2013 Hana Financial Group Annual Report

The Trusted Premier
Global Financial Group55, Eulji-ro, Jung-gu, Seoul, 100-720 Republic of Korea
Tel. 822) 2002 – 1110
www.hanafn.com

Hot like the sun
Pursuing better values to the best of one’s ability
through change and innovation

The Trusted Premier Global Financial Group
Treating the customer like a king
Studying and satisfying customer needs with acustomer-first mindset

From the bottom of one’s heart
Seeing things from and acting with full awareness ofothers’ viewpoints; a basic mindset required for showing
individual competency and promoting cooperation

Broad-minded like an open sky
Understanding and concurring with one another on
issues without partiality

Shining like a star
Developing outstanding competencies in one’s area002 	Highlights
008 Letter to Shareholders
of expertise for the purpose of earning the highest
011 CEO’s Review ofOperations
possiblecustomer trust
027 Vision034 	At a Glance036 	Risk Management038 	Corporate Governance040 	Board of Directors
Enduring like a mountain042 Business Unit System
044 	Retail BU
Always carrying out one’s responsibility with sincerity;
052 	Corporate BU a basic principle of ethics for financial people
058 	Asset Management BU
062 Corporate Social Responsibility
068 	Management’s Discussion and Analysis
107 	Independent Auditors’ Report
These six core values constitute the guidelines by which Hana management, business units and114 	Global Networks
employees guide their collective and individual value decision making and actions.
Corporate Information

Hana Financial Group pursues sustainable growth through the satisfaction of its
stakeholders’ expectations: quality products and services for customers, stable income
performance for shareholders, career advancement for employees, and responsible corporate
citizenship for communities it is part of. Being a financial services group, first and foremost,
HFG focuses on improving its competencies in and developing synergies among banking,securities, credit card, capital, insurance, and other businesses it is engaged in,with an eye towards growing into the trusted premier global financial group.

Group Overview
Hana Financial Group Inc. was established in 2005 as a financial holding company engaged in a wide variety offinancial services from banking to asset management.
Following the acquisition of KEB, a major banking power, HFG has adopted a new vision and value system representing
its recently boosted status and multiplied growth potential. Leveraging its proven competitive advantage and extensive
global network, HFG is taking measured steps towards becoming a global financial group.

Total Assets (consolidated)

368.5

369.9

KRW in trillion
349.0

4Q12

367.7

368.5

355.5

America
1Q13

2Q13

3Q13

4Q13

128

KRW Loan

157.9

Asia & Pacific

Global Network
155.7

KRW in trillion

157.1

157.9

153.1

branches in

151.1
4Q12

1Q13

2Q13

3Q13

81st

175.8
168.1

4Q12

170.4

1Q13

172.8

2Q13

3Q13

- Europe & Middle East 10- America 23

As of Mar. 2014

The Banker"Top 1000 World Banks 2013"

179.2

KRW in trillion

countries - Asia & Pacific 95

4Q13

Total Deposits

179.2

24

(as of July, 2013)

Hana Bank
ranked 532nd(1993)

4Q13

Employees

23,094Global Awards"Best Financial Group
in Korea"_the asian banker

As of Dec. 2013

"Excellence 2013
Best Bank in Korea"_euromoney

Future Finance
Mobile Banking Users

2,959,580"Best Foreign Exchange Bankin Korea"_global finance

As of Dec. 2013

Financial Highlights
In 2013, faced with challenging market conditions, HFG took preparatory steps to spur organic growth group-wide: the basis forcore earnings was fortified and strategic tasks were defined involving development of synergies into income opportunities.
HFG’s profitability and shareholder value are expected to continue to improve on the back of synergies morphing into reality
among various business units of Hana Bank and KEB.

4,485

Net Interest Income(Consolidated)

NIM

Interest income

KRW in billion

2.13%
1.99%

1.97%

1,123
1,103
(Unit : KRW in billion, thousand members, %)Financial Summary

2013

General Operating Income

6,239.7

7,391.1

Operating Income

1,165.0

2,017.4

Consolidated Net Income

933.9

1,621.5

ROA

0.34%

0.60%

ROE

5.16%

10.56%EPS(Unit:KRW)

3,399

6,648

61.64%

51.00%

Total Assets

368,486.4

348,972.8

Total Sales

Business Volume252,143.2

233,246.1(Total Deposits)

225,119.8

206,073.9

		(Sale of Beneficiary Certificates)

27,023.4

27,172.2

No. of Individual Credit Card Members

5,825

6,630

1.33%

NPL Coverage Ratio

120.77%142.89%Delinquency Ratio

0.58%

0.75%

68,754

63,99712.28%

11.65%

Tier 1 Ratio

9.24%

8.15%

BIS CAR [Hana Bank]

13.91%

13.90%

10.54%

9.61%

13.83%

13.59%

11.66%

11.06%

		

Tier 1 Ratio

BIS CAR [KEB]
Tier 1 Ratio
Note) Basel III standard phase in beginning December 2013 (prior CAR for HFG is basel I and for Hana Bank & KEB is basel II standard)

4Q13

2012

2013

933.9
288.2

357.9
230.7
57.1

1Q13

ROa

0.34%

0.44

2Q13

ROE

3Q13

5.16%

2Q13

C/I ratio

61.64%
61.64%

59.63%

6.17%

3Q13

2013

60.91%

0.34%

1.48%

2012

6.65%

0.38%

1Q13

4Q13

7.43%

4Q13

NPL ratio

Capital Adequacy
BIS CAR [group]

3Q13

1,621.5

0.42%
1.48%

		

1,143

KRW in billion

Asset Soundness

BPS

4,485

1,117

933.9
Major Indices(Accumulated)		NPL (substandard & below) Ratio

2Q13

4,599

Net Income(Consolidated)

2012

Profitability

Cost to Income Ratio

1Q13

1.94%

1.92%
1.90%

59.04%

5.16%
1Q13

2Q13

3Q13

4Q13

1Q13

2Q13

3Q13

4Q13

Credit Cost(Accumulated)

1.48%

1.48%
1.46%

0.50%

0.50%
0.48%

0.44%

0.45%

1.34%
1Q13

2Q13

3Q13

4Q13

1Q13

2Q13

3Q13

4Q13

Stock Information
In 2013 Hana Financial Group maintained its high credit ratings; Hana Bank and KEB, its two main income generators, retained their
A1 by Moody’s and A or A- by S&P. HFG’s market capitalization was KRW 12.7 trillion at the end of 2013, a 51% increase from a year
before. Despite the challenging business environment, HFG paid dividends for the year at 14.5% pay out ratio, continuing its legacyof not missing a year for dividend payout in its 42-year history.

Market Capitalization

Share Ownership

12.7

Outstanding Credit Ratings

12.7
9.2

8.6

Moody’s

KRW in trillion
2010

2011

2012

2013

Consistent Dividend History

400

27.3%
14.5%

16.0%

Hana Bank

14.5%

KRW per share

Korea Exchange Bank

600

2013
450

400

2009

2010

Hana Bank

2011

2012

400

2013

As of end of 2013

2012

2011

2010

2009

High

43,90045,30050,50044,30041,750Low

31,25030,10027,85028,000

16,100Year-end

43,90034,70035,55043,30032,9002,011.34

1,997.05

1,825.74

2,051.00

1,682.77

KOSPI index (Year-end)

2012. 012013. 04

The FSC approved
the KEB acquisition

KEB delisted,
new shares of HFG listed

2010. 01

Stock Data

Korea Exchange Bank

Share prices

7.8%

700

S&P

A1 A1 A A-

8.4

2012. 09

Kumho Group in corporate
workout

Kukdong E&C, Woongjin
Holdings in court receivership2011. 03
The FSC delayed decision on thelegitimacy of Lone Star as the major
shareholder of KEB

HFG
KOSPI

2008

2013. 11
The FSC approved shortsale of financial stocks

2010. 11

Successfully weatheredfinancial crisis

Acquisition of KEB signed

2010

2013. 012013. 09

BoD approved plan to turn
KEB into a 100% subsidiary througha stock exchange

Tongyang Groupin court receivership2010. 022011. 08

2012. 05

Hana SK Card linked JV pactwith SK Telecom

The EU faced a budgetary crisis,
US credit rating downgraded

STX faced a liquidity crisis

2011

2012

2013. 06
STX in court receivership

2013

009

Dear shareholders,
The year 2013 will be remembered as a momentous chapter in the history of Hana Financial
Group. Of all the achievements we made during the year, we are most proud of thesuccessful acquisition of KEB’s remaining shares. I cannot emphasize enough thesignificance and potential effect of this top-priority project on the business performance andmanagement status of HFG in the years to come.
Embracing KEB as a fully-owned subsidiary has produced two immediate results: we haveheightened the sense of belonging of its 8,158 employees, and laid the foundation forlaunching and executing group-wide unified business strategies.
A new era requires a new vision. In this era of the ‘new normal—low growth and low margin,’with KEB as an integral part of HFG, we needed a new identity as well as a new direction thatwould befit our multiplied strengths and manifold possibilities.

" In 2013 Hana Financial Group strove toenhance shareholder value in the face ofdaunting business conditions at home andabroad. Though not all of our businessobjectives were met, we have laid a solid
foundation for building a more sustainable
future for HFG."

Accordingly, we have adopted a new vision: “The Trusted Premier Global Financial Group.”
We have set up a plan to become Korea’s de facto leading financial institution by 2025. I amvery proud the formulation of the vision was an eight-month long endeavor by our
employees to collect and screen opinions, and conclude on what best describes where HFG
should be by 2025 and how we should get there.
Although we recorded a net income of KRW 933.9 billion in 2013, the year was a meaningful
year since we have successfully built a solid platform for the future of HFG.

YouTubeAbout Hana Financial Group
http://www.youtube.com/
watch?v=DLkKghYSK2c
WWWVision & Mission
http://www.hanafn.com/eng/info/
aboutus/vision.do

HFG’s performance is laudable especially when reviewed through the lens of risk
management, which I firmly believe is the essence of finance. A case in point is that in 2013
we grew our assets at a rate much higher than the industry average, yet we still maintained
our industry leadership in asset quality. Preemptive risk management was the key to ourleadership in the financial business.
HFG also attracted global attention to its future finance infrastructure, living up to its status as
the pioneer in mobile banking in Korea. In place of the closure of 34 branches of Hana Bank,
KEB and Hana Daetoo Securities, we launched a new revolutionary sales model, ‘Tablet
Branch.’ The model centers on providing financial services, including investment and tax
consultations, to customers at the place and time of their choice. With its unprecedented cost/benefit ratio, this futuristic sales model will likely set a new trend in the financial industry.

010
The addition of KEB’s unsurpassed strengths in business network and trade finance hastransformed HFG into a financial group with the largest overseas income and the mostextensive global reach. In our overseas operations, we have been able to offer products andservices that suit the characteristics of local markets and customers mainly because we believe
in and pursue full localization of overseas subsidiaries. HFG will continue to strengthen
competitiveness and achieve one of our main objectives embedded in the vision which is toincrease the proportion of overseas income from current 19% to 40% by 2025.
Moving on to recent data leakage issue that has struck a chord in the whole industry, the public
is increasingly critical of the overall management stance of the financial industry. These
unfortunate incidents have reawakened us to the importance of internal controls and therealization that financial consumer protection has become a factor of utmost importance inmaintaining customer trust. We took this very seriously, quickly establishing a task force
dedicated to customer data protection and conducted a thorough review of ways in which we
process and store customer information.

In 2013
we grew ourassets at a rate
much higher If 2013 was a year in which we learnt about each other, 2014 will be a year in which we will takethan the a big step forward towards our vision. As the global economy is expected to make a modest
industry average, recovery, the domestic economy will likely follow suit, with GDP growth forecasted to hover near
Our core profit performance will still be facing the barriers of low base rates andyet we still 4%.
increasingly intense competition, but we will overcome them through judicious development ofmaintained synergies among our subsidiaries and successfully complete PMI with KEB.
our industry With one-company mindset, we will tear down the invisible walls of separation remaining inleadership in HFG and maximize synergies among similar business operations, all to foster a corporate
asset quality. culture in which communication and cooperation flourish.
We also aim to raise the proportion of income from non-banking subsidiaries to 30% by 2015.
As the first step towards this objective, in 2013 we laid the groundwork for integrating KEB Cardand Hana SK Card. By merging the two we expect not only to cut costs but also to secure
economies of scale that will lead to improved earnings and meaningful growth. We will further
enhance management efficiency as a way to ride out the current new normal. As a low-cost/high efficiency diet is not an option but a must in such an environment, we will eliminate
redundancies and slash non-essential expenditures.
Hana Financial Group has grown into Korea’s leading financial services brand in the 10 years
since its founding. Staying true to the mission of “Growing Together, Sharing Happiness,” wewill grow into “The Trusted Premier Global Financial Group” based on healthy growth and withfirm belief that as the self-development and happiness of employees grow in scale so thesatisfaction of customers grows in intensity. We will do our best to become a financial services
provider that ushers in a better future for all of us.

ceo's review ofoperations
The year 2013 was a momentous year for
Hana Financial Group, for we took strategic
steps for growth amid difficult financial
conditions. We have laid a new basis for
growing core earnings and drawn up plansfor developing synergies made possible by
the acquisition of KEB, including launchingof an integrated card company.
In the following report, I would like toexplain some of the business achievements
and issues in 2013 and share with you themain tasks we are to pursue in 2014. The
major contents of the report are as follows:

01.

Strengthening the basis for core earnings growth02.

Leading the Banking Industry in Asset Quality

03.

Developing KEB Synergies

04.

Strengthening Preemptive Risk Management

05.

Securing Future New Growth Engines

06.

Increasing Social Commitment and Strengthening Brand Competiveness

Kim Jung-tai
Chairman & CEO of Hana Financial Group01.

Strengthening the Basis forCore Earnings Growth
01. Strengthening the Basis for Core Earnings Growth

WWW
2013 IR Web Casting
http://www.hanafn.com/eng/ir/
presentationsList.do

1. Nurturing loan growth and improving core earnings
In 2013 we laid a new basis for improving core earnings through the increase of quality loans: once
net interest margins start to improve, bigger outstanding loans will translate into a bigger interest
income. Hana Bank’s and KEB’s KRW loans combined rose 4.5% over the course of 2013. The increase
stemmed largely from SME loans comprising mostly SOHO loans.
Hana Bank grew SME loans by 9.5% and SOHO loans by 21.8%, while KEB expanded the same loan
categories by 15.7% and 35.0%, respectively. In 2014 we will continue to cater to healthy or selfaudited SMEs, in addition to SOHO businesses. KEB, in particular, plans to shift its lending focus toself-audited SMEs to achieve relatively lower credit risk.
Corporate loans and the number of branches providing FX services also rose significantly. KEB has
traditionally catered its loan operations to large corporations, but recently started to view SMEs asa reliable income source; its clear advantages in FX and trade finance are expected to be very
attractive incentives for SMEs, particularly self-audited small businesses, to bank with KEB.
157,862
155,726
KRW LoanGroup
153,135

157,862(KRW in billion)

KRW in billion

1Q13

2Q13

107,429
106,3113Q1350,228106,909

Hana Bank

KEB

4Q13

50,43349,41548,932104,203
1Q13

157,137

2Q13

3Q13

4Q13

1Q13

2Q13

3Q13

4Q13

2. Increasing interest income
In 2013 NIM continued its downward movement, reflecting the prevailing low-growth, low-interest rateenvironment, anemic real estate transactions, sluggish consumption, and toughening regulations.
Any cut in the base rate first affects the lending business and then undermines the liabilities part ofthe balance sheet, thereby negatively affecting NIMs for a certain period. Common consensus is that
NIM has hit the bottom in the 4th quarter of 2013 and that it will bounce back up once the last cut of
the base rate begins to lose its effect.

NIM (%)
Group

KEB

Hana Bank

2.5

2.23

2.06
2.0

2.01

1.49

1.59

1.5

1Q12

1.92

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

3. Laying the groundwork to increase non-interest income
In the recently-adopted Group Vision 2025 we have declared that raising non-banking income to
30% of total income is one of our mid/long-term objectives. This objective is our response to therealization that banking can no longer avoid limited growth potential in the face of low-interest, lowgrowth, low-margin trends which seem to stay here for a foreseeable future; as the objective entails
expansion of the fee business, the conventional method of banking units each striving to improve its
interest income performance won’t be of much help. Mindful of this shifting paradigm, we are putting
forward efforts that would lead to joint operation and development of synergies between our banking
and non-banking sectors. To capitalize on synergies from the KEB acquisition, we are implementing
measures including a performance evaluation/reward system designed to incentivize cooperation
between the banking and securities functions in the CIB business.
As for our non-interest income performance in 2013, the credit card and beneficiary certificate fee
parts posted improvements from the year before despite challenging market conditions, whilebancassurance fee recorded a decline from 2012 when it had soared on a base effect. Fee income isexpected to improve in 2014: credit card income is projected to increase on cost cuts and synergy
effects anticipated from the scheduled consolidation of the credit card operations of Hana Bank and
KEB; bancassurance fee also is expected to rise as we plan to cater our installment-type insurance
products to middle-aged customers who are increasingly interested in pension insurance. Credit card
fee income, in particular, is expected to surge in 2014 as we will be further upgrading our industryleading mobile card operations in line with the latest trends in information technology.
Asset management fee income also will likely improve, albeit gradually, on the backs of a series of new
overseas products introduced in 2013, with Hana Daetoo Securities playing the central role, and of
cost-savings effects by the asset management-oriented reorganization carried out in 2013.
Disposition/valuation gains is expected to go up gradually in pace with capital markets showing
signs of vitality in response to an economic recovery taking place as of this report. As for corporatebanking, we are spurring sales combining retail and corporate services by repositioning RMs atselected branches and thereby increasing the number of branches offering both types of services.
Through cross-selling of retail and corporate products, we seek to attract employee retirement
pensions and other funds, secure CIB opportunities, and induce additional trades—all of whichshould contribute to strengthening the basis for fee income.

02. Leading the Banking Industry in Asset Quality

It is also important whether we can improve our NIMs from Hana Bank & KEB’s strategic perspective.
In principle, demand for capital, which is influenced by the state of economy, real estate market
trends, and other economic factors, has a direct bearing on NIM movements. In another words, aneconomic recovery and a reviving real estate market can give rise to expectations for better NIMs.
Whether or not these external factors will materialize, we will nevertheless put forward strategic
efforts aimed at improving NIMs. Even if the base rate should remain unchanged, we will strive to
reduce funding costs by increasing LCF and re-pricing maturing time deposits and high-costdebentures. Rebalancing the loan portfolio with SME loans is expected to contribute to higher NIMs.
Moreover, raising the ratio of mid/long-term loans to the total and modifying variable rate terms
should enhance the rate of return, which in turn will further improve NIMs.

02.

Leading the Banking Industry
in Asset Quality
In 2014 HFG also will continue to reduce its exposure to corporations in industries structurally
challenged. This is because, though the pace at which the economy recovers is an important variable,
structurally vulnerable industries are likely to reach their limits in 2014. HFG has been managing credit
limits on loans extended to corporations with limited growth potential and on loans classified as otherthan normal by grouping industries into smaller segments according to their degree of vulnerability:i.e., real estate PF, "selected monitor group." As for corporations likely to default or need
restructuring, HFG has been administering preemptive measures to their accounts. As a result, assets
under-performing vis-a-vis the risk involved have been significantly reduced in contrast to highperforming assets which will continue to grow. As we have long been making efforts to preemptively
reduce our exposure to structurally vulnerable industries, we are confident we will fare relatively
better in the next round of credit crisis.
Delinquency ratio (unit: %)
Group

KEB

Hana Bank

0.9
0.8

0.75

0.7

0.58

0.6

0.62

0.5

0.47

0.48

0.4

0.39

1. The lowest credit cost since 2008

1Q12

In 2013 HFG posted 0.50% in credit cost, the lowest since 2008, which is more remarkableconsidering that during the year HFG carried out major corporate restructuring cases, including STXGroup. This remarkable feat was possible because HFG has accumulated know-how in restructuring
struggling corporate clients, particularly during previous financial crises, and has been taking
preemptive measures in managing bad assets. Another contributing factor is that most of thosepreemptive steps we have taken with regards to struggling clients and vulnerable industries were in
their final stages by 2013. Meanwhile, the NPL ratio was slightly up compared to the year before due
partially to an increase in assets below the normal category and mainly to the reclassification ofloans in accordance with the financial authorities’ revised loan classification guidelines. This fact is
supported by the stable movements of the NPL ratio before and after the reclassified-induced jump.
As existing clients in arrears increasingly find their ways back to normalcy through restructuring, baddebt expense is expected to move downwards below the level of concern.
In 2014 HFG will continue its loan strategy favoring healthy SMEs and SOHOs. While maintaining ourindustry-leading asset quality through a loan strategy that carries relatively little credit risk, we willseek to improve loan portfolio performance through establishing optimal loan maturity.

npl ratio (unit: %)
Group

KEB

Hana Bank

1.48
1.5

1.47

1.33

1.4
1.3

1.19

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

NPL Coverage ratio (unit: %)
Group

KEB

Hana Bank

175

169.9

150

142.9
132.7
140.9

125

120.8
118.2

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

3. Rationalizing exposure to large corporations
During 2013, our lending stance toward large corporation remained conservative, for there had been
no market signals cueing us to relax our lending policy towards selected monitor group of large
corporations, including STX Group during their restructuring stage, and the overall concern about
vulnerable industries remained unabated. As 2014 has all the indications of being as challenging as
2013, we plan to limit the growth rate of large corporate loans through proactive portfolio rebalances,though we will be approaching each of them selectively, dividing them into three categories—
increase, freeze, and decrease—according to their default probability. Moreover, by grouping large
corporations into a set of small groups, we will remain vigilant of the portfolio of selected monitor
group as well as of the credit limits of each industry and company.

1.2

1.17

1.1

1.08

1.0

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

Meanwhile, we have been making efforts to set up a systematic way to manage client portfolios,
segmenting the portfolios and reorganizing their data by client type, industry, and rating. These efforts
will continue in 2014 as well.

02. Leading the Banking Industry in Asset Quality

2. Decreasing exposure to structurally-vulnerable industries
WWW
IR Data Book
http://www.hanafn.com/eng/ir/financial/databookDetail.do

03.

Developing KEB Synergies
03. Developing KEB Synergies

1. Enhancing business efficiency through consolidations
We have been solidifying the basis for developing synergies between HFG and KEB. To formulate asynergy plan, we collected suggestions and held workshops, and based on more common opinions,
we have adopted a new vision, “The Trusted Premier Global Financial Group,” a vision for sharing
values. We have drawn up a number of synergy development plans by sector and are in the process of
sorting out redundant functions prior to implementing the plans. We also have drawn up a plan forconsolidating credit card operations as mentioned earlier and obtained approval from Indonesianauthorities for our plan to merge the two local subsidiaries of Hana Bank and KEB. On similar note, we
are in the process of approval for merge of Chinese subsdiaries, which is expected for completion by
end of 2014.
The synergy plan for credit card business centers on launch of a new credit card company in 2014 in
the hope that the consolidation will lead to bigger market share, more income, and higher profitability.
The Indonesian and Chinese subsidiaries each will be consolidated based on a post-mergerintegration method, which is ideal for maintaining stability during the process of streamlining theworkforce, and will generate momentum to HFG's overall synergy drive.

2. Improving KEB’s productivity
KEB recorded remarkable long growth as a way to improve the productivity of its lending operations.
Particularly, SME loans grew at a notable rate in the year, SOHO loans took up most of the increase. In
fact, most of the SME loans lent in 2013 had more characteristics befitting household loans. KEB plans
to continue to expand SME loans in 2014, with a new attention to self-audited businesses.
In 2013 the number of SME clients increased 6.5% to 198. The number of clients considered “active”
soared 7.4% to 51,000. In response to the rising popularity of non-face-to-face channels, we havemade our corporate capital management service available on-line, and as a result, the number ofclients using the online service jumped 476% to 10,200.
In 2014 we will focus on increasing assets comprising risk-sharing products such as guaranteed or
government-backed funds and allocating more resources and personal attention to SME clients. To
better execute these efforts, we will revamp relevant systems and provide favorable terms for SMEs.

Comparison of loan portfolio composition (unit: %)Others

15.4%

0

21.0%

0

10

10

43.5%

KEB
70

34.2%
(7.1%)

60

70

30

30

40

60
50

30

70

0

20

Hana Bank

32.0%(13.7%)

1.3%

90

50.9%
20

20

80

48.5%

Group

40

60
50

32.7%
(11.6%)

1.7%

90

80

10

90

80

Household

2.6%

50

17.2%

SME(SOHO)

40

Large corp

04.

Strengthening Preemptive
Risk Management

In 2013 signs of early QE tapering by the U.S. added to the overall uncertainty of the financial market.
Even after an actual tapering took place in late 2013, the uncertainty and volatility of the global
financial market still lingered unabated. In response to the domestic economy mirroring the state of
the global economy and thus showing few signs of a genuine recovery, we have strengthened ourrisk management. Specifically, we put under unified management the guidelines for assessing andmanaging industry, product and client risks, with a goal of establishing risk management systems
for all industries, and standardized the risk management policies of our subsidiaries. In preparationfor Basel III, we have set up a credit evaluation model and a system for measuring regulatory capitalfor each risk category.

2. Exceeding Basel III requirements and rebalancing the loan portfolio
As a result of these steps taken, the capital ratios of HFG and its subsidiaries, as of the end of 2013,
were well above Base III’s minimum requirement, with some being even higher than the figures before
the adoption of the new standards. It is just that we now are in a position to pursue our growthstrategy constrained by the phase-in capital requirement schedule. Meanwhile, as our banking arm isimplementing its strategies to grow SME loans and to increase overseas income at a much faster pacethan before, risk management has grown in importance. Accordingly, in 2014 we will focus on
reducing underperforming, capital-depleting assets and operations as a way to rebalance the asset
portfolio based on risk-adjusted return, thereby fortifying the basis for fee income and improving cost
efficiency.
Group's Capital Adequacy (unit: %)BIS ratio

Tier 1 ratio

12.28
11.66

11
10

9.24

9

8.16

8

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13
3Q13
4Q13
Note) Basel III standard phase in beginning December 2013

Hana Bank's Capital Adequacy (unit: %)BIS ratio

Tier 1 ratio

13.91

13.90

13
12

10.54

11

9.61

10

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13
3Q13
4Q13
Note) Basel III standard phase in beginning December 2013

KEB's Capital Adequacy (unit: %)BIS ratio

Tier 1 ratio

13.83

13.59

14
13

11.66

12

11.06

11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

Note) Basel III standard phase in beginning December 201304. Strengthening Preemptive Risk Management

1. Strengthening capital adequacy through risk management

05.

Securing Future
New Growth Engines

With the merger of KEB, HFG now has the largest foreign currency deposits, the biggest overseasincome-to-total-income ratio in the banking industry, and the most extensive global network in Korea.
In 2013 HFG continued to extend its inroads into overseas markets as well as the global network; itreceived approval in August for its merger plan involving BNB Bank. By taking over BNB, HFG can lay
the foundation for expanding into the North America region.
In 2014 we plan to establish a subsidiary in Myanmar, a subsidiary in Russia, a branch in India, and abranch in Australia. The first will belong to Hana Bank and the rest to KEB. As we have recently made it
public, our long-term strategic vision includes raising the proportion of global income from a current
19% to 40% by 2025. The goal requires an annual growth rate of 16%. To reach this goal, we will shift
the focus of our lending operations from domestic corporations operating overseas to local
indigenous businesses while continuing to increase the number of local employees.
Though M&A may be the quickest way to achieve the 40% goal, our ability to pursue a large-scale
M&A has been somewhat diminished by the KEB takeover and the adoption of Basel III which has
toughened the capital requirements to be met down the road. Aware of these constraints, we will
formulate a more realistic overseas expansion strategy. The first of our strategic tasks for expanding
overseas is localization of our operations in China and Indonesia. By pursuing localization throughincrease of local employees, we aim to speed up organic growth. The second strategic task is to leadthe global financial settlement market. As global trade increases, we plan to secure transaction
banking opportunities by leveraging the newly-reinforced overseas network.
Overseas network-related activity in 2013

❶ BNB merger completed in U.S. (integrated as subsidiary, Aug. 2013)❷ Overseas network expanded:• 4 and 6 business points established in China and Indonesia, respectively• Office opened in Istanbul, Turkey (May 2013),• Branch opened in Clark Philippines (Sept. 2013),• Liaison Office opened in Fukuoka, Japan (Oct. 2013)• Branch opening approved in sydney, australia (Dec. 2013)❸	Strategic alliance formed with China Minsheng Bank (May 2013)• Steering Committee convened in Aug. 201305. Securing Future New Growth Engines

1. Extending the global network

2. Honing the edge in future finance and bolstering multi-channel links
In 2013 HFG launched a “Future Finance Division” in an effort to bolster its non-face-to-face channels.
We are now focused on strengthening our position as a future finance leader and enhancing thecoordination among different channels.

HFG’s future finance business has been steadily advancing based on its market-tested
competitiveness. We established a future finance task force in 2007, the first in Korea, and launched
the nation’s first smartphone banking service in 2009. “HANA N BANK” and “HANA N Wallet”, ourleading smartphone banking products, have secured leading positions in the market, generating
income and drawing recognitions from industry watchers at home and abroad.
In fact, our future finance leadership has attracted global attention and gained an international clout
as a power house in the world of future finance: The Banker, the Asian Banker, and other respectedindustry journals and watchers have praised HFG as a rising star in future finance. In addition to global
recognitions and clout, our future finance leadership has led to increasing customer loyalty andgrowing incomes.
To further sharpen our competitive edge and thus stay ahead in future finance, we will pursue four
strategic keywords—touch point expansion, delivery innovation, omni-channel strategy, future cash.
We will strengthen the service line-up of banking, credit card, securities, and other subsidiaries. We
will improve the coordination among various subsidiary channels. Moreover, we will strive to replicate
our future finance business success in overseas markets as a way to grow into a global financialgroup.
HFG’s growing future finance

No. of “Smart FX Rates”
downloads

No. of mobile cards issued(unit : 10,000)(unit : 10,000)

101

32
59

15

6

1
2012.9

2012

2013

2010

12
2011

2012

2013

Global recognitions for Future FinanceHana N Wallet- Technology Project of the Year
- Retail Banking Project of the Year
- Innovation in Payment Technology

Cyber Hana Bank
- Global Model Bank Award(Loan Processing category)

Hana N Bank
- Retail Banking Award(Best Award in mobile banking category)

“The only bank that has come close to    capturing the true contextuality of banking in
one mobile app today is Hana Bank of South
Korea.” (Brett King, the Bank 3.0 author andfinancial columnist)

06. Increasing Social Commitment and Strengthening Brand CompetivenessThanks to our head-start advantage in future finance, we have been able to make up for the
weaknesses in the off-line business network which still lags behind the competition even after KEB’s
network was integrated. Our lead in future finance is all the more significant in that it gives us an edgein attracting younger generations and securing the customer base of tomorrow.

06.

Increasing Social Commitment andStrengthening Brand CompetivenessvisionIn 2013 HFG adopted a new corporate vision and value system comprising mission, corevalues, vision, strategic objectives, and strategies. The mission and core values represent theidentity of HFG, while the vision and strategic objectives HFG should head towards in pursuit of
the mission.

Launching of the “Committee for
Sharing Happiness”(2013.4)

KEB launches 'KEB Sol-Together', a
consumer action group(2013.11)

HFG has established its corporate vision and value system anew in response to a newparadigm that has taken root in the global financial market since the great financial crisis of2008 and to a seismic change that has taken place in the corporate structure following its
acquisition of a major banking power.
In the process of adopting the new system, HFG took a series of well thought-out steps tolisten to and reflect on each employee’s opinion about what the primary goal of HFG’sexistence should be, where it should be in the next 10 years, and how it should get there.

Hana Bank’s winter campaign helping
the needy stay warm by delivering
briquettes and daily goods(2013.12)

Now that financial consumer protection is an integral part of our social contribution, we have createda consumer protection unit, the first in the financial industry, and a “Committee for Sharing
Happiness”. Through these bodies, we are carrying out socially responsible management involving
support for SMEs and start-ups by the younger generation, consumer rights protection, and proactive
social contributions. We are in the process of setting up CSR strategies and policies, drawing up
annual and quarterly business plans, and pursuing socially responsible management. To makeconsumer protection an integral part of our business operations, we have included it in the evaluationof executive officers’ performances.
Our focus on socially responsible management will continue in 2014. To help employees realize theimportance of CSR, we will continue to expand CSR programs featuring seminars and other events inwhich employees can participate. Each subsidiary also has made efforts to improve financial
consumer protection in its daily operations. Hana Bank has adopted a charter pledging its
commitment to financial consumer rights protection and chosen every Wednesday in the third week ofthe month as a day to check for any violation of consumer rights in the business operations. KEB also
has a similar program through which customers are solicited for their opinions as to how to improvecustomer protection and to address other related issues. Hana Daetoo Securities, Hana SK Card, andHana Savings Bank, each has declared its own financial consumer protection charter and launchedmany programs through which its employees can practice what they have declared to do.
Once we have all our CSR activities and programs going in full swing, customer satisfaction will likely
grow and our brand image improve. I believe bigger customer satisfaction and higher brand image willcontribute to competitiveness and better socially responsible management will lead to results
beneficial to shareholder value.

“The Trusted Premier
Global Financial Group.”

028

Since the great financial crisis, the global financial market has been shaped by two developments—
low growth and low margin—which are increasingly becoming the new norms. The Korean financial
market was no exception to these stifling consequences of the crisis. Sensing an impending era ofdiminishing returns and shrinking margins, HFG saw the need to shed its volume-based growthstrategy and instead adopt a new path of sustaining growth. Furthermore, with the domestic market
having reached the maturity stage, going overseas has become no longer an option but a necessity
for achieving sustainable growth.
A new vision was in order for HFG as its 10-year vision, adopted at the time of its establishment in2005, was scheduled to run its course by 2015. With the previous vision nearing the end of its wellserved purpose, HFG was in need of another vision for its next 10 years.
Moreover, the need for a new vision became all the more relevant following HFG’s acquisition of
KEB, one of the most respected banks in Korea and the undisputed leader of FX and trading
services. The inclusion of the major banking power brought about a huge boost not only to HFG’s
market presence but also to its industry status. A new vision was sorely needed that would speakfor HFG’s multiplied strengths and manifold possibilities.

029

With its corporate identity thus defined, HFG has set a clear direction to follow by adopting as the vision“The Trusted Premier Global Financial Group.” By definition, a vision
describes the ideal future image a corporation aims to project in a span of 10 years or so in line withits mission.
A clear and realistic vision is essential for a corporation pursuing long-term sustainability, for it takes
a great deal of precious and finite resources to navigate through a sea of hazardous risks towards adestination only visualized.
The newly adopted vision stands for HFG’s conviction to carry out the following tasks:•	build up stakeholder trust, by consistently satisfying customers with quality products andservices, employees with work conditions constantly improving, and community members
through proactive and genuine sharing•	stay ahead of its competition in responding to market change and in offering products andservices that meet the emerging customer needs, thereby building up competencies befitting apremier financial institution•	establish the status and business presence comparable to a global financial group by not only
actively expanding overseas based on the choose and focus strategy but also fostering a
globalized corporate culture and arming its workforce with comparable competencies

Finding a new vision took eight months, from November to July 2013, as over 11,360 employees
participated in the process in one way or another. A vision task force was formed, comprising six fulltime and four part-time members. Boston Consulting Group was chosen as consultant. The task force
embarked on a nationwide tour, visiting all Group subsidiaries and their major branches, conducting
33 interviews involving 170 employees. The team also conducted Group-wide phone surveys and
54% of the employees responded. It held vision workshops 10 times in which a total of 893 people
participated. The final version of vision was approved by the Board of Directors on July 17, 2013.

•	function as “Hana (one)” in developing synergies, reducing costs, and going beyond customer
expectations

The Trusted Premier Global Financial Group

Strategic Target: BEST 2025
HFG has defined as the new mission “Growing Together, Sharing Happiness.”
By definition, a mission is the top-most and longest-term concept of a corporate philosophy
containing the reason why a corporation exists and the ultimate goal it strives for. As Peter Drucker
declared, a clear and consistent goal is crucial for sustainable growth of a corporation.
The new mission captures HFG’s will to go beyond its given corporate responsibilities and pursue
healthy growth together with all its stakeholders including employees and community members,
create shared value for all, and contribute through sharing to the building of a society where all its
members can live happy lives.

Best Bank1

ExpandingGlobally2

StablePortfolio3

Trusted Group• Retail: Long-tail customervalue- Households: Mass/MA,- Corporate: SME/SOHO• Optimal Omni-channel
Network- Future Finance activation• Leading Globalization- China/Indonesia as pilot
countries• Global payment system- Opportunities intransaction banking  
increase utilizing global
network• Promote Convergencebusiness• Leader in Mobile Banking• Insurance : scaleenlargement  • Competitive Consumer
finance• Include trust, a core tool ofdifferentiation, in thestrategic objectives• Enhance HFG’s brandimage• Strengthen financial
consumer protection

AgilityBusiness Model
Innovation

Customer
Centricity

Digitalization

1. 1st in income
2. Global income to domestic income = 40% : 60%
3. Non-banking income to banking income = 30% : 70%.

030

With a goal of realizing its vision by 2025, HFG has chosen the following set of objectives,dubbed “BEST 2025”, to reach by the year:

Best Bank

031

With these objectives in mind, HFG turned inwards and sifted through its strengths insearch of those that would be most relevant, and the following four factors, “ABCD” inacronym, emerged.

• Become the No. 1 bank in Korea and thus secure a base for stable profit• Strengthen the position as the best bank by expanding the customer base

Expanding Globally•	Develop the global business into one of HFG’s core growth engines and grow overseas revenue
to 40% of total revenue•	Cultivate the global business as an alternative to the low-growth-low-margin environment of
the domestic market

Stable Portfolio•	Build a stable business portfolio by increasing non-banking sector income to 30% of the total• Develop genuine synergy-based total financial services

Trusted Group• Lead the banking industry in financial consumer rights and protection• Improve HFG’s brand image through accumulation of trust

Agility• Maintain a fluid organization structure so as to:- Maximize synergy- Allocate resources with maximum efficiency- Make sound decisions promptly in response to rapid market changes•	HFG has long been leveraging its relatively smaller business scale into advantages
and one of them is being nimble in adjusting its operations to new developments or
adopting new trends. It was the first to adopt the Business Unit system mainly
because the system was ideal for seamlessly forming task forces across theboundaries of different subsidiaries for addressing the ever-evolving customer
needs.

Business Model Innovation• Pursue bold and innovative business models:- Adopt new “rules of the game” suitable for HFG’s strengths- foster an innovative mindset that fears no failure- Strengthen the competencies of talents in core growth areas- Explore unconventional business models including non-organic growth opportunities•	Because of its relatively short history and limited resources, HFG has
resorted early on to experimenting with fresh ideas and new businessmodels. As a result, its history is dotted with many an industry first.

Customer Centricity•	Create a unique customer experience in which financial consumer rights are frontand center:- Reassess and improve the overall operations of business models from the financial         consumer’s perspective- Provide superior customer experience compared to the competition- Seek more customer trust through differentiated customer experience•	HFG’s customer service strategy has proven effective in the Korean financial industry,
which is known for its intense competition, and has been instrumental in its
acquisition of a status as a leading financial group. This advantage is expected toplay a crucial role in HFG’s advance into strategic overseas financial markets wheremost of the players are still laboring to master the fine art of customer service.

Digitalization•	Build a future finance leadership in step with the advance of the digital age:- Lead in future finance in banking and settlement using smart mobile technology- Secure new business plans based on the digital ecosystem- Broaden and strengthen the customer base through digital marketing•	HFG is already a leader in the fast-developing digital banking market in acountry known for its leadership in smartphone technology.
Emboldened by the initial outcome of its pilot business on
smartphones, HFG plans to double its investments in this potential
game changer in how customers save, borrow, and spend money.

032

033

As part of the vision formulation process, HFG examined the traits and qualities it
has long acquired and refined into survival advantages in the search for
guidelines for the new vision. Specifically, it looked for a set of values it could use
as the parameter by which its management, business units and employees eachcan guide their collective and individual decision making and actions towards theobjectives, the vision, and the mission. As a result, the following qualities,
dubbed “POWER on Integrity”, have been identified as the most relevant to thechosen mission and vision.

Integrity means always carrying out one’s
responsibility with sincerity; it constitutes abasic principle of ethics for financial people.

Passion drives people to perform to thebest of their abilities and pursue better
values through change and innovation.

Openness allows people to understand andoften concur with one another on issues ofmutual interest without a bias or partiality.

A late comer to banking with relatively
limited resources, HFG adopted passion
early on as one of its survival modes,
exploring every possible way to help its
employees develop a passion for what they
do and thus become better at their jobs. The
history of HFG in essence is that of apassion for going the extra distance to turnadversities into unique advantages.
Reaching for and attaining a goal that
seemed audacious at the outset is the very
part of HFG’s corporate fabric.

Openness is a trait with which HFG started
weaving its corporate culture early on as it
grew by leaps and bounds through a seriesof acquisitions.
As its overseas expansion plan involves
M&A, HFG feels confident its history andculture of creating harmony and synergies
with its new family members will continue
to play a crucial role in creating asustainable global presence.

For those who have been customer-focusedfor long, anticipation and consummation ofcustomer needs is second nature. When thepredecessor of HFG first webt into banking
four decades ago, customer service was not
more than a concept. Thus it was logical for
HFG’s precursor to embrace the “bold”
concept as a survival mode.
As the domestic financial market became
increasingly competitive , HFG continued
improving upon its competitive advantage.
This market-proven skill and know-how arecertain to play key roles in its building up acommanding presence in strategic markets
overseas where quality customer service isincreasingly in demand.

Excellence is synonymous with thedevelopment of outstanding competencies
in one’s area of expertise for the purpose of
earning the highest possible customer
trust.

Respect means seeing things from andacting with full awareness of others’
viewpoints; it is a basic mindset required forshowing individual competency andpromoting cooperation.

Knowing well that customer satisfaction andtrust increase with employee competencies,
HFG has been exploring many avenues toenable a culture of excellence take root
among its employees such that would makea difference in the hearts of customers andinvestors.

At HFG respect has been synonymous with
openness. In fact, because of the openness
prevalent in its corporate culture, thistraditional Korean value takes on an added
sense of spontaneity among its employees.

Eyeing a bigger global presence, HFG
continues to seek better ways to help its
employees develop job competencies
worthy of a global financial group.

This endearing quality will surely help newoverseas members feel a real part of HFG
and motivated to conduct themselves with astrong sense of ownership in their jobs.

Integrity plays a crucial role in allcommercial activities in general and in thefinancial services business in particular. For
without integrity trust is almost impossible,
HFG, as with other financial institutions, hasbeen instilling this bedrock of trust in every
one of its family members to a measurable
success and expects a heightened sense of
integrity will translate into a bigger successon the backs of the aforementioned six sets
of value taking a deeper root in every pocketof its business operations at home andabroad.

034

035

Hana Financial Group(Consolidated)
Founded in 2005 Hana Financial Group is expanding its global presence through its overseas
network, the largest in Korea. Hana Financial Group Inc. functions as HFG’s holding company.
HFG consists of 11 subsidiaries, 24 sub-subsidiaries, and 5 companies below the sub-subsidiarylevel.
Total Assets

368,486
20,890KRW in bn

EquityKRW in bn

Hana Life
Total Assets
Equity2,990KRW in bn
168KRW in bn

Hana Life introduced bancassurance in
Korea in February 2003 with the nation’s
first insurance-related financial product.
Hana Life is strengthening its asset
management competencies, expanding
the product lineup, and upgrading its
manpower aiming the title of Korea’s top
total insurance company.

Hana Bank(Consolidated)
Total Assets
Equity181,917KRW in bn
11,445KRW in bn

Korea ExchangeBank(Consolidated)
Total Assets
EquityHana Daetoo Securities(Consolidated)

135,710KRW in bn
9,583KRW in bn

Total Assets
Equity20,476KRW in bn
1,604KRW in bn

Hana SK Card(Consolidated)
Total Assets
Equity4,898KRW in bn
689KRW in bn

Hana Capital
Total Assets
Equity3,271KRW in bn
261KRW in bn

Established in 1991, Hana Bank is
Korea’s best bank according toEuromoney, Finance Asia, and otherleading industry journals. Playing therole as HFG’s main distribution channel,
the Bank offers total financial services.

Launched in 1967 Korea Exchange Bank
joined HFG in 2012 and became HFG’smajor subsidiary. KEB boasts top quality
services in FX, corporate banking, andoverseas business. Now KEB is fast
expanding its market share in PB, WM,
and credit card by leveraging HFG’sbusiness network.

Hana Daetoo Securities plays the central
role in HFG’s asset management
operations. The first to introduce funds
to Korea, The company has maintained
its No.1 position in brand power in the
security trust sector and aims to provide
Asia’s top IB service.

Hana SK Card is a joint venture
established in 2010 between SK Telecomand HFG. Aiming to become top threecredit card company in Korea, HanaSK
Card is developing new services andmarkets by converging distribution,
telecommunication, finance, and otherdiverse sectors.

Hana Capital joined HFG in 2005 as aconsumer finance company specializingin lease, financing, loan, and otherconsumer-focused services. The
company is fast developing innovative
products to meet rapidly evolving
customer needs.

Hana Savings Bank

Hana Asset Trust(Consolidated)

Hana Bancorp, Inc.(Consolidated)

Hana I&S

Hana Instituteof FinanceTotal Assets
Equity876KRW in bn
147KRW in bn

Hana Savings Bank joined HFG in 2012,providing quality banking services to the
low-income sector, while expanding theselection of financial products andservices for HFG customers withcompetitive savings products.

Total Assets
Equity102KRW in bn
91KRW in bn

Founded in 2006 as Korea’s first
specializing in real estate asset
management, Hana Asset Management
joined HFG in 2010 with the goal of
becoming Korea’s top alternative
investment management company.

Total Assets
Equity334KRW in bn
52KRW in bn

Hana Bancorp, Inc. joined HFG in 2013,its subsidiary, BNB Hana Bank
established in 1986, is the first bank set
up by Korean-Americans in the eastern
U.S. Hana Bancorp joined HFG in 2013,enabling HFG and providing a steppingstone for HFG to expand into America.

Total Assets
Equity27KRW in bn
9KRW in bn

Established in 1990 Hana I&S is the IT
partner to HFG, specializing in
information and data management
systems related securities investment
trust, credit card, securities brokerage,
global finance, and other related areas.

Total Assets
Equity5KRW in bn
4KRW in bn

Established in 1987 Hana Institute of
Finance is HFG’s think-tank, supporting
HFG in formulating management
strategies. The R&D center aims to leadchange and innovation in the nation’s
financial services industry through theestablishment of the knowledge-based
management system.

036

037

Major risk management tasks for 2014
Risk management being the essence of financial business, Hana Financial Group spares noeffort to preemptively deal with business crises of any shape or form. HFG establishes andputs into practice risk management guidelines and oversees all risk management activity ofits subsidiaries through the Risk Management Committee.

Risk Governance & Organization
HFG’s risk management-related operations and functions are executed through the Corporate
Center to keep track of all risks facing HFG and its subsidiaries and make preemptive
responses whenever necessary.
Risk Management Committee
The Risk Management Committee, HFG’s top risk management decision-making body,devises, approves, and monitors basic plans and policies related to diverse risks inherent inbusiness operations. Through the Risk Management Executive Committee, the Risk
Management Committee maintains an organic governance system through which it discusses
risk issues and ways to control them in close consultation with HFG’s key subsidiaries, Hana
Bank and KEB, and other subsidiaries.
Risk GovernanceGroup BoD

Responsible for integrated risk Management of HFG

Group Risk Management
Committee

Committee Head: outside director
Committee Members: Maximum 8 People(Outside Directors occupying a majority of the committee)

Group Risk Management
Sub-Committee

Committee Head: Group CRO
Committee Members: subsidiaries CRO and BU Heads

holding company's
Risk Management Team
subsidiaries Risk-related
Committee/Council

2014 major tasks•	Improving the credit portfolio: improve thetechniques of monitoring the credit
standings of priority-control groups andstrengthen credit limit management withregard to industries on the watch list
•	Strengthening preemptive risk
management: adopt an advanced early
warning system ideal for monitoring credit
portfolios by product, industry, risk type,for any sign of abnormality•	Improving capital allocation efficiency:
systemize the credit decision process witha focus on asset profitability and revamp
low-return, high-risk portfolios•	Establishing a credit evaluation system forgroup-wide use: set up an online system forusing a credit evaluation model group-wide

In 2014 HFG will continue to maintain the quality of its assets at the highest in the banking
industry. To prepare itself against the possibility of the current economic recession andsurrounding uncertainties morphing into a long-term crisis, HFG will strengthen its systemic andstructural capacity to withstand such a development while keeping close tabs on its areas ofvulnerability. Meanwhile, by successfully completing our Basel II implementation project, we areconfident in our ability to meet the scheduled capital requirements of Basel III .
Credit risk management
Credit risk is defined as expected and unexpected losses that could result from a counterparty’s
default or credit rating deterioration. Credit risk is intrinsic to traditional financial products suchas loans and credit card debt as well as complex products like derivatives.
HFG operates credit ratings evaluation and early warning systems as well as a team of credit risk
specialists, all to preemptively respond to business fluctuations.
Market risk management
HFG stands ready to preemptively manage market risk by regularly measuring risks and setting
and monitoring exposures by product, VaR, loss limits, and other various market risk limits.
To maintain the stability of its interest-sensitive assets and liabilities, HFG calculates the gap
ratio and the interest rate VaR on a monthly basis and maintains interest rate risk within a predefined range. Hana Bank and KEB each measures and manages interest rate risk by using
advanced risk calculation methods including the Maturity GAP Analysis, the NI Simulation, andnet interest EaR.
Liquidity risk management
HFG operates a liquidity risk early warning system and analyzes relevant statistical data andruns liquidity simulations under various stress scenarios not only to manage its exposure toliquidity risk but also to identify at the earliest possible time a liquidity crisis related toimbalances in the world financial markets as well as to comply with the financial authorities’
newly revised guidelines. To adopt itself in a seamless manner to Basel III, HFG has set up a
detailed execution plan for complying with the new standards phase by phase as required aswell as for spot checking the execution progress.
Operational risk management
HFG manages and controls within a pre-determined range its operational risk level fluctuating tochange in the business environment or in the level of internal controls by regularly measuringand monitoring the risk level and setting appropriate exposure limits. Each subsidiary calculates
its operational risk level according to the methodology pursuant to the guidelines set by its
respective authorities and reports the results to the Risk Management Committee and the Risk
Management Execution Committee on a monthly and quarterly basis. Partner companies in
sectors with no supervising authorities are required to monitor their operational risk level andreport the results including any IT accidents to HFG on a regular basis.

038

Hana Financial Group aims to realize its mission, “Growing Together, Sharing Happiness”
through establishing of a healthy corporate governance and creating of values for customers,
shareholders, and employees, based on a board of directors independent from and free ofconflict of interest with HFG’s business operations. Growing into a trusted and premier global
financial group, HFG contributes to the development of the financial industry by formulating
sound management and growth strategies for its subsidiaries.

039* Evaluation Ratings of Corporate Governance

2011

2012

2013

a+

a+

a+

rating* ESG evaluation ratings by Korea Corporate Governance Institute

1. Composition and Operation of the Board of Directors

2. Operation of BoD Committees

Composition
The Board of Directors is composed of eight directors, of whom one is standing director and theremaining seven are outside directors. With the majority of its members being outside directors,
the Board maintains its decision making process transparent and decisions objective.

In pursuit of higher-level management transparency and more rational corporate governance,
HFG operates within its Board of Directors Steering committee, Audit Committee, Outside
Director Nomination Committee, Risk Management Committee and Management Development
and Compensation Committee. Through these committees, HFG seeks improvements in its
corporate governance, evaluates its executive officers’ performances, keeps track of various risk
management issues affecting its business operations, and publishes the contents of major
management activities at the financial authorities’ sites as well as on its website.

Independence
The Board operates “Outside Director Nomination Committee” that evaluates candidates
initially screened for positions as outside directors and selects the better qualified for final
approval by the general shareholders meeting. As for the appraisal, the committee looks at
candidates’ qualifications as required by relevant laws, discusses among its members theirprofessional qualifications and social standings, and selects final candidates with a majority
vote. Through the process of selecting outside directors free of conflict of interest with HFG, theBoard maintains its independence in the execution of its responsibilities.

WWW
Board of directors
http://www.hanafn.com/eng/info/
governance/directCommittee.do

Operation
Hana Financial Group Inc. holds Board meetings on a regular base, with special sessions
convened on a need basis. In 2013 the Board was convened 11 times, approving stock
exchange contracts, group vision & long-term management strategy plans, the 2014 fiscal
year HFG business plan, the inclusion as a subsidiary of a card business that includes KEB’s
former card operations, and other major management issues. The attendance of the Board
directors averaged 96%.
Performance Appraisal
HFG has established a performance evaluation system to professionally evaluate themanagement performance of the CEO and other executive officers and to fairly compensate
them based on the evaluation results.

* Committees in operation

Committees

Composition

Goals and responsibilities

Steering
Committee

1 standing,
5 outside directors

Deliberate on issues related to rational corporate governance andefficient operation of BoD and its committees;
Deliberate and make decision on issues delegated by BoDManagement
Development andCompensation
Committee

1 standing,
3 outside directors

Formulate ways to improve business performance;
Make decision with respect to evaluation and rewarding of HFG and
its subsidiaries’ executive officers

Risk Management
Committee

5 outside directors

Set up, approve, and oversee policies and basic management plansregarding various types of risks inherent in HFG’s business operations

Audit Committee

4 outside directors

Set up and execute plans for accounting and business audit andrelated internal controls plans; Evaluate results of execution andmake recommendations on improvement

Outside Director
Nomination
Committee

1 standing,
5 outside directors

Search for, evaluate and recommend outside directorial candidates
qualified for the execution of HFG’s strategic objectives

040

041

1. Yoon Jong-nam
Representitive Attorney,
Law Office Chung-Pyung•	2004-2005 Director, Seoul Southern
District Prosecutor's Office•	2003-2004 Director, Suwon District
Prosecutor's Office
2. Kim In-bae
Professor, Economics,
Ewha womans University•	2000-2009 Professor, Economics &International Commerce, Soong-Sil University•	1995-1998 Senior researcher, The Korea
Institute for Interantional Economic Policy
3. Kim Jung-tai
Chairman & CEO, Hana Financial Group•	2008-2012 President & CEO, Hana Bank•	2006-2008 President & CEO, Hana Daetoo
Securities Co., Ltd.
4. Choi Gyoung-gyu
Professor, Business Administration,
Dongguk University•	2009-2012 Member of Official Development
Assistance, Prime Minister’s Office•	2008-2011 Member of Fiscal Policy Council,
Ministry of Strategy and Finance
5. Park Moon-kyu
Former CEO of PMK Inc.
•	2010-2013 President & CEO, AJ Inc.
•	1980-2003 President & CEO, PMK Inc.
6. Oh Chan-seok
Outside Director of LG Hausys•	2004-2010 Adjunct Professor, Business Schoolof Ewha Womans University•	2001-2006 Managing Partner & CEO, Ernst &Young Korea
7. Chung Kwang-suon(Chairman of BoD)
Honorary Professor, Chung-Ang University•	2002-2005 President, Korea Corporate
Governance Service•	1995-1997 Dean, College of Business, ChungAng University
8. Song Ki-jin
Former CEO, Kwangju Bank•	2008-2013 CEO, Kwangju Bank•	2004-2008 Deputy President, Woori Bank

042

A customer-centric organization
HFG was the first to successfully adopt the matrix system in 2008 among financial groups in
Korea. HFG’s matrix system consists of three business units—Retail, Corporate, and AssetManagement—and one management unit—Corporate Center.
Organized by customer segment, the BUs conduct their customer-oriented business not as anindividual unit but as a unified group through joint marketing under the HFG brand. By
developing diverse products each tailored to a specific target group and thus creating a single
point of contact , the BUs enable HFG to offer one-stop total financial service.
This BU system provides HFG with a business platform on which it can operate organically as“one company(Hana)”. Moreover, through the BU system, HFG enhances efficiencies in its
decision making process and maximizes synergy among its subsidiaries.

Retail BU

Corporate BU

Asset Management BU

Corporate Center

Hana Bank
Korea Exchange Bank
Hana Daetoo Securities
Hana SK Card

Hana Daol Asset Trust

KEB Futures*

Hana Institute of FinanceHana Life

Hana Daol AssetManagement*

KEB Investors Services*

Hana I&S

Hana Capital

KEB F&I*

Hana Savings Bank

* Sub-sub-subsidiary

WWW
Business Unit – HFG’s Customer-based System
http://www.hanafn.com/eng/network/service/buPersonalFn.do

Hana Bancorp
Overseas Subsidiaries*

044

045

Retail BU
In 2013 the Retail BU identified three core tasks to accomplish by year-end—pursuit ofcooperative business, strengthening of the sales basis, and increasing of low-cost funding. To
pursue cooperative business, the BU focused on IB-linked operations, securities-linked
account sales, bancassurance, credit card and other related operations, all of which grew at a
uniform rate based on the synergies they generated among them.
•	Retail banking•	Private banking•	Credit card
•	Bancassurance•	Trusts•	Corporate pensions

Retail banking

Credit card

KRW Loan(bank)Total membership including check users

13,684,000

157.9

KRW in trillion

members

Total Sales

Kim Jong-jun

27,676

Head of Retail BU

KRW in trillion

Future Finance

Private banking
No. of customers

Mobile Banking Users

2,959,580

users

121,745

customers

Total Sales

53,855KRW in billion

046
customer-oriented function, in which
communication is seamless among various
units and decisions are made fast.

2.
Growing low costfunding1.
Retail BU’s role in HFG

WWW'Retail BU' Introduction
http://www.hanafn.com/eng/network/
service/buPersonalFn.do

The domestic retail banking market isbecoming increasingly complex andchallenging; while concern is growing
overseas over developing and developed
economies growing at diverging rates,pressure is mounting at home fromincreasingly vociferous criticisms of thesocial role of financial services providers andgathering demands of individual customers
that services be tailored more closely to theirneeds. Against these backdrops, HFG isputting forward efforts to stay ahead ofmarket change and earn customer trust bybuilding a fluid organization ideal for
maximizing retail banking synergies among
Hana Bank, KEB, Hana SK Card, Hana Life,
Hana Capital, and Hana Savings Bank. The
Retail Banking BU of HFG best illustrates anorganizational system of units each with

In 2013 we focused on increasing installment
deposits and low-cost funding (LCF) as a way
to expand the customer base. As a result ofcooperation among subsidiary units ingeneral and of efforts made by both Hana
Bank and KEB to increase core deposits inparticular, LCF grew by 11.3~14.6%
compared to 2012. In strengthening thebusiness base and increasing LCF, we also
exceeded our goals in number of active
customers and new customers, credit cardsales, and FX sales.
In particular, Hana Bank posted KRW 1.99
trillion in LCF, up 89.5% from 2012 andexceeding the initial goal by 147.2%. The
increase was possible because the Bank
pursued to increase the number of bothactive and new customers as a way tostrengthen the business base. New
customers attracted in 2013 numbered over
7,500, 122.4% more than the initial goal. The
increase, which played a large role in thegrowth of LCF, translated into a 0.22% rise in
the Bank’s share of the SME loan market, thehighest rate of increase among six
commercial banks. In short, 2013 will be
remembered as the first year Hana Bank
launched its second great leap forward withan eye towards strengthening the customer
base.

047
In 2014 we plan to grow LCF and installment
deposits by over 10%. In addition to thestrategic efforts made in the retail area, wewill focus on pushing accounts settlement
products and improving check card sales incooperation with Hana SK Card, utilizing
synergies between the corporate and retailbanking operations.

3.
Changing the loan
portfolio
Limited growth in household loans
In 2013 Hana Bank grew its household loans
by 2.8% to KRW 54.7 trillion, of which KRW
32.9 trillion comprised mortgage loans, up
1.5% from 2012. KEB’s household loans grew
2.6% to KRW 21.9 trillion, of which KRW 14.2
trillion was mortgage loans, up 5.1%. The
former’s NPL ratio as of the end of 2013shows a small contraction compared to theyear before, while the latter’s displays an
increase instead.
In 2014 we will continue to expand loans
focusing on asset-based loans and personalloans while closely monitoring the real estatemarket and the household debts situation
with contingency plans ready to deploy at afirst sign of fresh trouble. We don’t anticipate
household loans to grow at a rate higher than2013 even if the housing market should
recover on the back of a string of recent
stimulus measures.
SOHO loans continue to soar
In 2013 we strategically increased SOHO
loans that are backed by real estate or
thoroughly credit-checked, and will continue

to do so in 2014. In particular, KEB
introduced a new loan product that allows
the borrower to repay a certain amount of
the principle every day, an industry first thathas become an instant hit among capitalstrapped store owners. In managing SOHO
loans, the bank keeps close tabs on macrosensitive business types and thus maintains
the related NPL ratio within a range
considered safe.
Growing SME loans
In 2013 Hana Bank relied on state-backed
loans as part of the strategy to expand its
SOHO market share with minimum credit
risk, consequently ranking first amongcommercial banks in SME loan growth(9.5%). To take full advantage of the risk-freeloans, the bank put together an in-housetraining program educating employees on
the intricate process of applying for a variety
of state-guaranteed lending programs. To
stay closer to prospective customers, thebank relocated its corporate banking
specialists to branches located in industrial
areas.
Moreover, by increasing the number ofbranches capable of FX services by 142 andestablishing an import/export support
program, the bank provided import/export
SMEs with US$ 1.2 billion state funds, withan eye towards becoming not just a conduitof funds but a best SME partner in the FX
area as well. Also by inviting the CEOs orowners of main customers to conferences,the bank kept abreast of their banking
needs.

“The Retail BU endeavors to stay ahead of market
change and earn more trust from its customers
while keeping its organizational structure fluid tomaximize Group synergies.”

048

4.
Leading futurefinanceYouTube
HFG’s Future
http://www.youtube.com/
watch?v=HVVJpNp3j-0
YouTubeSmart Finance – Smart Banking App
http://www.youtube.com/
watch?v=3ztHxTie1l8

Honing the edge in future financeFollowing the recent advances of digitaltechnology, real time-based customer
contact points are increasing in number,services available per contact point are
expanding in variety, and a customer needsoriented ecosystem is emerging through theconversion between the finance and nonfinance sectors. To these changes HFG has
been proactively responding early on,
creating and building up a future financefoundation through which it has become aleader in an industry that is increasingly
shaping how we spend money.
Specifically, we had launched a futurefinance task force in 2007, the first in thedomestic financial industry, and smartphone banking app in 2009, the first in
Korea, paving the way for HFG’s supremacy
in the fast-growing market. This lead, smallin scale yet huge in potential, is expected tocancel HFG’s relative weaknesses in off-line
channel in the near future. We will continue
to parlay the future finance basis into various
customer contact points through which toexpand the mass affluent/mass customer
segments. Hana SK Card’s lead in mobile
card also is expected to bolster the banking
sector’s future finance leadership.
Meanwhile, we will continue to improve themanagement of HFG’s multi/omni-channel
system. By expanding our future financeleadership into settlement and otherbanking services, we will further expand thecustomer base and develop more income
opportunities.

5.
Securing PB leadership049
allowing private bankers to provide portfolio
suggestions to their customers from a moreobjective point of view. Moreover, it enabledexperts in headquarter to monitor risks inboth the customer's portfolio and the private
banker's portfolio.

2013 the private banking market saw a jumpin the number of customers seeking
professional advice on tax reduction andother matters following the revision of thecapital income tax code which reduced
capital gains that are tax-exempted fromKRW 40 million to KRW 20 million. Also,
owing to the revision of bancassurance
related tax benefits regulations,bancassurance sales fell but otherinvestment products, particularly those in
the med-risk category, attracted therenewed interest of investors disappointed
by the continuing low-interest, low-growthenvironment.
Improving the process
In 2013 we improved a number of shortfalls
in the existing method of portfolio analysis
with the “Hana portfolio Early Analysis &Diagnosis (HEAD)” developed as a tool forstable asset management and a proactive
response to market change.
When checking the customer's overall
portfolio, risk analysis should be carried out
along with return analysis; yet the previous
analysis lacked a quantitative means to
calculate risks inherent in portfolios. In
contrast, HEAD uses an objectified index incalculating risk, thereby a valuable tool forkeeping track of portfolio stability withrespect to return and risk. HEAD visualizes
the risk position of customer's portfolio,

Hana Bank’s customer investment portfolio
comprises products of domestic (65%),
developed (18.4%), and emerging (16.6%)
markets. The domestic products part rose
5% from 2012 on the strength of the equity
long-short’s robust performance, while theadvanced, consisting of short-term highyield and U.S. equity-type products, inched
up. The emerging, on the other hand,dwindled 5.5% on account of China and BRIC
funds aggressively rebalanced out. Of late,the portfolio consists mostly of med-riskmed-return products including domestic/
overseas long-short, short-term high-yield,
and ELS products.

6.
Customer-focused
pension services
In 2013, expecting a QE tapering following
the global economy moving into a recovery
mode, we approached customers withproducts that enable volatility control. To
risk-adverse customers were offereddomestic equity long-short, low-volatility
multi-asset income, and short-term highyield products. Risk-tolerant customers wererecommended U.S., Europe and otherIn 2014 advanced markets equity-type
products are expected to perform wellcompared to the other two categories, asconcern over a possible interest rate rise
following the QE taper and otheruncertainties cause both advanced andemerging markets to go on diverging growth
paths. Based on this market forecast, we will
push as core products long-short productsthat invest in global equity funds andvariable rate senior loans. We also will
pursue a product strategy centering on
investment vehicles in contrast to the 2013
strategy which focused on expanding time

Major awards received in 2013
In 2013 HFG’s unsurpassed Private Banking expertise and performance, again, wascritically acclaimed at home and abroad. Many an industry journal lauded Hana Bank as
Korea’s best PB bank.

ATM

Omni-Channel Transformation

JournalPOS

advanced markets equity-type investment
vehicles. Of these, domestic equity longshort products sold well, over KRW 400.0
billion, with volatility rates below 5% andannual return rates of 8~12%, while shortterm high-yield products, developed as arebalancing alternative to the existing AB
high-yield, brought in over KRW 200.0 billion,
together providing Hana Bank with theinitiative to lead the products market.

Internet

Private Banker International

Title contents- “Outstanding RM Training & Development Program 2013”- “Most Innovative Business Model- Highly Commended 2013”

BranchCall Center

Smartphone

phone

The Banker / PWM- “Best Private Bank in Korea 2013” (for 3rd year)

Asiamoney- “Best Domestic/Overall Private Bank in Korea 2013” (for 2nd year)

Asian Private Banker- “Best Private Bank in Korea 2013”

deposits and other deposits of high stability.
Of investment products, diversified
portfolios will be suggested consisting
mostly of med-risk-med-return products incontrast to the 2013 trusts-based portfolio
strategy which pushed ELF and other medrisk-med-return products.
With a strategy of selling products tailored todeveloping issues, we also will push long/short funds and advanced markets equitytype products as an investment products
group in response to the effects of the QE
tapering and recovering advanced
economies; real estate, special assets, andhedge funds as an alternative products
group tailored to customer needs; andincome-type products targeting the retired.

7.
Customer-based
bancassurance products
The revision of income tax laws in 2013,
which tightened the requirement for tax
benefits saving insurance, had a direct
impact on bancassurance sales.
Consequently, the target segment has
shifted from HNW customers to middleincome customers. Accordingly, Hana Bank
put all its efforts into selling such productswith regular premium as pension,
endowment and protection insurances thatare more suitable to middle-class customers
and training its sales force at the branch levelto strengthen their sales skills.
Meanwhile, despite a decrease in the volumeof large-sum initial or regular premium
products which appealed more to HNW

050
customers, sales of insurance products thatsatisfy the conditions of tax exemption up to
0.2 billion KRW steadily increased. As baby
boomers are more concerned about theirpost-retirement lives, middle-income
customers are expected to become a main
target segment in bancassurance sales.
Thus, We are taking steps to redirect its sales
strategies towards regular premium
products including pension and protection
insurance. We also plan to increase thenumber of bancassurance sales license
holders and strengthen the sales training
courses. Lastly, we aim to secure the basis
for sound long-term fee income by selling
long-term regular premium insurances suchas pension, endowment and protection
insurances.

8.
Rising starin credit cardYouTubeHana SK Card’s Club SK Card
http://www.youtube.com/watch?v=lkzS3IacF
c8&list=UUza6gOzcCqSV7w4EQBJFmcw
Google Play Store
Hana SK Card’s Mobile Cards- Get more App
https://play.google.com/store/
apps/details?id=com.hanaskcard.
app.touchstamp

In 2013 HFG’s card operations as well as thecard industry as a whole faced a number ofdownward pressures on its income
performance: merchant fee was readjusted
downwards, the revolving of card paymentswith cash advances was strictly curtailed,
and the financial authorities’ scrutiny on
customer data management wasstrengthened. In response to these businessconstraints some of whose effects continue,
albeit in a lesser intensity, into 2014, credit
card companies resorted to slashing cardaffiliated services, expanding
supplementary business activity, andpushing check cards aggressively. Oncevarious economic stimulus measures taketheir intended effects, private consumption
will be on the rise, possibly pushing up card

Hana N Bank
(smartphonebanking)sales. With well-timed marketing it ispossible to take full advantage of a renewed
consumption appetite and thereby reverse
the downward movement of income. As forinternal issues facing HFG, we are taking
steps to develop synergies together with
KEB into new income opportunities. Some ofthe steps include a full utilization of the
expanded merchant network, a joint card
membership drive using KEB branches, andsharing and cross-selling of products.
As for major achievements, the ‘Club SK
Card’ sold 860,000 accounts in 19 months of
its introduction in May 2012, carving asizable slice out of an increasinglycompetitive market. The Hana SK Carddeveloped software program has made into
Samsung and LG smartphones for the firsttime in the card industry. This program allows
phone owners to download smart phone
apps for diverse Hana SK mobile cards. A
stand-alone digital check card wasintroduced for use in smartphones, setting
off a new industry trend. The number of new
accounts accumulated in 2013 broke themillion milestone, while mobile card sales
exceeded KRW 100 billion for the first time in
the industry, posting KRW 198.2 billion, up
239% from 2012.
Moreover, in the area of future financechannels, we rolled out the industry’s first
app that informs users of card transactions
upon usage for free of charge. For its
convenient and cost-saving features, some
460,000 users have signed up. Also, in linewith the financial authorities’ pro-check card
stance, we rolled out diverse new products
including a check card designed to hold all
membership contents of users. The ‘Mega
Cash-back Check Card’, a 2012 hit, broke theHana N Money Get more
SmartPay
KEB M Bank
Plus (smart(Hana SK Card) (Hana SK Card) (smartphone
householdbanking)account)

N WalletSmart Hana
Hana N mini
KEB Smart FX(digital wallet) HTS (securities (basic banking)trading)

Mobipay(Hana SK Card)051
3 million mark in accounts. The ‘Check Card
Hybrid service’, which allows members to
overdraw their accounts up to KRW 300,000,
attracted some 600,000 members, securing
the top position in the hybrid service
market. Though the NPL ratio stood at 1.60%
at the end of 2013, 1.36% more than the year
before, which can be viewed as a reflectionof the sizable increase of financial assets,
we maintain the ratio on a par with theindustry average as in 2012 throughadvanced risk management.

monitoring.
To carry out these tasks, we will increasefinancial assets, revamp under-performing
products, and develop marketing programs
that each caters to the consumption taste ofa member segment. In tandem with these,
we will set up credit guidelines differentiatedby customer segment as a way to preserve
asset quality and enhance profitability.
Meanwhile, Hana SK Card and KEB Card, aspin off of the card operations of KEB, arescheduled to merge in 2014. The merger is
expected to raise the combined market
share to 7.8%; in the fourth year of its
operation, synergy creation cost is expected
to have decreased, while synergy-related
income increased.

10.
Continuing dominancein fx & trade finance9.
Hana SK Card and
KEB Card in 2014
As the recovering economy is expected torevive card sales in 2014, we have drawn up abusiness plan that includes a sales target of
KRW 30 trillion (a 6% increase from 2013) anda goal to moving back into the black. Alsoplanned are five tasks: securing profitability inthe card sector, raising card usage among
existing members, expanding check card M/S,
securing a lead in the mobile payment market,
and strengthening preemptive risk

KEB is the Korea’s leading bank specializing
in foreign exchange & trade finance,
boasting the largest global branch networkand the most extensive foreign exchange andtrade finance operations of any bank in
Korea. By focusing on reinforcing its areas ofcore competitiveness, foreign exchange &trade finance, KEB makes progress.
In 2013, we maintained our leading position in
the foreign exchange market, garnering 44.3%
of the transactions conducted by the nation’s
top seven commercial financial institutions
and securing 24.5% of the foreign currencies
exchanged. We achieved similar feats in the
trade finance sector, recording industryleading market shares of 35.2% in export

finance and 30.1% in import finance.
As a result of these solid performances in thecore business areas, in 2013 KEB won
plaudits from a number of respected financepublications. We were named by Global
Finance the “Best Foreign Exchange Provider
in Korea” for 12th consecutive year, byFinance Asia the “Best Foreign ExchangeBank in Korea” for 6th consecutive year andby Asia Money the “Best Domestic Providerof FX Services” for 3rd consecutive year.
During the year we continued to develop new
products and services to buttress ourleading positions.
We provided 347 companies with
consultations on foreign exchange andimport/export-related laws and regulations,and how to improve their foreign exchangerelated disputes and to improve their foreignexchange and import/export operation
processes.
We process money transfers in 26 currencies
and offer money exchange services in 43
currencies, the most in Korea. We handle
transactions in more than 100 currencies
including collection in 58 currencies, whichmake us the country’s undisputed FX leader.

052

053

Corporate BU
In 2013 the Corporate BU channeled its resources into expanding the boundary of its
corporate products sales and strengthening the cooperative system among different
business groups as part of its strategy to fully launch synergy creation between Hana
Bank and KEB. Through joint marketing between the two banks’ channels and theincrease of mid/long-term quality assets, the BU has established a long-term growthbasis in the corporate banking business.
•	Corporate banking•	Investment banking

Total Large Corporate
KRW Loan

32,905KRW in billion

Total Syndicated Loan
(Hana Daetoo Securities)

3,088

USD in million

M/S 99%(3rd)Kim Han-jo
Head of Corporate BU

Hana Asset Trust AUM(Asset Under Management)

16,600KRW in billion

M/S(2nd)

Hana Asset Management
Real Estate AUM

2,215

KRW in billion

M/S(2nd)054

2.
Market conditions andperformance incorporate banking
To further strengthen its corporate banking,
Hana Bank moved its RMs forward to selectbranches, increased the number of branches
capable of corporate FX service to 142, andrelocated from the Retail BU to the Corporate
BU the business units (branches andworkforce) with high corporate sales.
Meanwhile, KEB expanded the client base of
its Corporate Banking Group by reassigning
62 clients from another unit, and further
bolstered its business basis with theaddition of Senior Relationship Manager
branches and a customer support team.
Moreover, it integrated the IB division into a
newly-created CIB Group to strengthen
Corporate Investment Banking.

1.
Corporate BU’srole in HFG

WWW‘Corporate BU’ Introduction
http://www.hanafn.com/eng/network/
service/buCorporateFn.do

The Corporate BU leads Korea’s corporatebanking services industry, having adopted
the nation’s first corporate banking-specificsystem and developed its own CIB model.
The BU continues to generate growth
opportunities based not only on its knowhow in hybrid product development andcorporate marketing but also on its strengthof having the most extensive overseas
network in Korea. Through the industry’s
most sophisticated business infrastructuremanned by a highly-skilled workforce, the BU
executes its role as a total solution providerof financial services and spearheads HFG’s
pursuit of its vision, “the Trusted Premier
Global Financial Group.”

In 2013 the overall profit of Korea’s banking
industry declined owing to waning
investment needs of corporations weary of
the lingering low-interest rate environment
and the prolonging economic recession.
Mindful of rumors of impending QE taper,
the weakening Japanese yen, the slowing
Chinese economy, and other uncertainties
abroad, domestic financial institutions
shifted their business focus to large bluechip corporations strong in performance yet
weak in number, thereby further intensifying
competition. Against such challenging
market conditions, Hana Bank grew loans
16.5% to KRW 21.9 trillion and total deposits
3.4% to KRW 18 trillion through the
expansion of mid/long-term loans, theaddition of new clients, and the increase of
IB and commissions income. Operating055
income, which came to KRW 283.5 billion,
however, showed little improvement fromthe previous year, mirroring the overallsluggish income performance of the banking
industry.
KEB’s Corporate Banking Group, whichplays the main role in the Bank’s lead in the
FX & trade finance markets, posted US$
154.7 billion (78.4% of market total) in
export bills, US$ 103.5 billion (66.8% of
total) in import bills, and US$ 97.2 billion(54.5%) in FX. To further strengthen KEB’s
FX brand power, the Corporate Banking
Group will continue to expand its FX-related
operations.

on expanding its business scale and income
through synergy coordination with other
HFG subsidiaries. Specifically, it conducts IB
and debenture-based M&A financing
activities jointly with Hana Daetoo
Securities, manages real estate trusts
together with Hana Assets Trust, andprovides Hana Daol Assets Managementwith banking support. HFG will raise thescale of these activities by a notch or two as
its core tasks in 2014.

3.
Synergy-based businessactivity
In 2013, with an eye towards developing
synergies between the Hana-KEB channels,
we focused on expanding the boundary forthe corporate banking products of bothbanks and strengthening cooperation
among the business units to tangible
results. Specifically, by expanding the joint
martketing between the banks of mid/longterm high quality assets, we havestrengthened the basis for long-term growthin the corporate banking sector. These
achievements can be attributed to the active
interactions that many business units havepursued with one another through various
consultative bodies formed as a way tocontinue investment in synergy
development.
KEB’s Large Corporation Group is focused

4.
Evolving corporateloan strategy
It is apparent that the banking industry as awhole is facing a growth limit in large
corporate loan operations. In fact, days arebehind us when corporate banking could relyon lending as the sole income source. In
addition to loan, trade finance and IB shouldbe actively embraced as income sources. For
this reason, we plan to reduce loan

“The Corporate BU continues to create growth
opportunities by leveraging its competency in engineering
advanced financial instruments to clients' needs, its
expertise in corporate marketing, and its extensive global
network.”

056
concentration in the large corporate sector
and instead to expand med-risk assets suchas SME loans. To minimize the deteriorationof asset quality and margins that usuallyaccompany rapid growth, we are going tohave our SME lending operations evolved
around government-backed loans, strategic
products, and med-risk self-audited SMEs.
The strategic products will include tradefinance in which we have a competitive
advantage, and self-audited small
businesses will be thoroughly screened toascertain their credit quality. Self-audited
SME loans are expected to improve themargin to a certain point.
As for large corporate loans, we plan todecrease the rate of growth but increase theefficiency of loan management by grouping
them into three categories expand, freeze,
and reduce. Moreover, by employing a
select-and-focus method in corporatebanking, we will improve commissions
income, FX performance and cross-selling.

5.
IB market conditions
and performance
The domestic and overseas conditions
surrounding the IB market were unfavorable
in 2013. Sluggish capital markets, anemic
real estate transactions, and otherdevelopments reflecting the low-margin,
low-growth environment put downward
pressures on the IB market. Moreover, evenglobal financial institutions continued todownsize their IB businesses, which arecapital-intensive, as a way to prepare
themselves for Basel III. As the market is

Hana Bank's performance in IB
4th in M&A advisory (Bloomberg)
3rd in syndicated loans arrangement(1st in M&A financing, Bloomberg)

6th in ELS/DLS issuance (KRX, DRT)

expected to grow at a modest pace with theeconomy showing signs of recovery, we willremain focused on developing synergies
between the IB operations of Hana Daetoo
Securities and KEB into diverse income
opportunities.

057
better positioned. As a result, Hana Daetoo
Securities ranked fourth among M&A
advisory (Bloomberg), third in syndicatedloans arrangement (first in M&A financing,Bloomberg), and sixth in ELS/DLS issuance(KRX, DART), thereby improving upon or atleast maintaining its strengths.

Next, our IB performance will be reviewed inwhich Hana Daetoo Securities played themain role. The IPO sector of the equity
market improved from 2012 in number ofcases completed but remained unchanged infees generated. The debt market wasmarkedly polarized, reflecting thepsychological effects on investors of the
Tongyang and STX Group which had gone
into restructuring: while large blue-chip
corporations enjoyed an enthusiastic market
reception, those on the lower rungs of thecredit ladder faced a cold shoulder.
Meanwhile, the M&A financing market wasmarked by a growing influence of the PEF
sector as corporate restructuring-related
assets were on the block.
In the OTC sector, which dwindled 6% from2012 in volume of securities issued, Hana
Daetoo Securities posted KRW 101.0 billion
in sales; in an effort to strengthen its productadvantage in an increasingly competitivemarket, Hana Daetoo Securities developed
its own index (GTAA), the industry first, anddiversified investments using a buy/sell
position based on the new index, pursuing
low-volatility income streams. Despite theoverall depressive market environment,
Hana Daetoo Securities garneredsatisfactory results compared to the industry
average by eschewing the volume race in
low-margin areas and instead channeling theresources thus saved into those where it is6.
Strategic direction
for IBAs financial industry policy and the market
environment continue to evolve inconnection with the low-growth paradigm,
we will pursue a corporate & investmentbanking model focused on building
customer trust. Based on HFG’s unique andhighly specialized CIB model and by
developing a powerful inter-units
cooperative system, we will consolidate
units catering to similar customer segments

and proactively respond to financial market
demands by developing financial services
convergence models.
Having pursued profitability-oriented
strategies and synergy maximization in 2013,
we plan to concentrate on “all-directional
profitability improvement” with focus on
differentiation, stability, and productivity.
Firstly, we will stay focused on strengthening
ties with clients and developing outstanding
solutions based on an atypical complex
approach; specifically, we will diversify
income models and seek to lead the IB
market through our unique strategic
customer management. Secondly, we will set
up a system through which we canproactively respond to market change,
diversify product and investment strategies,
pursue stable income and synergy
consummation by leveraging HFG’s powerfulsales channels. As for major synergy projects
planned in 2014, HFG’s IB competency is to
be maximized through the balanced growthof investment finance between the banking
and securities sectors, IB/real estate-linked
products diversified (ECM, structured
products), med-sized corporations-oriented
IB/real estate marketing strengthened, andthe supply of B2C products targeting retail,
PB, WM customers expanded in the form of
IB/real estate investment opportunities.
Lastly, we plan to avoid the race to volume
growth, improve profit sustainability in both
quality and quantity through the
management of profitability-based
evaluation, and improve productivity
through the specialization of the workforce
in parallel with the enhancement of
employee competencies.

058

059

Asset
Management BU
In 2013 the Asset Management BU focused on three tasks: individual customer asset
expansion through improvement of the management of current customers, new customer
attraction, and asset management education expansion; income increase through expansionof the sales of products tailored to target customer segments; and enhancement ofefficiencies in the business infrastructure by improving channel efficiency and developing
synergies among subsidiary operations.
•	Asset management•	Brokerage

Brokerage

101.8
105.3
Securities sales

KRW in trillion

Brokerage commissions

KRW in billion

Chang Seung-chulHead of Asset Management Unit

Beneficiary Certificates

13.9

Beneficiary certificates AUM

KRW in trillion

Beneficiary Certificates fees

38.6

KRW in billion

060
customers on board, and strengthening
employee training on asset management;
secondly, we increased incomes by
expanding sales of products each tailored tothe intended customer segment; and thirdly,
we improved efficiencies in the business
infrastructure by developing group synergies
into tangible results.
Of these three achievements, the increase ofindividual customer assets, which came to
KRW 0.6 trillion, can be attributed mainly toa systematic asset management training
administered to sales employees and PB
teams. As for the increase of income, thesecond achievement, our efforts at tailoringproducts to the needs of each customer
segment paid off, with wrap accounts
posting an increase of KRW 1.9 trillion andtrust products an increase of KRW 0.4
trillion. Lastly, as for improvements in thebusiness infrastructure, 10 branches wereconsolidated and bank-linked securities
accounts were added to the line-up of online
channels. Moreover, joint promotion andmarketing involving diverse yetcomplimentary products were carried out,
and the number of customer referrals
increased following the rationalization of theperformance evaluation system, bothcontributing to the development ofsynergies among the subsidiaries.

1.
Achievements in asset
management

WWW‘Asset Management Unit’Introduction
http://www.hanafn.com/eng/network/
service/buAssetFn.do

The 2013 domestic asset management
market was marked by the following
developments: in response to jittery rumors
over an impending change of course in the
U.S. monetary policy, the stock markets
remained boxed in a limited range offluctuation, putting downward pressures ontransactions and fee rates, while the asset
management market experienced a growing
demand for med-risk-med-return products
and a soaring flight to safety from equity-type
funds. The KOSPI fluctuated within a limited
range, ending the year 15 points higher than
the year before. Daily average transactions
were down 13.2% from 2012, mirroringsluggish market conditions. The funds market
grew over the year by KRW 17.6 trillion, as thepoor performance of equity-type funds(KRW
9.2 trillion down) was more than offset by therobust performances of bond-type funds(KRW 12.7 trillion up) and alternative funds(KRW 10.9 trillion up). As for majorachievements in 2013, firstly, we expanded
individual customer assets by improving
customer relationship, bringing new

The domestic economy and the stock
markets are expected to perform better in
2014, as the world economy appears to be
gradually getting back on growth track. HFG
plans to strengthen business development
targeting institutional clients through client
segmentation and sales force fortification,
while continuing to focus on increasing
individual customer assets by strengthening
the consulting service related to taxation, real

061
estate, portfolio rebalancing. We also plan toenhance product competitiveness by
expanding our own asset management
product lineup and strengthening thesourcing functions of investment products.
Moreover, to improve channel efficiency, we
will pursue diverse types of channel strategy
in response to change in customer preferenceor commercial supremacy, and to enhancecost efficiency, explore many ways of
improving the business process and continue
to dispose of underperforming assets.

on foreign securities, a result of a great dealof resources redirected to overseas markets.
Our pivot to overseas brokerage markets in
response to frustrating domestic market
conditions has also served as fodder forincome diversification.

2.
Gaining strength inbrokerage
In 2013 advanced countries enjoyed robust
stock market performances on the strengthsof the recovering U.S. economy anddiminishing concerns over the EU’s
sovereign debt crisis, while Korea endured amarket languishing in the face of rumors ofimpending QE taper in the U.S., and aweakening Japanese Yen; the KOSPI
fluctuated between 1,800 and 2,050 points
throughout 2013, ending the year at 2,011
points, 0.7% up from the year before.
The boxed-in performance of the market
dealt a blow to the securities industry acrossthe board; stock transactions decreased
14% from the year before; the share ofindividual investors’ transactions dwindledfrom 61% to 56% by the end of 2013; and thenet brokerage commissions of the listed
market decreased 10% to KRW 101.6 billion.
HFG’s commissions income performance,compared to that of the market, waslaudable. In fact, we earned KRW 2.7 billion
more than in 2012 in brokerage commissions

In 2014 we plan to further push securitieslinked products and other bank-securities
joint sales, and, as for the wholesale,strengthen institutional sales by shifting
marketing resources to major institutions. In
addition, by strengthening sales of highquality investment products and portfolio
products in line with growing customer
assets and changing customer needs andmarket conditions, we will seek to increase
return on customer investments andstrengthen our business basis
simultaneously. Also by continuing toenhance employee competencies throughon-site training, to expand the productdevelopment capability, and to strengthen
other asset management-related sales
competencies, we will improve the businessstructure as well as increase customer
satisfaction.

* Beneficiary Certificates AUM (Unit: KRW in billion)

2013

2012

Beneficiary Certificates AUM

13,929.9

13,954.4

-24.5

-0.2%

Equity (hybrid) type3,600.5

4,072.9-472.3-13.1%

Bond (hybrid) type3,222.7

3,550.8-328.1-10.2%

MMF

2,787.4

3,036.3-248.8

-8.9%

Other

4,319.2

3,294.5

1,024.8

23.7%

domestic Market

334,897.0

317,276.0

17,621.0

5.26%

4.16%

4.40%

-0.24%

-5.7%

M/S

YoY

%

“The Asset Management BU will focus on increasing returnon customer investments by expanding its consulting service
to tax, real estate and other areas, while strengthening “solution
sales” targeting institutional clients through further customer
segmentation and workforce improvement.”

No. of CSR volunteers(Hana Financial Group)

20,165(90.3% participation rate)

2013 Social Contribution Funds(Hana Financial Group)73.1

KRW in billion

617.2

Socially Responsible Finance

KRW in billion

No. of branches with 'Plaza of
Bright Financial Hope'(Hana Bank + KEB)

24

branches,
nationwide

064

065

Growing Together, Sharing HappinessSpreading
CultureProtecting
Financial Consumers

1.
Protecting Financial Consumers

Public-mindedfinancial
products
and services

1.	Hana Bank’s “Financial Consumer Protection
Division” launched Feb. 2013
	Hana Bank is taking systematic measures toprotect consumer rights, including the adaptationof a financial consumer rights protection charter.

Sharing
throughbanking andGreen Finance2.	KEB’s “KEB Sol-Together” launched Nov. 21, 2013
	HFG serves as a channel through which KEB
gathers consumer opinions on how it operates
business and reflect them on its business
management.

WWW
Corporate Social Responsibility
http://www.hanafn.com/eng/csr/hana/visionForCsr.do

Hana Financial Group pursues diverse
avenues in cooperation with its subsidiaries
to fully respect financial consumer rights; afinancial consumer protection group waslaunched in 2013 under the Committee for
Sharing Happiness; a consumer protection
charter was officially adopted group-wide inAugust with an intention to raise theawareness of consumer protection among its
executives and employees. Moreover, themonthly consumer protection event firstlaunched by Hana Daetoo Securities has
been implemented group-wide; the monthly
event, titled ‘Financial Health Check-up Day’,focuses on educating and reminding
employees of the importance of earning
customer trust through financial consumer
protection. Meanwhile, current channels
through which HFG subsidiaries each collects
feedbacks from its customers will beconsolidated into a new system being
developed through group-wide cooperation.
Scheduled for completion in 2014, thisintegrated system will be employed in theexecution of all consumer protection-related
operations.
For their parts in financial consumer
protection, Hana Bank and KEB plan to reevaluate their in-house banking regulations
from the customer’s perspective and revise
them accordingly. Hana Bank in particularplans to expand its consumer protection
advisory board, “Hana Solomon”, launchedin 2013 for the first time in the banking
industry, which regularly solicits customer

opinions through face-to-face contacts.
Another industry first is the Financial
Consumer Protection Division created in April
2013. KEB also launched “KEB Sol-Together”,
a consumer participation group last year. The
name is a play on the King Solomon, the soul,and the Korean for the pine tree, implying themessage that the bank shares the wisdomand soul of the king with financial consumers
and remains as dedicated to consumer rights
as the ever-green tree. HFG has been createdas a way for the bank to reflect consumer
opinions on its day-to-day business
operations.

Hana SK Card is in the process of modifying
some of its business regulations andguidelines deemed irrational from thecustomer’s perspective, while Hana Daetoo
Securities continues to increase the numberof programs designed to prevent customer
complaint and respect customer rights
through the unit solely dedicated toconsumer protection. In particular, its ‘Silver
Green Zone’, a consultative channel for aged
customers, is popular for its detail attention
to helping intellect-challenged customers
better understand confusing financial terms
and potential risks inherent in financial
products they invest in.

066

2.
Public-minded financial
products and services
HFG carries out its corporate social
responsibilities by observing banking
practices that promote trust, care for the
weak, and contribute to society.

1.	HFG Chairman Kim with the President of Korean
Asset Management Co., at a signing ceremony
pledging financial service support for thefinancially marginalized, June 19, 2013
2.	Hana Bank President Kim with officials of agovernment-sponsored credit guarantee
foundation at a signing ceremony pledging
financial support for tech ventures with superior
growth potential

Through Hana Smile Microcredit Bank
launched in September 2008, HFG helps thesocially marginalized become financiallyindependent, the financially troubled build
up their credit, and the bankrupted rebuild
their lives. In particular, Hana Smile
Microcredit Bank is the financial industry’s
only microcredit institutions using its own
funding source to provide credit-damaged
people with loans. In May 2013 HFG boosted
its commitment to the economic
independence of the financially marginalized
by funding Hana Smile Microcredit Bank andSmile Microcredit Bank in the amount of KRW
10 billion each.
KEB also is taking concrete steps to help thefinancially marginalized lead an economically
viable life and low-income financial support
systems operate on a sustainable basis; thebank donates to the Smile Microcredit
Foundation funds recovered through the
Non-performing Asset Management Fund andaccount balance in dormant accounts
declared exempted of liability; it operates the“Hope Banking Plaza” opened in February
2013 to provide the financially marginalizedwith comprehensive consulting service: after
initial online and phone contacts, consumers
visit the plaza for individual consultation onmatters involving extreme debt burden, loans
with high interest rates, and other cases ofsimilar urgency.
Hana Financial Group also performs its social
responsibility through diverse public

067

interest-oriented financial products. The best
example is the ‘Win-win Package Loan’developed for liquidity-challenged SME
suppliers of large corporations; the productnot only functions as a vehicle for liquidity
but also helped establish a funding support
system for SME and SOHO owners; it hasreceived the nation’s top award in the related
category for its outstanding contribution tosolving liquidity problems plaguing SMEs. In
addition, Hana Bank and KEB each has rolled
out a loan product that supports tech
ventures. Utilizing the Bank of Korea’s
financial support program, the two banks
extend low-interest loans to SMEs that either
have secured proven superior technology inseven years from their foundation or havehigh R&D expenditures relative to sales.

through three channels: community activity,
education, and employee volunteering. For
community activity HFG sponsors various
events supporting multi-culture families, runs
the Hana Care Center dedicated to the care ofpoor seniors, and supports various child carecenters. For education, HFG runs Hana
Academy and Hana High School. For
volunteering, in 2007 it consolidated some
100 volunteer clubs each independently
operating in different subsidiaries into Hana
Volunteer Group consisting of regional
chapters in charge of carrying out various
community activities in cooperation with local
people.

3.
Sharing through banking
and Green Finance
HFG’s social contribution is conducted
through the organic cooperation among theholding company and its subsidiaries, and forthe purpose of making its group-wide
contributions better coordinated and thus
more efficient, HFG operates the Committee
for Sharing Happiness and four executive
committees with the same name, eachcontrolled by one of the four Business Units.
Moreover, Hana Foundation, Hana Smile
Microcredit Bank, Hana Academy, KEB
Foundation, and Hana Volunteer Group eachcarries out a variety of projects all directed
towards building a better society for all.
HFG is fully aware of such far-reaching social
developments and changes as multi-culture
families, ageing, low birth, and has been
making efforts to help mitigate the potential
impact of those issues on the future of Koreansociety. HFG’s social activities are conducted1.	HFG Chairman with fellow executive officers at a
community event celebrating Christmas by serving
dinner to seniors, Dec. 25, 2013
	As part of the event the chairman and officers
delivered winter clothes and foods to some 250
seniors.
2.	KEB’s local-community supporting event, named‘Joyful Market’, featured various cultural programs
to the delight of many foreign tourists who visitedthe event. The event was held on every Sunday
from May 12 to Oct. 27 2013.
3.	Hana Bank’s winter campaign helping the needy
stay warm by delivering briquettes and daily goods

YouTube
HFG’s Social Responsibility
http://www.youtube.com/
watch?v=fdqoYk18bf0

KEB, as Korea’s leading global-minded bank,seeks to share with the needy the message
that warm-hearted Koreans care about theirplights. Not only because its network of 54
branches in 23 nations can be an effective tool
but also because it believes a leading
institution of an OECD member has an
obligation to help its country contribute to thewell-being of the global family. Putting toaction such belief, the bank has been
financially supporting international relief
funds active in Japan, Haiti, China and otherdisaster-stricken regions. In November thebank delivered an emergency relief fund to thePhilippine government right after the country
was hit by a typhoon, and in cooperation witha Korean relief organization, is building fivemulti-purpose education centers in typhoondamaged areas.
HFG also has since its foundation beensponsoring or supporting various
conservation activities including energy
saving and resources recycling. To encourage
proactive participation of its employees andcustomers, HFG continues to improve thecontents and expand scope of the programs it
operates or sponsors, thereby building
conservation consensus not only with its

employees and customers but also with themembers of communities in which its
businesses are based. Moreover, by
combining its financial services andconservation programs, it offers its customers
various ways to take active part in improving
the environment.

4.
Spreading culture
HFG strives to stay at the forefront of helping
expand or promoting cultural arts bysponsoring diverse cultural programs andhelping its community members lead lives richin culture.
Many programs of HFG’s social activity focus
on the value of communication. KEB has been
expanding its social contribution to the
productive realm of social value; through acultural-event program designed to support a
local commercial district in which its HQ islocated, the bank provides an opportunity for
Seoulites and artists to communicate andtogether create new values. Also, bysponsoring the ‘DMZ International
Documentary Film Festival’, which takes placein the world’s one and only “demilitarized’zone, and the ‘Seoul Musical Festival’, thebank helps spread the messages of peace,communication, and value of life, as well as
Korean youth culture increasingly popular in
Asia, while contributing to the development ofa local economy near the border. Moreover, bysponsoring the Korea Red Cross ‘Ad-hoc
General Assembly of the International Red
Cross’ designed to help foster future global
leaders, the bank seeks to contribute to the
expansion of awareness and understanding ofinternational humanitarian issues among
Korean youths.

069

Hana Financial Group
1. OVERVIEW OF HANA FINANCIAL GROUP
The year 2013 was a tumultuous period for Korea’s financial services industry: the lowinterest rate environment continued, financial regulations increased, and the real estate andstock markets remained sluggish, all adding to uncertainties hovering over the economy likedark clouds. The year, however, was meaningful to Hana Financial Group: HFG brought
Korean Exchange Bank into its fold as a fully-owned subsidiary, thereby completing theprocess of laying the foundation for synergy creation.
As of the end of 2013, HFG's total assets stood at about KRW 368 trillion, reaffirming its
leading financial group status. However, with the effect of negative goodwill exhausted andthe integration yet to generate any meaningful synergy effect, 2013 net income came to KRW
933.9 billion, down 42% from the year before, while ROE, EPS, and other profitability indiceswere somewhat wanting. Despite the cost-cutting efforts taken group-wide, the C/I ratio also
reflected the base effect of negative goodwill, ending the year at 61.64%.
* total Assets (Unit : KRW in trillion)

368.5

370

360

350

Asset quality deteriorated somewhat, mirroring the anemic economic recovery and thelethargic real estate market. The NPL ratio inched up 0.15%p to 1.48% while the NPL coverage
ratio was down 22.1%p to 120.8%. The reduced figure, however, still indicates sound asset
quality, and the overall quality is stronger in the light of a delinquency ratio that has improved
0.17%p compared to the year before.
HFG’s BIS ratio and Tier 1 ratio, both by the Basel III standard, were 12.28% and 9.24% as ofthe end of 2013, respectively, while the capital adequacy ratios of HFG and its subsidiaries
were above the government-required level.

349.0

340

As KEB and other subsidiaries become better at combining their strengths and capitalizing on
the resultant synergies, HFG expects its profitability and shareholder value to substantially
improve in the near future.

330

2012

2013

2013

2012

YoY

%

General Operating Income

6,239.7

7,391.1-1,151.4-15.58%Operating Income

1,165.0

2,017.4-852.4-42.25%

Consolidated Net Income

933.9

1,621.5-687.6-42.41%

ROA

0.34%

0.60%

-0.26%p

-

ROE

5.16%

10.56%-5.40%p-

EPS(Unit:KRW)

3,399

6,648

-3,249-48.88%61.64%

51.00%

10.64%p-

Total Assets

368,486.4

348,972.8

19,513.6

5.59%

Total Sales

252,143.2

233,246.1

18,897.1

8.10%

Profitability* BIS CAR (Unit : %)

12.3%

12.4

* Summarized Financial Information (Unit : KRW in billion, thousand members, %)

12.0

11.7%

Cost to Income Ratio

11.6

Business Volume
11.2

2012

2013

		

(Total Deposits)

225,119.8

206,073.9

19,045.9

9.24%

		

(Sale of Beneficiary Certificates)

27,023.4

27,172.2-148.8-0.55%

No. of Individual Credit Card Members

5,825

6,630

-805

-12.14%(continued on next page)

070

071

Hana Financial Group
2013

2012

YoY

%

General operating income came to KRW 6,239.7 billion. With little or no synergy effect fromthe KEB merger, net interest income decreased 2% despite an increase in interest ratesensitive assets, owing to NIMs falling in line with the low-interest rate environment. Fee &commissions income inched up on the back of increased credit card fees, despite sluggish
stock market conditions and reduced tax benefits negatively affected the overall fee income
performance.

Asset Soundness
Substandard & Below Ratio
Substandard & Below Coverage Ratio
Delinquency Ratio

1.48%

1.33%

0.15%p-120.77%142.89%-22.12%p

-

0.58%

0.75%

-0.17%p-

Capital Adequacy
BPS

68,754

63,997

4,757

7.43%

BIS CAR [Group]

12.28%

11.65%

0.63%p

-

8.88%

N/A

-

-

		

Common Equity Tier 1 Ratio		

Tier 1 Ratio

9.24%

8.15%

1.09%p-BIS CAR [Hana Bank]

13.91%

13.90%

0.01%p

-

N/A

-

-

		

Common Equity Tier 1 Ratio

10.53%

		

Tier 1 Ratio

10.54%

9.61%

0.93%p-BIS CAR [KEB]

13.83%

13.59%

0.24%p-Other general operating income decreased on account of the base effect of NGW. Fee andcommissions income, Disposition/valuation gains, other general operating income will beanalyzed in detail in the Non-interest Income section.
General & administrative expenses inched up to KRW 846.3 billion, despite the aggressive
cost-cutting measures taken group-wide during the year.
Provisioning dropped to KRW 1,228.4 billion: the application of HFG’s provisioning standards
to KEB resulted in the exhaustion of additional provisioning effects; the economy languishedand credit risks increased; and measures were taken to preempt corporate and household
debt defaults.

		Common Equity Tier 1 Ratio

11.12%

N/A

-

-

		

Tier 1 Ratio

11.66%

11.06%

0.60%p-Net Capital Ratio [Hana Daetoo Securities]

418.04%409.58%

8.46%p-Adjusted Equity Capital Ratio [Hana SK Card]

20.70%

12.15%

8.55%p-

Solvency Margin Ratio [Hana Life]

211.52%249.53%-38.01%p-

Owing to the above-mentioned one-off factors, HFG’s operating income came to KRW 1,165.0
billion at the end of 2013, 42% down from the year before.
* Comprehensive Income Statement by Subsidiaries (Unit : KRW in billion)	Adjusted Equity Capital Ratio [Hana Capital]

9.46%

9.09%

0.37%p-	Adjusted Equity Capital Ratio [KEB Capital]

14.89%

12.23%

2.66%p

-

Hana
Bank

KEB

Hana
DaetooHanaSK
Card*

Hana
CapitalGeneral Operating Income

2,735.9

2,518.9

348.8

301.8

Net Interest Income

2,489.4

1,577.9

153.7

-83.3

Fee & Commissions Income

385.6

661.9

202.3

Gains on Disposition & Valuation

166.6

376.5

Other General Operating Income-305.6Note) Basel III standard phase in beginning Dec. 2013 (prior CAR for HFG is basel I and for Hana Bank & KEB is basel II standard)

Ⅱ. Summary of Business Performance* Consolidated Net Income(Unit : KRW in billion)

2,000.0

1,621.5
1,500.0933.9

1,000.0

2013

HanaOverseas
Savings* Affiliates

143.3

-0.7

64.4

35.7

276.2

142.6

10.9

65.4

37.2

225.0

362.1

-7.1

-0.1

18.0

0.3

33.8

-32.2

5.0

0.0

0.4

12.7

1.1

12.3

-97.3

25.0

18.0

7.8

-11.9

-31.6

-2.9

5.2

7.1

41.2

25.5

155.5
120.8

General & Administrative Expenses

1,470.7

1,434.8

289.6

175.2

38.4

Pre- Provisioning Income

1,265.3

1,084.1

59.2

126.6

104.9

-7.8

23.2

10.2

Provisioning(△)

471.7

530.7

-6.7

123.7

46.3

52.4

0.3

4.3

8.7

* Comprehensive Income Statement (Unit : KRW in billion)

Operating Income

793.6

553.4

65.8

2.9

58.6

-60.2

22.9

5.9

112.0

Non-Operating Income

5.4-107.5

23.1

6.3

0.3

0.2

0.2

-2.9

-3.4

799.0

445.9

89.0

9.1

58.9

-59.9

23.0

3.0

108.6

-2.47%

Income before income taxes
and Minority Interest Income

2.96%

Income Tax Expenses(△)

143.8

85.4

20.8

5.6

14.5

-12.0

5.1

-2.8

31.6

Income before Minority Interest Income

655.2

360.4

68.2

3.5

44.4

-47.9

17.9

5.8

77.0

Minority Interest Income(△)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Consolidated Net Income

655.2

360.4

68.2

3.5

44.4

-47.9

17.9

5.8

77.0

2013

2012

YoY

%

General Operating Income

6,239.7

7,391.1-1,151.4-15.58%Net Interest Income

4,485.0

4,598.7-113.7

Fees & Commissions Income

1,675.6

1,627.5

48.1

Gains on Disposition & Valuation

408.4

534.0

-125.6-23.51%Other General Operating Income-329.3631.0-960.3-General & Administrative Expenses

3,846.3

3,769.8

76.5

2.03%

Pre- Provisioning Income

2,393.4

3,621.3-1,228.0-33.91%

Provisioning(△)

1,228.4

1,604.0-375.6-23.42%

Operating Income

1,165.0

2,017.4-852.4-42.25%

Income before income taxes
and Minority Interest Income
2012

Hana
Life

HFG’s 2013 consolidated net income was KRW 933.9 billion, down KRW 687.6 billion from theyear before. The decrease is directly related to the exhaustion of the negative goodwill (NGW)
effect of the KEB integration which HFG had realized 2012 in an amount of KRW 930.0 billion.
Despite decreases in core earnings and Disposition/valuation gains, HFG managed to keep
the reduction of net income smaller than the NGW effect by reducing provisioning.

Non-Operating Income

500.0

KEB
Capital

105.3

-25.1

130.4

-

1,270.3

1,992.2-721.9-36.24%

Income Tax Expenses(△)

277.3

263.0

14.3

5.43%

Income before Minority Interest Income

993.0

1,729.2-736.2-42.58%

Minority Interest Income(△)

59.1

107.6

-48.5

-45.11%

Consolidated Net Income

933.9

1,621.5-687.6-42.41%*Hana SK Card, Hana Savings based on consolidated, while others on separate

Reviewing income performance by subsidiary, Hana Bank’s 2013 net income was KRW 655.2
billion, up KRW 80.0 billion from the previous year, while KEB’s was KRW 360.4 billion, down
KRW 270.0 billion. General operating income came to KRW 2,735.9 billion for the former and
KRW 2,518.9 billion for the latter, owing to NIMs falling in step with lowering interest rates,and sluggish bancassurance sales following the reduction of tax advantages. KEB incurred abigger drop in general operating income due to the KRW 170.0 billion it had realized in 2012
from the sale of its Hynix holdings. General & administrative expenses decreased for both

072

073

Hana Financial Groupbanks as a result of the base effects of the KEB integration and the additional retirement
allowance related to employee pensions. Provisioning amounted to KRW 471.7 billion and
KRW 530.7 billion, respectively, for the two banks, reflecting the effects of reduced loans andexposure to businesses with worsening credit standings.

HFG posted a substantial decrease in non-interest income compared to the year before. Thebase effect of NGW was the main contributing factor.
Fee & Commissions Income improved a bit in 2013 despite a sluggish fee performance
related to asset management. Bancassurance fees fell following the reduction of tax benefits;
and securities brokerage and underwriting fees shrank reflecting negative market conditions.
Beneficiary certificates fees hardly changed, also mirroring the market conditions. Credit cardfees, however, rose 10% to KRW 740.1 billion, a result of market share growth and increased
membership. Loan and FX-related fees also increased, by 6% to KRW 456.5 billion.

Hana Daetoo Securities’ net income improved from the year before, ending 2013 at KRW 68.2
billion. Though general operating income decreased to KRW 348.8 billion as securities sales
and underwriting fees shrank amid sluggish stock market conditions, general &administrative expenses decreased on the cost-cutting measures launched group-wide, anda KRW 6.7 billion reverse of allowance resulted as a part of provisions related to Woongjin
was reversed.
Hana SK Card moved into the black in 2013, recording a net income of KRW 3.5 billion. A 11%
reduction in general & administrative expenses and efficient asset management practices
including loan asset liquidation, were the main contributing factors. Despite reduced
merchant fees following new regulations and the discontinuation of the purchase operationsof cellphone discount receivables, the Company signed up over 680,000 new members, andcontinued to increase card sales which led to a bigger market share. As a result, General
operating income increased over the year to KRW 301.8 billion.

* Fee & Commissions 
Income composition by part
(Unit : KRW in billion)

0

10

20

80

90

30

70

Reviewing the market shares of fee-related products, credit card sales increased from mid
7% to upper 7%, while FX sales remained barely changed, hovering around 45%. Securities
sales inched down to 3%, while beneficiary certificates sales showed a slight decrease,ending the year around 8%, owning to fund redemptions nearing KRW 1 trillion from equity(hybrid)-type products.

40

60
50

Credit Card
740.1
Loans In FX-related
456.5
Asset Management
447.7
Subscription & Agreement,
Consulting
39.0
Others-7.7

Moving on to disposition/valuation gains, Disposition/valuation gains decreased by KRW
125.6 billion to KRW 408.4 billion, mainly due to a KRW 150.0 billion reduction related tomarketable securities. As interest rates declined over the year, the value and sales of debt
securities followed suit, and as the stock markets slugged through, the value and sales of
equity securities also decreased.

Hana Capital grew its financial assets by 18% from the year before. As a result of increased
core profits, General operating income rose to KRW 143.3 billion. Increased sales resulted in asmall increase in general & administrative expenses, but net income jumped to KRW 44.4
billion on the backs of loan asset liquidation and other prudent asset management measures.
Hana Life turned in a profit on the backs of increased disposition/valuation gains and robust
insurance sales. Hana Savings Bank also turned a profit, a sign of stabilizing business
operations. Hana Asset Trust, despite the depressed real estate market, managed to turn aprofit, albeit slightly lower than the year before, thanks to its all-out cost rationalization efforts.
KEB Capital remained in the red, reflecting a business conversion-related due diligence.

Other general operating income consists of insurance fees on deposits, contributions to the
Deposit Guarantee Fund, and dividend income. The first two, which increase in proportion to
relevant deposits and loans, amounted to KRW 309.9 billion and KRW 269.8 billion,
respectively. Other Income fell substantially over the year, a result of the base effect of KEBrelated NGW amounting to KRW 1,068.4 billion.
* General and Administrative Expenses (Unit : KRW in billion)

General & Administrativie Expenses* Non- Interest INCOME (Unit : KRW in billion)(Unit : KRW in billion)

1,675.6

1,660

1,640

1,627.5
1,620

1,600

2013

3,769.8

YoY
76.5

%
2.03%

1,515.9

1,569.5-53.6-3.42%-15.72%

2013

2012

%

1,675.6

1,627.5

48.1

2.96%

Retirement Benefits

200.5

237.9

-37.4

Credit Card

740.1

671.4

68.7

10.23%

Equipment Expenses

1,514.6

1,386.9

127.7

9.21%

Loans In FX-related

456.5

429.3

27.2

6.34%

491.0

446.2

44.8

10.04%

Asset Management

YoY

447.7

499.3

-51.6

-10.33%		

Beneficiary Certificates

134.5

133.0

1.5

1.13%

		

Brokerage

101.6

112.8

-11.2

-9.89%

		

Trust Fees

89.1

82.2

6.9

8.31%

		

Bancassurance

93.4

144.3

-50.9

-35.24%

Subscription & Agreement, Consulting

39.0

59.0

-20.0

-33.99%Others

-7.7

-31.6

23.9

-

Gains on Disposition & Valuation

408.4

534.0

-125.6-23.51%Other General Operating Income-329.3631.0-960.3

-

42.8

63.5

-20.7

-32.56%

Contribution to Fund-309.9-299.6

-10.3

3.44%

Insurance Fees on Deposits-269.8-248.7

-21.1

8.50%

207.6

1,115.9-908.3-81.39%1,754.7

2,792.5-1,037.8-37.16%

Dividend Income
2012

2012

3,846.3

Salaries and Wages

Fee & Commissions Income* Fees andCommissions Income

2013

OthersTotal Non-Interest Income

Depreciation and Amortization* C/I ratio (Unit : %)61.64%
60.00

51.00%

Taxes and Dues

124.4

129.3

-4.9

-3.79%

Cost to Income Ratio

61.64%

51.00%

10.64%p-

General & Administrative Expense rose a mere 2.03% over the course of 2013 to KRW 3,846.3
billion thanks mainly to the group-wide cost-cutting efforts.

40.00

Salaries and wages hardly changed over the year: the 2013 annual increase in wages wasoffset as the extra bonuses which had been paid in 2012 in connection with the integration of
KEB were exhausted and no longer applicable in 2013.

20.00

2012

2013

Retirement benefits came to KRW 200.5 billion, down 15.72% from the previous year, areflection of the additional KRW 80.1 billion allowance realized in 2012.

074

075

Equipment expense which consists of expenses related to “semi-labor”, general equipment
maintenance, and marketing, rose 9.21% over the year to KRW 1,514.6 billion. Semi-labor
expenses rose along with the annual wage increase. General maintenance expenses crept up
on the back of rising prices, with property rents showing a noticeable increase. Supplies
expenses decreased reflecting the group-wide cost-cutting measures implemented. Businessexecution expense also reflects the cost-cutting effect, with marketing and ad expenses bothdecreased from the year before.

mobile phone discount receivables purchase operations following the introduction of
government regulations imposing high capital requirements negatively affected HFG’s asset
growth drive, the consolidation of Hana Life’s and Hana Bancorp’s accounting systems andthe growth of sound assets by Hana Capital and overseas subsidiaries enabled HFG to posted
the healthy increase in assets.

Hana Financial Group

Shareholders’ equity rose 2.69% to KRW 20,889.6 billion as retained earnings increased on aconsolidated net income of KRW 933.9 billion and other accumulated income, including
overseas transaction variations, decreased.

However, as General operating expenses was directly affected by the base effect of NGW, andsynergy effect from the KEB integration was still in the development stage, the C/I ratio
ended up increasing 10.64%p to 61.64%.

* Total Sales (Unit : KRW in billion)

Ⅲ. Summary of Financial Condition* Summarized Group Financial Condition (Unit : KRW in billion)* Shareholders'  Equity(Unit : KRW in billion)

20,889.6

20,60020,40020,342.4

20,2002012

2013* Delinquency ratio (Unit : %)

0.80

0.77%

0.20

2012

2013

%

19,045.9

9.24%

Deposits

166,519.5

157,702.5

8,817.0

5.59%

31,792.4

27,698.6

4,093.8

14.78%
1.29%

		

Low Cost Deposits

		

MMDA

20,874.7

20,607.9

266.8

YoY

%

		

Time Deposits

103,458.7

101,874.3

1,584.4

1.56%

Interest Earning Assets

256,068.6

246,615.0

9,453.6

3.83%

		

Installment Deposits

10,393.7

7,521.8

2,871.9

38.18%

Due from Banks

10,981.4

10,297.7

683.7

6.64%

Certificate of Deposits

797.3

937.5

-140.2-14.96%

Fixed Income Securities

41,489.4

39,882.2

1,607.2

4.03%

Bonds Sold under Repurchase Agreements

87.2

111.6

-24.4

-21.89%Loans

203,597.8

196,435.1

7,162.7

3.65%

Bills Sold

181.4

175.0

6.4

3.65%

78,445.2

68,257.3

10,187.9

14.93%

Trust Account57,534.4

47,147.3

10,387.1

22.03%

Non-Revenue Earning Assets

33,972.5

34,100.6-128.1-0.38%

Sale of Beneficiary Certificates

27,023.4

27,172.2-148.8-0.55%

Total Assets

368,486.4

348,972.8

19,513.6

5.59%

		

(Mixed) Equity Type9,377.5

10,395.6-1,018.1-9.79%

Interest Bearing Liabilities

317,895.1

299,398.1

18,497.0

6.18%

		

(Mixed) Fixed Income Type4,848.6

5,106.3-257.7-5.05%

Deposits

187,225.7

178,262.8

8,962.9

5.03%

		

MMF

6,722.2

6,237.4

484.8

7.77%

Borrowings

21,833.6

22,361.9-528.3-2.36%

		

Others6,075.1

5,432.9642.2

11.82%

Debentures

30,419.6

32,432.5-2,012.9-6.21%

Total Sales

252,143.2

233,246.1

18,897.1

8.10%

Responsibility Reserve

1,716.6

0.0

1,716.6-

Borrowings from Trust Accounts

1,239.3

908.0

331.3

36.48%

Trust Account Liabilities

75,460.3

65,432.8

10,027.5

15.32%

Non-Interest Bearing Liabilities

29,701.7

29,232.3

469.4

1.61%

Total Liabilities

347,596.7

328,630.4

18,966.3

5.77%

Shareholders' Equity

20,889.6

20,342.4

547.2

2.69%

Total Liabilities & Shareholders' Equity

368,486.4

348,972.8

19,513.6

5.59%* Total sales(Unit : KRW in billion)* The above table contains performance-dependent trust assets outside of the boundary of consolidated statement; thus, thetable contains figures that are different from those in the financial statements audited for public notice purpose.

252,143.2

245,000

In 2013 HFG’s assets grew 5% to KRW 368 trillion, reflecting the uniform increases of its major
subsidiaries in assets. More important, asset quantity and quality grew side by side: thedelinquency ratio as of the end of 2013 stood 0.58%, up 0.19%p from the year before. The
Group’s continued focus on asset portfolio optimization and comprehensive risk
management proved effective.

0.40

YoY

206,073.9

2012

255,000

0.58%

0.60

2012

225,119.8

2013

Other Revenue Earning Assets
20,8002013
Total Deposits

Reviewing assets by subsidiary, Hana Bank grew its KRW loans, which take up the biggest
part of interestgenerating assets, by 4.7% to KRW 107,428.8 billion, while KEB increased thesame category by 4.1% to KRW 50,433.1 billion. Deposits also rose, as lingering economic
uncertainties led investors to flight to safety. Though Hana SK Card’s discontinuation of its

235,000

233,246.1

225,000

2012

2013

HFG’s total sales, a sum of total deposits and beneficiary certificates sales as of year-end, rose
8.10% to KRW 252,143.2 billion: while beneficiary certificates sales remained barely changed
from the year before due to sluggish stock market conditions, growing investor preference forsafe assets, increasing cash holdings among risk-averse corporations, and reinvigorating
sales efforts by the banking subsidiaries contributed to the increase in total sales. In
particular, the noteworthy growth of low-interest core deposits is expected to translate into ahigher NIM which will in turn boost HFG’s profitability.
Reviewing year-end total sales by subsidiary, Hana Bank recorded KRW 128,316.4 billion in
total deposits, up about 7% from the year before, and KRW 8,106.0 billion in beneficiary
certificates sales, 2% down, owing to a 7% decrease in equity-type (hybrid) fund sales. KEB
posted KRW 81,836.9 billion in total deposits, up about 11%, and KRW 3,950.2 billion in
beneficiary certificates sales, owing to a 12% decrease in equity-type (hybrid) fund sales.
Hana Daetoo Securities recorded KRW 13,930.2 billion in beneficiary certificates sales,similar to the figure the year before: a 12% decrease in equity-type (hybrid) fund sales wasoffset by a 31% increase in derivatives and other beneficiary certificates sales.

076

077

Hana Bank
1. OVERVIEW OF HANA BANK

Ⅳ. Asset Quality and Loan Loss Provisioning

In 2013 the low-growth environment continued to dominate domestic financial markets,
despite interest rate reduction, supplementary budget execution, and other monetary policy
measures by the government, as the world economy struggled to recover, household debts
grew at an alarming pace, the real estate remained inert, and consumption languished. Also
seen were the emergence of various regulations setting higher standards for financial
institutions to follow in their business management and tighter guidelines in respecting
financial consumer rights.

* Asset Quality (Unit : KRW in billion)

2013

2012

YoY

%

Total Credit

222,030.0

214,838.5

7,191.5

3.35%

Normal

215,395.6

208,042.0

7,353.6

3.53%

Precautionary

3,346.4

3,930.4-584.0-14.86%

Substandard

1,948.7

1,496.8

451.9

30.19%

Doubtful

654.9

853.9

-199.0-23.30%Estimated Loss

684.4

515.4

169.0

32.79%

Amount

6,634.4

6,796.5-162.1-2.39%

Ratio

2.99%

3.16%

-0.17%p-

Amount3,288.0

2,866.1

421.9

14.72%

Ratio

1.48%

1.33%

0.15%p-Total Loan Loss Reserve

3,970.8

4,095.4-124.6-3.04%

Loan Loss Allowance

2,308.6

2,505.5-196.9-7.86%

Loan Loss Reserve

1,662.3

1,589.9

72.4

4.55%

120.80%142.89%-22.1%p-

To maintain sustainable growth the Bank is fortifying its low-cost funding base, proactively
responding to various industry regulations, including Basel III standards and financial
consumer rights protection. In fact, Hana Bank was first in the banking industry to create aunit dedicated to consumer rights protection. Moreover, having adopted advanced risk
management measures and systematic bad debt management processes, Hana Bank
achieved in 2013 the industry’s highest asset quality level.

Precautionary & Below

Substandard & Below (NPL)* NPL Coverage ratio (Unit : %)NPL Coverage ratio

150.0

142.9%
140.0

130.0

120.8%

120.0

2012

2013

As of the end of 2013, HFG’s total risk-weighted loans amounted to KRW 222,030.0 billion, up
3% from the year before, of which NPLs totaled KRW 3,288 billion. While Precautionary &Below inched down 0.17%p to 2.99% in proportion to total loans, NPLs crept up 0.14%p to
1.48%. The NPL coverage ratio decreased 22.1%p to 120.8%, mirroring a substantial
reduction in provisioning. The decrease in the ratio is an indirect result of an additional
provisioning made in 2012 in the application of HFG’s provisioning standards to KEB, therelative severity of economic conditions and credit risk in the previous year, and thepreemptive measures taken by the Group in 2013 against corporate and household
defaults.

Ⅴ. Capital Adequacy* BIS CAR (Unit : %)* Summarized Financial Information (Unit : KRW in billion, thousand members, %)13.91513.91%
13.91013.90513.90013.90%

2012

2013
Additional Tier 1 Capital

2012

16,401.5

Tier 1 Capital

16,759.9

667.3

Tier 2 Capital

7,311.7

Tier 2 Capital

5,605.6(-) Investment Deduction

Total BIS Capital

22,674.5

Total BIS Capital

23,974.6

Risk Weighted Assets

184,685.6

Risk Weighted Assets

205,723.0-97.0

BIS Capital Adequacy Ratio

12.28%BIS Capital Adequacy Ratio

11.65%

CET 1 Ratio

8.88%

Tier 1 Ratio

8.15%

Tier 1 Ratio

2013* EPS (Unit : KRW)

* Required Ratio of the Equity Capital to the Requisite Capital (Unit : KRW in billion, %)Common Equity Tier 1 Capital

In 2014 Hana Bank will try harder to earn more customer trust by putting its heart and soul
into its products and services, while continuing to lead the industry by responding faster tomarket change and developing diverse income models that can make its aspiration for stableasset growth more realistic.

2,981.0

3,000

2,800

2,600

2012

YoY

%

Total Assets

157,601.9

151,539.1

6,062.8

4.00%

Total Liabilities

146,388.7

140,666.3

5,722.4

4.07%

Total Equity

11,213.2

10,872.9

340.3

3.13%

		

(Total Loans)

112,751.2

107,988.5

4,762.7

4.41%

		(Total Deposits*)

128,316.4

119,930.6

8,385.8

6.99%-7.38%

Profitability
2,707.7

2,923.5-215.8Operating Income

793.6

759.8

33.8

4.45%

Net Income

655.2

574.1

81.1

14.13%

ROA

0.42%

0.37%

0.05%p

-

ROE

5.92%

5.27%

0.65%p-EPS(Unit:KRW)

2,981

2,530

451

17.83%

General Operating Income

BPS(Unit:KRW)

51,01649,467

1,549

3.13%

Cost to Income Ratio

54.32%

53.01%

1.31%p-Asset Soundness

2,530.0

1.47%

1.08%

0.39%p-

NPL Coverage Ratio

118.24%169.91%-51.67%p-

Delinquency Ratio

0.39%

0.48%

-0.09%p-

NPL Ratio

2,400

2,200

Capital Adequacy

9.24%Note) Basel III standard phase in beginning Dec. 2013 (prior CAR for Hana Bank is basel II standard)

2013
Business Volume

13.91%

13.90%

0.01%p-		

CET 1 Ratio

10.53%

N/A

-

-

		

Tier 1 Ratio

10.54%

9.61%

0.93%p-BIS CAR2012

2013* Excluding savings in foreign currency
Note) Basel III standard phase in beginning Dec. 2013 (prior CAR for Hana Bank is basel II standard)

078

079

Hana Bank
Ⅱ. Summary of Business Performance
Provisioning decreased KRW 170.5 billion to KRW 443.4 billion. In 2013 the Bank was able toreduce its provisioning burden by continuing efforts aimed at enhancing the quality of its
assets, unloading bad debts, and strengthening risk management.

* Comprehensive Income Statement (Unit : KRW in billion)

2013

2012

YoY

%

General Operating Income

2,707.7

2,923.5-215.8-7.38%Net Interest Income

2,489.3

2,670.7-181.4-6.79%

385.6

427.2

-41.6

-9.74%

Gains on Disposition & Valuation

166.9

126.9

40.0

31.52%

Other General Operating Income-334.1-301.2-32.9

10.92%

General & Administrative Expenses

1,470.7

1,549.8-79.1-5.10%

Pre- Provisioning Income

1,237.0

1,373.7-136.7-9.95%

Provisioning for Loan Losses(△)

443.4

613.9

-170.5-27.77%

Operating Income

793.6

759.8

33.8

4.45%

Non-Operating Income

5.4

-84.4

89.8

2013
Fee & Commissions Income
Banking Fees

0.2

0.09%

-106.40%

25.0

0.5

2.00%

18.30%

		Fees Related to Loans

47.2

43.7

3.5

8.01%

		

Fees in Foreign Currencies

45.7

46.7

-1.0

-2.14%

		

OthersIncome Tax Expenses(△)

143.8

101.4

42.4

41.81%Net Income

655.2

574.1

81.1

14.13%* Fee & Commissions 
Income composition by part
(Unit : KRW in billion)

0

80
70

Banking Fees
Non-Banking Fees
Trust Fees

Disposition/valuation Gains rose 31.52% to KRW 166.9 billion. Marketable securities rose by
KRW 89.0 billion, reflecting increased gains from the disposal of investment securities anddecreased impairment losses on marketable securities, while derivatives-related gains
decreased by KRW 49.0 billion.

550.0

500.0

2012

2013

General & Administrative Expenses decreased by KRW 79.1 billion as the special bonuses
that had been paid in 2012 expired and cost-cutting efforts proved effective. Despite the 2013
annual wage increase, Hana Bank was able to cut discretionary expenses and reducebudgets through effective cost management.

211.0
131.8
42.8

* Gains on
Disposition & Valuation(Unit : KRW in billion)
200.0

166.9

150.0

126.9
100.0

92.6

95.4

-2.8

-2.94%

131.8

167.8

-36.0

-21.45%

		Sales of Beneficiary Certificate

62.2

61.3

0.9

1.47%

		

Bancassurance

69.6

106.4

-36.8

-34.59%Trust Fees

60

574.1

10

90

50

600.0

Fee & Commissions Income decreased 9.74% to KRW 385.6 billion. Bancassurance fees
dropped KRW 36.8 billion owing to tax revisions, trust fees fell KRW 5.7 billion due to adecrease in reversal of special reserve for retirement trust accounts, and ABS fees shrank
KRW 3.0 billion as the securitization market for PF and other discount securities contracted.
Fees related to loans and commercial mortgage loans, on the other hand, increased as
mortgage loan transfers increased.

Non-Banking Fees

30

650.0

-9.74%

210.8

20

655.2

%

-41.6

25.5

Net interest income decreased 7.38% to KRW 2,489.3 billion. Reflecting the continuing lowinterest environment, NIM dropped 18bp in the course of 2013 to 1.58% at year-end. In
response to the falling profit margins, Hana Bank focused on expanding the customer baseand reducing funding costs through the increase of core deposits.

(Unit : KRW in billion)

YoY

427.2

211.0

In 2013 Hana Bank earned KRW 655.2 billion in net income, up KRW 81.1 billion from theyear before. Net interest income, affected by falling NIMs, contracted. Fee and commissions
Income decreased due to tax revisions involving bancassurance while marketablesecurities-related income increased. Operating income increased 4.45% to KRW 793.6
billion on account of decreases in General & Administrative Expenses and provisioning.
Non-operating income increased KRW 89.8 billion on account of a decrease in impairment
losses over equity method investment securities.

* Net Income

2012

385.6

Fees in Acceptances and Guarante

799.0

123.6

* Fee & Commissions Income (Unit : KRW in billion)		

Income before income taxes andConsolidation Adjustments

675.4

Non-operating income increased by KRW 89.8 billion over the year, as impairment losses overequity method investment securities decreased by KRW 77.3 billion and the dividend incomeof subsidiaries rose by KRW 13.5 billion.

40

Fee & Commissions Income

42.8

48.5

-5.7

-11.75%

Gains on Disposition & Valuation

166.9

126.9

40.0

31.52%

Other General Operating Income-334.1-301.2-32.9

10.92%

24.5

41.0

-16.5

-40.24%

Insurance Fees on Deposits-156.8-150.5

-6.3

4.19%

Contribution to Fund

-208.1-208.1

0.0

0.00%

Others

-36.5

-32.1

-4.4

13.71%

Dividend Income

Hana Bank's 2013 non-interest income came to KRW 218.4 billion, down KRW 34.5 billion
from the year before. Fee & Commissions Income decreased 9.74% to KRW 385.6 billion,
Disposition/valuation Gains rose KRW 40.0 billion to KRW 166.9 billion, and Other General
Operating Income loss increased KRW 32.9 billion to KRW 334.1 billion.
Reviewing Banking Fees, as commercial mortgage loan sales increased, related fees rose by
KRW 4.9billion, as loans-related fees increased by KRW 3.5 billion on growing processing
fees on loans and limit loans increased, while ABS fees decreased by KRW 3.0 billion
following the discontinuation of major asset-backed securitization operations. ATM
transaction fees decreased by KRW 2.6 billion and remittance fees by KRW 2.1 billion.
Non-banking Fees decreased by KRW 36.0 billion to KRW 131.8 billion. Bancassurance fees,
mirroring the negative effect of tax revisions, decreased KRW 36.8 billion, while beneficiary
certificates-related fees, which had been on the decline in the past few years, instead rose
KRW 0.9 billion over the course of 2013.

50.0

2012

2013

Disposition/valuation Gains rose KRW 40.0 billion to KRW 166.9 billion. Gains frommarketable securities increased KRW 89.0 billion as gains from the disposal of investment
bonds rose and impairment losses on investment securities decreased. Gains from FX

080

081

Hana Bank
operations decreased KRW 49.0 billion as valuation gains on equity securities decreased by
KRW 37.8 billion due to an appreciating KRW.

* G&A Expenses (Unit : KRW in billion)

Other General Operating Income loss increased KRW 32.9 billion to KRW 334.1 billion, due
mainly to a decrease of KRW 16.5 billion in dividend income.

1,600.01,550.0

1,549.8

1,470.7

1,500.0

1,450.0

2012

2013

* Interest Earning Assets(Unit : KRW in billion)

138,570.1

138,000* General and Administrative Expenses (Unit : KRW in billion)
2013

2012

General & Administrativie Expenses

1,470.7

1,549.8-79.1-5.10%

527.5

615.1

-87.6

-14.24%Retirement Benefits

91.2

109.7

-18.5

-16.86%Equipment Expenses

650.8

632.9

17.9

2.83%

Depreciation and Amortization

146.4

130.2

16.2

12.44%

Taxes and Dues

54.7

62.0

-7.3

-11.77%

Cost to Income Ratio

54.32%

53.01%

1.31%p-Salaries and Wages

YoY131,300.2

General & Administrative Expenses came to KRW 1,470.7 billion at the end of 2013, down KRW
79.1 billion from a year ago. Of the figure Salaries & Wages decreased by KRW 87.6 billion
owing to the exhaustion of the special bonuses paid out in 2012, while Equipment Expenses
rose by KRW 17.9 billion as the annual labor-management agreement resulted in an increase
in welfare expenses.

Retirement Benefits decreased by KRW 18.5 billion as a result of the expired effect of the 2012transfer of ordinary wages into allowance for the employee pension fund.

2012

2013

(Unit : KRW in billion)

112,751.2

114,000

112,000

110,000

108,000

107,988.5

Interest Earning Assets

11,213.2
11,200.0

11,000.0

10,872.9

10,600.0

2012

2013

Total Liabilities

146,388.8

140,666.3

5,722.5

4.07%

Shareholders' Equity

11,213.2

10,872.9

340.3

3.13%

Total Liabilities & Shareholders' Equity

157,601.9

151,539.1

6,062.8

4.00%

Shareholders' Equity rose by KRW 340.3 billion. Retained Earnings increased by KRW 525.5
billion as KRW129.7 billion was paid at the beginning of 2013 as dividend out of the 2013 net
income of KRW 655.2 billion, while Total Accumulated Profit & Loss decreased by KRW 158.5
billion as a result of an increase in actuarial losses related to valuation losses on marketablesecurities and employee retirement liabilities.
2013

2012

YoY

%

112,751.2

107,988.5

4,762.7

4.41%

58,030.1

54,743.9

3,286.2

6.00%

35,903.7

33,681.2

2,222.5

6.60%(SOHO)

15,176.1

12,813.1

2,363.0

18.44%

		

Large Corp.

19,997.6

19,469.9

527.7

2.71%

		

Public Sector & Others

2,128.8

1,592.9535.9

33.64%

Total Loans
Corporate
2012

2013

2012

YoY

%

138,570.1

131,300.2

7,269.9

5.54%

Due from Banks

3,978.5

2,167.3

1,811.2

83.57%

Fixed Income Securities

19,270.9

19,030.4

240.5

1.26%

Loans

115,320.7

110,102.5

5,218.2

4.74%

Other Revenue Earning Assets

6,361.0

6,767.2-406.2-6.00%

Stocks and Others

3,990.0

3,894.1

95.9

2.46%

Domestic Import Usance Bill

10,800.0-1.68%* Total Loans & Total Deposits (Unit : KRW in billion)

106,0002013* Summarized Financial Condition (Unit : KRW in billion)(Unit : KRW in billion)%-141.2

Interest Bearing Liabilities rose by KRW 5,863.7 billion: Deposits increased by KRW 5,098.9
billion, Borrowings from Trust Accounts by KRW 1,276.1 billion, while Debentures decreasedby 2.82% as a result of efforts on the part of the Bank to optimize the Double Leverage ratio.

* Total Loans

Ⅲ. Summary of Financial Condition* Shareholders' Equity

YoY

8,399.0

Interest-sensitive assets rose by KRW 7,269.9 billion to KRW 138,570.1 billion. Loans rose by
KRW 5,218.2 billion to KRW 115,320.7 billion: corporate loans increased by KRW 3,510.3 billion
and household loans by KRW 1,483.4 billion, while bills bought in foreign currency decreased
by KRW 224.8 billion. The increase in corporate loans can be traced mostly to SMEs, while thatin household loans is linked to salaried workers with good credit and mortgaged loans.
Marketable securities rose KRW 240.5 billion on increased government bond holdings.

130,000

126,000

2012

8,257.8

In 2013 the Bank's total assets rose by KRW 6,062.8 billion to KRW 157,601.9 billion: Loansand other interest-sensitive assets increased, while Domestic Import Usance Bill and Other
Revenue Earning Assets decreased.

%

In 2013 Hana Bank managed to keep real estate maintenance expenses under the inflation
rate by setting up a cost-efficiency plan, reducing discretionary expenses, and slashing thenumber of non-essential events or gatherings.

134,000

2013
Non-Interest Bearing Liabilities

2,371.0

2,873.1-502.1-17.48%

Non-Revenue Earning Assets

12,670.8

13,471.7-800.9-5.95%

Total Assets

157,601.9

151,539.1

6,062.8

4.00%

Interest Bearing Liabilities

138,131.0

132,267.3

5,863.7

4.43%

Deposits

111,356.7

106,257.8

5,098.9

4.80%

Borrowings

9,788.99,884.3-95.4-0.97%

Debentures

14,355.7

14,771.7-416.0-2.82%

Borrowings from Trust Accounts

2,629.6

1,353.5

1,276.1

94.28%(continued on next page)

		

SME

			
* SOHO Loan (Unit : %)15,176.1
15,00012,813.1

Households

54,721.2

53,244.5

1,476.7

2.77%

Total Deposits *128,316.4

119,930.6

8,385.8

6.99%

107,426.0

102,691.9

4,734.1

4.61%

31,841.8

29,675.1

2,166.7

7.30%

2,134.7

14.59%
0.21%

Deposits in KRW

14,000		
13,00012,00011,0002012

2013

Low Cost Funding			(Core Deposits)

16,766.3

14,631.6

			(MMDA)

15,075.5

15,043.6

31.9

		

Time Deposits

69,429.9

68,525.1

904.8

1.32%

		

Installment Deposits

5,421.1

3,604.2

1,816.9

50.41%

		CD & Others

Trust Account* Excluding savings in foreign currency

733.2

887.5

-154.3-17.39%20,890.4

17,238.7

3,651.7

21.18%

082

083

Hana Bank
Total loans rose by KRW 4,762.7 billion to KRW 112,751.2: corporate loans rose by KRW
3,286.2 billion, of which SOHO loans amounted to KRW 2,363.0 billion, a 18.44% increase
from the year before, while household loans rose by KRW 1,476.7 billion which comprises
mostly mortgage loans and loans to salaried workers with good credit.

Loan Loss Allowance decreased by KRW 105.7 billion to KRW 1,063.1 billion, as Precautionary& Below Loans (corporate) increased. The NPL coverage ratio decreased by 51.67% to118.24%. Though the decrease is owed to an increase in NPLs, the ratio still exceeds 110%, alevel set and deemed by the Bank as desirable and adequate to cover any unexpected losses.

Total deposits rose by KRW 8,385.8 billion to KRW 128.316.4 billion. Core Deposits increased
by KRW 2,134.7 billion, or 14.59%, contributing to the improvement of the overall funding
structure. Installment deposits soared 50.14% to KRW 1,816.9 billion, while trust deposits
rose KRW 3,651.7billion.

In 2013 provisioning amounted to KRW 451.3 billion, including KRW 521.9 billion allocated in
response to rising debts in arrears and changes in credit rating, while KRW 28.6 billion was
reversed on account of a KRW 121.3 billion debt-for-equity swap, a KRW 29.4 billion reversal
from debt disposal, write-offs, and revised credit ratings.
* Capital Adequacy - Hana Bank (Unit : %, KRW in billion)

Ⅳ. Asset Quality and Loan Loss Provisioning* Asset Quality (Unit : KRW in billion)* NPL ratio (Unit : %)

2.00

1.47%

1.50

2013

2012

YoY

%

Total Credit

122,758.4

118,788.2

3,970.2

3.34%

Normal119,672.0

115,663.4

4,008.6

3.47%

Precautionary

1,276.0

1,846.9- 570.9-30.91%Substandard

1,085.5

708.6

376.9

53.19%

Doubtful

341.9

274.8

67.1

24.42%

Estimated Loss

383.0

294.4

88.6

1.08%

2012

2011

2010

Tier 1 Capital

8,451.0

8,270.7

7,941.5

Tier 2 Capital

3,777.2

3,303.8

2,466.8

Loan Loss Reserve

546.7

536.8

453.5

Upper Tier 2

18.0

18.0

18.0

Lower Tier 2

3,053.5

2,609.2

2,136.5

Others

159.0

139.9

-141.3

Total BIS Capital

12,228.2

11,574.5

10,408.3

30.07%

Risk Weighted Assets

87,977.8

86,097.3

74,131.0

BIS Capital Adequacy Ratio

13.90%

13.44%

14.04%

Tier 1 Ratio

9.61%

9.61%

10.71%

Tier 2 Ratio

4.29%

3.84%

3.33%

Precautionary & Below

1.00

Basel II

Amount3,086.3

3,124.7- 38.4-1.23%

Ratio

2.51%

2.63%

-0.12%p-

Amount1,810.3

1,277.8

532.5

41.68%

Ratio

1.47%

1.08%

0.39%p-Loan Loss Allowance

1,063.1

1,168.8- 105.7-9.04%

Loan Loss Reserve

1,077.4

1,002.2

75.2

7.50%

NPL Coverage Ratio

118.24%169.91%-51.67%p-

Substandard & Below (NPL)
0.50

2012

2013

* NPL Coverage Ratio (Unit : %)200.0

169.9%
150.0

118.2%

100.0

50.0

2012

2013

During the course of 2013 the Bank's total loans rose by KRW 3,970.2 billion to KRW
122,758.4 billion. NPLs rose by KRW 532.5 billion to KRW 1,810.3 billion despite the measurestaken to write-down, dispose, and swap bad loans for equity, reflecting revised policies andguidelines imposed by the financial authorities.
In the course of 2013 NPLs grew KRW 1,324.7 billion comprising KRW 1,219.0 billion of new
bad debt, KRW 128.2 billion related to Hangil I&D, KRW 253.9 billion in household debt, and
KRW 281.2 billion newly categorized the financial authorities' revised guidelines as bad debt.
The net increase amounted to KRW 532.5 billion after KRW 666.1 billion worth of debts had
been written off, KRW 314.4 billion sold, and KRW 65.6 billion swapped for equity.
Despite the Bank's continued focus on its bad debt management and credit approval process,the NPL ratio increased to 1.47%, owing mainly to the effect of the revised guidelines and theemergence of newly-categorized bad debt.

Basel III2013

Tier 1 Capital

9,945.0

Common Equity Tier 1 Capital
Additional Tier 1 Capital
Tier 2 Capital
Loan Loss Reserve

1,147.4
12.3
3,185.3
530.5

Total BIS Capital

13,142.5

Risk Weighted Assets

94,459.4

BIS Capital Adequacy Ratio

13.91%

CET 1 Ratio

10.53%

Tier 1 Ratio

10.54%

Tier 2 Ratio

3.37%

The Bank issued in 2012 subordinated bonds worth a total of KRW 1,400 billion and in 2013
subordinated bonds worth KRW 200 billion, as part of its effort to strengthen the capital base.
From December 2013 the Bank started reporting BIS ratios in accordance with the Basel III
standards, and the ratio hovered above the required level 8% as of the end of 2013.

084

085

Korea Exchange Bank
1. OVERVIEW OF KOREA EXCHANGE BANKIn the year 2013, the Korean banking industry was saddled with a score of developments bothfrom within and without that hindered its growth: rumors of QE taper by the U.S. and concerns
over the slowing growth pace of China’s economy struggling to rebalance itself heightened
uncertainty over the world economy; on the domestic front, the lingering low interest
environment, contracting consumption and investment sentiments in reaction tomushrooming household debts and shrinking real estate transactions, growing bad debts ofsome large corporations, and increasing financial consumer protection measures, all these
combined to present a tremendous downward pressure on the industry.
Korea Exchange Bank, too, felt the compound blow of these daunting situations, suffering falling
NIMs and decreasing non-interest income, in particular. Because of such a bleak backdrop,some of its 2013 achievements are all the more splendid: its total loans grew at a rate thehighest in the industry, the overseas network expanded to Turkey and four other countries, andone of its new card products set a “million-seller” record in 13 months, to name but a few.

* total Assets (Unit : KRW in billion)

101,172.0

101,500

101,000

KEB also realigned its asset portfolio closer to the optimum state by increasing the SME and
SOHO loan portions. Asset quality and capital adequacy remained sound and strong on
account of the preemptive measures taken in a systematic manner in 2013. As the current
market uncertainties are expected to linger into 2014, KEB plans to continue to focus on
expanding the customer base, enhancing its global business competencies, and fortifying its
forward-looking risk management and marketing.
* Summarized Financial Information (Unit : KRW in billion, thousand members, %)100,500

100,000

99,800.4

99,500

2012

2013

2012

YoY

%

Total Assets

101,172.0

99,800.4

1,371.6

1.37%

Total Liabilities

91,755.3

90,891.0

864.3

0.95%

Total Equity

9,416.7

8,909.3

507.4

5.70%

Business Volume

2013

		

(Total Loans*)

50,433.1

48,462.7

1,970.4

4.07%

		(Total Deposits*)

51,664.7

50,094.1

1,570.6

3.14%

2,519.1

2,969.6-450.5-15.17%

Operating Income

553.4

863.6

-310.2-35.92%Net Income

360.4

634.4

-274.0-43.18%

ROA

0.35%

0.63%

-0.28%p

-

ROE

4.02%

7.28%

-3.26%p-

Profitability
General Operating Income* BIS CAR (Unit : %)13.83%

13.80

13.70

13.60

13.59%EPS(Unit:KRW)

559

984

-425

-43.18%BPS(Unit:KRW)

14,602

13,815787

5.70%

Cost to Income Ratio

56.96%

49.25%

7.71%p-Asset Soundness

13.50

1.17%

1.19%

-0.02%p-

NPL Coverage Ratio

132.68%140.91%-8.23%p-

Delinquency Ratio

0.47%

0.62%

-0.15%p-

BIS ratio

13.83%

13.59%

0.24%p-CET 1 Ratio

11.12%

N/A--

Tier 1 Ratio

11.66%

11.06%

0.60%p-NPL Ratio

13.40

2012

2013

Capital Adequacy* Excluding foreign currency and trust depositsNote) Basel III standard phase in beginning Dec. 2013 (prior CAR for KEB is basel II standard)

Ⅱ. Summary of Business Performance* Comprehensive Income Statement (Unit : KRW in billion)

2013

2012

YoY

General Operating Income

2,519.1

2,969.6-450.5-15.17%%Net Interest Income-11.59%1,577.9

1,784.8-206.9Fee & Commissions Income

662.1

693.2

-31.1

-4.50%

Gains on Disposition & Valuation

376.7

638.1

-261.4-40.96%-33.43%

Other General Operating Income-97.6-146.6

49.0

General & Administrative Expenses

1,434.8

1,462.6-27.8-1.90%

Pre-Provisioning Income

1,084.3

1,507.0-422.7-28.05%

Provisioning for Loan Losses(△)

530.9

643.4

-112.5-17.48%Operating Income

553.4

863.6

-310.2-35.92%

Non-Operating Income-107.512.5-120.0-961.35%

Income before income taxes andConsolidation Adjustments

445.9

876.1

-430.2-49.11%

Income Tax Expenses(△)

85.4

241.7

-156.3-64.65%Net Income

360.4

634.4

-276.0-43.18%In 2013 KEB posted a net income of KRW 360.4 billion, KRW 273.9 billion below theprevious year. Net interest income decreased on falling NIMs; fee and commissions income
diminished on account of bancassurance tax revisions and increased credit card
commissions paid; and disposition/valuation gains fell owing to the base effect of the oneoff Hynix disposal gains realized in 2012. General & administrative expenses, on the other
hand, improved over the year before.
Reviewing each income item, net interest income decreased by 11.59% to KRW 1,577.9
billion. Reflecting the continuing low interest environment, NIM decreased 25bp in 2013
alone to 2.11%.
Fee and commissions income diminished by 4.5% to KRW 662.1 billion. Owing to tax benefit
revisions, bancassurance fees reduced by KRW 5.6 billion; affected by contracting imports
and change in the fee system, FX fees decreased KRW 8.6 billion; and as growing card sales
accompanied growing card commissions paid, card fees lessened, by KRW 15.2 billion.
Disposition/valuation gains reduced 40.96% to KRW 376.7 billion. The base effect of the KRW
175.6 billion gains realized in 2012 from the sale of Hynix holdings and decreases in valuation
gains related to FX and trading are the main contributing factors.
General & Administrative Expenses reduced by KRW 27.8 billion owing to the base effect of
the special bonuses paid out in 2012 and the cost-cutting measures implemented bank-wide
in 2013. Salaries and wages decreased KRW 8.3 billion on account of the reduction of extra
bonuses, and equipment expenses decreased on various bank-wide conservation campaigns
conducted in the face of rising prices.
Provisioning decreased KRW 112.5 billion to KRW 530.9 billion. Of the figure, loan loss
provisions diminished KRW 151.7 billion to KRW 481.5 billion. Mirroring the reduction ofprovisioning, the credit cost ratio improved by 0.24%p to 0.60% despite the increase of totalloans.

086

087

Korea Exchange Bank
Non-operating income fell by KRW 120.0 billion to minus KRW 107.5 billion due to a KRW 87.9
billion impairment loss stemming from KEB Capital's income performance.

* General and Administrative Expenses (Unit : KRW in billion)

Income before income tax reduced KRW 430.2 billion to KRW 445.9 billion, and net income
after KRW 85.4 billion in tax came to KRW 360.4 billion.
* Fee & Commissions Income (Unit : KRW in billion)

Fee & Commissions Income
Banking Fees

(Unit : KRW in billion)

0

10

20

80

90

YoY

%

693.2

-31.1

-4.50%

241.0

251.7

-10.7

-4.24%

53.2

53.1

0.1

0.19%

Fees in Acceptances and Guarante		Fees Related to Loans

65.8

68.0

-2.2

-3.15%

		Fees in Foreign Currencies

122.0

130.6

-8.6

-6.61%-4.64%

421.0

441.5

-20.5

		

Sales of Beneficiary Certificate

33.6

34.2

-0.6

-1.68%

		Bancassurance

31.2

36.7

-5.5

-15.15%

		

Trust Fees

39.0

38.2

0.8

2.11%

		

Credit Card Fees

317.3

332.4

-15.1

-4.56%

Gains on Disposition & Valuation

376.7

638.1

-261.4-40.96%

Other General Operating Income-97.6-146.649.0-33.43%

10.3

9.1

1.2

13.73%

Insurance Fees on Deposits-103.8

-99.2

-4.6

4.64%

Contribution to Fund-101.8

-99.2

-2.6

2.58%

97.7

42.8

54.9

128.35%

Dividend Income
30

70

2012

662.1

		

Non-Banking Fees
* Fee & Commissions 
Income composition by part2013

Others40

60
50Banking Fees
Non-Banking Fees

241.0
421.0

Disposition/valuation gains dropped KRW 261.4 billion to KRW 376.7 billion: in addition to thebase effect of the KRW 175.6 billion sale of Hynix share holdings realized in 2012, FX valuation
gains decreased by KRW 42.7 billion, while trading-related valuation gain reduced by KRW
19.8 billion.
Other operating income came to minus KRW 97.6 billion, a KRW 49.0 billion improvementfrom the year before.

1,462.6

YoY%

Salaries and Wages

771.9

780.2

-8.3

-1.06%

Retirement Benefits

86.2

112.6

-26.4

-23.46%Equipment Expenses

438.1

430.8

7.3

1.70%

Depreciation and Amortization

100.7

96.5

4.2

4.35%

Taxes and Dues

37.9

42.5

-4.6

-10.76%

Cost to Income Ratio

56.96%

49.25%

7.71%p--27.8-1.90%

Other than advertising expenses, office supplies and building upkeep expenses, and otherdiscretionary expenses, all decreased, despite cross-the-board price increases. Ad campaign
and business activity expenses were maintained at levels comparable to the year before toprevent business contraction following the Bank’s merge with Hana Financial Group.

* G&A Expenses (Unit : KRW in billion)

1,480.0

Contributions to the employee retirement fund declined KRW 26.4 billion owing to the baseeffect of the KRW 34.6 billion pension supplementary payment made in 2012.

1,462.6
1,460.0

1,434.8

1,440.0

As of the end of 2013, non-interest income was KRW 941.2 billion, down KRW 243.6 billion
from the year before: fee and commissions income reduced 4.5% to KRW 662.1 billion;
Disposition/valuation gains diminished KRW 261.4 to KRW 376.4 billion; and other operating
income fell to minus KRW 97.6 billion.

Non-banking fees reduced KRW 20.5 billion to KRW 421.0 billion: bancassurance fees
declined KRW 5.6 billion owing to change in relevant tax benefits; credit card fees decreased
KRW 15.2 billion to KRW 317.3 billion, as the effect of a jump in card sales was offset bycorresponding card fees paid.

2012

1,434.8

In 2013 General & Administrative Expenses were KRW 1,434.8 billion, KRW 27.8 billion lessthan the year before: salaries and wages declined KRW 8.3 billion owing to the reduction of
special bonus payments and to other cost-efficiency efforts made in the year.

2012

2013

* Shareholders' Equity(Unit : KRW in billion)

9,416.7
9,400

9,200

9,000

Ⅲ. Summary of Financial Condition* Summarized Financial Condition (Unit : KRW in billion)

1,420.0

As for banking items, fees related to loans inched down KRW 2.1 billion, and FX fees
declined KRW 8.6 billion, owing mainly to contracting imports and to change in the LC term
charge whose effect calculated to be about KRW 4.5 billion.

2013
General & Administrativie Expenses

8,909.3

2013

2012

YoY

Interest Earning Assets

83,427.9

81,640.9

1,787.0

2.19%

Due from Banks

3,061.7

3,633.6-571.9-15.74%

Fixed Income Securities

10,662.4

11,568.4-906.0-7.83%

Loans

69,703.8

66,439.0

3,264.8

4.91%

Other Revenue Earning Assets

1,925.4

1,612.4

313.0

19.41%

Stocks and Investments

1,859.1

1,558.6

300.5

19.28%

66.3

53.8

12.5

23.25%

Non-Revenue Earning Assets

15,818.7

16,547.0-728.3-4.40%

Total Assets

101,172.0

99,800.4

1,371.6

1.37%

Interest Bearing Liabilities

79,150.2

76,952.8

2,197.4

2.86%

Deposits

65,135.3

63,570.1

1,565.2

2.46%

Borrowings

6,520.7

6,562.5-41.8-0.64%

Debentures

6,582.0

5,810.1

771.9

13.29%

912.3

1,010.1-97.8-9.68%

Non-Interest Bearing Liabilities

12,605.1

13,938.2-1,333.1-9.56%

Total Liabilities

91,755.3

90,891.0

864.3

0.95%

Shareholders' Equity

9,416.7

8,909.3

507.4

5.70%

101,172.0

99,800.4

1,371.6

1.37%

OthersBorrowings from Trust Accounts

8,800

2012

2013

Total Liabilities & Shareholders' Equity

%

088

089

Korea Exchange Bank
Total assets as of the end of 2013 stood at KRW 101,172.0 billion, up KRW 1,371.7 billion fromthe year before. Loans and other interest-sensitive assets and other income assets rose,
while cash and other non-income assets decreased, thereby improving the asset structurecompared to the year before.

Total deposits rose KRW 1,570.5 billion to KRW 51, 664.7 billion. In particular, Core Deposits
swelled KRW 1,258.6 billion (11.1%), contributing both to the increase of total deposits and theimprovement of the funding structure. Time deposits, a high cost funding source, reduced KRW
352.8 billion, while Installment Savings Deposits rose KRW 488.4 billion.

Interest-sensitive assets increased by KRW 1,787.0 billion to KRW 83,427.9 billion. Loans rose
by KRW 3,264.8 billion to KRW 69,703.8 billion: corporate loans expanded by KRW 1,462.9
billion, household loans by KRW 553.9 billion, and bills bought in foreign currency by KRW
765.1 billion. The increase of corporate loans comprises mostly SME and SOHO loans, whilethat of household loans consists largely of mortgage loans. Marketable securities diminishedKRW 905.9 billion as the Bank reduced its held-to-maturity holdings in response to the lowinterest environment.

Ⅳ. Asset Quality and Loan Loss Provisioning* Asset Quality (Unit : KRW in billion)

Interest-sensitive liabilities rose KRW 2,197.4 billion: borrowings inched down while deposits
and debentures both increased. Deposits, consisting mostly of low-cost demand deposits,
expanded KRW 1,565.1 billion, and KRW and foreign currency-denominated debentures by
KRW 316.6 billion and KRW 455.3, respectively.
* Total Loans(Unit : KRW in billion)

50,00050,433.1

48,462.7

Shareholders’ equity augmented by KRW 507.4 billion. Net income came to KRW 360.4 billion
which, after the dividends paid out at the beginning of 2013, came to KRW 308.9 billion as anincrease in retained earnings. To boost the capital base in accordance with Basel III
guidelines, the Bank issued hybrid bonds with the face value of KRW 180 billion.

Total Loans

30,000

Corporate loan
20,000		

10,000

2012

2013

SME

17,256.5

15,00014,00048,462.7

1,970.4

4.07%

28,512.5

27,095.9

1,416.0

5.23%

17,256.5

14,911.6

2,344.9

15.73%

1,418.4

11.56%

			(SOHO)

3,570.6

2,644.1

926.5

35.04%

		

Large Corp.

10,596.4

11,562.5-966.1-8.36%

		

Public Sector & Others

659.6

621.9

37.7

6.07%

21,920.6

21,366.7

553.9

2.59%

51,664.7

50,094.1

1,570.6

3.14%

18,209.1

16,774.4

1,434.7

8.55%

12,591.7

11,333.1

1,258.6

11.11%

		Core Deposits			(Demand)2,724.8

2,410.8

314.0

13.03%

			(Passbook)9,866.8

8,922.3

944.5

10.59%MMDA

Time Deposits, etc

14,911.6

50,433.1

12,267.5

		16,000%13,685.9

Low Cost Funding

17,000YoY(SME - Audited & Non Audited)

Loans to Households(Unit : KRW in billion)

2012

			

Total Deposits ** SME Loan

2013

5,617.4

5,441.3

176.1

3.24%

33,455.6

33,319.7

135.9

0.41%

		

Time Deposits

30,519.4

30,872.1-352.7-1.14%

		

Installment Deposits

2,598.6

2,110.2

488.4

23.14%

		CD & Others

337.6

337.4

0.2

0.07%

* Excluding foreign currency deposits and trust deposits

2012

2013

Total loans expanded KRW 1,970.4 billion to KRW 50,433.1 billion. SME loans grewsignificantly, by KRW 2,344.9 billion, reflecting government policy in support of SME. Loans to
SME with third-party audit or no audit rose KRW 1,418.4 billion, while SOHO loans increased
KRW 926.5 billion. Household loans augmented KRW 553.9 billion, while corporate loans
decreased KRW 966.1 billion.

YoY%

76,270.5

4,241.7

5.56%

Normal

78,348.2

74,063.9

4,284.3

5.78%

Precautionary

1,224.0

1,298.8-74.8-5.76%

Substandard

657.5

558.8

98.7

17.67%

Doubtful

170.8

241.4

-70.6

-29.23%

Estimated Loss

111.6

107.7

3.9

3.66%

Amount2,163.9

2,206.6-42.7-1.94%

Ratio

2.7%

2.9%

-0.2%p3.54%

Substandard & Below [NPL]

1.200

1.190

2012

80,512.2

Precautionary & Below* NPL ratio (Unit : %)* Total Loans & Total Deposits (Unit : KRW in billion)

40,0002013
Total Credit

1.19%

Amount

939.9

907.8

32.1

Ratio

1.17%

1.19%

-0.02%p

-

712.7

742.7

-30.0

-4.03%

Loan Loss Allowance
1.180

1.17%

Loan Loss Reserve

534.3

536.5

-2.2

-0.41%NPL Coverage Ratio

132.7%

140.9%-8.2%p

-

1.170

2012

2013

Total credit rose KRW 4,241.6 billion to KRW 80,512.2 billion. NPL loans reduced KRW 42.7
billion to KRW 939.3 billion, as the Bank wrote off, disposed of, swapped for equity a great
portion of its bad debts.
In 2013, while new bad debts amounted to KRW 756.7 billion, down KRW 105.0 billion below
the previous year, KRW 531.1 billion of bad debts was written off, KRW 121.9 billion disposedof, and KRW 3.9 billion swapped for equity, bringing a net increase in bad debt to KRW 32.1
billion.
The NPL ratio improved over the year to 1.17%, a result of the Bank’s continued focus on bad
debt management and the loan evaluation process.
Provisioning amounted to KRW 712.7 billion as of the end of 2013, down KRW 29.9 billion
from the year before, a result of the reduction of bad loans of KRW 1 billion and over and theefforts taken to arrest the deterioration of asset quality. The NPL coverage ratio was a still
comfortable 132.7%, albeit 8.24%p below the previous year.
Provisions set aside in 2013 amounted to KRW 458.7 billion, of which KRW 394.4 billion wasmade in response to defaults and rating downgrades, while KRW 117.6 billion was allocatedas provision for other write-downs, KRW 23.0 billion reversed upon disposal, and KRW 15.9
billion reversed upon rating upgrades.

090

091

Hana Daetoo Securities
1. OVERVIEW OF HANA DAETOO SECURITIESThe year 2013 was a very challenging period for domestic financial markets: fearful of theramifications of change in the U.S. monetary policy, the economy was slow to recover and thestock markets remained sluggish, both contributing to the increasing volatility of market
interest rates. Against this backdrop the Company focused on management efficiency andfortifying its leadership position in asset management, one of its core operations, all in effort
to strengthen its profit base.

* Capital Adequacy - KEB (Unit : %, KRW in billion)
Basel II

2012

2011

Tier 1 Capital

7,548

7,102

Tier 2 Capital

1,724

1,502

Loan Loss Reserve

489

471

Total BIS Capital

9,272

8,604

Risk Weighted Assets

68,23359,416BIS Capital Adequacy Ratio

13.59%

14.48%

Tier 1 Ratio

11.06%

11.95%

Tier 2 Ratio

2.53%

2.53%

Basel III

Tier 1 Capital
Common Equity Tier 1 Capital
Tier 2 Capital
Loan Loss Reserve

Such efforts were translated into a more comprehensive customer management system, an
expanded customer base, a more diversified product portfolio, and enhanced efficiencies incustomer asset management. Moreover, the branch network, manpower, and other business
infrastructure features have become more efficient, and the competency has strengthened forovercoming the current crisis presented by the depressed market.
* Summarized Financial Information (Unit : KRW in billion, thousand members, %)

2013
8,375
7,989

* Business Volume

1,559

13,057.7

514

Total BIS Capital

9,935

Risk Weighted Assets

71,821BIS Capital Adequacy Ratio

13.83%

Common Equity Tier 1 ratio

11.12%

Tier 1 Ratio

11.66%

Tier 2 Ratio

2.17%

In preparation for Basel III slated to be effective December 2013, KEB had been making efforts
to shore up its capital base, including the issuances of hybrid bonds and subordinated bondsin the amounts of KRW 180 billion and KRW 761.1 billion, respectively. As of the end of 2013
the Bank maintains its capital above the Basel-mandated ratio of 8% and a common sharebased capital structure in accordance with the Basel III standard.

2013

2012

YoY

%

Total Assets

13,057.7

12,200.8

856.9

7.02%

Shareholders' Equity

1,604.1

1,544.2

59.9

3.88%

General Operating Income

348.8

401.8

-53.0

-13.19%Operating Income

65.8

29.0

36.8

127.24%

Business Volume(Unit : KRW in billion)

Profitability*

13,00012,50012,200.8

68.2

23.9

44.3

185.15%

ROA

0.52%

0.20%

0.32%p

-

ROE

4.30%

1.54%

2.76%p-Cost to Income Ratio

83.04%

82.89%

0.15%p-418.04%409.58%

8.46%p-Net Income

12,00011,500Capital Adequacy
2012

2013

Net Capital Ratio* Hana Daetoo Securities has changed the date of account balancing from March 31 to December 31, starting with its fiscal year
2013. As a result, the above chart contains figures as of December 31, 2013.

092

093

Hana Daetoo Securities
Ⅱ. Summary of Business Performance
In 2013 Hana Daetoo Securities earned KRW 68.2 billion in net income, up KRW 44.3 billion
from the year before. Despite falling fee and commissions income, disposition/valuation
gains, other operating income types, the Company managed to turn a handsome profit byreducing general business expenses and recovering bad debts.

* Fee & Commissions Income (Unit : KRW in billion)

2013
Fee & Commissions Income* Comprehensive Income Statement (Unit : KRW in billion)

2013(Unit : KRW in billion)

68.2

80.0

60.0

40.0

20.0

2013

* Fee & Commissions M/S(Unit : %)

3.29%

3.30

3.20

3.10

%

401.8

-53.0

-13.19%Net Interest Income

153.7

149.2

4.5

3.02%

Fee & Commissions Income

202.3

224.2

-21.9

-9.78%

Gains on Disposition & Valuation

-32.2

2.4

25.0

26.0

-1.0

-3.87%

General & Administrative Expenses

289.6

333.1

-43.5

-13.04%Pre- Provisioning Income

59.2

68.7

-9.5

-13.93%

Provisioning for Loan Losses(△)

-6.7

39.8

-46.5

-116.74%

Operating Income

65.8

29.0

36.8

127.24%

Non-Operating Income

23.1

7.5

15.6

208.80%Ordinary Income

89.0

36.5

52.5

144.00%

Income Tax Expenses(△)

20.8

12.6

8.2

65.62%Net Income

68.2

23.9

44.3

185.15%General & Administrative Expenses shrank by 13% on the strengths of continued costefficiency efforts and reduced labor costs.
Provisioning for Loan Losses decreased by KRW 46.4 billion over the year, reflecting thesizable provisioning made in 2012 and the all-out efforts made in 2013 to recover bad debts.

3.05%

Non-operating Income increased by 208% as a result of increased PEF dividends and theinclusion of uncollected bad debts. As a result of the above activities, ordinary income rose
by KRW 52.5 billion, or 144%, to KRW 89.0 billion.

3.00

2012

2013

%

-21.9

-9.78%-3.84%

Sales of Beneficiary Certificate

38.6

40.2

-1.6

Brokerage Fee

101.6

112.8

-11.2

-9.90%

Underwriting Commissions

11.5

27.0

-15.5

-57.39%Bancassurance

1.7

3.2

-1.5

-46.90%

Others

48.9

41.1

7.8

18.83%

Brokerage Fee decreased about 10% over the year to KRW 101.6 billion, owing mainly tosluggish market conditions and a 15.7% drop in securities transactions. The Company's shareof the brokerage fee market, however, grew 0.24%p to 3.29% as a result of effective market
responses.
Underwriting Commissions amounted to KRW 11.5 billion and other commissions (advisory
fees and hybrid securities sales commissions) came to KRW 48.9 billion, bringing the total
to KRW 60.4 billion. Compared with the previous year, this figure represents a decrease of
KRW 23.2 billion, due to rising credit risks, a contracting big deal market in fear of QE
tapering, and change in risk management policy in response to negative market conditions.
* General and Administrative Expenses (Unit : KRW in billion)

2013

Fee & Commissions Income decreased about 10%, reflecting the overall anemic fluctuations of
the stock markets amid fears surrounding the U.S. monetary policy, drops in transactions andcommission rates, and in the number of "big deals", and increased credit risks.
Disposition/valuation Gains contracted by KRW 34.6 billion due mainly to the increased
volatility of interest rates and market uncertainty fueled by U.S. QE-related fears, even though
the interest rate on the 3-year government bond reached a record high of 2.44%.

YoY

224.2

Fee income from beneficiary certificates decreased 3.8% over the year to KRW 38.6 billion.
The decrease can be attributed to the fact that most of the customers, who were long-term holders
as the economy and stock markets remained in the doldrums, cashed out of equity (hybrid) funds,
which carried relatively higher fees, when the KOSPI reached its peak at 2,000 points.

-34.6 -1,452.74%

General Operating Income decreased 13.19% to KRW 348.8 billion. Reviewing the income indetail, interest income rose by KRW 4.5 billion to KRW 153.7 billion, owing mostly to a net
interest increase from the growth of bond operations.

23.9

2012

YoY

348.8

Other General Operating Income* Net Income

2012

General Operating Income

2012

202.3

General & Administrativie Expenses* G&A Expenses (Unit : KRW in billion)

350.0

333.1

289.6

300.0

250.0

200.0

2012

2013

2012

YoY

%

289.6

333.1

-43.5

-13.04%

Salaries and Wages

139.2

169.8

-30.6

-18.06%Retirement Benefits

10.5

11.3

-0.8

-7.37%

Equipment Expenses

114.9

124.7

-9.8

-7.84%

Depreciation and Amortization

13.5

14.6

-1.1

-7.71%

Taxes and Dues

11.6

12.6

-1.0

-8.05%

Cost to Income Ratio

83.04%

82.89%

0.15%p-General & Administrative Expenses decreased by KRW 43.4 billion over the year to KRW 289.6
billion. As a result, the C/I ratio increased 0.15%p over the year, despite the aggressive costcutting measures employed company-wide, as negative market conditions led to a decrease inoperating income.
Reviewing General & Administrative Expenses in detail, Salaries & Wages decreased by KRW
30.7 billion over the year to KRW 139.2 billion as a result of aggressive manpower
management and a decrease in performance bonuses paid in step with the less-than-stellar
performance recorded in 2013.
Equipment Expenses decreased by KRW 9.8 billion to KRW 114.9 billion, as a result of theconsolidation of 10 branches and the reduction of non-essential expenses.

094

095

Hana Daetoo Securities
Ⅲ. Summary of Financial Condition

Ⅳ. Asset Quality and Loan Loss Provisioning* beneficiary certificates aum (Unit : KRW in billion)* Asset Quality (Unit : KRW in billion)

2013

2012

Beneficiary Certificates AUM

13,929.9

13,954.4

-24.5

-0.2%

Total Credit

898.9

992.5

- 93.6Equity (hybrid) type3,600.5

4,072.9-472.4-13.1%

Normal

745.8

832.6

- 86.8-10.42%

Bond (hybrid) type3,222.7

3,550.8-328.1-10.2%

Precautionary

1.0

0.2

0.8

402.95%

MMF

2,787.4

3,036.3-248.9-8.9%

Substandard

34.8

7.4

27.4

367.12%Other

4,319.2

3,294.5

1,024.7

23.7%

Doubtful

14.4

120.9

- 106.5-88.08%Domestic Market

334,897.0

317,276.0

17,621.0

5.26%

Estimated Loss

102.8

31.4

71.4

227.55%

4.16%

4.40%

-0.24%p

-

M/S

YoY

%

2013

159.9

- 6.9

-4.30%

17.02%

16.11%

0.91%p-Amount

152.0

159.7

- 7.7

-4.81%

Ratio

16.91%

16.09%

0.82%p

-

2013

2012

YoY

Precautionary
Substandard

117.3

126.0

%

- 8.8

-6.96%

-

-

-

0.00%

0.0

0.0

0.0

30.37%-100.00%

-

1.9

- 1.9

Doubtful

14.4

98.8

- 84.4-85.44%

Estimated Loss

102.8

25.3

77.5

306.55%

Precautionary & Below

2013

2012

YoY

Securities sales

101,840.6

123,233.4-21,392.8-21.0%

Figaro sales

52,404.3

65,058.5-12,654.2-24.1%

51.5%

52.8%

-1.3%p-3,306,487.0 3,824,761.1-518,274.1-15.7%-0.14%p

-

3.22%

153.0

Ratio

Normal* Stock Contract Volume (Unit : KRW in billion)

3.08%

AmountLoan Loss Reserve

Bond(hybrid)-type assets also decreased, as many customers switched to bond-type wrap
accounts on Company advice. MMF assets decreased on account of the year-end exodus ofcorporate short-term funds and transfers to funds of funds. Other products such as ELF, realestate and alternative investment products increased by over KRW 1 trillion as investments
streamed into shipping finance and other special asset funds.

M/S%-9.43%

Substandard & Below (NPL)

Equity(hybrid)-type assets decreased by about KRW 500 billion as redemptions soared when
the KOSPI reached 2,000, considered by the majority as a psychological threshold in a market
with limited volatility.

Figaro share

YoY

Precautionary & Below

Beneficiary certificates assets under management as of the end of 2013 totaled about KRW 14
trillion, down 0.2% from the previous year. As the beneficiary certificates market increased by
5.3% over the year, the Company's market share contracted 0.24%p to 4.16%.

Market2012%

In 2013 Brokerage amounted to KRW 101 trillion, down 21% from the year before. The
decrease can be attributed to sluggish market conditions in relation to fears of QE taperingand a drastic decrease of transactions. Though the stock markets' total amount oftransactions plunged, the Company's market share inched down by 0.14% to KRW 3.08%.
Hana Daetoo Securities's online securities business represented by "Figaro" and "Mentos"
apps, contracted by 4.7% in number of investors and by 1.3%p in transaction fee as theindustry's excessive fee competition led to a reduction in new membership compared withthe year before. On the other hand, the market share in terms of fee rose about 0.23% to3.29%.

Loan Loss Reserve
Coverage Ratio

117.3

126.0

- 8.7

-6.96%

76.62%

78.81%-2.19%p-

Substandard & Below (NPL)
Loan Loss Reserve* NPL Coverage Ratio (Unit : %)79.00

78.91%

78.00

77.12%

77.00

76.00

2012

2013

Coverage Ratio

117.2

126.0

- 8.8

-6.96%

77.12%

78.91%-1.79%p-

Total risk-weighted assets as of the end of 2013 stood at KRW 898.9 billion, down KRW 93.6
billion from a year ago. The NPL coverage ratio inched down 1.78%p to 77.12%. Loan loss
allowance was at a level sufficient enough to deal with any loan delinquency issue and has
remained adequate as of this report.

096

097

Hana SK Card
1. OVERVIEW OF HANA SK CARD

Ⅴ. Capital Adequacy

The domestic credit card market in 2013 faced a host of challenges from within and without:
the government imposed a series of regulations that hindered the growth of the market; theslowing economy weakened profitability; and big corporations entered the market in thename of business diversity, intensifying competition.

* Net Capital Ratio (Unit : KRW in billion, %)

2013

2012

2011

2010

1,354.6

1,218.8

1,193.7

1,443.2

1,604.1

1,567.0

1,535.5

1,745.9(+)Allowances for Currency Assets

34.3

53.9

20.3

19.4

(+)Subordinated debentures

80.0

0.0

0.0

0.0

(-)Fixed Assets

76.2

81.1

79.9

95.9

(-)Prepaid Expenses

5.3

5.4

7.0

33.8

(-)Unsecured Loans(over 3M)

161.8

195.1

166.7

73.1

Net Capital(+)Shareholders' Equity on B/S* Net Capital Ratio (Unit : %)418.04%420.00415.00410.00409.58%405.002012(-)Others

120.5

120.4

108.4

119.4

Gross Risk Amount

324.0

297.6

265.2

224.5

Market Risk

206.2

171.0

152.5

133.6

Counter Party Risk

47.1

46.5

5.8

3.3

Credit Concentration Risk

26.7

32.5

52.8

41.8

Operational Risk

44.0

47.5

54.1

45.8

Indirect Investment Risk
Net Capital Ratio

0.0

0.0

0.0

0.0

418.04%409.58%450.15%642.81%* The net capital ratio as of the end of 2013 stood at 418%, up 8.5%p from a year ago, well above the 150% level set by thefinancial authorities, the 200% level by the newly enacted Capital Market Act, and the HFG-set 250% level.
* Shareholders' equity on B/S rose by 2% to KRW 1,604.0 billion, while net capital increased by KRW 135.8 billion to KRW
1,354.0 billion.
- The increase in net capital can be attributed to the increase in shareholders' equity, the issuance of subordinated bonds
with a face value of KRW 100 billion (only 80% of it has been recognized as supplementary capital), and a decrease inloans with 3-month and longer maturity.
* Gross Risk Amount rose by KRW 26.0 billion over the year, reflecting an increase in market risk accompanied by the growthof assets.

* Active Cardholders(Unit : thousands)
4,350

4,344

4,300

Against this market backdrop, Hana SK Card pursued value-based growth by focusing on
efficient cost management and developing new products in response to government policies
promoting check cards.
As a result, amid constricting market conditions, the Company expanded its credit purchase by
7%, check card purchase by 30%, and turned in a tidy profit.

4,250

4,214
4,200

* Summarized Business Performance (Unit : thousands, KRW in billion)

2013

4,150

No. of Cardholders*
2012

2013

* Credit Purchase(Unit : KRW in billion)

15,34015,000

YoY

%

7,746

-391

-5.0%

Active Cardholders

4,344

4,214

130

3.1%

% of Active Cardholders

59.1%

54.4%

4.7%p

-

Total Sales (credit card)

28,78130,867-2,086-6.8%

Credit Purchase

15,34014,321

1,019

7.1%

Financial Proudcts

4,185

3,904

281

7.2%

Check

3,999

3,083

916

29.7%

Copotation

5,258

5,983

-725

-12.1%-

3,576-3,576-100.0%

Others
14,500

2012

7,355

Profitability

14,321

General Operating Income

286.7

284.4

2.3

1%

14,000Operating Income

2.9

-31.1

34.0

-109%

Net Income

3.5

-29.6

33.1

-112%

13,500

Balance Sheet Outstanding**
Credit sales

2,035

1,911

1 24

6%

Cash Advance

337

365

-28

-8%

Card Loan

858

560

298

53%

2013

2012

2013

* Check Card

* Includes check cardholders**Other credit card assets and installments are included in credit sales.

(Unit : KRW in billion)

3,999
4,000

3,000

3,083

2,000

1,000

2012

2013

In 2013 card membership decreased by 390,000 over the year due mainly to a new
government regulation requiring card holders inactive more than 1 year be delisted. However,owing to the Company’s effective customer management, the number of active card users
increased 3.1%.
Credit sales in 2013 grew by 5.5% compared with 2012, not counting the discount receivables
purchased from SK Telecom. (The market as a whole grew 1.5% over the year.) Whilesettlement-by-installment sales decreased 22% to KRW 80.2 billion owing to new regulations
restricting non-interest installment services, credit sales rose 7% on the growth of lump-sum
settlements.
Card Loan soared 53% on account of new sales channels developed in 2013, while check cardsales rose 29% on the back of innovative products, including mobile applications, rolled out instep with new trends in the soaring settlement market.

098

099

Hana SK Card
III. Asset Quality and Capital Adequacy
Corporation sales decreased 12% over the year. But excluding B2B-type settlement payments
which fell following the introduction of regulations restricting card payment for supplies, B2B
sales rose about KRW 260 billion as the Company expanded its institutional sales activity anddiversified corporate channels.

* Credit Card Asset Quality (Unit : KRW in billion)

2013

II. Profitability
In 2013 Hana SK Card succeeded in moving into the black by reporting a net income of KRW
3.5 billion. Fee & Commissions Income rose as the Company expanded its financial products
and improved efficiencies in business management. General & Administrative Expenses also
decreased, by over 10%, as it reduced non-essential marketing activities. These feats shine
brighter in the light of challenging market conditions, including a restrictive regulatoryenvironment, falling profitability, intensifying competition from new entrants.

(Unit : KRW in billion)

3.5

10

-10

-20

-30

-29.6
2012

2013

340.0

69

44

25

57%

Substandard

-

-

-

Doubtful

32

30

2

7%

Estimated Loss

11

9

2

22%
10%

Precautionary & below
Precautionary & below ratio

43

39

4

1.33%

1.36%

-0.03%p

-

112

82

30

37%

3.48%

2.90%

0.58%p-Loan loss reserves

95

79

16

20%

42

33

9

27%

Precautionary

20

16

4

25%

Net Interest Income

-83.3

-8.3

-75.0

904.8%

Substandard

-

-

-

Fee Income

362.3

302.1

60.2

19.9%

Doubtful

24

22

2

9%

Other

7.7

-9.4

17.1

-182.2%Estimated Loss

9

8

1

13%

SG&A Expense

175.4

197.1

-21.7

-11.0%

111.3

87.3

24.0

* NPL coverage ratio (Unit : %)

220%

225

27.4%

Provision Expense

108.4

118.5

-10.1

-8.5%

Operating Income

2.9

-31.1

34.0

-109.2%

Non-Operating Income

6.3

1.8

4.5

239.4%

Income Tax

5.6

0.3

5.3

1,899.1%

Net Income

3.5

-29.6

33.1

-111.9%

215

205

2012

YoY

%

709.7

642.7

67.0

10.4%

475.1

439.4

35.7

8.1%

Cash Advance

76.0

86.6

-10.6

-12.2%

Card Loan

111.3

82.6

28.7

34.7%

Others

47.3

34.1

13.2

38.6%

Fee Expenses

347.4

340.6

6.8

2.0%

Fee Income

362.3

302.1

60.2

19.9%

2012

Provisioning expenses decreased by KRW 10.1 billion as the purchase of discount receivables
plunged by KRW 27,837 billion, from KRW 3,734.9 billion in 2012 to KRW 951.2 billion in 2013.

Coverage Ratio
		

NPL

220%

205%

15%p

7%

		

Precautionary & below

84%

96%

-12%p

-

205%
* Adjusted Equity Capital Ratio, Leverage (Unit : KRW in billion)

2013
195

2012

* Credit Card Fee Structure (Unit : KRW in billion)

Interest income fell KRW 207.8 billion, from KRW 311.3 billion in 2012 to KRW 103.5 billion in 2013,
following the discontinuation of discount receivables purchase operations in August 2012. Fee
income rose about 20% as the Company developed new channels, expanded financial operations,and minimized the growth of business expenses through improving efficiencies in the businessprocess. Other income grew on extra income from sale of bad debts.

2013

13%

Precautionary

NPL ratio%*Calculated for accounting purposes

260.0

364

Normal

YoY

302.1
300.0

2,754

0.8%

Credit Card Receivables in Won

362.3

380.0

3,118

2.3

Fee Revenue(Unit : KRW in billion)

14%

Normal

284.4

2012

2013

* Fee Income

394

286.7

PPOP (Pre-Provisioning Income)

0

%

2,837

General Operating Income

2013* Net Income

YoY

3,231

NPL

* Condensed Income Statement (Unit : KRW in billion)

2012

Total Credit

2013

2012

YoY

%

Adjusted Equtiy Capital

917

923

-6

-0.6%

Adjusted Total Asset

4,430

7,595

-3,165-41.7%

Adjusted Equtiy Captial Ratio (%)

20.7%

12.1%

8.6

70.4%

689

684

5

0.7%

Total Assets

4,898

8,184

-3,286-40.2%

Leverage Ratio (multiples)

7.11

11.96

-5

-40.6%

Total Equity Capital* Adjusted equity capital ratio based on special F/S, leverage ratio based on consolidated F/S

As for asset quality, the NPL ratio as of the end of 2013 remained at a level considered prudent,
despite the overall growth of card sales in general and the 53% increase of high-risk card loans inparticular. Moreover, the NPL coverage ratio improved by 7% over the year, a result of theCompany’s active sale of bad debts. While the adjusted equity capital ratio rose 70% following thediscontinuation of the discount receivables business, the leverage ratio stabilized from multiple of
12 in 2012 to multiple of 7 in 2013.

100

Hana Capital101

1. Summary of Business Performance

II. Asset Quality and Loan Loss Provisioning

In 2013 Hana Capital posted a net income of KRW 44.4 billion, a record in its history. Financial
assets totaled KRW 3,184.4 billion. Through its continued expansion of financial assets andefforts aimed at improving risk management, the Company has been making progress while
maintaining balance between asset growth and asset quality. In 2014 the Company plans torebalance a part of its business portfolio through product diversification and maximize
profitability through efficient cost management.

* Asset Quality (Unit : KRW in billion)* Comprehensive Income Statement (Unit : KRW in billion)

2013(Unit : KRW in billion)

143.3

150.0

140.0

130.0

122.0
120.0

2012

2013

* Net Income (Unit : KRW in billion)

44.4

50.0

40.0

30.0

28.3

20.0

10.0

2012

2013

YoY

%

2012

3,184.4

2,669.6

YoY
514.8

19.29%%

Normal

2,997.3

2,535.5

461.8

18.21%

Precautionary

115.2

99.5

15.7

15.78%

Substandard

41.6

34.6

7.0

20.21%

Doubtful

27.9

33.1

- 5.2

Estimated Loss

2.4

2.8

- 0.4

General Operating Income

143.3

122.0

21.3

17.5%

Net Interest Income

142.6

129.6

13.0

10.1%

Amount

187.1

170.0

17.1

10.07%

Fee & Commissions Income

-7.1

-15.5

8.4

-54.0%

Ratio

5.88%

6.71%

-0.83%p-

Gains on Disposition & Valuation

0.0

5.0

-5.0

-100.0%

Other General Operating Income* General Operating Income

2012

2013
Total Credit

Precautionary & Below-

Substandard & Below (NPL)

-

7.8

2.9

4.9

167.8%

Amount

71.9

70.5

1.4

2.02%

General & Administrative Expenses

38.4

32.6

5.8

17.6%

Ratio

2.26%

2.78%

-0.52%p-Pre- Provisioning Income

104.9

89.4

15.5

17.4%

Provisioning for Loan Losses(△)

46.3

44.8

1.5

3.3%

Loan Loss Reserve

80.1

83.8

- 3.7

-4.41%

Operating Income

58.6

44.5

14.1

31.6%

Normal

23.2

30.1

- 6.9

-22.93%

Precautionary

20.8

16.1

4.7

29.59%

Substandard

11.8

8.6

3.2

36.46%

Doubtful

21.8

26.5

- 4.7

Estimated Loss

2.5

2.4

0.1

56.9

53.7

3.2

5.98%

42.82%

49.30%-6.48%p-

Non-Operating Income

0.3

-5.1

5.4

-105.7%

Ordinary Income

58.9

39.5

19.4

49.2%

Extraordinary Income

0.0

0.0

0.0

0.0%

Income before income taxes andConsolidation Adjustments

58.9

39.5

19.4

49.2%

Income Tax Expenses(△)

14.5

11.2

3.3

28.9%

Income before Consolidation Adjustments

44.4

28.3

16.1

57.2%

Net Income

44.4

28.3

16.1

57.2%

General operating income rose 17.5% over the course of 2013 as assets increased (by KRW
485.5 billion) and interest and fee expenses decreased. Domestic automobiles, facility
financing, commercial property assets increased by KRW 215.9 billion, KRW 59.6 billion and
KRW 44.8 billion respectively. Auto financing assets inched down 1.1%p to 54.4% in proportion
to total assets, while facility financing and commercial property assets rose 0.5%p to 17.5%.
Funding interest rate in 4Q 2013 decreased 0.99% compared with a year ago. Fee expenses
decreased on account of a regulation effective of June 2013 limiting the amount of loanarrangement fees.

* NPL coverage ratio (Unit : %)

120.0

119%

115.0

111%

110.0

Precautionary & Below-

Loan Loss Reserve
Coverage Ratio

105.0

Substandard & Below (NPL)

2012

2013

-

Loan Loss Reserve

36.1

37.6

- 1.5

-4.13%

Coverage Ratio

111%

119%

-8%p

-

Hana Capital managed to keep the growth of NPL at KRW 1.4 billion, a result of its systematic risk
management. As KRW 3.7 billion of provisions for loan losses was reversed, the NPL coverage
ratio stayed above the 110% threshold.

III. Capital Adequacy

General & Administrative Expenses rose 17.6% due to increased assets. The C/I ratio inched
up 7bp to 26.77%. Wages and equipment rose KRW 5.8 billion as used-car sales force
increased, pushing up with relevant expenses.

* Adjusted Equity Capital Ratio (Unit : KRW in billion, %)Provisions for loan losses decreased KRW 3.7 billion, while the reserve ratio inched down
0.58%p to 2.52%.

		

2013

2012

2011

Adjusted Equity Capital

303.3

248.9

223.3

Tier 1 Capital

261.1

216.9

194.1

261.1

216.9

194.1

42.2

32.0

29.2

Shareholders' Equity

Tier 2 Capital		

Subordinate Debt

6.0

10.0

10.0

		

Loan Loss Reserve

44.1

41.9

38.3

7.8

19.9

19.1

3,207.8

2,737.7

2,490.1

3,271.3

2,791.7

2,552.1

63.4

54.0

62.0

9.46%

9.09%

8.97%

(-)Deduction
Adjusted Total Assets
Total Assets on B/S(-)Deduction
Adjusted Equity Capital Ratio

102

103

Hana Life
1. Summary of Business Performance* Comprehensive Income Statement (Unit : KRW in billion)* Net Insurance
Business Income(Unit : KRW in billion)
200.0

199.5

150.0

100.0

58.0
50.0

2013

Net Insurance Business Income
Insurance Income		Premium Income		

Reinsurance Income(Unit : KRW in billion)
80.0

77.4

63.4
60.0

40.0

2012

YoY

%

199.5

58.0

141.5

243.84%

385.1

267.3

117.8

44.04%

378.4

259.8

118.6

6.6

7.5

185.5

2013
Solvency Margin

24.5

Shareholders' Equity

168.2

183.2

21.2

45.66%

Loan Loss Reserve

0.1

0.1

0.1

-0.9

-11.71%

Subordinated Debts

0.0

0.0

0.0

209.3

-23.8

-11.36%

Net Premium Reserve in Excess

56.7

61.6

71.8

(-)Deduction

58.1

61.3

68.7

78.9

73.6

18.2

211.5%

249.5%

134.81%

Benefit & Payments

111.3

125.2

-13.9

-11.12%

Reinsurance Expense

7.8

7.8

0

0.71%

Standard Amount of Solvency Marg		

General & Administrative Expense

41.2

41.3

-0.1

-0.31%

Solvency Margin Ratio		

Increase of Deferred Acquisition cost

25.1

34.9

-9.8

-27.90%

0.0

0.1

0.1

-71.89%

77.4

63.4

14.0

22.16%

93.9

72.4

21.5

29.72%Net Investment business Income
Investment Expense

16.5

9.0

7.5

82.83%

Increase of Policy Reserve

269.6

165.5

104.1

62.90%

Operating Income

7.3

-44.1

51.4

Non-operating Income

16.2

14.0

2.2

Net Income Before Income Tax

23.5

-30.2

53.7

Income Tax Expense

5.4

-7.4

12.8

Net Income(Loss)

18.1

-22.8

40.9

Hana Life’s RBC ratio decreased 38%p over the course of 2013.
Though retained income increased KRW 18.4 billion on the income increase, shareholders’ equity
decreased KRW 15.0 billion, as other accumulated income decreased by KRW 33.4 billion on
account of an interest rate rise (5-year government bond rate from 2.97% to 3.2%).
As of the end of 2013, the Company’s standard amount of solvency margin stood at KRW 78.9
billion, up KRW 5.3 billion from a year ago.

15.90%

As for contributing factors, interest-sensitive amounts increased by KRW 5.2 billion on accountof the increased exposure of marketable securities, and that credit risk-sensitive assets
increased KRW 10.2 billion on the increased exposure of special purpose bonds and corporate
bonds, but market risk-sensitive assets decreased KRW 15.5 billion as shrinking variableinsurance sales led to a reduction in variable insurance guarantee risk-sensitive assets.

In 2013 Hana Life not only turned a profit but also improved its net income performance by KRW
40.9 billion with a net income of KRW 18.1 billion.

20.0

2012

2013

* Net Income(Loss)(Unit : KRW in billion)

18.1

20.0

Net insurance business income rose KRW 141.5 billion to KRW 199.5 billion, as insurance
premiums increased with the expanding insurance business and improving cancellation rates
led to a reduction in cancellation refunds.
Net investment business income rose KRW 14.0 billion to KRW 77.4 billion, owing robust
gains (KRW 5.6 billion more than in 2012) from sale of marketable securities and to anincrease (KRW 4.5 billion more) in net interest income from the growth of assets.
Reserves increased in direct proportion to the increase in assets. Other operating income alsorose, as fees increased with the growth of variable insurance products in holding.

10.0

0

As Hana Life’s robust income performance can be traced to its improved competencies ininvestment management and in cost management (general expenses hardly changed despite
the sizable growth in business scale), these improvements in the fundamentals are expected
to have lasting impact on the Company’s profit performance.

-10.0

-20.0

-22.8
2012

2013

2007

183.7

		

Discount

2012

167.0

		

Investment Income* Net Investment
business Income* Solvency Margin Ratio (Unit : KRW in billion, %)2013

Insurance Expense

2012

Ⅱ. Capital Adequacy* Solvency Margin(Unit : KRW in billion)

190.0

183.7
180.0

167.0

170.0

160.0

2012

2013

104

105

Hana Savings Bank
1. Summary of Business Performance

Ⅱ. Summary of Financial Condition* Comprehensive Income Statement (Unit : KRW in billion)* General Operating Income(Unit : KRW in billion)

35.9

40.0

30.0

20.0

10.0

5.8

2012

2013

* Net Interest Income(Unit : KRW in billion)

37.2

40.0

20.0

12.5
10.0

2013

* Net Income(Unit : KRW in billion)

5.8

10

YoY

%

2013

2012

YoY

%

General Operating Income

35.9

5.8

30.1

519.0%

Interest Earning Assets

742.8

1,053.8-311-29.52%Net Interest Income

37.2

12.5

24.7

197.9%

Due from Banks

72.8

571.5

-498.7-87.26%

Fee & Commissions Income

0.3

-1.8

2.1

-

-

0

Gains on Disposition & Valuation

2.2

-0.9

3.1

Other General Operating Income

-3.7

-4.0

0.3

Fixed Income Securities
Loans

804.2

529.1

275.1

51.99%

Loan Loss Allowance(-)- 134.2- 46.8-87.4

186.96%

Other Revenue Earning Assets

6.8

7.5

-0.7

-9.42%

Stocks and Others

5.1

5.2

-0.1

-2.26%

-

-

0

		
38.2%

General & Administrative Expenses

25.5

18.4

7.1

Pre- Provisioning Income

10.5

-12.6

23.1

Provisioning for Loan Losses(△)

4.3

10.6

-6.3

Operating Income

6.2

-23.2

29.4

Trust Account Assets

Non-Operating Income

-3.2

-18.7

15.5

Domestic Exchange Settlement

Ordinary Income

3.0

-41.9

44.9

Extraordinary Income

0.0

0.0

Income before income taxes andConsolidation Adjustments

3.0

-41.9

Income Tax Expenses(△)

-2.8

-0.1

-2.7

Income before Consolidation Adjustments

5.8

-41.8

Net Income

5.8

-41.8

-59.4%

Lease

-

-

0

1.7

2.3

-0.6

-25.68%

Non-Revenue Earning Assets

126.7

265.6

-138.9-52.29%0.0

Total Assets

876.2

1,326.9-450.7-33.96%

44.9

Interest Bearing Liabilities

710.8

1,141.8-431.0-37.75%709.1

1,140.8-431.7-37.84%

Borrowings

-

-

0

47.6

Debentures

-

-

0

47.6

Policy Reserve

-

-

0

Borrowings from Trust Accounts

-

-

0

Trust Account Liabilities

-

-

0

1.7

1.0

0.7

61.75%

Non-Interest Bearing Liabilities

18.1

43.2

-25.1

-58.02%

Total Liabilities

728.9

1,185.0-456.1-38.49%

Shareholders' Equity

147.3

141.9

5.4

3.86%

Total Liabilities & Shareholders' Equity

876.2

1,326.9-450.7-33.96%

Deposits

As for non-operating income performance, Hana Savings Bank’s overall asset structure
improved greatly over the year, reducing net non-operating loss from KRW 18.7 billion in2012 to KRW 3.2 billion in 2013. As bad debts inherent in the mergers gradually dwindle
through a systematic disposal process, normal loans will continue to grow in scale as wellas in quality, thus contributing to improving profitability.

Domestic Exchange Settlement* The financial statement above contains figures that are different from those in HFG’s consolidated statement based on K-IFRS

Hana Savings Bank is HFG’s subsidiary founded through P&A-method mergers of two savingsbanks in Feb. and another in Sept. 2012 with a paid-in capital of KRW 184.3 billion. As of the end of2013 the Bank has KRW 876.2 billion in assets, KRW 728.9 billion in liabilities, KRW 147.3 billion in
net capital, operating eight branches and four field offices.
In 2013 the Bank’s total assets diminished by KRW 450.7 billion over the year to KRW 876.2 billion,on account of a KRW 498.8 billion decrease in Due From Banks, a result of the reduction on thepart of the Bank of the large cash holdings, which were mostly high-interest bearing liabilities, ofthe merged banks in line with the low-interest rate environment.

0
-10
-20

In 2013 loans grew by KRW 275.1 billion to KRW 804.2 billion: household loans rose KRW 225.4
billion to KRW 270.9 billion and business loans by KRW 49.7 billion to KRW 533.3 billion.

-30
-40

2012

In 2013 Hana Savings Bank turned in a net income of KRW 5.8 billion compared to a net loss of
KRW 41.8 billion in 2012, the year it had founded itself through mergers involving threeliquidity-challenged savings banks at the expense of high funding costs and a large
provisioning. In the second year of its operation, the Bank expanded loans (by half ) andlowered funding costs, thus stabilizing its general income operations on a more sustainable
base.

30.0

2012

* Summarized Financial Condition (Unit : KRW in billion)

2013

-41.8
2012

2013

Total liabilities diminished KRW 456.1 billion to KRW 728.9 billion mainly as a result of the
adoption of a low-interest rate policy as stated above. Demand deposits rose KRW 12.0 billion over
the year, contributing to growing stability in the funding structure.

106

107

Independent auditors’ report
Hana Savings Bank
The Board of Directors and Shareholders
Hana Financial Group Inc. and its subsidiaries

Ⅲ. Asset Quality and Loan Loss Provisioning* Asset Quality (Unit : KRW in billion)

2013

2012

YoY

804.9

655.1

149.8

22.87%

Normal

311.7

140.6

171.1

121.69%Precautionary

316.5

265.0

51.5

19.45%

Substandard

69.7

109.4

- 39.7-36.27%

Doubtful

44.6

91.9

- 47.3

Estimated Loss

62.3

48.2

14.1

Amount

493.2

514.4

- 21.2- 0.041

Ratio

61.27%

78.53%-17.26%p-

Precautionary & Below-

Substandard & Below (NPL)-

Amount

176.6

249.5

- 72.9

- 0.3

Ratio

21.95%

38.08%-16.13%p

-

2013

2012

Loan Loss Reserve

134.7

YoY

172.5

5.4

2.9

2.5

83.81%

10.3

16.8

- 6.5

-38.45%

Substandard

33.7

44.2

- 10.5-23.78%

Doubtful

35.4

73.8

- 38.4

Estimated Loss

49.9

34.8

15.1

129.3

169.6

- 40.3- 0.238

27.30%

33.54%-6.24%p-

Coverage Ratio-

Substandard & Below (NPL)
Loan Loss Reserve
Coverage Ratio

76.00-21.96%

Precautionary

Loan Loss Reserve76.23%%- 37.8

NormalPrecautionary & Below* NPL coverage ratio (Unit : %)%Total Credit

119.0

152.8

- 33.8- 0.2

76.23%

69.16%

7.07%p-Total credit increased by KRW 149.8 billion to KRW 804.9 billion (including KRW 0.7 billion of
credit advanced) as a result of the launch of an automatic-approval loan and therevitalization of loan sales activity at the branch level.

We have audited the accompanying consolidated financial statements of Hana Financial Group Inc. (the “HFG”) and its
subsidiaries (collectively, the “Company”), which comprise the consolidated statements of financial position as at
December 31, 2013, December 31, 2012, and January 1, 2012 and the related consolidated statements ofcomprehensive income, changes in equity and cash flows for the years ended December 31, 2013 and 2012. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits. We did not audit the financial statements of Korea Exchange Bankand its fourteen subsidiaries, which represent 36.5% of the Company’s consolidated total assets as of December 31,
2012 and 32.5% of the Company’s consolidated total operating income for the year then ended. Those financial
statements were audited by other auditors whose reports have been furnished to us, and our conclusion, insofar as it
related to the amounts included for those subsidiaries, is based solely on the reports of other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred toabove present fairly, in all material respects, the financial position of Hana financial Group Inc. and its subsidiaries as
at December 31, 2013, December 31, 2012, and January 1, 2012 and the results of its financial performance, and its
cash flows for the years then ended in accordance with Korea International Financial Reporting Standards.
As mentioned in the preceding paragraph, we have conducted our audit in accordance with auditing standards
generally accepted in the Republic of Korea which may vary among countries. In addition, the procedures andpractices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted
and applied in other countries. Accordingly, this report and the accompanying consolidated financial statements arefor use by those who are knowledgeable about Korean auditing standards and their application in practiceMarch 10, 2014

NPL decreased by KRW 72.9 billion to KRW 176.6 billion, reflecting continued efforts at bad
asset management. Accordingly, the NPL ratio fell 16.13%p to 21.95%. NPL coverage ratiorose 7.07%p to 76.23%.

72.00

69.16%
68.00

64.00

2012

2013

This audit report is effective as of March 10, 2014, the independent auditors’ report date. Accordingly, certain material subsequent events or circumstances may
have occurred during the period from the independent auditors’ report date to the time this audit report is used. Such events and circumstances could significantly
affect the accompanying consolidated financial statements and may result in modifications to this audit report.

108

Consolidated statements offinancial position

Consolidated Statements ofComprehensive Income

As of December 31, 2013, December 31, 2012 and January 1, 2012

For the years ended December 31, 2013 and 2012

(KRW in million)

Hana Financial Group Inc.
December 31, 2013

December 31, 2012₩

19,343,218₩

18,890,870₩

11,213,497

15,766,359

14,888,324

10,772,601

240,597

65,21260,500Available-for-sale financial assets

29,529,156

25,471,566

16,245,832

Held-to-maturity investments

4,736,987

7,219,480

2,289,567

203,597,827

196,435,133

129,249,113

96,068167,520

110,446

Financial assets designated at fair value through profit and loss

Loans receivable
Derivative assets used for hedging purposes

948,686

881,947

881,586

2,688,451

2,700,331

1,494,899

Investment property

515,431502,823

332,774

Intangible assets

Investments in associates and joint ventures
Property and equipment

1,457,186

1,645,210

340,095

Deferred income tax assets

45,595

18,772

11,319Current tax assets

7,316

49,109

468

660

1,439

-

16,215,102

15,977,352

5,860,912

Non-current assets held for sale
Other assets₩

295,188,639₩

284,915,088₩

178,863,609

Liabilities
Financial liabilities held-for-trading₩

4,373,515₩

3,961,739₩

2,419,359

4,904,171

4,355,636

2,966,907

Deposits

187,225,676

178,262,815

105,199,275

Borrowings

21,833,638

22,361,914

15,441,945

Debentures

Financial liabilities designated at fair value through profit and loss

30,419,564

32,432,503

28,481,270

Derivative liabilities used for hedging purposes

140,081

14,151

2,647

Post-employment benefit obligation

162,053

109,429

40,737

Provisions

448,972

438,055

152,257

Deferred income tax liabilities

304,447

300,543

91,724Current tax liabilities
Other liabilities
Total liabilities

31,00450,588222,372

24,455,893

22,285,278

9,027,040

2013
Interest income₩

10,534,899₩

11,433,226(6,049,858)(6,834,560)

4,485,041

4,598,666

Fee and commission income

2,478,039

2,378,739

Fee and commission expense(885,223)(826,566)

1,592,816

1,552,173

Interest expense
Net fee and commission income:Net trading income

233,557

389,478

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

(63,625)(369,784)

Net gain (loss) on derivative financial instruments used for hedging purposes(37,243)

11,025

Net gain on available-for-sale financial assets and other financial assets not measures at fair value

285,477

217,380

Gain on foreign currency translation and transactions

247,322505,088

Total operating income

6,743,345

6,904,026

Impairment loss on financial assets(1,271,655)(1,626,984)

Net operating income

5,471,690

5,277,042

General and administrative expenses(3,846,309)(3,769,778)

Other operating income

564,597

1,250,440

Other operating expenses(1,024,968)(740,353)

Operating income

1,165,010

2,017,351

Non-operating expense:
Share of earnings from investments in associates and joint ventures

85,213

66,791Other non-operating income

138,610

112,799

Other non-operating expenses(118,560)(204,730)

105,263(25,140)

Net income before income tax

1,270,273

1,992,211

Income tax expense(277,305)(263,031)

Net income

992,968

1,729,180

Attributable to: Equity holders of the parent

933,877

1,621,531

59,091

107,649

Non-controlling interests

274,299,014₩

264,572,651₩

164,045,533₩

1,449,470₩

1,215,249₩

1,215,249

		Gain (loss) on valuation of available-for-sale financial assets(88,703)

171,001

		

Exchange differences on transaction of foreign operations(105,322)(132,708)(36,568)(9,961)957(2,214)

Other comprehensive income:Items that could be recycled to profit or loss at a future point in time:Hybrid equity securities
Capital surplus
Capital adjustments
Accumulated other comprehensive income

299,121299,121299,121

10,380,574

6,814,903

6,669,072

		Changes in unrealized gain on valuation of equity method investments(170,261)(80,949)(70,712)

		Net gain (loss) on cash flow hedges(9,740)306,583

277,944

Items that will never be recycled:

Retained earnings

7,982,838

7,169,418

5,687,644

Equity attributable to equity holders of the parent		

19,932,002

15,724,325

14,078,318

Total comprehensive income

Non-controlling shareholders' equity

957,623

4,618,112

739,758

Total shareholders' equity₩

20,889,625₩

20,342,437₩

14,818,076

Total liabilities and shareholders' equity₩

295,188,639₩

284,915,088₩

178,863,609* The accompanying notes are integral part of the consolidated financial statements.		
								2012

₩Shareholders' equity
Paid in capital(KRW in million, except per share amounts)

Net interest income:Financial assets held-for-trading

Total assets

Hana Financial Group Inc.

January 1, 2012

AssetsCash and due from banks

109(57,685)

Remeasurement of the net defined benefit liability(asset)₩

Attributable to: Equity holders of the parent

705,647(33,894)₩

1,721,404
1,650,170

617,554

Non-controlling interests
Earnings per share
Basic earnings per share
Diluted earnings per share* The accompanying notes are integral part of the consolidated financial statements.		
								71,23488,093
₩

3,399
3,388

₩

6,648
6,631

110

111

Consolidated statements ofchanges in equity
For the years ended December 31, 2013 and 2012

Hana Financial Group Inc.

(KRW in million)
Hybrid equity
securities

Issued capital
As of January 1, 2012 (reported amounts)₩

1,215,249

Capitaladjustments

Capital surplus

299,121₩₩

Accumulated othercomprehensive
income6,669,072₩(70,712)₩291,429

Equity attributable
to equity holdersof the parent

Retained earnings₩

5,677,021₩

Non-controllingshareholders' equity

14,081,180₩

739,758

Total₩

14,820,938

Changes in accounting policy

-

-

-

-

(22,002)42,987

20,985-20,985

Effects of retrospective restatement

-

-

-

-

8,517

(32,364)(23,847)-(23,847)

Restated balance

1,215,249

299,1216,669,072(70,712)277,9445,687,644

14,078,318

739,758

14,818,076

Dividends

-

-

-

-

-

(72,309)(72,309)-(72,309)

Interim dividends

-

-

-

-

-

(48,206)(48,206)-(48,206)

Acquisition of equity interests in subsidiaries

-

-

-

-

-

-

-

4,336,245

4,336,245

Acquisition of additional equity interests in subsidiaries--

115,413---

115,413(261,183)(145,770)

Exchange differences on transaction of foreign operations--

10,678(10,701)

-

-

(23)

-

(23)

Redemption of hybrid equity securities--

19,740464--

20,204(233,520)(213,316)

Dividends on hybrid equity securities

-

-

-

-

-

(19,082)(19,082)(33,990)(53,072)

Others

-

-

-

-

-

(160)

(160)

(432)

(592)

1,215,249

299,1216,814,903(80,949)

277,9445,547,887

14,074,155

4,546,878

18,621,033

Net income for the period

-

-

-

-

-

1,621,531

1,621,531

107,649

1,729,180

Gain on valuation of available-for-sale financial assets

-

-

-

-

166,429-

166,429

4,572

171,001

Exchange differences on transaction of foreign operations

-

-

-

-

(95,485)-(95,485)(37,223)(132,708)

Changes in unrealized gain on valuation of equity method investments

-

-

-

-

(9,908)-(9,908)(53)(9,961)

Net loss on cash flow hedges

-

-

-

-

(1,129)-(1,129)(1,085)(2,214)

Redemption of hybrid equity securities

-

-

-

-

(31,268)-(31,268)(2,626)(33,894)

Total comprehensive income
As of December 31, 2012-₩

1,215,249₩₩

Hybrid equity
securities

Issued capital
As of January 1, 2013

299,121₩

1,215,249₩

6,814,903₩(80,949)

6,814,903₩₩

306,583(80,949)₩

306,583

1,650,170

1,621,531₩

Accumulated othercomprehensive
incomeCapitaladjustments

Capital surplus

299,121

28,639₩7,169,418

15,724,325

Equity attributable
to equity holdersof the parent

Retained earnings₩₩

7,169,418₩

71,234₩4,618,112

1,721,404₩

Non-controllingshareholders' equity

15,724,325₩

4,618,112

20,342,437

Total
₩

20,342,437

Dividends

-

-

-

-

-

(60,257)(60,257)(12,898)(73,155)

Interim dividends

-

-

-

-

-

(43,288)(43,288)-(43,288)

Acquisition of additional equity interests in subsidiaries--(9,920)---(9,920)(10,749)(20,669)

Issuance of hybrid equity securities

-

-

-

-

-

-

-

179,737

179,737

Dividends on hybrid equity securities

-

-

-

-

-

(19,082)(19,082)(20,063)(39,145)

Issuance of share capital (share swap)

234,221-3,575,804(94,740)--

3,715,285(3,883,561)(168,276)

Acquisition and disposal of treasury stock

-

-

(213)

5,022

-

-

4,809

-

4,809

Exercise of appraisal rights of shareholders

-

-

-

410

-

-

410

(1,029)(619)

Others

-

-

-

(4)

-

2,170

2,166

(19)

2,147
20,183,978

1,449,470

299,121

10,380,574(170,261)

306,583

7,048,961

19,314,448

869,530

Net income for the period

-

-

-

-

-

933,877

933,877

59,091

992,968

Loss on valuation of available-for-sale financial assets

-

-

-

-

(106,932)-(106,932)

18,229(88,703)

Exchange differences on transaction of foreign operations

-

-

-

-

(115,916)-(115,916)

10,594(105,322)

Changes in unrealized gain on valuation of equity method investments

-

-

-

-

(36,206)-(36,206)(362)(36,568)

Net gain on cash flow hedges

-

-

-

-

488

-

488

469

957

Remeasurement of the net defined benefit liability

-

-

-

-

(57,757)-(57,757)

72(57,685)-(316,323)(170,261)(9,740)Total comprehensive income
As of December 31, 2013

1,449,470* The accompanying notes are integral part of the consolidated financial statements.		
								-₩

₩299,121₩

10,380,574₩

617,554

933,877₩

7,982,838₩

19,932,002

88,093₩

957,623

705,647₩

20,889,625

112

113

Consolidated statements ofcash flows
For the years ended December 31, 2013 and 2012

Hana Financial Group Inc.

(KRW in million)
2013

2013

Operating activities
Net income before income tax(KRW in million)

Hana Financial Group Inc.

2012

2012

Investing activities₩

1,270,273₩

1,992,211

Adjustments to reconcile net income before income tax to net cash flows:

Net cash flow used in purchasing subsidiary
Purchase of available-for-sale financial assets

272,176

1,533,684(18,831,627)(12,692,837)
9,562,551

Net interest expense (income)

30,391(41,526)

Proceeds from disposal of available-for-sale financial assets

15,816,717

Net loss (gain) on valuation of trading securities

12,320(348,969)

Purchase of held-to-maturity financial assets(3,620,350)(362,533)

Net loss (gain) on valuation of financial assets and liabilities(75,918)

259,863

Proceeds from redemption of held-to-maturity financial assets

6,211,081

1,200,545

Purchase of investments in associates(149,998)(46,600)(196,220)(182,541)

Proceeds from disposal of investments in associates

36,893(10,949)

Acquisition of property and equipment		designated at fair value through profit and loss

Net gain on disposal of available-for-sale financial assets
Net loss (gain) on fair value of hedged items

88,802

34,347(190,593)(231,138)
60,282

Net gain on disposal of held-to-maturity investments

(345)

(9)

Proceeds from disposal of property and equipment

18,277

Impairment loss on available-for-sale financial assets

162,304

180,440

Purchase of investment property(4,941)(37)

Loss on foreign exchange translation

240,329

192,535

Proceeds from disposal of investment property

-

3,415

(68,212)(85,080)

1,109,351

1,446,546

Depreciation and amortization

499,542455,595

Proceeds from disposal of intangible assets

Share based payment expense

8,649(1,871)

Provision of allowance for possible loan losses

Purchase of intangible assets

5,986

2,865

Increase in guarantee deposit, net(1,509,046)(909,560)(1,961,728)(1,930,096)

6,993(1,272,893)

Provision of post-employment benefit obligations

142,855

194,319

Net cash flows used in investing activities

Net gain on valuation of investments in associates and joint ventures(85,213)(66,791)

Financing activities

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

10,715

15,881Gain on a bargain purchase(73,602)(1,068,381)

Others

16,676135,365

Redemption of debentures

1,838,727

1,159,507

The exercise of share options

Changes in operating assets and liabilities:

Increase (decrease) in borrowings, net
Issuance of debentures

8,868,767

13,466,796(10,570,302)(14,754,869)

-

(18)

Dividends paid

(103,545)(120,515)

Due from banks

1,892,744(4,095,179)

Dividends of hybrid equity securities(19,082)(19,082)

Financial assets held-for-trading(793,517)(2,190,933)

Acquisition of treasury stock(49,216)-(9,260,874)

1,844,767

Disposal of treasury stock

43,122-Loans receivable(206,074)(7,669)Transaction costs of issuance of shares(1,215)-Derivative assets used for hedging purposes(124,703)

25,715Decrease in non-controlling shareholders' equity , net(571,047)(393,541)

Financial assets designated at fair value through profit and loss

25,569(723)

2,559,810

4,189,673

Financial liabilities held-for-trading

424,759

703,075

Financial liabilities designated at fair value through profit and loss

655,142

Investment in associates and joint ventures
Other assets(2,395,525)(3,094,122)

Effect of exchange rate changes on cash and cash equivalents(101,790)(180,471)

Net Increase in cash and cash equivalents

2,345,092

426,764

1,131,822

Cash and cash equivalents at the beginning of the period

7,669,500

7,242,736

Cash and cash equivalents at the end of the period

9,144,457

4,472,271

Derivative liabilities used for hedging purposes

125,930

10,589Payment of post-employment benefit obligations(170,772)(210,911)

Provisions(76,694)(59,892)(317,109)(2,247,377)

Deposits

Other liabilities

Net cash flows used in investing activities

3,878,668

3,565,228

Payment of income tax(183,533)(1,085,493)

Net cash flows provided by operating activities

6,804,135

5,631,453(Continued)* The accompanying notes are integral part of the consolidated financial statements.		
								

₩10,014,592₩

7,669,500

Hana Financial Group Inc.
55, Eulji-ro, Jung-gu, Seoul,
100-720
Tel. 822) 2002 – 1110
www.hanafn.com

Asia &
Pacific

China _ 32

Indonesia _ 42

Hong Kong _ 5

Vietnam _ 3

Japan _ 5

Singapore _ 2

India _ 2

Australia _ 1

Philippines _ 2

Myanmar _ 1

America

Europe &Middle East

Canada _ 9

U.S.A _ 11

Chile _ 1

Panama _ 1

Brazil _ 1

Hana Bank
35, Eulji-ro, Jung-gu, Seoul, 100-719
Tel. 822) 2002 – 1111
www.hanabank.com
Korea Exchange Bank
66, Eulji-ro, Jung-gu, Seoul,
100-793
Tel. 822) 1544 - 3000
www.keb.co.kr
Hana Bank (China) Co., Ltd.
11th F, China Life Center, No.17
Financial Street, Xi Cheng District
Beijing, P.R.China
Tel. 8610) 6658 - 1111
www.hanabank.cn
PT Bank KEB HANA Wisma Mulia, Suite 5201, Jl. Jend.
Gatot Subroto No. 42, Jakarta 12710
Tel. 8610) 8458-1111
www.myhana.co.id

U.A.E _ 2

Germany _ 1

Russia _ 1

United Kingdom _ 1

Czech Republic _ 1

France _ 1

Bahrain _ 1

Netherlands _ 1

Turkey _ 1

KEB F&I Inc.
10th F Hanoy Bldg 43, Dadong-gil,Jung-gu, Seoul, 100-180
Tel. 822) 3708-2114
www.keb.co.kr
KEB Investor Services Co.,Ltd.
9th F Hanoy Bldg 43, Dadong-gil,Jung-gu, Seoul, 100-180
Tel. 822) 729-8950
www.keb.co.kr
Hana Daetoo Securities Co.,Ltd.
82, Uisadang-daero,
Yeongdeungpo-gu, Seoul, 150-705
Tel. 822) 3771 - 7114
www.hanaw.com

128

branches in

24

Hana SK Card
24, Namdaemun-ro 9-gil, Jung-gu,
Seoul, 100-180
Tel. 822) 6399-3000
www.hanaskcard.com

Hana Capital Co.,Ltd.
8th~13th F Dea gong Bldg., 126,
Teheran-ro, Gangnam-gu, Seoul,
135-933
Tel. 822) 2037 - 1111
www.hanacapital.co.kr
Hana Life
89-31, Seosomun-ro, Jung-gu,
Seoul, 100-732
Tel. 822) 3709 - 7300
www.hanalife.co.kr
Hana Savings Bank
293, Jong-ro, Jongno-gu,
Seoul, 110-855
Tel. 822) 1899 - 1122
www.hanasavings.com
Hana Asset Trust
12th F Shinan Bldg.,512,
Teheran-ro, Gangnam-gu,
Seoul, 135-845
Tel. 822) 3287-4600
www.hanatrust.com
Hana Asset Management
10th F Shinan Bldg.,512,
Teheran-ro, Gangnam-gu,
Seoul, 135-845
Tel. 822) 2190-6500
www.hana-assetmanagement.com
Hana Bancorp, Inc
250 Fifth Ave, New York,NEW YORK, NY 10001
Tel. 212) 689-8292
www.bnbbank.com
Hana I&S
9th F ,32, Hwangsaeul-ro
312beon-gil, Bundang-gu, Seongnamsi, Gyeonggi-do, 463-824
Tel. 822) 2151 - 6400
www.hanains.com
Hana Institute of Finance
82, Uisadang-daero,
Yeongdeungpo-gu, Seoul, 150-705
Tel. 822) 2002 - 2200
www.hanaif.re.kr

countries
Investor Relations
Please visit HFG IR website for more information.
www.hanafn.com

Asia &
Pacific

China _ 32

Indonesia _ 42

Hong Kong _ 5

Vietnam _ 3

Japan _ 5

Singapore _ 2

India _ 2

Australia _ 1

Philippines _ 2

Myanmar _ 1

1
9

1
1

America

Canada _ 9

U.S.A _ 11

Chile _ 1

Panama _ 1

1

1
1

Brazil _ 1
1
112

Europe &Middle East

U.A.E _ 2

Germany _ 1

Russia _ 1

United Kingdom _ 1

Czech Republic _ 1

France _ 1

Bahrain _ 1

Netherlands _ 1

Turkey _ 1

5

32

1
2

5

1
3

2

2

42

1

1
1

128

branches in24

1countries

Korea’s largest overseas network