liquidity by regularly forecasting cash requirements on a regular basis- Establish an emergency plan against a liquidity crisis to prepare an unexpected liquidity risk
- Evaluate and manage the effect of a large amount of money that is loaned out, invested, or procured on liquidity risks
The Group assesses and manages liquidity ratio of the relevant assets and liabilities denominated in Korean won and in foreign currency byapplying the relevant supervisory regulations. The Group also establishes an acceptable limit and emergency plan for liquidity risk through its
group risk management executive committee, whereby the subsidiaries maintain an adequate liquidity ratio.
The Group’s future cash flows related to its financial liabilities are presented below using undiscounted contractual cash flows based on theearliest maturity date that the Group has to pay.
In addition, financial liabilities held-for-trading subject to fair value through profit or loss and demand deposits are presented in the on demandcolumn below.

282,055,081(Continued on next page)

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The table below summarizes the maturity profile of the contractual undiscounted cash flows of the Group’s financial liabilities. The maturity offinancial liabilities as at December 31, 2015 and 2014 are summarized as follows (Korean won in millions):
On demand

December 31, 2015
After 1 month ~ but noWithin 1 month
later than 3 months

After 3 months ~ but nolater than 6 months

After 6 months~ but nolater than 1 year

After 1 year ~ but nolater than 3 years

December 31, 2015
After 3 years ~ but nolater than 5 years

After 5 years

Total

On balance accounts\ 5,753,318

\-

\-

\-

\-

\-

\-

\-

\ 5,753,318

Financial liabilities
designated at fair value
through profit or loss

8,037,863

-

-

-

-

-

-

-

8,037,863
209,178,223

Financial liabilities held-for-trading

Deposits

90,481,443

15,957,950

27,745,488

25,409,806

38,610,872

7,190,704

1,852,068

1,929,892

Borrowings

2,850,866

6,262,214

4,520,377

1,937,634

2,939,523

2,975,678

691,458

557,775

22,735,525

Debentures

3,514

2,435,443

1,479,950

2,256,997

4,260,517

11,784,555

3,794,052

6,166,514

32,181,542

-

(476)

(9,579)(11,890)

1,245(22,850)(8,363)(71,904)(123,817)

Derivative liabilities used
for hedging purposes
Others

5,063,589

19,152,802

119,325

43,262

120,165

211,960

66,937

239,71025,017,750

112,190,593

43,807,933

33,855,561

29,635,809

45,932,322

22,140,047

6,396,152

8,821,987

302,780,404

Off balance accounts:
Financial guarantees
Commitment

2,202,946

-

-

-

-

-

-

-

2,202,946

118,681,797

-

-

-

-

-

-

-

118,681,797

120,884,743

-

-

-

-

-

-

-

120,884,743\ 233,075,336\ 43,807,933\ 33,855,561\ 29,635,809\ 45,932,322\ 22,140,047\ 6,396,152\ 8,821,987\ 423,665,147

December 31, 2014
After 1 month ~ but noWithin 1 month
later than 3 months

After 3 months ~ but nolater than 6 months

After 6 months~ but nolater than 1 year

After 1 year ~ but nolater than 3 years

December 31, 2014
After 3 years ~ but nolater than 5 years

After 5 years

Total

On demand
On balance accounts\ 5,239,660

\-

\-

\-

\-

\-

\-

\-

\ 5,239,660

Financial liabilities
designated at fair value
through profit or loss

Financial liabilities held-for-trading

6,687,800

-

-

-

-

-

-

-

6,687,800
205,414,402

Deposits

76,113,991

20,816,997

31,277,927

28,292,273

38,238,910

6,841,380

949,794

2,883,130

Borrowings

3,989,975

6,720,522

4,282,362

2,522,891

2,094,142

2,767,695

978,799

437,058

23,793,444

Debentures

7,228

723,156

1,311,190

1,729,628

5,835,001

12,539,812

3,870,577

5,684,291

31,700,883

-

(737)

9,192

(15,875)(3,185)(13,804)(984)(23,893)(49,286)

Derivative liabilities used
for hedging purposes
Others3,065,496

17,299,488

135,039

44,372

197,415

183,375

48,608

192,820

21,166,613

95,104,150

45,559,426

37,015,710

32,573,289

46,362,283

22,318,458

5,846,794

9,173,406

293,953,516

Off balance accounts:
Financial guarantees
Commitment

2,901,767

-

-

-

-

-

-

-

2,901,767

124,653,652

-

-

-

-

-

-

-

124,653,652

127,555,419

-

-

-

-

-

-

-

127,555,419\ 222,659,569\ 45,559,426\ 37,015,710\ 32,573,289\ 46,362,283\ 22,318,458\ 5,846,794\ 9,173,406\ 421,508,935

Derivative liabilities used for hedging purposes are denominated based on the net cash flow because the accounts consist of interest rate swap
only. Available assets that exist in redeeming financial liabilities and unused loan commitments are cash and bank deposits, debt securities,
equity securities, and loans. In addition, the Group is able to cope with unexpected cash flows through the sale of securities and additionalsources of funding, similar to asset backed securitization.

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9.3 Market risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to the changes in market variables such as
interest rates, equity prices, exchange rates in the market.
The purpose of market risk management is to maintain the loss of assets and liabilities incurred due to changes in market variables suchas interest rates, foreign exchanges and equity prices within the allowable limits in order to ensure profitability and stability. Market risk
management targets include marketable securities, foreign currency net positions, derivatives and other assets and liabilities with embedded
market risks,. Significant risks exposed to the Group as at the reporting date are interest rate risk, currency risk and equity price risk.
For market risk management, the Group measures and monitors the relevant risk exposures on a regular basis. The Group also established andcomplies with market risk limits, whereby it can manage the exposures arising from changes of market variables within an adequate level. The
subsidiaries exposed to market risks, such as Hana Bank, KEB and H&DS, set up and operate their own market risk management system. The
group-level market risk exposures are consistently calculated through the group-integrated risk management system. The Group reports its
current status of market risk management to the group risk management execution committee and group risk management committee on amonthly and quarterly basis.

Details of interest rate VaR of the Group as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015

Average

Min

Max

December 31, 2014

\ 688,290\ 525,401\ 259,873\ 864,322\ 435,970

Interest rate VaRInterest rate VaR is calculated by using the maturity bucket repricing gap, interest maturity bucket on modified durations, and expected gap
due to interest rate fluctuation in accordance with BIS standards. Assets classified as below substandard and amounts in checking accounts andtemporary deposits are excluded from the amount calculated.
Equity price risk is the risk that the fair value of equities results in changes in the level of related revenue and capital. Effects on capital due tofluctuations in equity price risk as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015
Equity price risk

20% decline

10% decline

10% rise

20% rise\ (82,450)\ (41,225)\ 41,225\ 82,450

20% decline

10% decline

10% rise

20% rise\ (122,512)\ (61,256)\ 61,256\ 122,512

December 31, 2014

The trading positions include positions of interest rate, equity price, commodity and foreign exchange held for trading purpose:

Equity price risk

- Financial instruments for the purpose of acquiring the differences incurred due to short-term trading or price fluctuations.
- Financial instruments for the purpose of hedging risks- Financial instruments for the purpose of acquiring arbitrages- Financial instruments for the purpose of acquisition, brokerage, and market-making- Monetary financial instruments expressed in other currencies other than the functional currency

The Group measures the non-trading equity price risk on the domestic available-for-sale equity securities only.

The Group establishes group level trading policies, which clearly defines types of financial instruments to be included into trading positions byrisk factors. The Company’s subsidiaries comply with the policies.
The Group’s principles to manage market risk of its trading positions are to measure its market risk status on a regular basis and to establish andcomply with the various market risk limits. The Group analyzes whether the return against risk are appropriate reviewing its profit and risk on aregular basis.
Value at Risk (VaR) is a primary method that manages and measures the degree of market risks of the trading portfolio subject to exposure,which estimates the potential loss of the trading portfolio that is not expected to be exceeded if the current market risk positions were to beheld unchanged for one day. The Group calculates the VaR for a standard 10 days in the 99% confidence level. In addition, to account for the
method’s limited use, stress tests are performed in order to measure the extent of the loss in extreme cases.

Currency risk is the risk that the value of a financial instrument or future cash flows will fluctuate due to changes in foreign exchange rates.
Currency risk arises in financial instruments expressed in currencies other than the functional currency. Currency risk does not arise in financial
instruments expressed in the functional currency or in non-monetary items measured using historical foreign exchange rates. In order toestablish stop loss and limits, the Group manages the foreign exchange net exposure amount of the trading and non-trading portfolios by eachcurrency.
Significant assets and liabilities denominated in foreign currencies as at December 31, 2015 and 2014 are as follows (Korean won in millions or U.S.
dollar in thousands):
December 31, 2015
Amount in foreign currency in units

U.S. dollars (*)

Korean won equivalentUSD

4,922,674,681

US$ 4,922,675\ 5,769,375

JPY

337,574,033

279,970

328,125EUR

649,662,203

709,822831,912CNY

6,481,710,846

998,526

1,170,273

Assets:Cash and due from banks

Risk types of VaR as at December 31, 2015 and 2014 are summarized as follows (Korean won in millions):
Interest rates risk

Currency

IDR

7,120,749,177

51,64460,526HKD

561,827,956

72,486

84,95417

December 31, 2015

Average

Min

Max

December 31, 2014

CAD

20,22015\ 45,664\ 50,379\ 38,697\ 64,225\ 22,235

AUD

1,704

1

1

US$ 672,013\ 787,600
983,968

OthersForeign exchange
rates risk

143,231

195,590

140,403

228,50365,603

USD

839,563,546

839,564

Stock price risk

23,34328,496

16,771

44,202

19,458JPY

1,714,170

1,422

1,666

\ 163,501\ 209,333\ 154,495\ 244,561\ 87,567

EUR

22,403,306

24,47828,688CNY

303,501,615

46,75554,797The calculation of the total risk VaR takes into consideration the correlation and diversification effects between each risk factor and therefore, is
not the same as the arithmetic additions of all the VaRs.

HKD

133,539,825

17,22920,194929,448

1,089,313

Total risk

Financial assets held-for-trading(Continued on next page)

Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments.
The Group manages interest rate risks in order to maintain the stability of net interest income and net asset value.
- Financial assets with interest rates such as bank deposits, debt securities, and loans- Financial liabilities with interest rates such as depository liabilities, borrowings, and debentures- Financial derivatives such as interest rate swaps
To manage interest rate risk, the Group mainly monitors the interest rate gap and VaR, and establishes the relevant limits in advance. Theinterest rate VaR is an estimated maximum loss of net asset due to adverse changes of interest rate.
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December 31, 2015
Currency

Amount in foreign currency in units

December 31, 2015
U.S. dollars (*)

Korean won equivalent

Currency

Amount in foreign currency in units

U.S. dollars (*)

Korean won equivalentUSD

8,235,364,692

US$ 8,235,365￦ 9,651,847

JPY

558,480,600

463,182

542,849

Financial assets
designated at fairvalue through profit or loss

USD

51,488,198

51,48860,344

Available-for-sale financial assets

USD

3,006,744,446

3,006,744

3,523,904

EUR

424,482,717

463,791

543,563

JPY

9,994,000

8,289

9,714

CNY

702,552,163

108,230

126,846

CNY

734,740,976

113,189

132,657

IDR

13,621,079,830

98,788

115,779

IDR

8,541,976,611

61,951

72,607668,199

783,131HKD

9,997,643

1,290

1,512

123,597

144,855

Others
Held-to-maturity investments

3,858,372

4,522,013

USD

18,724,561

18,72521,945EUR

28,529,043

31,17136,532

CNY

305,000,000

IDR

3,597,553,734

BRL

49,441,172

OthersLoans receivable

Others9,494,243

11,127,251

USD

5,296,763,620

5,296,764

6,207,807

55,068EUR

88,000,000

96,149112,687

26,091

30,579CNY

1,294,514,744

199,424

233,725

12,483

14,630

Others

68,51080,294

46,986

Debentures

129,566
6,683,785

203,966

239,048

21,616,399,857

21,616,400

25,334,421

Derivative liabilities
used for hedging purposes

USD

13,118,301

13,11815,375

Other liabilities

JPY

1,275,853,649

1,058,142

1,240,143

USD

4,809,709,464

4,809,709

5,636,979

EUR

1,393,713,860

1,522,775

1,784,692

JPY

189,318,643

157,013

184,020CNY

23,548,536,199

3,627,720

4,251,688

IDR

119,127,209,238

863,977

1,012,581

EUR

155,491,932

169,891

199,1121,852,411

2,171,026

CNY

2,456,239,835

378,391

443,474

30,541,425

35,794,551

IDR

2,150,620,982

15,59818,2802,877,581,505

2,877,582

3,372,526

HKD

79,843,766

10,301

12,073457,863,250

379,733

445,048

AUD

321

-

-

Others231,065

270,809

USD
JPY
EUR

79,574,089

86,943

101,897

CNY

2,017,947,896

310,871364,340

5,771,968

6,764,747

IDR

5,228,949,291

37,92344,446

US$ 48,333,858￦ 56,647,280

81,491

Amount in foreign currency in units

U.S. dollars (*)

Korean won equivalentUSD

4,033,230,286

US$ 4,033,230￦ 4,433,327

JPY

21,098,925,287

176,619

194,140EUR

671,459,074

816,429

897,418CNY

12,578,285,267

2,023,259

2,223,967

HKD

538,924,556

69,531

CAD

1,467

1

1

AUD

32

-

-

476,574

558,545

Others4,239,158

4,968,294

US$ 47,531,009\ 55,706,346

December 31, 2014
Currency
Assets:Cash and due from banks

Liabilities:
Financial liabilities held-for-trading

110,552
5,702,889

USD

OthersOther assets

Borrowings

USD

251,213,844

US$ 251,214\ 294,423

JPY

2,498,500

2,072

2,429

IDR

4,665,660,581,757

374,798

411,978

EUR

46,857,149

51,19660,002

BRL

78,583,464

29,57032,504

HKD

779,677,271

100,593

117,895

HKD

647,634,949

83,48891,770143,820

168,556

CAD

573,475,135

493,824

542,811548,895

643,305

AUD

16,915

OthersFinancial liabilities
designated at fairvalue through profit or loss

USD

Deposits

USD

17,100,437,159

17,100,437

20,041,712

JPY

1,773,353,819

1,470,749

1,723,718

EUR

1,241,791,308

1,356,784

1,590,151

CNY

21,320,001,716

3,284,408

3,849,326

IDR

75,547,949,933

547,916

642,158

HKD

2,868,519,452

370,093433,749

CAD

20,220

15

17

AUD

1,702

1

1

2,312,066

2,709,741

Financial assets designated at fairvalue through profit or loss

￦ 30,990,573

Available-for-sale financial assets

Others360,276,341

360,276

US$ 26,442,469

Others422,244(Continued on next page)

Financial assets held-for-trading

USD

691,686,699

14

15

220,661

242,550

8,251,892

9,070,480

691,687

760,302

JPY

659,933,862

5,524

6,072

EUR

15,158,325

18,431

20,259CHY

183,024,396

29,44032,361

HKD

23,142,037

2,983

3,279

13,43014,763

Others

761,495

837,036

USD

83,591,770

83,592

91,884USD

1,867,444,092

1,867,444

2,052,695

CNY

90,242,567

14,516

15,956IDR

129,037,372,593

10,366

11,394(Continued on next page)

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December 31, 2014
Currency

Amount in foreign currency in units

Others
Held-to-maturity investments

Korean won equivalent

Currency

Amount in foreign currency in units

511,348

562,073

U.S. dollars (*)

Korean won equivalentUSD

9,617,286,379

9,617,286

2,403,674

10,571,321

2,642,118

JPY

45,792,824,846

383,332

421,358

Borrowings

USD

48,065,693

48,066

52,834EUR

478,679,390

582,027

639,765

EUR

515,990

627

690

CNY

(846,815,423)(136,213)(149,725)

IDR

732,319,122,412

58,82864,664

IDR(61,628,195,227)(4,951)(5,442)

BRL

57,089,730

21,482

23,613

BRL

108,614,419

40,871

44,92553,77059,104HKD

19,807,801

2,553

2,807

182,773

200,905

CAD

186,870

161

177

4,877,354

3,989

4,385

OthersLoans receivable

December 31, 2014
U.S. dollars (*)

USD

25,027,292,086

US$ 25,027,292\ 27,509,999

AUD

JPY

178,391,794,788

1,493,317

1,641,454

OthersEUR

1,294,140,146

1,573,548

1,729,644

CNY

18,965,916,342

3,050,731

3,353,364

USD

IDR

8,021,362,640,996

644,365

708,286

EUR

BRL

304,532,640

114,593

125,961

HKD
OthersHKD

168,607,319

21,73523,892CAD

1,277,230,799

1,099,834

1,208,937

AUD

250,976,341

205,286

225,650

933,438

1,026,036

34,164,139

37,553,223

66,17572,740

OthersDerivative assets
used for hedging purposes

USD

Other assets

USD

3,031,834,968

3,031,835

3,332,593

JPY

35,177,204,118

294,468

323,680

EUR

192,384,462

233,921257,126

CNY

2,507,084,517

403,273443,278

66,175,176

Debentures

70,684

77,696

10,559,739

11,607,267

6,089,401,139

6,089,401

6,693,470

36,000,000

43,772

48,115

310,000,000

39,96343,927376,284

413,6126,549,420

7,199,124

19,278,762

19,27921,191

Derivative liabilities
used for hedging purposes

USD

Other liabilities

USD

3,753,496,281

3,753,496

4,125,843

JPY

28,525,501,203

238,787

262,475

EUR

284,245,676

345,615

379,900

CNY

2,703,796,607

434,915

478,058

IDR

437,261,684,479

35,126

38,610BRL

60,898,728

22,91625,189HKD

603,826,454

77,84085,562

CAD

136,496,318

117,538

129,198

36,344,261

IDR

481,919,026,866

38,71342,553

AUD

BRL

28,660,215

10,785

11,854

OthersHKD

729,495,951

94,041

103,370

5,199,858

5,715,684

US$ 50,013,144\ 54,974,451

CAD

21,593,461

18,594

20,439AUD

10,045,302

8,217

9,032

Others133,735

147,000

4,267,582

4,690,925

US$ 50,181,322\ 55,159,311\ 257,677

29,72832,677

US$ 143,897\ 158,172(*) Foreign currencies other than US Dollar are converted into US Dollar equivalent at the exchange rate of the closing date.

Liabilities:
Financial liabilities held-for-trading

USD

234,422,328

US$ 234,422

JPY

656,152,366

5,493

6,038

EUR

15,836,231

19,255

21,165CNY

2,425,849

390

429

HKD

212,996,572

27,45830,182Others

9,805

10,777

296,823

326,268

656,087,803

656,088721,172

Financial liabilities designated atfair value through profit or loss

USD

Deposits

USD

15,497,228,868

US$ 15,497,229\ 17,034,554

JPY

185,870,754,769

1,555,924

1,710,271

EUR

1,503,315,053

1,827,884

2,009,211

CNY

29,941,846,363

4,816,246

5,294,018

IDR

7,406,235,129,586

594,951

653,971

BRL

193,115,412

72,66879,876HKD

1,426,615,603

183,908

202,151

CAD

1,221,303,147

1,051,674

1,156,000

AUD

295,516,823

241,718

265,696

Others889,735

977,997

26,731,937

29,383,745(Continued on next page)

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9.4 Operational risk
Operational risk is the risk of loss arising from systems failure, human error, fraud or other external events. Risks related to strategy or damaging
reputation are excluded but legal or regulatory implications are identified as operational risks. Operational risk includes non-financial risks related
to losses due to internal operational problems and externalities such as natural disasters and terrorist attacks. Operational risk does not have a
direct correlation with income and the Group needs to mitigate such risk through internal controls and insurance.
The Group measures and monitors its operational risk on a regular basis and complies with the predetermined risk limits, whereby the Groupmanages and controls its operational risk arising from changes of its operation environments and internal controls within an appropriate level.
The Company’s subsidiaries measures the operational risk exposures using their own approaches suitable to the relevant supervisory regulationsof each industry and the group level operational risk exposures are consistently calculated through the group-integrated risk management
system. The Group reports its current status of operational risk management to the group risk management execution committee and grouprisk management committee on a monthly and quarterly basis.

Regulatory capital and BIS ratios as at December 31, 2015 and 2014 are as follows (ratio in %):December 31, 2015

December 31, 2014

\ 18,201,778\ 17,301,967

Common Equity Tier 1 capital
Additional Tier 1 capital
Tier 2 capital

Risk-weighted assets:

1,180,939

905,997

19,382,717

18,207,964

5,361,459

5,578,705\ 24,744,176\ 23,786,669\ 168,108,282\ 170,081,611

Credit risk-weighted assets

7,163,058

7,954,673

Market risk-weighted assets

10,608,396

10,344,401\ 185,879,736\ 188,380,685

Common Equity Tier 1 ratio

9.79%

9.18%

Additional Tier 1 capital ratio

10.43%

9.67%

Tier 2 capital ratio

2.88%

2.96%

Total capital ratio

13.31%

12.63%

Operational risk-weighted assets
BIS capital ratio:

9.5 Capital management
The Group implements the BIS capital requirement system in order to secure capital adequacy and comply with the supervisory regulations. The
Group maintains over 8% total capital ratio, 6.0% additional Tier 1 capital ratio, 4.5% common Equity Tier 1 ratio in accordance with BIS capitalrequirement system. In addition, the Group performs a capital adequacy assessment in order to cope with an unexpected loss.
Risk-weighted assets calculated per each risk type when calculating BIS ratio are as follows:- Credit risk incurs when potential loss arises from default of a borrower or counterparty or downgrading of its credit rating Risk-weighted
assets of credit risk of bank subsidiaries are calculated using the internal model approved by Financial Supervisory Service. Risk-weighted
assets of credit risk are calculated by multiplying risk weights reflecting counter party credit rating, maturity, collateral and guarantees granted
according to the standardized model of Basel III.
- Market risk incurs when potential loss arises from the fluctuation of market price of stocks, interest rates and foreign currency rates. Riskweighted assets of market risk are calculated by multiplying 12.5 to the required capital of market risk, which consists of the interest rate risk,
equity price risk, foreign currency risk, commodity risk and option risk, according to the standardized model of Supervisory Regulations on
Financial Holding Companies.
- Operational risk incurs when loss arises from systems failure, human error, business process. Risk-weighted assets of operational risk arecalculated by multiplying 12.5 to the required capital of operational risk according to asterisk 3 of Detailed of Regulations on Supervisory of
Banking Business.
Regulatory capital in accordance with the Regulations on the Supervision of Banking Business for calculating BIS ratio is as follows:- Common Equity Tier 1: common shares issued by the group that meet the criteria for classification as common shares for regulatory purposes,
stock surplus (share premium) resulting from the issue of instruments included in Common Equity Tier 1, retained earnings, Accumulated
other comprehensive income and other disclosed reserves, common shares issued by consolidated subsidiaries of the group and held by
third parties (ie minority interest) that meet the criteria for inclusion in Common Equity Tier 1 capital, regulatory adjustments applied in thecalculation ofCommon Equity Tier 1- Additional Tier 1: instruments issued by the group that meet the criteria for inclusion in Additional Tier 1 capital, stock surplus (share premium)resulting from the issue of instruments included in Additional Tier 1 capital, instruments issued by consolidated subsidiaries of the group andheld by third parties that meet the criteria for inclusion in Additional Tier 1 capital and are not included in Common Equity Tier 1, regulatory
adjustments applied in the calculation of Additional Tier 1- Tier 2 capital: Instruments issued by the group that meet the criteria for inclusion in Tier 2 capital (and are not included in Tier 1 capital), Stocksurplus (share premium) resulting from the issue of instruments included in Tier 2 capital, Instruments issued by consolidated subsidiaries of
the group and held by third parties that meet the criteria for inclusion in Tier 2 capital and are not included in Tier 1 capital, Certain loan loss
provisions, Regulatory adjustments applied in the calculation of Tier 2 CapitalInternal capital is the amount that allows for continuous operation of business while accounting for all risks. Internal capital is defined as thesize of capital needed to cope with unexpected loss under a certain rate. The purpose of managing the internal capital is to compare the sizeof internal capital and available capital (Tier 1) and to serve as a measure of financial strength. Managing the internal capital also provides theamount of risk-adjusted capital and the basis for measurement. The indicators consist of risk appetite ratio as well as exhaustion ratio of foreign
holding limits. The risk appetite ratio is an internal capital ratio established after taking into consideration a capital buffer in Tier 1 capital. The
exhaustion ratio of foreign holding limits is a ratio used to measure the amount of internal capital used against the internal capital limits.
Internal capital limits are established after accounting for the size of current and subsequent Tier 1 capital as well as the components, quality, risk
appetite, target credit rating, operational strategy and business plans. The Risk Committee determines risk types and internal capital limits for
HFG and each subsidiary more than once a year. In the case where new operations or expansion of operations result in the amount exceeding
the internal capital limits, an approval from the Risk Committee is needed beforehand. If such a situation occurs in cases outlined as exceptions,an approval from the Risk Committee is needed for the information on exceeded amount, post hoc results, as well as subsequent plans.

10. Operating segments information
The Group is organized into five operating segments based on their financial information of each legal entity used for making decisions about
resources to be allocated to the segment and assessing its performance. Details of operating segments are presented below:- KEB Hana Bank (formerly KEB) and its subsidiaries (KEB Hana Bank)- HFI (formerly H&DS) and its subsidiaries (HFI)- KEB Hana Card and its subsidiaries (KEB Hana Card)- Others: consist of Hana Financial Group’s separate performance and its other subsidiaries such as Hana Capital, Hana Asset Trust, Hana I&S, HIF,
Hana Savings Bank, Hana Life Insurance, HIS and Hana Bancorp, Inc.
The net income of the operating segments for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Year ended 31, December 2015
KEB Hana Bank(*1)
HFI(formerly KEB) (formerly H&DS)

KEB Hana Card

OthersSubtotal

Adjustments

Total

Operating income:Net interest income
Net fee and commission income
OthersImpairment loss of financial assets\ 4,359,142\ 140,069\ (136,973)\ 155,728\ 4,517,966\ 20,893\ 4,538,859

701,383

266,073

664,739

91,0391,723,234(26,789)

1,696,445

1,075,549(9,343)23,33853,268

1,142,812(68,980)

1,073,832

6,136,074

396,799551,104

300,035

7,384,012(74,876)

7,309,136(958,411)

42,075(151,846)(54,491)(1,122,673)

29(1,122,644)

5,177,663

438,874

399,258

245,544

6,261,339(74,847)

6,186,492(Continued on next page)

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Year ended December 31, 2015

Year ended 31, December 2015
KEB Hana Bank(*1)
HFI(formerly KEB) (formerly H&DS)

KEB Hana Card

OthersSubtotal

Adjustments

Total

General and administrative expenses(3,545,636)(344,862)(361,077)(215,628)(4,467,203)(63,773)(4,530,976)

Net other operating income (loss)(492,929)

13,941(26,753)

345,081(160,660)(484,341)(645,001)

Operating income

1,139,098

107,953

11,428374,997

1,633,476(622,961)

1,010,515

161,263

68,485(12,577)(26,903)

190,268(4,393)

185,875

Net other non-operating income(loss)(225,948)(46,606)

11,268(34,749)(296,035)

53,926(242,109)\ 1,074,413\ 129,832\ 10,119\ 313,345\ 1,527,709\ (573,428)\ 954,281

Income tax expenses
Net income

Year ended 31, December 2014
Hana BankKEB

H&DS KEB Hana Card

OthersSubtotal

Adjustments

Total\ 12,356\ 4,694,508
1,617,827

Operating income:Net interest income\ 2,626,131\ 1,851,819\ 201,111\ (123,412)\ 126,503\ 4,682,152

Net fee andcommission income

338,148555,699

192,269

512,82735,088

1,634,031(16,204)

Others463,153437,960

10,503

19,14340,000970,759(117,073)

853,686

3,427,432

2,845,478

403,883

408,558

201,591

7,286,942(120,921)

7,166,021(604,413)(631,233)(8,139)(133,675)(81,114)(1,458,574)

14,564(1,444,010)

Impairment loss offinancial assets

2,823,019

2,214,245

395,744274,883

120,477

5,828,368(106,357)

5,722,011(1,627,592)(1,479,784)(309,068)(244,689)(183,715)(3,844,848)(91,357)(3,936,205)

Net other operating
income (loss)(282,285)(126,702)

8,451(25,284)

242,446(183,374)(358,985)(542,359)

Operating income

913,142

607,759

95,127

4,910

179,2081,800,146(556,699)

1,243,447

Net other non-operating
income (loss)

179,866(149,187)

24,538339

3,819

59,375(50,259)

9,116

Income tax expenses(236,589)(82,178)(23,338)(2,355)(25,046)(369,506)

96,732(272,774)

Net income\ 856,419\ 376,394\ 96,327\ 2,894\ 157,981\ 1,490,015\ (510,226)\ 979,789

General andadministrative expenses(*1) Hana Bank’s (extinct corporation) profit or loss is included.

The operating income from external customers and internal transactions for the years ended December 31, 2015 and 2014 are as follows (Korean
won in millions):
Year ended December 31, 2015
KEB Hana Bank
HFI
(formerly KEB) (formerly H&DS)
Revenue from externalcustomers
Revenue (expense) frominternal transactions

KEB Hana Card

OthersSubtotal

Adjustments

Total\ 6,033,330\ 414,480\ 629,904\ 296,081\ 7,373,795\ (74,876)\ 7,298,919

102,744(17,681)(78,800)

3,954

10,217-

10,217\ 6,136,074\ 396,799\ 551,104\ 300,035\ 7,384,012\ (74,876)\ 7,309,136

KEB Hana Bank
HFI
(formerly KEB) (formerly H&DS)
Gain (loss) on equity method
Depreciation andamortization

KEB
Hana Card

OthersSubtotal

Adjustments

Total\ 140,319\ (159)

\ 476

\ 208

\ 140,844\ (50,554)\ 90,290

206,763

11,17647,95329,819295,711

178,469

474,180\ 347,082\ 11,017\ 48,429\ 30,027\ 436,555\ 127,915\ 564,470

Year ended December 31, 2014
Hana Bank

KEB

H&DS

KEB Hana Card
OthersOthersSubtotal

Adjustments

Total

Gain (loss) on equity method\ 92,286\ 10,591\ 18,380\ (180)\ 37\ 121,114\ 1,327\ 122,441

Depreciation andamortization

118,539

106,639

11,247

8,746

44,376

289,547

180,940

470,487\ 210,825\ 117,230\ 29,627\ 8,566\ 44,413\ 410,661\ 182,267\ 592,928

Revenue from external customers for the years ended December 31, 2015 and 2014 and non-current assets as at December 31, 2015 and 2014is as follows (Korean won in millions):
December 31, 2014

Domestic

Revenue from external customers
Year ended
Year ended
December 31, 2015
December 31, 2014
\ 6,862,693\ 6,782,022

Non-current assets
December 31, 2015

December 31, 2014

\ 3,844,582\ 3,557,847
4,728

Foreign:Hong Kong

68,184

68,8204,867

Singapore

26,73325,727

454

477

U.S

40,341

41,424

8,463

8,121

Japan

17,39618,985

4,365

4,439

China

141,651

165,743

34,37035,42010,062Indonesia

84,896

61,6408,344

U.K

17,944

14,3152,460

572

Canada23,98031,636

10,258

5,793

OthersAdjustments

89,97869,515

5,686

4,005

511,103497,805

79,26773,617(74,877)(120,921)

716,366

899,195\ 7,298,919\ 7,158,906\ 4,640,215\ 4,530,659

Non-current assets consist of property and equipment, investment properties, and intangible assets and are classified as either domestic oroverseas depending on its geographic proximity.

Year ended December 31, 2014
Hana Bank

KEB

H&DS

KEB Hana Card
OthersOthersSubtotal

Adjustments

Total

Revenue from externalcustomers\
3,348,461\ 2,872,191\ 416,634\ 497,392\ 145,149\ 7,279,827\ (120,921)\ 7,158,906

Revenue (expense) frominternal transactions

78,971(26,713)(12,751)(88,834)

56,442

7,115

-

7,115

\ 3,427,432\ 2,845,478\ 403,883\ 408,558\ 201,591\ 7,286,942\ (120,921)\ 7,166,021

Significant non-cash transactions included in income of operating segments for the years ended December 31, 2015 and 2014 are as follows(Korean won in millions):

174

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11. Cash and due from banks

Fair value (book value)

Cash and due from banks as at December 31, 2015 and 2014 are as follows (Korean won in millions):
Counterparty

Interest rate (%)

Details
December, 31, 2015

Cash
Due from banks in
Korean won

Due from banks In
foreign currencies

December, 31, 2014

\ 2,248,698\ 2,895,743

Reserve deposits
with BOKBank of Korea(BOK), etc.

1.7~2.4

6,272,976

8,179,835

Certificates of
Deposit

Other banks

1.3~3.2

1,312,778

1,091,855

Other deposits

Other financial
institutions

0.0~1.9

1,436,356

1,693,655

9,022,110

10,965,345

Corporate bonds

Interest rate (%)

December 31, 2015

December 31, 2014

0.0~6.5

2,318,729

3,114,211

485,882

161,825

Beneficiary certificates
Securities denominatedin foreign currencies

Equity securities in foreign currencies-

11

20,525

Bonds in foreign currencies

0.0~5.9646,297438,985

Beneficiary certificates in foreign currencies-

67,81615,855714,124475,365

682,960

604,897

5,109,704

4,618,758\ 18,580,780\ 17,218,152

Other securities
Derivatives assets
held for trading purpose (*)

Due from banks
on demand

BOK, etc.

0.0~0.7

5,014,171

4,496,702(*) Refer to Note 18.

Time deposits

Bayern LB andothers

0.0~8.6

996,819

2,399,498

Debt securities included in trading securities as at December 31, 2015 and 2014 consist of the following (Korean won in millions):

Other deposits

Other financial
institutions

0.0~1.7

2,463,9781,500,443

8,474,968

8,396,643\ 19,745,776\ 22,257,731

December 31, 2015
Par value

Acquisition cost

Amortized cost

Fair value (book value)\ 3,314,799\ 3,366,565\ 3,362,869\ 3,403,959

Finance bonds

5,784,498

5,813,582

5,812,876

5,815,018

Corporate bonds

2,346,004

2,362,545

2,363,928

2,318,729

Government and public bonds

634,697625,178625,178646,297\ 12,079,998\ 12,167,870\ 12,164,851\ 12,184,003

Par value

Acquisition cost

Amortized cost

Fair value (book value)\ 3,028,331\ 3,024,490\ 3,023,792\ 3,037,129

Finance bonds

5,069,448

5,074,634

5,075,358

5,090,934

Corporate bonds

3,081,496

3,087,700

3,087,990

3,114,211

Bonds in foreign Currencies

Restricted balances in due from banks as at December 31, 2015 and 2014 are summarized as follows (Korean won in millions):
December 31, 2015

December 31, 2014

Restrictions

Reserve deposits with BOK\ 6,272,976\ 8,179,835

The Bank of Korea Act

Reserve for futures trading

7,560

309

Margin for trading accountDue from banks in Korean won:Reserve for claims of customers’ deposits

436,296282,545

Regulation on brokerage business of securities
company, etc.

Other deposits

206,023

220,799

For the right of pledge, etc.

6,922,855

8,683,488

December 31, 2014
Government and public bonds

Bonds in foreign Currencies

Due from banks in foreign currencies:
Due from banks on demand

2,048,662

916,703

Reserve for payment of deposits, etc

Other deposits

1,423,662

468,800

OTC derivative contracts, etc.

3,472,324

1,385,503\ 10,395,179\ 10,068,991

424,346424,647424,626

438,985\ 11,603,621\ 11,611,471\ 11,611,766\ 11,681,259

12. Financial assets held-for-trading
Financial assets held-for-trading as at December 31, 2015 and 2014 are as follows (Korean won in millions):
Fair value (book value)
Details

Interest rate (%)

December 31, 2015

December 31, 2014

Equity securities

Samsung Electronics Co., Ltd. and others-\ 50,404\ 115,033

Government
and public bonds

Government bonds

1.1~5.7

2,855,573

2,496,628

Finance bonds

Housing bonds

0.0~3.0

370,212307,260

Others

1.5~5.2

178,174

233,241

3,403,959

3,037,129

Commercial bank bonds

1.6~7.1

1,940,700

1,346,480

Industrial financial debenture

1.5~4.5

1,207,702

678,159

Small & medium industry
finance bonds

1.5~5.0

720,502461,108

Currency stabilization bonds

1.6~2.8

385,931

740,756

KEXIM bond

1.6~1.8

158,190

157,398

Others

1.8~5.9

1,401,993

1,707,033

5,815,018

5,090,934(Continued on next page)

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

13. Financial assets designated at fair value through profit or loss

Non-marketable equity securities including Korea Asset Management Corporation amounting to \39,107 million and \56,063 million as at
December 31, 2015 and 2014, respectively, were valued at cost as their fair values could not be reasonably estimated.

Financial assets designated at fair value through profit or loss as at December 31, 2015 and 2014 are as follows (Korean won in millions):
Derivative linked securities
Deferred day 1 profit or loss
Equity securities
Debt securities

December 31, 2015

December 31, 2014

\ 871,579\ 490,038

4,606

6,151

304,201

235,919

234,038

313,568\ 1,414,424\ 1,045,676

In regard to derivative linked securities, the Group does not separate embedded derivatives from main contracts but designates them as fairvalue through profit or loss. The Group designates equity securities from collective financial instruments managed on a fair value basis as fairvalue through profit or loss in accordance with a documented internal risk management or investment strategy.

The fair value of the available-for-sale non-marketable equity securities such as Korea Housing Guarantee Co., Ltd. was measured by anindependent valuer using actuarial assumptions. The fair value was determined based on more than one valuation model such as the Discounted
Cash Flow (DCF) model, Imputed Market Value (IMV) model, and Risk Adjusted Discounted Cash Flow (RADCF) model, depending on thecharacteristic of the equity securities as deemed appropriate.
Shares held by the Group with disposal restrictions as at December 31, 2015 are summarized as follows (Korean won in millions):
December 31, 2015
Number of sharesBook value

Disposal restriction

770,012\-

Until February 11, 2016
Until February 16, 2016

Steel&Resources Co., Ltd.

371-

30,00061

Until March 17, 2016

Taihan Electric Wire Co., Ltd.

54,415,100

124,611

Until October 19, 2016

Samho International Co., Ltd.

788,000

12,253

Until December 31, 2016

Young Gwang Stainless Co., Ltd.

111,400

137

Until December 31, 2016

Jaeyoung Solutec Co., Ltd.

305,333

838

Until December 31, 2016

Cosmotec Co., Ltd.

2,126,000

449

Until December 31, 2016

Daiyang Metal Co., Ltd.

1,512,600

2,240

Until October 4, 2017

10,00020

Until November 10, 2017

Seunghwa Pretech Co., Ltd.
Hana Financial Seventh Special Purpose Acquisition Company

14. Available-for-sale financial assets
Available-for-sale financial assets as at December 31, 2015 and 2014 are as follows (Korean won in millions):
Fair value (book value)
Details

Interest rate (%)

December 31, 2015

December 31, 2014

Equity securities

LG LIFE SCIENCES, LTD. and others-\ 1,028,728\ 1,281,032

Investments inpartnerships

Vogo II Private Equity Fund and others-

203,765

198,477

Government andpublic bonds

Finance bonds

Corporate bonds

Other securities

5,000

10

Until November 13, 2017

OSUNG LST Co., Ltd.

4,403,333

3,501

Until December 31, 2017

Gmp

3,916,000

1,273

Until December 31, 2017

STX Engine Co., Ltd.

2,179,350

14,820

Until December 31, 2017

STX Offshore & Shipbuilding Co., Ltd.

11,589,600\ 12

Until December 31, 2017

553,000

3,130

Until December 31, 2017
Until March 5, 2018

Hana Must Third Special Purpose Acquisition Company

Treasury bonds

1.6~5.8

8,878,875

9,108,809

Housing bonds

1.8~3.0

2,359,212

3,078,801

Others

1.9~3.5

413,647

428,320

11,651,734

12,615,930

STX Heavy Industries Co., Ltd.

Currency stabilization bonds

1.5~2.8

5,758,185

6,217,623

Hana Must Fourth Special Purpose Acquisition Company

2,000

4

Deposit money commercial bank bonds

1.6~5.4

560,720

1,076,253

Hana Mist Fifth Special Purpose Acquisition Company

1,000

2

Until April 27, 2018

Small & medium industry finance bonds

1.7~3.1

890,499

656,452

BoKwang Industry Co., Ltd.

90,000473

Until October 26, 2018

Industrial financial debenture

1.7~4.0

1,115,564

1,199,035

Dongbu Steel Co., Ltd.

942,400

4,938

Until December 31, 2018

KEXIM bonds

1.7~3.0

190,121461,713

Kukje, Machinery Co., Ltd.

438,000

1,271

Until M&A be madeOthers

2.0~4.8

194,852-

Kumho Tire Co., Ltd.

2,427,429

16,337

Until resolution of creditors association

8,709,941

9,611,076

Non-financial corporate bonds

1.8~6.3

1,385,950

1,650,092

SOE bonds

0.0~5.8

6,690,704

5,342,894

Oriental Precision & Engineering Co., Ltd.

2,644,313

5,659

8,076,654

6,992,986

Individual disposal is restricted for 420,755
shares due to a Block deal and 101,442
shares are safe deposit of securities
certificates until December 31, 2016

3,454,062

1,607,202

Chinhung International Inc.

2,823,400

6,494

Until December 31, 2016
(except for 2,376,000 shares)

25,10043,949-(*)

Beneficiary certificates
Securities denominatedin foreign currencies

Hana Must Second Special Purpose Acquisition Company

Equity securities in foreign currencies-

Bonds in foreign currencies

0.3~7.1

4,522,013

Investment in foreign currencies-

16,410Beneficiary certificates in foreign currencies

-

57

59

4,563,580

2,712,721

Beneficiary certificates-

2,642,118

12,69546,514\ 37,701,159\ 35,065,938

Others\ 198,533(*) Of the shares included in others that are embedded with restrictions on disposal, 18,426,419 shares of Pantech Co., Ltd. are restricted until the resolution of shareholders’ committee,
1,844,400 shares of Kohap Co., Ltd. are restricted until the end of liquidation.

Debt securities as at December 31, 2015 and 2014 are summarized as follows (Korean won in millions):
December 31, 2015

Equity securities (including equity securities denominated in foreign currencies) as at December 31, 2015 and 2014 are summarized as follows(Korean won in millions):
Fair value (book value)Book value before valuation

Accumulated othercomprehensive income

December 31, 2015

December 31, 2014

Marketable
equity securities\ 625,399\ (7,650)\ 617,749\ 678,313

Non-marketable
equity securities

434,400

1,679

436,079

646,668\ 1,059,799\ (5,971)\ 1,053,828\ 1,324,981

178

Par value

Acquisition cost

Amortized cost

Fair value(book value)\ 11,155,000\ 11,551,144\ 11,464,752\ 11,651,734

Finance bonds

8,683,300

8,695,273

8,689,566

8,709,941

Corporate bonds

7,944,349

7,997,536

7,971,525

8,076,654

Government and public bonds

Bonds denominated in foreign currencies

4,456,255

4,574,184

4,537,810

4,522,013\ 32,238,904\ 32,818,137\ 32,663,653\ 32,960,342

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

December 31, 2014
Government and public bonds
Finance bonds Corporate bonds

Par value

Acquisition cost

Amortized cost

Fair value(book value)\ 12,038,800\ 12,444,293\ 12,389,296\ 12,615,930

9,565,139

9,559,868

9,566,397

Realized gain and loss from disposal of available-for-sale financial assets for the years ended December 31, 2015 and 2014 are as follows (Korean
won in millions):
Year ended December 31, 2015
Realized gain

Realized loss

\ 257,713\ 16,993

Other equity securities

48,728

6,540

Government and public bonds

197,174

815

Finance bonds

41,86014

Corporate bonds

59,4591,957

9,611,076

Corporate bonds

6,830,900

6,919,162

6,858,320

6,992,986

Bonds denominated in foreign currencies

2,549,251

2,631,562

2,614,487

2,642,118\ 30,984,090\ 31,554,885\ 31,428,500\ 31,862,110

The fair value of debt securities is measured based on the average of the valuations provided by KIS Pricing Inc., the Korea Asset Pricing Co. and
NICE Pricing Service Inc.

Equity securities

Securities denominated in foreign currencies

Beneficiary certificates securities as at December 31, 2015 and 2014 are summarized as follows (Korean won in millions):

Bond-type beneficiary certificates
Securities certificates
Other certificates

2,548\ 28,867

Year ended December 31, 2014

December 31, 2015
Book value
before valuation

Accumulated othercomprehensive income

Book value\ 606,580\ 617,267\ (7,270)\ 609,997

193,897

191,115(1,721)

189,394

2,654,615

2,652,015

2,713

2,654,728\ 3,455,092\ 3,460,397\ (6,278)\ 3,454,119

Acquisition cost

29,974\ 634,908

Realized gain

Realized loss

\ 199,078\ 19,285

Other equity securities

28,195

11,087

Government and public bonds

97,074

1,288

Finance bonds

24,53777

Corporate bonds

31,5651,842

Equity securities

Securities denominated in foreign currencies

43,3732,057\ 423,822\ 35,636

December 31, 2014
Acquisition cost

Book value
before valuation

Accumulated othercomprehensive income

Book value\ 610,004\ 550,004\ 5,897\ 555,901

Securities certificates

160,249

160,243

1,847

162,090

Other certificates

877,701

885,856

3,415

889,270\ 1,647,954\ 1,596,103\ 11,159\ 1,607,261

Bond-type beneficiary certificates

Changes in the unrealized gain (loss) of the Group’s available-for-sale financial assets for the years ended December 31, 2015 and 2014 are as
follows (Korean won in millions):

Dividend gain on available-for-sale financial assets for the years ended December 31, 2015 and 2014 is as follows (Korean won in millions):
Equity securities
Investment in partnerships

Other equity securities

December 31, 2015
Book value

Fair value

Assets:Tax effectEnding balance\ 245,061\ (151,771)\ 190,326\ (9,330)\ 274,286

Financial assets held-for-trading (*)\ 4,056,837\ 4,056,837

8,680

Available-for-sale financial assets (*)

793,474

793,474

12,322(1,041)(3,764)

1,163

Held-to-maturity investments(125,363)

41,81063,287

Finance bonds

35,280(14,573)(28,488)

10,4212,640

Corporate bonds

122,797

16,817(40,359)

5,697

104,952

4,098(5,236)(43,414)

11,773(32,779)\ 613,805\ (203,211)\ (51,062)\ 61,534\ 421,066

Year ended December 31, 2014

70

71

4,850,381

4,850,382

Liabilities:
Bonds sold under repurchase agreements
Net position

4,609,093

4,609,093\ 241,288\ 241,289

December 31, 2014
Book value

Fair value

Assets:Beginning balance

Unrealized gain (loss)

Realized loss

Tax effectEnding balance

Financial assets held-for-trading (*)\ 4,518,955\ 4,518,955\ 241,232\ 222,512\ (217,460)\ (1,223)\ 245,061

Available-for-sale financial assets (*)

1,095,310

1,095,310

12,164

26,711(26,502)(51)

12,322Government andpublic bonds(2,575)274,368(14,709)(62,837)

194,247

Finance bonds

1,610

47,635(3,215)(10,750)

35,280

Corporate bonds

18,415

159,422(21,715)(33,325)

122,797

Securities denominatedin foreign currencies

8,159

11,286(16,644)

1,297

4,098

\ 279,005\ 741,934\ (300,245)\ (106,889)\ 613,805

180\ 42,855

Realized loss

(47,407)

Other equity securities

9,749\ 64,085

Unrealized gain (loss)

194,247

Equity securities\ 33,106

37,706

Beginning balance

Government andpublic bonds

Securities denominatedin foreign currencies

Year ended December 31, 2014

\ 26,379

Transferred financial assets that are not fully derecognized as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Year ended December 31, 2015
Equity securities

Year ended December 31, 2015

Held-to-maturity investments

85,00093,0755,699,265

5,707,340

Liabilities:
Bonds sold under repurchase agreements
Net position

4,744,056

4,745,433\ 955,209\ 961,907(*) Loaned available-for-sale securities with no associated liabilities recognized amounting to \190,653 million and \1,551,498 million as at December 31, 2015 and 2014, respectively,
have been included.

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 201516. Pledged assets
15. Held-to-maturity investments

Assets pledged as collateral for the purpose of resale agreement bonds from other banks, futures options and securities deposits formembership maintenance at the stock exchange for trading financial assets, available-for-sale financial assets and held-to-maturity investments

Held-to-maturity investments as at December 31, 2015 and 2014 consist of the following (Korean won in millions):
Book value
Government and public bonds

Finance bonds

Corporate bonds

Bonds denominated inforeign currencies

as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Details

Interest rate (%)

December 31, 2015

December 31, 2014

Treasury bonds

3.0~5.8\ 513,310\ 352,296

Housing bonds

1.8~5.4

484,594569,520

Regional development bonds

2.5

37

51

997,941

921,867

Book value
Details
Financial assets held-for-trading

Pledged securities
Derivative instruments

December 31, 2015

December 31, 2014

\ 1,701,392\ 968,934

1,260,193

1,757,305

Currency stabilization bonds

1.7~2.8

1,121,050

1,310,558

KRX, etc

184,769

290,076

Commercial bank bonds

3.4~7.1

434,065

391,944

Client RP

368,165

3,550,021

Small & medium industry finance bonds

3.3~4.4

111,222

100,369

Others3,514,519-

Industrial financial Bond

3.4

11,274

81,491

1,701,392

6,566,336

Land and housing bonds

3.5

100,001-

Futures292,141

186,974

1,777,612

1,884,362

Daylight credit

286,742

687,153

Foreign currency borrowing

571,859

512,746

183,155

557,310

Available-for-sale financial assets

SOE bonds

1.6~5.2

764,180

1,028,352

Corporate bonds

2.1~6.5

1,837,953

249,964

Pledged securities

Specific law bonds--

80,000Borrowings

596,664

2,602,133

1,183,123

1,358,316

BOK payment

3,526,229

3,042,117

239,048

200,905

Bonds in foreign
Currencies

2.0~7.4\ 5,616,734

1,210

-

47,255

BOK borrowings

617,428504,333

Others581,638

216,714

7,242,906

6,352,476\ 9,712\-

Borrowing denominated in foreign currency (CSA)\ 4,365,450

Details of held-to-maturity securities as at December 31, 2015 and 2014 are summarized as follows (Korean won in millions):
December 31, 2015

591

Contract fulfillment guarantees

Held-to-maturity investments

Foreign currency borrowing

Par value

Acquisition cost

Amortized cost

Book value

Establishment of a pledge right600\ 1,028,125\ 979,442\ 997,941\ 997,941

Futures

100,101

275,287

Finance bonds

1,770,800

1,776,839

1,777,612

1,777,612

BOK payment

370,133

933,045

Corporate bonds

2,588,300

2,605,476

2,602,133

2,602,133

Daylight credit-

610,359

237,018

238,338

239,048

239,048

Borrowings

20,803

152,659\ 5,624,243\ 5,600,095\ 5,616,734\ 5,616,734

Client RP

250

85,250Government and public bonds

Bonds denominated in foreign currencies

Borrowing denominated in foreign currency (CSA)

December 31, 2014
Government and public bonds

BOK borrowings

5,046

-

438,931

399,178

Acquisition cost

Amortized cost

Book value

4,382

243,554\ 968,626\ 907,715\ 921,867\ 921,867

910,1972,744,131\ 11,667,622\ 15,662,943

Finance bonds

1,880,000

1,885,218

1,884,362

1,884,362

1,345,400

1,360,719

1,358,316

1,358,316

182

5,038

Par value

Corporate bonds
Bonds denominated in foreign currencies

Securities paid

196,810

198,777

200,905

200,905\ 4,390,836\ 4,352,429\ 4,365,450\ 4,365,450

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

17. Loans and receivables

December 31, 2014

Details of loans and receivables as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015

December 31, 2014

Loans and receivables:
Loans in Korean won
Loans in foreign currencies\ 175,598,418\ 165,574,424

22,791,170

21,519,941

Korean won

Foreign currencies

Total

Corporate loans:
Large business\ 29,734,087\ 20,651,806\ 50,385,893

Small and medium business

55,227,550

8,024,247

63,251,797

Public sector and others

5,156,620

8,413,400

13,570,020

90,118,257

37,089,453

127,207,710
82,615,282

Domestic import usance

3,648,048

5,583,234

Household loans

81,878,187

737,095

Call loans

4,918,667

3,299,790

Credit card loans

6,081,064-

6,081,064

369,852

737,816

178,077,508

37,826,548

215,904,056

5,617,001

7,151,175

54,48529,432Credit card loans

5,710,051

6,081,187

Deferred loan feesand expenses

195,299(7,542)

187,757

Bonds purchased under resale agreement

1,330,701

1,687,460

Present value discount(5,703)90(5,613)616,874

1,628,178

Allowance for possible
loan losses(1,857,189)(265,873)(2,123,062)\ 176,409,915\ 37,553,223\ 213,963,138

Bills purchased in Korean won
Bills purchased in foreign currencies
Advance payments on acceptances and guarantees

Installment receivables purchased
Privately-placed corporate bonds

1,223,262

1,316,895

Lease receivables

1,423,334

1,294,524

223,301,863

215,904,056

271,055

187,757

Plus (less):
Deferred loan fees and expenses
Present value discountAllowance for possible loan losses(4,179)(5,613)(2,231,921)(2,123,062)\ 221,336,818

Plus (less):

Changes in deferred loan fees and expenses for the years ended December 31, 2015 and 2014 are summarized as follows (Korean won in
millions):
Year ended December 31, 2015

\ 213,963,138
Deferred loan fees and expenses

Allocations of loans in Korean won and in foreign currencies by customer as at December 31, 2015 and December 31, 2014 are listed as follows(Korean won in millions):
December 31, 2015
Korean won

Foreign currencies

Total

Large business

23,499,722

20,831,049

44,330,771

Small and medium business

61,625,702

7,534,958

69,160,660

January 1, 2015

Increase

Decrease

December 31, 2015

\187,757\ 303,700\ (220,402)\ 271,055

Year ended December 31, 2014
Deferred loan fees and expenses

January 1, 2015

Increase

Decrease

December 31, 2014

\ 183,650\ 122,378\ (118,271)\ 187,757

Corporate loans:

5,732,021

6,846,725

12,578,746

90,857,445

35,212,732

126,070,177

Household loans

90,525,278

996,357

91,521,635

Credit card loans

5,710,051-

5,710,051

187,092,774

36,209,089

223,301,863

Public sector and others

Plus (less):

Changes in allowance for possible loan losses for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Year ended December 31, 2015
Loans in
Korean won

Advance
Loans inpayments on
foreign
acceptances
currencies
and guaranteesBillspurchasedin foreign
currencies

Credit cardloans

Privatelyplacedcorporate
bonds

OthersTotal\ 2,123,062\ 1,621,490\ 187,685\ 3,976\ 62,968\ 192,616\ 22,158\ 32,169

Disposal of non-performing loans(53,764)

-

(6)

-

-

-

-

(53,770)(767,391)(37,687)(32,233)-(195,956)(700)(15,605)(1,049,572)

8,516

6,064

-

44,162-

4,277

216,800

As at January 1, 2015

Deferred loan feesand expenses

280,697(9,642)271,055

Write-offs

Present value discount(4,260)81(4,179)Collection of loans written-off
in prior periods

153,781

Allowance for possible
loan losses(1,826,944)(404,977)(2,231,921)

Debt-to-equity swap

(11,142)---(12,717)(836)-(24,695)\ 185,542,267\ 35,794,551\ 221,336,818

2,484(30,842)1

44,617-90(4,066)

12,284704,368

164,151

32,912

2,434

155,234

5,033

14,1501,078,282

Changes in exchange rate, etc.
Provisions of allowance for possible
loan losses
Interest income from impaired loans
As at December 31, 2015

(57,839)

38,863(944)(45,631)(3,800)

(418)

(701)

(70,470)\ 1,591,987\ 330,686\ 9,770\ 64,388\ 179,539\ 25,327\ 30,224\ 2,231,921(Continued on next page)

184

185

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

December 31, 2014

Year ended December 31, 2014
Loans in
Korean won
As at January 1, 2014

Loans inforeigncurrencies

Advancepayments on
acceptancesand guaranteesBillspurchasedin foreign
currencies

Credit cardloans

Privatelyplacedcorporate
bonds

Others

Total

Notional amounts

Net valuation gain

Net valuation loss

AssetsLiabilities

Interest:
Swap

125,215,984

771,203774,645

940,588967,072

Options purchased

1,198,500

9,516

2,119

19,200-

Options sold4,885,000

7,553

34,429-76,440Futures

4,946,482

334

596

335

709

136,245,966

788,606

811,789

960,123

1,044,221\ 1,658,028\ 195,523\ 23,455\ 9,148\ 181,161\ 23,775\ 84,523\ 2,175,613

Disposal of non-performing loans(65,352)(24)(22,137)-(2,468)--(89,981)

Write-offs(801,436)(24,585)(4,572)(213)(218,238)(2,000)(35,014)(1,086,058)

Collection of loans written-off
in prior periods

68,745

2,537

-

-

44,555-

1,844

117,681

Debt-to-equity swap

(30,586)

-

-

-

112

-

610

(29,864)

Stock:

Changes in exchange rate, etc.

37,722

13,281(6,503)342(1,745)

60(37,484)

5,673

Swap

6,111,479

104,014112,132

170,938

199,884

Options purchased

1,171,351

2,224

4,677

7,365

4,779

Options sold

1,491,582

20,48615,756

8,359

70,311

188,556

798

474

798

474

8,962,968

127,522

133,039

187,460

275,448

3,884,489

15,59812,326

84,07919,312

4,026,833

136,671

91,731

94,797

188,240\ 373,648,599\ 4,253,179\ 4,271,168\ 4,618,758\ 4,740,272

Provisions of allowance for possible
loan losses

827,481

48,791

14,504

9,942

193,987523

18,626

1,113,854

Interest income from impaired loans(73,112)(3,666)

(771)

(423)

(4,748)

(200)

(936)

(83,856)\ 1,621,490\ 231,857\ 3,976\ 18,796\ 192,616\ 22,158\ 32,169\ 2,123,062

As at December 31, 2014

Futures
Credit:Credit default swap

18. Derivative instruments

Others:

Unsettled derivative contracts held for trading purpose as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Other derivatives

December 31, 2015
Notional amounts

Net valuation gain

Net valuation loss

AssetsLiabilities

Currency:\ 161,028,912\ 4,629,689\ 4,294,598\ 2,349,235\ 1,868,661

Swap

58,395,477

609,348902,671

1,467,207

1,803,804

Options purchased

1,733,390

11,4684,243

29,734-

Forwards

Options soldFutures

December 31, 2015
Notional amounts

Net valuation gain

Net valuation loss

1,766,431

3,410

4,010

-

32,944

900,801

53

15

53

15

Fair value hedge:

223,825,011

5,253,968

5,205,537

3,846,229

3,705,424

Currency swap

\ 25,003\ 620

Interest swap

6,672,880

30,122

6,697,883

30,742

Interest:
110,793,342

411,308

432,108

987,873

1,032,165

Options purchased

1,150,500

6,430

870

29,067-

Options sold4,572,440

1,021

11,578-

95,166

Futures

4,619,955

662

115

662

115

Swap

Unsettled derivative contracts held for hedging purpose as at December 31, 2015 and 2014 are as follows (Korean won in millions):

121,136,237

419,421444,671

1,017,602

1,127,446

3,428,443

78,574

271,687

77,831

397,712548,125

4,035

2,818

19,610-1,651,801

20,871

31,766-

148,747

AssetsLiabilities\ 18,443\-\ 24,734

45,42065,43915,37563,86365,43940,109Cash flow hedge:
368,000

2,573

250

3

2,899

\ 7,065,883\ 33,315\ 64,113\ 65,442\ 43,008

Notional amounts

Net valuation gain

AssetsLiabilities

Currency swap

\ 334,400\ 3,002\-\-\ 24,439

Interest swap

7,440,162

88,30036,48087,894

21,1917,774,562

91,302

36,48087,89445,630Currency swap

-

-

3

-

-

Interest swap

693,000

-

-

-

5,106

Interest swap

Stock:
Swap
Options purchased
Options soldFutures

486,803

80

7,307

80

7,307

6,115,172

103,560

313,578

97,521

553,766

Credit:Credit default swap

4,166,783

22,864

17,680100,941

12,557

3,263,475

101,545

56,91047,411

122,112\ 358,506,678\ 5,901,358\ 6,038,376\ 5,109,704\ 5,521,305

Others:Other derivatives

Notional amounts

Net valuation gain

Net valuation loss

AssetsLiabilities\ 165,298,711\ 2,409,806\ 2,307,655\ 2,367,152\ 2,442,445

Swap

50,088,639

744,362

890,545883,302732,538

Options purchased

1,487,273

15,92012,08836,746

1,067

Options sold2,881,344

14,571

11,995

4,976

37,001

Currency:

Futures

Net valuation loss

Fair value hedge:

Cash flow hedge:

December 31, 2014

Forwards

December 31, 2015

772,376

123

-

123

-

220,528,343

3,184,782

3,222,283

3,292,299

3,213,051

693,000

-

3

-

5,106

\ 8,467,562\ 91,302\ 36,483\ 87,894\ 50,736

For derivative transactions involving both Korean won and foreign currency such as currency forwards, currency futures and currency swap, thefair value of the unsettled amount for such transaction is presented using the proper foreign exchange rate of the contract amount in foreign
currency at the reporting date. For a derivative transaction involving only foreign currency, the fair value of the unsettled amount is presented
using the proper foreign exchange rate of the foreign currency purchased at the reporting date.

(Continued on next page)

186

187

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

19. Investments in associates and joint ventures

The condensed financial information of investments in associates as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015

Details of investments in associates and joint ventures as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015
Number of shares Ownership (%)

Book value

Liabilities

EquityRevenue (*)

Net income(loss) (*)\ 34,453\ 6,362\ 28,091\ 56,050\ 3,032\-\ 10\ 3,042

63,96013,07650,88453,184

2,005

-

-

2,005

452,759

61,830

6,249

(276)

67,803

6,515,249

459,675-

61,983521,658

262,998(91,103)-(6,863)(97,966)

565,566

59,16025,484--25,484-

36,634

29

(823)

-

-

(823)

Country

Mirae Credit Information Services Corp

Associates

Korea

186,000

31.0\ 8,708

UAM Co., Ltd. (*1)

Associates

Korea

85,05017.5

126,346

Bank of Jilin (*1)

Associates

China

1,200,000,000

17.0

625,760

PT. Sinarmas Hana Finance(*6)

Joint ventures

Indonesia

1,275

85.0

10,958

Hana UBS Asset Management

Associates

Korea

4,410,000

49.0

34,689Odin 2 LLC (*3)

Associates

Korea

13,366,680

26.7

55,050

UAM Co., Ltd.

4,068,354

3,331,647

736,707

Bank of Jilin

62,967,673

59,207,164

3,760,509

479,985

522,033(42,048)

CM International
Financing Leases

1,614,812

1,049,246

Company KStartup
Winwin Fund

36,634

Mirae Credit Information
Services Corp
Korea Credit Bureau

Other
Income fromdiscontinued comprehensive Comprehensive
income (loss) income(loss) (*)
operations(*)
after tax

AssetsType

Maltani Development Co., Ltd.
(formerly Taewon Lighting Co., Ltd.) (*1)(*3)

Associates

Korea

54,00018.0

23,268

Plakor Co., Ltd. (*3)

Associates

Korea

1,788,769

30.6

38,908Hyundai Cement Co., Ltd. (*3)

Associates

Korea

2,138,400

24.4

23,495

Hana Power Infra 1st Private Equity Fund (*1)(*5)

Associates

Korea

-

7.0

21,118CM International Financing Leases

Associates

China

750,000,000

25.0

141,792

Korea Credit Bureau (*1)

Associates

Korea

180,000

9.0

5,146

Company KStartup Winwin Fund (*5)

Associates

Korea

-

23.8

8,722

PT. Sinarmas Hana Finance

12,90715

12,892

371

140

-

-

140

KOCREF REIT 30 (*1)(*4)(*5)

Associates

Korea

-

10.9

20,080

Hana UBS AssetManagement

75,241

4,448

70,79334,333

11,968-45

12,013\ 1,155,939

Odin 2 LLC

360,607

154,274

206,333

1,220(44,958)-

9,886(35,072)

66,87022,51244,35892,588

5,613

-

-

5,613

Book value

Maltani Development Co.,
Ltd. (formerly Taewon
Lighting Co., Ltd.)Plakor Co., Ltd.

277,142

149,874

127,268

348,888

17,677-(5,038)

12,639Hana Power Infra 1st Private
Equity Fund

302,298606

301,692

7,884

5,506

-

5,737

11,243

KOCREF REIT 30

445,068

260,332

184,736

1,800

835

-

-

835

11,899Others

December 31, 2014
Number of shares Ownership (%)

Type

Country

Mirae Credit Information Services Corp

Associates

Korea

186,000

31.0\ 8,126

UAM Co., Ltd. (*1)

Associates

Korea

85,05017.5

114,240

Bank of Jilin (*1)

Associates

China

1,200,000,000

17.0

548,499

Hana UBS Asset Management

Associates

Korea

4,410,000

49.0

34,290Odin 2 LLC (*3)

Associates

Korea

13,340,000

26.7

61,152

Doosan Capital (*1)(*2)(*3)

Associates

Korea

2,116,580

8.8

8,050

Taewon Lighting Co., Ltd. (*1)(*3)

Associates

Korea

54,00018.0

22,438

Plakor Co., Ltd. (*3)

Associates

Korea

1,899,418

30.6

35,058

Najeon Co., Ltd. (*3)

Associates

Korea

546,093

31.1

6,737

LIG Nex1 Co., Ltd. (*1)(*3)

Associates

Korea

2,333,333

11.7

109,536

Hyundai Cement Co., Ltd. (*3)

Associates

Korea

2,138,400

24.4

22,560

Others13,608\ 984,294(*1) The Group exercises significant influence on the investee’s BoD and therefore, is included as part of affiliated companies under the equity method.
(*2) The Group considered the treasury stock owned by Doosan Capital when assessing whether the Group has significant influence on Doosan Capital owned by Hana First PEF, a subsidiary of HFI.
(*3) The financial statements for the current period were not available therefore the financial statements from the prior 3 months were used and the effect from all material transactions or
events from the current period were evaluated and appropriately reflected.
(*4) The financial statements for the current period were not available therefore the financial statements from the prior 1 month were used and the effect from all material transactions or
events from the current period were evaluated and appropriately reflected.
(*5) The Group did not present number of investment shares since the company did not issue shares.
(*6) Equity method is applied since the Group cannot individually control the investees and other shareholders’ consent is required to make important decisions for the company.

Balances of investment accounts became zero so equity method was no longer applied. In this regard, unrecognized amount of changes
in equity for the current year and unrecognized accumulated amount of changes in equity for the prior year are as follows (Korean won in
millions):

Somesevit Corporation (formerly
Flossom Co., Ltd.)
Mirae Asset KEB Second Securitization
Specialty Co., Ltd.

188

Hyundai Cement Co., Ltd.

December 31, 2014

Mirae Credit Information
Services Corp

AssetsLiabilities

EquityRevenue (*)

Net income(loss) (*)

Other
comprehensive
income (loss) (*)

Comprehensive
income(loss) (*)\ 32,912\ 6,698\ 26,214\ 49,922\ 2,585\3\ 2,588

UAM Co., Ltd.

4,357,490

3,688,589

668,901

548,990

57,541-57,541

Bank of Jilin

48,878,619

45,739,128

3,139,491

5,264,651

451,217-451,21775,0795,099

69,98036,031

12,29727

12,324

Hana UBS AssetManagement
Odin 2 LLC
Doosan Capital

386,677

157,472

229,205

9,854(6,339)3,526(2,813)

1,797,101

1,588,720

208,381

25,266(73,825)(404)(74,229)

Taewon Lighting Co., Ltd.

59,812

20,06639,74677,350

915

-

915

Plakor Co., Ltd.

250,944

136,269

114,675

275,669

12,373(2,270)10,103

Najeon Co., Ltd

57,61235,954

21,658115,270

4,736

-

4,736

LIG Nex1 Co., Ltd.

1,742,338

1,381,191

361,147

549,003

68,8742,159

71,033

470,155

463,357

6,798

79,22863,233(171)

63,062Hyundai Cement Co., Ltd.

(*) Revenue and net income or loss incurred after the acquisition date was only taken into consideration in case of acquisition during the term.

Unrecognized changes Unrecognized accumulated
in equity for year ended
changes in equity as at
December, 31, 2015
December,31, 2014

Number of shares

Ownership (%)

165,000

1.9\ (117)\ (661)

450

45.0

(285)

(114)

189

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

Changes in the investments in associates and joint ventures for the years ended December 31, 2015 and 2014 are as follows (Korean won in
millions):
Year ended December 31, 2015

Year ended December 31, 2015

Equity method valuation

Equity method valuation

Ownership (%)

Beginning
Balance

Addition

Replace

Dividend

Book value
before valuation

Earnings (loss)

Other comprehensive income

Disposal

Impairment loss

Book value

Goodwilland others

Proportionate
net asset

Korea Credit Bureau

9.0\ 4,892\-

Mirae Credit Information Services Corp

31.0

8,126

-

\-

\-

\ 4,892

\ 254

\-

\-

\-

\ 5,146\ 567\ 4,579

-

(186)

7,940

765

3

-

-

8,708

-

UAM Co., Ltd.

17.5

114,240

8,708

-

-

-

114,240

12,08026--

126,346(2,577)

128,923

Bank of Jilin

17.0

Hana UBS Asset Management

49.0

548,499--(21,597)

526,90277,472

21,386--

625,760(12,774)

638,534

34,290--(5,487)28,803

5,864

22

-

-

34,689-Odin 2 LLC

34,68926.7

61,152

3,254

-

-

64,406(11,995)

2,639

-

-

55,050-55,050

Doosan Capital

6.5

8,050

-

(2,247)-

5,803(3,688)315(2,430)

-

-

-

-

Maltani Development Co., Ltd.
(formerly Taewon Lighting Co., Ltd.)

18.0

22,438

-

-

(180)

22,258

1,010

-

-

-

23,26815,283

7,985

Plakor Co., Ltd.

30.6

35,058---35,0585,404(1,554)--38,908-38,908

Najeon Co.,Ltd

0.0

6,737

-

-

-

6,737

(34)

-

(6,703)

-

-

-

-

LIG Nex1 Co., Ltd

0.0

109,536-(88,667)(1,470)19,3993,559(1,717)(21,241)

-

-

-

-

Hyundai Cement Co., Ltd.

24.4

22,5602--

22,562(7,751)(4,512)-

13,19623,49533,765(10,270)

CM International Financing leases

25.0

-

136,832--

136,832

6,361(1,401)--

141,792401

141,391

Company KStartup Winwin Fund

23.8

-

9,000

-

-

9,000

(278)

-

-

-

8,722

3

8,719

PT. Sinarmas Hana Finance

85.0

-

10,586--

10,586

119

253

-

-

10,958-

10,958

Hana Power Infra 1st Private Equity Fund

7.0-

21,000--21,000

(283)

401

-

-

21,118-

21,118KOCREF REIT 30

10.9

-

20,000--20,000

91

(11)

-

-

20,080-20,080

8,716

1,888

-

(75)

10,529

1,340

30

-

-

11,899482

11,417\ 984,294\ 202,562\ (90,914)\ (28,995)\ 1,066,947\ 90,290\ 15,880\ (30,374)\ 13,196\ 1,155,939\ 35,150\ 1,120,789

OthersYear ended December 31, 2014

Year ended December 31, 2014

Equity method valuation

Equity method valuation

Ownership (%)

Beginning
Balance

Addition

Replace

Dividend

Book value
before valuation

Earnings (loss)

Other comprehensive income

Disposal

Impairment loss

Book value

Goodwilland others

Proportionate
net asset

Mirae Credit Information Services Corp

31.0

\ 7,605\-\-\ (186)\ 7,419

\ 707

\-

\-

\-

\ 8,126\ 567\ 8,126

UAM Co., Ltd.

17.5

139,286--(35,041)

104,245

10,052(57)--

114,240(2,818)117,058

Bank of Jilin

17.0

485,900--(15,758)

470,142

76,618

1,739

-

-

548,499

15,413533,086

Hana UBS Asset Management

49.0

33,201--(4,949)28,252

6,026

12

-

-

34,290-34,290Odin 2 LLC

26.7

61,855---61,855352(1,054)-(1)

61,152-

61,152

Doosan Capital

8.8

12,532---

12,532(4,507)

25

-

-

8,050

-

8,050

Taewon Lighting Co., Ltd.

18.0

22,619

-

-

(720)

21,899

537

2

-

-

22,43815,284

7,154

Plakor Co., Ltd.

30.6

45,061---45,061

5,238(1,276)(13,965)-

35,058-35,058

Najeon Co.,Ltd

31.1

5,264

-

-

-

5,264

1,473

-

-

-

6,737

-

6,737

LIG Nex1 Co., Ltd

11.7

102,973--(1,563)

101,410

7,875

252

-

(1)

109,536

67,402

42,134

Sambo Motors Co., Ltd. (*)-

13,692---

13,692

1,385-(15,077)

-

-

-

-

Korea Finance Security Co., Ltd

-

5,321

-

-

(81)

5,240

(5)

-

(5,235)

-

-

-

-

24.4

-

-

38,705-38,705

15,840--(31,985)

22,56020,901

1,659

Hyundai Cement Co., Ltd.
Others190

13,377

1,109-(1,199)13,287

850

(532)

-

3

13,608675

12,933\ 948,686\ 1,109\ 38,705\ (59,497)\ 929,003\ 122,441\ (889)\ (34,277)\ (31,984)\ 984,294\ 116,857\ 867,437

191

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 201520. Property and equipment

21. Investment properties

Details of property and equipment as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Details of investment properties as at December 31, 2015 and 2014 are summarized as follows (Korean won in millions):
December 31, 2015

December 31, 2015
Acquisition cost
Land
Buildings

Accumulated depreciation

Book value\ 1,516,159\-\ 1,516,159

817,258(155,672)

661,586

446,349(360,968)

85,381

1,403,165(1,098,543)

304,622

Construction in progress

198,237-

198,237

Operating lease assets

124,707(17,117)

107,590\ 4,505,875\ (1,632,300)\ 2,873,575

Leasehold improvements
Vehicles, furniture and fixtures

Acquisition cost

Accumulated depreciation

Accumulated impairment loss

Book value\ 504,600

\-

\ (2)

\ 504,598

224,408(53,615)(617)

170,176\ 729,008\ (53,615)\ (619)\ 674,774

Acquisition cost

Accumulated depreciation

Accumulated impairment loss

Book value\ 378,367\-\ (2,356)\ 376,011

182,962(43,496)(2,489)136,977\ 561,329\ (43,496)\ (4,845)\ 512,988

Land
Buildings

December 31, 2014Land
Buildings

December 31, 2014
Acquisition cost

Accumulated depreciation

Book value\ 1,589,115\-\ 1,589,115

Buildings

817,055(135,838)

681,217

Leasehold improvements

423,234(339,138)

84,096Land

1,467,367(1,156,112)

311,255

Buildings

Land

Vehicles, furniture and fixtures
Construction in progress

89,873-Operating lease assets

12,430(8,647)

3,783\ 4,399,074\ (1,639,735)\ 2,759,339

Changes in investment properties for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Year ended December 31, 2015
January 1, 2015

Addition

Disposal

Depreciation

Reclassification\ 376,011\ 132,625\ (6,200)\-\ 2,160\2

136,977

37,524(2,620)(5,501)

4,276

(480)

170,176\ 512,988\ 170,149\ (8,820)\ (5,501)\ 6,436\ (478)\ 674,774

January 1, 2014

Addition

Disposal

Depreciation

Reclassification\ 382,754

\-

\-

\-

\ (6,743)\-

132,677

1,995(6,507)(5,145)

13,756201

136,977\ 515,431\ 1,995\ (6,507)\ (5,145)\ 7,013\ 201\ 512,988

89,873

Buildings

Year ended December 31, 2015
Others (*)

December 31,2015\ (2,160)\ (22,504)\ 1,516,159(27,475)(3,395)(41)

661,586(35,207)

2,471

765

85,381(670)(121,829)-800

304,622

111,213--(3,883)

1,034

198,237

3,783

210,619(96,182)(10,629)-(1)

107,590\ 2,759,339\ 503,458\ (167,168)\ (195,140)\ (6,967)\ (19,947)\ 2,873,575

January 1,
2015

Addition

Disposal\ 1,589,115\ 2,411\ (50,703)\-

Buildings

681,21730,256(18,976)

Leasehold improvements

84,09633,893(637)

Vehicles, furniture and fixtures

311,255

115,066

Construction in progress

89,873Operating lease assets

Land

Depreciation Transfer in (out)\ 504,598

Year ended December 31, 2014
Land

Changes in property and equipment for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Others December 31, 2015

Others December 31, 2014
\ 376,011

The Group uses the straight-line depreciation method to measure its buildings’ market value and their useful lives range from 40 to 50 years.
The fair value of the investment properties provided by independent values are \664,140 million and \441,754 million, respectively. All
investment properties are classified as the level 3 in the fair value hierarchy described in Note 5-1.

Rental income and operating expenses arising from the Group’s investment properties for the years ended December 31, 2015 and 2014 are as
follows (Korean won in millions):
Year ended December 31, 2015

Year ended December 31, 2014

\ 10,150\ 11,020

1,252

4,866

Rental income
Operating expenses

Year ended December 31, 2014
January 1,
2014

Addition

Disposal

Depreciation

Impairment
loss

Transfer in(out)

Others (*)

December 31,
2014\ 1,597,177\ 127\ (15,188)\-\-\ 6,952\ 47\ 1,589,115

Buildings

721,448

30,961(12,443)(28,489)(22,236)(9,114)

1,090

681,217

Leasehold improvements

73,262

40,710(1,557)(31,405)

(9)

2,693

402

84,096

Vehicles, furniture and fixtures

274,587

142,705(1,571)(112,147)

(1)

5,148

2,534

311,255

Present value of minimum lease payment

Construction in progress

11,101

91,909---(13,137)-

89,873

Initial direct cost

Operating lease assets

10,876

11,207(15,479)(2,821)

-

-

-

3,783

Net investment in the lease\ 2,688,451\ 317,619\ (46,238)\ (174,862)\ (22,246)\ (7,458)\ 4,073\ 2,759,339

Land

22. Finance leases and operating leases
Gross and net investment in the finance leases as at December 31, 2015 and 2014 are summarized as follows (Korean won in millions):
December 31, 2015

Unearned finance income
Gross investment in the lease

Short-termLong-term

Total\ 419,816

951,212\ 1,371,028

1,538

50,76852,306421,354

1,001,980

1,423,334

74,222

72,924

147,146\ 495,576

1,074,904\ 1,570,480(*) It includes changes due to exchange rate difference and error in revision of land revaluation amounting to 22,648 million.

December 31, 2014
Present value of minimum lease payment
Initial direct cost
Net investment in the lease
Unearned finance income
Gross investment in the lease192

Short-termLong-term

Total\ 395,292\ 856,365\ 1,251,657

1,122

41,74542,867396,414898,110

1,294,524

68,484

66,375

134,859\ 464,898\ 964,485\ 1,429,383

193

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

The maturities of gross and net investment in the finance leases as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Details of goodwill as at December 31, 2015 and 2014 are as follows (Korean won in millions):

December 31, 2015

December 31, 2015

Gross investment

Net investment

Acquisition cost

Accumulated impairment loss

Within 1 year

\ 495,577\ 421,355

Book value

Hana Savings Bank

\ 75,229\ (18,722)

After 1 year but no later than 5 years

1,074,226

1,001,305\ 56,507

Hana Asset Trust

22,377

-

677

674

22,377892-\ 1,570,480

892\ 1,423,334\ 98,498\ (18,722)\ 79,776

Gross investment

Net investment

Acquisition cost

Accumulated impairment loss

Book value\ 464,898\ 396,414

Hana Savings Bank

\ 75,229\ (18,722)\ 56,507

964,095

897,734

Hana Asset Trust

22,377-

22,377

390

376

954

-

954

\ 1,429,383\ 1,294,524\ 98,560\ (18,722)\ 79,838

Later than 5 years

Others

December 31, 2014
Within 1 year
After 1 year but no later than 5 years
Later than 5 years

December 31, 2014

Amounts to be collected as operating lease revenues for each upcoming period as at December 31, 2015 and 2014 are as follows (Korean won
in millions):
Within 1 year

December 31, 2015

December 31, 2014

\ 6,225\ 850

12,447206\ 18,672\ 1,056

After 1 year but no later than 5 years

23. Intangible assets

OthersThe Group allocated goodwill to cash-generating units which are composed of operating segments or its sub-segments. Impairment test was
performed regularly on an annual basis and at times there is any indication of impairment through comparing the carrying amount of cashgenerating units including goodwill with its recoverable amount.
The recoverable amount of a cash-generating unit is estimated to be the higher of the cash-generating unit’s fair value and its value in use.
The fair value is based on the best information available to reflect the amount that the Group could obtain, at the end of the reporting period,
from the disposal of the assets or the transfer of the liabilities in formal transaction between participants, after deducting the costs of disposal.
However, if the fair value could not be measured with sufficient reliability, it is possible applying the value in use which is present value of future
cash flows. The Group estimates future cash flows based on the financial budget authorized by management. The estimation period cannot
exceed 5 years without reasonable causes.

Details of intangible assets as at December 31, 2015 and 2014 are summarized as follows (Korean won in millions):
December 31, 2015
Acquisition cost

The goodwill allocated by cash-generating unit for the impairment test as at December 31, 2015 is as follows (Korean won in millions):

Accumulated amortization Accumulated impairment loss

Book value

Hana Savings Bank

Hana Asset Trust\ 274,927\ 237,240

Carrying amount of net assets

178,896

142,521433,725

Value in use which exceeds carrying amount of net assets

96,031

94,719-255,003

Discount rate (%)

9.08

7.45

(796,760)(347)

208,638

Permanent growth rate (%)

1.00

1.00

(366)

(22,024)

53,252\ 98,498\-\ (18,722)\ 79,776

Industrial property

57,376(44,781)-

12,595

Core deposits

992,088(555,247)(3,116)

Client relationship388,486(133,483)

1,005,745
75,642

Goodwill

Software and system development
Membership
Others114,922(65,606)(439)

48,877\ 2,732,757\ (1,596,243)\ (44,648)\ 1,091,866

Accumulated amortization Accumulated impairment loss

Book value

Value in use (recoverable amount)

The Group estimates future cash flows based on the assumption that cash flows will continue to grow at 1.0% over 5 years referred to a recent
macroeconomic indicator provided by EIU (Economist Intelligence Unit). The pre-tax discount rate used for discounting future cash flows is
calculated based on the assumption of risk-free interest rate, market risk premium, systematic risk of cash generating unit and other factors.

December 31, 2014
Acquisition cost
Goodwill\ 98,560\-\ (18,722)\ 79,838

Industrial property

57,313(33,360)-

23,953

Core deposits

991,785(413,352)(3,116)575,317

Client relationship388,486(98,749)-

289,737

Software and system development

930,253(751,979)-

178,274

Membership

78,620(300)(25,553)

52,767

Others

115,515(56,586)(483)

58,446\ 2,660,532\ (1,354,326)\ (47,874)\ 1,258,332

Changes in the carrying amount of intangible assets for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Year ended December 31, 2015
January 1,
2015

Addition

DisposalAmortization Impairment loss Reclassification

Others (*)

December 31,
2015\ 79,776\ 79,838

\-

\-

\-

\-

\-

\ (62)

Industrial property

23,953

31-(11,438)-48

112,595

Core deposits

575,317--(141,851)

-

-

259

433,725

Client relationship289,737--(34,734)---

255,003

Software and systemdevelopment

178,274

71,569(3)(74,617)(9,024)42,710(271)

208,638

Membership

52,767

7,028(4,586)(48)(1,805)(203)

99

53,252Others58,44644,800(138)(11,579)-(42,290)(362)

48,877\ 1,258,332\ 123,428\ (4,727)\ (274,267)\ (10,829)\ 265\ (336)\ 1,091,866

Goodwill(Continued on next page)

194

195

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

Changes in the allowance for possible losses for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Year ended December 31, 2014

Year ended December 31, 2015

Year ended December 31, 2014

Beginning balance\ 97,530\ 91,473

Write-offs(14,381)(17,146)

23,953

Provision for possible losses(31,438)

19,942

361

575,317

Interest income from impaired assets

(729)

(293)

-

-

289,737

Others

2,863

3,554

7,373

(1,182)

178,274\ 53,845\ 97,530

409

(104)

52,767(7,441)(1,454)58,446\ (2,413)\ 1,258,332

Others (*)

December 31,
2014

\-

\ (34)\ 79,838

-

104

-

(142,046)---(34,734)-

63,011-(93,771)-

56,655

6,328(7,044)(34)(3,443)

41,11534,746(30)(8,478)(12)\ 1,457,186\ 104,123\ (7,074)\ (290,480)\ (3,455)\ 445January 1,
2014

Addition

Disposal\ 79,872

\-

\-

\-

\-

Industrial property

35,22838-(11,417)Core deposits

717,002--

Client relationship

324,471-

Software and systemdevelopment

202,843

Membership
OthersGoodwill

Amortization Impairment loss Reclassification

Changes in reinsurance assets and unamortized new contract fee for the years ended December 31, 2015 and 2014 are as follows (Korean won
in millions):(*) Includes the effect of exchange rate differences.

Reinsurance assets
Unamortized new contract fee

24. Non-current assets held for sale
There is one secured property, the tangible asset for non-business use, which is recorded under non-current assets held-for-sale as at
December 31, 2015. The Group acquired it from customers to repay loans (3 secured properties as at December 31, 2014). They were classified
as non-current assets held for sale but undisposed.

Reinsurance assets
Unamortized new contract fee

Details of non-current assets held for sale as at December 31, 2015 and 2014 are as follows (Korean won in millions):

January 1, 2015

Increase

Decrease

December 31, 2015

\ 2,223

350

(213)

\ 2,360

6,968

2,155

-

9,123

\ 9,191

2,505

(213)

\ 11,483

January 1, 2014

Increase

Decrease

December 31, 2014

\ 1,872\ 351\-\ 2,223

2,894

4,074

-

6,968

\ 4,766\ 4,425\-\ 9,191

December 31, 2015

December 31, 2014

\ 415

\ 749

-

(220)

26. Financial liabilities held-for-trading

\ 415

\ 529

Financial liabilities held-for-trading as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Acquisition cost
Accumulated impairment loss
Book value

The fair market values of non-current assets held-for-sale are based on the valuation report of a qualified, independent appraisal andassessment institution, and all of them are classified as the level 3 in the fair value hierarchy described in Note 5-1.

Derivative liabilities held for trading purpose (*)

December 31, 2015

December 31, 2014

\ 5,521,305\ 4,740,272

232,013499,388\ 5,753,318\ 5,239,660

Securities sold(*) Refer to Note 18.

25. Other assets
Other assets as at December 31, 2015 and 2014 are as follows (Korean won in millions):

27. Financial liabilities designated at fair value through profit or loss

December 31, 2015

December 31, 2014

Guarantee deposits\ 1,214,455\ 1,508,311

Accounts receivable

9,533,851

8,032,147

Accrued income

874,288

1,055,807

Prepaid expenses

157,147

196,743

Deposits

Advance payments

60,87339,918Derivatives linked securities soldDeferred day 1 profit or loss

Reinsurance assets

2,360

2,223

Unamortized new contract

9,123

6,968

Separate account assets
Receivables from spot exchange
OthersAllowance for possible losses

196

1,037,332

1,049,315

891,611

1,708,198

2,785,869

2,468,276(53,845)(97,530)\ 16,513,064\ 15,970,376

Financial liabilities designated at fair value through profit or loss as at December 31, 2015 and 2014 are as follows (Korean won in millions):
Bonds

December 31, 2015

December 31, 2014

\ 100,698\-

539,854

249,049

7,377,004

6,414,918

20,307

23,833\ 8,037,863\ 6,687,800

With respect to derivative linked securities and structured deposits, the Group does not separate embedded derivatives from main contracts
but designates them as fair value through profit or loss.

197

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 201528. Deposits

30. Debentures

Details of deposits as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Debentures as at December 31, 2015 and December 31, 2014 are as follows (Korean won in millions):

December 31, 2015

December 31, 2014

Demand deposits:

LenderInterest rate (%)

December 31, 2015

December 31, 2014

Korean won:

Demand deposits in Korean won:

\ 9,103,112\ 25,772,460

Debentures

Financial institutions

1.6~5.3\ 17,987,000\ 16,784,000

Demand deposits in foreign currency:

20,134,098

14,976,812

Subordinated bonds

Various investors

0.0~7.8

5,361,898

5,344,223

29,237,201

40,749,272

Net gain on fair value hedges (this term)(1,941)(3,539)

3,557

9,043

(25,827)(24,736)

23,324,687

22,108,991

Time and saving deposits:
Time and saving deposits in Korean won:

164,528,602

145,815,305

Time and saving deposits in foreign currency:

10,829,359

14,406,933

175,357,961

160,222,238

2,215,187

925,475\ 206,810,358\ 201,896,985

Certificate of deposits

Allocations of deposits by customer as at December 31, 2015 and 2014 are listed as follows (Korean won in millions):
December 31, 2015

December 31, 2014

Individuals\ 76,986,166\ 72,880,481

Corporations

56,989,517

55,028,337

Other banks

6,782,528

8,250,145

Public institutions

3,954,082

4,192,730

Other financial institutions

30,458,614

29,615,785

Net gain on fair value hedges(before the previous term)
Issuance premium(present value discount)

Foreign currencies:
Debentures

Morgan Stanley, etc.

0.1~5.0

5,716,999

6,267,616

Subordinated bonds

BOA-Merrill Lynch, etc.

4.3~4.6

943,460

884,856(11,162)(18)

54,17365,692

Net gain (loss) on fair value hedges(this term)
Net gain on fair value hedges(before the previous term)
Issuance premium (present value discount)

Government

6,009,535

5,582,858

Non-profit corporations

10,096,723

11,475,222

Foreign corporations

7,445,467

8,362,427

31. Net defined benefit liability

Others

8,087,726

6,509,000

Actuarial assumptions as at December 31, 2015 and 2014 are as follows:\ 206,810,358\ 201,896,985

Ratio (%)

(19,685)(19,022)

6,683,785

7,199,124\ 30,008,472\ 29,308,115

Notes

December 31, 2015

December 31, 2014

Mortality

0.0~3.0

0.0~2.4

Table from Korea insurance
development institute and etc.

Rates of employee turnover

2.8~36.0

2.5~43.1

Table from Korea insurance
development institute and etc.

Expected rate of salary increase

0.7~15.7

0.7~39.2

Discount rate

2.3~2.8

2.5~3.8

Demographic assumptions:

29. Borrowings
Borrowings as at December 31, 2015 and 2014 are as follows (Korean won in millions):
LenderInterest rate (%)

December 31, 2015

December 31, 2014

Borrowings in Korean won

Financial assumptions:

BOK borrowings

BOK

0.5~0.8\ 2,072,068\ 1,606,495

Government borrowings

Korean Energy Management corporation, etc

0.0~3.1

2,473,379

3,101,489

Other borrowings

Small & medium Business Corporations, etc.

0.0~4.3

2,307,169

1,712,246

6,852,616

6,420,230

Borrowings in foreign currencies:
Bank overdrafts

Foreign banks, etc

0.0~18.4

97,003

159,142

Other borrowings

The Export-Import Bank of Korea, etc.

0.0~4.9

8,413,807

10,253,620

8,510,810

10,412,762

Call money:
Call money in Korean won

Mizuho Corporate bank Seoul branch, etc.

Call money in foreign Currencies

City, etc.

-

641,000

2,106,331

780,304\ 2,106,331\ 1,421,304

Bonds sold under repurchaseagreements:
Bonds sold under repurchaseagreements in Korean won

General customers

0.0~4.0\ 4,098,983\ 4,300,611

Bonds sold under repurchaseagreements in foreign currencies

Nomura International Ltd., etc.

0.2~3.1

510,110414,201

4,609,093

4,714,812

Other borrowings
Bills sold198

Osung-Steel

Details of net defined benefit liability as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015

December 31, 2014

Present value of defined benefit obligation\ 1,327,796\ 1,188,619

Fair value of plan assets(1,165,871)(1,019,451)

Net defined benefit liability\ 161,925\ 169,168

Changes in present value of defined benefit obligation for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Year ended December 31, 2015

Year ended December 31, 2014

\ 1,188,619\ 954,338

Current service cost

154,492

137,268

Past service cost

16,30837,714

Beginning balance

Interest cost on benefit obligation

34,99037,836

Remeasurements of the net defined benefit liability

73,83998,532(133,828)(76,751)

Benefits paid
Others

0.9~2.2

123,286

294,878\ 22,202,136\ 23,263,986

Return on corporate bond with thesame credit rating(6,624)(318)\ 1,327,796\ 1,188,619

199

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

Details of losses incurred from severance and retirement benefit plan for the years ended December 31, 2015 and 2014 are as follows (Korean
won in millions):
Year ended December 31, 2015

Year ended December 31, 2014

\ 154,492\ 137,268

Past service cost

16,30837,714

Net interest on the net defined benefit liability

4,700

6,128

175,500

181,110

2,040

828

(6,009)2,112\ 171,531\ 184,050

Current service cost

Benefits paid for the defined contribution planLong-term employee payment and others

Plan assets for severance benefit as at December 31, 2015 and 2014 consist of the followings (Korean won in millions):
December 31, 2015

December 31, 2014

\ 626,060\ 773,478

3,983

-

(2) Expected rate of salary increase
Year ended December 31, 2015

1% point increase

1% point decrease\ 1,327,796\ 1,463,009\ 1,220,148

Year ended December 31, 2014

1% point increase

1% point decrease\ 1,188,619\ 1,305,312\ 1,082,220

Present value of defined benefit obligation

Present value of defined benefit obligation

The sensitivity analyses above has been determined based on a method that extrapolates the impact on defined benefit obligation as a result of
reasonable changes in key assumptions occurring at the end of the reporting period.
Employer contributions for the years ended December 31, 2015 and 2014 are reasonably estimated to be ￦152,972 million and ￦133,468
million, respectively, and the average durations of the defined benefit plan obligation as at December 31, 2015 and 2014 are 6.9~10.1 years and7.4~10.2 years, respectively.

Plan assets which have market price quoted in an active market:
Time deposit
ELS / ELB
Bonds

5,916

99,449Others529,912

146,524\ 1,165,871\ 1,019,451

Changes in the fair value of plan assets for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

32. Provisions
Details of provisions as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015

December 31, 2014

Financial acceptances and guarantees\ 8,436\ 2,331

Non-financial acceptances and guarantees

73,07759,436

Allowance for possible losses on acceptances and guarantees:

Year ended December 31, 2014

\ 1,019,451\ 792,285

249,615265,487

Allowances for unused commitments
Other allowance:

Beginning balance of fair value of plan assets
Employer contributions

238

450

81,751

62,217

99,100111,804

Bills endorsed

Year ended December 31, 2015

Expected return on plan assets

30,29031,708Remeasurements of the plan assets(5,712)(9,716)

Allowances for restoration cost

43,90844,527(126,351)(60,311)

Allowances for reward points

36,93635,018Benefits paid
Others(1,422)(2)\ 1,165,871\ 1,019,451

Details of remeasurement accompanied by the application of actuarial assumptions for the years ended December 31, 2015 and 2014 are as follows(Korea won in millions):
Year ended December 31, 2015

Year ended December 31, 2014

Changes in demographic assumptions\ (3,886)\ (1,919)

Changes in financial assumptions(76,302)(100,679)

Actual gains (losses)

6,349

4,889

(73,839)(97,709)

Actual income on planned assets

24,57821,992

Amounts included in net interest on the net defined benefit liability

30,29031,708(5,712)(9,716)\ (79,551)\ (107,425)

Experience adjustments

Income on planned assets

A quantitative sensitivity analysis for significant assumptions as at December 31, 2015 and 2014 are as follows (Korea won in millions):(1) Discount rate
Present value of defined benefit obligation

Present value of defined benefit obligation

200

Year ended December 31, 2015

1% point increase

1% point decrease\ 1,327,796\ 1,218,724\ 1,467,602

Year ended December 31, 2014

1% point increase

1% point decrease\ 1,188,619\ 1,079,827\ 1,310,476

Allowance for lawsuits

56,882

68,572Others

20,19542,157

157,921

190,274\ 338,772\ 364,295(*) The Group recognizes the amount of financial guarantee contracts subsequently measured that exceed the unamortized balance as provisions for acceptances and guarantees on initialrecognition. The unamortized balance amounts to ￦24,893 million and ￦24,950 million as at December 31, 2015 and 2014, respectively and is categorized as financial guarantee contract liability.

Changes in provisions for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015
January 1, 2015

Net loss of allowance(reversal of allowance)

Allowance used

Others

December 31, 2015

\ 62,217\ 17,448\-\ 2,086\ 81,751

111,804(14,217)-

1,513

99,100Allowance for possible
losses on acceptancesand
guarantees
Allowances for unused
commitments
Other allowance:
Allowances for restoration cost

44,527(166)(1,802)

1,349

43,908

Allowances for reward points

35,01832,271(31,038)685

36,936

Allowance for lawsuits

68,57238,333(50,986)

963

56,882Others42,157

3,330(12,905)(12,387)

20,195

190,274

73,768(96,731)(9,390)157,921\ 364,295\ 76,999\ (96,731)\ (5,791)\ 338,772

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December 31, 2014
January 1, 2014

Net loss of allowance(reversal of allowance)

Allowance used

Others

December 31, 2014

\ 67,343\ (6,482)\-\ 1,356\ 62,217

117,265(4,243)-(1,218)111,804

Allowance for possible
losses on acceptancesand
guarantees
Allowances for unused
commitments

As at December 31, 2015, the Group is involved in 1,573 lawsuits as a plaintiff and 253 lawsuits as a defendant. The aggregate amount of claims
as a plaintiff and a defendant is in the amount of approximately ￦519,246 million and ￦428,174 million, respectively. The Group’s material
lawsuits in progress as a defendant are as follows (Korean won in millions):
Status of lawsuit

Defendant

Plaintiff

Amount

KEB Hana BankPark Man Song\ 57,015

In-progress-

Return of deposit

KEB Hana Bank

Shinhan Bank

31,701

Partially won

In-progress

Return of a prepayment

Emirates and 4 others

36,230In-progress-

Return of deposit

39,455In-progress-

Return of earnings of fund
Return of performance bond

Other allowance:

First trial

Content

On appeal

Allowance for possible losses on
acceptances and guarantees

42,271146(2,071)

4,181

44,527

KEB Hana Bank

Fairfield Sentry Limited Bankruptcy
administrator

Allowances for reward points

30,97643,054(58,475)

19,46335,018KEB Hana Bank

Hyundai Merchant Marine Co., Ltd

80,033

Lost

Allowance for lawsuits

142,514(70,229)(3,701)(12)

68,572

3rd trial is inprogress

Others

48,603(2,038)(2,968)(1,440)42,157

H&DS

Eun Ik Soo and 1 others

6,167

In-progress-

Claim for damages

264,364(29,067)(67,215)

22,192

190,274

In-progress

Objection to litigation for finalization ofreorganization claim\ 448,972\ (39,792)\ (67,215)\ 22,330\ 364,295

Details of guarantees as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015

December 31, 2014

Collateral for loans\ 108,761\ 117,912

Loans for purchase

642,090947,775

Others

12,57629,029763,427

1,094,716

Financial acceptances and guarantees in Korean won:

Financial acceptances and guarantees in foreign currencies
Local financial acceptances and guarantees
Confirmed acceptances and guarantees in Korean won

1,439,519

1,807,051

2,085,206

2,239,995

843,495

1,247,454

Confirmed acceptances and guarantees in foreign currencies:
Acceptance on letter of credit
Acceptance on letter of guarantees
Others120,008

134,837

12,763,401

15,026,794

13,726,904

16,409,085

Contingent acceptances and guarantees:
Letters of credit
OthersBills endorsed

3,205,035

5,468,770

595,836

647,1433,800,871

6,115,913

40,21933,976\ 21,856,146\ 27,700,736

Commitments on loans in foreign currencies
Commitments on purchase of asset-backed commercial papers
Commitments on credit lines on asset-backed securities
Commitments on purchase of securities

Tae Seung LP Co., Ltd

Won

33. Other liabilities
Details of other liabilities as at December 31, 2015 and 2014 are as follows (Korean won in millions):
Accounts payable
Accrued expense payables
Advances
Income in advance
Policy reserve

December 31, 2015

December 31, 2014

\ 10,231,407\ 8,334,927

1,723,653

2,298,450

97,59782,542

281,018

283,7822,410,233

2,019,163

Separate account liabilities

1,043,191

1,054,921

Borrowing from trust accounts

4,639,182

2,882,793

Foreign exchanges settlement credits

493,024

530,719

Domestic exchange settlement credits

3,539,359

2,223,147

Deposits for letter of guarantees and others

533,644559,197

Taxes withheld

97,053

150,397

Security deposits received

71,72924,992

Accounts for agency businesses

248,069

274,125

Agency1,854,831

2,744,881

Others2,934,217

2,804,135

Present value discountDecember 31, 2015

December 31, 2014

\ 91,691,298\ 95,496,733

24,950,052

26,329,617

64,900475,818

1,252,796

1,648,542

722,751

702,942\ 118,681,797\ 124,653,652

Premium reserve
Prepaid premium reserve
Guaranteed reserve
Outstanding claim(20,297)(20,245)\ 30,177,910\ 26,247,926

December 31, 2015

December 31, 2014

\ 2,375,788\ 1,989,827

866

859

9,415

9,042

24,164

19,435\ 2,410,233\ 2,019,163

Changes in the policy reserve for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Premium reserve
Prepaid premium reserve

202

19,473

Details of policy reserve as at December 31, 2015 and 2014 are as follows (Korean won in millions):

Details of unused commitments as at December 31, 2015 and 2014 are as follows (Korean won in millions):
Commitments on loans in Korean won

Hana Saving Bank

January 1, 2015

Changes

December 31, 2015

\ 1,989,827\ 385,961\ 2,375,788

859

7

866

Guaranteed reserve

9,042

373

9,415

Outstanding claim

19,435

4,729

24,164\ 2,019,163\ 391,070\ 2,410,233

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

January 1, 2014

Changes

December 31, 2014

\ 1,694,851

294,976\ 1,989,827

747

112

859

Guaranteed reserve

6,157

2,885

9,042

Outstanding claim

14,8404,595

19,435\ 1,716,595

302,568\ 2,019,163

Premium reserve
Prepaid premium reserve

35. Capital adjustment
Details of capital adjustment as at December 31, 2015 and 2014 are summarized as follows (Korean won in millions):
Other capital adjustment

December 31, 2015

December 31, 2014

\ (13,232)\ (13,122)

Changes in the Group’s treasury stock for the years ended December 31, 2015 and 2014 are summarized as follows (Korean won in millions andshares in unit):
January 1, 2015

Acquisition

Disposal

December 31, 2015

34. Capital stock and capital surplus

Number of shares

-

1,782

(1,782)-

Details of capital stock as at December 31, 2015 and December 31, 2014 are as follows:

Carrying amount

\-

\ 69

\ (69)\-

January 1, 2014

Acquisition

Disposal

December 31, 2014

Number of shares authorized

December 31, 2015

December 31, 2014

800,000,000 shares

800,000,000 shares\ 5,000\ 5,000

Number of shares

4,341,877

5,388(4,341,877)-

296,003,062 shares

289,894,062 shares

Carrying amount\ 170,023\ 210\ (170,023)\-

Par value per share
Number of shares issued

Changes in capital stock and capital surplus from December 1, 2005 (inception) to December 31, 2015 are as follows (Korean won in millions
except for number of shares):
Date

SharesCommon stock

Capital surplus

Incorporation

Dec. 1, 2005

204,256,243\ 1,021,281\ 5,075,488

Stock dividends

Mar. 24, 2006

2,042,562

10,213-

Shares swap (*1)

Oct. 13, 2006

5,552,788

27,764215,427

Paid-in capital increase

Feb. 21, 2011

31,198,170

155,991

1,168,759

Shares swap (*2)

Apr. 5, 2013

46,844,299

234,221

1,511,856

Paid-in capital increase

Apr. 21, 2015

6,109,000

30,545

149,298

296,003,062\ 1,480,015\ 8,120,828(*1) Represents transactions the Company conducted to incorporate HFI (formerly Hana IB) into its subsidiaries.
(*2) Represents transactions the Company conducted to incorporate KEB Hana Bank (formerly KEB) into its wholly owned subsidiaries.

Details of hybrid equity securities classified as equity attributable to equity holders of the parent as at December 31, 2015 and 2014 are as
follows (Korean won in millions):
Issuance date

Maturity

Interest rate (%)

The 1th Hybrid Tier I (*1)

Feb. 21, 2011

Feb. 21, 2041

The 2nd Hybrid Tier I (*1)

Feb. 28, 2011

The 1-1st hybrid debentures (*1)

AmountDecember 31, 2015

December 31, 20146.43

\ 170,000\ 170,000

Feb. 28, 2041

6.27

130,000

130,000

May. 29, 2015

May. 29, 2045

3.95

80,000-

The 1-2nd hybrid debentures (*2)

May. 29, 2015

May. 29, 2045

4.45

190,000-

The 2-1st hybrid debentures (*1)

Nov. 6, 2015

Nov. 6, 2045

4.24

155,000-

The 2-2nd hybrid debentures (*2)

Nov. 6, 2015

Nov. 6, 2045

4.61

Issuance cost

20,000-745,000

300,000(2,110)(879)\ 742,890\ 299,121(*1) 5 years after the hybrid equity securities are issued, these can be redeemed at any point before the maturity date with an approval of the governor of the Financial Supervisory Service.

36. Accumulated other comprehensive income
Changes in accumulated other comprehensive income for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Year ended December 31, 2015
Gain (loss) on
valuation ofavailable-for-sale financial
assetsChanges in
unrealized
gain (loss) on
valuation ofequity method
investments

Gain (loss) on
valuation of
net investment
hedges offoreign
operations

Net gain (loss)
on cash flow
hedgesJanuary 1, 2015

\ 613,805\ (4,259)\-\ (1,891)\ (164,715)\ (191,782)\ 251,158

Changes in the unrealized lossof available-for-sale securities(203,211)

-

-

-

-

-

(203,211)

Realized gain of available- forsale securities(51,062)

-

-

-

-

-

(51,062)

Changes in unrealized gain
on valuation of equity
method investments-

15,880----15,880

Increase in loss on valuationof net investment hedges offoreign operations--(20,245)---(20,245)

Changes in net gain (loss)
on cash flow hedges

-

-

-

1,941

-

-

1,941

Changes in exchange
differences on transactionof foreign operations

-

-

-

-

(2,527)-(2,527)

Changes in remeasurements of
the net defined benefit liability(asset)

-

-

-

-

-

(79,551)(79,551)

Income tax effectDecember 31, 2015

Exchange
Remeasurements
differences onof the net definedtransaction
benefit liabilities
of foreign(assets)
operations

Total

61,534(3,912)

4,899

(470)

-

19,184

81,235\ 421,066\ 7,709\ (15,346)\ (420)\ (167,242)\ (252,149)\ (6,382)(*2) 10 years after the hybrid equity securities are issued, these can be redeemed at any point before the maturity date with an approval of the governor of the Financial Supervisory Service.

Capital surplus as at December 31, 2015 and 2014 consists of the followings (Korean won in millions):
Paid-in capital in excess of par value
Gain on disposal of treasury stock
Other capital surplus

204

December 31, 2015

December 31, 2014

\ 8,120,828\ 7,971,530

76,382

76,3972,267,320

2,303,821\ 10,464,530\ 10,351,748

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

Provisions for bad debt reserve and income adjusted for deductions of provisions for bad debt for the years ended December 31, 2015 and2014 are as follows.

Year ended December 31, 2014
Gain (loss) on
valuation ofavailable-for-sale financial
assetsChanges in
unrealized
gain (loss) on
valuation ofequity method
investments

Net gain (loss)
on cash flow
hedges\ 279,005\ 6,343\ (680)\ (183,381)\ (111,027)\ (9,740)

742,651

-

-

-

-

742,651January 1, 2014
Changes in the unrealized loss of available-forsale securities

Exchange Remeasurements
differences onof the net
transaction
defined benefit
of foreign
liabilities
operations(assets)

Total

Net income attributable to equity holders of the parent before deducting
provisions for bad debt

Year ended December 31, 2015

Year ended December 31, 2014

\ 909,732 million\ 937,707 million

Provisions for bad debt reserve

11,968 million

25,059 million

Adjusted income after deducting provisions for bad debt

897,764 million

912,648 million

Basic earnings per share on adjustment\ 2,960\ 3,091

Diluted earnings per share on adjustment\ 2,949\ 3,082(300,245)

-

-

-

-

(300,245)

Changes in unrealized gain on valuation of equity
method investments-(13,987)---(13,987)

Changes in net gain (loss) on cash flow hedges--(1,598)--(1,598)

39. Operating income and expense

Changes in exchange differences on transactionof foreign operations

-

-

-

24,625-

24,625

Total operating income for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Changes in remeasurements of the net defined
benefit liability (asset)

-

-

-

-

(107,425)(107,425)

Interest income

Realized gain of available-for-sale securities

Income tax effect(107,606)

3,385

387

(5,959)26,670(83,124)

December 31, 2014

\ 613,805\ (4,259)\ (1,891)\ (164,715)\ (191,782)\ 251,158

37. Retained earnings

Year ended December 31, 2014

\ 9,037,902\ 10,092,874

Fee and commission income

2,688,786

2,535,613

Gain on financial assets and liabilities held-for-trading

16,555,441

11,734,728

Gain on financial assets and liabilities designated at fair value through profit or loss

694,596

168,372

Gain on derivative instruments used for hedging purpose

100,102

144,060

Gain on financial instruments

827,832

556,546

3,255,028

1,901,748

Gain on foreign currency transactions

Retained earnings as at December 31, 2015 and 2014 consist of the following (Korean won in millions):
December 31, 2015

December 31, 2014

Legal reserve (*)\ 467,692\ 458,261

Voluntary reserve

3,664,005

3,774,744

Unappropriated retained earnings

Year ended December 31, 2015

5,350,150

4,555,918\ 9,481,847\ 8,788,923(*) In accordance with the Financial Holding Company Act, whenever dividends are paid, an amount equal to at least 10% of net income is required to be appropriated as a legal reserve until thereserve amount equals the aggregate par value of common stock. The legal reserve may not be utilized for cash dividends but may only be used to offset a deficit, if any, or be transferred to capital.

Recovery of impairment loss on financial assets

32,250905

Other operating income

831,754792,313\ 34,023,691\ 27,927,159

Total operating expense for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Interest expense

Year ended December 31, 2014

\ 8,788,923\ 7,982,838

Net income

909,732

937,707

Dividends(174,852)(114,872)

Dividends on hybrid equity securities(27,014)(19,082)

Others(14,942)2,332\ 9,481,847\ 8,788,923

Beginning balance\ 5,398,366
917,786

16,575,671

11,495,922

Loss on financial assets and liabilities designated at fair value through profit or loss

492,415

326,498

Loss on derivative instruments used for hedging purpose

106,287

137,940

Loss on financial assets and liabilities held-for-trading

Year ended December 31, 2015

Year ended December 31, 2014

\ 4,499,043
992,341

Fee and commission expense

Changes in retained earnings for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Year ended December 31, 2015

Loss on financial instruments
Loss on foreign currency transactions\ 56,589\ 62,935\ 3,128,205\ 1,628,473

Impairment loss of financial assets

1,154,894

1,444,915

General and administrative expense

4,530,976

3,936,205

Other operating expense

1,476,755

1,334,672\ 33,013,176\ 26,683,712

38. Regulatory reserve for bad debts
Regulatory reserve for bad debt is calculated and disclosed in accordance with Article 27, Section 1 and 2 of the Financial Holding Company Act.
Regulatory reserve for bad debt as at December 31, 2015 and 2014 are as follows (Korean won in millions):
Beginning balance

December 31, 2015

December 31, 2014

\ 2,203,719\ 2,180,422

Planned regulatory reserve for bad debts(20,656)

23,297

Ending balance

2,183,063

2,203,719

Attributable to equity holders of the parent

2,137,256

2,125,288

Attributable to non-controlling interests\ 45,807\ 78,431

206

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

40. Net interest income

42. Gain (loss) on financial assets and liabilities held-for-trading

Interest income for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Gain (loss) on financial assets and liabilities held-for-trading for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Interest income on due from banks

Year ended December 31, 2015

Year ended December 31, 2014

\ 156,247\ 213,310

Year ended December 31, 2015

Year ended December 31, 2014

Gain on financial assets and liabilities held-for-trading:Interest income on available-for-sale financial assets

778,334

836,037

Interest income on held-to-maturity investments

176,765

166,120

Gain on valuation\ 20,601\ 77,143

7,519,104

8,418,065

Gain on disposal

165,537

156,32170,16084,506416

328

8,700,610

9,718,038

Interest income on loans receivable
OthersInterest income on financial assets designated at fair value throughprofit or loss

17,0377,537Interest income on financial assets held-for-trading

320,255

367,299\ 9,037,902\ 10,092,874

Year ended December 31, 2015

Year ended December 31, 2014

\ 2,978,077\ 3,812,113

Interest expense on borrowings

307,405

398,045

Interest expense on debentures

866,620

983,497

OthersGain on redemption
Dividend income

346,941

204,711\ 4,499,043\ 5,398,366

41. Net fee and commission income
Year ended December 31, 2015

Year ended December 31, 2014

Fee and commission received from loans and others\ 911,998\ 757,045

Fee and commission received on credit card

1,456,446

1,438,046

Fee and commission received on guarantee

81,262

84,386

Fee and commission received from redemption before maturity

4,526\ 238,318

Gain on valuation of derivatives:
Currency related derivatives\ 5,253,968\ 3,184,782

Interest related derivatives

419,421788,606
127,522

Stock related derivatives

103,560

Credit related derivatives

22,864

15,598Others related derivatives

101,545

136,671

5,901,358

4,253,179

Currency related derivatives

8,952,584

6,091,916

Gain on settlement of derivatives:

Interest related derivatives

1,062,601

511,040

Stock related derivatives

162,733

28,170Credit related derivatives

25,477-

Others related derivatives

230,720

588,454

10,434,115

7,219,580

Fee and commission income for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Fee and commission related foreign exchange

3,805\ 190,359

Derivatives held for trading purpose:

Interest expense for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Interest expense on deposit liabilities

Trading securities:

Gain on securities sold

18,621

10,106

Gain on others

10,98813,545\ 16,555,441\ 11,734,728\ 18,613

Loss on financial assets and liabilities held-for-trading:

1,016

6,041

Trading securities:

238,064

250,095

Loss on valuation\ 29,022\ 2,688,786\ 2,535,613

Loss on disposal

124,875

96,524

Loss on redemption

17,20910,705

171,106

125,842

5,205,537

3,222,283

Fee and commission expenses for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Year ended December 31, 2015

Year ended December 31, 2014

Derivatives held for trading purpose:\ 255,520\ 254,909

Loss on valuation of derivatives:

Commission paid on credit card

693,912654,189

Currency related derivatives

Commission related foreign exchange

42,856

8,627Interest related derivatives

444,671

811,789

53

61

Stock related derivatives

313,578

133,039\ 992,341\ 917,786

Commission paid borrowings and others

Commission paid trust

Credit related derivatives

17,68012,326

Others related derivatives

56,91091,731

6,038,376

4,271,168

Loss on settlement of derivatives:

8,755,863

5,936,252

Currency related derivatives

1,201,237

566,095
27,981

Interest related derivatives

87,944

Stock related derivatives

18,981-Credit related derivatives

264,312513,742

Others related derivatives\ 10,328,337\ 7,044,070\ 37,792\ 54,842

Loss on securities sold
Others208

60-

16,575,671

11,495,922\ (20,230)\ 238,806

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HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

43. Gain (loss) on financial assets and liabilities designated at fair value through profit or loss

44. Gain (loss) on derivative instruments used for hedging purpose

Gain (loss) on financial assets and liabilities designated at fair value through profit or loss for the years ended December 31, 2015 and 2014 are
as follows (Korean won in millions):

Gain (loss) on derivative instruments used for hedging purpose for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Year ended December 31, 2015

Year ended December 31, 2014

Gain on financial assets and liabilities designated at fair value throughprofit or loss:

Year ended December 31, 2015

Year ended December 31, 2014

\ 43,440\ 35,315

6,852

3,252

50,292

38,567

Debentures

10,842

4,253

Deposits

676-

11,518

4,253

Gain on derivative instruments used for hedging purposes:
Hedged item:
Gain on valuation of hedged item:

Securities designated at fair value through profit and loss:
Gain on valuation\ 8,815\ 15,535

Gain on redemption

1,170

1,672

Gain on disposal

41,7687,506

51,75324,713

Derivative linked securities purchased:
Gain on valuation

3,830

Gain on redemption

27,284-

31,114

3,321

Gain on valuation

2,254

1,657

Gain on disposal

3,869

26

6,123

1,683

Gain on valuation

590,053

115,338

Gain on redemption

15,55323,317605,606

138,655\ 694,596\ 168,372

Year ended December 31, 2015

Year ended December 31, 2014

3,321

Deposit liabilities

Derivative linked securities sold:

Debentures
Deposits

Gain on disposal of hedged item:

Derivative instruments used for hedging purposes:
Gain on valuation of derivatives:
Currency related derivatives

620

3,002

Interest related derivatives

30,12088,30030,74091,302Currency related derivatives

3,126

-

Interest related derivatives

4,426

9,938

Gain on settlement of derivatives:

7,552

9,938

\ 100,102\ 144,060\ 27,068\ 31,756

5,785

59,57232,85391,328

3,742

10,137

Loss on derivative instruments used for hedging purposes:
Hedged item:

Loss on financial assets and liabilities designated at fair value throughprofit or loss:

Debentures
Deposits

Securities designated at fair value through profit and loss:
Loss on valuation
Loss on disposal

Loss on valuation of hedged item:\ 154,337\ 2,570

1,151

2,022

155,488

4,592

Loss on disposal of hedged item:
Deposits
Derivative instruments used for hedging purposes:

Deposit liabilities
Loss on valuation

4,924

1,715

Loss on disposal

1,770

-

6,694

1,715

Loss on valuation of derivatives:
Currency related derivatives

18,443

3

Interest related derivatives

45,42036,48063,86336,483Currency related derivatives

654

(43)

Interest related derivatives

5,175

35

5,829

(8)

Borrowing:
Loss on valuation

698

-

5,754

3,161

Derivative linked securities purchased:
Loss on valuation

4

-

5,758

3,161

Loss on valuation

98,108

162,115

Loss on redemption

225,669

154,915

323,777

317,030

Loss on redemption

Derivative linked securities sold:

210

492,415

326,498\ 202,181\ (158,126)

Loss on settlement of derivatives:

106,287

137,940\ (6,185)\ 6,120211

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 201545. Net other income on financial instruments

Year ended December 31, 2015

Net other income on financial instruments for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Year ended December 31, 2015

Year ended December 31, 2014

Other income on financial instruments:

Gain on disposal
Gain on redemption
Dividend income\ 634,908

Supplies expense

14,406

13,034

8,345
42,855698,993

466,677-

492

128,839

89,377

Reversal of allowances for unused commitments

827,832

556,546

Reversal of allowance for restoration cost

375,020\ 3,936,205

48. Other operating income

Reversal of allowance for possible losses on acceptances and guarantees

Reversal of allowance for lawsuits\ 27,266\ 35,636

1,601-

28,86735,636

27,722

27,29956,58962,935\ 771,243\ 493,611

Year ended December 31, 2015

Year ended December 31, 2014\-

\ 6,482

14,217

4,243

166

-

-

70,229Trust commissions

179,737

147,526

Adjustment for offered price

10,497-

Insurance profit

547,882

448,471

Others79,255

115,362\ 831,754\ 792,313

Loans receivable:
Loss on disposal

284,601\ 4,530,976

Other operating income for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Available-for-sale financial assets:

Loss on redemption

237,653-

Other loss on financial instruments:

Loss on disposal

362,351

64,085Loans receivable:
Gain on disposal

139,909

Servicing expenses\ 415,477

Held-to-maturity investments:
Gain on disposal

154,025

OthersAvailable-for-sale financial assets:

Year ended December 31, 2014

Advertising expenses

49. Other operating expense
Other operating expenses for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

46. Impairment loss of financial instruments

Provision of allowances for possible losses on acceptances and guarantees

Impairment loss on financial instruments for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Provision of allowance for restoration cost

Year ended December 31, 2015

Year ended December 31, 2014

\ 76,612\ 311,119

(812)

(905)

Available-for-sale financial assets
Impairment loss
Recovery of impairment loss
Loans receivable
Provision of allowances for possible loan losses for loans

1,078,282

1,113,854

Other assets
Provision(reversal) of allowances for possible loan losses for other assets(31,438)

19,942\ 1,122,644\ 1,444,010

Provision for reward points

Year ended December 31, 2015

Year ended December 31, 2014

\ 17,448

\-

-

146

32,27143,054

Provision of allowance for lawsuits

38,333-

Provision of allowance for other losses

24,555

3,481

Contribution to guarantee fund246,503273,320

Insurance fee on deposit

279,493

287,698

Contribution to housing credit guarantee fund84,26772,006

Insurance cost

201,909200,767

Provision for policy reserves

391,069

302,486

Others160,907

151,714\ 1,476,755\ 1,334,672

47. General and administrative expenses
General and administrative expenses for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Salaries
Provision for severance and retirement benefits

Year ended December 31, 2015

Year ended December 31, 2014

\ 2,017,666\ 1,838,265

168,760

181,291

50. Other non-operating income
Other non-operating income for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Termination benefits

341,919

93,027

Rental fee income

Employee benefits

128,066

104,403

Disposal of property and equipment

299,002

Disposal of investment property
Disposal of investment in subsidiaries and associates

Rental expenses

330,697

Entertainment expenses

35,81342,691

Depreciation on property and equipment

184,018

171,195

5,501

5,145

Amortization

274,033

289,970

Taxes and dues

229,120

145,600

Depreciation on investment property

Year ended December 31, 2015

Year ended December 31, 2014

\ 10,483\ 11,020

11,98910,360544

187

64,785

2,750

Recovery of impairment loss on investments in associates

13,196-

Others97,44465,920\ 198,441\ 90,237(Continued on next page)

212

213

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

51. Other non-operating expense

December 31, 2015
Deductible (taxable) temporary differences

Deferred income tax assets (liabilities)

Accrued income(322,256)(77,986)

Accrued expenses

197,875

47,826

Other non-operating expenses for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Year ended December 31, 2015
Disposal of property and equipment

Year ended December 31, 2014

\ 13,822\ 8,185

80,064

19,375(1,137,252)(275,001)

Defined benefit obligation

1,224,722

296,094

Allowance for other losses

254,639

61,618327,433

78,37775,05618,162(15,880)(3,843)

Disposal of investment in associates

1,480

3,164

Allowance for acceptance guarantees

Contribution

32,57841,032

Plan assets for severance benefit

Impairment loss on tangible and intangible assets

10,861

26,034-

31,984

Impairment loss on investments in associates
Commissions received on collection of special bond

4,469

4,753

Bad debt expenses

Others39,64688,410Depreciation\ 102,856\ 203,562

Fair value valuation resulting from merger
Dormant deposits
Advanced depreciation provision

9,139

2,212

(180,315)(43,636)

52. Income taxes

Deemed cost for property and equipment(582,787)(141,035)

The major components of income tax expense for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):

Available-for-sale financial assets(743,080)(179,825)

145,447

33,348\ 18,479\ 4,472

Current income taxes
Additional refund of prior year’s income tax

Year ended December 31, 2015

Year ended December 31, 2014

\ 226,625\ 378,070(47,950)(39,176)

Changes of deferred income taxes due to the tax effect of temporary
differences

33,52065,207

Current and deferred income taxes recognized directly to equity

55,109(76,129)

Tax effect of consolidated tax returns
Income tax expense(25,195)(55,198)\ 242,109\ 272,774

Reconciliations of income tax expense applicable to income before income tax at the Korea statutory tax rate to income tax expense at theeffective income tax rate of the Group for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Year ended December 31, 2015

Year ended December 31, 2014

\ 1,196,390\ 1,252,563

Tax at domestic statutory income tax rate of 24.2%

293,613300,787

Income not subject to tax(13,086)(10,073)

14,33915,260(28,261)

Income before income tax

Expenses not deductible for tax purposesTax deduction
Deduction of tax loss carryforwards
Income tax expense of foreign branches and subsidiaries

Tax loss carryforwards
Investment in kind
Financial acceptances and guarantees

22,966

5,558

Deferred point income

129,334

31,299Fair value differences due to the business combination(702,673)(170,047)

Others(391,424)(95,004)\ (1,601,910)\ (389,990)(389,990)

Domestic deferred income tax liabilities
Foreign deferred income tax assets (*)

56,616

Foreign deferred income tax liabilities(2,633)\ (336,007)

December 31, 2014
Deductible (taxable) temporary differences

Deferred income tax assets (liabilities)

Gain on valuation of trading securities\ 78,157\ 18,954

Impairment loss on investments

541,405

129,997(23,293)

Gain on valuation of investments in subsidiaries(342,571)(81,990)-(6,618)Gain on valuation of derivatives

13,713

3,244

21,991

21,757

Deemed dividends

10,1092,446

Tax effect of consolidated tax return(25,195)(55,198)

Deferred loan fees and expenses(131,303)(31,787)

Additional refund of prior year’s income tax(47,951)(39,176)

Accrued income(379,290)(91,774)

Effect of tax rates change(6,363)924

Accrued expenses

160,785

38,458Others33,022

68,404\ 242,109\ 272,774

20.2

21.8

Income tax expense
Effective income tax rate (%)

Temporary differences and deferred income tax assets (liabilities) as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015
Gain on valuation of trading securities
Impairment loss on investments

Allowance for acceptance guarantees
Plan assets for severance benefit

51,242

12,400(879,669)(212,202)
237,648

Defined benefit obligation

984,442

Allowance for other losses

201,291

48,709Bad debt expenses

411,653

98,891

Depreciation

42,20910,183

Fair value valuation resulting from merger(14,870)(3,598)Deductible (taxable) temporary differences

Deferred income tax assets (liabilities)\ 248,558\ 60,183

Dormant deposits

542,816

131,222

Advanced depreciation provision

6,879

1,665

(180,315)(43,636)

Gain on valuation of investments in subsidiaries(290,542)(69,394)

Deemed cost for property and equipment(595,773)(144,177)

Gain on valuation of derivatives(268,373)(64,952)

Available-for-sale financial assets(894,897)(215,565)

6,528

1,580

(250,384)(60,593)

Deemed dividends
Deferred loan fees and expenses(Continued on next page)

Tax loss carryforwards

179,724

41,352

Investment in kind

137,879

33,367

Financial acceptances and guarantees

22,723

5,499(Continued on next page)

214

215

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

Details of dividends on hybrid equity securities for the years ended December 31, 2015 and 2014 are summarized as follows (Korean won in millions):

December 31, 2014
Deductible (taxable) temporary differences

Deferred income tax assets (liabilities)

Deferred point income\ 104,749\ 23,116

Par value

Fair value differences due to the business combination(829,505)(195,463)

Weighted-average interest rate

Others(3,879)(7,828)\ (1,305,112)\ (322,091)

Domestic deferred income tax liabilities

Total dividends

Year ended December 31, 2015

Year ended December 31, 2014

\ 745,000\ 300,000

5.12%

6.36 %\ 27,015\ 19,082(322,091)

Foreign deferred income tax assets (*)

51,045

54. Earnings per share

Foreign deferred income tax liabilities(32,167)

Weighted-average numbers of common shares for the years ended December 31, 2015 and 2014 are calculated as follows (shares in units):\ (303,213)(*) Deferred income tax assets of foreign branches are not offset against the deferred income tax liabilities due to differences in tax jurisdictions.

Beginning

The effective income tax rate of 24.2% is applied when calculating deferred income tax assets or liabilities that will be realized. Also, deferredincome tax assets are recognized when it is foreseeable that future taxable income will be incurred and that future tax credits will be realized.
Details of deferred income taxes charged (credited) directly to equity as at December 31, 2015 and 2014 are as follows (Korean won in millions):
December 31, 2015
Before tax amounts

Deferred income tax assets (liabilities)\ 1,186,992\ (282,866)

Gain (loss) on valuation of derivative instruments(5,469)1,203

Changes in valuation of equity method investments

(838)

166

Exchange differences on translation of foreign operations

465

(158)

Remeasurements of the net defined benefit liability (asset)(107,351)

25,903\ 1,073,799\ (255,752)\ 650,985\ (160,785)

Gain (loss) on valuation of available-for-sale financial assets

Gain (loss) on valuation of available-for-sale financial assets
Gain (loss) on valuation of derivative instruments(5,520)1,221

Changes in valuation of equity method investments(16,106)

3,895

Exchange differences on translation of foreign operations

7,401(2,292)Remeasurements of the net defined benefit liability (asset)

52,289(12,842)\ 689,049\ (170,803)-(1,009)(4,315)

Disposal of treasury shares

923

3,572,599

294,161,908

289,120,469

Weighted-average number of shares of common stocks outstanding

The Group’s basic earnings per share for the years ended December 31, 2015 and 2014 are calculated as follows (Korean won and per shareamounts in units):
Net income for the period

Dividend per share Dividend per share ratio (%)

Year ended December 31, 2015

Year ended December 31, 2014

\ 909,731,786,140\ 937,706,832,786(27,014,486,685)(19,082,000,000)

Net income attributable to common stock\ 882,717,299,455\ 918,624,832,786

Weighted-average number of shares of common stocks outstanding

294,161,908 shares

289,120,466 shares\ 3,001\ 3,177

Dividends on hybrid equity securities

Basic earnings per share

Weighted-average numbers of common shares adjusted for the effect of dilution for the years ended December 31, 2015 and 2014 arecalculated as follows (shares in units):
Weighted-average number of common shares of outstanding for basic earnings per share

Year ended December 31, 2015

Year ended December 31, 2014

\ 294,161,908\ 289,120,469

Dilution effect due to:1,063,510

843,300\ 295,225,418\ 289,963,769

The Group’s diluted earnings per share for the years ended December 31, 2015 and 2014 are computed as follows (Korean won and number ofshares in units):

Year ended December 31, 2015
Number of shares

285,552,185

Issuance of common shares

Stock grants

Details of the Group’s dividend including interim dividend for the years ended December 31, 2015 and 2014 are as follows (Korean won inunits):

Year ended December 31, 2014

289,894,062
4,267,932

Paid-in capital increase

Weighted-average number of common shares (Diluted)

53. Dividends

Year ended December 31, 2015

Year ended December 31, 2015

Year ended December 31, 2014

Dividends

Net income attributable to common stock holders\ 882,717,299,455\ 918,624,832,786

295,225,418 shares

289,963,769 shares\ 2,990\ 3,168

Cash dividend (interim)

296,003,062

\ 150

3.00

\ 44,400

Weighted-average number of shares of common stocks outstanding (Diluted)

Cash dividend (annual)

296,003,062

500

10.0

148,002

Diluted earnings per share\ 192,402

Year ended December 31, 2014
Number of shares

Dividend per share Dividend per share ratio (%)

Cash dividend (interim)

289,894,062

\ 150

3.00

Cash dividend (annual)

289,894,062

450

9.00

Dividends\ 43,484
130,452\ 173,936

Details of the Group’s dividend payout ratio and dividend yield ratio for the years ended December 31, 2015 and 2014 are as follows.
Year ended December 31, 2015

Year ended December 31, 2014

Dividend payout ratio (%)

Cash dividends/Net income

Calculating formula

20.16

17.75

Dividend yield ratio (%)

Cash dividends per share/Market value per share at reporting date

2.75

1.88

216

217

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

55. Share-based payment transactions

The details of stock grants as at December 31, 2015 are summarized as follows:

The Group has granted employees and directors of HFG and its subsidiaries share options which may be settled by the issuance of additional
shares or by cash payment equal to the difference between the market value and exercise price.

Grant date

Details of outstanding share options granted by HFG as at December 31, 2015 are as follows (in Korean won, rate in %):Assumptions to estimate fair value of the stock options
Grant dateSettlement
methodExercise
price

Exercisable
period (*2)

Maturity

Optionpricingmodel

Risk
free rate(%)

Expected
exerciseperiodEstimatedshare
volatility(%) (*3)

Expected
dividend

Stock priceat thegrant date

Fair valueof shareoptions

KEB Hana Bank (formerly KEB)
2009.03.12(*1)

2011.03.13~
5,800
2016.03.12

2009.08.04(*1)

10,9002010.03.10

2016-03-12 Black Scholes

1.63

7.01

23.18

483

5,700

1

2011.08.05~
2016.08.04

2016-08-04 Black Scholes

1.63

7.01

23.15

483

11,700-2013.03.11~
2017.03.10

2017-03-10 Black Scholes(*1)

13,200(*1)

2013.03.31~
13,5002017.03.30

2010.08.04(*1)

2013.08.05~
12,4002017.08.04

2017-08-04 Black Scholes

1.64

7.01

26.25

483

12,3001

2010.09.29(*1)

13,5002013.09.29~
2017.09.28

2017-09-28 Black Scholes

1.64

7.01

25.42

483

13,550-2011.08.10

(*1)

9,100

2014.08.11~
2018.08.10

2018-08-10 Black Scholes

1.65

7.01

25.54

483

8,060

45

2011.08.26

(*1)

8,500

2014.08.27~
2018.08.26

2018-08-26 Black Scholes

1.65

7.01

26.20

483

7,720

75

2011.09.02

(*1)

8,400

2014.09.03~
2018.09.02

2018-09-02 Black Scholes

1.66

7.01

26.13

483

7,930

79

2010.03.30

2017-03-30 Black Scholes

1.63
1.63

7.01
7.01

27.06
26.96

483
483

13,45013,600-(*1) KEB Hana Bank (formerly KEB) chooses one of the following at its discretion: additional equity issue grants, treasury stock grant or cash settlement.
(*2) The above stock options will vest after a two-year vesting period and become exercisable within 3 years after the vesting date, except if KEB’s employees or directors retire at the regularretirement age or for reasons not attributable to the fault of the employees or directors, such options will vest and become exercisable immediately within 6 months from the retirement
date (one year for the second granted options), or if death of KEB’s employee or director occurs, such options will vest and become exercisable immediately within two years from the dateof death. In addition, if KEB’s employee or director is terminated voluntarily after the options have become vested, such options should be exercised within 30 days from the termination date.
(*3) Estimated share volatility is assessed based on the volatility of KEB’s share price for the same period as the expected exercise period.

Changes in stock options granted by the Group for the years ended December 31, 2015 are summarized as follows (number of shares in units):<KEB Hana Bank (formerly KEB)>
Grant dateCompany

Beginning

Forfeited

Exercised

Exercisable

2009.03.12

KEB Hana Bank

490,000(56,260)(181,035)

252,705

2009.08.04

KEB Hana Bank

470,000(54,390)-415,610

2010.03.10

KEB Hana Bank

350,000(37,650)-

312,350

2010.03.30

KEB Hana Bank

360,000(122,860)-

237,140

2010.08.04

KEB Hana Bank

420,000(168,110)-

251,890

2010.09.29

KEB Hana Bank

90,000(72,190)-

17,8102011.08.10

KEB Hana Bank

550,000(217,000)-

333,000

2011.08.26
2011.09.02

KEB Hana BankKEB Hana Bank

100,000
30,0002,860,000(57,710)(18,750)(804,920)(181,035)

42,290
11,2501,874,045

The Group calculates compensation costs for cash-settled stock options by using fair value approach. Every closing period, the subsidiaries of
the Group remeasures fair value of liabilities and reflects them on compensation costs. The stock option liabilities in accounts payable amount to￦20 million and ￦195 million as at December 31, 2015 and 2014, respectively.

218

Grant dateSettlement method

Exercisable period(appraisal period)

Payment date

Estimated vested sharesas at December 31, 2015

HFG
Grant in 20132013.01.01(*1)

2013.01.01 ~ 2015.12.31

2015.12.31

249,550(*2)

Grant in 20142014.01.01(*1)

2014.01.01 ~ 2016.12.31

2016.12.31

233,710(*2)

Grant in 2015

2015.01.01(*1)

2015.01.01 ~ 2017.12.31

2017.12.31

158,120(*2)

KEB Hana Bank (formerly KEB)
Grant in 20112011.09.21

Cash settlement

2013.09.21 ~ 2016.09.20

2013.09.21

59,450Grant in 20112011.02.21

Cash settlement

2013.02.21 ~ 2016.02.21

2013.02.21

14,3307,590

Grant in 20112011.02.21

Cash settlement

2013.02.21 ~ 2016.02.21

2013.02.21

Grant in 20112011.03.21

Cash settlement

2013.03.20 ~ 2016.03.19

2013.03.20

366

Grant in 20112011.03.21

Cash settlement

2014.03.20 ~ 2017.03.19

2014.03.20

344

Grant in 20112011.09.08

Cash settlement

2012.09.08 ~ 2015.09.08

2012.09.08

500

Grant in 20112011.09.08

Cash settlement

2013.09.08 ~ 2016.09.07

2013.09.08

430

Grant in 20122012.02.21

Cash settlement

2013.02.22 ~ 2017.02.21

2013.02.22

3,535

Grant in 20122012.02.21

Cash settlement

2014.02.22 ~ 2017.02.21

2014.02.22

11,415Grant in 20122012.02.21

Cash settlement

2013.02.22 ~ 2017.02.21

2013.02.22

715

Grant in 20122012.02.21

Cash settlement

2014.02.22 ~ 2017.02.21

2014.02.22

33,970(*1) HFG chooses one of the following at its discretion: treasury stock grant or cash settlement.
(*2) The maximum number of shares to be compensated is pre-determined before the grant date, and vested shares are determined by performance measures. The performance assessment
consists of the group performance assessment (relative shareholder return) constituting 40% and the business unit performance assessment (stocks granted in 2013 and 2014 are based on
the company’s ROE and ROIC, and stocks granted in 2015 are based on the company’s ROE and rate of achieving goal net income) constituting 60% of the total performance scorecard.

The Group uses the cash settlement method in connection with the performance-linked stock grant liabilities based on past practice, andcompensation costs are recorded by re-measuring fair value of liabilities at the end of every vesting year. The stock grant liabilities in accounts
payable are in the amount ￦17,681 million as at December 31, 2015 (￦18,630 million as at December 31, 2014).

56. Cash flow information
Cash and due from banks as at December 31, 2015 and 2014 is summarized as follows (Korean won in millions):Cash
Due from banks in Korean won

December 31, 2015

December 31, 2014

\ 2,248,698\ 2,895,743

9,022,110

10,965,345

8,474,968

8,396,643

19,745,776

22,257,731

Restricted balances

10,395,179

10,068,991

Due from banks with original maturities exceeding three months from the date of acquisition

1,116,429

2,517,095\ 8,234,168\ 9,671,645

Due from banks in other banks

Significant non-cash transactions for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Year ended December 31, 2015 Year ended December 31, 2014
\ 1,103,342\ 1,176,039(203,447)

442,208

Debt-to-equity swap

111,005

38,705Decrease in allowance for possible loan losses due to sale of non-performing loans

53,77089,981

Decrease in loans receivables due to loans written-off
Changes in gain or loss on valuation of available-for-sale financial assets, net

Cash flows from interest and dividend for the years ended December 31, 2015 and 2014 are as follows (Korean won in millions):
Year ended December 31, 2015 Year ended December 31, 2014
Interest receipts\ 9,184,668\ 10,061,181

Interest payments(4,351,019)(5,568,234)

Dividend receipts

90,864

108,550219

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

57. Related party transactions
Details of transactions with related parties for the years ended December 31, 2015 and 2014 are summarized as follows (Korean won in millions):

Outstanding balances with related parties arising from the below transactions as at December 31, 2015 and December 31, 2014 are summarized
as follows (Korean won in millions):
Year ended December 31, 2015

Year ended December 31, 2015
IncomeRelated party

Type

AssetsExpenseFee and
Interest
commission
incomeincomeOther
incomeBad debt
expenseFee and
Interest
commission
expenseexpenseOther
expenseMirae Credit Information Services Corp

Associate

\-

\-

\-

\1

\ 113

\ 5,997\ 445

Korea Credit Bureau

Associate

-

2

-

-

35

205

217

Darby-Hana Infrastructure Fund Management

Associate

-

-

-

-

172

-

-

UAM Co., Ltd.

Associate

3,367

36

284

-

-

-

958

Hana UBS Asset Management

Associate-

12,685

-

1

46

-

-

Odin 2 LLC

Associate

1,578

6

-

105

-

-

-

F&U Credit Information

Associate

-

-

618

-

-

2,146

12,555MIDAN City Development Co., Ltd

Associate

-

25

-

(2)

50

-

-

Maltani Development Co., Ltd.
(formerly Taewon Lighting Co., Ltd.)

Associate

12

-

-

-

-

-

-

Plakor Co., Ltd.

Associate

408

13

-

45

302

-

-

Hyundai Cement Co., Ltd.

Associate

351

5

62

3

8

-

-

HN NSC Private Equity Fund

Associate

-

115

-

-

-

-

-

Masan Marine New Town Co., Ltd.

Associate

85

80

2

3

7

-

-

Advanced & Different Credit Information Co., Ltd.

Associate

-

-

33

-

-

-

-

Hana Lantern Energy Factory PEF

Associate

-

32

-

-

-

-

-

Hana Power Infra 1st Private Equity Fund

Associate

-

2,300

-

-

-

-

-

KOCREF REIT 30

Associate

-

-

-

-

-

-

760

150

323

52

-

378

2

-

\ 5,951\ 15,622\ 1,051\ 156\ 1,111\ 8,350\ 14,935

Key management personnel

Related party

Type

Loans
receivables

Liabilities
Allowance for
Otherpossiblereceivables
loan losses

Deposits

Borrowings

Other
payables\ 28

Mirae Credit Information Services Corp.

Associate

\ 198

\-

\1

\ 7,959\-

Korea Credit Bureau

Associate

-

9,413

-

2,028

-

3

Darby-Hana Infrastructure Fund Management

Associate

13

101,436

-

8,660

-

-

UAM Co., Ltd.

Associate

4

2,337

-

3

-

-

Hana UBS Asset Management

Associate

65

1

2

5,816

-

-

Odin 2 LLC

Associate

27,388

-

300

-

-

-

F&U Credit Information

Associate

454

-

-

-

1,768

MIDAN City Development Co., Ltd.

Associate

20

-

-

17,608--

Maltani Development Co., Ltd.
(formerly Taewon Lighting Co., Ltd.)

Associate

2

-

-

-

-

-

Plakor Co., Ltd.

Associate

11,125-4525111,1251,000

Hyundai Cement Co., Ltd.

Associate

3

-

3

753

-

-

HN NSC Private Equity Fund

Associate

-

121

-

-

-

-

KOCREF REIT 30

Associate

-

-

-

-

-

698

Masan Marine New Town Co., Ltd.

Associate

1,513

8

3

763

-

19

Hana Lantern Energy Factory PEF

Associate

-

32

-

-

-

-

Hana Power Infra 1st Private Equity Fund

Associate

Key management personnel

-

597

-

-

-

-

3,273

-

-

2,294

-

-

\ 44,058\ 113,945\ 354\ 46,135\ 11,125\ 3,516

Year ended December 31, 2014
AssetsYear ended December 31, 2014
IncomeRelated party

Type

Related party

ExpenseFee and
Interest
commission
incomeincomeOther
incomeBad debt
expenseFee and
Interest
commission
expenseexpenseOther
expenseMirae Credit Information Services Corp.

Associate

\ 22

\-

\-

\ (1)

\ 116

\ 4,311\-

Korea Credit Bureau

Associate

-

5

-

(2)

33

-

-

Type

Loans
receivables

Liabilities
Allowance for
Otherpossiblereceivables
loan losses

Deposits

Borrowings

Other
payablesMirae Credit Information Services Corp.

Associate

\-

\ 175

\-

\ 5,761\-\-

Korea Credit Bureau

Associate

-

-

-

1,549

-

4

Darby-Hana Infrastructure Fund Management

Associate

-

10

-

7,317

-

-

UAM Co., Ltd.

Associate-

96,912-

5--

Darby-Hana Infrastructure Fund Management

Associate

-

-

1

-

194

-

-

Hana UBS Asset Management

Associate

-

2,862

-

6,705

-

-

UAM Co., Ltd.

Associate

4,117

-

1,025

-

-

-

50

Odin 2 LLC

Associate

29,093

-

195

-

-

-

Hana UBS Asset Management

Associate-

15,593

-

-

101

-

-

Doosan Capital Co., Ltd.

Associate

8,000

79

-

25,055-

9

Odin 2 LLC

Associate

1,809

5

-

-

-

-

-

F&U Credit Information

Associate

-

498

-

-

-

1,105

Doosan Capital Co., Ltd.

Associate

41

-

-

-

48

-

2

F&U Credit Information

Associate

-

1

-

-

-

1,142

12,085

Korea Travels

Associate

-

9

-

6,500

-

-

MIDAN City Development Co., Ltd.

Associate

-

18

2

-

-

-

Korea Travels

Associate

-

323

-

-

136

372

1,630

Najeon Co., Ltd.

Associate

1,300

-

-

236

-

-

MIDAN City Development Co., Ltd

Associate

581

212

-

-

1

-

-

LIG NEX1 Co., Ltd

Associate

-

51

-

3

-

29

Najeon Co., Ltd.

Associate

67

-

-

-

48

-

-

LIG NEX1 Co., Ltd.

Associate

\ 30

\ 67

\ 22

\-

\ 25

\-

\-

Taewon Lighting Co., Ltd.

Associate

1,000

2

-

-

-

-

Plakor Co., Ltd.

Associate

12,625

-

-

4,125

-

-

Flossom Corporation

Associate

1

-

1

-

1

-

-

Hyundai Cement Co., Ltd.

Associate

979

1

-

-

-

-

Taewon Lighting Co., Ltd.

Associate

6

-

-

-

-

-

-

HN NSC Private Equity Fund

Associate

-

6

-

-

-

-

Key management personnel

Plakor Co., Ltd. Hyundai Cement Co., Ltd.

Associate

497

-

12

-

352

-

-

Hyundai Cement Co., Ltd.

Associate

9

-

-

(2)

-

-

-

HN NSC Private Equity Fund

Associate

Key management personnel

220

-

6

-

-

-

-

-

167

31

216

-

168

-

-

\ 7,347\ 16,243\ 1,277\ (5)\ 1,223\ 5,825\ 13,767

4,088

-

-

10,621-24\ 57,085\ 100,623\ 197\ 67,877\-\ 1,171221

HIGHLIGHTS • GROUP OVERVIEW • REVIEW OF OPERATIONS • FINANCIAL REVIEWHANA FINANCIAL GROUP ANNUAL REPORT 2015

As at December 31, 2015, money transactions between related parties are as follows (Korean won in millions).

Collateral provided between related parties as at December 31, 2015 and 2014 is summarized as follows (Korean won in millions):

December 31, 2015
Related party

December 31, 2015

Type

Changes in loans receivables

Changes in deposits and borrowings

Mirae Credit Information Services Corp.

Associate\ 198\ 2,198

Korea Credit Bureau

Associate-

479

Darby-Hana Infrastructure Fund Management

Associate

13

1,343

UAM Co., Ltd

Associate

4(2)

Hana UBS Asset Management

Associate

65

(889)

Odin 2 LLC

Associate(1,705)-MIDAN City Development Co., Ltd.

Associate20

17,608

Maltani Development Co., Ltd.
(formerly Taewon Lighting Co.,Ltd.)

Associate

(998)

-

Plakor Co., Ltd.

Associate(1,500)7,250

Hyundai Cement Co., Ltd.

Associate

(976)

753

Masan Marine New Town Co., Ltd.

Associate

1,513

763

F&U Credit Information

Associate

454

-

(815)

(8,327)\ (3,727)\ 21,176

Key management personnel

Related parties
Benefactor

Beneficiary

KEB Hana Bank

Plakor Co., Ltd.

Transactions

Amounts

Content

Guarantee\ 1,000

Confirmed acceptance andguarantees

Amounts

Content

December 31, 2014
Related parties
Benefactor

BeneficiaryTransactionsKEB

LIG NEX1 Co., Ltd.

Issuance of Import L/C\ 3,380KEB

LIG NEX1 Co., Ltd.

Guarantee\ 11,684

Details of compensation paid to key management personnel for the years ended December 31, 2015 and 2014 are summarized as follows (Korean
won in millions):
December 31, 2015

December 31, 2014

\ 28,783\ 29,165

3,073

1,769

Short-term employee payment
Severance payment
Share-based compensation expenses

As at December 31, 2014, money transactions between related parties are as follows (Korean won in millions)

4,994

3,838

\ 36,850\ 34,772

December 31, 2014
Type

Changes in loans
receivables

Changes in deposits
and Debentures

Investments
in cashMirae Credit Information Services Corp.

Associate\ (1,000)

\ 545

-

Korea Credit Bureau

Associate-(1,496)-

Darby-Hana Infrastructure Fund Management

Associate

-

1,191

-

UAM Co., Ltd

Associate-1-

58.1 Integration of Hana Bank and KEB

Hana UBS Asset Management

Associate

-

4,415

-

Odin 2 LLC

Associate

23

-

-

Doosan Capital Co., Ltd.

Associate

8,000

-

-

Korea Travels

Associate

-

(552)

-

MIDAN City Development Co., Ltd

Associate(19,723)--

The Board of Director of KEB resolved to change the terms and conditions of the integration agreement on July 9, 2015. KEB integrated with
Hana Bank in accordance with the terms and conditions on September 1, 2015 and changed the name to KEB Hana Bank. Consequently, theoriginal shareholders listed on the roster of shareholders of Hana Bank, the extinct company, as at the integration date (September 1, 2015)
received 2.5250728 ordinary shares (par value at KRW 5,000) of KEB, the surviving company, per one ordinary share (par value at KRW 5,000) of
Hana Bank.

Najeon Co., Ltd.

Associate

(900)

1,214

-

Korea Finance Security Co., Ltd

Associate-(10,000)(807)

Taewon Lighting Co., Ltd.

Associate

1,000

-

-

Plakor Co., Ltd.

Associate(375)

16,427-

Hyundai Cement Co., Ltd.

Associate

979

-

-

Related party

Key management personnel

222

(666)

(16,762)-\ (12,662)\ (5,017)\ (807)

58. Business Combination

59. Virtually confirmed date of financial statements and approval authority
The 2015 consolidated financial statements of the Group were approved by the BoD on March 4, 2016.

223

Corporate Information
Hana Financial Group Inc.

Hana Asset Management

55, Eulji-ro, Jung-gu, Seoul, 04539
Tel. 822) 2002–1110

10/F, Shinan Bldg., 512, Teheran-ro,Gangnam-gu, Seoul, 06179
Tel. 822) 3287-4600

www.hanafn.com

www.hana-assetmanagement.com

KEB Hana Bank
66, Eulji-ro, Jung-gu, Seoul, 04538
Tel. 822) 1599-1111 / 1588-1111

Hana I&S

www.kebhana.com

9/F, 32, Hwangsaeul-ro 312 beon-gil
Bundang-gu, Seongnam-si, Gyeonggi-do, 13591
Tel. 822) 2151-6400

Hana Financial Investment

www.hanains.com

82, Uisadang-daero, Yeongdeungpo-gu,
Seoul, 07321
Tel. 822) 1588-3111/3222

Hana F&I

www.hanaw.com

KEB Hana Card
24, Namdaemun-ro 9-gil, Jung-gu,
Seoul, 04522
Tel. 822) 1800-1111
www.hanacard.co.kr

Hana Life
7/F, 89-31, Seosomun-ro, Jung-gu,
Seoul, 04516
Tel. 8280) 3709-7304
www.hanalife.co.kr

Hana Capital
17/F~19/F, Hana Financial Group Gangnam Office,127, Teheran-ro, Gangnam-gu, Seoul, 06133
Tel. 822) 2037-1111
www.hanacapital.co.kr

Hana Savings Bank
16/F~17/F, Hana Financial Group Gangnam Office,127, Teheran-ro, Gangnam-gu, Seoul, 06133
Tel. 822) 1899-1122
www.hanasavings.com

Hana Asset Trust
15/F, Hana Financial Group Gangnam Office,127, Teheran-ro, Gangnam-gu, Seoul, 06133
Tel. 822) 3287-4600
www.hanatrust.com

224

10/F, Hanway Bldg., 43, Dadong-gil,Jung-gu, Seoul, 04521
Tel. 822) 3708-2114
www.hanafni.com

ONE
TRUSTEDGROUP

Hana Investors Services
9/F, Hanway Bldg., 43, Dadong-gil,Jung-gu, Seoul, 04521
Tel. 822) 6714-4600
www.kebis.co.kr

Hana Institute of Finance

HANA FINANCIAL GROUPANNUAL REPORT 2015

82, Uisadang-daero, Yeongdeungpo-gu,
Seoul, 07321
Tel. 822) 2002-2200
www.hanaif.re.kr

Forward Looking Statements

Hana Bank (China) Co., Ltd.
5/F, No.88, PICC Tower,
Xichangan Street, Xicheng District,
Beijing, P.R.China
Tel. 8610) 8458-1111

Some of the information in this report constitutewww.hanabank.cn

events or results and are subject to risks, uncertainties‘forward looking statements’ which reflect Hana
Financial Group’s current intentions, plans, forecasts,
expectations, assumptions and beliefs about futureand other factors. These statements may be identified

PT. Bank KEB Hana Indonesia

by words such as “aim,” “believe,” “estimate,”

Wisma Mulia 32nd Floor,
Jalan Jend, Gatot Subroto No.42,
Jakarta 12710, Indonesia
Tel. 6221) 522-0222/0223“expect,” “plan,” “seek,” “target,” “will," or words of

www.myhana.co.id

similar meaning. These statements are not guarantees
of future results or performance and involve certain
risks, uncertainties and assumptions that are difficult

Investor Relations
Please visit Hana Financial Groupto predict and often are beyond the Hana Financial
Group’s control. Actual outcomes and results may differ

IR website for more information.

materially from those expressed in, or implied by, thewww.hanafn.com/ir

Hana Financial Group’s forward-looking statements.

55, Eulji-ro, Jung-gu, Seoul, 04539 Republic of Korea
Tel 822.2002.1110
www.hanafn.com