Korea Exchange Bank 2012 Annual ReportKEB’s corporate identity (CI) encapsulates
our strategic vision as a global bank expanding
throughout Asia and the world. It also symbolizes
our unfaltering desire to provide our customers
with the highest level of service.

Contents
001

Profile002

Global Presence

010

Financial Highlights

012

A Letter to Customers and Shareholders
from the President & CEO

016

Vision and Mission

018

Review of Operations

046

An Open Corporate Culture
and a Foundation for Sharing

054

Management Discussion & Analysis

060

Financial Statements

160

Organization Chart

161

Board of Directors & Managing Directors

162

Global Directory

163

Overseas Network

165

Domestic Network

PROFILE
KEB was founded in 1967 as a state-sponsored bank specializing in
the area of foreign exchange. We went on to become Korea’s leadingbank in the additional areas of trade finance and international
finance, making significant contributions to the country’s economic
growth in the 1970s and 1980s. In the midst of the Asian financial
crisis of 1998, our people marshaled their resources and embraced
change, which ultimately improved our revenue structure. Thenand now, we remain committed to our foreign exchange business –a unique strength of KEB – as a means of shaping our competitiveedge.
In 2012, we turned over a new leaf by becoming a proud member ofHana Financial Group. One of our most important initial steps wasto resolve our corporate governance issues. In addition, we continued
with our commitment to becoming our customers’ most trusted
financial partner, as well as the best global bank in all of Korea. This
helped us to earn plaudits from some of the world’s best-known
finance journals for our expertise in the areas of foreign exchange andtrade finance. For instance, Global Finance named us the Best Foreign
Exchange Provider in Korea for the eleventh consecutive year.

Shareholders(As of February 2013)33.87%
General Shareholders
The Bank of Korea
Hana Financial Group

6.12%
60.00%

02

Global Presence

Domestic

357
Branches

Europe6
Offices

Asia &
Middle east

29
Offices

KEB boasts the largest global network in Korea, comprising fifty two offices intwenty-two countries around the world as of the end of 2012. This includes a branch
in Abu Dhabi that we opened in December 2012. Besides making us the first Koreanbank to enter the UAE, this move gave us the largest operating network in the
Middle East, including a branch in Bahrain and an office in Dubai.

Korea Exchange Bank 2012 Annual Report

03

Americas17
Offices

We also won approvals from local authorities to open a branch in Clark, thePhilippines, and an office in Istanbul, Turkey. Going forward, KEB will grow into
Korea’s best global bank by revamping its branches in the U.S and establishing newones in Chennai, India, and Sydney, Australia.

s

Cu

st
o

er
s

Lo
an

usi ness

m

to

eB
rg
a
L

18.90
KRW trillion

Working Together.
Winning Together.
KEB is committed to building trust-based relationships
with its corporate customers and growing in step withthem. Our awareness of the importance of small- and mediumsized enterprises is reflected in the comprehensive support
programs that we offer them, including preferential measures,
improvements to their operating systems, and assisting with theiroverseas expansion plans through our SME Global Center. Our
underlying goal is to contribute to the development of Korea’s
financial industry and economy.

IS

NU

m

K E B 2X C A R D S

SU

ED

BE

F
RO

700,000
As of December 31, 2012

Going Together.
Growing Together.
A bank’s most valuable assets are its customers. KEB earns
its customers’ trust and respect by listening to them andacknowledging the value of their opinions. We are striving todevelop a wide variety of financial products and services that meetthe increasingly diverse needs of our customers. They include
online and mobile platforms, and converged services.

nge Mar

ke

t

Sh

e

Fo

re

cha

ar

ig

n

Ex

48%
Cumulative total in 2012

Expanding Together.
Succeeding Together.
KEB has embraced innovation and change at every step it
has taken forward. Ever since our founding in 1967, wehave been adding to our overseas operations as a means of providing
Koreans and their business both at home and abroad with a wide
variety of financial products and services. We are particularlycommitted to enhancing our strengths in our specialty areas offoreign exchange, trade finance, and international banking, to ensurethat we maintain our leadership in those markets.

10financial highlights(in billions of KRW)

2011

2012

3,631.4

2,476.1

2,549.9

2,466.0

Net Commission Income

247.5

178.6

Non Interest Income

834.0(168.5)

Total Expenses (G&A)

1,490.6

1,573.0

Operating Income

2,140.8

903.1

Net Income

1,654.7

658.9

Net Interest Margin (NIM)

2.62%

2.36%

Return on Assets

1.45%

0.61%

Return on Equity

17.78%

7.46%

Total Assets

100,497.0

104,001.2

Total Credits

67,944.3

70,354.0

Total Deposits

64,429.6

66,781.6

1.18%

1.19%

NPL Coverage Ratio

145.1%

140.9%

Precautionary & Below Ratio

2.67%

2.89%

64.4%

58.0%

0.59%

0.62%

14.48%

13.59%

Tier I Ratio

11.95%

11.06%

Tier II Ratio

2.53%

2.53%

income statement
Total Income
Net Interest Income

Profitability Indices

Balance Sheet (including trust account)

Asset Quality
NPL Ratio

Precautionary & Below Coverage Ratio
Delinquency Ratio
Capital Adequacy
BIS RatioNote) The figures for 2011 and 2012 are based on K-IFRS. (NIM and asset quality: non-consolidated, other figures: consolidated)

Korea Exchange Bank 2012 Annual Report

Total Income(in billions of KRW)Net Income

3,631.4(in billions of KRW)

1,654.7658.9

2,476.1

2011

2012

Total Assets

2011(in billions of KRW)

2012

Total credits(in billions of KRW)

70,354.0
100,497.0

2011

11

104,001.2

67,944.3

2011

2012

NPL Ratio2012

BIS Ratio

1.18%

1.19%

2011

2012

14.48%

13.59%

2011

2012

12

A Letter to Customers
and Shareholders fromthe President & CEO

Dear valued customers and shareholders:First of all, I would like to thank all of you for your kind encouragement and support as KEB continues adding to its record ofgrowth and development.
As you all know, 2013 is the Year of the Snake. According to Chinese mythology, snakes symbolize longevity, immortality,
and transformation. Since transformation is a very positive indicator of change, we at KEB believe that this year will be an
opportune time for us to seize our powers of creativity and innovation and take another brave step forward. I feel very fortunateand honored to be the president and CEO of KEB in this situation.
In contrast, the year 2012 was a very difficult time for everyone, both at home and abroad. The main problems confronting
the advanced economies in the world were economic slowdowns in the U.S. and the sovereign debt crisis in Europe. Since theworld is so inter-connected now, these difficulties also had a domino effect on the economies of emerging countries, including
China, leading to a slowdown in the entire global economy.
Despite these challenges, everyone at KEB did their very best to make KEB bigger and better. Because of our employees’ hard
work and dedication, we made significant progress in strengthening our revenue base for future growth, even though some ofour results came in below our expectations.
We posted KRW 658.9 billion in net income last year. Although this was a significant decline from our 2011 figure, it needs
to be taken in the context of an extraordinary gain of over KRW 1 trillion (before income taxes) from the sale of our shares inHyundai Engineering & Construction that year. This also caused the value of the securities that we sold to fall by more thanKRW 900 billion Year on Year. The overall net interest margin in banking sector also decreased, due to the Bank of Korea’s
rate cuts during the year. This occurred two times. In addition, revenue from our credit card operations sank because of tighter
government regulations regarding their use.
On the expense side, our sales and general administrative expenses and our loan loss provisions both increased, due to theneed to add to our retirement allowance reserve and other cost factors. These included strengthened guidelines for loan loss
provisions that were imposed on the country’s financial institutions by the Financial Supervisory Service.
Our reduced net income caused our ROE to fall to 7.4%, down from 18.6% in 2011, while our ROA went down to 0.6%
from 1.6%. On the plus side, the bank’s capital adequacy remained intact, with our BIS capital ratio and Tier 1 ratio standingat 13.6% and 11.1% at the end of the year.

Korea Exchange Bank 2012 Annual Report

13.6%
BIS ratio

658.9
2012 Net income (KRW billion)

In 2012, everyone at KEB
did their very best to make
KEB bigger and better.
Because of their hard workand dedication, we madesignificant progress instrengthening our revenue
base for future growth.

13

14

We ended the year with a NPL ratio of 1.19%, up from 1.18% a year earlier. Our NPL coverage ratio also remained stable at
140.9%, down marginally from 145.1% at the end of 2011.
Now I want to talk about the steps that we took to strengthen our revenue base for sustainable growth.
To begin with, we built a firmer foothold for long-term growth. This included restoring our customer base with “KEB’s ‘Fresh
Start’ Customer Appreciation Event” which we launched last March. Because of it, our number of customers increased by about
0.4 million. We also took steps to restore our sales base, which had been weakened due to our past reliance on a short-term,
performance-oriented operating strategy. This resulted in a rise in the value of our won-currency loans of approximately KRW 3.9
trillion over the year. Our total credit also grew, rising by KRW 3.2 trillion to KRW 76.3 trillion.
Our leading position in the country’s FX and trade finance sectors continued apace, despite increased competition from otherbanks. We boasted market shares of 48%, 36%, and 30% in the areas of FX, exports, and imports, respectively.
These successes helped us to win a number of awards and accolades. For instance, Global Finance named us the Best Foreign
Exchange Bank in Korea for the eleventh consecutive year. It also selected us as the Best Bank in Korea in its Emerging Market
Banks in Asia category, due to our acknowledged leadership in foreign exchange and trade finance. This included earning thehighest marks for asset size, profitability, strategic relationships, customer service, competitive pricing, and innovative products.
In 2013, we expect that Korea’s business conditions will remain challenging. There are still many uncertainties confronting
the global economy, and these will of course impact on Korea. As a result, the domestic banking industry will continue to beplagued by low growth and narrow margins for the foreseeable future.
Given these many challenges, it is obvious that Korea’s banking sector needs to adopt new management strategies if it is tosurvive and thrive. I can promise you that all the staff members at KEB will take up the challenge of creating new opportunities
for growth in this very troublesome business environment, and ensure that we continue evolving into the very best global bankin Korea. To guarantee that this happens, our managers will carry out the following key strategies:
First, we will continue strengthening our mid- to long-term foundations for growth.
This year, our emphasis will be on asset growth, with a special focus on high-quality assets. This will include seeking out newsources of revenue; increasing our asset portfolio of small- and medium-sized enterprises, or SMEs; and strengthening ourcustomer base and improving our asset quality by extending more loans to low-risk retail customers. We will also concentrateon strengthening our cost controls, and raising our profitability and capital efficiency by increasing our key deposits.
Second, we will strengthen our sales capabilities.
We will continue to differentiate our services and strengthen our position in the FX market in Korea by investing in more
FX-related infrastructures and hiring more highly-talented human resources. We will also make ourselves more attractive
to corporate and retail customers by strengthening our marketing by stage for SMEs’ life cycle and adding to differentiatedproducts for individual customers.

Korea Exchange Bank 2012 Annual Report

15

Third, we will arm ourselves against uncertainties in our business environment by strengthening our risk management.
There are a number of steps that we will take to buttress our risk management systems. They include guarding against risks anduncertainties both at home and abroad, and responding to the Basel III Accord’s proposals regarding capital adequacy. We will
also make adjustments to our internal control and management and our customer information protection systems. And, we will
put an overseas risk management support system in place to backstop our expansion activities outside of Korea.
Finally, we will take steps to increase our synergies with Hana Financial Group.
Last year, we undertook sweeping organizational reforms of our head office and business groups, focused on maximizing oursales capability. This year, we will add to our efficiency on a bank-wide level by putting mechanisms in place that will encourage
collaboration between our business groups. In addition, we will boost synergies within the entire Hana Financial Group by
increasing cooperation among our business groups and the Group’s other subsidiaries.
Once all of these improvements have been made, KEB will be well on its way to becoming the most trustworthy financial
partner in all of Korea, as well as its best global bank. I look forward to your continuing support and encouragement, and hopethat you and your families will be blessed with health and happiness in 2013.
Thank you.

Yong-Ro Yun
President & CEO

Vision and Mission
Our vision is to be Korea’s best global bank.

Korea Exchange Bank 2012 Annual Report

CUSTOMER
To ensure customers’ happiness:
Dedicate ourselves to their financial
security and success.

R
KO

EA

E XC H A N G E B

ANK

EMPLOYEECOMMUNITY

To ensure employees’
happiness: Develop a
workplace that welcomeschallenges and change,
and celebrates individual
successes.

To ensure communities’
happiness: Fulfill ourroles and responsibilities
as a member of the larger
community.

VI

N
SIO
N AND MISSIOSHAREHOLDER
To ensure shareholders’ happiness:
Add to their value through thesound management of KEB.

KEB’s mission is to promote the happiness of all its stakeholders. We will
do this by leveraging our expertise and worldwide network to link market
opportunities in Korea and the rest of the world. This is a major part of ourcommitment to satisfy all of our stakeholders by supporting their business andgrowth to succeed in their field.

17

REVIEW OF OPERATIONSKEB carried out a number of structural reforms
and achieved meaningful growth in many of its
businesses in 2012. This included adding to thegrowth and stability of such business areas as
Global & Corporate Banking, Retail Banking,
Card Banking, E-Business, Infrastructure, andRisk Management.
Going forward, we will continue with our goalof being a bank that is trusted and respected byits customers, and recognized and applauded by
the market. We will do this by maximizing ourcustomer, shareholder, and investor satisfactionlevels and adding to the value of their financial
assets.

Korea Exchange Bank 2012 Annual Report20

19

Korea’s Most Popular Partner for Global Banking
21 Corporate & Global Banking
28 International Banking Group
29 Foreign Customer Division30

Meeting the Needs of Each and Every Customer
31 Retail Banking
36 Card Banking

38

Dedicated to Quality Service & Risk Management
39 Quality Service Provider
40 Information & Technology
41 Risk Management

20

Korea’s Most
PopularPartnerfor Global
Banking

Korea Exchange Bank 2012 Annual Report

21

Corporate & Global Banking

Best Emerging Market Bankin Asia by Global FinanceBest Foreign Exchange Provider
in Korea by Global FinanceLarge Corporate Banking
The bank’s Large Corporate Banking Group, or LCBG, deals
exclusively with Korean conglomerates that are operating
globally. It is headed by Senior Relationship Managers(or SRMs), all of whom are experts in traditional banking
services but also boast added strengths in such areas asproject finance, shipping finance, and M&As. The LCBG
recorded an operating income of KRW 286.7 billion in 2012.
In 2012, the total credit to its large corporate customers
increased by KRW 0.77 billion (or 4.2%) to more than
KRW 18.90 trillion. The LCBG also contribute to KEB’s
market leadership in trade fiancé. It carried out USD 151.0
billion worth of export transactions with large corporations
in Korea (representing 27.5% of the total). And it also
carried out USD 105.5 billion worth of import transactions(representing 20.3% of the total).

Best Foreign Exchange Bankin Korea by Asiamoney

Going forward, the LCBG will diversify its income sources
by adding to its number of fee-based operations andexpanding its customer base. It will also increase its highquality assets to ensure continued and sustainable growth.

SME Banking
KEB’s Corporate Banking Group, or CBG, focuses onserving the needs of small- and medium-sized enterprises,or SMEs. In 2012, we posted our best-ever results since2010 in a host of areas, including total loans. This happened
despite weakened economies in and outside of Korea due tothe ongoing sovereign debt crisis in Europe.
The total corporate loans increased by 5.6% YoY, or KRW 1
trillion, to KRW 19 trillion. Loans to high-quality businesses
accounted for 61.2% of this figure, up 1.4% points. Loans to
SMEs were worth KRW 9.2 trillion, similar to 2011.

The LCBG also carries out collaborative marketing activities
with other KEB business units to offer various financial products
and services requested by corporate customers. In addition,
many of the overseas subsidiaries, employees, and business
partners of the customers have also become KEB’s customers,
helping its other business units to broaden their customer base.

Total deposits rose by KRW 1.3 trillion (or 8.6%) to KRW
16.5 trillion, while foreign exchange transactions grew by
KRW 8.1 billion (or 7.2%) to KRW 119.0 billion, helping
us to retain our position as Korea’s leading foreign exchangebank.

The LCBG is also expanding the scope of its KEBiNet
service, which assists the bank’s corporate customers with
their globalization strategies. We also offer them newmarket-leading trade finance precuts such as e-Nego service
and SWIFT TSU-related transactions.

We also carried out a “KEB’s ‘Fresh Start’ Customer
Appreciation Event” as part of our effort to increase thesales capacity of our employees. This helped to increase ournumber of customer accounts to 73,000, up 4.9% (or 3,400
accounts) from the previous year-end.

22

The LCBG’s operating income

286.7
KRW billion

In 2013, KEB’s strategies for achieving healthy growth will
include increasing the value of its assets and expanding its
customer base. Because of the importance that we attach to
our SME customers and SME loans, we will take particularcare to enhance the systems and preferential support
programs that we extend to that sector. We will also enhance
the brand power of our corporate banking operations byretaining our leading market share in the foreign exchange
market and our competitive advantage in trade finance.

Investment Banking
KEB’s investment banking business suffered from a difficult
operating environment in 2012 due to weak economies
around the world. Despite this, we fared well in many ofour key strength areas, such as M&A financing, structured
financing, and project financing. We also took a seriesof steps to diversify our earnings sources. This included
developing promising growth engines, such as resources
development financing and public-private partnershiptype real estate project financing. Another plus was thegeneration of significant synergies in tandem with ourLarge Corporate Banking Group and International Banking
Group. We also established a new IB Department tostrengthen the competencies of our IB banking sector.
Although we believe that the IB industry’s operating
environment will remain problematic in 2013, we are very
hopeful that our entry into Hana Financial Group will give
us a new opportunity to grow and prosper going forward.

Korea Exchange Bank 2012 Annual Report23

Our corporate and global banking groups work together toserve our customers in Korea and around the globe.
We offer an unparalleled level of service in our areas of
specialty, foreign exchange and trade finance, and provide awide range of support services for foreign customers.

Since the IB Division is one of the main contributors tothe bank’s mid- to long-term growth plans, it has devised
a set of strategies to enhance its capabilities in its key
strength areas, reduce its weaknesses in others, and identify
promising new operating areas.
Our first goal is to enhance our profitability. This will
include strengthening our systems so that we will have more
opportunities for arranging and participating in deals incollaboration with our branches. This will help in expanding
our commission business. We will also increase our range ofhigh-yield investments by diversifying our portfolio.
We will also continue treating our overseas IB operationsas promising new sources of growth – especially in termsof non-Korean deals. This will include advancing into
overseas markets that have a demonstrably high potential
for growth, in linkage with the bank’s overseas network and
IB organization.
Our third goal is to diversify our revenue sources bydeveloping new business models and products, including
joint offerings. This will include advancing into promising
growth industries, such as energy and power generation;using mezzanine financing to develop hybrid products insuch areas as loans, funds, and pensions; gaining an earlyedge in the real-estate development focusing on publicwelfare; and launching financial arrangement-related B2C
products in tandem with the Group’s affiliated companies.

24

Foreign exchangetransactions

47.5%
Market share

Foreign Exchange & Trade Finance
KEB is Korea’s leading foreign exchange and trade financing
bank, boasting the nation’s largest network of international
branches and its most extensive foreign exchange andtrade financing operations. In 2012, our share of foreignexchange transactions handled by the country’s top sevencommercial banks was 47.5%, including 24.2% of themoney exchange sector. In the area of trade financing, werecorded an industry-leading market share of 35.5% forexport financing and 30.0% for import financing. Thesevery solid performances won us plaudits from a number
of well-known financial publications. They included being
named the Best Foreign Exchange Provider in Korea forthe eleventh consecutive year by Global Finance , the Best
Foreign Exchange Bank in Korea for the fifth consecutive
year by FinanceAsia , the Best Trade Finance Bank in Korea
for the fifth consecutive year by Corporate Treasurer , andthe Best Domestic Provider of Foreign Exchange Services
for the second consecutive year by Asiamoney .
We developed a wide range of new products and services tobuttress our industry leadership in 2012. In February, forexample, we began offering a Customized CNY Remittance
Service, which allows a fixed amount of Chinese yuan to beremitted to recipients even if settlements have been made in
US dollars.
In March, we launched a Preferential Long-Term Foreign
Currency Time Deposit product, which offers holders
higher-level interest rates for deposits with a term in more

Korea Exchange Bank 2012 Annual Report

25

KEB was named the Best Foreign Exchange Provider in Korea for the 11th
consecutive year by Global Finance , the Best Foreign Exchange Bank in Korea
for the 5th consecutive year by FinanceAsia , the Best Trade Finance Bankin Korea for the 5th consecutive year by Corporate Treasurer and the Best
Domestic Provider of FX Services for the 2nd consecutive year by Asiamoney .

than one year. We also started offering a Foreign Currency
Gift Service the same month. It allows customers to send
small-sum foreign currencies by SMS or email to recipientsfrom the bank’s Web site.
In May, we initiated an Exchange Biz Master Service thatallows exchange business operators to computerize anddevelop a database for their transaction data, instead of
having to do it manually. It also provides them with anentire menu of forms needed to produce reports for the
Bank of Korea. The following July, we created a foreignexchange consulting team – including a foreign exchange
desk exclusively for the use of the Korea Federation of Smalland Medium Business.
In August, we began offering a Special Fund to Support
Exporters’ Negotiation, which allows Korean exporters totake advantage of lower interest rates than the fixed Nego
ones. It will help them reduce their financial expenses bylimiting their amount of Nego to USD 500 million.
We launched a Foreign Transfer Import L/C Service. It
enables domestic importers to present letter of credit totrade agencies located in Korea, instead of to overseas
exporters. When this is done, the trade agencies transfer theletters to the overseas exporters, complete with all the newconditions, such as amounts and shipping dates.
In November, we introduced a Shipping Insurance Service
in alliance with Hyundai Marine & Fire Insurance. It saves
customers’ time and money by offering them advice on

insurance and allowing them to apply for coverage and print
their policies directly from our Web site. We also helped tomake international deals safer and more secure by offering a
Smart Escrow Service for trade, invisible trade, and capitaltransactions.
In addition to this, we provided training in foreign exchange
and import- and export-related laws and regulations to 103
companies. We also advised them on their managementof foreign exchange-related disputes and helped themto improve their foreign exchange and importing andexporting processes. Other services that we provide include
processing money transfers in twenty-six currencies, offering
money exchange services in forty-two currencies, andhandling transactions in more than one hundred currencies,
making us the country’s undisputed foreign exchange leader.

26

Multi-currency interbank
transfers

84%
Market share

CLS Settlement & Clearing
The Continuous-Linked Settlement, or CLS, refers to
the no-risk, cross-border settlement of foreign exchangetransactions among global financial institutions. One ofits key features is simultaneous settlements based on realtime payments, as opposed to payments with multilateral
netting. KEB worked closely with the Korean government
and the Bank of Korea to introduce CLS to Korea and havethe Korean won designated as one of seventeen CLS-eligible
currencies. This happened in December 2004. Since then,
KEB has been acting as the Settlement Member of and the
Korean won liquidity provider for CLS Bank International,
helping to ensure stability in Korea’s financial markets.
KEB began extending CLS settlements to non-deliverable
forward (NDF) contracts in July 2008, starting withforeign exchange trades. It is now preparing to expand
into new product areas, such as foreign exchange option
premiums. Korea’s Financial Supervisory Service, or FSS, isalso planning to allow securities, insurance, and investmentcompanies to participate in CLS settlements as soon as
possible. This will increase CLS settlement volumes evenmore.
KEB currently handles foreign exchange deals throughthe CLS for nine of Korea’s thirteen domestic banks andone of the Seoul branches of the country’s foreign banks,
accounting for 72% of the nation’s total CLS TP Service
market. It also offers the CLS KRW Nostro Service, acting
as an agent bank for foreign settlement members settling

Korea Exchange Bank 2012 Annual Report27

KEB has been providing a multi-currency interbank clearance service
for local and overseas banks since 1967. In 2012, we processed 2.9 million
inter-bank transfers, accounting for 84% of the total number of inter-bankforeign currency transfers in Korea. It does this for sixty-two branches of
local and foreign-owned bank in Seoul and 131 overseas banks.

KRW in CLS. KEB currently serves nine of these fourteenbanks, accounting for 64% of the CLS KRW Nostro Service
users.
We have also been providing a multi-currency interbank
clearance service for local and overseas banks since 1967.
In 2012, KEB processed 2.9 million inter-bank transfers,
accounting for 84% of the total number of inter-bankforeign currency transfers in Korea. It does this for sixty-two
branches of local and foreign-owned banks in Seoul and 131
overseas banks.
We have also been busy upgrading our IT platforms anddeveloping new products to meet the growing volume of
SWIFT traffic in such areas as payments, trade financing,treasury, and securities. Our inter-bank clearing service
boasted a record straight-through processing ratio of 93%
in 2012. KEB has also been providing eFIall services, anInternet-based foreign currency transfer and inquiry system,
since 2005. It offers real-time online interbank clearing
services to both local and foreign banks.
We also offer Korean won-related services and regulatory
advisory services to foreign banks. This is done to meet therising demand for Korean won settlement in the market,
as well as the ongoing liberalization of the currency thatis being driven by the FSS. Our track record of expertise,reliability, and reputation in both CLS and inter-bankclearing arenas is paving the way for KEB to become Asia’s
primary clearing hub for both domestic and overseas banks.

Custody & Fund Administration
KEB is also Korea’s primary custodian bank. Our custodyand fund administration services boast a large customer baseboth inside and outside of Korea, including institutionaland foreign investors and government entities. In 2012, thevalue of our assets held under custody was KRW 77 trillion.
Our high-quality, fee-based services include acting as asecurities lending, paying, and escrow agency, as an SPC
trustee, and as a custodian. In 2012, KEB was named theBest Sub-Custodian Bank in Korea by Global Finance forthe fourth time.
The complementary capabilities of our custody businessand the fund accounting services of our subsidiary, KEB
Investor Services, allow us to offer institutional customers
unparalleled services to meet their needs and their growing
fiduciary duties.

28

International Banking Group

Overseas Operations
KEB’s International Banking Group has been offering Koreancustomers heading overseas a broad range of financial services
ever since the bank’s founding in 1967. The Group’s fiftytwo locations in twenty-two countries, including ten local
subsidiaries, thirteen branches, five representative offices,and twenty-four sub-branches, constitute Korea’s largest
global network. In 2012, the Group’s operating income was
USD 175.1 million, representing 13.6% of the bank’s total
operating income. We also boast the nation’s largest networkin the Middle East, including a branch that we opened in Abu
Dhabi in December 2012. Going forward, we are planning toenhance our operations in the Middle East and Africa throughour base in Abu Dhabi and our other offices in Bahrain andDubai. In December 2012, we obtained approval to establish
an office in Turkey, which will open in 2013. This will provide
us with a foothold in southern Europe and Central Asia.
Another step that we will take in 2013 is the establishment of abranch in the city of Chennai, India. We are doing this because
Korean-based companies are making significant inroads inthat country in such areas as the auto industry. Our goal is toprovide these businesses with a full range of financial services
that they are currently finding difficult to access. We are alsoplanning to open a branch in Clark, the Philippines, and an
office in Jeruk, Indonesia. Due to ongoing wage increases
in China, both of these countries are now undercutting thatnation as alternative production bases. Our role will be tosupport companies that are already there, as well as ones thatwill soon be transferring their production bases.

Korea Exchange Bank 2012 Annual Report29

Foreign Customer Division

Korea’s Most Preferred Bank
for Foreign Customers
Foreign residents and businesses in Korea have always
represented a promising marketing opportunity for KEB.
There were about 1.4 million legally registered foreigners
living in Korea in 2011, and about 14,000 foreign-invested
enterprises. The bank’s Foreign Customer Division (FCD)
was established in January 1995 to tap into this market.

size, credit rating(s), and other information into accountwhen evaluating their creditworthiness. This means that
we are able to provide them with more flexible borrowing
arrangements than our competitors can.
The Foreign Customer Division has fifteen branches spread
across the country that service FIEs. It also leverages KEB’s
extensive overseas network to offer a wide range of financial
services to the parent and/or sister companies of FIEs
operating in Korea.

Retail Banking
Foreign Direct Investment
KEB’s Foreign Customer Division is charged with
developing banking services that cater to the needs offoreign residents living in Korea. It operates three Foreign
VIP Centers and nineteen Global Desks. They are staffedby fully trained, multilingual bankers who can advise
non-Koreans on such matters as opening a bank account,applying for a credit card, and sending money back homewhen their stays in Korea end. In addition, the FCD takes
part in a host of cultural events that help non-Koreans maketheir stay in the country more pleasant.

Corporate Banking
KEB offers a wide range of e-banking platforms to foreigninvested enterprises, or FIEs, operating in Korea. Althoughmany of them are classified as SMEs owing to their limited
local operations here, KEB takes their parent companies’

KEB also has a team of highly specialized Foreign Direct
Investment (FDI) consultants that assist FIEs operating in
Korea. Their services include assisting FIEs with filling out
FDI reports, establishing new business entities, setting up
financial management systems, and forming ties with many
FDI-related institutions, such as Korean law and accounting
firms, international trade and investment bodies, the Korea
Trade-Investment Promotion Agency (KOTRA), andforeign chambers of commerce and embassies in Korea. In
2011, KEB boasted 34.2% of the country’s FDI notification
market, serving more than nine hundred FIEs that were
established that year.

30

Meeting
the Needsof Eachand Every
Customer

Korea Exchange Bank 2012 Annual Report31

Retail Banking

KEB Crossmile Card won the
Outstanding New Card Launchby American Express

KEB won the Highest International
Authorization Approval Rate Award by Visa

Customers

Deposits

In 2012, KEB’s Retail Department concentrated on retaining
its current customer base and regaining the business ofpeople who had left it in the past. This strategy included
a “KEB’s ‘Fresh Start’ Customer Appreciation Event.” Asa result, the bank’s total number of customers who haveaccounts increased by 125,000 from the year before. The
number of active ones rose by 52,000.

The total value of deposits in the bank increased by KRW 3.1
trillion won, up about 6.5% from the previous year’s KRW
2.9 trillion. Time deposits and core deposits, excluding
MMDAs, grew by KRW 0.2 trillion (or 1.2%) and KRW
0.5 trillion (or 5.9%) to KRW 14.6 trillion and KRW 8.4
trillion, respectively. We will add to our deposit in 2013 bycarrying out a wide range of promotional and marketing
activities targeting lower- and middle-income earners.

Our business tie-ups with educational institutions, National
119 Rescue Services, the National Emergency Management
Agency, and others also added to our retention rate ofprime-quality customers. We also hired a number ofnative speakers from such countries as Nepal, Bangladesh,
Thailand, and China, making it easier for us to deal withforeign workers and strengthening our relationships with
their communities in Korea.
Our Q’Plex smart branch is scheduled to expand its“Portable Service” in 2013. This will include introducing a
direct customer marketing service to support our multi-sales
channels. We will also provide our customers with morecustom-tailored services, using a new-generation CRM
system that we established at the end of 2012. This will also
provide our branches with more upgrading and cross-selling
opportunities.

Household Loans
The value of the bank’s household loans increased
significantly as a result of our focus on mortgage loans andhigh-quality loans. It grew by KRW 1.8 trillion (or 9.2%),
going from KRW 19.6 trillion in 2011 to KRW 21.4 trillion
in 2012. The value of our mortgage loans grew by KRW 0.7
trillion (or 5.5%) to KRW 13.5 trillion. We will continue
to enhance the value of our loan portfolio in 2013 bycontinuing with our policy of focusing on mortgage loans
and high-quality loans.
Despite our constant efforts to manage assets soundness,
our delinquency ratios still went up, due to Korea’s
economic slowdown in 2012. For example, our level of nonperforming loans went from 0.33% in 2011 to 0.38% in
2012, while our delinquency ratio of 0.42% in 2011 rose to
0.50% in 2012.

32

Household loans

21.4
KRW trillion

Private Banking
KEB boasts a full menu of services to help its VIP customers
invest and manage their assets profitably and efficiently.
Our objective is to make KEB the first choice for usersof Korea’s highly competitive PB market. Our Private
Banking products and services help customers to broaden
their portfolios with a slew of stock, insurance, and foreignexchange-related investment instruments.
In addition, we offer a full slate of advice and services
regarding taxes, wills and inheritances, real-estate managementand disposals, business successions, specialized financial
planning, and overseas education and emigration. We wereoperating ten Wealth Management Centers and seventy-six
specially designated PB Branches as of the end of 2012.
We also provide an unparalleled level of custom-tailoredservices and benefits to select VVIP customers, including
specialized advisory services and such invitation-only eventsas asset management seminars. In addition, we are taking
advantage of our expertise and experience in such areas
as foreign exchange and overseas banking to extend ourservices to Koreans living abroad.

Bancassurance
KEB initiated a bancassurance channel in September 2003,
when the Korean market was opened to international
competition. The sector has grown steadily since then,thanks to our various partnership agreements with Korea’s
leading insurance companies and our ongoing training ofspecialists versed in its operations. We have also developed avariety of low-cost annuity and endowment insurance plansthat offer more benefit to retail customers. In 2012, mostof new saving insurance policies were sold through thischannel, making up as much as 80% of the total.
According to an analysis conducted by the FSS, initial
premiums for insurance policies sold by Korea’s life
insurance companies through their bancassurance channels
in the first half of FY 2012 accounted for 71.6% of
their total sales. A further 19.5% were sold by insurance
planners, with 5.3% being processed by agents and 3.6% by
employees in-house. The survey also found that the share oflife insurance products sold through bancassurance channels
to the total surged by 26.8% points, while those for sales by
employees and insurance planners fell by 14.4% points and8.8% points, respectively. The share of non-life insurance
products sold through bancassurance channels to the totalalso increased by 4.8% points, while sales by their insurance
planners and agents declined by 2.4% points and 1.6%
points, respectively.
In overall terms, growth within the bancassurance sector
is largely attributable to healthy sales of what is termed
immediate annuities. The popularity of these products has
increased because consumers who found themselves notadequately prepared for their retirement years soon became
more vigilant about buying such insurance. In addition,
immediate annuities offer a number of tax exemption benefits.

Korea Exchange Bank 2012 Annual Report

33

Our Q’Plex smart branch is scheduled to expand its“Portable Service” in 2013. This will include
introducing a direct customer marketing service tosupport our multi-sales channels.

In 2012, KEB’s fee income from sales of insurance products
through its bancassurance channel rose by 97% YoY
to KRW 37 billion. This was influenced by the Korean
government’s announcement in August of that year that tax
exemptions for immediate annuities and early withdrawals
would be abolished.

Investment Products
The global market enjoyed a solid start in 2012, thanks
to quantitative easing policies that had been put in place
to help cope with the credit rating downgrade of the U.S
and the sovereign debt crisis in Europe in 2011. However,investors’ flight-to-quality intensified as the sovereign debt
crisis continued unabated, even leading to talk about thepossible collapse of the euro-zone. This led to a significant
rise in the value of bonds – especially those that weredenominated in US dollars and Japanese yen. In overallterms though, the most popular bonds were high-yieldones offered by emerging nations. This happened because
the yields offered for bonds from advanced countries wereperceived to be too low.
Concerns about the sovereign debt crisis in Europe resulted
in the KOSPI falling below the 1,800 mark, despite arebound to the 2,000 level earlier in the first quarter of theyear. Although the index rose again later on, when the U.S
and the E.U declared their commitment to quantitativeeasing, in the end it remained stuck in a range between
1,780 and 2,000, mostly because of the continuing negative

34

influence of the U.S’s “fiscal cliff ” debacle. Despite this,extremist worries about the collapse of the euro-zone eased,
thanks to the region’s activist responses to the situation.
Market sentiment improved when the U.S government
reached an accommodation over the fiscal cliff at the very
end of the year.
The immediate result of all these problems for the ordinary
investor was a profound desire to cut his or her losses byredeeming their equity funds, whenever the index moved
up during the year. This meant, of course, that less-risky
ELS and overseas bond-type funds gained in popularity. As
a result, the value of equity-type funds in 2012 decreased by
KRW 450 billion, while that of overseas bond-type funds
increased by KRW 100 billion.
KEB has also put full selling of investment products inplace, obtaining the highest rating in the mystery shopping
evaluations of fund-selling companies by the FSS andthe Korea Investors Protection Foundation for the third
consecutive year since 2010.
We offer investors a wide range of high-quality informationin such areas as investment strategies and market data
through our customer-oriented Wealth Management
System. We also sell a broad range of investment products,
including 292 onshore funds and 146 offshore ones,
enabling our customers to develop portfolios that are always
in sync with their investment preferences.

Trust Business
Trust management is a fee-based business in which KEB is
entrusted with its customers’ monetary or real property, andmanages it according to the terms of the trust document or
the instructions of the customer. In its role as a trustee, KEB
returns the trust property to the customer along with any
gains or losses, without assuming the risk of losses. The sole
exceptions to this are principal - protected trusts.
KEB plays a leading role in Korea in the managementof money trusts, retirement pension trusts, and property
trusts. With more than twenty years of experience under
our belts, we have accumulated a great deal of expertise in
caring for the assets and payout ratios of our many valued
trust product customers. Going forward, KEB will continue
in its role as Korea’s trust and pension market leader bydeveloping a number of new financial products, including
equity, bond, and structured products that meet ourcustomers’ increasingly diverse needs.

Retirement Pension Business
The term retirement pension refers to corporate entities
depositing the money that they have set aside for retirement
allowances at a financial institution. When they retire, theirworkers are guaranteed either a long-term pension or a
lump-sum payout. Retirement pensions are governed by therules and regulations in Korea’s Employment Retirement
Benefit Security Act.

Korea Exchange Bank 2012 Annual Report

35

KEB plays a leading role in Korea in the management ofmoney trusts, retirement pension trusts, and property trusts.
With more than twenty years of experience under our belts,
we have accumulated a great deal of expertise in caring for the assets
and payout ratios of our many valued trust product customers.

There are a number of types of retirement pensions. They
include Defined Benefit, which is the most common formof retirement plan; Defined Contribution, which allows
subscribers to manage their funds by calculating the amountneeded to sustain their retirement allowances every year; andIndividual Retirement Pension, which enables subscribers to
pay out a retirement allowance only at the time of a worker’s
retirement.
Retirement pensions are a fee-based business. Financial
institutions enter into an agreement with a customer
regarding its retirement pension and asset management
operations, and receive a payment for doing so. The waythat the assets are managed is directed by the customers, andall the investment income and/or losses that accrue belong
to them.
Since the introduction of these plans in Korea in 2005, theretirement pension business has enjoyed rapid growth, withthe retirement pension market growth in 2012 amounting
to an amazing 36%. KEB’s growth rate was an even morestellar 52%, outperforming all of its competitors.
Some of the major contributors to our success include
our reputation for financial probity, the excellence of our
products and human resources, and the wide range ofservices that we provide for our customers. The businessis expected to become increasingly important as Korea
continues turning into an aging society.

36

Card Banking

Credit Cards
The focus of KEB’s Card Department in 2012 was on
expanding its customer base. Card sales increased by
9.4% YoY to KRW 17.7 trillion, and the number of new
customers rose by 1.42 million, up an impressive 60.2%
from the year before. This increase was driven by customer“word of mouth” and an extremely favorable response to
the bank’s 2X Card and its many services. The number ofcustomers using their cards on a monthly basis exceeded the
1.5 million mark.
We also offer a highly competitive set of products aimed ateach segment of our customers. This includes universally
accessible products that enable us to increase our customer
base, such as “2X cards” that accommodate the life stagesof our customers. They attracted 700,000 new card holders
in seven months. In addition, we are planning to retain theloyalty of key customer groups by continuously expanding
our check card and 2X card lineups. We also intend tocontinue developing credit cards that are custom-tailored tosuiting our customers’ needs and wants.
The Card Department is also strengthening its customer
base and enhancing their loyalty and brand awarenessthrough a wide range of innovations and customer-firstsales strategies. They include cultural programs and seasonalmarketing events.

Customers
Our customer relationship management activities utilize ahost of marketing models selected by customer attribute,
such as CLTV, FM Segment, and Multi Needs. Customers
are also classified into a number of segments, including“new,” “retention,” “breakaway,” and “dormant.”
Our efforts to expand our marketing base include
encouraging customers to make us their main bank andoperating a number of customer management programs,
such as the “Care Trigger.” We also carry out a numberof CRM activities through a system that immediately
recognizes and reflects changes in a customer’s personal
information. Going forward, we will strengthen ourmarketing efforts even more through such contact methods
as telemarketing and such contact points as the Internet
and mobile communications. Some of the new marketing
activities that we will carry out include adding to andimproving services for our VIP programs through such
benefits as affiliated coupons, experiential marketing,cinema festivals, special gifts, music concerts, and monthly
promotions.
Both our mass-market and our specially targeted
promotions are based on financial models for each productand customer segment. This helps to increase revenue
from our various interest-bearing financial products, suchas cash advances, card loans, and revolving loans. We will
also continue enhancing our efforts to prevent customer
breakaways, including the establishment of financial
consultancy and customer complaint systems. In addition,

Korea Exchange Bank 2012 Annual Report37

KEB offers a highly competitive set of products aimed at eachsegment of our customers. This includes universally accessible
products that enable us to increase our customer base, such as“2X cards” that accommodate the life stages of our customers.

we will consider making adjustments to our interest rates ona per-product basis, and enhance our risk-based pricing of
our interest rates to improve our sales profitability.
As part of our branding strategies for our mass promotion
activities, we are expanding our “10,000 Won Surprise”
credit card brand marketing event and carrying out strategic
marketing activities by season and business type. In order
to firm up our position in the aviation and tourism andentertainment markets, we will also operate models for T&E
Multi needs. This will add to our brand competitiveness andthe attractiveness of our products.

Merchants
We are stepping up our efforts to enhance our merchantlinked marketing activities and increase their level ofcredit card purchases. This is being done by classifying
our more than 2.2 million merchants into two categories:
domestic strategic merchants, and merchant relationshipmanagement.
We are also adding to our profitability by increasing thenumber of credit card purchases made in Korea using
overseas credit cards, including China’s UnionPay, Internet
duty-free shops, and overseas online shopping malls. Other
activities that we are using to increase our levels of credit
card sales and earnings include servicing niche markets andseeking out such new revenue sources as dynamic currency
conversion, multi-currency pricing, and tax refunds.

We also improved our earnings with regard to purchases
at our merchants’ establishments by increasing their levelsof joint use and purchases through a business alliance with
Hana SK Card. Another of our goals is to become an agent
for payment approvals for Hana SK Card.

Synergies
KEB’s Card Department participates in a broad array ofcollaborative activities to increase synergies within both thebank and Hana Financial Group. They include developinga wide range of products within the Group, improving
our brand image, carrying out a variety of collaborative
seasonal events, and adding to the attractiveness of ourcredit products. We are also planning to establish a synergy
support team and strengthen our customer-based activities
to maximize our productivity.

38

Dedicatedto Quality
Service& RiskManagement

Korea Exchange Bank 2012 Annual Report

39

Quality Service Provider

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

E-BusinessIn 2012, Korea had over thirty million smartphone users,
twenty million of whom were using smartphone banking.
This dramatic growth has brought many changes to thecountry’s financial industry, including the emergence of“smart” banking.
KEB responded to this challenge by launching a number ofsmartphone-based financial services that can be accessed byboth Koreans and non-Koreans. For instance, we became
the only player in the country’s financial industry to offer amultilingual smartphone banking service. We call it KEB
Global Banking. Currently available in twelve languages,
it is helping us to attract the business of many non-Korean
workers and students living in Korea, as well as members ofmulticultural families. Another first financial service that we
introduced was a Smart Exchange Rate App, which provides
customers with up-to-the-minute exchange rate informationand coupons that entitle them to lowered charge for exchange.
It is also multilingual.
In 2013, we plan to launch even more smartphone-based
products. We will also build an open, Web-based Internet
banking platform that will support a number of operating
systems and Web browsers, strengthening our customers’
access to our services on their mobile devices. In addition,
we will increase our level of support for people who havedifficulty using computers and/or accessing the Internet.
In this era of globalization, many businesses are trying to

KEB won the 2012 Green Start Network Contest
from the Ministry of Environment

increase their global presence and strengthen their operational
efficiencies. KEB continued to add to its corporate andelectronic banking solutions in 2012 to help them achievethese goals. For example, we upgraded our In-House Banking
service to In-House Banking Plus, enabling our corporate
customers to embrace changes in their business and IT
environments in a more flexible manner.
Some of the other corporate services that KEB offers include
custom-tailored global banking, global fund management,
and the integrated management of an enterprise’s branch
operations and affiliated companies, both inside and outsideof Korea. As of the end of 2012, these solutions were being
accessed by about 570 businesses.
We also became the first financial industry player in Korea
to develop a real-time foreign currency fund management
service. Some of the other services that we introduced
include automatic utility charge payments, corporate cardmanagement, and International School Banking, a tuition
receipt and management service for international schools.
We are also planning to introduce a customized smartphonebanking payment service.
Internet fraud is a very real threat these days. To counter
this danger and better safeguard the financial assets of ourcustomers, we introduced an exchange rate image for phishingprevention service and an e-banking fraud prevention service.
Going forward, we will continue with our commitment toensuring the safety of our customers’ electronic financialtransactions.

40

Information & Technology

IT Infrastructure
In 2012, KEB’s IT Department engaged in a wide range ofactivities to improve the bank’s informatization processes
and support other strategic projects. It also added tothe quality of its services by consulting widely with thebank’s other departments. Some of its most important
contributions included reducing the bank’s risk levels. This
included protecting our customers’ personal informationand enhancing our IT security systems by strengthening ourelectronic data processing security systems.
In December, we finished setting up a next-generation
CRM system that we had first begun in 2011. This wasdone to help the bank add to its sales capacity, increase its
customer base, and enhance its key operating capabilities
through improved marketing efficiencies. It was applied toall our branches.

wide range of apps that offer an advanced level of foreignexchange information.
Another of our projects was the development of an open
banking system, which customers will be able to accessstarting in March 2013. This was done to meet therequirements of the FSS’s Disability Discrimination Act
regarding services for the differently challenged and seniors.
It can also be used by people using alternate computer
operating systems, such as Mac OS and Linux.
We also carried out IT infrastructure-related projects inconjunction with other affiliates of Hana Financial Group.
This will generate a number of synergy effects, such asincreasing our strategic IT infrastructure-related businessalliances, improving our information exchanges, andreducing our IT infrastructure development costs.

In December, we opened a pilot smart branch called“Q’Plex,” which we developed in collaboration with SK
Telecom. It allows customers to take advantage of a variety
of financial services, including deposits, funds, loans, credit
cards, and foreign exchange remittances.

The ultimate goals behind these improvements are to
improve KEB’s sales capacity, add to the efficiency of its
operating department, and increase its customer satisfactionlevels. Given the increasing popularity of such non-directchannels as Internet and smartphone banking, it follows
that our competencies in terms of IT will have a direct
bearing on our competitiveness.

All of Korea’s banks are being forced to adjust to a dramaticrise in the number of smartphone users. In KEB’s case,
we focused on creating more integrated smartphone apps.
In addition, we revamped our network of channels by
increasing the use of our smartphone banking service. We
also expanded our mobile customer base by developing a

Going forward, the IT Department will work to enhance
the bank’s domestic and international competitiveness bytraining new IT experts, researching new trends in theindustry as a whole, and utilizing new technologies.

Korea Exchange Bank 2012 Annual Report

41

Risk Management

Capital Adequacy Framework
In 2008, the Korean Financial Supervisory Service, or
FSS, gave us permission to apply the advanced Basel II
approaches to our risk measurement programs. They include
the foundation internal-ratings-based approach (F-IRB) for
credit risk measurement, an internal model for market risk
measurement, and the advanced measurement approach(AMA) for operational risk measurement. These programs
have been included in our regulatory capital measurements
since the end of 2008. We also use the RWA reduction
targets for managing credit risk on both a bank-wide and abusiness unit basis.
These efforts helped us immeasurably in overcoming themany negative effects of the financial crisis that arose in2008. They also assisted us in putting effective measuresin place to accommodate the new capital regulations of
the so-called Basel III that were introduced by the BaselCommittee.
KEB has been using the advanced approaches of the BaselII Capital Accord to calculate its level of economic capitaland establish a new capital adequacy framework since
January 2007. The main requirements of the framework
are that banks must now manage their material risks andseparate their quantifiable risks from their non-quantifiable
risks. Credit, market, operational, interest rate, and credit
concentration risks are all quantifiable. Although liquidity
risk is non-quantifiable, it is nevertheless classified as amaterial risk.

At the beginning of each year, KEB’s Risk Management
Committee, which is a subcommittee of the Board of
Directors, establishes the bank’s limits for quantifiable risks.
In addition, the bank’s Risk Steering Committee reviews its
level of capital adequacy every month, and submits quarterly
status reports to the Risk Management Committee.
The Basel II advanced approach uses the advanced internalratings-based (A-IRB) approach to determine credit risk,
the internal model to measure market risk, and the AMA
to calculate operational risk. The confidence level for all ofthem is set at 99.9%. A capital buffer of around 10% ofavailable capital has also been mandated, and a correlation
matrix for integrating various risk volumes has also been
introduced.

Credit Risk
KEB has been calculating its levels of credit risk according
to the Basel II A-IRB approach since 2007. Measured credit
risk volume is used in setting risk limits. These credit risk
assessments cover our rating systems, our probability ofdefault (PD), and our loss-given-default (LGD) estimates, aswell as our retail credit scoring system, or CSS. We have alsoestablished a risk-based pricing system that uses risk data toreflect expected losses (EL) and unexpected losses (UL) in
our loan pricing activities.
In addition, each KEB business unit uses the risk-adjusted
performance measurement (RAPM). This was done by42adopting risk-adjusted returns on capital (RAROC) as anindex, starting in the first half of 2007. We began reflecting
RAPM in setting our business unit targets and evaluating
their performance in the first half of 2008. We started
reflecting RAPM in setting targets for our branches andevaluating their performances in 2009.
In terms of regulatory capital (or the BIS ratio), KEB has
been measuring credit risk using the FSS-approved F-IRB
approach since September 2008. We set both bank-wideand business unit RWA targets, and have been examining
them on a monthly basis since early in 2009. The RWA
management program enabled us to maintain our asset
quality and capital adequacy levels even during the banking
crisis of 2008.

Market Risk
In 2008, the FSS gave us its approval to use the 750-day
historical simulation method as our model. This was laterchanged to the 250-day historical simulation method,
allowing us to measure Stressed VaR that reflected the effectsof the global financial crisis that occurred from 2007 to
2009. KEB uses the model to calculate its regulatory capital,or BIS, ratio.
We manage market risk by monitoring our ten-day value-atrisk (VaR) limit. This includes Stressed VaR by business unit
using the internal model and each-day stress-testing, whichmeasures possible losses under various scenarios. Doing

this allows us to guard against possible crises that are notreflected in recent market trends.
KEB also assesses the validity of its model on a daily basis.
We do this by back-testing the P/L and 1-day VaR from theprevious day. The risk volume that has been calculated by
the model is then reflected in our risk limit. Since 2007, it
has also been reflected in our RAROC target and business
unit performance assessments.

Operational Risk
KEB has been implementing operational risk limits basedon AMA methodologies since 2007. This included putting
the Basel II, AMA-based control self-assessment programfor internal controls and the risk-volume measurement ofoperational risk in place at our headquarters and all ourdomestic and overseas branches and subsidiaries in 2008.
We calculate operational risk after AMA-based loss data
have been collected and scenarios have been assessed. We
have been calculating AMA-based operational risk volume
for each of our business units since 2008. Two percent ofeach business unit’s operational risk volume is reflected in
its RAROC. The FSS approved KEB’s AMA program in
November 2008, and we began utilizing it to calculate our
BIS capital ratio in March 2009.
We also established an Internal Control Council under
the support of the Compliance Department to strengthen

Korea Exchange Bank 2012 Annual Report

43

KEB maintains a sufficient level of equity capital that allows us tocarry out our day-to-day operations while also guarding against
the many types of risk that accompany our activities and could
conceivably lead to operating losses. In addition, we have put a wide
range of capital adequacy evaluation systems and procedures in place.

our internal controls. Its members include the heads of
the Operational Risk, Compliance, Audit & Examination,
and Finance departments. We also use the FSS’s Thirty
Common Key Operational Risk Indicators to monitor the
degree of risk facing the bank.
In 2012, KEB increased its capital limit governing
operational risk so that it can fully absorb any unexpected
losses that may arise in the future. This means that we cancontinue to operate under any circumstances. We also built
an English-language operational risk system so that ouroverseas branches and local subsidiaries could access ourControl Self-Assessment Program.

Interest Risk
KEB put its new asset-liability management (ALM) system inplace in 2007. Since then, we have been calculating interest
rate risk using an advanced deterministic scenario method
in terms of both economic value and earnings. In the caseof economic value, we measure VaR, which represents the
maximum expected loss of the bank’s net present value
due to changes in interest rates. In the case of earnings,
we measure earnings at risk (EaR), which represents the
maximum expected loss of the bank’s net interest income
owing to changes in interest rates. In addition, KEB monitors
its repricing and duration gaps to review its interest rate risk
profile. We also conduct stress tests that assume the presenceof large-scale market interest rate changes.

44

Implemented best practices inbusiness continuity management

BS 25999
Certification

Business Continuity Plan
KEB’s Business Continuity Plan, or BCP, has been in placesince 2007. It allows the bank to carry on with its operations
even in the event of natural disasters, terrorist activities, orcomputer problems.
We have also established a Crisis Management Committee
to deal with any interruptions to our operations caused by
accidents or disasters. It consists of KEB’s CEO and theexecutives in charge of HR, finance, IT, and the BCP. In
addition, we have set up an alternate operating locationthat we can use in the event that any of our other worksites
become unusable. It is located in southern Gyeonggi
Province, about thirty kilometers from our head office.
We have also established a year-round, alternate Disaster
Recovery Center more than thirty kilometers away fromour IT Data Center. It can be used whenever problems arise
within our IT network.
In order to guard against the suspension of operations at anyof our branches, we also developed a system that enables
them to respond to locally occurring problems like floods,
fires, and power failures. This is done by designating twoalternate locations: the nearest branch and another at least ten
kilometers away.
We have also been carrying out simulation tests at least once a
year since 2007 to enhance our employees’ ability to cope withemergencies and ensure that we can resume our operations as
quickly and smoothly as possible. The most recent test, which

Korea Exchange Bank 2012 Annual Report

45

Through business continuity management, we aim toprovide our customers with access to our service anytime,even in the midst of an emergency or a disaster.

was held in November 2012, simulated the unavailability of
our head office building due to a fire.
We carried out a bank-wide project from September 2010 toJanuary 2013 to raise our BCP level and reflect changes inour operating environment. In March 2011, we became thefirst Korean financial institution to obtain a British Standards
Institute BS 25999 certification. It was awarded in recognitionof our advanced global BCP level. We also passed theinstitute’s surveillance audits for recertification in June 2012.

46

An Open Corporate Culture
and a Foundation for Sharing

KEB’s corporate culture is based on adhering to allindustry-related rules and regulations and insisting on theneed for open and ethical management.
This includes our social contribution activities, which aremanaged under the support of the KEB Foundation. Our
activities to carry out our corporate social responsibilities
include volunteer services and financial donations by
our employees, sharing with the rest of the world, andproviding support for artistic and educational programs.

Korea Exchange Bank 2012 Annual Report

48

Corporate Ethics

49

Customer Satisfaction

50

The KEB Foundation

47

48

Corporate Ethics

Financial institutions in today’s challenging businessenvironment face many legal and ethical responsibilities.
This means that ethical management practices are no longer
an option, but a necessity.
Since KEB’s reputation depends on the integrity of its
operations, it follows that our employees must commit
themselves to the highest level of ethical behavior. To
ensure that this happens, we operate a comprehensive
internal oversight system that protects the bank’s
customers, employees, and shareholders. We also carryout a wide range of organization-wide activities to prevent
financial malfeasance, including providing our employeeswith education and training in such areas as regulatorycompliance and ethical behavior.
We also operate a Compliance Manager program at ourdomestic regional headquarters. Its mandate is to strengthen
our internal oversight and regulatory compliance monitoring
programs. This is backed up by an International Compliance
Officer system that ensures corporate transparency, ethicalmanagement, and regulatory compliance at our overseas
offices. In addition, we operate a “KEB Sinmungo” internalreporting system that controls for managerial risk in advance.
Besides helping us to reduce the possibility of financial riskin the future, it deals with problems affecting all of ouremployees, including local staff in our overseas offices.
In 2012, we published a revised edition of our Ethics andCompliance Guidebook. It is meant to help everyone at
KEB comply with all the laws, rules, regulations, standards,
and operational guidelines contained in our Code of Ethics.
In addition, we received a sixth straight “excellent” rating
in an assessment of our implementation of anti-money
laundering standards by the Korea Financial Intelligence
Unit (KoFIU). This was followed by a Prime Minister’s Prizein recognition of our efforts to combat money laundering.

Korea Exchange Bank 2012 Annual Report

Customer Satisfaction

KEB’s customer satisfaction management activities are basedon the belief that its customers deserve the ultimate inservice at any of its branches. Our customer service goal is
to be “Your best financial partner, offering the best services
possible.” To ensure that this goal is always being met, ourCS organization was reorganized into the Service Delivery
Department, increased its number of personnel from three
to eleven, and assigned a team leader to take exclusive
charge of its operations. All of these changes took place in2012.
We carry out a monthly mystery shopping program tomeasure our level of customer service, and make more than
70,000 phone calls a year to find out what our customers arethinking. The results of these activities are then reported toour branches on a real-time basis. In addition, we provided
CS training to over 150 of our branches, about half of thetotal. We did the same thing at all our branches in Canada.
In addition, we operate a wide array of customer satisfaction
management training programs throughout the year. They
include an overnight camp for the CS leaders at each of ourbranches, as well as training for new hires, employees at ourhead office, and our corporate banking leaders.

49

50

The KEB Foundation

KEB was the first bank in Korea to establish a non-profit
charity organization. Called the KEB Foundation, it was
inaugurated in December 2005 with the goal of allowing us
to engage in social contribution activities in a more systematicand professional manner.
Over the past eight years, the Foundation has spentapproximately KRW 22.1 billion carrying out a broad rangeof social contribution activities. They include supporting lessfortunate children, childcare facilities, low-income families,
and the underprivileged. Some of its other projects include
community services, providing scholarships to students from
low-income families, and international relief activities.
The Foundation is particularly focused on helping children
pursue their dreams and contributing to the building of asocial safety network. It also engages in activities that reflect
KEB’s position as Korea’s leading global bank. They include
supporting multicultural families, migrant workers, andNorth Korean defectors and international relief activities.
As a result of all this, the Foundation received twocommendations from the Minister of Health and Welfare in2012. It also received the 2012 Social Contributions Grand
Prize for Sharing Happiness from the Dong-A Ilbo newspaper
and the Association of Korean Journalists, and the grand prizeat the SBS Sharing Hope for Tomorrow Competition.

Child Support Programs
The Foundation supports a large number of programs
targeting underprivileged children. It also sponsors outings forphysically handicapped children in collaboration with Holt
Children’s Services. Some of the events that the Foundation
carried out in 2012 included a story contest, an Englishlanguage camp for children from low-income families and a
Vision Camp for children living in childcare centers.
Another of the Foundation’s key projects is its one-to-one
sponsorship program for needy children in and outside Korea.
At the present time, 741 children are receiving about KRW
243 million a year in financial assistance. We are also involvedin a one-on-one mentoring program involving our employees
and needy children and teenagers.

Support for Low-Income Families
and the Underprivileged
The Foundation has been helping multicultural families since2009, including offering them financial assistance. In 2012,
KRW 68 million was given to seventeen housewives from suchfamilies and the individuals and groups that were helping them.
They were also provided with an opportunity to visit their
homelands or to bring their parents to visit them in Korea.
Other activities for multicultural families that the Foundation
undertook in 2012 included a badminton tournament,a guidebook on school life for parents of preschoolaged children, assisting with the training of employees ofmulticultural assistance centers, children’s language classes in
conjunction with the Korea Institute for Healthy Families,
and a multilingual cultural textbook development project inassociation with the Hankuk University of Foreign Studies.
We also host an annual essay writing contest in conjunction
with the Sookmyung Women’s University Research InstituteKorea Exchange Bank 2012 Annual Report

51

Carrying out social contribution activities
by caring and sharingof Asian Women that encourages non-Korean women to write
about their experiences in Korea in their mother language.
Thirty-three women won prizes in 2012. In addition, twenty
housewives from the Philippines and their children visitedtheir homeland through the Motherland Tour program,organized in cooperation with the Pearl S. Buck Foundation
Korea.
Finally, we provide KRW 100 million every year towards
the operation of the Migrant Workers’ Hospital, a no-charge
medical institution that cares for foreign workers.

Community Services
KEB’s employees practice caring and sharing by carryingout a wide range of volunteer service activities through theirvolunteer group, the KEB Love Sharers. The group alsosponsors an annual blood donation drive and participatesin overseas activities. In 2012, twenty-one of the bank’s
employees and customers visited Mongolia to help building
a house for low-income families in conjunction with Korea
Habitat for Humanity.

Scholarships
The KEB Scholarship program, which was launched in 1989,
is now run by the Foundation. From 2006 until 2012, it
provided KRW 1,508 million in scholarships to low-income
middle, high school, and university students. In addition,
KEB’s Overseas Scholarship Program has provided about
KRW 557 million to college students from low-income
families in Vietnam, Indonesia, and the Philippines overthe past seven years. In 2009, we launched the KEB Global
Scholarship program to assist students from developing
countries who are attending Korean universities and graduate
schools. So far, KRW 159 million has been disbursed. We
are proud to be the first Korean bank to offer scholarships toboth Korean and non-Korean students.

55

The KEB Foundation

International Assistance
Programs
KEB’s international assistance projects reflect its image as
Korea’s leading global bank. We have helped to repair damage
from natural disasters in a host of countries, including
Pakistan, Haiti, Chile, Indonesia, Vietnam, Myanmar, Taiwan,
and the Philippines. We also helped with recovery efforts fromearthquakes and the massive tsunami in eastern Japan.
The Foundation also operates a number of “Happy Home
School” centers for children from low-income families. The
first one was opened in Indonesia in 2006, followed by othersin Vietnam, the Philippines, Uganda, and Colombia. The
latest one was opened in Cambodia in 2012. The program
includes scholarships, wells and water purification facilities,
and schoolbags and clothing. In 2012, we contributed
towards a special USD 100,000 fund for the Global Strategy
for Women’s and Children’s Health project to help reach the
U.N.’s Millennium Development Goals.
We also operate a treatment program for facial disfigurement
in conjunction with Global Care. We treated thirty facially
disfigured children in Vietnam in 2012.

Other Social Assistance Projects
KEB provides economically disadvantaged children witha number of artistic and educational programs, including
invitations to concerts and plays. Although KEB provides
KRW 3 billion in funding for these activities, we also relyon help from our employees. This includes donating to theFoundation and participating in a sponsorship program
targeting needy children both inside and outside Korea. Asof the end of 2012, 3,255 KEB employees were taking partin fund-raising activities every month, donating KRW 827
million annually.

We established the KEB Foundation
to assist us in fulfilling our corporatesocial responsibility. We return a portionof our profits to society, participate incommunity service activities and provide
various forms of assistance to the lessfortunate both in Korea and abroad.

54

Management Discussion & Analysis

60

Consolidated Financial Statements

154

60

Independent Auditor’s Report

61

Consolidated Statements of Financial Position

62

Consolidated Statements of Comprehensive Income

64

Consolidated Statements of Changes in Shareholders’ Equity

65

Consolidated Statements of Cash Flows67

Notes to Consolidated Financial Statements

Separate Financial Statements
154 Independent Auditor’s Report
155 Separate Statements of Financial Position
156 Separate Statements of Comprehensive Income
157 Separate Statements of Changes in Shareholders’ Equity
158 Separate Statements of Cash Flows

54

Management Discussion & Analysis

1. Key Financial Data
(In billions of KRW)

2011

2012

Change (%)

3,631.4

2,476.1-31.81%Net Interest Income

2,549.9

2,466.0-3.29%Net Non-Interest Income

Operating Income
Total Income

1,081.5

10.1-99.07%

Total Expenses (G&A)

1,490.6

1,573.0

5.53%

Operating Income

2,140.8

903.1-57.81%Net Income

1,654.7

658.9-60.18%

2.62%

2.36%

-9.92%

Return on Assets

1.45%

0.61%

-57.93%Return on Equity

17.78%

7.46%-58.04%

Total Assets

100,497.0

104,001.2

3.49%

Total Credits

67,944.3

70,354.0

3.55%

Total Deposits

64,429.6

66,781.6

3.65%

Profitability Indices
Net Interest Margin (NIM)

Balance Sheet Data at Year-End (inclg. Trust Account)

Asset Quality
NPL Ratio

1.18%

1.19%

0.85%

NPL Coverage Ratio

145.1%

140.9%-2.89%

Precautionary & Below Ratio

2.67%

2.89%

8.24%

Pre & Bel. Coverage Ratio

64.4%

58.0%

-9.94%

0.59%

0.62%

5.08%

Delinquency Ratio
Capital Adequacy
BIS Ratio

14.48%

13.59%-6.15%

Tier I Ratio

11.95%

11.06%-7.45%

Tier II Ratio

2.53%

2.53%

0.00%

2. Overview
The world economy continued to experience difficulties in 2012, mostly due to the prolonged sovereign debt crisis in Europe and an ongoing
economic slowdown in the United States. Because the global economy is so interconnected, these problems had a domino effect on emerging
countries, including China. This led to a slowdown in the entire global economy.
Despite these challenges, everyone at KEB worked their hardest to make KEB bigger and better. Because of their loyalty and dedication, we madesignificant progress in strengthening our revenue base for future growth, even though some of our results came in below our expectations.

Korea Exchange Bank 2012 Annual Report

55

Management Discussion & Analysis

3. Income Statement
1) Summary of Profitability(In billions of KRW)

Total Income
Net Interest Income
Net Commission Income
Non Interest Income

2011

2012

Change (%)

3,631.4

2,476.1-31.81%2,549.9

2,466.0-3.29%

247.5

178.6

-27.84%834.0(168.5)-120.20%

SG&A Expense

1,490.6

1,573.0

5.53%

Operating Income

2,140.8

903.1-57.81%

Non-Operating Income

18.3

16.9

-7.62%

2,159.1

920.0-57.39%

Income Tax

504.4

261.1

-48.24%Net Income

1,654.7

658.9-60.18%

Earnings per Share (KRW)

2,538.0993.0-60.87%

Dividends per Share (KRW)

1,510.0

50.0-96.69%

Income before Tax

KEB posted a net income of KRW 658.9 billion in 2012. Although this was a significant decline from our 2011 figure, it needs to be taken in thecontext of an extraordinary gain of over KRW 1 trillion (before income taxes) from the sale of our shares in Hyundai Engineering & Constructionthat year. This also caused the value of the securities that we sold in 2012 to fall by more than KRW 900 billion. Our ROA and ROE were 0.6%
and 7.4%, respectively.

Quarterly Trend of Net Income(In billions of KRW)

313.9

206.9

Hynix
133.1

180.8

157.9
125.5
61.5

 Normal Non-recurring items

4Q11

1Q12

2Q12

3Q12

4Q12

56

Management Discussion & Analysis

2) Net Interest Income & Net Interest Margin (NIM)
Our net interest income fell to KRW 2,466.0 billion in 2012, mainly because of rate cuts by the Bank of Korea. The net interest margin for theyear was 2.36%.
(In billions of KRW)

2011

2012

Change (%)

Net Interest Income

2,549.9

2,466.0-3.29%

Interest-Earning Assets (avg.)

79,192.7

83,211.3

5.07%

Net Interest Margin (NIM)*

2.62%

2.36%

-9.92%

KRW

3.17%

2.89%

-8.83%

Foreign currency

0.93%

0.77%

-17.20%* Net interest margin is calculated from net interest income adjusted for certain items.

3) Fees & Commissions
Net commission income declined to KRW 178.6 billion in 2012. This was primarily due to the Financial Service Commission’s overhaul of thenation’s credit card merchant fee system in July. One major result of the Commission’s reduction in credit card commission rates was that income
from credit card fees fell.
(In billions of KRW)

2011

2012

Change (%)

Net Commission Income

247.5

178.6

-27.84%

Receving Credits

14.3

12.7

-11.37%

Giving Credits

20.9

30.4

45.60%

Foreing Exchange

171.0

160.7

-6.02%

Credit Card

(125.8)(184.8)46.96%

Asset Management

11.1

8.3

-24.56%

Agency Business

24.2

42.4

75.18%

Gurantee Service

71.9

67.3

-6.47%

Others59.8

41.6-30.50%Korea Exchange Bank 2012 Annual Report

57

Management Discussion & Analysis

KEB retained its market-leading position in the areas of foreign exchange and trade finance in 2012. Its share of the market for foreign exchange
was 48%. The figure for exports was 36%, while that for imports was 30%.

Market Leadership in F/X and Trade Finance

FX
MarketShare■KEB■Bank A■Bank B
■Bank C■Bank D
■Others

48%
24%
10%
6%
3%
9%

(2012)

ExportMarketShare■KEB■Bank A■Bank B
■Bank C■Bank D
■Others

36%
33%
13%
9%
8%
1%

ImportMarketShare■KEB■Bank A■Bank B
■Bank C■Bank D
■Others

30%
22%
14%
12%
8%
14%

4) Total Expenses
Our total expenses in 2012 were KRW 1,573.0 billion, with a cost-to-income ratio of 52.0%.
(In billions of KRW)

2011

2012

Change (%)

Total Expenses

1,490.6

1,573.0

5.53%

Salaries

614.3

676.4

10.11%

Retirement Allowance

46.7

91.9

96.97%

Administrative Expenses

684.8

654.7

-4.39%

Depreciation

99.8

105.7

5.89%

Taxes

45.0

44.2

-1.65%

48.4%

52.0%

7.44%

Cost-to-income Ratio

5) Provisions & Others
Our loan loss provisions increased to KRW 660.5 billion in 2012. Most of this was due to growth in total credit and the need to bring ourstandards up to those of the entire Hana Financial Group.
(In billions of KRW)

2011

2012

Change (%)

Total Provisions & Others

523.0

685.0

31.0%

Loan loss provisioning

556.2

660.5

18.8%

Unused Commitment Provisioning

-43.7

6.2

114.2%

Other Provisioning

10.5

18.3

74.3%

58

Management Discussion & Analysis

4. Asset Quality and Balance Sheet (Bank Account)1) Asset Quality
The NPL ratio increased marginally, going to 1.19% from 1.18% a year earlier. The NPL coverage ratio (i.e., loan loss reserve to NPL ratio)remained stable at 140.9%.
(End of period, in billions of KRW)

2011

2012

Change (%)

Total Credits

73,108.2

76,270.5

4.33%

Normal

71,155.8

74,063.9

4.09%

Precautionary

1,086.3

1,298.8

19.56%

Substandard

398.6

558.8

40.19%

Doubtful

405.3

241.3

-40.46%

Estimated Loss

62.2

107.7

73.21%

866.0

907.8

4.83%

1.18%

1.19%

0.87%

NPL
NPL Ratio
Reserves for Loan Loss

1,256.9

1,279.2

1.77%

NPL Coverage Ratio

145.1%

140.9%-2.91%

2) Assets
The total value of our assets at the end of 2012 was KRW 104.0 trillion, while loans increased to KRW 70.4 trillion. This was mostly driven byincreased lending to households and large businesses.
(End of period, in billions of KRW)

2011

2012

Change (%)

Cash & Due from Banks

8,397.5

8,093.8-3.62%

Securities

13,099.6

13,668.8

4.35%

Loans

67,944.3

70,354.0

3.55%

2,495.7

2,576.7

3.25%

8,703.1

9,396.3

7.97%

2,352.5

2,488.2

5.77%

100,497.0

104,001.2

3.49%

Credit Card Receivables
Other Assets
Merchant Banking Assets
Total Assets

Korea Exchange Bank 2012 Annual Report

59

Management Discussion & Analysis3) Liabilities & Shareholders’ Equity
Total deposits increased to KRW 66.8 trillion at the end of 2012. Borrowings and debentures were down by KRW 6.9 trillion and up by KRW 6.2
trillion, respectively. The total value of our liabilities and shareholders’ equity was KRW 104.0 trillion.
(End of period, in billions of KRW)

2011

2012

Change (%)

Deposits

64,429.6

66,781.6

3.65%

Borrowings

9,330.2

6,925.7-25.77%

Debentures

5,460.0

6,173.4

13.07%

Other Liabilities

10,233.5

12,883.9

25.90%

753.2

528.7

-29.81%

8,636.5

9,081.9

5.16%

100,497.0

104,001.2

3.49%

Merchant Banking Liabilities
Shareholders’ Equity
Liabilities & Shareholders’ Equity

5. Capital Adequacy
KEB maintained its strong capital position, boasting a BIS capital ratio of 13.6% at the end of 2012. Its Tier 1 capital ratio was 11.1%, while theTier 2 one was 2.53%.

BIS Capital Ratio

(%)

14.5

14.7

2.5

2.4

12.0

 Tier 1
 Tier 2

4Q11

12.3

1Q12

13.9

13.9

2.1

2.5

11.8

2Q12

11.4

3Q12

13.6
2.5
11.1

4Q12

60

Independent Auditor’s Report
English Translation of a Report Originally Issued in Korean

To the Shareholders and the Board of Directors of
Korea Exchange Bank
We have audited the accompanying consolidated financial statements of Korea Exchange Bank (the “Company”) and its subsidiaries(collectively, the “Consolidated Group”). The financial statements consist of the consolidated statements of financial position as ofDecember 31, 2012 and December 31, 2011, respectively, and the related consolidated statements of comprehensive income, changes
in stockholders’ equity and cash flows, all expressed in Korean won, for the years ended December 31, 2012 and 2011, respectively. The
Consolidated Group’s management is responsible for the preparation and fair presentation of the consolidated financial statements and our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require thatwe 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of theConsolidated Group as of December 31, 2012 and December 31, 2011, respectively, and the results of its operations and its cash flows
for the years ended December 31, 2012 and 2011, respectively, in conformity with Korean International Financial Reporting Standards(“K-IFRS”).

March 8, 2013

Notice to ReadersThis report is effective as of March 8, 2013, the auditor’s report date. Certain subsequent events or circumstances may have occurred between
the auditor’s report date and the time the auditor’s report is read. Such events or circumstances could significantly affect the accompanying
consolidated financial statements and may result in modifications to the auditor’s report.

Korea Exchange Bank 2012 Annual Report

61

cONSOLIDATED STATEMENTS OF FINANCIAL POSITIONKOREA EXCHANGE BANK AND ITS SUBSIDIARIESAS OF DECEMBER 31, 2012 AND DECEMBER 31, 2011

(In millions of KRW)

Dec. 31, 2012ASSETSCash and due from banks (Notes 6, 7,10 and 47)
Financial assets at fair value through profit or loss (Notes 5, 6, 7, 11, 18 and 48)
Hedging derivative assets (Notes 5, 6, 7 and 18)
Available-for-sale financial assets (Notes 5, 6, 7, 12, 14, 15 and 17)
Held-to-maturity investments (Notes 4, 6, 7, 13, 14 and 15)
Loans (Notes 6, 7, 16, and 17)
Investments in associates (Note 19)
Tangible assets (Note 20)
Investment property (Note 21)
Intangible assets (Note 22)
Prepaid income taxes
Deferred income tax assets (Note 44)
Other assets (Notes 6, 7, 23 and 48)
Merchant banking account assets (Notes 6, 7 and 23)
Non-current assets held for sale (Note 24)
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits (Notes 6, 7, 8, 26 and 48)
Financial liabilities at fair value through profit or loss
(Notes 5, 6, 7, 8, 18, 25 and 48)
Hedging derivative liabilities (Notes 5, 6, 7, 8 and 18)
Borrowings (Notes 6, 7, 8 and 27)
Debentures (Notes 6, 7, 8 and 28)
Provisions (Notes 29 and 49)
Income taxes payable
Deferred income tax liabilities (Note 44)
Other liabilities (Notes 4, 6, 7, 8, 30, 31, 46 and 48)
Merchant banking account liabilities (Notes 6, 7, 8 and 30)
Total liabilities
SHAREHOLDERS’ EQUITY:
Equity attributable to the owners:
Capital stock (Note 32)
Capital surplus (Note 32)
Hybrid securities (Note 32)
Stock options
Retained earnings (Note 33)(Reserve for credit losses reserved previously:₩680,621 million as of December 31, 2012
₩0 million as of December 31, 2011
Additional expected reserve for credit losses:₩56,701 million as of December 31, 2012
₩680,621 million as of December 31, 2011) (Note 34)
Accumulated other comprehensive income (Note 35)
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.

Dec. 31, 2011₩₩

8,093,842
1,478,079
37,867
7,026,521
5,126,353
70,353,991
1,222,961
178,31283,036
4,266
27,811
7,878,522
2,488,216
1,439
104,001,216₩

8,397,528
1,483,993
32,537
6,120,693
5,462,329
67,944,287
669
1,207,380
176,442
86,576
5,098
28,5897,198,362
2,352,503
100,496,986₩

66,781,589₩

64,429,609₩₩

1,308,753

968,120

6,925,705
6,173,426
241,482
40,10735,67912,883,855
528,725
94,919,321

897
9,330,215
5,460,024
241,055
387,378
56,45910,233,450
753,244
91,860,451

3,224,534
940
249,77240

3,224,534
940
249,772-5,444,292

4,803,671

160,230
9,079,808
2,087
9,081,895
104,001,216

355,284
8,634,201
2,334
8,636,535
100,496,986₩

62

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
KOREA EXCHANGE BANK AND ITS SUBSIDIARIESFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In millions of KRW, except per share amounts)

2012
Net interest income (Notes 37 and 48):
Interest revenues
Interest expenses₩

Net commission income (Notes 38 and 48):
Commission revenues
Commission expenses
Net income (loss) of financial instruments at fair value throughprofit or loss (Notes 39 and 48):
Gains on financial instruments at fair value through profit or loss
Losses on financial instruments at fair value through profit or loss
Net income (loss) of hedging derivatives (Note 39):
Gains on hedging derivatives
Losses on hedging derivatives
Net income of available-for-sale financial assets (Note 39):
Gains on available-for-sale financial assets
Losses on available-for-sale financial assets
Net impairment losses (Note 40, 48):
Impairment losses on financial assets
General and administrative expenses (Notes 41, 46 and 48)
Other operating income (Notes 42 and 48):
Other operating revenues
Other operating expenses
Operating income
Non-operating income (Note 43):
Non-operating revenues
Non-operating expenses
Income before income tax expense
Income tax expense (Note 44)
Net income:Owners(Net income after reserve for credit losses:₩602,170 million for year ended December 31, 2012
₩1,489,936 million for year ended December 31, 2011)(Note 34)
Non-controlling interests₩

4,391,120(1,925,143)
2,465,977

2011₩

4,376,883(1,826,994)
2,549,889

521,295(342,665)
178,630

513,470(265,972)
247,498

3,570,584(3,579,565)(8,981)

3,819,875(3,762,444)
57,431

7,881(12,787)(4,906)28,423(27,601)
822

247,046(40)
247,006

1,191,264(927)
1,190,337(683,859)(1,572,964)(571,836)(1,490,559)

1,391,392(1,109,186)
282,206
903,109

1,486,413(1,329,150)
157,263
2,140,845

66,529(49,667)
16,862919,971(261,119)

68,440(50,187)
18,253
2,159,098(504,433)

658,871(19)
658,852

1,654,745(80)
1,654,665₩

Korea Exchange Bank 2012 Annual Report

63

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Continued)
KOREA EXCHANGE BANK AND ITS SUBSIDIARIESFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In millions of KRW, except per share amounts)

2012
Other comprehensive income (loss) (Note 35):
Gain or loss on change in fair value of available-for-sale financial assets
Gain or loss on foreign exchange in non-monetary available-for-sale financial assets
Share of other comprehensive loss of associates
Gain or loss on overseas business translation
Tax on other comprehensive income₩(598,813)(25)
27,534
123,044(448,260)₩

463,817(247)
463,570₩

1,206,448(43)1,206,405

₩
₩

993
993

₩
₩

2,538
2,533

₩

₩
Total comprehensive income:OwnersNon-controlling interests

Earnings per share (In Korean won) (Note 45):
Basic earnings per share
Diluted earnings per share
See accompanying notes to consolidated financial statements.

₩(113,906)(89)
10(108,862)
27,565(195,282)

2011
₩

64

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
KOREA EXCHANGE BANK AND ITS SUBSIDIARIESFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In millions of KRW)

Capitalstock₩ 3,224,534 ₩January 1, 2011
Dividends
Balance after appropriations
Net income
Quarterly dividend
Gain or loss on change infair value of available-for-salefinancial assets,
after tax effectGain or loss on overseas
business translation
Gain or loss on foreignexchange in non-monetary
available-for-sale financial
assets, after tax effectDividends on hybrid securities₩3,224,534 ₩December 31, 2011
₩3,224,534 ₩January 1, 2012
Net income
Gain or loss on change infair value of available-for-salefinancial assets,
after tax effectGain or loss on overseas
business translation
Gain or loss on foreignexchange in non-monetary
available-for-sale financial
assets, after tax effectChange of share of othercomprehensive loss of
associates
Dividends on hybrid securities
Stock options₩ 3,224,534 ₩December 31, 2012
See accompanying notes to consolidated financial statements.

CapitalsurplusHybridsecurities

940 ₩ 249,772 ₩-Accumulated
other
NonStock
Retained
comprehensive
controlling
Total
options
earnings
incomeinterests- ₩ 4,689,156 ₩ 803,581 ₩
2,377 ₩ 8,970,360(548,171)(548,171)
4,140,985
8,422,189
1,654,745(80)
1,654,665(973,809)(973,809)

-

-

-

-

(475,417)30(475,387)

-

-

-

-

27,1397

27,146

-

-

-

-

(19)

-

(19)

940 ₩ 249,772 ₩(18,250)- ₩ 4,803,671 ₩ 355,284 ₩(18,250)
2,334 ₩ 8,636,535

940 ₩ 249,772 ₩-- ₩ 4,803,671 ₩ 355,284 ₩
658,871-

2,334 ₩ 8,636,535(19)
658,852

-

-

-

-

(86,350)(12)(86,362)

-

-

-

-

(108,646)(216)(108,862)

-

-

-

-

(68)

-

(68)

-

-

-

-

10

-

10

940 ₩ 249,772 ₩(18,250)40
40 ₩ 5,444,292 ₩ 160,230 ₩(18,250)40
2,087 ₩ 9,081,895

Korea Exchange Bank 2012 Annual Report

65

CONSOLIDATED STATEMENTS OF CASH FLOWSKOREA EXCHANGE BANK AND ITS SUBSIDIARIESFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In millions of KRW)2012
CASH FLOWS FROM OPERATING ACTIVITIES:Net income
Adjustments to reconcile net income to net cash and cash equivalents
provided by (used in) operating activities:
Income tax expense
Interest income, net
Dividend income
Rental revenues
Gain on valuation of trading securities, net
Gain on valuation of trading bonds, net
Gain on valuation of trading derivatives, net
Loss (gain) on valuation of hedging derivatives, net
Gain on disposal of available-for-sale equity securities, net
Gain on disposal of available-for-sale debt securities, net
Impairment loss on available-for-sale financial assets, net
Transfer to allowance for possible losses
Salaries
Expenses for fringe benefits
Depreciation and amortization
Loss (gain) on disposal of tangible assets, net
Loss on disposal of investment property
Share of loss of associates, net
Gain on disposal of investment in associates
Impairment losses on intangible assets
Retirement allowances
Long-term compensation expense for performance bonus
Reversal of stock-option compensation costs, net
Reversal of provision for acceptances and guarantees
Transfer to (reversal of ) provision for unused credit limit
Transfer to other provisions
Gain on foreign exchange trading, net
Others, net
Changes in operating assets and liabilities:
Net decrease in trading securities
Net decrease (increase) in trading bonds
Net (increase) decrease in trading derivatives assets
Net decrease in hedging derivatives assets
Net (increase) in loans
Net decrease (increase) in other assets
Net increase in merchant banking account assets
Net increase in deposits
Net increase (decrease) in trading derivative liabilities
Net (decrease) in hedging derivative liabilities
Payment of severance benefits(Increase) in plan assets
Net (decrease) in other provisions
Net increase in other liabilities
Net (decrease) in merchant banking account liabilities₩

658,852

2011₩

1,654,665

261,119(2,465,977)(12,234)(3,206)(380)(2)(33,488)5,517(196,820)(50,186)
16,136
667,723
105,713
261
73
679
2,984
91,92533,842(2,453)(2,540)6,291
18,385(34,433)(4,610)(1,595,681)

504,433(2,549,889)(55,317)(3,522)(419)(234)(68,162)(110)(1,181,468)(8,869)10,333
561,503
20,4002,100
99,830
(215)
129
(142)
1,806
46,66922,086(4,533)(9,787)(43,404)
10,480(50,030)
4,104(2,692,228)

337
288,641(249,301)
711(3,474,909)
1,015,967(131,135)
2,668,196
340,668(897)(33,674)(75,136)(20,434)
1,643,468(224,487)
1,748,015

49,045(345,942)
82,857140(2,139,553)(299,532)(916,121)
1,457,100(3,952)(1,614)(71,855)(14,185)(16,642)
737,432(198,046)(1,680,868)

66

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
KOREA EXCHANGE BANK AND ITS SUBSIDIARIESFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In millions of KRW)2012
Cash generated from operating activities:
Net cash received for interest income
Net cash received for dividend income
Payment of income tax₩

Net cash flows provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:Cash flows provided by investing activities
Net decrease in restricted due from banks
Net decrease in available-for-sale financial assets
Net decrease in held-to-maturity financial assets
Disposal of tangible assets
Disposal of investment property
Disposal of intangible assets
Cash inflow related to leaseCash flows used in investing activities
Net increase in available-for-sale financial assets
Purchase of tangible assets
Purchase of intangible assets
Cash outflow related to lease
Net increase in guarantee deposits paid
Net cash flows provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:Net cash flows provided by financing activities
Net increase in bills soldNet increase in bills soldNet increase in borrowings
Increase in debentures
Net cash flows used in financing activities
Net decrease in call money
Net decrease in bills soldNet decrease in bonds sold under repurchase agreements
Net decrease in borrowings
Decrease in debentures
Dividends paid
Dividends on hybrid securities
Net cash flows (used in) financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, AT THE BEGINNING OF PERIODEFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS, AT THE END OF PERIOD (Note 47)
See accompanying notes to consolidated financial statements.

₩

1,751,029
12,235(599,996)
1,163,268
1,974,454

2011₩

2,708,869
55,320(356,517)
2,407,672(310,759)

1,040,736
326,355
135
271
213
1,995
1,369,705

782,592
539,185
541,764
1,380
1,864,921(800,454)(97,749)(16,549)(8,388)(923,140)
446,565(75,584)(26,493)(2,219)(20,087)(124,383)
1,740,538

3,423,882
3,423,882

13,23844,281
802,668
1,893,143
2,753,330(902,844)(33,606)(22,055)(1,291,248)(2,745,605)(18,250)(5,013,608)(1,589,726)
831,293
3,587,854(98,800)(1,418,114)(1,521,980)(18,250)(3,057,144)(303,814)
1,125,965
2,389,319(94,243)

72,5704,324,904₩

3,587,854

Korea Exchange Bank 2012 Annual Report

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

1. GENERAL:(1) General Description of Parent
Korea Exchange Bank (the “Company”) was established on January 30, 1967, as a government-invested bank to engage in foreign exchange andtrade finance business under Korea Exchange Bank Act. On December 30, 1989, Korea Exchange Bank Act was repealed and the Company wasconverted into a corporation under the Commercial Code of the Republic of Korea. On April 4, 1994, the Company was listed on Korean Stock
Exchange. The merger between the Company and Korea Exchange Bank Credit Service Co., Ltd. was finalized on February 28, 2004.
The Company primarily provides commercial banking services, trust banking services, foreign exchange, merchant banking business through themerger with Korea International Merchant Bank, a domestic subsidiary of the Company, and other related operations as permitted under Korea
Exchange Bank Act and other relevant laws and regulations in the Republic of Korea. As of December 31, 2012, the Company operates through357 branches (including 26 depositary offices) and three subsidiaries in the Republic of Korea and 20 branches (including two depositary offices
and five offices) and 10 overseas subsidiaries.
As of December 31, 2012, the Company’s shareholders and the respective percentage of ownership are as follows:
Name of shareholders
Hana Financial Group Inc.
The Bank of Korea (“B.O.K.”)
Ilsung Pharmaceuticals Co., Ltd.
The Government of Singapore
National Pension Service
Others
Total

Number ofPercentage ofshares owned (*1)
ownership (%)
386,952,719
60.00
39,500,000 		
6.12
12,022,380 		
1.86
8,249,660 		
1.28
8,040,677 		
1.25
190,141,390 		
29.49
644,906,826 		
100.00(*1) The list of the Company’s shareholders is dated as of December 31, 2012, which is the closing date of the list.
As of December 31, 2012, the total number of authorized shares of the Company are 1,000 million at par value of ₩5,000, while the paid-in
capital amounts to ₩3,224,534 million (with 644,906,826 shares of common stock outstanding, with a par value of ₩5,000).
Meanwhile, due to the acquisition of equity of the Company by Hana Financial Group Inc. and four other co-investors, the largest shareholder has
been changed from LSF-KEB Holding, SCA to Hana Financial Group Inc. as of February 9, 2012.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(2) Description of subsidiaries in the consoldiation
1)	Subsidiaries included in the consolidation as of December 31, 2012 and 2011, are as follows (Unit: thousands):
Dec. 31, 2012
Subsidiaries
KEB Capital Inc. (“KEBC”)KEB Futures Co., Ltd. (“KEBF”)
KEB Fund Services Co., Ltd. (“KEBIS”)
Korea Exchange Bank of Canada (“KEBOC”)
KEB Australia Ltd. (“KEBA”)
Korea Exchange Bank (Deutschland) A.G.
(“KEBDAG”)
PT. Bank KEB Indonesia (“KEBI”)
Banco KEB do Brasil S. A. (“KEBB”)
KEB NY Financial Corp. (“NYFinCo”)
KEB LA Financial Corp. (“LAFinCo”)
KEB USA Int’l Corp. (“USAI”)
KEB Asia Finance Limited (“KAF”)
KEB Bank (China) Co., Ltd. (“KEB China”)
Trust agreement to preserve income (*1)

Dec. 31, 2011

Business

Location

No. ofsharesPercentageof ownership(%)

No. ofsharesPercentageof ownership (%)

Finance and banking service
Finance and banking service
Finance and banking service
Finance and banking service
Finance and banking service

Korea
Korea
Korea
CanadaAustralia

14,976
3,000
510
334
55,00099.31
100.00100.00100.00100.0014,976
3,000
510
334
55,00099.31
100.00100.00100.00100.00Finance and banking service

Germany20

100.0020

100.00Finance and banking service
Indonesia
Finance and banking service
BrazilFinance and banking service
USA
Finance and banking service
USA
Finance and banking service
USA
Finance and banking service Hong Kong
Finance and banking service
China
Trust service
Korea

1
36,0000.1
0.2
0.1
50,000-99.00
100.00100.00100.00100.00100.00100.000.00

133,7260.1
0.2
0.1
50,000-99.00
100.00100.00100.00100.00100.00100.000.00(*1) Classified as a special purposed entity (“SPE”) included in the consolidation based on consideration of activities of the SPE being conductedon behalf of the Consolidated Group, the Consolidated Group’s decision making power to obtain the majority of the benefits of the activities
and the Groups’ right to obtain the majority of the benefit from the activities and exposure to risk incident to the activities.

2) Financial status of subsidiaries included in the consolidation as of December 31, 2012 and 2011, is as follows (Unit: In millions):
Dec. 31, 2012
Subsidiaries
KEBC
KEBF
KEBIS
KEBOC
KEBA
KEBDAGKEBIKEBBNYFinCoLAFinCoUSAIKAFKEB China
Trust agreement to preserve income

Assets₩704,580
696,372
13,8691,179,779
506,005440,243
539,919
247,044430,860
288,8227,10685,346
1,854,218
86

Liabilities₩

628,743
629,764
1,718
1,033,271
421,826
366,865
383,427
203,268
394,482
246,876
12
31,4081,444,379
83

Shareholders’equity₩75,83766,60812,151
146,508
84,17973,378156,492
43,77636,37841,946
7,094
53,938409,8393

Net income₩(23,409)
2,501
1,291
12,815
9,402
3,034
14,101
3,440
860
3,432
150
1,076
4,693
-

Korea Exchange Bank 2012 Annual Report

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Dec. 31, 2011
Subsidiaries
KEBC
KEBF
KEBIS
KEBOC
KEBA
KEBDAGKEBIKEBBNYFinCoLAFinCoUSAIKAFKEB China
Trust agreement to preserve income

Assets₩788,809
123,662
10,9681,227,203
403,043
513,288
500,377
124,070414,065
311,787
7,488
74,993
1,655,841
87

Liabilities₩

688,167
60,262108
1,086,228
323,907438,491
336,237
98,368375,774
270,1353
18,0171,225,452
84

Shareholders’equity₩ 100,642
63,40010,860140,975
79,136
74,797
164,140
25,702
38,291
41,652
7,485
56,976430,3893

Net income₩(35,132)
4,332
423
10,5186,929
9,394
16,205
2,765
3,367
4,589
459
317
20,758-

2. BASIS OF PREPARATION:
The Company and its subsidiaries (the “Consolidated Group”) have adopted Korean International Financial Reporting Standards (“K-IFRS”) for
the annual period beginning on January 1, 2011.
The accompanying consolidated financial statements have been prepared on the historical cost basis except for certain non-current assets andfinancial instruments that are measured at revalued amounts or fair values, as explained in the accounting policies below. Historical cost is generally
based on the fair value of the consideration given.
The Consolidated Group maintains its official accounting records in the Republic of Korean won (“Won”) and prepares the consolidated financial
statements in conformity with K-IFRS, in Korean language (Hangul). Accordingly, these consolidated financial statements are intended for use by
those who are informed about K-IFRS and Korean practices.

3. SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting policies under K-IFRS followed by the Consolidated Group in the preparation of its consolidated financial statements
are summarized as follows. These accounting policies applied for the accompanying consolidated financial statements are the same as the policies
applied for the preparation of the consolidated financial statements for the year ended December 31, 2011, except for the effects from theintroduction of new and revised accounting standards or interpretations as described below.
The consolidated financial statements for the year ended December 31, 2012 were approved by the Board of Directors’ on March 5, 2013.
1) Amendments to IFRSs affecting amounts reported in the financial statements
The following amendments to IFRSs have been applied in the current year and have affected the amounts reported in these financial statements.
—
Amendments to K-IFRS 1107 Disclosures – Transfers of Financial Assets
The Consolidated Group may have transferred financial assets in such a way that part or all of the transferred financial assets do not qualify for
derecognition. The amendments to K-IFRS 1107 increase the disclosure requirements for transactions involving transfers of financial assets
in order to provide greater transparency around the nature of the transferred assets, the nature of the risks and rewards of ownership to which
the Consolidated Group is exposed, description of the nature of the relationship between the transferred assets and the associated liabilities
and carrying value of the associated liabilities. When the Consolidated Group continues its involvement on the transferred assets although thetransferred assets are derecognized in their entirety, the Consolidated Group discloses the carrying amounts of the transferred assets and the

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

associated liabilities and information showing how the maximum exposure to loss. The disclosures due to the application of these amendments aredisclosed in Note 12 (8).
—Amendments to K-IFRS 1012 – Income Taxes
The Consolidated Group has applied the amendments to K-IFRS 1012 Income Taxes in the current year. Under the amendments, investment
properties that are measured using the fair value model in accordance with K- IFRS 1040 Investment Property are presumed to be recovered
entirely through sale for the purpose of measuring deferred taxes unless the presumption is rebutted. Also, non-depreciable property and equipmentthat are measured using revaluation model in accordance with K-IFRS 1016 Property, Plant and Equipments are presumed to be recovered throughsale for the purposes of measuring deferred taxes. The amendments do not have impact on the consolidated financial statements.
The amendments to K-IFRS 2114 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interpretation
The amendments permit the benefit of such prepayment arising from the minimum funding requrements to be recognized as an asset which were
not allowed to be recognized before the amendments. The amendments do not have impact on the consolidated financial statements.
2)	New and revised IFRSs in issue but not yet effective
The Group has not applied the following new and revised IFRSs that have been issued but are not yet effective.
—
Amendments to K-IFRS 1001 – Presentation of Financial Statements
The amendments to K-IFRS 1001 require items of other comprehensive income to be grouped into two categories in the other comprehensive
income section: (a) items that will not be reclassified subsequently to net income and (b) items that may be reclassified subsequently to net income
when specific conditions are met. The amendments are effective annual periods beginning on or after July 1, 2012. The Consolidated Gruop does
not anticipate that these amendments referred above will have a significant effect on the consolidated financial statements and disclosures.
—
Amendments to K-IFRS 1019 – Employee Benefits
The amendments to K-IFRS 1019 require the recognition of changes in defined benefit obligations and in fair value of plan assets when they occur,and hence eliminate the ‘corridor approach’ permitted under the previous version of K-IFRS 1019 and the accelerate the recognition of past service
costs. The amendments to K-IFRS 1019 are effective for annual periods beginning on or after January 1, 2013. The Consolidated Group is in theprocess of evaluating the impact on the consolidated financial statements upon the adoption of amendments.
—
Amendments to K-IFRS 1032 – Financial Instruments: Presentation
The amendments to K-IFRS 1032 clarify existing application issue relating to the offset of financial assets and financial liabilities requirements.
Specifically, the amendments clarify the meaning of ‘currently has a legally enforceable right of set-off ’ and ‘simultaneous realization andsettlement’.
The Consolidated Group’s right to offset must not be conditional on the occurrence of future events but enforceable anytime during the contract
periods, during the ordinary course of business with counterparty, a default of counterparty and master netting agreement or in some forms of
non-recourse debt. The amendments to K-IFRS 1032 are effective for annual periods beginning on January 1, 2014. The Consolidated Group is in
the process of evaluating the impact on the consolidated financial statements upon the adoption of amendments.
—
Amendments to K-IFRS 1107 – Financial Instruments: Disclosures
The amendments to K-IFRS 1107 are mainly focusing on presentation of the offset between financial assets and financial liabilities. The
amendments to K-IFRS 1107 are effective for annual periods beginning on or after January 1, 2013. The Consolidated Group is in the process ofevaluating the impact on the consolidated financial statements upon the adoption of amendments.
—
K-IFRS 1110 – Consolidated Financial Statements
The amendments to K-IFRS 1110 include a new definition of control that contains three elements: (a) power over an investee, (b) exposure, orrights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of theinvestor’s return. This standard is effective for annual periods beginning on or after January 1, 2013. The Consolidated Group is in the process ofevaluating the impact on the consolidated financial statements upon the adoption of amendments.
—
K-IFRS 1111 Joint Arrangement
K-IFRS 1111 deals with how a joint arrangement of which two or more parties have joint control should be classified. Under K-IFRS 1111, joint

Korea Exchange Bank 2012 Annual Report

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

arrangements are classified as joint operations or joint ventures, depending on the rights and obligations of the parties to the arrangements. If
the Consolidated Group is a joint operator, the Consolidated Group is to recognize assets, liabilities, revenues and expenses proportionally to its
investment and if the Consolidated Group is a joint ventures, the Consolidated Group is to account for that investment using the equity method
accounting. This standard is effective for annual periods beginning on or after January 1, 2013. The Consolidatd Group is in the process ofevaluating the impact on the consolidated financial statements upon the adoption of amendments.
—
K-IFRS 1112 Disclosure of Interest in Other Entities
K-IFRS 1112 is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates, or
unconsolidated structured entities. This standard is effective for annual periods beginning on or after January 1, 2013. The Consolidated Group isreviewing the impact of the application of this standard on the consolidated financial statements.
—
K-IFRS 1113 Fair Value Measurement
K-IFRS 1113 establishes a single source of guidance for fair value measurements and disclosure about fair value measurements. The standard
defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. This standard is effective
for annual periods beginning on or after January 1, 2013. The Consolidated Group is reviewing the impact of the application of this standard on
the financial statements.
(1) Basis of Consolidation
The consolidated financial statements incorporated the financial statements of the Company and entities (including SPEs) controlled by theCompany. Control is achieved where the Company has the power to govern the financial and operating policies of entities so as to obtainbenefits from its activities.
Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statements of comprehensive
income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries
is attributed to the owners and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by
the Company.
All intragroup transactions, balances, income and expenses are eliminated in full on consolidation.
Changes in the Company’s ownership interests in subsidiaries, without loss of control, are accounted for as equity transactions. The carrying
amounts of the Company’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in thesubsidiaries. Any difference between the amount by which the non-controlling interests is adjusted and the fair value of the consideration paidor received is recognized directly in equity and attributed to owners of the Company.
When the Company loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of thefair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including
goodwill) and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts orfair values and the related cumulative gain or loss has been recognized in other comprehensive income and accumulated in equity, the amounts
previously recognized in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposedof the relevant assets (i.e., reclassified to net income or transferred directly to retained earnings). The fair value of any investment retained in
the former subsidiary at the date when control is lost is recognized as the fair value on initial recognition for subsequent accounting under
K-IFRS 1039, Financial Instruments: Recognition and Measurement , or, when applicable, the cost on initial recognition of an investment in an
associate or a jointly controlled entity.
(2) SPE
There are some entities that are consolidated, although the Consolidated Group owns less than one-half of the voting power of those entities. Mostof them were established as SPEs. A SPE usually forms an unincorporated entity or partnership, although it does not have a definite legal form.
Conditions for SPEs to be consolidated are as follows:- The activities of an SPE are being conducted on behalf of the Consolidated Group according to its specific business needs so that theConsolidated Group obtains benefits from the SPE’s operation;- The Consolidated Group has the decision-making powers to obtain the majority of the benefits from the activities of an SPE or, by setting up
an ‘autopilot’ mechanism, the Consolidated Group has delegated these decision-making powers;

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

- The Consolidated Group has rights to obtain the majority of benefits from an SPE and, therefore, may be exposed to risks incident to theactivities of the SPE;- The Consolidated Group retains the majority of residual or ownership risks related to an SPE or its assets in order to obtain benefits from theactivities of the SPE.
(3) Revenue Recognition
1) Interest revenues (expenses)
Interest revenues (expenses) are recognized on an effective interest basis. The effective interest method is a method of calculating theamortized cost of a financial instrument and allocating interest revenues or interest expense over the relevant period.
2) Commission revenues (expenses)
According to the imposition purpose of the commission and related accounting standards for financial assets, commission revenues areclassified as and accounted for as follows:
Classification

Details

Commission composing effective revenues of the financial instruments

Accounted for as an adjustment to the effective interest rate

Commission by rendering services
Commission by performing significant activities

Revenue recognized when the services are provided
Revenue recognized when significant activities have been completed

3) Dividend income
Dividend income from investments is recognized when the shareholder’s right to receive payment has been established.
(4) Financial assets
Financial assets and financial liabilities are recognized when the Consolidated Group becomes a party to the contractual provisions of the
instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to theacquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities
at fair value through profit or loss are recognized immediately in net income.
All regular way purchases or sales of financial assets are recognized or derecognized on the trade date. A regular way purchase or sale is apurchases or sale of a financial asset under a contract whose term requires delivery of assets within the time frame established by regulation orconvention in the marketplace concerned.
Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss (“FVTPL”), held-tomaturity investments (“HTM”), available-for-sale financial assets (“AFS”) and loans and receivables. The classification depends on the natureand purpose of the financial assets and is determined at the time of initial recognition.
1) Financial assets at FVTPL
Financial assets at FVTPL include financial assets held for trading and financial assets designated at FVTPL upon initial recognition.
A financial asset is classified as held for trading if it has been acquired principally for selling it in the near term. A financial instrument,
containing one or more embedded derivatives, treated separately from the host contract, is classified as held for trading if it is a derivativethat is not designated and effective as a hedging instrument.
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in net income. Transaction
costs attributable to acquisition upon initial recognition are immediately recognized in net income in the period incurred.
A financial asset is classified as held for trading if:- it has been acquired principally for the purpose of selling it in the near term- on initial recognition, it is part of a portfolio of identified financial instruments that the Consolidated Group manages together and has arecent actual pattern of short-term profit-taking, or- it is a derivative that is not designated and effective as a hedging instrument

Korea Exchange Bank 2012 Annual Report73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:- such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise- in accordance with the Consolidated Group’s documented risk management or investment strategy, the financial asset forms part of agroup of financial assets or financial liabilities, or both, which is recorded at fair value, performance is evaluated based on its fair value, andinformation of the grouping is provided internally on that basis, or- it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039 permits the entire combined contract (asset or
liability) to be designated as at FVTPL
2) AFS financial assets
Non-derivatives financial assets that are not classified as at held-to-maturity; held-for-trading; designated as at fair value through profit orloss; or loans and receivables are classified as at financial assets AFS.
They are subsequently measured at fair value at the end of each reporting period. Changes in the carrying amount of AFS monetary financial
assets relating to changes in foreign currency rates (see below), interest income calculated using the effective interest method and dividends
on AFS equity investments are recognized net income. Other changes in the carrying amount of AFS financial assets are recognized inother comprehensive income and accumulated under the heading of gain or loss on change in fair value of AFS financial assets. When theinvestment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation
reserve is reclassified to net income.
Dividends on AFS equity instruments are recognized in net income when the Group’s right to receive the dividends is established.
The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot
rate at the end of the reporting period. The foreign exchange gains and losses that are recognized in net income are determined based on theamortized cost of the monetary asset. Other foreign exchange gains and losses are recognized in other comprehensive income.
3) HTM investments
Non-derivatives financial assets with fixed or determinable payments and fixed maturity dates that the Consolidated Group has the positive
intent and ability to hold to maturity are classified as held-to-maturity investments. HTM investments are measured at amortized cost using
the effective interest method, less any impairment, with revenue recognized on an effective yield basis.
4) Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified
as ‘loans and receivables’. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment.
Interest income is recognized by applying the effective interest rate, except for short-term receivables when the effect of discounting isimmaterial.
Loans, due from banks and leasehold deposit paid are classified as loans and receivables.
5) Deferred loan origination fees (“LOFs”) and loan origination costs (“LOCs”)
The Consolidated group defers LOF/LOCs associated with originating loans and LOCs that have future economic benefits. Loan balances
are reported net of these LOF/LOCs. The deferred LOF/LOCs are amortized using the effective interest method with the amortization
recognized as adjustments to interest revenue.
6) Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are
considered to be impaired when there is objective evidence that more events that occurred after the initial recognition of the financial asset,
the estimated future cash flows of the investment have been affected.
For listed and unlisted equity investments classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is
considered to be objective evidence of impairment.
For all other financial assets, including redeemable notes classified as AFS and finance lease receivables, objective evidence of impairment
could include:- significant financial difficulty of the issuer or counterparty; or- default or delinquency in interest or principal payments; or- it becoming probable that the borrower will enter bankruptcy or financial re-organization; or74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

- the disappearance of an active market for that financial asset because of financial difficulties.
If there is an objective evidence of impairment, impairment loss should be recognized by each category of financial assets as described below:

AFS Financial Assets
When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income
are reclassified to net income in the period.
In respect of AFS equity securities, impairment losses previously recognized in net income are not reversed through net income. Any increasein fair value subsequent to the impairment loss is recognized in other comprehensive income. In respect of AFS debt securities, impairment
losses are subsequently reversed through net income if an increase in the fair value of the investment can be objectively related to an event
occurring after the recognition of the impairment loss.
For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the carrying amount of
the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial
asset. Such impairment loss will not be reversed in subsequent period.
HTM Investments
For HTM investments measured at amortized cost, impairment loss is measured by the difference between the asset’s carrying amount andthe present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate and directly deductedfrom the carrying amount.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease
can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed
through net income to the extent that the carrying amount of the investment does not exceed what the amortized cost would have been had
the impairment not been recognized at the date the impairment is reversed.
Loans and Receivables
For loans and receivables measured at amortized cost, impairment loss is measured as the difference between the asset’s carrying amount andthe present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The Consolidated Group
first assesses whether objective evidence of impairment exists individually for the financial assets that are individually significant (individual
assessment of impairment).
For financial assets that are not individually significant, the Consolidated Group assesses whether the objective evidence of impairment
exists individually or collectively. If the Consolidated Group determines that no objective evidence of impairment exists for an individuallyassessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics andcollectively assesses them for impairment (collective assessment of impairment).
Impairment loss is deducted from allowance for possible losses on credits when it is considered unrecoverable. If it is subsequently recovered,allowance for possible losses on credits increases and the changes are recognized in net income.
① Allowance for possible losses on credits by individual assessment
Allowance for possible losses on credits by individual assessment is recognized by the difference between the asset’s carrying amount andthe present value of future cash flows expected to be collected by considering borrower’s management performance, financial position,
overdue period, and mortgage amount.
② Allowance for possible losses on credits by collective assessment
Allowance for possible losses on credits by collective assessment is measured using probability of default (“PD”) and loss given default(“LGD”), which are calculated by adjusting PD and LGD on Basel II model for accounting purpose. Such approach considers various
elements, including borrower type, credit rating, size of portfolio, loss emergence period, and collection period and applies consistentassumptions so as to model the measurement of inherent loss and determine variables based on historical loss experience and current
conditions.

Korea Exchange Bank 2012 Annual Report

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

7) Derecognition of financial assets
The Consolidated Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or whenit transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Consolidated
Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, theConsolidated Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Consolidated
Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Consolidated Group continues torecognize the financial asset and recognizes a collateralized borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between the carrying amount and the consideration received shall berecognized in net income of the current period.
If the part of financial asset is qualified for the derecognition, the entire carrying amount of the financial asset shall be allocated between
the part that continues to be recognized and the part that is derecognized, based on the relative fair values of those parts on the date of thetransfer. The difference between (1) the carrying amount allocated to the part derecognized and (2) the sum of the consideration received
for the part derecognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income shall berecognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the partthat continues to be recognized and is derecognized, based on the relative fair values of those parts.
8) Offsetting of financial assets and liabilities
Financial assets and liabilities shall be offset only when the Consolidated Group has the legal right to set off assets and liabilities and intends
either to settle on a net basis or to realize the asset and settle the liability simultaneously.
(5) Financial Liabilities and Equity Instruments
1) Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual
arrangement and the definitions of financial liability and an equity instrument.
2) Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Consolidated Group after deducting all of its
liabilities.
3) Financial liabilities
Financial liabilities are recognized when the Consolidated Group becomes a party to the contractual provisions of the instruments. Financial
liabilities are initially measured at fair value. Transaction cost that are directly attributable to the issue of financial liabilities are added toor deducted from the fair value of the financial liabilities, as appropriate, on initial recognition. Transaction cost directly attributable toacquisition of financial liabilities at FVTPL is recognized immediately in net income.
Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities.

Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when either the financial liability is held for trading or it is designated as FVTPL.
A financial liability is classified as held for trading if:- it has been acquired principally for the purpose of repurchasing it in the near term,- on initial recognition, it is part of a portfolio of identified financial instruments that the Consolidated Group manages together and has arecent actual pattern of short-term profit-taking or- it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:- such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise,- in accordance with the Consolidated Group’s documented risk management or investment strategy, the financial liability forms part of

76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, andinformation about the grouping is provided internally on that basis or- it forms part of a contract containing one or more embedded derivatives and K-IFRS 1039 permits the entire combined contract (asset or
liability) to be designated as at FVTPL.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in net income.

Other financial liabilities
Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognizedon an effective yield basis. The effective interest method is a method of calculating the amortized cost of a financial liability and allocatinginterest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments throughthe expected life of the financial liability or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
Derecognition of financial liabilities
The Consolidated group derecognize financial liabilities when the Consolidated Group’s obligation are discharged, cancelled or they expire.
The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in
profit or loss.
4) Hybrid securities
Hybrid securities are classified as an equity when all requirements for equity classification are satisfied in conformity with contract terms.
5) Financial guarantee contract liabilities
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs
because a specified debtor fails to make payments when due in accordance with the original or modified terms of a debt instruments.
Financial guarantee contract liabilities are initially measured at their fair values and, if not designated as at FVTPL, are subsequently
measured at the higher of:- The amount of the obligation under the contract, as determined in accordance with K-IFRS 1037, Provisions, Contingent Liabilities andContingent Assets and- The amount initially recognized, less cumulative amortization recognized in accordance with the K-IFRS 1018, Revenue(6) Fair Values
1) Methods and assumptions applied in measurement of fair values
Fair values of financial assets or liabilities are determined as follows:- fair values are determined from quoted prices in active markets for identical financial assets or financial liabilities where they are available
under standard requirements for transactions.
- for other financial assets and liabilities, except for derivatives, fair values are determined using valuation techniques, where inputs in themodel are observable market data.
- the quoted market prices are used for derivatives if traded in an active market. All other derivatives, for which quoted market price is notavailable, are valued using internal valuation techniques. Fair values of options are determined by reference to discounted cash flow analysis
using option-pricing models. A yield curve applicable to weighted-average maturity is used for derivatives other than options. Fair values of
future contracts are measured by using yield curve derived from corresponding interest rate to published future exchange rate and maturity.

Korea Exchange Bank 2012 Annual Report

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

2) Three-level fair value hierarchy
The Consolidated Group classifies fair value measurements of financial assets or liabilities by reference to the source of inputs used to derive
the fair values. The classification is as follows:
Classification

Details(Level 1)

Quoted prices (unadjusted) in active markets for identical assets or liabilities
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly(i.e., as prices) or indirectly (i.e., derived from prices)
Inputs for the asset or liability that are not based on the observable market data (unobservable inputs)(Level 2)(Level 3)(7) Derivative Financial Instruments
The Consolidated Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange
rate risk, including foreign exchange forward contracts, interest rate swaps and cross-currency swaps.
Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are subsequently remeasured to their fairvalue at the end of each reporting period. The resulting profit or loss is recognized in net income immediately, unless the derivative is designatedand effective as a hedging instrument, in such case the timing of the recognition in net income depends on the nature of the hedge relationship.
The Consolidated Group designates certain derivatives as either hedges of recognized assets or liabilities or firm commitments (fair value
hedges), hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or hedgesof net investments in foreign operations (net investment hedges).
A derivative with a positive fair value is recognized as a financial asset; a derivative with a negative fair value is recognized as a financial liability.
1) Embedded derivatives
An embedded derivative shall be separated from the host contract and accounted for as a derivative if and only if :- the economic characteristics and risks of the embedded derivative are not closely related to those of the host contracts,- a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative,- and the hybrid instrument is not measured at fair value with changes in fair value recognized in net income.
2) Hedge accounting
At the inception of the hedge relationship, the Consolidated Group documents the relationship between the hedging instrument and thehedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the
inception of the hedge and on an ongoing basis, the Consolidated Group documents whether the hedging instrument is highly effective inoffsetting changes in fair values or cash flows of the hedged item.
3) Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in net income immediately, together
with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
Hedge accounting is discontinued when the Consolidated Group revokes the hedging relationship, when the hedging instrument expires oris sold, terminated, exercised or when it no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of thehedged item arising from the hedged risk is amortized to net income from that date.
4) Deferred Day 1 profit
The Consolidated Group assesses fair values of over-the-counter derivatives by using its own assessment methodology. The assessment
methodology generally (i) includes elements that market participants consider in determination of prices and (ii) agree with a theoreticalmethodology used to determine prices of financial instruments.
However, the Consolidated Group defers Day 1 profit, the difference between the fair value autonomously determined at the acquisition date
and transaction price, in case the assessment methodology is not satisfied with the above requirements.
Deferred Day 1 profit is recognized in net income when a derivative instrument is liquidated or matured, or a deferring factor of Day 1 profit
is removed.

78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011(8) Investments in Subsidiaries and Associates
Associates are the entities that the Consolidated Group has significant effect on, but neither their subsidiaries nor investments in joint ventures.
Significant effect is the ability to participate in the determination of investees’ financial and operating policies, but neither controlling nor joint control.
The financial results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity methodof accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with K-IFRS 1105, Noncurrent Assets Held for Sale and Discontinued Operations . Under the equity method, an investment in an associate is initially recognized in
the consolidated statements of financial position at cost and adjusted thereafter to recognize the Consolidated Group’s share of net income andother comprehensive income of the associate. When the Consolidated Group’s share of losses of an associate exceeds the Consolidated Group’s
interest in that associate (which includes any long-term interests that, in substance, form a part of the Consolidated Group’s net investment in
the associate), the Consolidated Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent
that the Consolidated Group has incurred legal or constructive obligations or made payments on behalf of the associate.
The requirements of K-IFRS 1039 are applied to determine whether it is necessary to recognize any impairment loss with respect to theConsolidated Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested
for impairment in accordance with K-IFRS 1036, Impairment of Assets , as a single asset by comparing its recoverable amount (higher of value
in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of theinvestment. Any reversal of that impairment loss is recognized in accordance with K-IFRS 1036 to the extent that the recoverable amount of
the investment subsequently increases.
When the consolidated entity transacts with its associate, net income resulting from the transactions with the associate is recognized in the Consolidated
Group’s consolidated financial statements only to the extent of interests in the associate that are not related to the Consolidated Group.
(9) Foreign Currencies
1) Functional currency and presentation currency
The individual financial statements of each entity in the Consolidated Group are presented in the currency of the primary economic
environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the financial
results and position of each entity in the Consolidated Group are expressed in Korean won, which is the functional currency of theConsolidated Group and the presentation currency for the consolidated financial statements.
2) Transactions with foreign currencies
In preparing the financial statements of each entity, transactions in currencies other than the entity’s functional currency (foreign currencies)
are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items
denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are
denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary
items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognized in net income in the period in which they arise, except for:- exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in
the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;- exchange differences on transactions entered into in order to hedge certain foreign currency risks (see Note 3 (7) above for hedging
accounting policies); and- exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely
to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive
income and reclassified from equity to net income on disposal or partial disposal of the net investment.
3) Foreign operations
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Consolidated Group’s foreign operations are
expressed in currency units using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the
average exchange rates for the period. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated inequity.

Korea Exchange Bank 2012 Annual Report

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

On the disposal of a foreign operation (i.e., a disposal of the Consolidated Group’s entire interest in a foreign operation, or a disposal
involving loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes
a foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange
differences in respect of that operation attributable to the Consolidated Group are reclassified to net income. Any exchange differences thathave previously been attributed to non-controlling interests are derecognized, but they are not reclassified to net income. In the case of apartial disposal (i.e., no loss of control) of a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange
differences are reattributed to non-controlling interests in equity and are not recognized in net income. For all other partial disposals (i.e.,of associates or jointly controlled entities not involving a change of accounting basis), the proportionate share of the accumulated exchange
differences is reclassified to net income. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated asassets and liabilities of the foreign operation and translated at the closing rate.
(10) Retirement Benefit Costs
For defined benefit retirement plans, the cost of providing benefits is determined by Hewitt, an actuary services Consolidated Group,
using the Projected Unit Credit Method. The present value of defined benefit obligation is computed by discounting expected future cash
outflows with market rate of highly graded corporate bond (AAA bond with interest rate) whose date of payment and maturity is similar tothat of defined benefit obligation. Actuarial gains and losses, incurred from the change in actuarial assumptions and the difference between
assumptions and actual results, are recognized in net income for the period. Past service cost is recognized immediately to the extent that thebenefits are already vested, and otherwise is amortized on a straight-line basis over the average period until the benefits become vested.
The Consolidated Group enters into agreements, such as retirement insurance, retirement trust, and retirement annuity with Samsung Life
Insurance in order to meet their severance obligations to its employees. The retirement benefit obligation recognized in the statements offinancial position represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses andunrecognized past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognizedactuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.
(11) Share-based Payment
For equity-settled, share-based payment transactions, the value of the goods and services received and the corresponding increase in equity aremeasured at the fair value of the equity instruments at the grant date. For cash-settled, share-based payments, a liability is recognized for the
goods or services acquired, measured initially at the fair value of the liability. At the end of each reporting period until the liability is settled,
and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognized in net income for the year.
For a share-based payment transaction in which the terms of the arrangement provide the Consolidated Group with the choice of whether
to settle in cash or by issuing equity instruments, the Consolidated Group shall determine whether it has a present obligation to settle incash. If no obligation exists, it shall account for the transaction in accordance with the requirements applying to equity-settled, share-basedtransactions. However, if it has a present obligation to settle in cash, it shall account for the transaction in accordance with the requirements
applying to cash-settled, share-based transactions.
(12) Property, Plant and Equipment
Property, plant and equipment are stated at cost less subsequent accumulated depreciation and accumulated impairment losses. The cost of an
item of property, plant and equipment is directly attributable to their purchase or construction, which includes any costs directly attributable
to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. It also
includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
Subsequent costs are recognized in the carrying amount of an asset or as an asset if it is probable that future economic benefits associatedwith the assets will flow into the Consolidated Group and the cost of an asset can be measured reliably. Routine maintenance and repairs are
expensed as incurred. The Consolidated Group does not depreciate land. Depreciation expense is computed using the depreciation method
and the estimated useful lives of the assets are as follows:
Tangible assets
Construction
Leasehold improvements
Equipment

Estimated useful life

Depreciation method

40 years

Straight-line

3–10 years
3–20 years

Straight-line
Declining-balance

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

A tangible asset is derecognized on disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arisingfrom derecognition of a tangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, arerecognized in net income when the asset is derecognized.
(13) Investment Property
Investment properties are properties held to earn rentals and/or for capital appreciation (including property under construction for such
purposes). Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment
properties are measured at fair value. Gains and losses arising from changes in the fair value of investment properties are included in net
income in the period in which they arise.
An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic
benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in net income in the period in which the property is derecognized. Meanwhile, the routine
cost of repair and maintenance is recognized as net income on the period of the occurrence.
While land is not depreciated, all other investment property is depreciated based on the respective assets’ estimated useful lives of 40 years using thestraight-line method.
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in
estimate accounted for on a prospective basis.
An investment property is derecognized on disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arisingfrom derecognition of tangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognizedin net income when the asset is derecognized.
(14) Intangible Assets
1) Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated
impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives.
The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried atcost less accumulated impairment losses
2) Internally generated intangible assets - research and development expenditure
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
An internally generated intangible asset arising from development (or from the development phase of an internal project) is recognized if,
and only if, all of the following have been demonstrated:- the technical feasibility of completing the intangible asset so that it will be available for use or sale and- the ability to measure reliably the expenditure attributable to the intangible asset during its development
The amount initially recognized for internally generated intangible assets is the sum of the expenditure incurred from the date when
the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognized,
development expenditure is recognized in net income in the period in which it is incurred.
Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortization and accumulated
impairment losses, on the same basis as intangible assets that are acquired separately.
3) Derecognition of intangible assets
An intangible asset is derecognized on disposal or when no future economic benefits are expected from its use or disposal. Gains or losses
arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of
the asset, are recognized in net income when the asset is derecognized.
(15) Non-current Assets Held for Sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a saletransaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current
asset (or disposal group) is available for immediate sale in its present condition. Non-current assets (and disposal groups) classified as held forsale are measured at the lower of their previous carrying amount and fair value less costs to sell.

Korea Exchange Bank 2012 Annual Report

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011(16) Impairment of Tangible and Intangible Assets Other Than Goodwill
At the end of each reporting period, the Consolidated Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of theasset is estimated in order to determine the extent of the impairment loss if any. Where it is not possible to estimate the recoverable amountof an individual asset, the Consolidated Group estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset
belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGUs, orotherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, andwhenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or a CGU is estimatedto be less than its carrying amount, the carrying amount of the asset or the CGU is reduced to its recoverable amount. An impairment loss isrecognized immediately in net income.
Where an impairment loss subsequently reverses, the carrying amount of the asset or the CGU is increased to the revised estimate of its
recoverable amount so that the increased carrying amount does not exceed the carrying amount that would have been determined had no
impairment loss been recognized for the asset or the CGU previously. A reversal of an impairment loss is recognized immediately in net
income.
(17) Provisions
Provisions are recognized when the Consolidated Group has a present obligation (legal or constructive) as a result of a past event, it isprobable that the Consolidated Group will be required to settle the obligation, and a reliable estimate can be made of the amount of theobligation. The Consolidated Group does not recognize provisions for future operating losses.
The Consolidated Group recognizes provisions related to unused credit card points amount, guarantee, and litigations. In addition,
provisions for decommissioning or restoration are recognized in relation to restoration of rented assets which is recognized as tangible assets.
Decommissioning or restoration costs are present value of expected costs of restoration using future cash outflows.
(18) Accounting for Trust Accounts
The Company separately maintains the books of accounts and financial statements in connection with the trust operations (the trust
accounts) from those of the Company’s accounts in accordance with the Financial Investment Services and Capital Markets Act (“FSCMA”).
When surplus funds are generated through the management of trust assets, such funds are deposited with the Company and are recorded as
due to trust accounts of the Company’s accounts. Also, the borrowings from the Company’s account are recorded as due from trust accountsof the Company’s accounts. The Company receives fees for operation and management of the trust business and accounts for them as fees andcommissions from trust accounts.
With respect to certain trust account products, the Company guarantees the repayment of principal of these trust accounts, in certain cases,
with a fixed rate of return. If income from such trust accounts is insufficient to pay the guaranteed amount, the deficiency is satisfied byusing special reserves maintained in these trust accounts, offsetting trust fee payable to the Company’s accounts and receiving compensation
contributions from the Company’s accounts. If the Company pays compensating contributions to the guaranteed-return trusts to cover such
deficiencies, these contributions are reflected as operating expense of the Company’s accounts and as other income of the trust accounts.
(19) Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Amounts due from lessees under finance leases are recognized as receivables at the amount of the Consolidated Group’s net investment in theleases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Consolidated Group’s
net investment outstanding in respect of the leases.
(20) Merchant Banking Accounts
As permitted by the Restructuring of Financial Institutions Act, the Company may continue its merchant banking operations, including
leasing business, until the existing contracts acquired from Korea International Merchant Bank upon merger are terminated. Significant
accounting policies applied to the Company’s merchant banking operations are summarized as follows:

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

1) Revenue recognition on discounted notes
Interest income on discounted notes is accrued over the term of the notes. Income from the sale of discounted notes is recognized at thedate of sale based on the difference between the purchase and sales prices of the notes, adjusted for interest earned during the holding
period.
2) Cash Management Accounts (“CMA”)
The Company recognizes interest income from CMA investments and interest expense from CMA deposits as other income and otherexpenses, respectively.
(21) Income Taxes
Income tax consists of current tax and deferred tax.
1) Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the separate statement ofcomprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable
or deductible. The Consolidated Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted
by the end of the reporting period.
2) Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial
statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for
all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it isprobable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets
and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a businesscombination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, andinterests in joint ventures, except where the Consolidated Group is able to control the reversal of the temporary difference and it is probablethat the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences
associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits
against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or
the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which theConsolidated Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred income tax assets and liabilities in the same tax jurisdiction and the Consolidated Group’s legal right to offset tax liabilities andassets only if the Consolidated Group intends to pay current tax liabilities and assets are presented on a net basis.
3) Current and deferred tax for the year
Current and deferred tax are recognized in net income, except when they relate to items that are recognized in other comprehensive income
or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity
respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in theaccounting for the business combination.

Korea Exchange Bank 2012 Annual Report

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

4.	ESTIMATION AND ACCOUNTING JUDGMENT:In the application of the Consolidated Group’s accounting policies described in Note 3, management is required to make judgments, estimates andassumptions about the carrying amounts of assets and liabilities that are not readily observable from objective sources. The estimates and associatedassumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period inwhich the estimate is revised if the revision affects only that period or in the period of the revision and in the future periods if the revision affects
both current and future periods.
1) Critical judgments in applying accounting policies

HTM investments
Management has reviewed the Consolidated Group’s HTM investments in light of its capital maintenance and liquidity requirements and has
confirmed the Consolidated Group’s positive intention and ability to hold those assets to maturity. The carrying amount of the HTM investmentsis ₩5,126,353 million. Details of these assets are set out in Note 13.
Significant hedge relationships
As described in Note 3 (7), the Consolidated Group designates certain derivatives as hedges of recognized assets or liabilities or firm commitments(fair value hedges), hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or
hedges of net investments in foreign operations (net investment hedges). Also, fair value hedge accounting is applied for the purpose of avoiding
risk of fair value changes of recognized asset, liabilities or unrecognized confirmed contract as a whole or partly. And cash flow hedge accounting
is applied for the purpose of avoiding risk of cash flow changes of recognized asset, liabilities and expected transactions which are highly about tohappen.
2) Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period,that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fiscal year.

Determination of fair values
In order to determine fair values of financial assets and liabilities without predictable market values, valuation methods are necessary. Financial
instruments for which transactions do not occur frequently and prices are less objective, extensive judgment is required with regard to liquidity,
concentration, uncertainty of market factors and assumptions related to price determination, and other risks. Management believes thatmethodologies and assumptions used in the determination of fair values for financial instruments are reasonable.
Allowance for possible losses on credits
For loans and receivables, it is necessary to reserve liabilities for guarantees and unused credit limit by performing impairment test. The accuracy ofreserves is determined by assumptions and variables, used to estimate expected cash flows by individual borrowers and allowance for bad debts andguarantees/unused credit limit liabilities by collective method.
Measurement of defined benefit obligation
Defined benefit obligation is calculated by performing actuarial valuation at the end of each reporting period. In order to apply actuarial valuation
method, it is necessary to estimate discount rate, future wage growth rate, expected return on plan assets, etc. A retirement benefit plan includes
significant uncertainty on such estimation since it is operated long term. As the defined benefit obligation and fair value of plan asset as ofDecember 31, 2012, is ₩282,459 million and ₩259,586 million, respectively, the net obligation of defined benefit amounts to ₩22,873 million,
the details of which are described in Note 31.

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

5. FAIR VALUE MEASUREMENT OF FINANCIAL ASSETS AND LIABILITIES:The standards the Consolidated Group applies when measuring fair values of financial assets and liabilities are described below:
A. Quoted market prices as of the settlement date in an active market are the best evidence of fair value and should be used when available.
B. If a market for a financial instrument is not active, the Consolidated Group establishes fair value by using a valuation technique that makes
maximum use of market inputs and includes (i) recent arm’s-length market transactions, (ii) reference to the current fair value of another
instrument that is substantially the same, (iii) discounted cash flow analysis, and (iv) option-pricing models. An acceptable valuation techniqueincorporates all factors that market participants would consider in setting a price and is consistent with accepted economic methodologies for
pricing financial instruments.
C. Valuation techniques use significant inputs which are readily observable from objective sources. If significant inputs are not observable,reasonable assumptions and estimates are used to determine fair value.
D. For an investment in equity instruments for which quoted market price is not available in an active market or derivative linked to such instruments
for which fair values are not measured reliably, fair values are measured at cost.
(1) Hierarchy of fair values
Fair value hierarchy of financial instruments as of December 31, 2012 and 2011 is as follows (Unit: In millions):
Dec. 31, 2012
Quotedmarket price(Level 1)

Classification
Financial assets:
Financial assets at FVTPL
Hedging derivative assets
AFS financial assets
Total
Liabilities:
Financial liabilities at FVTPL

Observable
inputs(Level 2₩₩

121,7812,767,970
2,889,751₩-₩

Unobservable
inputs(Level 3)₩₩

1,340,918
37,867
3,668,386
5,047,171₩

1,308,582

Total

₩

₩

15,380590,165
605,545₩

1,478,079
37,867
7,026,521
8,542,467

₩

171

₩

1,308,753

Dec. 31, 2011
Quotedmarket price(Level 1)

Classification
Financial assets:
Financial assets at FVTPL
Hedging derivative assets
AFS financial assets
Total
Liabilities:
Financial liabilities at FVTPL
Financial liabilities at FVTPL
Total

₩

₩
₩
₩

Observable
inputs(Level 2)

408,156
3,128,983
3,537,139

₩

-

₩

₩

₩

Unobservable
inputs(Level 3)

1,065,215
32,5372,255,855
3,353,607₩

964,634
897
965,531

₩

₩

₩

Total

10,622735,855
746,477

₩

3,486
3,486

₩

₩

₩

1,483,993
32,537
6,120,693
7,637,223
968,120897
969,017

Korea Exchange Bank 2012 Annual Report

85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(2) The changes in Level 3 financial instruments for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Dec. 31, 2012
Valuation
Classification

Financial assets:
Financial assets at₩
FVTPL
AFS financial assets₩
Financial liabilities:
Financial liabilities₩
at FVTPL

BeginningbalanceAcquisition/
Issuance

10,622 ₩735,855
746,477 ₩Disposal/
Payment

6,949 ₩
(3,824) ₩69,696(241,251)
76,645 ₩ (245,075) ₩3,486 ₩

202 ₩(1,285) ₩Other
Income comprehensive
incomeOthersEndingbalance

1,633 ₩
(18,289)(16,656) ₩- ₩45,45545,455 ₩- ₩(1,301)(1,301) ₩15,380590,165
605,545(2,184) ₩- ₩(48) ₩

171

Dec. 31, 2011
Valuation
Classification

BeginningbalanceAcquisition/
Issuance

Financial assets:
Financial assets at₩
FVTPL
14,508 ₩AFS financial assets
1,376,864₩ 1,391,372 ₩Financial liabilities:
Financial liabilities₩
at FVTPL
2,483 ₩

Disposal/
Payment

3,673 ₩
(1,790) ₩29,361(658,043)
33,034 ₩ (659,833) ₩15,007 ₩(14,051) ₩Other
Income comprehensive
incomeOthersEndingbalance(6,032) ₩(6,624)(12,656) ₩- ₩(5,967)(5,967) ₩

263 ₩
264
527 ₩

10,622735,855
746,47786 ₩- ₩(39) ₩

3,486

6. FAIR VALUES OF FINANCIAL INSTRUMENTS:
Fair values of financial instruments as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Dec. 31, 2012
Classification
Financial assets:
Cash and due from banks
Financial assets at FVTPL
Hedging derivative assets
AFS financial assets
HTM investments
Loans (*1)
Other financial assets (*2)
Merchant banking account assets (*3)
TotalBook value₩₩

8,093,842
1,478,079
37,867
7,026,521
5,126,353
70,353,991
7,775,108
2,488,216
102,379,977

Dec. 31, 2011
Fair value₩₩

8,093,842
1,478,079
37,867
7,026,521
5,162,830
70,477,438
7,775,148
2,488,216
102,539,941

Book value₩₩

8,397,528
1,483,993
32,537
6,120,693
5,462,329
67,944,287
7,115,138
2,352,503
98,909,008

Fair value₩₩

8,397,528
1,483,993
32,537
6,120,693
5,488,206
68,160,790
7,120,472
2,357,522
99,161,741

86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Financial liabilities:
Deposits
Financial liabilities at FVTPL
Hedging derivative liabilities
Borrowings
Debentures
Other financial liabilities (*4)
Merchant banking account liabilities (*5)
Total

₩

66,781,589₩

1,308,753
6,925,705
6,173,426
12,535,904
525,839
94,251,216₩

66,801,454₩

1,308,753
6,928,063
6,259,622
12,535,936
525,839
94,359,667₩

64,429,609₩

968,120897
9,330,215
5,460,024
9,796,996
747,785
90,733,646₩

64,431,367₩

968,120897
9,328,764
5,586,570
9,797,022
747,785
90,860,525(*1) Net carrying amount after deduction of allowance for possible loan losses and deferred LOF/LOC(*2) Include receivables spot exchange, domestic exchange settlement debit, guarantee deposits paid, etc.
(*3) N et carrying amount after deducting related allowances for possible loan losses, including merchant banking loans, merchant banking accounttrading securities, and CMA assets(*4) Include payables spot exchange, domestic exchange settlement credit, trust account payables, etc.
(*5) Include merchant banking account deposits, accrued expenses

7. CLASSIFICATION OF FINANCIAL ASSETS AND LIABILITIES BY CATEGORY:
Financial assets and liabilities by category as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Dec. 31, 2012
Classification

Financial assets:
Cash and due from banks
Financial assets at FVTPL
Hedging derivative assets
AFS financial assets
HTM investments
Loans
Other financial assets
Merchant banking accountassets
Total
Financial liabilities:
Deposits
Financial liabilities at FVTPL
Borrowings
Debentures
Other financial liabilities
Merchant banking accountliabilities
Total

Trading financial
instruments₩

1,478,079-

AFS financial
instrument₩

1,805,965

7,026,521-

HTM
investments₩-

5,126,353-

Financial
instruments
measured atamortized cost₩

8,093,842
70,353,991
7,775,108-

682,251

Hedge
accounting
derivatives₩₩

3,284,044₩

7,026,521₩

5,126,353₩ 86,905,192₩₩

1,308,753
-

₩

-

₩

-

₩ 66,781,589
6,925,705
6,173,426
12,535,904₩-

525,839-₩ 92,942,463₩

1,308,753

₩

-

₩

- ₩
37,867-

8,093,842
1,478,079
37,867
7,026,521
5,126,353
70,353,991
7,775,108-

2,488,216

37,867 ₩ 102,379,977
- ₩
-

₩

Total

- ₩

66,781,589
1,308,753
6,925,705
6,173,426
12,535,904
525,839
94,251,216

Korea Exchange Bank 2012 Annual Report

87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Dec. 31, 2011
Classification

Financial assets:
Cash and due from banks
Financial assets at FVTPL
Hedging derivative assets
AFS financial assets
HTM investments
Loans
Other financial assets
Merchant banking
account assets
Total
Financial liabilities:
Deposits
Financial liabilities at FVTPL
Hedging derivative liabilities
Borrowings
Debentures
Other financial liabilities
Merchant banking
account liabilities
Total

Trading financial
instruments₩

1,483,993-

AFS financial
instrument₩

1,565,867

6,120,693-

HTM
investments₩-

5,462,329-

Financial
instruments
measured atamortized cost₩

8,397,528
67,944,287
7,115,138-

786,636

Hedge
accounting
derivatives
₩

Total

- ₩
32,537-

8,397,528
1,483,993
32,537
6,120,693
5,462,329
67,944,287
7,115,138-

2,352,503₩

3,049,860₩

6,120,693₩

5,462,329₩ 84,243,589₩

32,537 ₩98,909,008₩

968,120
-

₩

-

₩

-

₩ 64,429,609
9,330,215
5,460,024
9,796,996

₩

- ₩
897
-

64,429,609
968,120897
9,330,215
5,460,024
9,796,996-

747,785897 ₩

90,733,646₩

968,120

₩

-

₩

-

747,785-₩ 89,764,629₩

88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

8. RISK MANAGEMENT:The risk management group is composed of board of directors, risk management committee, risk management operating committee, risk
management working committee and risk management task force team. Risk management committee reports directly to the board of directors andis composed of outside directors and executive directors.
The committee deliberates and determines major issues, such as risk management policies and strategies and risk tolerance limit. The risk
management operating committee is responsible for the management and execution of all sorts of risks to a reasonable level.
The Consolidated Group distributes internal capital limits by risk and business sector for the purpose of assessment for reasonableness of internal
capital. In addition, the Consolidated Group retains and manages reasonable equity capital so as to manage its operating activities in preparation
for unavoidable risks (uncertainties and possible losses). It also retains the management system and related procedures in order to assess thereasonableness of internal capital.
The Consolidated Group classifies risks to significant risks and residual risks:- Significant risks: credit risk, market risk, operation risk, interest rate risk, liquidity risk, credit preference risk, strategy risk and reputation risk
- Residual risks: credit mitigation residual risk and asset-backed residual risk
Of the significant risks, credit risk, market risk, operation risk, interest rate risk, credit preference risk and strategy risk are able to be quantified
with a confidence level of 99.9 percent and one-year retaining period and reflected in combined internal capital. The Consolidated Groupconsistently compares and monitors such risks with internal capital limit, computes results, and regularly reports to the management.
The Consolidated Group defines available capital as Tier 1 capital and restricts the use of capital by setting up a certain level to reserved capital.
It regularly assesses and manages the reasonableness of internal capital by comparing available capital and combined internal capital. Reserved
capital as capital buffer is determined by the risk management committee so as to prepare additional possibility of losses, emergency situations,incompleteness of information systems and fluctuation of available capital and strictly managed as a risk propensity index.
In addition, the Consolidated Group assesses the reasonableness of internal capital by analyzing the combined crisis, considering risk variances suchas credit rating transition rate by regulation of Financial Supervisory Service.
The Consolidated Group efficiently manages risks by preparing principles for assessment and management in order to maximize shareholders’profits, and constructs combined risk management system, considering risks, profits and growth.
(1) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Consolidated Group.
Credit risk arises from deposits, securities, loans, off-balance accounts and trust accounts. The purpose of credit risk management is to avoid
excessive risks that could damage the financial soundness of the Consolidated Group by improving the soundness of assets through setup of
credit ratings and credit screening and quantifying and regularly managing credit risks.
The Consolidated Group implements a system that divides and operates marketing and screening for the management purpose. It also employsa total exposure limit system to solve weighted credits and disperse risks and an early alert system to discover an insolvent company andestablish countermeasures.
The Consolidated Group separately measures expected losses and unexpected losses. Expected losses are expected credit risks based on pastexperience and computed by multiplying exposure at default by PD and LGD. Unexpected losses mean maximum credit losses from theconfidence section as a possibility of difference between actual incurred losses and expected losses. It is computed through advanced internalratings-based method under Bank for International Settlements (“BIS”) Basel II.
The Consolidated Group’s level of exposure to credit risk as of December 31, 2012 and 2011 is summarized as follows (Unit: In millions):
Dec. 31, 2012
Loans and credit commitments
Guarantees and endorsed notes
Total

₩
₩

59,485,926
15,617,751
75,103,677

Dec. 31, 2011₩₩

53,059,207
14,561,146
67,620,353

Korea Exchange Bank 2012 Annual Report

89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011(2) Market risk
Market risk is the uncertainty and possibility of losses from overall management activities and divided into general market risk and specific risk.
General market risk is the risk to The Consolidated Group’s earnings arising from changes in interest rates, stock price, currency exchange rates
or commodity prices. Specific risk is the risk of trading position arising from changes in credit risks.
1) Market risk value at risk (“VaR”)
The principle of market risk management is to identify sources of market risks, measure the risk size and assess and control the reasonablenessof the risk size.
The managing targets are interest rate, stock price, foreign currencies, and derivatives, including:- assets classified as trading securities in accordance with K-IFRS,- derivatives for trading and hedged derivatives for which hedge accounting is not applied,- trust account securities with agreements to guarantee principal or interest and- foreign currency exchange position regulated by Korean Banking Laws.
The Consolidated Group uses an internal model for measurement of market risk. The purpose of internal model is to compute required
capital by VaR using historical simulation with a confidence level of 99.0 percent and 10-day (one day) retaining period. VaR using historicalsimulation sets up 10 business days’ (one business day) profit ratio of risk elements for the past one year into profit ratio of current portfolio,
computes portfolio values for past days and lines up in order of values and computes the difference between the value of low second-ranked
portfolio and current portfolio. In addition, the Consolidated Group always reflects the worst scenario regardless of the measuring pointof risks, by applying stressed VaR required by Basel Committee on Banking Supervision since 2012 for the purpose of reinforcement ofregulations.
The Consolidated Group performs back-testing on a daily basis so as to procure the suitability of internal model and stress testing to prepare
emergency situation not reflected in the recent market elements.
Required capital of market risk is the sum of computed value by internal model and value of specific risk by standard model. Ten-day basis
VaR by group/department is reported to management on a daily basis and to risk management operating committee on a monthly basis.
Market risk VaR for the years ended December 31, 2012 and 2011, is as follows (Unit: In millions):
Dec. 31, 2012
TypeInterest rate risk
Stock price risk
Foreign currency risk
Option risk
Total risks (*)

₩

₩

High

Low

21,197 ₩44,19984,126
4,288
95,383 ₩4,316 ₩
7,701
4,404
363
15,651 ₩Dec. 31, 2011

AverageEndingHigh

Low

AverageEnding

11,549 ₩15,71732,073
1,842
47,183 ₩6,266 ₩
7,701
52,2052,698
55,669 ₩

9,530 ₩
27,60524,877
6,974
45,193 ₩2,298 ₩
3,619
1,734
106
8,243 ₩

4,809 ₩
12,735
11,8192,063
26,099 ₩

3,324
5,296
4,509
193
9,619

(*) The total portfolio risk is not equal to the sum of the individual component risks because it is computed by considering the correlations of the risks.
2) Interest rate risk VaR (excluding trading portfolio)
Interest rate VaR (excluding trading portfolio) is a statistical estimate of the maximum potential decline in the value of net assets due to theunfavorable changes in interest rate, using the VaR methodology, a key measure of market risk, to interest rate risk assessment.
The management of interest rate risk is supported by a comprehensive analysis of interest rate gap (between assets generating interest income
and liabilities generating interest expense) and measurement of interest rate VaR and earnings at risk (EaR). Interest rate VaR is an object ofinternal capital limit management and EaR is used as supplementary limit management index. Internal capital limit management is classified
as Korean won, foreign currencies, overseas and trust fund.
The result of interest rate measurement is reported to risk management operating committee on a monthly basis.

90

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Details of interest rate VaR, except for trading portfolio for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Dec. 31, 2012
Type

High

Interest rate risk

₩ 288,076 ₩Low

Dec. 31, 2011

AverageEndingHigh

Low

AverageEnding60,146 ₩ 150,203 ₩ 288,076 ₩ 162,696 ₩ 122,581 ₩ 140,163 ₩ 122,581(*) The total portfolio risk is not equal to the sum of the individual component risks because it is computed by considering the correlations of the risks.
(3) Liquidity risk
1) General
Liquidity risk is the risk that the consolidated Group is unable to meet its payment obligations arising from financial liabilities as they fall due.
2) Liquidity risk management
The Consolidated Group proactively responds to liquidity emergencies by selecting an early alert indicator and improves its ability to preserveby selecting risk propensity index, credit limit management index, and monitoring index. Additionally, it regularly performs liquidity stress
test, comprehend deficit, and reflect in the emergency funding plan.
Credit limit management index includes liquidity coverage ratio and net stable funding ratio which will be introduced as Basel III liquidity
risk regulation ratio.
Liquidity risk management is targeting for on- and off- balance assets, liabilities and derivatives and is managed based on liquidity gap,
representing the difference between maturities of assets and liabilities.
Maturity structures of liabilities as of December 31, 2012 and 2011 are as follows (Unit: In millions):

Classification
Deposits
Financial liabilities at
FVTPL
Borrowings
Debentures
Other financial liabilities
Merchant banking
account liabilities
Loan commitment
Finance guarantee
Total

Immediatepayment₩ 27,721,285₩

1 monthor less
7,657,947

Dec. 31, 2012
3 months –1 – 3 months
1 year
₩ 9,570,790 ₩ 20,862,480₩

1 year –5 years
2,124,313

More than
5 years₩
177,775₩ 68,114,590

Total

1,308,753

-

-

-

-

-

1,308,753

1,412,909
132
2,051

1,534,459
168,240
12,511,446

1,334,492
457,289
2,089

1,399,291
1,440,266
16,3491,237,135
4,017,427
3,853

132,910
767,276116

7,051,196
6,850,630
12,535,904

525,654

185

-

-

-

-

525,839

59,485,926
731,557₩ 91,188,267₩ 21,872,277₩ 11,364,660₩ 23,718,386

7,382,728

1,078,077

59,485,926
731,557₩ 156,604,395

₩

₩

91

Korea Exchange Bank 2012 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Classification
Deposits
Financial liabilities at
FVTPL
Hedging derivative
liabilities
Borrowings
Debentures
Other financial liabilities
Merchant banking
account liabilities
Loan commitment
Finance guarantee
Total

Immediatepayment₩ 27,407,957₩

1 monthor less
6,582,109

Dec. 31, 2011
3 months –1 –3 months
1 year₩ 8,861,570 ₩ 20,508,218₩

1 year –5 years
2,275,854

More than
5 years₩
241,517₩ 65,877,225

Total

968,120

-

-

-

-

-

968,120

-

-

172

593

161

-

926

2,374,387
222
825,899

2,376,986
179,849
8,914,874

1,870,030
517,931
3,871

1,447,087
2,266,476
25,383

1,269,386
2,709,856
26,969146,291
322,906-

9,484,167
5,997,240
9,796,996

747,585

200

-

-

-

-

747,785

53,059,207
618,643₩ 86,002,020₩ 18,054,018₩ 11,253,574₩ 24,247,757

6,282,226

710,71453,059,207
618,643₩ 146,550,309₩₩

9. SEGMENT INFORMATION:(1) Segment units
The business sectors of the Consolidated Group are divided by its operations as follows. The result of operating segments is measured based on
operating income before tax.

Classification

Business

Individual Finance

Retail banking
Credit card
Trust

Corporate FinanceCorporate banking

Fund Market

Fund market management
International banking
OthersOthers

Receiving and giving credit to household
Issue, use and payment of credit card and others
Retirement pension and so on
Receiving and giving credit to enterprise, securities investment,
derivative transactions and others
Investing and managing securities
Support for enterprises to expand their business abroad and others
Management and others(2) Information of segment profit or loss and segment assets
1) Net income by business segment for the years ended December 31, 2012 and 2011 is as follows (Unit: In millions):
2012
Classification

Individual
Finance

Corporate
FinanceFund Market

Segment operating income:₩ 855,856 ₩ 1,034,569 ₩Net interest income
Net commission income
352,271
261,422
Net other operating income
84,076
218,951
Subtotal
1,292,203
1,514,942

OthersSubtotal

Adjustment

Total

70,918 ₩ (113,108) ₩ 1,848,235 ₩ 617,742 ₩ 2,465,977(21,108)
116,425
709,010(530,380)
178,630
106,837
84,658494,522
25,280519,802
156,647
87,975
3,051,767
112,642
3,164,409

92

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Segment operating expenses:
General and administrative
expenses
Segment operating profit
Transfer to (reversal of )allowances for possible
losses on credits (*1)
Income tax expense
Segment net income₩

558,390372,526

25,523647,713

1,604,152(31,188)

1,572,964

733,813

1,142,416

131,124(559,738)

1,447,615

143,830

1,591,445

239,270

331,905-(381,909)

189,266

482,208

671,474(422)
494,965 ₩32,229778,282 ₩60,928115,242
207,977
53,142
70,196 ₩ (293,071) ₩ 1,050,372 ₩ (391,520) ₩261,119
658,852(*1) Transfer to (reversal of) allowances for possible losses on credit include allowance for possible loan losses, reversal of provision for acceptances andguarantees, and transfer to provision for unused credit limit.

2011
Classification

Individual
Finance

Corporate
FinanceFund Market

Segment operating income:₩ 781,047 ₩ 1,172,037 ₩Net interest income
Net commission income
516,757
292,830
Net other operating income
94,7781,203,964
Subtotal
1,392,582
2,668,831
Segment operating expenses:
General and administrative
517,592
430,287
expenses
Segment operating profit
874,990
2,238,544
Transfer to (reversal of )allowances for possible
40,74958,953losses on credits (*1)
Income tax expense
66,505₩ 834,241 ₩ 2,113,086 ₩Segment net income

OthersSubtotal

Adjustment

Total

34,054 ₩(9,153)116,095
140,996

43,111 ₩ 2,030,249 ₩ 519,640 ₩ 2,549,889(26,167)
774,267(526,769)
247,498(83,157)
1,331,680
28,902
1,360,582(66,213)
4,136,196
21,773
4,157,969

17,147479,262

1,444,288

46,271

1,490,559

123,849(545,475)

2,691,908(24,498)

2,667,410-

409,549

509,251(939)

508,312

17,555431,564
515,624
106,294 ₩ (1,386,588) ₩ 1,667,033 ₩(11,191)
504,433(12,368) ₩ 1,654,665(*1) Transfer to (reversal of) allowances for possible losses on credit include allowance for possible loan losses, reversal of provision for acceptances andguarantees, and reversal of provision for unused credit limit.
2) Income from customers and transaction between segments, by business segment, for the years ended December 31, 2012 and 2011
are as follows (Unit: In millions):
2012
Classification
Income from customers
Income between segments
Total

Classification
Income from customers
Income between segments
Total

Individual
Corporate
Fund Market
FinanceFinance₩ 1,227,154 ₩ 1,489,329 ₩ 191,168 ₩
65,04925,613(34,521)₩ 1,292,203 ₩ 1,514,942 ￦ 156,647 ₩OthersSubtotal

Adjustment

144,116 ₩ 3,051,767 ₩(56,141)
87,975 ₩ 3,051,767 ₩Total

112,642 ₩ 3,164,409
112,642 ₩ 3,164,409

2011
Individual
Corporate
Fund Market
OthersSubtotal
Adjustment
Total
FinanceFinance₩ 1,347,874 ₩ 2,214,000 ₩ 151,412 ₩ 422,910 ₩ 4,136,196 ₩
21,773 ₩ 4,157,969
44,708454,831(10,416)(489,123)₩ 1,392,582 ₩ 2,668,831 ₩ 140,996 ₩ (66,213) ₩ 4,136,196 ₩
21,773 ₩ 4,157,969

Korea Exchange Bank 2012 Annual Report

93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 20113) Significant non-cash items included in operating income by business segment for the years ended December 31, 2012 and 2011 are
as follows (Unit: In millions):
2012
Classification

Individual
Corporate
Fund Market
FinanceFinance- ₩- ₩- ₩Share of loss of associates, net ₩Depreciation and amortization
9,374
3,696
₩
Total
9,374 ₩
3,696 ₩- ₩OthersSubtotal

Adjustment

679 ₩83,021
83,700 ￦679 ₩96,091
96,770 ₩- ₩9,622
9,622 ₩

Total
679
105,713106,392

2011
Classification

Individual
Corporate
Fund Market
FinanceFinance- ₩- ₩- ₩Share of loss of associates, net ₩Depreciation and amortization
9,889
18,285₩
Total
9,889 ₩
18,285 ₩- ₩OthersSubtotal

Adjustment

129 ₩
74,446
74,575 ₩129 ₩102,620
102,749 ₩- ₩(2,790)(2,790) ₩

Total
129
99,83099,959(3) Regional information
Financial information by region as of December 31, 2012 and 2011, and for the years ended December 31, 2012 and 2011, is as follows(Unit: In millions):
Income from customers (*1)
Classification
Domestic
Overseas
Hong Kong
Singapore
USA
Japan
China
Indonesia
UK
CanadaOthersSubtotal
Consolidation adjustment
Total

2012
₩

2,848,241₩

43,134
13,88723,50425,36963,73325,992
16,89633,87470,800317,189(1,021)
3,164,409

Non-current assets (*2)
2011₩

3,846,568₩

34,887
12,88321,92950,23566,957
26,854
16,23230,64666,451
327,074(15,673)
4,157,969

2012₩

1,448,138

₩

4,705
221
711
5,834
18,705
226
115
3,329
2,325
36,171
1,484,309

2011₩

1,436,659

₩

5,056
338
695
4,458
18,054
262
259
3,200
1,417
33,7391,470,398(*1) Income from customers is divided into domestic and overseas based on location of branches and subsidiaries.
(*2) Non-current assets consist of property, plant and equipment, investment property, and intangible assets. They are divided into domestic and overseas
based on location of assets.

94

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

10. CASH AND DUE FROM BANKS:(1) Cash and due from banks as of December 31, 2012 and 2011 consist of (Unit: In millions):
Account

Financial institution

Cash
Due from banks in Korean won:Reserve deposit
Monetary stabilization deposits
Other due from banks

Dec. 31, 2012₩

Due from banks in foreign currencies:
Reserve deposit
Due from banks on time deposits
Other due from banks

1,708,793

Dec. 31, 2011₩

1,330,266

B.O.K.
B.O.K.
Other financial institutions
Subtotal

1,599,521
129,951
1,729,472

2,792,377
400,000
102,113
3,294,490

B.O.K. and others
BAYERN LB and others
Other financial institutions
Subtotal

2,673,431
1,234,209
747,937
4,655,577
8,093,842

2,417,879
953,449
401,4443,772,772
8,397,528

Total

₩

₩

(2) Restricted due from banks in Korean won and foreign currencies as of December 31, 2012 and 2011 consists of the following (Unit: In
millions):
Classification
Due from banks in Korean won:Reserve deposit

Dec. 31, 2012₩

1,599,521₩

Dec. 31, 2011

Reason for restriction

2,792,377

Required under the B.O.K. Act
Deposits in the B.O.K. for the purpose of
liquidity management of the B.O.K
Subscription related to derivatives
Required under Financial Investment
Services and Capital Markets Act

Monetary stabilization deposits-

400,000

Reserve for future trading

3361

50,17942,694

1,649,703

3,235,432

1,552,881
566,354
2,119,235
3,768,938

1,479,600
94,642
1,574,242
4,809,674

Investors’ deposit
Subtotal
Due from banks in foreign currencies:
Reserve deposit
Other due from banks
Subtotal
Total

₩

₩

Required under the B.O.K. Act and other
Subscription related to derivatives and others

Korea Exchange Bank 2012 Annual Report

95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

11. FINANCIAL ASSETS AT FVTPL:(1) Financial assets at FVTPL as of December 31, 2012 and 2011 consist of the following (Unit: In millions):
Fair value (Book value)
Classification

Interest rate (%)

StocksGovernment and public bonds
Financial bonds
Securities in foreign currencies

Samsung Electronics
Co., Ltd., etc.
Treasury bonds
Monetary stabilization
securities
Stocks
Bonds
Subtotal

Dec. 31, 2012

-

₩

-

21,107

Dec. 31, 2011
19,849₩-16,196

3.47–3.90

100,674

370,896-

1,356,298
1,478,079

1,215
2,306
3,521
1,073,531
1,483,993

Trading derivative assets (Note 18)
Total

₩

₩

(2) The valuation of trading securities and bonds, by industry, as of December 31, 2012 and 2011 is as follows (Unit: In millions):
Dec. 31, 2012
Classification

Face value

Financial bonds₩

100,000

Acquisition cost₩

100,691₩

Adjustment by
EIR method
100,672₩

Fair value(Book value)
100,674

Dec. 31, 2011
Classification

Face value

Government and public bonds
Financial bonds
Foreign bonds
Total

₩

₩

16,000370,000
2,307
388,307

Acquisition cost₩₩

16,165
370,7412,303
389,209₩₩

Adjustment by
EIR method
16,168
370,7212,275
389,164₩₩

Fair value(Book value)
16,196
370,896
2,306
389,398(3) The portfolio of trading securities and bonds, by industry, as of December 31, 2012 and 2011 is as follows (Unit: In millions):
Dec. 31, 2012
Industry

In Korean won

Financial₩

100,674

In foreign currencies₩-

Amount₩100,674

Percentage (%)₩

100.00Dec. 31, 2011
Industry

In Korean won

Financial
Public₩Total₩

370,896
16,196
387,092

In foreign currencies
₩
₩

2,306
2,306

Amount₩₩373,202
16,196389,398

Percentage (%)
₩
₩

95.84
4.16
100.0096

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(4) The portfolio of trading securities and bonds, by country, as of December 31, 2012 and 2011 is as follows (Unit: In millions):
Dec. 31, 2012
Country

In Korean won

Korea

₩

100,674

In foreign currencies

Amount-₩₩100,674

Percentage (%)
100.00₩Dec. 31, 2011
Country

In Korean won

Korea

₩

387,092

In foreign currencies₩

Amount2,306₩

389,398

Percentage (%)₩

100.0012. AFS FINANCIAL ASSETS:(1) AFS financial assets as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Fair value (Book value)
Classification

Type

Securities
SK Hynix Inc. and others
Equity investment
Vogo Fund and others
Government and public bonds Treasury bonds
Housing bonds
Other local bonds
Subtotal
Monetary stabilization
Financial bonds
securities
Deposit bank bonds
Small and medium-sizedbusiness banking bonds
Industrial finance bonds
Export-import credit bonds
Subtotal
Corporate and other bonds
General bonds
Industrial bonds invested bygovernment
Subtotal
Beneficiary certificates
Securities in foreign currencies Foreign stocks
Foreign bonds
Foreign investment
Subtotal
Other securities
Beneficiary rights certificates
Total

Interest rate (%)
3.00~5.75
3
2.96~4.25

Dec. 31, 2012₩

479,184
86,862786,863
48,641
463,431
1,298,935

Dec. 31, 2011₩

635,901
78,17590,12919,989170,128
280,246

2.78~3.99

1,973,320

3,035,357

3.04~8.87

330,098

362,1212.82~4.04

169,510

178,163

2.87~8.06
3.07~3.98
3.03~6.36

404,277
80,455
2,957,660
969,454

210,380
19,746
3,805,767
669,418

2.96~5.39

827,051

431,468

1.25~8.00-

1,796,505
6,429
3,184
358,449802
362,435
38,511
7,026,521

1,100,886
2,305
151,443548
154,296
65,422
6,120,693₩₩

Korea Exchange Bank 2012 Annual Report

97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(2) Details of securities (including foreign securities) among AFS financial assets as of December 31, 2012 and 2011 are as follows(Unit: In millions):
Fair value (Book value)
Classification
Marketable securities
Non-marketable securities
Total

Book value
before valuation₩
276,163
177,232₩
453,395₩₩

Gain (loss) on
valuation
29,244(271)
28,973

Dec. 31, 2012

Dec. 31, 2011

305,407
176,961
482,368₩₩

464,500
173,706
638,206₩₩1) Details of marketable securities (including foreign securities) as of December 31, 2012 and 2011 are as follows(Unit: In shares; In millions):
Dec. 31, 2012

Dec. 31, 2011

Name of Investments

Number ofsharesSK Hynix Inc.
Kumho Tire Co., Inc.
Oriental Precision &Engineering Co., Ltd.
Daiyang Metal Co., Ltd.
Hanmi BankKCP Co., Ltd.
Chinhung International Inc.
SAMT Co., Ltd.
MB Shiroyama Co., Ltd.
Kumho Industrial Co., Ltd.
Taesan LCD Co., Ltd.
K-Top Reits Co., Ltd.
Hanil Engineering &Constructions Co., Ltd.
Ssangyong Engineering &Construction
Pharmicell
Pumyang Construction Co., Ltd.
Namkwang Engineering &Construction Co., Ltd.
DongBu-TS Black Pearl Special
Purpose Acquisition Company
IBKS Smart SME
Special Purpose Acquisition
Company No.1

10,092,500
2,160,000

1.45
1.71

8,102,666

9.56

9,926

(154)

9,772

-

7,563,000
146,179
102,740
3,002,000
677,264
1,819,342
707,180
648,046
200,000

16.48
2.49
0.97
0.67
0.85
1.80
0.41
3.03
3.69

6,618
1,248
629
1,447
740
1,299
4,262
3,584
1,100

880
604
(222)
447
(186)
(3,194)(2,608)
(288)

6,618
2,128
1,233
1,225
1,187
1,113
1,068
976
812

1,248
629
740
1,299
3,012
3,584
-

955,800

2.78

1,596

(929)

667

1,596

191,934

0.64

1,214

(591)

623

1,214

109,500
28,157

0.33
2.81

1,221
452

(663)
21

558
473

1,221
-

122,349

3.26

6,316

(6,027)289-

100,000

3.33

187

13

200

187

87,800

9.98

82

5

87

-

111

(10)

101

426

Ownership
Book value
ratio (%) before valuation₩

OthersTotal₩

215,212
18,919276,163

Gain (loss) on
valuation₩₩

37,201
4,945

29,244

Fair value(book value)₩₩

252,413 ₩23,864305,407 ₩Fair value(book value)
430,425
18,919464,500

98

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

2) Details of non-marketable securities (including foreign securities) as of December 31, 2012 and 2011 are as follows(Unit: In shares; In millions):
Dec. 31, 2012
Name of Investments
Consumer Credit AssistantFund Co., Ltd.
The Korea Securities FinanceCorporation
Pantech Co., Ltd.
Alpha Dome City Co., Ltd.
KRX
Korea Asset Management
Corporation
Daewoo Electronics Corp.
Korea Enterprise Data Co., Ltd.
Dongbu Asset Management Co., Ltd.
The Kerr New Frontier
Private Overseas Resources
Development Special Assets
Fund 4 (Oil Field)
DanHan Cornerstone Project
Financing Investment
Korea Finance Security Co., Ltd.
Korea Money Brokerage
Corporation
Ilsan Project Co., Ltd.
Korea Credit Bureau
Midan City Development Co., Ltd.
M cieta Development Co., Ltd.
Korea Smart Card
Hallyu Wood Company, Ltd.
Korea Credit-card Electronicsettlement Service Co., Ltd.
A Jin Paper Co., Ltd.
Booyoung Finance
Realty Advisors Korea, Ltd.
BLADEX
CLS Bank International
Golden Bridge AssetManagement Co., Ltd.
Kores Co., Ltd.
Cosmotech Co., Ltd.
Mobile Appliance
K-TOP Reits Co., Ltd.
Others
Total

Number ofsharesOwnership
Book value
ratio (%) before valuation

20,8224.16

2,238,842

3.29

24,87140,937,557
2,950,200
80,498

2.49
3.00
0.40

1,266,000

Fair value(book value)
62,466529

25,40024,871

17,80814,751
12,025164907

17,972
14,751
12,932

17,80814,751
12,025

2.43

6,330

-

6,330

6,330

36,142620,250
540,000

6.79
4.48
9.00

5,362
3,910
3,443

(3)
858
(50)

5,359
4,768
3,393

5,362
1,484
3,443

3,069,254,410

1.24

3,000

-

3,000

1,955

550,000

5.00

2,750

-

2,750

-

117,580

9.80

2,427

252

2,679

2,427

69,220

3.46

2,690

(129)

2,561

2,690

288,000
72,000387,800
255,000
150,004
120,000

4.80
3.60
2.70
2.50
1.74
3.00

2,508
2,176
1,492
1,275
885
1,200

122
341
-

2,508
2,298
1,492
1,275
1,226
1,200

2,508
3,627
1,492
1,275
885
1,200

119,625

13.91

944

74

1,018

944

53,850100,000
112,000
147,173
1,972

1.90
5.00
8.00
0.40
1.29

700
576
539
475
437

94
(34)
-

794
542
539
475
437

932
576
539
475
437

80,000

4.00

463

(43)

420

463

492,000
984,000
1,104,814
-

4.64
2.14
14.10
-

322
296
461
650
177,232

1
12
(263)
11
(271)

323
308
198
661
176,961 ₩₩₩₩(3,114)

Fair value(book value)
59,352 ₩₩62,466

Dec. 31, 2011
Gain (loss) on
valuation
₩

₩

322
296
461
1,100
562
173,706

From the amount above, ₩35,240 million (₩94,580 million as of December 31, 2011), including securities of Alpha Dome City Co., Ltd., wasmeasured at acquisition cost because its fair value was not able to be measured reliably. The Consolidated Group measured fair values of non-maketable securities, using reasonable valuation method and estimations based on professional judgment of an independent external valuation agency.
The independent agency measures the fair value by considering features of valuation target among Discounted Cash Flow Model, Imputed Market
Value Model, and Risk-Adjusted Discount Rate Model.

Korea Exchange Bank 2012 Annual Report

99

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

3) Details of AFS financial assets for which disposal is restricted as of December 31, 2012 and 2011, are as follows(Unit: Shares, In millions):
Dec. 31, 2012
Name of Investments
SK Hynix Inc.
Kumho Tire Co., Inc.
Oriental Precision & Engineering Co., Ltd.
Daiyang Metal Co., Ltd.
Daewoo Electronics Corp.
Chinhung International Inc.
SAMT Co., Ltd.
Kumho Industrial Co., Ltd.
Taesan LCD Co., Ltd.
A Jin Paper Co., Ltd.
Hanil Engineering & Constructions Co., Ltd.
Ssangyong Engineering & Construction (*1)
Pumyang Construction Co., Ltd.
Kores Co., Ltd.
Namkwang Engineering & Construction Co., Ltd.
Jaeyoung Solutec Co., Ltd.
Others
Total

Number of shares
10,092,500
2,160,000
8,102,666
7,563,000
36,142
3,002,000
677,264
707,180
648,046
53,850955,800
191,934
28,157492,000
122,349
61,333₩₩

Book value

Restricted period

252,413
23,864
9,772
6,618
5,359
1,225
1,187
1,068
976
794
667
623
473
323
289
48
16
305,7152013- 06-30
2014-12-31
2016-12-31
2016-06-04
2013-03-31
2013-03-31
2013-06-30
2014-12-31
2013-12-31
2015-12-31
2014-12-31
2013-06-04
2015-12-31
2013-03-31
2014-12-31(*1) The disposal of the investments will be determined through creditors’ meeting.
Dec. 31, 2011
Name of Investments
SK Hynix Inc. (*1)
Kumho Tire Co., Inc.
Pantech Co., Ltd.
Daewoo Electronics Corp.
Taesan LCD Co., Ltd.
Kumho Industrial Co., Ltd.
Hanil Engineering & Constructions Co., Ltd.
MB Shiroyama Co., Ltd.
Ssangyong Engineering & Construction (*1)
A Jin Paper Co., Ltd.
SAMT Co., Ltd.
Kores Co., Ltd.
EpiValley Co., Ltd.
Jaeyoung Solutec Co., Ltd.
Young Gwang Stainless Co., Ltd.
Kem Oh Marine Co., Ltd.
21st Century Shipbuilding Co., Ltd.
Total

Number of shares
20,185,000
2,160,000
40,937,557
36,1423,240,232
497,800
955,800
1,819,342
191,934
71,800677,264
492,000
198,770
61,333
10,00034,5003,500(*1) The disposal of the investments will be determined through creditors’ meeting.

₩₩Book value

Restricted period

430,425
18,91917,808
5,362
3,584
3,012
1,596
1,299
1,214
932
740
322
174
40
16
485,443

2014-12-31
2011-12-31
2012-03-31
2013-12-31
2014-12-31
2014-12-31
2012-01-27
2011-12-31
2013-06-30
2015-12-31
2012-09-22
2012-12-31
2012-12-31
2012-12-31
2012-12-31

100

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(3) Details of equity investment (including foreign investment) among AFS financial assets as of December 31, 2012 and 2011 are as
follows (Unit: In millions):

Name of Investments
United PF 1st corporate financial
stability private investment company
Vogo Fund
ORIX-LTI Private Equity Fund
KT-LIG ACE Private Equity Fund Co.,Ltd.
QCP 1 Private Equity Fund
STIC Private Equity Fund II(New Growth Engine)
Daishin-Heungkuk No.1
Private Equity Fund
Connex New Growth Private Equity
Fund No.1
Corestone Private Equity Fund No.1
Value up Private Equity Fund2010 KIF-Tube IT FundQCP 3 Private Equity Fund2010 KIF-IMM IT Fund
Swift
Future Growth & Buy-out
Private Equity FundSHCF Private Equity Fund
GoldenBriedge Green Private Equity
Fund No.1
Hi Asian Contemporary Art Fund
Consus Investment Fund No.1
The Kerr-Nice NPL Fund No.1
Others
Total

Book value
before valuation₩₩

33,768Dec. 31, 2012
Gain (loss)
on valuation₩(1,283)

Dec. 31, 2011
Book value₩

32,485

Book value₩-

17,346
5,252

2,278
348

19,624
5,600

27,116
5,234

6,327

(1,081)

5,246

7,287

4,253

686

4,939

4,253

3,454

143

3,597

3,271

3,100

131

3,231

1,300

3,256

(44)

3,212

5,000

3,000
2,276
1,736
930
848
802

(73)
-

3,000
2,276
1,663
930
848
802

3,000
2,276
1,141
930
328
548

210

-

210

180

-

-

-

6,755

-

-

-

4,000

1
86,5591,105

187,664

3,083
3,011
9
1
78,723₩₩₩For investment over ₩1,000 million, the Consolidated Group uses valued price measured by an external valuation agency every half year.
Additionally, ₩5,790 million as of December 31, 2012 (₩14,365 million as of December 31, 2011), among the investment mentioned above ismeasured at acquisition cost since it is difficult to measure its fair value reliably.

Korea Exchange Bank 2012 Annual Report 101

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(4) Details of debt securities among AFS financial assets as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Dec. 31, 2012
Classification

Face value

Government and public bonds
Financial bonds
Corporate and other bonds
Foreign bonds
Total

₩

₩

1,293,587
2,938,739
1,780,000
336,480
6,348,806

Adjustment byeffective interest
rate method

Acquisition cost₩₩

1,294,099
2,957,220
1,836,950
359,432
6,447,701

1,294,725
2,955,266
1,791,970
357,537
6,399,498₩₩

Fair value(Book value)₩₩

1,298,935
2,957,660
1,796,505
358,449
6,411,549

Dec. 31, 2011
Classification

Face value

Government and public bonds
Financial bonds
Corporate and other bonds
Foreign bonds
Total

₩

₩

280,087
3,810,000
1,095,000
155,702
5,340,789

Adjustment byeffective interest
rate method

Acquisition cost₩₩

282,828
3,797,665
1,144,238
155,542
5,380,273

279,833
3,803,675
1,097,621
156,245
5,337,374₩₩

Fair value(Book value)₩₩

280,246
3,805,767
1,100,886
151,443
5,338,342(5) Changes of gain (loss) on valuation of AFS financial assets recorded as accumulated other comprehensive income for the years ended
December 31, 2012 and 2011 are as follows (Unit: In millions):

Classification
Securities
Other equity securities
Government and public bonds
Financial bonds
Corporate and other bonds
Foreign bonds
Total

Beginning₩₩

Classification
Securities
Other equity securities
Government and public bonds
Financial bonds
Corporate and other bonds
Foreign bonds
Total

277,670
32,975
313
1,586
2,474
(3,640)311,378₩

737,166
37,506
1,786
12,673
1,955(4,291)
786,795

Increase(decrease)(19,219)
12,700(367)(3,189)2,376
384(7,315)

2011
Realized throughdisposal₩(560,022)(17,688)(1,533)(10,989)(1,636)332₩(591,536)

Increase₩₩

Beginning₩

41,841
10,724
4,164
1,761
3,635
2,058
64,183

2012
Realized throughdisposal₩(155,272)(22,270)(367)(1,459)(2,365)
3,657₩(178,076)

₩

₩

₩

₩

₩

₩

Income tax
effect27,448
2,777
(919)
(73)
(307)
(1,383)27,543

Income tax
effect119,745
457
427
3,091
(221)
(65)
123,434

Ending₩₩

191,687
24,206
3,191
1,815
3,437
692
225,028

Ending₩₩277,670
32,975
313
1,586
2,474
(3,640)311,378

102

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(6) Details of gain or loss realized through disposal of AFS financial assets for the years ended December 31, 2012 and 2011 are as follows(Unit: In millions):
2012
Classification
Securities
Other equity securities
Government and public bonds
Financial bonds
Corporate and other bonds
Foreign bonds
Total

2011

Realized gain₩₩

196,860
104
3,925
4,901
9,554
31,702
247,046

Realized loss
₩

₩

40
40

Realized gain
1,182,283
101
161
6,517
1,994
208
1,191,264₩₩

Realized loss
815
112
927

₩

₩

(7) Details of dividend income from AFS financial assets for the years ended December 31, 2012 and 2011 are as follows(Unit: In millions):
Classification

2012

Securities
Other equity securities
Total

8,464
3,447
11,911₩₩

2011
20,036
27,63447,670₩₩(8) Details of the transferred assets that do not qualify for derecognition and the associated liabilities as of December 31, 2012 and 2011
are as follows (Unit: In millions):
Dec. 31, 2012
Classification
Transferred assets
AFS financial assets (*1)
HTM investments
Total
Related liabilities
Bonds sold under RPs

Book value

Fair value
₩

₩

-

₩

190

₩

Dec. 31, 2011
Book value
₩

₩

-

₩

190

Fair value₩₩

29,98530,141
60,126₩29,98530,141
60,126₩22,245₩22,245(*1) The AFS financial assets are the securities loaned under an agreement and will be returned to the Company. They have no associated liabilities.

Korea Exchange Bank 2012 Annual Report 103

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011(9) Details of debt securities of AFS financial assets by industry as of December 31, 2012 and 2011 are as follows (Unit: In millions):

Classification
Financial
PublicManufacturing
Others

₩

Total

₩

Classification
Financial
PublicManufacturing
Wholesale and retail
OthersTotal₩₩

Dec. 31, 2012
	In foreign
In Korean won
	Total amountcurrencies₩₩
3,059,611
318,9313,378,542
2,206,441
39,5182,245,959
160,488
160,488626,560
626,560₩₩
6,053,100
358,449
6,411,549
Dec. 31, 2011
	In foreign
In Korean won
	Total amountcurrencies₩₩
3,981,628
105,810
4,087,438
711,714711,71470,74137,390108,131
10,025
10,025
412,791
8,243
421,034₩₩
5,186,899
151,443
5,338,342

Percentage (%)
52.70
35.03
2.50
9.77
100.00Percentage (%)
76.56
13.33
2.03
0.19
7.89
100.00(10) Details of debt securities of AFS financial assets by country as of December 31, 2012 and 2011 are as follows (Unit: In millions):

Classification
Korea
Hong Kong
Others

₩

Total

₩

Classification
Korea
Singapore
Hong KongJapan
Others

₩

Total

₩

Dec. 31, 2012
	In foreign
In Korean won
	Total amountcurrencies₩₩
6,053,100
331,848
6,384,948
5,110
5,110
21,491
21,491₩₩
6,053,100
358,449
6,411,549
Dec. 31, 2011
	In foreign
In Korean won
	Total amountcurrencies₩₩
5,186,899
61,3195,248,218
41,85841,85813,086
13,0865,750
5,750
29,43029,430₩₩5,186,899
151,443
5,338,342

Percentage (%)
99.58
0.08
0.34
100.00Percentage (%)
98.31
0.78
0.25
0.11
0.55
100.00

104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 201113. HTM INVESTMENTS:(1) Details of HTM investments as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Book value
Classification

TypeInterest rate (%)

Government and public bonds Treasury bonds
Housing bonds
Local development bonds
Subtotal
Financial bonds
Monetary stabilization securities
Deposit bank bonds
Industrial finance bonds
Subtotal
Corporate and other bonds
General bonds
Industrial bonds invested bygovernment
Subtotal
Foreign securities
Foreign debt securities
Total

Dec. 31, 2012

Dec. 31, 2011

3.71~8.11

344,281
327,492
23,847
695,620
3,221,941
70,79810,0203,302,759
170,879

3.80~6.32

849,964

580,6480.20~7.63

1,020,843
107,131
5,126,353

803,337
175,918
5,462,329

3.00~4.75
2.82~4.90
3.40~4.23₩

2.78~3.99
4.37~8.35
6.12

₩

₩

₩

495,183
246,785
39,890781,858
3,601,145
80,012
20,0593,701,216
222,689(2) Details of valuation of HTM investments as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Dec. 31, 2012
Classification
Government and public bonds
Financial bonds
Corporate and other bonds
Foreign bonds
Total

Face value₩₩693,843
3,300,000
1,010,000
108,324
5,112,167

Adjustment byeffective interest
rate method

Acquisition costs₩₩

696,174
3,303,882
1,033,844
106,428
5,140,328

695,620
3,302,759
1,020,843
107,131
5,126,353₩₩

Book value₩₩

695,620
3,302,759
1,020,843
107,131
5,126,353

Dec. 31, 2011
Classification
Government and public bonds
Financial bonds
Corporate and other bonds
Foreign bonds
Total

Face value₩₩

779,9433,700,000
790,000
177,518
5,447,461

Adjustment byeffective interest
rate method

Acquisition costs₩₩

778,325
3,702,617
809,595
174,857
5,465,394₩₩

781,858
3,701,216
803,337
175,918
5,462,329

Book value₩₩

781,858
3,701,216
803,337
175,918
5,462,329

Korea Exchange Bank 2012 Annual Report 105

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(3) Details of HTM investments by industry as of December 31, 2012 and 2011 are as follows (Unit: In millions):

Total

Dec. 31, 2012
	In foreign	In Korea won
	Total amountcurrencies₩₩₩
3,302,759
71,1593,373,918
1,545,584
25,261
1,570,845
10,711
10,711
170,879
170,879₩₩₩
5,019,222
107,131
5,126,353

Total

Dec. 31, 2011
	In foreign	In Korea won
	Total amountcurrencies₩₩₩
3,701,216
110,541
3,811,757
1,362,506
46,847
1,409,353
20,742
12,32333,065201,947
6,207
208,154₩₩₩
5,286,411
175,918
5,462,329

Classification
Financial
PublicManufacturing
OthersClassification
Financial
PublicManufacturing
OthersPercentage (%)
65.82
30.64
0.21
3.33
100.00Percentage (%)
69.78
25.80
0.61
3.81
100.00(4) Details of HTM investments by country as of December 31, 2012 and 2011 are as follows (Unit: In millions):

Total

Dec. 31, 2012
	In foreign	In Korea won
	Total amountcurrencies₩₩₩
5,019,222
27,867
5,047,089
26,45526,455
10,711
10,71142,09842,098₩₩₩5,019,222
107,131
5,126,353

Total

Dec. 31, 2011
	In foreign	In Korea won
	Total amountcurrencies₩₩₩
5,286,411
47,1625,333,573
42,54742,547
13,636
13,636
11,533
11,53361,04061,040₩₩₩175,918
5,462,329
5,286,411

Classification
Korea
BrazilUSA
OthersClassification
Korea
Singapore
BrazilUSA
OthersPercentage (%)
98.45
0.52
0.21
0.82
100.00Percentage (%)
97.64
0.78
0.25
0.21
1.12
100.00

106

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

14. MATURITY STRUCTURE OF AFS FINANCIAL ASSETS AND HTM INVESTMENTS:
Maturity structure of AFS financial assets and HTM investments as of December 31, 2012 and 2011 is as follows (Unit: In millions):

Classification
AFS Financial assets:
Less than 1 month
1–3 months
3–6 months
6 months–1 year
1-3 years
3-5 years
5-10 years
Total
HTM financial assets:
1–3 months
3–6 months
6 months–1 year
1-3 years
3-5 years
5-10 years
Total

Classification
AFS financial assets:
Less than 1 month
1–3 months
3–6 months
6 months–1 year
1-3 years
3-5 years
5-10 years
More than 10 years
Total
HTM financial assets:
Less than 1 month
1–3 months
3–6 months
6 months–1 year
1-3 years
3-5 years
5-10 years
Total

Government andpublic bonds
₩

₩
₩

₩

Financial bonds

10,056
141,693
113,217710,878
323,091
1,298,935₩

12,96634,931
123,239522,285
2,199
695,620₩₩₩

Government andpublic bonds
₩

₩
₩

₩

419,757
430,215360,960
470,687
1,116,612
120,065
39,364
2,957,660₩

100,020
1,429,939
840,831911,171
10,79810,0003,302,759₩

Financial bonds

50,1089,960
140,12280,056280,246₩

97,309113,310
189,292
381,947
781,858₩₩₩

Dec. 31, 2012
Corporate andother bonds₩₩

Foreign bonds

29,964
10,027
90,37550,4151,304,122
311,602
1,796,505₩

130,204
261,205
60,529568,905
1,020,843₩₩₩

Dec. 31, 2011
Corporate andother bonds

699,410975,094
979,462
639,307
512,494
3,805,767₩

60,028640,153
739,810
2,261,225
3,701,216

₩

₩

₩

Total

358,449
358,449₩

32,610
11,549897
60,046
1,630
399
107,131₩₩₩

Foreign bonds

10,011
165,414300,599
533,820
91,042
1,100,886₩

141,695
651,547
10,095803,337₩₩₩

449,721450,298
593,028
634,319
3,490,061
754,758
39,364
6,411,549
275,800
1,737,624
1,025,496
2,062,407
14,627
10,3995,126,353

Total

45,63332,29052,15021,370151,443₩

42,561
6,566
804
63,052
13,06031,412
18,463
175,918₩₩₩

749,518
985,105
1,144,876
995,499
1,186,436
203,388
52,15021,3705,338,342
42,561
163,903754,267
1,133,849
3,307,779
41,507
18,463
5,462,329

Korea Exchange Bank 2012 Annual Report 107

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 201115. PLEDGED ASSETS:
Details of pledged assets among AFS financial assets and HTM investments for the purpose of deposit of securities related to repurchase agreementwith other banks and maintenance of membership of future/option trade and stock exchange as of December 31, 2012 and 2011 are as follows(Unit: In millions):
Book value
Classification

Reason for pledge

AFS Financial assets

Borrowing foreign currencies
Security lending agreement
B.O.K. Settlement
Daylight credit
Borrowing in foreign currencies(Credit Support Annex(“CSA”))
Borrowing from B.O.K.
Margin for future trading
OthersSubtotal
Borrowing foreign currencies
Margin for future trading
B.O.K. Settlement
Daylight credit
Customer RP
Borrowing in foreign currencies (CSA)
Borrowing from B.O.K.
OthersSubtotal

HTM investments

Total

Dec. 31, 2012₩₩

350,420-

Dec. 31, 2011₩

60,11429,985450,092
200,050

29,99744,01450,006
26,46560,361
517,249
961,821259,9211,000,612
550,077921
43,041
510,654718
3,327,765
3,845,014

49,984
834,239
903,008
290,637
1,020,733
150,070
3,982
40,001
361,002
13,836
2,783,269
3,617,508₩

108

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

16. LOANS:(1) Loans as of December 31, 2012 and 2011 consist of (Unit: In millions):
Classification

Dec. 31, 2012

Loans to banks:
Loans in Korean won
Loans in foreign currencies
Domestic import usance
Call loans
Bills bought in Korean won
Bills bought in foreign currencies
Advance payments on acceptance and guarantee
Credit card receivables
Bonds purchased under RPs
Installment receivables purchased
Privately placed bonds
Lease receivables
OthersSubtotal
Additions (deductions)Deferred LOF/LOCs
Allowance for possible loan losses
Total net book value

47,598,035
9,532,941
2,670,833
1,460,939
86,052
4,518,468
15,2202,661,277
490,000
1,340,271
547,695
153,149
18,43571,093,315₩

32,271(771,595)
70,353,991₩

Dec. 31, 2011
43,741,610
10,059,471
3,430,076
1,900,350
401,165
4,438,273
5,292
2,563,234
490,000
825,102546,559
264,123
19,52568,684,780₩(1,308)(739,185)
67,944,287₩(2) The changes in deferred LOF/LOCs for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
2012
Beginning

Increase(1,308)₩Decrease
43,477₩

Ending
9,898₩

32,271₩2011
Beginning₩

Increase(22,421)₩

Decrease
5,886₩

Ending(15,227)₩(1,308)

Korea Exchange Bank 2012 Annual Report 109

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(3) The changes in allowance for possible loan losses for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Dec. 31, 2012
Classification

Loans in
Korean won

Advance
Loans in payments on Bills boughtin foreign
acceptanceforeigncurrencies
andcurrencies
guarantee₩ 477,571 ₩ 149,866 ₩Beginning
2,938 ₩
Disposal of non(59,882)
performing loans
Bad debt(289,295)(63,602)(52,648)
Recovery of bad debt
69,413
7,171
1,074
Debt-for-equity swap
(6,253)
Changes in exchange rate,(724)(39,149)
etc.
Transfer to (reversal of )allowance for possible
413,423
70,60653,237loan losses
Interest income of(72,500)(6,400)(453)
impaired receivables₩ 531,753 ₩ 118,492 ₩
4,148 ₩
EndingCredit card
receivables

Privatelyplacedbonds

OthersTotal

5,409 ₩

67,507 ₩5,057 ₩

30,837 ₩ 739,185

-

-

-

-

(59,882)-(109,904)
37,300--(45,096)-(560,545)
114,958(6,253)

(415)

(11)

(4)

(12)

(40,315)(694)

92,054(929)

39,234

666,931(81)(2,404)(646)-(82,484)

4,219 ₩

84,542 ₩3,478 ₩

24,963 ₩ 771,595

Dec. 31, 2011
Classification

Loans in
Korean won

Advance
Loans in payments on Bills boughtin foreign
acceptanceforeigncurrencies
andcurrencies
guarantee₩ 575,973 ₩ 137,575 ₩Beginning
2,194 ₩
Disposal of non(45,619)
performing loans
Bad debt(489,669)(64,740)(37,914)
Recovery of bad debt
41,03318,01023,290Debt-for-equity swap
(4,562)
Changes in exchange rate,(2,608)36,213785
etc.
Transfer to (reversal of )allowance for possible
468,633
23,45814,884loan losses
Interest income of(65,610)
(650)
(301)
impaired receivables₩ 477,571 ₩ 149,866 ₩
2,938 ₩
EndingCredit card
receivables

Privatelyplacedbonds

OthersTotal

7,449 ₩

53,697 ₩6,079 ₩

-

-

-

-

(45,619)-(75,266)
43,984-(1,489)--(669,078)
126,317(4,562)(3,239)

-

(837)

5,994

36,3081,202

46,681

1,716

12,123568,697(3)(1,589)

(412)

(2)

(68,567)

67,507 ₩5,057 ₩

5,409 ₩

12,722 ₩ 795,689

30,837 ₩ 739,185

110

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(4) Financial effects related to credit risk relieved by collaterals and other credit enhancement as of December 31, 2012 and 2011 are as
follows (Unit: In millions):
Dec. 31, 2012
Classification
Guarantee
Savings
Property
Real estate
Securities
Others

₩

Total

₩

Impaired loans
Individual
assessment₩
11,694
6,024
73,925300,518
72,853₩465,014

Non-impaired loans
Collective
assessment
20,6182,443
231
101,003
3,607
127,902

Overdue₩₩

14,450481
19,3583,276
37,565Total

Non-overdue
4,849,543
1,293,413
26,20020,372,327
2,004,700
7,731
28,553,914

₩

₩

₩

₩

4,896,305
1,302,361
100,356
20,793,206
2,084,436
7,731
29,184,395

Dec. 31, 2011
Classification
Guarantee
Savings
Property
Real estate
Securities
Others

₩

Total

₩

Impaired loans
Individual
assessment₩
31,4796,006
3,472
156,985
93,748₩291,690

Non-impaired loans
Collective
assessment
10,8861,550
73,7502,228
88,414

Overdue₩₩

38,612
14,92335,57389
89,197Total

Non-overdue₩₩

4,148,162
1,492,733
32,987
19,061,615
1,818,738
11,466
26,565,701₩₩

4,229,139
1,515,212
36,45919,327,923
1,914,803
11,46627,035,002(5)	Information related to overdue loans as of December 31, 2012 and 2011 is as follows (Unit: In millions):

Classification

HouseholdLargecompanies

Loans that are neither past due nor impaired ₩ 21,886,289
25,486Loans that are past but not impaired
93,456Loans that are impaired
22,005,231
Subtotal
44,457
Deferred LOF/LOCs(43,665)
Allowances for possible loan losses₩ 22,006,023
Total₩ 21,618,661
16,531
551,103
22,186,295(7,891)(274,800)₩ 21,903,604

Dec. 31, 2012
Small- andPublicmedium-sized institution andcompanies
others₩ 18,455,055 ₩ 5,173,511
33,105565
535,848
42,42819,024,008
5,216,504(4,418)225(328,871)(39,716)₩ 18,690,719 ₩ 5,177,013

Credit card 	Total₩₩

2,474,904
127,058
59,3152,661,277(102)(84,543)2,576,632₩ 69,608,420
202,745
1,282,150
71,093,315
32,271(771,595)₩ 70,353,991

Korea Exchange Bank 2012 Annual Report 111

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Classification

HouseholdLargecompanies

Loans that are neither past due nor impaired ₩ 20,256,010
25,611Loans that are past but not impaired
59,045Loans that are impaired
20,340,666
Subtotal
20,739Deferred LOF/LOCs(27,309)
Allowances for possible loan losses₩ 20,334,096
Total₩ 19,806,409
3,000
410,397
20,219,806(11,025)(231,781)₩ 19,977,000

Dec. 31, 2011
Small- andPublicmedium-sized institution andcompanies
others₩ 21,157,233 ₩ 3,478,379
40,586
11,965
771,787
101,124
21,969,606
3,591,468(10,901)(9)(360,600)(51,988)₩ 21,598,105 ₩ 3,539,471

Credit card 	Total₩₩

2,430,883
83,76548,5862,563,234(112)(67,507)2,495,615₩ 67,128,914
164,927
1,390,939
68,684,780(1,308)(739,185)₩ 67,944,287

Overdue means when a transaction party is not able to pay principals and interests at the payment date of the contract. An impairment loss
incurred if there is objective evidence of impairment as result of one or more events that occurred after the initial recognition asset and thatevent (or events) has an impact on the estimated future cash flows of the financial asset. Objective evidence the Consolidated Group defined
includes overdue more than 90 days, poor credit information according to the regulation of credit information management, adjustment ofreceivables and payables, payment for bad loan exposure, etc.

1) Loans that are neither past due nor impaired
Internal credit rating of loans that are neither past due nor impaired as of December 31, 2012 and 2011 is as follows (Unit: In millions):

Classification

HouseholdRating 1
Rating 2
Rating 3
Others
Total

Classification₩ 17,416,164 ₩ 14,615,562
4,329,471
5,536,378
140,654
1,215,563
251,158₩ 21,886,289 ₩ 21,618,661

HouseholdRating 1
Rating 2
Rating 3
Others
Total

Large
companies

Large
companies₩ 17,024,088 ₩ 15,279,822
2,611,254
3,631,340
620,668
894,701546₩ 20,256,010 ₩ 19,806,409

Dec. 31, 2012
Small- andPublicmedium-sized institution andCredit card 	Total
companies
others₩ 5,011,554 ₩ 1,631,926 ₩
700,639 ₩ 39,375,845
10,524,678
2,523,292
1,689,988
24,603,807
2,769,258
816,015
84,277
5,025,767
149,565
202,278
603,001₩ 18,455,055 ₩ 5,173,511 ₩ 2,474,904 ₩ 69,608,420
Dec. 31, 2011
Small- andPublicmedium-sized institution andCredit card 	Total
companies
others₩ 4,928,846 ₩
302,368 ₩
666,238 ₩ 38,201,362
10,495,353
1,684,818
1,595,522
20,018,287
3,987,044
1,356,685
169,123
7,028,221
1,745,990
134,508
1,881,044₩ 21,157,233 ₩ 3,478,379 ₩ 2,430,883 ₩ 67,128,914

The Consolidated Group divides loans according to the characteristics of debtors, the details of which are described below:
Classification

Household/Credit card

Rating 1
Rating 2
Rating 3

Bankruptcy rate: below 0.36%
Bankruptcy rate: 0.36%–8.79%
Bankruptcy rate: 8.79%–100%

Enterprise
1–4
5+ – 6
6- – 7

112

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

2) Loans that are past due but not impaired
The Consolidated Group considers that loans, of which overdue period is less than 90 days, do not have to be impaired if there is no other credit
information related to impairment. Information of overdue period of loans that are past due but not impaired is as follows (Unit: In millions):

Classification

Large
companies

HouseholdLess than 30 days
30–60 days
60–90 days

₩

Total

₩

Classification

14,025 ₩
5,260
6,201
25,486 ₩Largecompanies

HouseholdLess than 30 days
30–60 days
60–90 days

₩

Total

₩

19,515
4,852
1,244
25,611

16,44784
16,531

₩

₩

3,000
3,000

Dec. 31, 2012
Small- andPublicmedium-sized institution andCredit card 	Total
companies
others₩
18,368 ₩111 ₩109,087 ₩158,038
3,268
16
10,735
19,27911,469438
7,236
25,428₩33,105 ₩565 ₩127,058 ₩
202,745
Dec. 31, 2011
Small- andPublicmedium-sized institution andcompanies
others₩19,115 ₩8,846
19,417
264
2,054
2,855
₩
40,586 ₩11,965Credit card 	Total₩₩

65,466
10,133
8,166
83,765₩₩

115,942
34,666
14,319164,9273) Loans that are impaired
Details of loans that are impaired as of December 31, 2012 and 2011 are as follows (Unit: In millions):

Classification
Individual assessment
Book value
Allowance for possible loan losses
Subtotal
Collective assessment
Book value
Allowance for possible loan losses
Subtotal
Total

Household₩₩Classification
Individual assessment
Book value
Allowance for possible loan losses
Subtotal
Collective assessment
Book value
Allowance for possible loan losses
Subtotal
Total₩

Credit card 	Total

679 ₩
(89)
590

550,727 ₩(162,307)
388,420

444,470 ₩(140,318)
304,152

37,595 ₩(12,110)
25,485- ₩-1,033,471(314,824)
718,647

92,777(18,458)
74,31974,909 ₩

376
(169)
207
388,627 ₩

91,378(28,875)
62,503366,655 ₩4,833(1,177)
3,656
29,141 ₩59,315(46,028)
13,287
13,287 ₩248,679(94,707)
153,972
872,619

Household₩Largecompanies

Dec. 31, 2012
Small- andPublicmedium-sized institution andcompanies
othersLargecompanies

Dec. 31, 2011
Small- andPublicmedium-sized institution andcompanies
othersCredit card 	Total

4,759 ₩
(965)
3,794

410,194 ₩(146,418)
263,776

706,250 ₩(174,576)
531,674

95,816 ₩(48,152)
47,664- ₩-1,217,019(370,111)
846,908

54,286(13,206)
41,08044,874 ₩

203
(136)
67
263,843 ₩

65,537(15,459)
50,078581,752 ₩

5,308(1,157)
4,151
51,815 ₩48,586(38,629)
9,957
9,957 ₩

173,920(68,587)
105,333
952,241

Korea Exchange Bank 2012 Annual Report 113

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(6) The portfolio of loans, before deferred LOF/LOCs and allowance for possible loan losses, classified by industry as of December 31,
2012 and 2011 is as follows (Unit: In millions):

Classification
Household
Credit card
EnterpriseClassification
Household
Credit card
Enterprise

Industry

Manufacturing
Wholesale and retail
Rental of real estate
Financial
Construction
Transportation
Electricity, gas and watersupplyOthersSubtotal
Total

Industry

Manufacturing
Wholesale and retail
Rental of real estateTransportation
Construction
OthersSubtotal
Total

Dec. 31, 2012
	In foreign
In Korean won
currencies₩₩
21,367,159
638,072
2,659,188
2,089
11,438,166
8,443,042
3,336,690
2,735,490
3,906,477
705,1311,701,306
1,835,675
1,968,192
394,901
1,027,675
1,217,518₩₩

Total amount

Percentage (%)

22,005,231
2,661,277
19,881,208
6,072,180
4,611,608
3,536,981
2,363,093
2,245,193

30.95
3.74
27.97
8.54
6.49
4.98
3.32
3.16

384,198

143,230

527,4280.74

4,300,659
28,063,363
52,089,710

2,888,457
18,363,444
19,003,605

7,189,116
46,426,807
71,093,315

10.11
65.31
100.00Total amount

Percentage (%)

20,340,666
2,563,234
18,944,552
4,885,824
4,870,130
2,341,803
2,316,323
12,422,248
45,780,880
68,684,780

29.61
3.73
27.58
7.11
7.09
3.41
3.37
18.10
66.66
100.00₩Dec. 31, 2011
	In foreign
In Korean won
currencies₩₩
19,726,250
614,416
2,558,213
5,021
10,199,885
8,744,667
2,456,332
2,429,492
4,034,836
835,294
954,074
1,387,729
2,131,035
185,288
5,732,131
6,690,117
25,508,293
20,272,587₩₩
47,792,756
20,892,024

₩

₩

₩

114

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(7) The portfolio of loans, before deferred LOF/LOCs and allowance for possible loan losses, classified by country as of December 31, 2012
and 2011 is as follows (Unit: In millions):

Total

Dec. 31, 2012
	In foreign	In Korea won
	Total amountcurrencies₩₩₩
50,536,544
12,795,057
63,331,601
96,973
914,156
1,011,129
6,696
618,825
625,521
22,992520,087
543,079
1,482
507,578
509,060
470,375
470,375
2,015
426,393
428,408
2,342
320,619
322,961
1,420,666
2,430,515
3,851,181₩₩₩
52,089,710
19,003,605
71,093,315

Total

Dec. 31, 2011
	In foreign	In Korea won
	Total amountcurrencies₩₩₩
47,534,029
14,284,675
61,818,704
93,759930,2221,023,981
27,698995,332
1,023,030
24,592648,059
672,651
7,089
480,597
487,686
105,589
3,553,139
3,658,728₩₩₩
47,792,756
20,892,024
68,684,780

Country
Korea
USA
China
Japan
Germany
PanamaHong Kong
Singapore
OthersCountry
Korea
USA
CanadaJapan
China
OthersPercentage (%)
89.09
1.42
0.88
0.76
0.72
0.66
0.60
0.45
5.42
100.00Percentage (%)
90.00
1.49
1.49
0.98
0.71
5.33
100.00Korea Exchange Bank 2012 Annual Report 115

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011(8) The portfolio of loans, before deferred LOF/LOCs and allowance for possible loan losses, classified by currency as of December 31,
2012 and 2011 is as follows (Unit: In millions):
Currency

Dec. 31, 2012

KRW
USD
JPY
CAD
EUR
AUD
HKD
Others52,089,710
13,698,818
1,676,990
1,050,586
964,097
341,573
22,461
1,249,080
71,093,315

₩

Total

₩

Currency

Dec. 31, 2011

KRW
USD
JPY
EUR
CNY
IDR
BRL
HKD
Others₩47,792,756
14,340,484
2,456,062
1,328,822
471,898
164,785
100,013
16,1142,013,846
68,684,780

Dec. 31, 2012

Dec. 31, 2011

₩

Total

17. STRUCTURED SECURITIES:Structured securities as of December 31, 2012 and 2011 consist of the following (Unit: In millions):
Classification
Structured securities related to stock:
Convertible bonds (private placement)
Bonds with stock warrants (private placement)
Subtotal
Structured securities related to credit risk:
Collateralized Debt Obligation
Total

₩

₩

24,705
7,612
32,317
21,49153,808₩₩28,14574,140102,285
22,422
124,707

116

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 201118. DERIVATIVES:(1) Details of trading derivatives as of December 31, 2012 and 2011 and for years ended December 31, 2012 and 2011 are as follows(Unit: In millions):
2012
Type

Outstanding
commitment contract
amountCurrency:
Currency forwards
Currency swaps
Currency options purchased
Currency options sold
SubtotalInterest:
Interest rate swaps
Interest rate option
purchased
Interest rate option soldInterest rate futures
Subtotal
Stock:
Stock options purchased
Stock options sold
Stock futures
Subtotal
Others:Deferred gain on derivatives
valuation
Credit spread
Bid-ask spread
Subtotal
Total

₩

₩

40,148,304
15,502,216
1,862,223
2,147,990
59,660,733

Gain on valuation₩

627,882
487,316
8,224
11,567
1,134,989

Assets as ofDecember 31

Loss on valuation₩

742,214316,613
9,097
17,486
1,085,410₩

634,582
438,531
22,427
1,095,540

Liabilities as ofDecember 31₩

678,862
268,483
32,230979,575

44,454,777

120,639

145,086

240,301

309,183

980,000

1,416

620

5,077

-

1,695,000
1,174,227
48,304,004

1,459
123,514311
146,017245,378

2,566
311,749

38,5382,745
1,197
42,480

3,350
15
3,365

1,717
25
1,742

15,38015,380

123
123

-

-

-

-

48

108,007,217

4,556
234
4,790
1,266,658

1
1
1,233,170

1,356,298

14,5482,710
17,306
1,308,753

₩

₩

₩

₩

2011
Type

Outstanding
commitment contract
amountCurrency:
Currency forwards
Currency swaps
Currency options purchased
Currency options soldCurrency futures
SubtotalInterest:
Interest rate swaps
Interest rate futures
Subtotal₩

33,869,938
10,993,561
1,247,542
1,284,111
525,190
47,920,342
37,662,290
361,676
38,023,966

Gain on valuation₩

494,266
169,117
2,692
11,063
677,138
137,857
137,857

Assets as ofDecember 31

Loss on valuation₩

361,240
195,242
13,382
2,061
571,925
173,475
173,475₩

518,869
301,665
29,491
850,025
210,530
210,530

Liabilities as ofDecember 31₩

410,300
229,649
28,686
668,635
273,952
273,952

Korea Exchange Bank 2012 Annual Report 117

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Stock:
Stock options purchased
Stock options sold
Stock futures
Subtotal
Others:Deferred gain on derivatives
valuation
Deferred loss on derivatives
valuation
Credit spread
Bid-ask spread
Subtotal
Total₩

81,00963,8373,438
148,284

4,675
456
5,131

7,261
542
7,803

12,27912,279

2,486
2,486

-

-

-

-

1,000

-

-

-

697

-

86,092,592

1,215
25
1,240
821,3661
1
753,204697
1,073,531

19,103
2,944
23,047968,120

₩

₩

₩

₩

(2) Details of hedging derivatives as of December 31, 2012 and 2011 and for the years ended December 31, 2012 and 2011 are as follows(Unit: In millions):
2012
Type
Interest rate:
Interest rate swap

Outstanding
commitment contract
amount
₩1,606,650

Gain on valuation

7,060

₩

Assets as ofDecember 31

Loss on valuation

1,019

₩

₩

Liabilities as ofDecember 31

37,867

-

₩

2011
Type
Interest rate:
Interest rate swap

Outstanding
commitment contract
amount
₩608,942Gain on valuation

27,711₩

Assets as ofDecember 31

Loss on valuation

-

₩

₩

Liabilities as ofDecember 31

32,537₩897

Foreign exchange forward transaction, currency futures and currency swap, such derivative transactions related to currencies that purchase and sales
occurs simultaneously contract price for purchase and sales is not differentiated. For won-to-foreign currency transactions, contract price basedon foreign currency is translated at the exchange rate at the end of the reporting period. In addition, purchase price based on foreign currency istranslated at exchange rate of the end of the reporting period for foreign currency-to-foreign currency transactions.

(3) Gain or loss on valuation of hedged items for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
2012
Classification
AFS financial assets (debt securities)
Finance debentures
Total

2011

Gain on valuation₩₩-

Loss on valuation₩₩

11,558
11,558Gain on valuation₩₩-

Loss on valuation
₩
₩

1,119
26,482
27,601Hedged items applying fair value hedge accounting as of December 31, 2012, include AFS financial assets (debt securities) and issuing financing
bonds, and the Consolidated Group recognized changes in fair values of hedged items due to fluctuation of interest rates in net income. Interest
rate swap is used as a hedge method in order to offset changes in fair values of hedged items due to fluctuation of interest rate.

118

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

19. INVESTMENTS IN ASSOCIATES:(1)	Investments in associates as of December 31, 2012 and 2011 are as follows (Unit: In shares; In millions):

Company

Location

Flossom Co., Ltd.(*1)

Korea

No. of shares Ownership (%) Reporting date
165,000

1.92

Dec. 31, 2012

Book value
Dec. 31, 2012-₩

Dec. 31. 2011669₩(*1) Included in investment in associates because the Company has significant influence by participating in the Board of Directors’ meeting,decision-making organization.

(2) The changes in investments in associates for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):

Company
Flossom Co., Ltd.

Acquisition
Cost₩

Company
Flossom Co., Ltd.

Jan. 1, 2012

825₩

Acquisition
Cost
₩

669

Jan. 1, 2011

825

₩

628

Dec. 31, 2012
Acquisition,
disposal andothers₩Dec. 31, 2011
Acquisition,
disposal andothers₩142

Share of loss of
associates
(669)

₩

Dec. 31, 2012

Share of loss of
associates
₩

(101)

-

₩

Dec. 31, 2011
669₩

(3) The summary of financial information in associates as of December 31, 2012 and 2011 is as follows (Unit: In millions):

Company
Flossom Co., Ltd.

Assets₩Company
Flossom Co., Ltd.

Liabilities

103,836₩

Assets₩113,179

Liabilities

125,065₩

90,277

Dec. 31, 2012
Shareholders’equity₩(9,343)
Dec. 31, 2011
Shareholders’equity₩34,788

Revenue₩

3,529

Net loss₩

Revenue₩

41,776(30,417)

Net loss₩(10,167)(4) The Consolidated Group does not hold investments in associates with the active market price as of December 31, 2012 and 2011.

(5) The Consolidated Group discountinued recognizing its’ shares of losses in Flossom Co., Ltd. since the losses exceed the ConsoliatedGroup’s interest in Flossom Co., Ltd. The excess of losses over the Consolidated Group’s interest in Flossom Co., Ltd. which are
accumulated for the current year and before the current periodare as follows (Unit: In millions):
Company
Flossom Co., Ltd.

Amount for the current year
₩

(180)

Accumulated amount
before the current year
₩
-

Total
₩

(180)

Korea Exchange Bank 2012 Annual Report 119

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

20. TANGIBLE ASSETS:(1) Tangible assets as of December 31, 2012 and December 31, 2011 consist of (Unit: In millions):

Classification

Dec. 31, 2012
Accumulated
depreciation₩(184,721)(127,851)(609,836)₩(922,408)

Acquisition cost

Land
Buildings
Leasehold improvements
Equipment and vehicles
Construction in progress
Total

816,715
461,250
163,467
703,934
3
2,145,369₩₩

Classification

Dec. 31, 2011
Accumulated
depreciation₩(175,570)(117,956)(564,222)(6,404)₩(864,152)

Acquisition cost

Land
Buildings
Leasehold improvements
Equipment and vehicles
Construction in progress
Operating lease
Total

₩

₩

819,393451,017
143,834
649,568322
7,398
2,071,532

Book value₩₩

816,715
276,529
35,616
94,0983
1,222,961

Book value₩₩

819,393
275,447
25,87885,346322
994
1,207,380(2) The changes in book value of tangible assets for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification

Jan. 1, 2012

Acquisition₩ 819,393 ₩Land
Buildings
275,447
Leasehold improvements (*1)
25,878Equipment and vehicles
85,346
Construction in progress
322
Operating lease994₩ 1,207,380 ₩
Total

199 ₩
15,42518,72064,45998,803 ₩Disposal

Depreciation(23) ₩
(28)
(36)
(168)
(142)
(397) ₩

- ₩(11,438)(11,118)(54,911)(852)(78,319) ₩Transfer

Others Dec. 31, 2012

(2,538) ₩(2,170)(4,708) ₩(316) ₩ 816,715(707)
276,5292,172
35,616(628)
94,098(319)
3202 ₩ 1,222,961

Transfer

Others Dec. 31, 2011

47 ₩
(8,819)(8,772) ₩2,475 ₩ 819,393
3,230
275,447138
25,878917
85,346(1,050)322
994
5,710 ₩ 1,207,380(*1) Increase of ₩1,054 million due to provision for restoration cost was included in the acquisition amount.
Classification

Jan. 1, 2011

Acquisition₩ 816,953 ₩Land
Buildings
283,184
Leasehold improvements (*1)
27,441Equipment and vehicles
75,690Construction in progress
1,050
Operating lease
1,752₩ 1,206,070 ₩
Total

52 ₩
8,715
9,050
57,587322
75,726 ₩Disposal

Depreciation(134) ₩
(130)(901)
(1,165) ₩- ₩(10,733)(10,751)(47,947)(758)(70,189) ₩(*1) Increase of ₩142 million due to provision for restoration cost was included in the acquisition amount.

120

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

21. INVESTMENT PROPERTIES:(1) Investment properties as of December 31, 2012 and 2011 consist of (Unit: In millions):
Dec. 31, 2012
Classification

Accumulated
depreciation

Acquisition cost

Land
Buildings

116,622
113,201
229,823

₩
Total

₩

(46,768)(46,768)₩₩

Accumulated
impairment loss
(2,355)(2,388)(4,743)₩₩

Book value
114,267
64,045
178,312₩₩

Dec. 31, 2011
Classification

Accumulated
depreciation

Acquisition cost

Land
Buildings

114,428
110,352
224,780

₩
Total

₩

(43,112)(43,112)₩₩

Accumulated
impairment loss
(2,355)(2,871)(5,226)₩₩

Book value
112,073
64,369176,442₩₩(2) The changes in book value of investment properties for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Land
Buildings

Jan. 1, 2012
₩

Total

₩

112,073
64,369176,442

Disposal
(344)
(344)

₩
₩

Depreciation₩₩(2,494)(2,494)

Transfer (*1)
2,538
2,170
4,708

₩
₩

Dec. 31, 2012
114,267
64,045
178,312₩₩(*1) Due to changes in the ratio of the leased investment properties

Classification
Land
Buildings

Jan. 1, 2011
₩

Total

₩

114,476
60,882
175,358

Disposal₩₩-

Depreciation₩₩(2,462)(2,462)

Transfer (*1)
₩
₩

(47)
8,819
8,772

₩
₩

OthersDec. 31, 2011

(2,356)(2,870)(5,226)₩₩

112,073
64,369176,442(*1) Due to changes in the ratio of the leased investment properties(3) Fair values of investment properties are ₩155,197 million and ₩155,057 million as of December 31, 2012 and 2011, respectively.
Fair values are measured based on valuation performed by independent professionals.

(4) Rental revenues from investment property for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Rental revenues

2012
₩

3,206

2011
₩

3,522

Korea Exchange Bank 2012 Annual Report 121

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011(5) Investment properties not in use as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification

Dec. 31, 2012Land
Buildings

1,640
386
2,056

₩
Total

₩

Dec. 31, 2011
1,873
548
2,421

₩
₩

22. INTANGIBLE ASSETS:(1) Intangible assets as of December 31, 2012 and 2011 consist of (Unit: In millions):
Dec. 31, 2012
Classification

Accumulated
depreciation

Acquisition cost

Development expenditures
Membership
OthersTotal

294,333
21,977
14,776331,086

₩

₩

₩

₩

(237,311)(5,699)(243,010)

Accumulated
impairment loss
(347)
(4,690)(3)(5,040)₩₩Book value
56,675
17,287
9,074
83,036₩₩

Dec. 31, 2011
Classification

Accumulated
depreciation

Acquisition cost

Development expenditures
Membership
OthersTotal₩₩

279,927
13,711
17,602311,240₩₩(214,332)(8,176)(222,508)

Accumulated
impairment loss
(347)
(1,809)(2,156)₩₩

Book value
65,248
11,902
9,426
86,576₩₩(2) The changes in intangible assets for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):

Classification
Development
expenditures
Membership
Others
Total

Classification
Development
expenditures
Membership
OthersTotal

Jan. 1, 2012

Acquisition

Disposal Amortization

Impairment
loss

Net change
in foreign
currencies

OthersDec. 31,2012₩

65,248 ₩

14,567 ₩- ₩ (23,140) ₩

- ₩

- ₩

- ₩

56,675₩

11,902
9,426
86,576 ₩

12
1,970
16,549 ₩(213)(1,760)(213) ₩ (24,900) ₩(2,984)(2,984) ₩

(16)
(444)
(460) ₩

8,586
(118)
8,468 ₩

17,287
9,074
83,036

OthersDec. 31,2011

Jan. 1, 2011

Acquisition

Disposal Amortization

Impairment
loss

Net change
in foreign
currencies₩

66,037 ₩24,893 ₩- ₩ (25,682) ₩

- ₩

- ₩

- ₩

65,248₩

8,955
74,992 ₩

1,600
26,493 ₩(1,497)- ₩ (27,179) ₩(1,806)(1,806) ₩

368
368 ₩

13,70813,708 ₩

11,902
9,426
86,576

122

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

23. OTHER ASSETS AND MERCHANT BANKING ACCOUNT ASSETS:(1) Other assets as of December 31, 2012 and 2011 consist of (Unit: In millions):
Classification

Dec. 31, 2012

Guarantee deposits paid
Accounts receivable
Accrued income
Prepaid expenses
Suspense payments
Supplies
Deposited money
Domestic exchange settlement debits
Other sundry assets
Allowance for possible other asset losses
Total

₩

₩

649,219
6,444,478
264,356
63,094
24,832
6,613
11,433414,3124,217(4,032)
7,878,522

Dec. 31, 2011₩₩

649,978
4,973,859
276,360
52,98928,644
7,072
9,635
1,206,886
2,487(9,548)
7,198,362(2) Changes in allowance for possible other asset losses for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification

Dec. 31, 2012

Beginning balance
Bad debts
Transfer to (reversal of ) allowances for possible losses
Interest income of impaired receivables
OthersEnding balance

₩

₩

9,548
(6,152)
792
(156)
4,032

Dec. 31, 2011₩₩

51,350(4,657)(7,194)(139)(29,812)9,548(3) Merchant banking account assets as of December 31, 2012 and 2011 consist of (Unit: In millions):
Classification
Merchant banking account loans
Merchant banking account trading securities
CMA Assets

Allowance for possible loan losses
Total

Dec. 31, 2012₩
Loans
Trading securities
Subtotal₩

450,000
1,726,293
232,600
79,672
312,272(349)
2,488,216

Dec. 31, 2011₩₩

781,600
1,313,329
10,000252,538
262,538(4,964)2,352,503

Korea Exchange Bank 2012 Annual Report 123

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

24. NON-CURRENT ASSETS HELD FOR SALE:
As of December 31, 2012, non-current assets held for sale consist of two real estates acquired through execution of security right, which the
management of the Consolidated Group committed to plan to sell, but not yet sold by December 31, 2012. As of the reporting date, one asset
among non-current assets held for sale is under negotiation for sale and the remaining one is actively marketed.
Non-current assets held for sale as of December 31, 2012 and 2011 consist of (Unit: In millions):
Classification
Acquisition cost
Accumulated depreciation
Book value

Dec. 31, 2012
1,439
1,439

₩
₩

Dec. 31, 2011₩₩-

25. FINANCIAL LIABILITIES AT FVTPL:
Financial liabilities at FVTPL as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Trading derivatives (Note 18)

Dec. 31, 2012₩

1,308,753

Dec. 31, 2011₩

968,120

124

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 201126. DEPOSITS:(1) Deposits as of December 31, 2012 and 2011 consist of the following (Unit: In millions):
Classification
Demand deposits:
Demand deposits in Korean won
Checking deposits
Household checking accountTemporary deposits
Passbook deposits
Public fund deposits
Treasury deposits
Non-resident deposits in Korean won
Non-resident free deposits in Korean won
Subtotal
Demand deposits in foreign currencies
Checking deposits
Passbook deposits
Temporary deposits
SubtotalTime deposits:
Time deposits in Korean won
Time deposits
Apartment application deposits
Installment savings deposits
Non-resident deposits in Korean won
Non-resident free deposits in Korean won
Home mortgage deposits
Industrial savings
Import installment
Home installment
OthersSubtotalTime deposits in foreign currency
Time deposits
OthersSubtotal
Negotiable certificates of deposits
Total

Dec. 31, 2012₩₩

212,931
15,493738,617
15,459,969
41,569256
268,586
29,742
16,767,163

Dec. 31, 2011₩

300,190
15,968746,407
14,948,074
22,287364
223,065
43,310
16,299,665

2,572,563
7,332,218
20,5289,925,309

2,926,461
6,817,730
19,984
9,764,175

29,926,516
158,655
1,776,894
351,073430,835
314,227
153
99
18,80936
32,977,297

29,582,208
185,446
1,015,066
350,771
468,486
347,349
189
126
24,42837
31,974,106

6,178,576
654,442
6,833,018
278,80266,781,589

5,478,034
887,920
6,365,954
25,70964,429,609₩

Korea Exchange Bank 2012 Annual Report 125

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(2) Details of deposits by customer as of December 31, 2012 and 2011 are as follows (Unit: In millions)Classification

Dec. 31, 2012

IndividualsEnterprises
Other banks
Public institutions
Other financial institutions
Government
Nonprofit corporations
Foreign companies
Others

20,755,889
21,972,468
1,080,786
504,254
7,520,685
178,091
3,341,948
7,135,013
4,292,455
66,781,589

₩

Total

₩

Dec. 31, 2011₩18,571,386
20,531,053
2,105,136
672,369
7,080,015
352,967
2,980,955
7,092,683
5,043,045
64,429,609

Dec. 31, 2012

Dec. 31, 2011₩27. BORROWINGS:
Borrowings as of December 31, 2012 and 2011 consist of (Unit: In millions):
Classification
Borrowings in Korean won:
Borrowings from B.O.K.
Borrowings from Korean
government
Other borrowings

Lender
B.O.K.
Korea Energy Management
Corporation and others
Small business corporation andothersSubtotal

Borrowings in foreign currencies:
Bank draft
JPMorgan Chase and others
Other borrowings
SMBC and others
Subtotal
Call money:
Call money in foreign
The Export-Import Bank ofcurrencies
Korea and others
Bonds sold under RPs:
Bonds sold under repurchase
Customers
agreements in Korean won
Bonds sold under repurchaseagreements in foreign
currencies
Subtotal
Bills sold
Customers
Total

Interest rate (%)
1.25₩

545,340₩

396,0100.00~4.00

927,715

457,4121.39~3.84

385,838

438,292

1,858,893

1,291,714

1.83 ~ 15.75
0.20~5.81

175,916
4,603,610
4,779,526

209,6096,538,449
6,748,058

0.29~1.10

228,709

1,176,205

3.70~3.95

190

252

-

-

21,993

190
58,387
6,925,705

22,24591,9939,330,215

2.00~3.78
₩

₩

126

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 201128. DEBENTURES:
Debentures as of December 31, 2012 and 2011 consist of (Unit: In millions):
Classification
Debentures in Korean won:
General debentures
Subordinated debentures(Discount on bond in
Korean won)

LenderInterest rate (%)

Institutions
Institutions and customers

2.94~4.17
3.30~7.80

Subtotal
Debentures in foreign currencies:
General debentures
Morgan stanely and others
Floating rate debentures
HSBS
Gain or loss on fair value hedge
agreements in Korean won(for the years ended Dec. 31,
2012 and 2011, respectively)
Gain or loss on fair value hedge(before Dec. 31, 2011 and2010, respectively)(Discount on bond in foreign currencies)
Subtotal
Total

Dec. 31, 2012₩

0.55~4.88
0.35~2.41₩

2,760,000
1,500,132

Dec. 31, 2011₩

2,980,000
1,100,222(12,593)(10,113)

4,247,539

4,070,109

1,677,900
177,965

576,650
791,745

11,55826,482

70,637762(12,173)
1,925,887
6,173,426(5,724)
1,389,915
5,460,024₩

29. PROVISIONS:(1) Provisions, including provision for unused credit limit of merchant banking account, as of December 31, 2012 and 2011 consist of (Unit: In millions):
Classification
Provision for acceptances and guarantees:
Financing guarantee contract (*1)
Non-financing guarantee contract
Endorsed notes
Subtotal
Provision for unused credit limit (*2)
Other provisions:
Provision for restoration cost
Provision for points and mileage
Provision for litigation (*3)
OthersSubtotal
Total

Dec. 31, 2012
₩

₩

1,783
33,778763
36,32463,476
17,786
22,83245,39256,650142,660
242,460

Dec. 31, 2011₩₩

20,19019,607896
40,69357,736
12,567
7,774
43,55479,741
143,636
242,065(*1) The Consolidated Group recognizes the amount exceeding unamortized amount of initial fair values at subsequent measurement of financing
guarantee contract as provisions for guarantees. The Consolidated Group recognizes ₩40,419 million and ₩25,024 million of the unamortized amount as financing guarantee contract liabilities as of December 31, 2012 and 2011, respectively.
(*2) Includes provision for unused credit limit of merchant banking account [Note 30(2)].

Korea Exchange Bank 2012 Annual Report 127

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011(*3) OLYMPUS CAPITAL KEB CARDS LTD. and other co-plaintiffs filed a damage suit against five companies, including the Company and
LSF-KEB Holdings, SCA, with the International Court of Arbitration, claiming invalidity of the share transfer agreement between the parties.
As of December 31, 2011, the Court ruled that $37.30 million of damages and five percent annual interest expenses of approximately $15.26
million that accrued from November 20, 2003, to the ruling date, and legal fees of $11.73 million ($64.29 million in total) should be paid.
During the current period, LSF-KEB holdings, SCA, paid the compensation ruled by the International Court of Arbitration and sued theCompany for reimbursement related to this compensation. Accordingly, the Company has credited provision for litigation with ₩35 billion,
which corre sponds to approximately 50 percent of the amount that is mentioned above.
(2) The changes in provision for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
2012
Classification
Provision for acceptances and guarantees
Provision for unused credit limit (*1)
Other provisions:
Provision for restoration costs

Beginning balance Transfer (reversal)₩

Provision for credit card point and mileage
Provision for litigation
OthersSubtotal
Total₩

40,69357,736₩(2,540)
6,259

Used
-

₩

₩

OthersEnding balance(1,829)(519)₩

36,32463,476

12,567

3,191

(266)

2,294

17,786

7,774

13,606(16,615)

18,067

22,83243,55479,741
143,636
242,065

1,846
(258)
18,385
22,104(22,500)(39,381)(39,381)(8)(333)
20,02017,672₩45,39256,650142,660
242,460

OthersEnding balance

132
(196)

₩

₩

₩

₩

(*1) Includes provision for unused credit limit of merchant banking account [Note 30(2)].
2011Classification
Provision for acceptances and guarantees
Provision for unused credit limit (*1)
Other provisions:
Provision for restoration costs

Beginning balance Transfer (reversal)₩

Provision for credit card point and mileage
Provision for litigation
OthersSubtotal
Total₩

50,348
101,678₩(9,787)(43,746)

Used
₩

-

₩

40,69357,736

12,955

(545)

(88)

245

12,567

2,452

8,169

(2,951)

104

7,774

29,88981,663
126,959
278,985

13,674(10,818)
10,480(43,053)(14,400)(17,439)(17,439)(9)
23,296
23,63623,57243,55479,741
143,636
242,065₩₩(*1) Includes provision for unused credit limit of merchant banking account [Note 30(2)].

₩

₩

128

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011(3)	Payment guarantees and endorsed notes as of December 31, 2012 and 2011 are as follows (Unit: In millions)Classification
Acceptances and guarantees:
Financing guarantee contract in Korean won:
Payment guarantee for issuance of debentures
Payment guarantee for loans
OthersSubtotal
Financing guarantee contract in foreign currencies:
Local finance payment guarantee
Definite payment guarantee in Korean won:
Other payment guarantees in Korean won
OthersSubtotal
Definite payment guarantee in foreign currencies:
Acceptance of letters of credit
Acceptances on letters of guarantee for importers
OthersSubtotal
Unconfirmed acceptances and guarantees:
Letters of credit
OthersSubtotal
Bills endorsed
Total

Dec. 31, 2012

₩

₩

70
86,53925,919112,528

Dec. 31, 2011

₩

4,528
69,6433,220
77,391

619,029

540,702

1,553,450
1,553,450

1,079,960
10,987
1,090,947

814,905
96,4088,469,485
9,380,798

479,273
65,7748,009,913
8,554,960

3,892,703
33,5103,926,213
25,733
15,617,751

4,112,776
151,087
4,263,863
33,283
14,561,146₩

Korea Exchange Bank 2012 Annual Report 129

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(4) Acceptances and guarantees (including bills endorsed), by industry, as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Dec. 31, 2012
Industry
Manufacturing
Construction
Wholesale and retail
FinanceElectricity, gas and water supply
Transportation
Rental of real estate
Others
Total

Korean won₩₩

690,342
198,061
379,587
1,038
4,640
89,77335,906369,325
1,768,672

Total

Foreigncurrencies₩₩

6,338,953
3,003,444
1,934,302
1,096,489
500,655
173,224
27,578774,434
13,849,079₩₩

AmountRatio (%)

7,029,295
3,201,505
2,313,889
1,097,527
505,295
262,997
63,484
1,143,759
15,617,751

45.00
20.50
14.82
7.03
3.24
1.68
0.41
7.32
100.00Dec. 31, 2011
Industry
Manufacturing
Construction
Wholesale and retail
Finance and insuranceElectricity, gas and water supply
OthersTotal₩₩

639,678
170,532
231,423
1,315
2,906
208,586
1,254,440

Total

Foreigncurrencies

Korean won₩₩

6,881,826
2,645,104
1,399,161
968,428
566,375
845,812
13,306,706₩₩

AmountRatio (%)

7,521,504
2,815,636
1,630,584
969,743569,281
1,054,398
14,561,146

51.65
19.34
11.20
6.66
3.91
7.24
100.00

130

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(5) Acceptances and guarantees (including bills endorsed), by country, as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Dec. 31, 2012
Countries
Korea
USA
China
Singapore
Hong Kong
GermanyJapan
Others

₩

Total

₩

1,767,710
50
772
140
1,768,672

Total

Foreigncurrencies

Korean won₩₩

12,141,369
652,133
295,468
156,955
138,250
59,56560,352344,987
13,849,079₩₩

AmountRatio (%)

13,909,079
652,133
295,468
157,005
138,250
60,33760,352
345,127
15,617,751

89.05
4.17
1.89
1.01
0.89
0.39
0.39
2.21
100.00Dec. 31, 2011
Countries
Korea
USA
China
SingaporeJapan
Others

₩

Total

₩

1,251,394
50
2,996
1,254,440

Total

Foreigncurrencies

Korean won₩₩

12,178,135
567,862
153,037
130,32267,821
209,529
13,306,706₩₩

AmountRatio (%)

13,429,529
567,862
153,037
130,372
67,821
212,525
14,561,146

92.23
3.90
1.05
0.90
0.47
1.45
100.00(6) Commitments
Unused credit limit as of December 31, 2012 and 2011 is as follows (Unit: In millions):
Classification
Loan agreement in Korean won
Loan agreement in foreign currency
ABCP purchase agreement
ABS grant of credit agreement
Securities purchase agreement
Total

Dec. 31, 2012₩₩

50,780,165
6,646,511
581,034
1,478,216
59,485,926

Dec. 31, 2011₩₩

45,931,119
5,966,475
485,890278,000
397,723
53,059,207

Korea Exchange Bank 2012 Annual Report 131

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

30. OTHER LIABILITIES AND MERCHANT BANKING ACCOUNT LIABILITIES:(1) Other liabilities as of December 31, 2012 and 2011 consist of (Unit: In millions):
Classification
Defined benefit obligation (see Note 31):
Defined benefit obligation
Less: Plan assets
Subtotal
Due to trust accounts
Accrued payable from foreign exchange:
Bills soldInward remittance payable
Subtotal
Accounts payable:
Other accounts payable
Accounts payable (card)
Subtotal
Accrued expenses
Unearned revenue
Deferred revenue
Guarantee money received:
Payment guarantee
OthersSubtotal
Suspense receipt
Suspense receipt (card)
Withholding taxes
Agency business accounts
Due from treasury agencies
Financial guarantee contract:
Financial guarantee contract in Korean won
Financial guarantee contract in foreign currencies
Subtotal
Other sundry liabilities:
Guarantee deposits for securities subscription
Exchange settlements credits
Prepaid card
Debit card
Cash received from other banks
Other liabilities in foreign currencies
Subtotal
Total

Dec. 31, 2012₩₩

282,459(259,586)
22,873
1,009,696

Dec. 31, 2011₩

223,746(182,637)
41,1091,080,758

4,061
366,803
370,864

5,697
275,473
281,170

6,347,272
286,235
6,633,507
898,90775,992
52,836

4,907,490
120,808
5,028,298
934,837
82,76339,81186,76852,273139,041
69,486
11,282
28,41592,007
1,803,352

107,956
68,125
176,081
94,002
20,73838,13352,122893,00335,903
4,246
40,14921,937
3,087
25,02429,395
1,592,073
10
9,560
400
4,010
1,635,448
12,883,855

9,308
1,428,187
10
5,508
105
2,483
1,445,601
10,233,450

₩

132

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011(2) Merchant banking account liabilities as of December 31, 2012 and 2011 consist of the following (Unit: In millions):
Classification

Dec. 31, 2012

Deposits
Provision for unused credit limit
Other liabilities (*1)
Total

525,654
978
2,093
528,725₩₩

Dec. 31, 2011₩₩

747,7851,010
4,449
753,244(*1) Other liabilities consist of accrued expenses, unearned income and others.

31. SEVERANCE BENEFITS:(1) Defined retirement benefits plan
The Consolidated Group operates a defined retirement benefit plan (“DB plan”) in accordance with Employee Retirement Benefits Laws underwhich severance pay is made on a lump-sum basis when an employee retires, based on an employee’s service period and salary at retirement. The
Consolidated Group has purchased severance benefits insurance and made deposits with Samsung Life Insurance Co., Ltd. and others. The deposit
for severance benefits is presented as a deduction from accrued defined retirement benefits liability under an account of plan assets.
If a retiree is up for quasi-age limit special retirement, the Consolidated Group pays quasi-age limit severance payments separately from generalseverance payment.
Actuarial valuation method for plan assets and defined benefit obligation is performed by Hewitt, an actuary services company. Current and past
service costs related to present value of defined benefit obligation are measured using the projected unit credit method.
(2) Long-term employee benefits
The Consolidated Group provides long-term employee benefits to long-term employed directors and employees. These are granted only to
directors and employees whose service period is more than 10 years. Estimated costs are recognized as expenses for service period using thesame accounting treatment as one used for the DB plan.
Actuarial valuation method for defined benefit obligation related to long-term employee benefits is performed by Hewitt, an actuary services
company. Current and past service costs related to present value of defined benefit obligation are measured using the projected unit credit method.
(3) Key actuarial assumptions
Key assumptions for actuarial valuation as of December 31, 2012 and 2011 are as follows (Unit: %):Classification

Dec. 31, 2012

Dec. 31, 2011

Notes

Discount rate

3.55–4.30

4.00–5.10

Expected return on plan assets

3.40–3.78

3.80–4.60

Expected rate of salary increase

2.25–4.90

2.50–5.60

Rate of return on Bank AAA bonds
Rate of return on government and publicbonds with 10-year maturity
Average rate for the past five years(4) The details of defined benefit obligation as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Present value of defined benefit obligation from a plan in whichfunds are accumulated
Fair value of plan assets
SubtotalPresent value of defined benefit obligation from a plan in whichfunds are not accumulated
Defined benefit obligation

Dec. 31, 2012₩

267,894

Dec. 31, 2011₩

(259,586)
8,308(182,637)
27,392

14,565₩22,873210,029

13,717₩

41,109

Korea Exchange Bank 2012 Annual Report 133

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(5) The changes in present value of defined benefit obligation for the years ended December 31, 2012 and 2011 are as follows(Unit: In millions):
Classification

Dec. 31, 2012

Beginning balance
Current service cost
Interest cost
Actuarial gain
Payment of severance benefits
Past service costAccounts payable
Changes due to transfer between a parent and its subsidiaries
OthersEnding balance

223,746
47,411
9,075
9,370(40,432)
34,574104(1,389)282,459₩₩

Dec. 31, 2011
386,003
48,396
18,068(143)(211,066)(9,654)(419)(7,439)223,746₩₩(6) The expenses in connection with severance benefits for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification

Dec. 31, 2012

Current service cost
Interest cost
Expected return on plan assets
Actuarial loss
Past service cost

47,411
9,075(6,747)
7,612
34,574
91,925

₩

Total

₩

Dec. 31, 2011
48,396
18,068(11,589)
1,448(9,654)
46,669₩₩(7) The portfolio of plan assets as of December 31, 2012 is as follows (Unit: In millions):
Classification

Dec. 31, 2012

Time deposits
Bonds
Others86,31678,456
94,814
259,586

₩

Total

₩

(8) The changes in fair value of plan assets for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Beginning balance
Expected return on plan assets
Actuarial gain (loss)
Contribution by employer
Payment
OthersEnding balance

Dec. 31, 2012₩₩

182,637
6,747
1,758
75,136(6,758)
66
259,586

Dec. 31, 2011₩₩

301,252
11,589(1,591)
14,185(139,211)(3,587)
182,637

134

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

32. CAPITAL STOCK AND OTHER PAID-IN CAPITAL:(1) Capital stock as of December 31, 2012 and 2011 is as follows (Unit: In millions, share):Classification

Dec. 31, 2012

Shares authorized
Par value (In Korean won)Shares issued
Common stock₩₩

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

Dec. 31, 2011₩₩

1,000,000,000
5,000
644,906,826
3,224,534(2) Other paid-in capital as of December 31, 2012 and 2011 is as follows (Unit: In millions):
Classification

Dec. 31, 2012

Capital surplus (*1)
Hybrid securities (*2)
Stock options

940
249,77240
250,752

₩

Total

₩

Dec. 31, 2011
940
249,772
250,712₩₩(*1) The amount of capital surplus as of December 31, 2012 and 2011 is transferred from stock option balance (accounted for as capitaladjustment) since it is lapsed and not exercised.
(*2) Korea Exchange Bank Hybrid securities issued by the Company are qualified as equity since the maturity bonds can be extended under thesame terms after expiration.

33. RETAINED EARNINGS:(1) Retained earnings as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Legal reserve (*1)
Voluntary reserve:
Revaluation reserves on tangible assets (*2)
Other reserves (*3)
Reserve for credit losses (*4)
Subtotal
Unappropriated retained earnings
Total

Dec. 31, 2012

Dec. 31, 2011₩

725,100₩

431,936
78,498680,621
1,191,055
3,528,137
5,444,292₩

562,800₩

432,008
52,585484,593
3,756,278
4,803,671(*1) The Korean Banking Law requires the Company to appropriate at least 10% of net income after income tax to legal reserve, until such reserve
equals 100% of its paid-in capital. This reserve is not available for payment of cash dividends; however, it can be used to reduce deficit or betransferred to capital.
(*2) The Company records gains from revaluation of property, plant, and equipment to the voluntary reserve, as it applies revaluation amount asa deemed cost at the first-time application of K-IFRS. Such reserve is brought in distributable retained earnings when relevant property, plant,
and equipment are disposed.
(*3) Relevant Japanese regulations require the Company’s overseas branches located in Japan to appropriate a minimum of 10% of annual income after
income tax as a legal reserve, until such reserve equals ¥2,000 million. This reserve is not available for the payment of cash dividends and may beutilized upon liquidation of the Japanese branches. Singapore branches’ and Hanoi branches’ statutory reserves are included in other reserves.
(*4) The Company accumulate allowances for possible loan losses in accordance with K-IFRS and reserve for possible loan losses as much as theamount below the provision of allowances according to minimum accumulation ratio required by Financial Supervisory Service.

Korea Exchange Bank 2012 Annual Report 135

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(2) The changes in appropriated retained earnings for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Beginning balance
Net income of owners
Dividends
Dividends on hybrid securities
Ending balance

2012
₩

₩

4,803,671
658,871(18,250)
5,444,292

2011
₩

₩

4,689,156
1,654,745(1,521,980)(18,250)
4,803,671

34. RESERVE FOR CREDIT LOSSES:
The reserve for credit losses is computed and presented under the articles 29-1 and 29-2 of the regulation on Supervision of Banking business of
the Republic of Korea.
(1)	Reserve for credit losses as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Previously reserved amount
Expected reserve amount
Remaining balance

Dec. 31, 2012₩₩

680,62156,701
737,322

Dec. 31, 2011₩₩

680,621680,621(2)	Transfer to reserve for credit losses and adjusted income after reserve for credit losses for the years ended December 31, 2012 and 2011
are as follows (Unit: In millions, except per share amounts):
Classification
Net income of owners
Transfer to reserve for possible losses on credits
Adjusted net income after reserve for possible losses on credits
Adjusted basic earnings per share after reserve for possible losses on
credits (*1) (in Korean won)
Adjusted diluted earnings per share after reserve for possible losses on
credits (*1) (in Korean won)

2012₩

658,871(56,701)
602,1702011₩

1,654,745(164,809)
1,489,936

905

2,282

905

2,278

(*1) Adjusted basic and diluted earnings per share after reserve for credit losses for the years ended December 31, 2012 and 2011 are computedby deducting dividends on hybrid securities from the adjusted net income after reserve for credit losses by ₩18,250 million and ₩18,250,
respectively (see Note 45).

136

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

35. ACCUMULATED OTHER COMPREHENSIVE INCOME:
The changes in accumulated other comprehensive income for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
2012

Classification

Jan. 1, 2012
Increase in gain or loss on change in fair value of
AFS financial assets
Classification of gain or loss on change in fair value of
AFS financial assets to profit or loss (disposal, etc.)
Change of share of other comprehensive loss of associates
Decrease of gain or loss on overseas business translation
Decrease of gain or loss on foreign exchange
in non-monetary AFS financial assets
Income tax effects
Dec. 31, 2012

Change ofGain or loss onshare of otherchange in faircomprehensive
value of AFS
loss offinancial assets
associates₩₩

311,378 ₩Gain or loss
Gain or loss
on foreignon overseas
exchange in	Totalbusiness non-monetarytranslation AFS financial
assets(10) ₩

43,935 ₩(19) ₩

355,284

64,183---64,183(178,076)---(178,076)-

10-(108,646)-

10(108,646)

-

-

-

(89)

(89)

27,543225,028 ₩- ₩(64,711) ₩21(87) ₩

27,564160,230

2011

Classification

Jan. 1, 2011
Decrease in gain or loss on change in fair value of
AFS financial assets
Classification of gain or loss on change in fair value of
AFS financial assets to profit or loss (disposal, etc.)
Increase of gain or loss on overseas business translation
Decrease of gain or loss on foreign exchange
in non-monetary AFS financial assets
Income tax effects
Dec. 31, 2011

Change ofGain or loss onshare of otherchange in faircomprehensive
value of AFS
loss offinancial assets
associates₩₩

786,795 ₩Gain or loss
Gain or loss
on foreignon overseas
exchange in	Totalbusiness non-monetarytranslation AFS financial
assets(10) ₩

16,796 ₩- ₩803,581(7,315)---(7,315)(591,536)---(591,536)--

27,527-

27,527

-

-

-

(25)

(25)

123,434
311,378 ₩(10) ₩(388)
43,935 ₩6(19) ₩

123,052
355,284

36. CAPITAL MANAGEMENT:The Consolidated Group computes capital ratio required by the Bank for International Settlements (“BIS”) and manages the ratio to be maintained atleast 8% or above. The Consolidated Group meets the externally assigned capital maintenance requirement (the “BIS capital ratio”) as of December
31, 2012 .
The BIS capital ratio is computed by dividing shareholders’ equity by risk-weighted assets. Shareholders’ equity is computed by subtracting
deductible items from the sum of basic capital and supplementary capital. Risk-weighted assets are sum of credit risk-weighted assets, operatingrisk-weighted assets, and market risk-weighted assets.
Basic capital is composed of capital stock, additional paid-in capital, retained earnings, hybrid securities satisfied with basic capital requirements,

Korea Exchange Bank 2012 Annual Report 137

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

and differences in foreign currencies from other accumulated comprehensive income. Supplementary capital is composed of revaluation reserve
satisfied with supplementary capital requirements, gains on valuation of AFS financial assets and share of other comprehensive income of associates,
high-ranked subordinated debts with more than 10-year maturity or low-ranked subordinated debts with less than five-year maturity, etc.
Items deducted from capital stock include considerable amount of intangible assets and deferred tax assets, discount on capital stock, losses on
valuation of AFS financial assets and share of other comprehensive loss of associates, and treasury stock account. Other deductible items are
subtracted from basic and supplementary capital by 50% each. Additionally, the Consolidated Group classifies its assets by credit rating andcomputes risk-weighted assets by reflecting the level of risks. Risk-weighted value is computed based on transaction parties and credit ratings.

37. INTEREST REVENUES AND INTEREST EXPENSES:(1) The interest revenues and interest expenses for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification

2012

Interest revenue:
Due from banks

Banks
Other financial institutions
Subtotal
Banks
Customers
Subtotal

Loans₩

Financial assets at FVTPL
AFS financial assets
HTM investments
Total
Interest expenses:
Deposits

Financial institutions
Customers
Subtotal

Debentures
Borrowings
OthersTotal
Net interest income

₩

2011

53,504 ₩53,706107,21058,011
3,808,740
3,866,751
4,011
205,971
207,177
4,391,120

35,03949,307
84,346
81,0723,820,167
3,901,239
3,363
171,335
216,600
4,376,883

1,702
1,502,892
1,504,594
243,145
128,498
48,906
1,925,143
2,465,977 ₩

1
1,429,834
1,429,835
240,096
109,160
47,903
1,826,994
2,549,889(2)	Interest income of impaired financial assets for the years ended December 31, 2012 and 2011 is as follows (Unit: In millions):
Classification

2012

Loans
Other assets

₩
Total

₩

82,484
156
82,6402011₩₩

68,567
139
68,706

138

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

38. COMMISSION REVENUES AND COMMISSION EXPENSES:
Commission revenues and commission expenses for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification

2012

Commission revenue:
Receiving credits
Giving credits
Foreign exchange
Credit card
Asset management
Agency business
Guarantee service
Others₩Total
Commission expenses:
Giving credits
Foreign exchange
Agency business
Credit card
OthersTotal
Net commission income₩

12,71633,313
201,420
89,846
8,337
42,92967,27565,459521,295
2,870
40,723514
274,679
23,879342,665
178,630

2011
14,34722,594
208,685
76,043
11,051
24,68871,926
84,136
513,470₩

1,685
37,694476
201,81124,306
265,972
247,498₩

39. NET INCOME FROM FINANCIAL INVESTMENTS:
Net income from financial investments for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Financial instruments at FVTPL:
Gains

Gain on valuation of trading securities
Gain on disposal of trading securities
Gain on valuation of trading bonds
Gain on disposal of trading bonds
Gain on valuation of trading derivatives
Gain on trading of trading derivatives
Subtotal
LossesLoss on valuation of trading securities
Loss on disposal of trading securities
Loss on valuation of trading bonds
Loss on disposal of trading bonds
Loss on valuation of trading derivatives
Loss on trading of trading derivatives
Subtotal
Net income (loss) of financial instruments at FVTPL

2012
₩

₩

603 ₩
12,8913
2,176
1,266,658
2,288,253
3,570,584
223
13,4171
1,918
1,233,170
2,330,836
3,579,565(8,981) ₩2011
754
18,536298
2,302
821,366
2,976,619
3,819,875
335
31,00364
1,518
753,204
2,976,320
3,762,444
57,431

Korea Exchange Bank 2012 Annual Report 139

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Classification
Hedging derivatives:
Gains

Losses

Net income (loss) of hedging derivatives
AFS financial assets
Gains

LossesGain on valuation of hedging derivatives
Gain on trading of hedging derivatives
Subtotal
Loss on valuation of hedging derivatives
Loss on trading of hedging derivatives
Subtotal₩₩
Gain on disposal of AFS equity securities
Gain on disposal of AFS debt securities
Subtotal
Loss on disposal of AFS equity securities
Loss on disposal of AFS debt securities
Subtotal

Net income of AFS financial assets

₩

₩

2012

2011

7,060 ₩
821
7,881
12,577210
12,787(4,906) ₩27,711
712
28,42327,601
27,601
822

196,860 ₩
50,186
247,04640
40
247,006 ₩1,182,283
8,981
1,191,264
815
112
927
1,190,337

40. IMPAIRMENT LOSSES:
Impairment losses related to financial assets for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Transfer to allowance for possible losses (*1)
AFS financial assets₩
Impairment losses
Reversal of impairment losses
Subtotal
Total

₩

2012

2011

667,723 ₩
17,522(1,386)
16,136
683,859 ₩

561,503
12,012(1,679)10,333571,836(*1) Includes allowance for possible losses on loans and other assets.

41. GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Salaries
Retirement allowances
Expenses for fringe benefits
RentalEntertainment expense
Depreciation on tangible assets
Depreciation on investment property
Amortization
Taxes
Advertising
Others2012₩₩

676,40991,925
226,399
131,015
12,30078,3192,494
24,90044,24042,193242,770
1,572,964

2011
₩

₩

614,318
46,669295,810
121,999
13,87970,1892,462
27,17944,981
31,139221,934
1,490,559

140

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

42. OTHER OPERATING REVENUES AND EXPENSES:(1) Other operating revenues for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Dividend income

Reversal of provision for acceptances andguarantees
Reversal of provision for unused credit limit
Other revenue from financial instruments
Gain on foreign exchange transaction
Gain on foreign exchange difference
Gain on operating trust account
Point revenues
Gain on sales of loans
Revenue on merchant banking accounts (*1)
Others
Total

Financial assets at FVTPL
AFS financial assets
Subtotal

₩

2012

2011

323 ₩
11,911
12,234

7,647
47,67055,317

2,540

9,787

387
1,066,625
170,566
41,97627,191
1,515
68,201157
1,391,392 ₩₩

43,404197
1,179,494
56,57836,731
20,762
18,13465,871138
1,486,413(*1) Details of revenues on merchant banking accounts are as follows (Unit: In millions):
Classification
Interest revenues
Commission revenues
Gain on disposal of trading bonds
Gain on valuation of trading bonds
Gain on valuation of CMA securities
Gain on disposal of bills
Reversal of allowance for possible loan losses
Reversal of provision for unused credit limit
Total

2012
₩

₩

28,094
741
1,408
23
1
33,2884,614
32
68,201

2011₩₩

35,494
842
1,867
66
9
27,251
342
65,871(2) Other operating expenses for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Transfer to provisions for unused credit limit
Transfer to other provisions
Other expenses from financial instruments
Loss on foreign exchange transactions
Loss on foreign exchange difference
Point expenses
Contribution for credit guarantee fundInsurance expense for deposits
Loss on sales of loans
Expenses on merchant banking accounts (*1)
Total

2012
₩

₩

6,291
18,385669
730,577
56,631
31,87099,23399,701
23,301
42,5281,109,186

2011
₩

₩

10,480814
910,939
73,907
24,741
96,417
91,16068,66452,0281,329,150

Korea Exchange Bank 2012 Annual Report 141

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011(*1) Details of expenses on merchant banking accounts are as follows (Unit: In millions):
Classification
Interest expenses
Transfer to allowance for possible loan losses
Loss on valuation of trading bonds
Loss on valuation of CMA securities
Others
Total

2012
₩

₩

42,43755
53142,5282011₩₩

47,4804,521
2752,02843. NON-OPERATING REVENUES AND EXPENSES:(1) Non-operating revenues for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Gain on disposal of tangible assets
Gain on disposal of investment property
Rental revenues
Gain on disposal of investment in associates
Others
Total

2012
₩

₩

37
38
3,206
63,24866,529

2011
₩

₩

243
3,522
142
64,53368,440(2) Non-operating expenses for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Loss on disposal of tangible assets
Loss on disposal of investment property
Impairment losses on intangible assets
Donations
Others
Total

2012
₩

₩

298
111
2,984
19,872
26,402
49,667

2011
₩

₩

28
1,806
18,58429,76950,187

142

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

44. INCOME TAX EXPENSE:(1) The components of income tax expense for the years ended December 31, 2012 and 2011 are summarized as follows(Unit: In millions):
Classification
The Company:
Income tax currently payable
Change in deferred tax due to temporary differences
Total income tax effect
Income tax directly charged to shareholders’ equity
Income tax expense in overseas branch
Income tax expense
Subsidiaries:
Income tax currently payable
Change in deferred tax due to temporary differences
Income tax directly charged to shareholders’ equity
Income tax expense
Total

2012
₩

₩

222,029(22,432)
199,597
27,372
10,330237,299

21,1972,429
194
23,820261,1192011₩₩

531,057(188,795)
342,262
124,440
15,443482,145

22,865958(1,535)22,288504,433

A reconciliation of income before income tax and income tax expense for the years ended December 31, 2012 and 2011 is as follows(Unit: In millions):
Classification
Income before income tax
Burden of taxation (by applicable tax rate of 24.2%)
Reconciliation items:
Non-taxable income
Non-deductible expenses
Tax credits
Addition (refund) of income tax
Income tax expense in overseas branches
Difference due to tax rate change
Others (*1)
Sum of reconciliation items
Income tax expense
Effective tax rate

2012
₩

₩

863,089
208,405(7,027)
4,563(7,936)25,026
10,3303,938
28,894
237,29927.49%

2011₩₩

2,104,256
509,204(127,769)
171,854(11,871)(15,775)
15,443(2,189)(56,752)(27,059)
482,145
22.91%(*1) Includes ₩2,227 million of difference caused by the difference between Korean GAAP and K-IFRS related to the reversal of impairment losses
on equity security.

Korea Exchange Bank 2012 Annual Report 143

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(2) Deferred income tax assets in the consolidated financial statements as of December 31, 2012 and 2011 are as follows(Unit: In millions):
Classification

Dec. 31, 2012

KEBC
KEBIS
NYFinCo
USAI
LAFinCo
KEBA
KEBI
KEBB
KEBOC

16,586
154
4,459
11
3,907
2,424
551
(281)
27,811

₩

Total

₩

Dec. 31, 2011
9,678
92
6,346
8
7,389
4,620
456
28,589₩₩(3) Deferred income tax liabilities in the consolidated financial statements as of December 31, 2012 and 2011 are as follows(Unit: In millions):
Classification

Dec. 31, 2012

KEB (*1)
KEBF
KEBOC
KEBB
KEBChina
KEBIS

29,231
2,413
1,266
2,223
64
482
35,679

₩

Total

₩

Dec. 31, 2011
51,663
2,322
1,329
1,139
6
56,459₩₩(*1) Deferred income tax assets (liabilities) of the Company as of December 31, 2012 and changes to them for the year ended December 31, 2012
are as follows (Unit: In millions):
Deductible (taxable) temporary differences
Classification

Jan. 1,
2012 (*1)

Decrease

Increase

Dec. 31,2012

Deferred income tax assets (liabilities) (*2)
Jan. 1,2012

Decrease

Increase

Dec. 31,2012

DEDUCTIBLE TEMPORARY DIFFERENCES
Gains or losses on₩ (54,770) ₩ 187,721 ₩ 190,841 ₩ (51,650) ₩ (13,254) ₩ 45,429 ₩ 46,184 ₩ (12,499)
valuation of financial
assets
Accrued income(64,192)(64,192)(66,362)(66,362)(15,534)(15,534)(16,059)(16,059)
Other provisions and
223,100
223,100
220,907220,907
57,03257,032
53,46053,460othersGains or losses related to(142,365)(142,365)(90,240)(90,240)(34,452)(34,452)(21,838)(21,838)
derivatives
Debt-for-equity swap
148,133
62,088
5,802
91,84738,371
15,024(1,120)22,227securities
Advance depreciation(62,466)(62,466)(15,117)(15,117)
provisions
Investment in kind at
137,879
137,879
33,36733,367
KEBChina
Financial guarantee
25,02425,024
6,056
6,056
contract
Deferred point revenue
39,811
39,811
52,836
52,836
9,634
9,634
12,786
12,786
Accrued expenses
126,065
126,065
79,145
79,145
17,58817,58819,153
19,153

144

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Gain on revaluation of
tangible assets
Transfer of reversal of
impairment loss on equity
securities to OCI
Transfer of debt-for-equity
swap receivables to OCI
OthersSubtotal(553,885)

(120)

-

(553,765)(134,040)(29)-(134,011)

18,659

9,203

-

9,456

4,515

2,227

-

2,288

5,352

-

-

5,352

1,295

-

-

1,295

378,006
224,351

117,826
559,137

104,236
497,165

364,416
162,379

88,77644,23728,514125,433

27,927
120,493

88,18939,297

ACCUMULATED OTHER COMPREHENSIVE INCOME
AFS financial assets reserve396,304
396,304
283,283
283,283(95,906)(95,906)(68,555)(68,555)
Gain or loss on translation
(25)
(25)
(114)
(114)
6
6
27
27
of AFS financial assets
Subtotal
396,279
396,279
283,169
283,169(95,900)(95,900)(68,528)(68,528)₩ 620,630 ₩ 955,416 ₩ 780,334 ₩ 445,548 ₩ (51,663) ₩ 29,533 ₩ 51,965 ₩ (29,231)
Total(*1) Beginning balance is after adjustment of the difference in reserved amount of ₩41,399 million at the time of final tax return as of December
31, 2011. Such adjustments increase deferred tax assets by ₩10,018 million compared to the amount of December 31, 2011.
(*2) The tax rate used for calculating deferred income tax assets and liabilities is the expected average tax rate applicable to the period for which thetemporary differences are expected to reverse (24.2 percent).
(4) The effective tax rates, calculated by dividing income tax expense by net income before taxes, for the years ended December 31, 2012
and 2011 are 28.38 percent and 23.36 percent, respectively.

45. EARNINGS PER SHARE:(1) Weighted-average number of common shares
The weighted-average number of common shares for the years ended December 31, 2012 and 2011 are as follows:

Classification

Fixed date

Number of shares

Negotiable period

Accumulated shares

Weighted-average
number ofcommon shares

2012
2011

2012.12.31
2011.12.31

644,906,823
644,906,823

366 days
365 days

236,035,897,218
235,390,990,395

644,906,823
644,906,823(2) Basic earnings per share
The basic net income per share for the years ended December 31, 2012 and 2011 is as follows (Unit: In millions, except per share amounts):
Classification
Net income of owners
Dividends on hybrid securities
Net income to calculate basic net income per share
Weighted-average number of common shares
Basic earnings per share (in Korean won)

2012
₩

₩

658,871(18,250)
640,621644,906,823
993

2011
₩

₩

1,654,745(18,250)
1,636,495
644,906,823
2,538

Korea Exchange Bank 2012 Annual Report 145

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(3) Diluted earnings per share
The diluted net income per share for the years ended December 31, 2012 and 2011 is as follows (Unit: In millions, except per share amounts):
Classification2012

Net income to calculate basic net income per share
Recognized revenue related to employee stock options(after-tax effect of 24.2%)
Net income to calculate diluted net income per share
Weighted-average number of common shares
Diluted earnings per share (in Korean won)

640,621₩₩2011
1,636,495

₩

(257)

(2,244)640,364
644,987,439
993

1,634,251
645,159,672
2,533

₩

In calculating diluted earnings per share, the assumed proceeds from the potential ordinary shares shall be regarded as having been received from theissue of ordinary shares at the average market price of ordinary shares during the period. The difference between the number of ordinary shares issued
and the number of ordinary shares that would have been issued at the average market price of ordinary shares during the period shall be treated as
an issue of ordinary shares for no consideration. The ordinary shares for no consideration generate no proceeds and have no effect on profit or loss
attributable to ordinary shares outstanding. Therefore, such shares are dilutive and are added to the number of ordinary shares outstanding in thecalculation of diluted earnings per share. Dilutive potential ordinary shares the Consolidated Group owns are employee stock options.

46. SHARE-BASED PAYMENT:
When the stock options are exercised, the Company has the option to settle either through issuance of new shares or treasury stock or throughpayment of cash equivalents to the difference between the market price and the exercise price. The number of exercisable stock option isdetermined in accordance with the management performance and the calculation criteria for the number of exercisable shares. Also, the Company
granted the equity-linked special incentive (“Rose Bonus” and/or “Rose Share”) to employees for the purpose of motivation to improve long-term
performance. The Rose Bonus and/or Rose Share is settled in cash. It can be exercised from one to three years after the grant date for the following
three to four years.
(1) Details of the stock options as of December 31, 2012 are as follows (Unit: In Korean won, shares):
1) Assumptions for evaluation of the stock options
The stock options are measured at fair values applying Black-Scholes Model

Grant dateMar. 11, 2008 (*1)
Aug. 1, 2008 (*1)
Mar. 12, 2009
Aug. 4, 2009
Mar. 10, 2010
Mar. 30, 2010
Aug. 4, 2010

Exercise period
Mar. 12, 2010–
Mar. 11, 2013
Aug. 2, 2010–
Aug. 1, 2013
Mar. 13, 2011–
Mar. 12, 2016
Aug. 5, 2011–
Aug. 4, 2016
Mar. 11, 2012–
Mar. 10, 2017
Mar. 31, 2012 –Mar. 30, 2017
Aug. 5, 2013–
Aug. 4, 2017

Volatility of
Risk-free rate
Expected
the underlying(%) service period
stock price (%)

Expected
dividend

Stock price at
grant date

Fair value

-

-

-

-

12,400

-

-

-

-

-

13,050

-

2.75%

5.87

29.55%

1,035

5,700

1,287

2.78%

5.87

28.38%

1,035

11,700

166

2.82%

5.87

28.55%

1,035

13,450

91

2.83%

5.87

29.24%

1,035

13,600

94

2.85%

5.87

29.83%

1,035

12,300154

146

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Sep. 29, 2010
Aug. 10, 2011
Aug. 26, 2011
Sep. 2, 2011

Sep. 30, 2013–
Sep. 29, 2017
Aug. 11, 2014–
Aug. 10, 2018
Aug. 27, 2014–
Aug. 26, 2018
Sep. 3, 2014–
Sep. 2, 2018

2.87%

5.87

30.40%

1,035

13,550

128

2.93%

5.87

43.45%

1,035

8,060

906

2.93%

5.87

43.27%

1,035

7,720

980

2.94%

5.87

43.17%

1,035

7,930

990

(*1) Since it is impossible to estimate its fair value with Black-Scholes Model due to excess of expected maturity, it is measured with intrinsic value.
2) Changes in shares of stock options

Grant dateMar. 8, 2007
Mar. 29, 2007
Aug. 10, 2007
Mar. 11, 2008
Aug. 1, 2008
Mar. 12, 2009
Mar. 31, 2009
Aug. 4, 2009
Mar. 10, 2010
Mar. 30, 2010
Aug. 4, 2010
Sep. 29, 2010
Aug. 10, 2011
Aug. 26, 2011
Sep. 2, 2011
Total

Shares at beginning

Exercise

Divestiture

Extinction
at maturity

Shares atending546,100
289,610204,010
209,870
74,510298,825
825,000
415,610326,330
262,250
300,200
17,810550,000
100,000
30,0004,450,125(14,500)(742,500)(757,000)(82,500)(13,980)(25,110)(48,310)(217,000)(57,710)(18,750)(463,360)(546,100)(289,610)(204,010)(1,039,720)

209,870
74,510284,325415,610
312,350
237,140
251,890
17,810333,000
42,290
11,2502,190,045

Stock option
outstanding

Exercise price- ₩209,870
74,510284,325415,610
312,350
237,140
251,890
17,810333,000
42,290
11,2502,190,045

13,90014,50013,90013,00013,5005,800
7,300
10,90013,20013,50012,40013,500
9,100
8,500
8,400

3) Weighted-average stock price as of stock option date exercised for the year ended December 31, 2012 amounts to ₩8,076.
4) Weighted-average residual expiration of exercisable stock option as of December 31, 2012, is 3.75 years.

(2) Details of the equity-linked special incentive as of December 31, 2012 are as follows (Unit: In Korean won, shares):1) Details of the equity-linked special incentive
The equity-linked special incentive is measured at fair values applying Binomial Model.
It can be exercised from one to three years after the grant date for the following three to four years.

Classification

Grant date

Exercise period

Payment date

Stock option
outstanding(shares)

Rose 3Rose 4Rose 5Rose 6
Rose Share 1-1
Rose Share 1-2
Rose Share 2-1

Dec. 12, 2007
Dec. 11, 2009
Aug. 4, 2010
Sep. 21, 2011
Feb. 19, 2010
Feb. 19, 2010
Mar. 19, 2010

Dec. 12, 2009–Dec. 11, 2012
Dec. 11, 2011–Dec. 10, 2014
Aug. 4, 2012–Aug. 3, 2015
Sep. 21, 2013–Sep. 20, 2016
Feb. 19, 2011–Feb. 18, 2015
Feb. 19, 2012–Feb. 18, 2015
Mar. 19, 2011–Mar. 18, 2015

Dec. 12, 2009
Dec. 11, 2011
Aug. 4, 2012
Sep. 21, 2013
Feb. 19, 2011
Feb. 19, 2012
Mar. 19, 2011

9,850
48,860200,010
4,526,040
18,365-

Korea Exchange Bank 2012 Annual Report 147

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Rose Share 2-2
Rose Share 3-1
Rose Share 3-2
Rose Share 4-1
Rose Share 4-2
Rose Share 5-1
Rose Share 5-2
Rose Share 6-1
Rose Share 6-2
Rose Share 6-3
Rose Share 7-1
Rose Share 7-2
Rose Share 8-1
Rose Share 8-2
Rose Share 9-1
Rose Share 9-2

Mar. 19, 2010
Aug. 11, 2010
Aug. 11, 2010
Feb. 21, 2011
Feb. 21, 2011
Feb. 21, 2011
Feb. 21, 2011
Mar. 21, 2011
Mar. 21, 2011
Mar. 21, 2011
Sep. 8, 2011
Sep. 8, 2011
Feb. 21, 2012
Feb. 21, 2012
Feb. 21, 2012
Feb. 21, 2012

Mar. 19, 2012–Mar. 18, 2015
Aug. 11, 2011–Aug. 10, 2015
Aug. 11, 2012–Aug. 10, 2015
Feb. 21, 2012–Feb. 20, 2015
Feb. 21, 2013–Feb. 20, 2016
Feb. 21, 2012–Feb. 20, 2015
Feb. 21, 2013–Feb. 20, 2016
Mar. 20, 2012–Mar. 19, 2015
Mar. 20, 2013–Mar. 19, 2016
Mar. 20, 2014–Mar. 19, 2017
Sep. 8, 2012–Sep. 8, 2015
Sep. 8, 2013–Sep. 7, 2016
Feb. 22, 2013–Feb. 21, 2017
Feb. 22, 2014–Feb. 21, 2017
Feb. 22, 2013–Feb. 21, 2017
Feb. 22, 2014–Feb. 21, 2017

Mar. 19, 2012
Aug. 11, 2011
Aug. 11, 2012
Feb. 21, 2012
Feb. 21, 2013
Feb. 21, 2012
Feb. 21, 2013
Mar. 20, 2012
Mar. 20, 2013
Mar. 20, 2014
Sep. 8, 2012
Sep. 8, 2013
Feb. 22, 2013
Feb. 22, 2014
Feb. 22, 2013
Feb. 22, 2014

1,560
6,550
6,875
11,62023,86015,00023,425
523
1,465
1,470
1,770
1,770
21,635
21,63542,22542,2252012

2011

7,054,210
127,720(109,896)(2,045,301)
5,026,733

2,485,340
4,850,400(126,388)(155,142)
7,054,210

2) Changes in shares of equity-linked special incentive
Classification
Beginning
Number of given shares
Number of loss of right
Number of exercise
Ending3) Weighted-average stock price of equity-linked special incentive at exercise date for years ended December 31, 2012, amounts to ₩7,834.
4) Weighted-average residual maturity of equity linked special incentive as of December 31, 2012 is 3.64 years.

(3)	Hana Financial Group provided the Company’s employees with stock rights and stock grant linked to performance and computedcompensation costs are computed by applying fair value approach for such rights. Details of share-based payment arrangement andshare-based payment linked to performance are as follows:
Classification

1st

2nd

Grant dateJan. 1, 2011

Jan. 1, 2012

Grant method
Grant period
Payment date
Shares at settlement date (*1)

Hana Financial Group has the option to settle either through treasury stock or
through payment of cash equivalents
Jan. 1, 2011–
Dec. 31, 2013
Dec. 31, 2013
1,340

Jan. 1, 2012–
Dec. 31, 2014
Dec. 31, 2014
12,430(*1) Payable shares are determined at the initial agreement and payment ratio is decided according to the degree of performance of predecided
object. Performance is evaluated by 40% of performance of Group (relative shareholders’ rate of return) and 60% of performance of businesssegments (Return On Equity or Return On Invested Capital)

148

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(4) Details of book value of liabilities related to share-based payment and total intrinsic value of rights accounted as payables in case that
option holders achieve rights to receive cash or other assets as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Book value of liabilities related to share-based payment:
Stock options
Equity-linked special incentive(granted by the Company)
Equity-linked special incentive(granted by Hana Financial Group)
Total

Dec. 31, 2012₩

772

Dec. 31, 2011₩

41,70736,938452₩

42,931

3,876₩

40,814(5) Compensation costs recognized due to share-based payment
The compensation costs for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Costs recognized due to share-based payment:
Stock options
Equity-linked special incentive(granted by the Company)
Equity-linked special incentive(granted by Hana Financial Group)
Total

2012
₩

₩

(2,453)2011₩(4,533)33,35022,086492-

31,389₩17,55347. STATEMENTS OF CASH FLOWS:(1) Cash and cash equivalents
Cash and cash equivalents in the consolidated statement of cash flows consist of cash and due from banks (excluding restricted due from banks)
in the consolidated statement of financial position. Cash and cash equivalents as of December 31, 2012 and 2011 are adjusted as follows (Unit:
In millions):
Classification
Cash and due from banks
Less: restricted due from banks (Note 10)
Cash and cash equivalents

Dec. 31, 2012₩₩

8,093,842(3,768,938)
4,324,904

Dec. 31, 2011₩₩

8,397,528(4,809,674)
3,587,854(2)	Non-cash transactions for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Gain or loss on change in fair value of AFS financial assets
Replace tangible asset with investment property
Replace loans with non-current assets held for sale
Replace loans with AFS financial assets by the debt-for-equity swap

2012₩

64,183
4,708
1,439
23,9292011₩

52,9038,772
3,692

Korea Exchange Bank 2012 Annual Report 149

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

48. RELATED-PARTY TRANSACTIONS:(1) Details of related-party transactions of the Company are as follows:
Subsidiaries

Relationship

Hana Financial Group
KEBC
KEBF
KEBIS
KEBOC
KEBA
KEBDAGKEBIKEBBNYFinCoLAFinCo
USAI
KAF
KEBChina
Hana Daetoo Securities Co., Ltd.
Hana Bank
Hana Capital Co., Ltd.
Hana Institute of Finance
HanaSK Card Co., Ltd.
Hana I&S
Flossom Co., Ltd.

Controlling company
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Entity under common control
Entity under common control
Entity under common control
Entity under common control
Entity under common control
Entity under common control
Investments in associate(2) Significant receivables and payables with related parties as of December 31, 2012 are summarized as follows (Unit: In millions):
Dec. 31, 2012
Classification
Assets:Financial assets at FVTPL
Others
Total
Liabilities:
Deposits
Financial liabilities at FVTPL
Others
Total

Controllingcompany
₩
₩

₩

₩

514
514

960
960

Entities undercommon control
₩
₩

₩

₩

33,70345,526
79,22952,953
11,72748,441
113,121

Investments inassociate
₩
₩

₩

₩

-

-

Total
₩
₩

₩

₩

33,70346,04079,743

52,953
11,72749,401
114,081

150

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011(3) Significant transactions with related parties for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
2012
Classification
Revenues:
Interest revenues
Commission revenues
Gain on financial instruments at
FVTPL
Others
Total
Expenses:
Interest expenses
Commission expenses
Loss on financial instruments at
FVTPL
Total

Controllingcompany₩

1,567-

Entities undercommon control
₩

₩

₩

1,567

-

-

₩

101,117
₩

₩

₩

1,302
319

Investments inassociate

32
102,770

2,672
123
67,579

2,869
319

₩

-

₩

-

₩

64,784₩

Total

101,11732
104,337

₩

2,672
123

₩

-

₩

64,78467,579₩2011
Classification
Revenues:
Interest revenues
Commission revenues
Total
Expenses:
Interest expenses
Reversal of allowance for possible losses
Total

Controllingcompany₩₩₩₩

Entities undercommon control

-

₩

-

₩

₩

₩

Investments inassociate

-

₩

-

₩

705
50
755

₩

73
(138)
(65)

₩

Total
₩
₩

₩
₩

705
50
755

73
(138)
(65)

(4) The key management compensations for the years ended December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Short-term employee benefits
Post retirement employee benefits
Stock option

2012
₩

4,819
1,298
(98)

2011
₩

5,516
1,981
(4,520)The key management includes directors, executives and officers who have authorities and responsibilities for decision making of the business plan,
operations and control over the Company.

Korea Exchange Bank 2012 Annual Report 151

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

49. CONTINGENCIES AND COMMITMENTS:(1) The Company holds written-off loans, on which the relevant statute of limitations has not expired or the Company has not lost its
claim rights to borrowers and guarantors, amounting to ₩1,784,725 million and ₩1,645,070 million as of December 31, 2012 and2011, respectively.
(2)	Endorsed notes with collateral amounted to ₩25,733 million and ₩33,283 million as of December 31, 2012 and 2011, respectively.
Endorsed notes without collateral held at the merchant banking amounted to ₩7,530,500 million and ₩7,843,800 million as ofDecember 31, 2012 and 2011, respectively.
(3) The Company is obliged to repurchase some loans previously sold to Korea Asset Management Corporation (“KAMCO”) under certain
conditions, including the following:- When it is considered impossible to collect the loans, interest due to delay in repayment of loans, and interest over months.
- When it is considered impossible to collect the loans and interest due to the abrogation of court-ordered receivership process and thecancellation of mediation.
As of December 31, 2012, KAMCO and other loan purchasers may exercise the resale option for loans amounting to ₩475 million. An
additional loss or profit may occur, depending on the loan classification, valuation of loans or final arrangement on loans when KAMCO andother loan purchasers exercise their RP.
(4) The Consolidated Group has pending litigations as a plaintiff or a defendant in various legal actions arising from the normal course ofoperation. The aggregate amounts of these claims brought by and against the Consolidated Group are approximately ₩323,949 million(690 cases) and ₩418,765 million (214 cases), respectively, as of December 31, 2012. The Consolidated Group recognized ₩45,392
million of provisions related to these lawsuits.
Major ongoing litigations related to the Consolidated Group’s contingencies are as follows (Unit: In millions):
Defendant

Plaintiff

Content

Note

The Company

Hyundai Merchant andMarine Company Limited

Return of performance bond etc.

(*1)(*1) As of December 31, 2012, the lawsuit has been filed and named the Company as a defendant. The action, purportedly brought on behalfof a Hyundai Merchant and Marine Company Limited, the plaintiff, that the Company held performance bond of ₩275.5 billion which
the plaintiff paid as a priority bidder for M&A of Hyundai Engineering & Construction Co., Ltd. The plaintiff claimed the return of theperformance bonds and the damages of ₩50 billion for the related expenses. If a financial judgment of the law suit agrees the claim, ₩50
billion of damage will be paid proportionately based on the 25 percent ownership, which the Company has on the post-management council.
The Consolidated Group believes that the outcome of these matters will not have a material impact on the financial statements.

(5) Contingencies related to project financing (PF)Asset-backed commercial paper (ABCP) purchase agreements and unused credit limits related to PF as of December 31, 2012 and 2011 are as
follows (Unit: In millions):
Type

Dec. 31, 2012ABCP purchase agreement
Unused credit limit on PF loan

₩
Total

₩

300,000
311,277
611,277

Dec. 31, 2011₩₩

252,100
323,893575,993

152

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

50. OPERATION PERFORMANCE OF TRUST ACCOUNTS:(1)	Trust accounts as of December 31, 2012 and 2011, and for the years ended December 31, 2012 and 2011 are as follows(Unit: In millions):
Total assets
Classification
Trust accounts

Dec. 31, 2012₩

23,967,287

Operating revenue
Dec. 31, 2011₩

24,559,902

Dec. 31, 2012₩

306,478

Dec. 31, 2011₩

316,654(2) The carrying value of trust accounts with agreement to guarantee the principal amount or the fixed dividend and the amount thatshould be covered by the inherent account as of December 31, 2012 and 2011 are as follows (Unit: In millions):
Classification
Trust accounts guaranteeing the repayment of principal:
Installment trust
Household trust
Old-age pension trust
Corporate trust
Personal pension trust
Retirement Trust
New personal pension trust
New old-age pension trust
Pension trust
Subtotal
Trust accounts guaranteeing a fixed rate of return and therepayment of principal:
Unspecified monetary trust
Development money trust
Subtotal
Total

Dec. 31, 2012
₩

₩

86
550
2,110
38
194,976
82,421
76,245
1,226
263,792
621,444595
64621,508

Dec. 31, 2011
₩

₩

85
609
2,552
37
200,098
179,431
67,766
1,398
224,191
676,167595
64676,231

Korea Exchange Bank 2012 Annual Report 153

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

51. DIVIDENDS:(1) Details of the dividends for the years ended December 31, 2012 and 2011 are as follows:
Type
Dividend per share(dividend rate)(Unit: In Korean won, %):The quarterly dividend per share
The yearly dividend per share
Total
Number of shares issued (Unit: shares):Total amount of the dividends(Unit: Korean won in millions):
The quarterly dividends
The yearly dividends
Total

2012

₩
₩

₩
₩

2011

50(1.0%)50(1.0%)644,906,823₩

32,24532,245₩₩1,510(30.2%)
1,510(30.2%)
644,906,823
973,809
973,809₩(2) Details of the estimated propensity to dividend for December 31, 2012 and 2011 are as follows (Unit: In millions, %):Type
Total amount of the dividend (*1)
Net income of owners
Propensity to dividend
Adjusted net income after reserve for credit losses
Propensity to dividend based on adjusted net income
after reserve for credit losses

2012₩

32,245
658,871
4.89%
602,170

2011₩

973,809
1,654,745
58.85%
1,489,936

5.35%

65.36%(*1) Quarterly dividend could be contained between total amounts of the dividend.

(3) Details of the dividend yield ratio for the years ended December 31, 2012 and 2011 are as follows (Unit: In Korean won, %):Type
Dividend per share
Closing price of settling day
Dividend yield ratio

2012
₩

50
7,620
0.66%

2011
₩

1,510
7,350
20.54%(*1) Quarterly dividend could be contained between total amounts of the dividend.

52. EVENTS AFTER THE REPORTING PERIOD:
The Board of directors’ of the Consolidated Group resolved share-for-share exchange and made an agreement with Hana Financial Group which
is a controlling company of the Consolidated Group on January 28, 2013. By the agreement, the stock exchange ratio for one share is 0.1894302
common share of Hana Financial Group. The Company will be a wholly-owned subsidiary of Hana Financial Group after exchange day which isscheduled on April 5, 2013.

154

Independent Auditor’s Report
English Translation of a Report Originally Issued in Korean

To the Shareholders and the Board of Directors of
Korea Exchange Bank:
We have audited the accompanying separate financial statements of Korea Exchange Bank (the “Company”). The separate financial
statements consist of the separate statements of financial position as of December 31, 2012 and 2011, respectively, and the related separate
statements of comprehensive income, separate statements of changes in shareholders’ equity and separate statements of cash flows, allexpressed in Korean won, for the years ended Decemeber 31, 2012 and 2011, respectively. The Company’s management is responsible forthe preparation and fair presentation of the separate financial statements and our responsibility is to express an opinion on these separate
financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2012, and 2011, respectively, and the results of its operations and its cash flows for the years ended December 31, 2012 and2011, respectively, in conformity with Korean International Financial Reporting Standards(“K-IFRS”).

March 8, 2013

Notice to ReadersThis report is effective as of March 8, 2013, the auditor’s report date. Certain subsequent events or circumstances may have occurred between
the auditor’s report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying
separate financial statements and may result in modifications to the auditor’s report.

Korea Exchange Bank 2012 Annual Report 155

SEPARATE STATEMENTS OF FINANCIAL POSITIONKOREA EXCHANGE BANKAS OF DECEMBER 31, 2012 AND 2011

(In millions of KRW)

Dec. 31, 2012

Dec. 31, 2011ASSETSCash and due from banks
Financial assets at fair value through profit or loss
Hedging derivative assets
Available-for-sale financial assets
Held-to-maturity financial assets
Loans
Investments in subsidiaries and associates
Tangible assets
Investment property
Intangible assets
Prepaid income taxes
Other assets
Merchant banking account assets
Non-current assets held for sale
Total assets₩

6,929,182₩

1,472,758
37,867
6,969,864
5,017,636
66,457,419
1,071,522
1,204,775
178,312
68,6431,217
7,805,003
2,578,216
192
99,792,606₩

7,409,044₩

1,481,282
32,537
6,054,791
5,332,794
64,691,036
1,052,873
1,188,863
176,442
73,688963
7,080,878
2,392,454
96,967,645

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits
Financial liabilities at fair value through profit or loss
Hedging derivative liabilities
Borrowings
Debentures
Provisions
Income taxes payable
Deferred income tax liabilities
Other liabilities
Merchant banking account liabilities
Total liabilities₩

63,548,804
1,308,602
6,562,502
5,810,107
234,50334,81029,231
12,790,021
528,735
90,847,315₩

61,919,043
967,748897
9,175,095
4,975,857
234,595
380,327
51,663
10,054,736
753,304
88,513,265

SHAREHOLDERS’ EQUITY:
Capital stock
Capital surplus
Hybrid securities
Stock option
Retained earnings(reserve for credit losses:₩680,066 million as of December 31, 2012, and₩0 million as of December 31, 2011
Additional expected reserve for credit losses:₩17,815 million as of December 31, 2012, and₩680,066 million as of December 31, 2011)
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity₩

3,224,534

3,224,534

940
249,77240

940
249,772-

5,282,664

4,675,124

187,341
8,945,291
99,792,606

304,0108,454,380
96,967,645

₩

156

SEPARATE STATEMENTS OF COMPREHENSIVE INCOME
KOREA EXCHANGE BANKFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In millions of KRW, except per share amounts)

2012
Net interest income:Interest revenues
Interest expenses₩

Net commission income:Commission revenues
Commission expenses
Net income (loss) of financial instruments at fair value
through profit or loss:
Gains on financial instruments at fair value through profit or loss
Losses on financial instruments at fair value through profit or loss
Net income (loss) of hedging derivatives:
Gains on hedging derivatives
Losses on hedging derivatives
Net income of available-for-sale financial assets:
Gains on available-for-sale financial assets
Lossess on available-for-sale financial assets
Net impairment loss:
Impairment losses on financial assets
General and administrative expenses
Net other operating income:
Other operating revenues
Other operating expenses
Operating income
Net non-operating income:Non-operating revenues
Non-operating expenses
Income before income tax expense
Income tax expense
Net income:(net income after reserve for credit losses:₩607,975 million for the year ended December 31, 2012, and₩1,455,229 million for the year ended December 31, 2011)
Other comprehensive income (loss):
Gain or loss on change in fair value of available-for-sale financial assets
Gain or loss on foreign exchange in non-monetary available-for-sale financial assets
Gain or loss on overseas business translation
Tax on other comprehensive income
Total comprehensive income
Earnings per share (in Korean won):
Basic earnings per share
Diluted earnings per share

4,144,036(1,836,134)
2,307,902

2011₩

4,148,492(1,752,112)
2,396,380

468,029(334,848)
133,181458,518(258,202)
200,316

3,565,922(3,570,364)(4,442)

3,813,429(3,754,733)
58,696

7,816(12,577)(4,761)

28,379(27,601)
778

238,560(22)
238,538

1,187,304(16)
1,187,288(612,707)(1,470,782)(493,594)(1,395,517)

1,297,202(1,037,441)
259,761
846,690

1,405,398(1,272,626)
132,772
2,087,119

63,657(47,258)
16,399863,089(237,299)

62,436(45,299)
17,137
2,104,256(482,145)₩

625,790₩

1,622,111₩(113,021)(89)(30,931)
27,372(116,669)
509,121₩(606,835)
(25)
5,234
124,440(477,186)
1,144,925

₩
₩

942
942

₩
₩

2,487
2,483

Korea Exchange Bank 2012 Annual Report 157

SEPARATE STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
KOREA EXCHANGE BANKFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In millions of KRW)

Capitalstock
January 1, 2011
Dividends
Balance after appropriations
Net income
Quarterly dividend
Gain or loss on change in fairvalue of available-for-salefinancial assets,
after tax effectGain or loss on overseas
business translation,
after-tax effectGain or loss on foreignexchange in non-monetary
available-for-sale financial
assets, after tax effectDividends on hybrid securities
December 31, 2011

₩ 3,224,534 ₩3,224,534-

January 1, 2012
Net income
Gain or loss on change in fairvalue of available-for-salefinancial assets,
after tax effectGain or loss on overseas
business translation
Gain or loss on foreignexchange in non-monetary
available-for-sale financial
assets, after tax effectDividends on hybrid securities
Stock options
December 31, 2012

CapitalsurplusHybridsecurities

Accumulated
other
Stock
Retained
comprehensive
Total
optionearnings
income- ₩ 4,593,243 ₩ 781,196 ₩ 8,849,685(548,171)(548,171)
4,045,072
781,196
8,301,514
1,622,111
1,622,111(973,809)(973,809)

940 ₩
940
-

249,772 ₩
249,772
-

-

-

-

-

-

(482,014)(482,014)

-

-

-

-

-

4,847

4,847

-

-

-

-

-

(19)

(19)

₩ 3,224,534 ₩

940 ₩

249,772 ₩(18,250)- ₩ 4,675,124 ₩(18,250)304,010 ₩ 8,454,380₩ 3,224,534 ₩
-

940 ₩
-

249,772 ₩-- ₩ 4,675,124 ₩625,790304,010 ₩ 8,454,380
625,790

-

-

-

-

-

(85,670)(85,670)

-

-

-

-

-

(30,931)(30,931)

-

-

-

-

-

(68)

(68)

940 ₩

249,772 ₩₩ 3,224,534 ₩(18,250)40
40 ₩ 5,282,664 ₩(18,250)40
187,341 ₩ 8,945,291

158

SEPARATE STATEMENTS OF CASH FLOWSKOREA EXCHANGE BANKFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In millions of KRW)2012
CASH FLOWS FROM OPERATING ACTIVITIES:Net income
Adjustments to reconcile net income to net cash and cash equivalents
provided by (used in) operating activities:
Income tax expense
Interest income, net
Dividend income
Rental revenues
Gain on valuation of trading securities, net
Gain on valuation of trading bonds, net
Gain on valuation of trading derivatives, net
Loss (gain) on valuation of hedging derivatives, net
Gain on disposal of available-for-sale equity securities, net
Gain on disposal of available-for-sale debt securities, net(Reversal of ) Impairment loss on available-for-sale financial assets, net
Transfer to allowance for possible losses
Salaries
Expenses for fringe benefits
Depreciation and amortization
Loss (gain) on disposal of tangible assets, net
Loss on disposal of investment property
Impairment loss on investment in associates
Loss on disposal of investment in associates
Impairment losses on intangible assets
Retirement allowances
Long-term compensation expense for performance bonus
Reversal of stock-option compensation costs, net
Reversal of provision for acceptances and guarantees
Transfer to (reversal of ) provision for unused credit limit
Transfer to other provisions
Gain on foreign exchange trading, net
Others, net
Changes in operating assets and liabilities:
Net decrease in trading securities
Net decrease (increase) in trading bonds
Net (increase) decrease in trading derivatives assets
Net decrease in hedging derivatives assets
Net increase in loans
Net decrease (increase) in other assets
Net increase in merchant banking account assets
Net increase in deposits
Net increase (decrease) in trading derivative liabilities
Net decrease in hedging derivative liabilities
Payment of severance benefits
Increase in plan assets
Net decrease in other provisions
Net increase in other liabilities₩

625,7902011₩

1,622,111

237,299(2,307,902)(9,059)(3,206)(380)(2)(34,262)
5,517(188,456)(50,082)
15,305597,40296,489
70
73
748
2,074
89,971
33,842(2,453)(3,867)
6,642
18,249(34,989)(4,710)(1,535,687)

482,145(2,396,380)(48,620)(3,208)(418)(234)(64,730)(111)(1,178,248)(9,040)(5,806)499,400
20,4002,100
91,244
(133)
205
1,806
45,151
22,086(4,533)(8,999)(40,690)
11,278(3,132)3,900(2,584,567)

337
288,641(245,906)
711(2,684,997)
984,731(181,134)
1,901,683
340,878(897)(33,486)(74,300)(20,167)
1,716,089

49,044(345,942)
82,147141(2,356,915)(248,622)(960,071)
1,240,274(4,335)(1,614)(71,660)(12,500)(17,386)
691,354

Korea Exchange Bank 2012 Annual Report 159

SEPARATE STATEMENTS OF CASH FLOWS (continued)
KOREA EXCHANGE BANKFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In millions of KRW)2012
Net decrease in merchant banking account liabilities₩

Cash generated from operating activities:
Net cash received for interest income
Net cash received for dividend income
Payment of income tax
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:Cash flows provided by investing activities
Net decrease in restricted due from banks
Net decrease in available-for-sale financial assets
Net decrease in held-to-maturity financial assets
Disposal of tangible assets
Disposal of investment property
Disposal of intangible assets
Cash inflow related to leaseCash flows used in investing activities
Net increase in available-for-sale financial assets
Investments in subsidiaries
Purchase of tangible assets
Purchase of intangible assets
Net increase in guarantee deposits paid
Net cash provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:Net cash flows provided by financing activities
Net increase in bills soldIncrease in borrowings
Increase in debentures
Net cash flows used in financing activities
Net decrease in call money
Net decrease in bills soldNet decrease in bonds sold under repurchase agreements
Decrease in borrowings
Decrease in debentures
Dividends paid
Dividends on hybrid securities
Net cash used in financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, AT THE BEGINNING OF PERIODEFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, AT THE END OF PERIOD₩(224,487)
1,767,696
1,592,954
9,061(578,130)
1,023,885
1,881,684

2011₩(195,197)(2,151,282)
2,555,360
48,623(333,844)
2,270,139(843,599)

1,343,932
309,628
184
271
213
2,199
1,656,427

721,786
530,850
533,164
1,424
3,375
1,790,599(816,452)(19,397)(90,410)(13,298)(8,844)(948,401)
708,026(73,739)(23,835)(19,567)(117,141)
1,673,458

1,855,301
3,286,743
5,142,044

44,2822,331,937
1,893,143
4,269,362(962,275)(33,607)(22,055)(3,328,499)(2,482,774)(18,250)(6,847,460)(1,705,416)
884,2942,688,244(36,719)(98,800)(1,446,894)(1,338,559)(1,521,980)(18,250)(4,461,202)(191,840)
638,019
2,012,935(20,224)

37,2903,552,314₩

2,688,244

160

Organization chart
As of March 31, 2013

7 Groups
10 Departments (Including Compliance)
18 Marketing Support Departments
62 Divisions

General Meeting of Shareholders
Board of Directors

Board of Directors Steering Committee

President & CEO

Risk Management Committee
Audit Committee
Outside Director Candidate Recommendation Committee
Audit Committee Member Candidate Recommendation Committee

Management Committee
Compliance Dept.

Large Corporate Banking Group

Marketing Support Dept.

Retail & Corporate Banking Group

Retail Dept.
PB Dept.
Card Dept.
Marketing Support Dept.

International Banking Group
Global Markets & Treasury Dept.
IB Dept.
Global Products & Services Dept.
Trust Dept.
Service Delivery Dept.
IT Dept.
Credit Group
Risk Management GroupManagement Support Group
Planning & Management GroupKorea Exchange Bank 2012 Annual Report 161

Board of directors & managing directors
As of March 31, 2013

board of directors

Standing Directors

Outside Directors

Yun, Yong Ro

President & CEO

Jang, Myoung Kee

Deputy President

Kim, Joo Song

Chairman

Chun, Jin Suk
Baang, Young Min
Ravi Kumar
Kwon, Young June
Ha, Yong E
Hong, Eun Joo
Han, Ki Jeong

managing directors

Shin, On Song

AuditorChu, Jin Ho

Senior Managing Director, Large Corporate Banking Group

Lee, Woo Kong

Senior Managing Director, Risk Management Group

Shin, Hyun Seung

Senior Managing Director, Retail & Coporate Banking Group

Kwon, Jun Il

Managing Director, PB Department

Bae, Moon Hwan

Managing Director, Trust Department

162

Global Directory
As of March 31, 2013

Financial Institutions
Division

Treasury
Division

Global Head of Financial
Institutions
Cho, In Gyun
Tel: 82-2-729-0432
Fax: 82-2-775-2565

General Manager
Nam, Chang Woo
Tel: 82-2-729-0531

CLS
Senior Manager
Kim, Kwang Hoon
Tel: 82-2-729-8470
Fax: 82-2-775-2565
Clearing Service Manager
Seo, Kyoung Un
Tel: 82-2-729-0511
Fax: 82-2-771-2412
Asia Manager
Hong, Yeon Soo
Tel: 82-2-729-0448
Fax: 82-2-775-2565
Middle East, Eastern Europe
ManagerNoh, Jae Jin
Tel: 82-2-729-0465
Fax: 82-2-775-2565
Korea, Community Banks
Senior Area Manager
Kim, Yong Yun
Tel: 82-2-729-0457
Fax: 82-2-775-2565
Americas, Latin America
Senior Area Manager
Yi, Sung Mun
Tel: 82-2-729-8916
Fax: 82-2-775-2565
Europe, Africa
Senior Area Manager
Kim, Hyun Sik
Tel: 82-2-729-0464
Fax: 82-2-775-2565
Middle East, Turkey, Russia, CIS,
Central and Eastern Europe
FI London Desk
Senior Area Manager
Namgoong, Jeung Kyu
Email: namgoongj@keb.co.kr

Medium & Long-Term
Financing
Head of Foreign Currency
Treasury TeamRoh, Choong Hwan
Tel: 82-2-729-0365
Senior Manager
Kim, Beom Rae
Tel: 82-2-729-0520

Foreign Customer
Division
Foreign Customer Marketing
Team
Team Head
Park, Jong Lim
Tel: 82-2-729-0533
Japan RM
Lee, Sang Min
Tel: 82-2-729-0304
Americas, Asia (ex. Japan) RM
Kim, Mee Sik
Tel: 82-2-729-0288
Europe RM
Lee, Nahm Yon
Tel: 82-2-3671-1153
FDI Center
Center Head
Chang, Sok Hyun
Tel: 82-2-729-0919
FDI Consultant
Kim, Mee Ju
Tel: 82-2-729-0281
FDI Consultant
Yoo, Sinyoung
Tel: 82-2-729-0285
FDI Consultant
Lee, Bo Ram
Tel: 82-2-729-0280

Gangnam FDI Center
Center HeadChoi, Su Hee
Tel: 82-2-3453-7422
FDI Center RM
Nam, Seoung Il
Tel: 82-2-3453-7424
FDI Consultant
Lee, Seul Ki
Tel: 82-2-3453-7423

Investment Banking
Division
IB Department
Head of IB Department
Lee, Jae Hak
Tel: 82-2-729-0108
General Manager of
Investment Banking Div.
Park, Seung Kil
Tel: 82-2-729-0292
Structured Finance Team
Head of Structured
Finance Team
Lee, Hoa Sun
Tel: 82-2-729-0547
Acquisition Finance Team
Head of Acquisition
Finance Team
Woo, Kyong Ho
Tel: 82-2-729-8012
International Finance Team
Head of International
Finance TeamHuh, Myung Wook
Tel: 82-2-729-8036
Infrastructure Finance Team
Head of Infrastructure
Finance Team
Kim, Myung Gyun
Tel: 82-2-729-8020
Real Estate Finance Div.
General Manager ofReal Estate Finance Div.
Choi, Yun Hyun
Tel: 82-2-729-0546

Real Estate Finance Team
Head of Real Estate
Finance TeamChoi, Yun Hyun
Tel: 82-2-729-0546
Real Estate PF Support Team
Head of Real Estate PF
Support Team
Park, Min Ho
Tel: 82-2-729-8544

FX & Derivatives
Trading Division
General Manager
Ha, Jong Soo
Tel: 82-2-729-0472
Head of Derivatives Team
Kim, Eui Keon
Tel: 82-2-729-0948
Chief Dealer
Kim, Doo Hyeon
Tel: 82-2-729-0498
Chief Dealer
Kim, Jin Dong
Tel: 82-2-3671-1025
Head of FX Trading Team
Kim, Gi Back
Tel: 82-2-729-0935
Chief Dealer
Lee, Hang Joon
Tel: 82-2-729-8365

Korea Exchange Bank 2012 Annual Report 163

Overseas Network
As of March 31, 2013

AMERICAs• (KEBOC) Bloor Branch
627 Bloor Street, West Toronto
Ontario M6G 1K8, Canada
Tel: 1-416-533-8593
Fax: 1-416-531-1047• KEB NY Financial Corp.
460 Park Ave. 14th Floor
New York, N.Y.10022 U.S.A.
Tel: 1-212-838-4949
Fax: 1-212-371-5290
kebny@kebus.com• (KEBOC) Thornhill Branch
7670 Yonge Street, Suite 5
Thornhill, Ontario, L4J 1W1,
CanadaTel: 1-905-707-7001
Fax: 1-905-707-0171• KEB USA International Corp.
460 Park Ave. 15th Floor
New York, N.Y.10022 U.S.A.
Tel: 1-212-838-4949
Fax: 1-212-752-8551• (KEBOC) Vancouver-Burnaby
Branch4900 Kingsway Suite 100
Burnaby, B.C., V5H 2E3,
CanadaTel: 1-604-432-1984
Fax: 1-604-432-1964• Banco KEB do Brasil S.A.
Av. Doutor Chucri Zaidan 940,
Market Place, TorreⅡ18 Andar,
Cj.181 Vila Cordeiro
CEP: 04583-110, Sao Paulo, SP.,
BrasilTel: 55-11-5188-1122
Fax: 55-11-5188-1120
kebsp@sagesse.com.br• (KEBOC) Vancouver-Coquitlam
Branch4501 North Road, Suite 202A
Burnaby, B.C., V3N 4R7,
CanadaTel: 1-604-420-0019
Fax: 1-604-420-0066

EUROPE

BRANCHES, SUBSIDIARIES& REPRESENTATIVE OFFICES• KEB LA Financial Corp.
777 South Figueroa Street
Suite 3000
Los Angeles, CA 90017 U.S.A.
Tel: 1-213-683-0830
Fax: 1-213-622-5378
kebla@kebus.com• (NY FinCo.) Atlanta LPO
3473 Satellite Boulevard Suite
No. 101N
Duluth, GA 30096 U.S.A.
Tel: 1-678-584-9922
Fax: 1-678-584-9927• (LA FinCo.) Seattle LPO
31721 Pacific Hwy S Suite B
Federal Way WA 9800 U.S.A
Tel: 1-253-839-6900
Fax: 1-253-0393• (KEBOC) KEB of
Canada Head Office4950 Yonge Street, Suite 1101
Toronto, Ontario M2N 6K1,
CanadaTel: 1-416-222-5200
Fax: 1-416-222-5822
keboc@keb.co.kr• (KEBOC) Main Branch4950 Yonge Street, Suite 103
Toronto, Ontario M2N 6K1,
CanadaTel: 1-416-222-6500
Fax: 1-416-222-5855• (KEBOC) Mississauga Branch
90 Burnhamthorpe Rd.,
West Suite 120, Mississauga
Ontario L5B 3C3, Canada
Tel: 1-905-272-3130
Fax: 1-905-272-3430• (KEBOC) Vancouver-Downtown
Branch590 Robson St., Vancouver, B.C.
V6B 2B7, Canada
Tel: 1-604-609-2700
Fax: 1-604-609-2777• (KEBOC) Calgary Branch1935 37th Street SW, Unit 110
Calgary, Alberta, T3E 3A4,
CanadaTel: 1-403-398-7070
Fax: 1-403-398-1045• Panama Branch
Calle 50, Urbanizacion Obarrio
Edificio Torre Global Bank
No.19, Oficina No.1902
Panama, Republica de Panama(AP 0823-05773)
Tel: 507-340-3360
Fax: 507-340-3359
koexpa@cwp.net.pa• Santiago Representative Office
Av. Nueva Tajamar 481, Office
304, Torre Norte, WTC, Las
Condes, Santiago, Chile
Tel: 56-2-246-9105
Fax: 56-2-946-0171• London Branch
30 Old Jewry, London EC2R
8EB, U.K
Tel: 44-20-7606-0191
Fax: 44-20-7606-9968
kebldn@keb.co.kr• Paris Branch
17-19 Avenue Montaigne, 75008
Paris, France
Tel: 33-1-5367-1200
Fax: 33-1-5367-1234
keb5632@keb.co.kr• Amsterdam Branch
Dr. Willem Dreesweg 2, 1185VB
Amstelveen, the Netherlands
Tel: 31-20-546-9377
Fax: 31-20-546-9399
keb5634@keb.co.kr• Moscow Representative OfficeWorld Trade Center, Ent.3,
Office Building #1308A
Krasnopresnenskaya nab.12
Moscow 123610, Russia
Tel: 7-495-258-2405
Fax: 7-495-258-2407• Korea Exchange Bank
(Deutschland) A.G.
Bockenheimer Landstrasse 51-53
60325 Frankfurt/Main Germany
Tel: 49-69-7129-0
Fax: 49-69-7129-122
mail@koexbank.de• Ostrava Representive Office
3F Axis Office Park Building C
Na Rovince 879
720 00 Ostrava, Czech Republic
Tel: 420-595-700-900~1
Fax: 420-595-700-903

ASIA• Bahrain Branch
5th Floor, Yateem Center Bldg.,
P.O. Box 5767. Manama, Bahrain
Tel: 973-17-229-333
Fax: 973-17-225-327
bahrain@keb.co.kr• Abu Dhabi Branch
P.O.Box:45636 8th Floor,
Office Tower No.3,
Etihad Towers, Al Ras Al Akhdar
Street, Abu Dhabi, United ArabEmirates
Tel: 971-2-681-7188
Fax: 971-2-681-7187• Dubai Representative Office
P.O.Box 14535, Office No.202(Block A) 2nd Floor ConcordeComplex Bldg., Dubai, U.A.E
Tel: 971-4-2281133
Fax: 971-4-2281132
kebdubai@eim.ae• New Delhi Representative
OfficeFlat No. 511, Ansal Bhawan 16,
K.G. Marg. New Delhi 110001,
India
Tel: 91-11-4354-8960
Fax: 91-11-3040-9906

164

Overseas Network
As of March 31, 2013

• Singapore Branch
30 Cecil St., #24-03/08
Prudential Tower, Singapore
049712
Tel: 65-6536-1633
Fax: 65-6538-2522
kebspore@keb.co.kr• Hanoi Branch
14th Floor, Daeha BusinessCenter 360, Kim Ma St., Ba
Dinh Dist., Hanoi, Vietnam
Tel: 84-4-3771-6800
Fax: 84-4-3771-6784
keb5648@keb.co.kr• PT.Bank KEB Indonesia
Wisma GKBI 20th Fl., Suite 2002,
Jalan Jenderal Sudirman No.28
P.O. Box 2317 Jakarta 10210,
Indonesia
Tel: 62-21-574-1030
Fax: 62-21-574-1031
kebi@cbn.net.id• Ho Chi Minh City
Representative Office
Unit 1209, 12th floor Diamond
Plaza, 34 Le Duan St. Dist.1,
Ho Chi Minh City, Vietnam
Tel: 84-8-3827-4273
Fax: 84-8-3827-4281• PT.Bank KEB Indonesia(Cikarang Sub-Branch)
Menara Pacific 1st Floor J1.
M.H. Thamrin, No 107, Lippo
Cikarang Bekasi, Indonesia
Tel: 62-21-897-3340
Fax: 62-21-897-3341

china• PT.Bank KEB Indonesia(Kelapa Gading Sub-Branch)
Graha Rekso Building,Ground Floor, Suite GR-W03
JL.Bulevar Artha Gaging Kav.
A1, Sentra Bisnis Artha Gading
Kelapa Gading,
Jakarta 14240 Indonesia
Tel: 62-21-4585-6388
Fax: 62-21-4585-6389• KEB Australia Ltd.
Suite 902, Level 9, The Chifley
Tower, 2 Chifley Square,
Sydney NSW 2000, Australia
P.O.Box N595 Grosvenor Place
NSW 1220
Tel: 61-2-9231-6333
Fax: 61-2-9233-3566
admin@keba.com.au• Manila Branch
21st Fl. Zuellig Bldg,Makati
AVE., Cor.Paseo de Roxas Makati
City, Philippines
Tel: 63-2-848-1988
Fax: 63-2-848-1776
kebmanila@keb.co.kr• Hong Kong Branch
32 Fl., Far East Finance Centre,
16 Harcourt Road, Hong Kong,
China
Tel: 852-2520-1221
Fax: 852-2861-2379
kebhk@pacific.net.hk• Kowloon(Hong Kong Sub-Branch)
Room 1205, Energy Plaza,
92 Granville Road, Tsim Sha Tsui
East, Kowloon, Hong Kong
Tel: 852-2369-2131
Fax: 852-2311-0390• KEB Bank (China) Co., Ltd.
Floor 5, Huaqiao Bldg. No.92-1
Nanjing Road, Heping District,Tianjin city 300042, China
Tel: 86-22-2330-7800
Fax: 86-22-2330-7103• Beijing Branch#510, Henderson Center, OfficeTower 2, 18 Jianguomennei
Avenue, Beijing 100005, China
Tel: 86-10-6518-3101
Fax: 86-10-6518-3106
koexcnbj@mx.cei.gov.cn• Wangjing(Beijing Sub-Branch)
Room A212-213 Wangjing
International Business Center,No.9 Wangjing St. Chaoyang
District, Beijing 100102, China
Tel: 86-10-5920-3780
Fax: 86-10-5920-3787• Shanghai Branch
17F. Pufa Tower, No 588,
Pudong South Road, Pudong
New District, Shanghai 200120,
China
Tel: 86-21-5882-5998
Fax: 86-21-5882-8743
kebcnsh@mail.online.sh.cn• Wudaokou(Beijing Sub-Branch)
Beijing U-Center #101, 28
Chengfulu Road, Haidian
District, Beijing 100083, China
Tel: 86-10-6266-6710
Fax: 86-10-6266-6715• KEB Tianjin(Booking Br.)Area B, 5th Floor, Huaqiao
Bldg., Nanjing Road No. 92-1,
Heping District, Tianjin, China
Tel: 86-22-2339-1375
Fax: 86-22-2339-9023• Tianjin Branch
1st Floor, Huaqiao Bldg. No.
92-1, Nanjing Road, Heping
District, Tianjin 300042 China
Tel: 86-22-2319-2595
Fax: 86-22-2319-2594
kebcntj@public.tpt.tj.cn• KEB Asia Finance Limited(KAF)
Suites 1001-04 Level 10,
One Pacific Place, 88
Queensway, Hong Kong
Tel: 852-3589-7500
Fax: 852-2865-4746• Binhai(Tianjin Sub-Branch)
No. E-7B-108, Binhai Financial
Service Zone, No.20,
Guangchangdong Road,
TEDA, Tianjin, China 300457
Tel: 86-22-5981-1155
Fax: 86-22-5981-1154• Dalian Branch
25th Fl., World Trade Center,No.25 Tongxing Road,
Zhongshan District, Dalian,
China
Tel: 86-411-8253-1988
Fax: 86-411-8281-6150
kebdlcn@mail.dlptt.in.cn• Dalian Kaifaqu Sub-Branch
1F, 2F Shiyuan International
Building, No. 156, Jinma Road,
Development Zone, Dalian,
China
Tel: 86-411-8755-9000
Fax: 86-411-8796-2758

japan• Tokyo Branch
The Shinkokusai Bldg., 4-1,
Marunouchi 3-Chome,
Chiyoda-ku, Tokyo, Japan
Tel: 81-3-3216-3561
Fax: 81-3-3214-4491
kebtkcom@cb.mbn.or.jp• Shinjuku(Tokyo Sub-Branch)
Senzaki Bldg. 1F., 1-1-2,
Hyakunin-chou, Shinjuku-ku,
Tokyo, Japan
Tel: 81-3-3208-5211
Fax: 81-3-3208-5260• Osaka Branch
Yodoyabashi Mitsui Bldg. 4F,
1-1, Imabashi 4-Chome,
Chuo-ku, Osaka, Japan
Tel: 81-6-6630-2600
Fax: 81-6-6630-2806
kebosaka@helen.ocn.ne.jp

Korea Exchange Bank 2012 Annual Report 165

domestic Network
As of April 30, 2013

HEAD OFFICE

181, Euljiro 2-ga, Jung-gu, C.P.O Box 2924, Seoul 100-793, Korea
Tel: 82-1544-3000

Number of branches

357

subsidiaries• KEB Capital Inc.
10F Hanwi Building, 70 Da-dong, Jung-gu, Seoul 100-180, Korea
Tel: 82-2-3708-2114~5
Fax: 82-2-756-5269
http://www.kebcapital.co.kr• KEB Futures Co., Ltd.
11F Yuhwa Building, 23-7 Yeouido-dong, Yeungdeungpo-gu, Seoul
150-378, Korea
Tel: 82-2-3770-4100
Fax: 82-2-3770-4147
http://www.kebf.com• KEB Investors Service Company
9F Hanwi Building, 70 Da-dong, Jung-gu, Seoul 100-180, Korea
Tel: 82-2-6714-4615
Fax: 82-2-6714-4800

181, Euljiro 2-ga, Jung-gu, C.P.O. Box 2924, Seoul 100-793, Korea
Tel. 82-1544-3000

www.keb.co.kr